<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11160
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2617871
- - ------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
2121 San Jacinto Street
Suite 2500, L. B. 31
Dallas, Texas 75201
- - ------------------------------- ---------------------
(Address of principal executive (Zip Code)
offices)
(Registrant's telephone number, including area code) (214) 953-4500
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X . No. .
----- -----
At November 13, 1998, 22,039,455 shares of Common Stock, par value $.25, of the
Registrant were outstanding.
Page 1 of 44
Exhibit Index Appears on Page 44
<PAGE>
INTRODUCTION
On July 30, 1998, the Board of Directors of Global Industrial Technologies, Inc.
(the "Company") voted to change the Company's annual fiscal accounting period
from October 31, 1997 to December 31, 1997. Accordingly, under the new fiscal
year calendar, the Company's quarters are each comprised of three calendar
months ending March 31, June 30, September 30, and December 31. Formerly, the
Company's fiscal quarters were each comprised of the three calendar months
ending January 31, April 30, July 31 and October 31. In accordance with SEC
rules and regulations, on September 14, 1998, the Company filed a report on Form
10-Q/T, presenting the results of operations for the two-month periods ended
December 31, 1997 (the "Transition Period") and the comparative period ended
December 31, 1996. The report filed herein represents the Company's first
required periodic report since the date of change in year end.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1 Management's Representation 3
Consolidated Condensed Statements of Earnings for the three
and nine months ended September 30, 1998 and July 31, 1997 4
Consolidated Condensed Statement of Earnings for the two months
ended June 30, 1998 5
Consolidated Condensed Balance Sheets as of
September 30, 1998 and October 31, 1997 6-7
Consolidated Condensed Statements of Cash Flows
for the nine months ended September 30, 1998 and July 31, 1997 8
Notes to Consolidated Condensed Financial Statements 9-24
Item 2 Management's Discussion and Analysis 25-40
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 41
Item 5 Other information 41
Item 6 Exhibit Index 41-43
Signature 44
2
<PAGE>
PART I
FINANCIAL INFORMATION
MANAGEMENT'S REPRESENTATION
The consolidated condensed financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed. The Company believes that the
disclosures are adequate to make the information presented not misleading.
These consolidated condensed financial statements should be read in conjunction
with the financial statements and the notes to consolidated financial statements
included in the Annual Report, Form 10-K for the fiscal year ended October 31,
1997.
In the opinion of the Company, all adjustments have been included that were
necessary to present fairly the financial position of Global Industrial
Technologies, Inc. and subsidiaries as of September 30, 1998; the results of
operations for the two months ended June 30, 1998; the three and nine months
ended September 30, 1998 and July 31, 1997; and cash flows for the nine months
ended September 30, 1998 and July 31, 1997, respectively.
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, July 31, September 30, July 31,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Net sales and operating revenues $ 169.0 $ 126.0 $ 413.6 $ 359.4
Other 0.5 0.4 1.5 1.0
------------ ------------ ------------ ------------
Total Revenues 169.5 126.4 415.1 360.4
------------ ------------ ------------ ------------
Costs and Expenses
Cost of sales 143.7 96.8 335.7 270.4
Selling, engineering, administrative and
general expenses 35.6 22.3 80.8 66.1
Interest expense 6.2 2.7 10.7 7.8
Special charges 23.0 43.5
Restructuring charges 31.0 31.7
Impairment of long lived assets 23.3 23.3
Other - net 1.0 0.1 4.3 (0.5)
------------ ------------ ------------ ------------
Total Costs and Expenses 240.8 144.9 486.5 387.3
------------ ------------ ------------ ------------
Loss from continuing operations
before income taxes (71.3) (18.5) (71.4) (26.9)
Income tax benefit 26.8 0.6 27.4 2.8
------------ ------------ ------------ ------------
Loss from continuing operations (44.5) (17.9) (44.0) (24.1)
Discontinued operations:
Earnings (loss) from discontinued operations less applicable
income taxes of $.8, $1.1, $1.9 and $2.8 (0.8) 3.5 2.8 8.5
Gain (loss) on disposal of discontinued operations
less applicable income taxes of $9.2 and $49.4 (9.2) 76.9
------------ ------------ ------------ ------------
Net earnings (loss) $ (54.5) $ (14.4) $ 35.7 $ (15.6)
============ ============ ============ ============
Basic earnings (loss) per common share:
Continuing operations $ (2.02) $ (0.80) $ (2.00) $ (1.07)
============ ============ ============ ============
Discontinued operations $ (0.45) $ 0.16 $ 3.62 $ 0.38
============ ============ ============ ============
Net earnings (loss) $ (2.47) $ (0.64) $ 1.62 $ (0.69)
============ ============ ============ ============
Diluted earnings (loss) per common share:
Continuing operations $ (2.02) $ (0.80) $ (2.00) $ (1.07)
============ ============ ============ ============
Discontinued operations $ (0.45) $ 0.16 $ 3.62 $ 0.38
============ ============ ============ ============
Net earnings (loss) $ (2.47) $ (0.64) $ 1.62 $ (0.69)
============ ============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
4
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions except per share data)
Two months ended
----------------
June 30, 1998
----------
(Unaudited)
Revenues
Net sales and operating revenues $ 82.4
Other 0.5
----------
Total Revenues 82.9
----------
Costs and Expenses
Cost of sales 65.3
Selling, engineering, administrative and
general expenses 17.1
Interest expense 1.3
Special charges
Restructuring charges 0.7
Impairment of long lived assets
Other - net 0.2
----------
Total Costs and Expenses 84.6
----------
Loss from continuing operations
before income taxes (1.7)
Income tax benefit 0.9
----------
Loss from continuing operations (0.8)
Discontinued operations:
Earnings (loss) from discontinued operations --
Gain (loss) on disposal of discontinued operations --
----------
Net earnings (loss) $ (0.8)
==========
Basic earnings (loss) per common share:
Continuing operations $ (0.04)
==========
Discontinued operations $ --
==========
Net earnings (loss) $ (0.04)
==========
Diluted earnings (loss) per common share:
Continuing operations $ (0.04)
==========
Discontinued operations $ --
==========
Net earnings (loss) $ (0.04)
==========
See accompanying Notes to Consolidated Condensed Financial Statements
5
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
ASSETS September 30, 1998 October 31, 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 23.7 $ 14.9
Notes and accounts receivable
Public 153.7 92.7
Unconsolidated affiliates 0.2 5.1
--------------- ---------------
153.9 97.8
Less allowance for doubtful accounts 7.2 3.2
--------------- ---------------
146.7 94.6
Inventories
Finished products and work in process 92.6 36.7
Raw materials and supplies 78.1 40.3
--------------- ---------------
170.7 77.0
--------------- ---------------
Deferred income taxes 44.3 56.1
Assets held for sale 7.3 66.2
Asbestos insurance recoveries receivable 112.6 65.1
Prepaid expenses 7.8 3.6
--------------- ---------------
Total Current Assets 513.1 377.5
Investments in unconsolidated affiliates 4.3 5.1
Noncurrent deferred income taxes 36.4 28.7
Goodwill - net 62.8 56.3
Noncurrent asbestos insurance receivable 208.4 51.3
Other assets 63.4 39.0
Property, plant and equipment - at cost
Land, land improvements and mineral deposits 50.4 33.3
Buildings 126.8 74.4
Machinery and equipment 464.2 317.3
--------------- ---------------
641.4 425.0
Less accumulated depreciation, depletion and amortization 220.8 201.0
--------------- ---------------
Total properties - net 420.6 224.0
--------------- ---------------
Total assets $ 1,309.0 $ 781.9
=============== ===============
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
6
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY September 30, 1998 October 31, 1997
- - ------------------------------------ ------------------ ----------------
(Unaudited)
<S> <C> <C>
Current Liabilities
Accounts payable $ 60.3 $ 42.6
Notes payable and current portion of long-term debt 15.4 47.2
Advances from customers on contracts 1.7 5.0
Accrued compensation and benefits 21.5 21.6
Insurance reserves 14.1 10.6
Income taxes currently payable 10.7 9.0
Current deferred income taxes 15.3 14.1
Asbestos related liabilites 98.8 56.9
Other accrued liabilities 67.4 13.3
------------ ------------
Total Current Liabilities 305.2 220.3
Long-term debt 355.7 151.8
Pension plans and other retiree benefits 66.5 47.6
Noncurrent deferred income taxes 51.4 17.0
Noncurrent asbestos related liabilities 208.9 56.8
Other liabilities 15.8 4.3
Shareholders' equity
Common stock 6.8 6.8
Capital in excess of par value 381.5 382.1
Retained earnings 53.7 25.5
Cumulative translation adjustment (57.2) (50.3)
Treasury stock, at cost (73.7) (73.7)
Other (5.6) (6.3)
------------ ------------
Total Shareholders' Equity 305.5 284.1
------------ ------------
Total Liabilities and Shareholders' Equity $ 1,309.0 $ 781.9
============ ============
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
7
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Nine months ended
September 30, July 31,
----------------------------
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 35.7 $ (15.6)
Adjustments to reconcile net earnings to cash flow
Depreciation, depletion and amortization 21.9 16.8
Equity in loss of unconsolidated affiliate 1.2
Gain on sale of discontinued operations (126.3)
Restructuring charges and asset impairments 59.5
Special charges 43.5
Changes in assets and liabilities net of effects of
acquisitions and divestitures:
Increase in assets held for sale (2.6) (5.7)
Decrease in receivables 19.7 13.1
Increase in inventories (18.7) (5.6)
Increase in asbestos insurance recoveries receivable (16.2) (5.9)
Decrease in accrued compensation (7.3) (10.8)
Decrease in accounts payable and accrued liabilities (16.9) (16.1)
Increase in advances from customers 0.7 1.5
Decrease in income taxes payable (18.5) (3.7)
Other - net 4.8 (6.1)
------------ ------------
Net cash (used) provided by operating activities (63.0) 5.4
------------ ------------
Cash flows from investing activities
Proceeds from sale of discontinued operations 229.5
Business acquisitions (203.2) (12.8)
Business disposals 1.7
Proceeds from sale of interest in joint venture 15.9
Capital expenditures (46.1) (47.6)
------------ ------------
Net cash used by investing activities (19.8) (42.8)
------------ ------------
Cash flows from financing activities
Proceeds from borrowings 245.3 41.8
Reduction of debt (156.0) (1.4)
Options exercised under employee benefit plans 1.8 1.1
Purchase of common shares (0.3) (6.7)
------------ ------------
Net cash provided by financing activities 90.8 34.8
------------ ------------
Effect of translation adjustments on cash (0.2) (0.1)
------------ ------------
Net increase (decrease) in cash and cash equivalents 7.8 (2.7)
Cash and cash equivalents, beginning of period 15.9 11.5
------------ ------------
Cash and cash equivalents, end of period 23.7 8.8
============ ============
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
8
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE A - INTRODUCTION AND BASIS OF PRESENTATION
The accompanying consolidated condensed interim financial statements include the
accounts of Global Industrial Technologies, Inc. together with its subsidiaries
and unconsolidated joint ventures (collectively referred to herein as the
"Company"). The Company conducts its business in five segments: Refractory
Products, Industrial Lime, Minerals, Specialty Equipment Products and Forged
Products.
As more fully discussed in Note C below, the Company completed its acquisition
of A.P. Green Industries, Inc. during the third quarter of 1998, and its results
of operations have been consolidated with those of the Company effective July 1,
1998.
The Consolidated Financial Statements, and the notes thereto, have been restated
to reflect the Company's Industrial Tool business segment that was sold on
March 12, 1998 as a discontinued operation. Certain prior year amounts have also
been restated to conform to the current year presentation. See Note B -
"Discontinued Operations" for more information.
On July 30, 1998, the Company's Board of Directors voted to change the Company's
annual fiscal accounting period from October 31, 1997 to December 31, 1997.
Accordingly, the accompanying consolidated condensed financial statements
present the three and nine month periods ended September 30, 1998. The
comparative periods under the old fiscal year presented herein are the three and
nine month periods ended July 31, 1997.
NOTE B - DISCONTINUED OPERATIONS
On March 12, 1998, the Company sold the Industrial Tool segment, including the
common stock of INTOOL, Incorporated (the U.S. subsidiary operating in this
segment) and the assets of Industrial Tool operations in Canada, Mexico, the
Netherlands and Germany, for cash consideration of $229.2 million, including
certain postclosing adjustments. The Industrial Tool segment manufactures and
sells a product line of high-quality pneumatic and electric tools for industrial
applications, including assembly and material removal. Revenues of the
Industrial Tool segment were $24.3 million for the period from January 1, 1998
to March 12, 1998 and $28.7 million and $80.6 million for the three and nine
month periods ended July 31, 1997, respectively.
In connection with the sale of the Industrial Tool segment, the Company retained
certain pension and postretirement benefits. The Company also retained
liability for certain legal claims, primarily for known claims of alleged
hearing loss and other injuries associated with the use of the Company's
products, and for one-half of any such additional claims made during the five-
year period following the closing date. See description of these claims in Note
H to Consolidated Financial Statements in the Company's Annual Report on Form
10-K for the "old" fiscal year ended October 31, 1997.
9
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The assets and liabilities of the Industrial Tool segment have been netted and
presented in the current asset section as a single line item titled "Assets Held
for Sale" in the accompanying Consolidated Condensed Balance Sheet at October
31, 1997. A summary of these amounts is as follows:
<TABLE>
<CAPTION>
October 31, 1997
---------------------
<S> <C>
Assets
Notes and accounts receivable-public $21.1
Inventories 23.7
Goodwill-net 24.1
Other assets 3.4
Net property, plant and equipment 19.0
-----
Total Assets 91.3
=====
Liabilities
Accounts payable 3.7
Income taxes payable 4.6
Other accrued liabilities 9.0
Pension plans and other retiree benefits 7.8
-----
Total Liabilities 25.1
=====
Net Assets Held for Sale $66.2
=====
</TABLE>
10
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE C - ACQUISITION OF A.P. GREEN INDUSTRIES, INC.
As discussed in its filings on Form 8-K and Form 8-K/A, filed with the
Securities and Exchange Commission on July 9, 1998, and September 14, 1998,
respectively, Global Industrial Technologies, Inc. and its wholly owned
subsidiary, BGN Acquisition Corp. (collectively referred to herein as the
"Company") acquired all of the outstanding shares of common stock of A.P. Green
Industries, Inc. ("Green") effective July 1, 1998. The purchase was effected
through a public tender offer for Green's outstanding common stock at an
offering price of $22.00 per share and resulted in a total net cash purchase
price of approximately $203 million (net of $2.4 million in cash acquired),
including approximately $28 million in other direct transaction costs such as
severance and other change-in-control benefits, and accounting, legal and
investment banking fees. The purchase price was funded through cash on hand,
issuance of the Senior Notes (as defined in Note J - INDEBTEDNESS), and unused
lines of credit. The Company has accounted for the acquisition as a purchase,
and, accordingly, the results of operations of Green have been consolidated with
those of the Company as of July 1, 1998.
Green, together with its subsidiaries, conducts its business primarily in two
business segments, Refractory Products and Industrial Lime.
The net purchase price has been preliminarily allocated to the assets and
liabilities of Green based on their estimated respective fair market values at
the acquisition date. Fair market value of the acquired property, plant and
equipment and net pension assets was determined by independent third parties.
The excess of purchase price over the fair market value of net assets acquired
was assigned to goodwill, and is being amortized on a straight-line basis over
40 years. The resulting goodwill, along with related amortization, has been
allocated entirely to the Industrial Lime segment, based on an assessment of
fair market value of Green's individual business units. The net purchase price
has been preliminarily allocated as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 54.0
Inventory 67.0
Other current assets (including asbestos recoveries) 55.0
Property, plant and equipment 163.5
Projected insurance recovery on asbestos claims 164.2
Goodwill 28.0
Other non-current assets 28.5
-----------
Total assets (excluding cash acquired) 560.2
-----------
Accounts payable and accrued expenses 45.9
Other current liabilities (including asbestos claims) 52.6
Projected asbestos claims 164.2
Other non-current liabilities 94.3
-----------
Total liabilities 357.0
-----------
Net cash purchase price $ 203.2
===========
</TABLE>
11
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The allocated purchase price includes a current liability of approximately $16.0
million, which represents the Company's estimate of direct expenditures to be
incurred in connection with the consolidation and integration of certain Green
corporate functions and manufacturing facilities. Management's plans encompass
the elimination of certain historical expenses of Green and the Company,
particularly salary, benefits and various other associated direct overhead costs
related primarily to the manufacturing, executive, legal, accounting, tax,
engineering, sales and marketing functions. Such costs reflect the actual or
planned closure and/or sale of seven of Green's manufacturing facilities and the
termination of approximately 334 employees. The reserve includes charges for
severance, employee relocation costs, and other employee termination payments;
site restoration and other environmental exit costs; various contract
termination costs; and other costs directly associated with the consolidation
and integration activities. As of September 30, 1998, approximately $1.3 million
had been paid and charged against the reserve (primarily representing
severance benefits). The liability has been established in accordance with the
provisions of the Emerging Issues Task Force Release #95-3 (EITF 95-3),
"Recognition of Liabilities in Connection with a Purchase Business Combination,"
and contains estimates of costs under the current plan which, although
continually being refined, is expected to be completed within one year of the
acquisition date. The reserve discussed herein does not include those
expenditures expected to result from reductions of the Company's own workforce
and closing of duplicative Company facilities, as more fully described in NOTE
G - "Restructuring Charges" below.
The following summarized unaudited pro forma financial information for the nine
month periods ended September 30, 1998 and July 31, 1997 assumes that the
acquisition of Green occurred on November 1, 1996. The information reflects the
historical results of operations of the Company for the nine month periods ended
September 30, 1998 and July 31, 1997, respectively. The 1997 period of Green
included herein reflects the nine month period ended September 30, 1997.
The summarized unaudited pro forma financial information reflects the historical
financial statements of the Company and Green, and utilizes assumptions and
adjustments similar to those described in the Notes to Unaudited Pro Forma
Financial Information, as filed with the Securities and Exchange Commission on
Form 8K/A on September 14, 1998. Such summarized unaudited pro forma financial
information is shown for illustrative purposes only and is not necessarily
indicative of the future financial position or future results of operations of
the Company, or of the financial position or results of operations of the
Company that would have actually occurred had the transaction been in effect as
of the date or for the periods presented. Amounts are in millions, except per
share figures.
12
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------------
9/30/98 7/31/97
----------------------------------------------
<S> <C> <C>
Net sales $ 549.8 $ 567.8
Loss from continuing operations* (43.0) (17.4)
Loss per share:
Basic* (1.96) (.77)
Diluted* (1.96) (.77)
</TABLE>
* Note, pro forma net income (including discontinued operations) has been
omitted from this presentation since, in the opinion of management, its
inclusion would be misleading. This is due to the fact that, but for the sale
of the discontinued Industrial Tool operations, liquidity factors would most
likely have prevented the Company's acquisition of Green.
NOTE D - INVENTORIES
The determination of inventory values and cost of sales under the LIFO method
for interim financial results are based on management's estimates of expected
year-end inventory levels and prices.
NOTE E - CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-
Up Activities." SOP 98-5 provides guidance on financial reporting for start-up
costs, including organization costs, and requires that such costs be expensed as
incurred. SOP 98-5 is effective for all fiscal years beginning after December
15, 1998, with early adoption encouraged. With few exceptions, initial
application of SOP 98-5 is to be reported as the cumulative effect of a change
in accounting principle. During the third quarter of 1998, the Company elected
to apply the provisions of this SOP, which has been applied to start up costs
incurred in prior years. Accordingly, the $6.3 million cumulative effect on
prior years (after reduction for income taxes of $2.1 million) has been included
in net income of the Transition Period. This resulted in an adjustment to
beginning retained earnings as of September 30, 1998, and will be reflected in
net income of the Transition Period when those financial statements are
subsequently presented in the Company's 1998 annual report on Form 10-K. The
effect of the change (representing the charge
13
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
off of current period additions and the reversal of previously recorded
amortization) on the nine month period ended September 30, 1998 was
to decrease income from continuing operations by $404,000 ($.02 per share). The
effect of the change was not material to the Company's consolidated results of
operations for any individual period previously reported or contained herein.
14
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE F - IMPAIRMENT OF LONG-LIVED ASSETS (INCLUDING GOODWILL)
During the third quarter of 1998, the Company recognized a pre-tax impairment
loss of $23.3 million reflecting management's estimates that actual operating
cash flows will be insufficient to recover the carrying amount of certain long-
lived assets (including goodwill). The loss, which is presented under the
caption titled "Impairment of long-lived assets" on the accompanying
consolidated condensed statements of operations, primarily represents an
impairment of goodwill generated in the 1996 acquisition of Corrosion
Technologies International, Inc. ("CTI") ($22.0 million) and the write down of
the carrying amounts of various permanently idled machinery and equipment at the
Company's Harbison-Walker Refractories division ($1.3 million).
Continued depressed copper, zinc and nickel prices, the apparent ongoing
financial crisis in the Asia-Pacific region and additional market knowledge
gained through CTI's alliance with Anticorrosivos Industriales Ltd. ("ANCOR")
have caused the Company to reassess the carrying value of long lived assets
(primarily goodwill) at CTI. Pursuant to SFAS #121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," the
Company compared the sum of the estimated expected future cash flows
(undiscounted and without interest) of CTI to the carrying amount of such assets
(primarily goodwill), which was determined to be less. Accordingly, an
impairment loss was recognized for the excess of the carrying amount of the
impaired assets over their respective fair market values. Estimated fair market
value was based on the expected future cash flows from the use of these assets,
discounted at a rate commensurate with the risks involved. The impairment loss
recognized was allocated entirely to goodwill, resulting in a remaining net
carrying value of goodwill of approximately $14 million at September 30, 1998.
15
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE G - RESTRUCTURING CHARGES
During the two and three month periods ended June 30 and September 30, 1998,
the Company recognized pre-tax charges of $.7 million and $34.8 million ($3.8
million of which has been recorded as a component of cost of sales, during the
third quarter of 1998), respectively, to reorganize and restructure its current
organization. The restructuring consisted primarily of three parts: (i) the
merging and integration of operations of the Company and Green, (ii) the
termination of a joint venture and (iii) charges pertaining to the consolidation
and integration of CTI into Harbison-Walker Refractories Company.
Concurrent with the acquisition of Green, management initiated plans to
consolidate and integrate the operations of both companies through workforce
reductions and the closure of duplicative facilities. During the third quarter
of 1998, the Company announced the closure of three former Harbison-Walker
manufacturing facilities, including the termination of approximately 260
employees and, as a result, recorded a $21.1 million charge. Amounts contained
within the restructuring include charges for severance (both statutory and
contractual), pension plan curtailment losses and other employee termination
payments ($7.0 million); adjustments to reflect affected property, plant and
equipment at their estimated fair value (less costs to sell), and site
restoration costs ($8.1 million); adjustments to reflect inventory of
discontinued product lines at estimated net realizable value ($2.2 million,
charged to cost of sales); and other estimated holding costs of vacated
facilities and contract terminations ($3.8 million).
In addition, during the third quarter, the Company decided to terminate a 50%
owned joint venture and is in the process of closing Harbison-Walkers' Eufala,
Alabama facility, which housed its operations. The venture had produced calcium
aluminates (as slag conditioners for the steel industry) and lightweight
refractory grains, which were not sufficiently accepted by potential customers,
one of whom, for other reasons, cancelled a significant amount of outstanding
orders. As a result, an $11.5 million charge was recorded during the third
quarter of 1998, which included the write down of the Company's investment in,
and net receivable from, the joint venture ($7.1 million); severance, pension
plan curtailment loss and other payments resulting from the termination of
approximately 25 employees ($0.9 million); write down of Company-owned
property, plant and equipment utilized solely by the joint venture to their
estimated fair values (less costs to sell), and site restoration costs ($1.2
million); adjustments to reflect Company-owned inventory of discontinued product
lines at estimated net realizable value ($1.6 million, charged to cost of
sales); and various other exit costs, including contract termination penalties
($0.7 million).
Management has also finalized plans to consolidate the manufacturing and
administrative functions of CTI with those of Harbison-Walker. The move is
being made in an effort to reduce costs and improve productivity and asset
utilization by eliminating duplicative functions and taking advantage of
existing facilities' excess capacity. Consequently, the Company recognized
16
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GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
a charge of $2.9 million during the nine month period ended September 30, 1998,
$2.2 million of which was recorded during the third quarter; the remaining $0.7
million had been charged to earnings during the two month period ended June 30,
1998. The charge consisted primarily of employee severance and contract
termination costs.
The aforementioned charges are reflected in the accompanying consolidated
condensed statement of operations under the caption "Restructuring Charges,"
with the exception of $3.8 million of inventory write-downs, which are included
in cost of sales. Approximately $19.6 million of the charge has been recorded
as a reduction in the carrying value of the respective assets, $3.0 million has
been recorded as an increase to long-term pension liabilities, and $12.1 million
(net of approximately $0.8 million in payments, as of September 30, 1998),
representing other future cash expenditures, is reflected as an other current
liability in the accompanying consolidated condensed balance sheets. Management
expects to complete all parts of the restructuring plans by the end of the third
quarter of 1999, with the majority of cash expenditures to occur during the
fourth quarter of 1998 and first quarter of 1999. Given the nature of the costs
reflected herein, increases or decreases may be necessary throughout the tenure
of the Company's restructuring plans. Any such changes will be reflected in the
statement of operations as incurred, and classified in the manner discussed
above.
The Company is also estimating that approximately $8.2 million of additional
cash expenditures associated with these restructurings will be incurred,
primarily in the fourth quarter of 1998. These incremental costs will benefit
future operations and, therefore, do not qualify for accrual at September 30,
1998. Approximately $3.7 million (pre-tax) will be charged to earnings as
incurred, with the remainder recorded as an increase to property, plant and
equipment. These additional costs consist primarily of equipment repairs, and
removal, transportation and re-installation and other capital expenditures
associated with relocating machinery and equipment to continuing manufacturing
facilities.
NOTE H - CONTINGENCIES
Products Liability Claims
The Company is one of several defendants in lawsuits pending in state courts in
Mississippi, Texas, West Virginia, and Connecticut in which the plaintiffs
allege that they incurred hearing losses and other injuries due to their
operation of pneumatic and electrical hand tools manufactured by the defendants
and used at job sites controlled by customers of the defendants (Tool Claims).
Approximately 3,600 of these plaintiffs allege that they incurred hearing losses
and 1,800 allege carpal tunnel syndrome and vibration injury. In June and
October 1998, the hearing loss and carpal tunnel claims of approximately 5,150
of these plaintiffs were settled for amounts not in excess of recorded reserves.
Upon implementation of the agreement relating to these settlements, 5,150 of
the pending Tool Claims in Connecticut and Mississippi will be dismissed,
leaving approximately 250 unresolved claims.
A.P. Green Industries, Inc. and Harbison-Walker Refractories Company, both
wholly-owned subsidiaries of the Company (Green and H-W), once manufactured and
sold certain types of refractory products that contained small quantities of
asbestos fiber. They are among numerous companies named as defendants in
lawsuits in which the plaintiffs, most of whom worked for customers of the
defendants, allege injuries due to exposure to asbestos-containing products
(Asbestos Claims). At September 30, 1998, there were approximately 87,450
unresolved Asbestos Claims pending against Green (Green Claims) and 42,000
against H-W (H-W Claims), and approximately 4,000 Green Claims and 58,500 H-W
Claims that were subject to settlement agreements.
The Company has recorded an accrual of approximately $307.7 million for Asbestos
Claims pending as of September 30, 1998, of which $184.5 million relates to
Green Claims and $123.2 million to H-W Claims, and separately recorded an asset
of $321.0 million, of which $184.5 million relates to Green Claims and $136.5
million to H-W Claims, which is the portion of such accrual that is expected to
be recovered over time from insurance. The accrued liability represents an
estimate of the probable fees, expenses and liability of Green and H-W for all
pending Asbestos Claims, both resolved and unresolved.
Green is a member of the Center for Claims Resolution (the Center), an
organization of twenty companies (Members) who were formerly distributors or
manufacturers of asbestos-containing products. The Center administers,
evaluates, settles, pays and defends all of the asbestos-related personal injury
lawsuits involving its Members. Under the terms of the Center Agreement, each
Member's portion of the liability payments and defense costs incurred on behalf
of the Members by the Center are based upon, among other things, the number of
claims brought against it and the occupations of the claimants.
Certain insurance policies issued to Green prior to its acquisition by the
Company provide coverage for a portion of amounts paid to defend and settle
Asbestos Claims against Green. The extent and timing of reimbursement under such
insurance policies are and will be dependent upon such factors as: the existence
and terms of agreements regarding apportionment among the insurers of payments
in respect to Asbestos Claims; solvency of the insurers; and policy limits for
individual years of coverage and exhaustion thereof by Asbestos Claims against
Green and The E.J Bartells Company, a former subsidiary of Green. The issuers
of these policies historically have paid approximately 100 percent of the fees,
expenses and indemnity payments incurred by Green for Asbestos Claims.
Estimated fees, expenses and liability for HW Claims are based upon: the number
of pending H-W Claims; the historical percentage of H-W Claims dismissed; H-W's
historical average settlement payment per undismissed claim; the projected aging
of H-W Claims; and the average monthly defense cost per unresolved claim. The
partially offsetting asset reflects management's belief that such amount is
recoverable under such policies in respect of the accrued H-W liability. H-W has
reached an agreement in principle with insurers that issued approximately 60
percent of the excess coverage for H-W Claims regarding, among other matters,
events which trigger such coverage, allocation of payments for indemnity and
defense among the parties, and retroactive application of such understandings to
past payments by H-W. H-W is also negotiating similar arrangements with other
issuers of its applicable excess coverage. Assuming definitive agreements with
all such carriers are satisfactorily concluded, and in view of the generally
favorable case law, management believes that H-W will be reimbursed in the
future for a significantly greater percentage of the indemnity payments and
defense costs for such claims than it has received in the past.
There can be no certainty that the recorded H-W and Green insurance assets will
be fully recovered or that Green or H-W may not ultimately incur a loss as a
result of pending Asbestos Claims in excess of such accrual. However, management
believes that additional expenses, if any, related to H-W Claims would not have
a material effect upon the consolidated financial position or liquidity of the
Company and, based upon the experience of Green prior to its acquisition by the
Company, anticipates that Green's insurance carriers will make substantially all
required payments for Green Claims. Management periodically reviews its estimate
of pending Asbestos Claims liability as well as its evaluation of available
insurance and makes such adjustments in the accruals as may be appropriate. Such
adjustments could affect earnings in a future period.
The Company cannot reasonably estimate the legal liability of H-W or Green for
unasserted Asbestos Claims, the cost to defend such claims, or the amounts H-W
and Green may pay to settle future Asbestos Claims or as a result of adverse
judgments. Primarily, this is because the potential number of unasserted
Asbestos Claims and when they might be asserted cannot reasonably be predicted.
Over time, however, the number is expected to be substantial. The uncertainties
which impair management's ability to estimate the expense of future Asbestos
Claims include: the types and severity of asbestos-related illnesses experienced
by future claimants; evidence of their exposure to specific products made by
Green or H-W; evidence of their exposure to asbestos-containing products made or
sold by third parties; evidence of other possible causes, or contributing
causes, of the claimants' illnesses; their earnings; changes by the Center in
the apportionment among Members of liability for claims; jurisdiction of suit;
enactment of tort reform legislation and its application to such claims; and
whether suits are handled by the courts individually or on a consolidated basis.
In view of the number of pending Tool Claims and Asbestos Claims, management
recognizes the possibility that multiple adverse judgments, particularly if they
involve awards of punitive damages, could have a material effect upon the
Company's earnings. However, based upon its review of pending H-W Claims and
Tool Claims, the current reserves thereon, information provided by the Center
with respect to pending Green Claims, an evaluation of the rights of H-W and
Green with respect to applicable products liability insurance, its understanding
of the terms and conditions of such insurance and discussions with insurers and
their representatives, its experience to date with such litigation, and
consultation with counsel, the Company believes that pending Asbestos Claims and
Tool Claims will not be material either to the financial condition of the
Company or to its liquidity.
In addition to asbestos-related personal injury claims asserted against Green, a
number of claims have been asserted against Bigelow-Liptak Corporation (now
known as A.P. Green Services, Inc.), a subsidiary of Green. These claims
have been and are currently being defended by several of such subsidiary's
insurance carriers. On January 29, 1998, Great American Insurance Company and
American National Fire Insurance Company, two of such carriers, filed a lawsuit
in the United States District Court for the Southern District of Ohio against
certain of such subsidiary's other insurance carriers and such subsidiary
seeking (1) a determination of the rights and obligations of all of the parties
under such policies, and (2) contribution for amounts of indemnity costs
previously paid. While it is not possible to predict the outcome of such suit,
management believes that such subsidiary will prevail in its position that all
of such carriers are obligated to pay (subject to applicable policy limits)
liabilities arising out of asbestos personal injury claims on behalf of the
insured.
Asbestos Related Property Damage Claims
Green is also among numerous defendants in a property damage class action suit
pending in South Carolina. Green previously has been dismissed from a number of
property damage cases and believes that it should be dismissed from the South
Carolina case based on the end uses of its products. A similar suit pending in
the State of Oregon involves a former wholly owned subsidiary of Green and is
being defended by Green's insurance carrier. Based upon Green's history in these
asbestos-related property damage claims, management does not believe that the
ultimate resolution of these matters will have a material adverse effect on the
Company's consolidated financial position or results of operations.
Other Claims
On March 6, 1998, a class action lawsuit was filed in the Court of Chancery in
the State of Delaware by a former shareholder of Green seeking to enjoin the
tender offer by the Company and BGN Acquisition Corp., a subsidiary of the
Company, to purchase all outstanding shares of Green common stock. In settlement
of the litigation, which settlement is still subject to court approval, Green
supplemented its disclosure to shareholders prior to the shareholder vote
on the tender offer. In connection with the settlement, plaintiff's counsel
intends to apply to the court for an award of attorneys fees and expenses in an
amount not to exceed $180,000, which amount Green has agreed to pay.
On October 7, 1998, class action lawsuits were filed in the Court of Chancery in
the State Court of Delaware by two plaintiffs alleging that the Board of
Directors of the Company breached their fiduciary duties to the shareholders by
adopting an amendment to the Company's Rights Agreement reducing the threshold
for exercise of the rights created thereby to the acquisition of 10% or more of
the Company's Common Stock. Pursuant to its Restated Certificate of
Incorporation, the Company has assumed the defense of such claims which, in the
opinion of management, are without merit under Delaware law.
On October 1, 1998, Curragh Queensland Mining (Pty) Ltd. filed an action in
Denver District Court of the State of Colorado alleging that a dragline sold to
it by Dresser Industries, Inc. (Dresser) in 1990, which the plaintiff has used
in its surface mining operations in Australia, failed to meet certain
performance specifications in the contract relating to the sale of the dragline.
Pursuant to the agreement between Dresser and Harbison-Walker Refractories
Company, which previously had been named INDRESCO, Inc., the Company's
predecessor, relating to the public distribution by Dresser of the shares of
INDRESCO, Inc., H-W may be required to indemnify Dresser for certain claims such
as those asserted by the plaintiff. Although management is unable to predict the
outcome of this lawsuit, it believes that legal and contractual defenses
available to H-W may preclude any recovery by the plaintiff and that any
settlement or judgment which the plaintiff may recover is adequately reserved by
the Company and, in any event, such recovery would not have a material effect
upon the consolidated financial position or liquidity of the Company.
Actions and claims against certain subsidiaries of the Company under common law
and state and federal statutes for personal injury, property damage and breach
of contract arise in the ordinary course of their businesses. The remedies
sought in such actions include compensatory, punitive and exemplary damages as
well as equitable relief. Reserves for such lawsuits and claims are recorded to
the extent that losses are deemed probable and are estimable. In the opinion of
management, the resolution of such pending lawsuits and claims will not have a
material effect on the earnings or consolidated financial position of the
Company.
Environmental Claims
The EPA or other private parties have named Green or one of its subsidiaries as
a potentially responsible party in connection with two superfund sites in the
United States. Green is a de minimis party with respect to one of the sites and
expects to arrive at a settlement agreement and consent decree with respect to
it for an amount which is not expected to be material. With respect to the
second, involving a wholly owned subsidiary of Green, there does not appear to
be any evidence of delivery to the site of hazardous material by the subsidiary.
An estimate has been made of the costs to be incurred by Green in these matters
and the Company has recorded a reserve reflecting those costs.
For additional information regarding contingencies, see NOTE H to Consolidated
Financial Statements contained in the Company's annual report on Form 10-K for
the year ended October 31, 1997, NOTE 18 to Consolidated Financial Statements
contained in Green's annual report on Form 10-K for the year ended December 31,
1997, and NOTE 5 to Consolidated Financial Statements contained in Green's
quarterly report on Form 10-Q for the quarter ended March 31, 1998.
17
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GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE I - COMPREHENSIVE INCOME
In June 1997, Statement of Financial Accounting Standards No. 130 -
"Comprehensive Income," ("SFAS 130"), was issued. SFAS 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. Comprehensive income, as
defined by SFAS 130, is the change in equity (net assets) of a business
enterprise during a period, from transactions and other events and circumstances
from nonowner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners. The
components of comprehensive income (loss) for the Company include net income
(loss), and changes in the cumulative translation and minimum pension liability
adjustments. Total comprehensive income (loss) for the three and nine month
periods ended September 30, 1998 and July 31, 1997; and the two month period
ended June 30, 1998 was (in millions) ($56.1), $29.7, ($16.8), ($13.0) and
($3.2), respectively.
NOTE J - INDEBTEDNESS
On June 30, 1998, an agreement was entered into whereby the Company issued $75
million in senior notes to the Prudential Insurance Company of America
("Prudential"), in a private placement offering (the "Senior Notes"). The Senior
Notes are exempt from registration pursuant to Rule 144A of the Securities Act
of 1933 and, as such, carry certain restrictions regarding their resale. The
Senior Notes are unsecured and bear interest at a rate of 6.83% per annum. As
per the first amendment to the Senior Note agreement, interest only is payable
quarterly, in March, June, September and December of each year, with the entire
principal balance due on June 30, 2008. The Senior Notes contain certain
affirmative and negative covenants which, among other matters, require
compliance with various financial ratios and thresholds including, but not
limited to, minimum consolidated tangible net worth, maximum debt to
capitalization and debt to consolidated tangible net worth. As more fully
discussed in NOTE O -SUBSEQUENT EVENTS below, in connection with obtaining
additional borrowings in October 1998, the Senior Note agreements (as well as
the Company's other note agreements in which Prudential acts as the lead
lender) were
18
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GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
amended to include provisions whereby an event of default under the Company's
other debt agreements may also constitute an event of default under the Senior
Note agreements. The Company utilized proceeds from the Senior Notes primarily
to finance its cash tender offer for the common stock of A.P Green Industries,
Inc.
On August 31, 1998, the Company entered into a senior revolving credit facility
("Credit Facility") with a syndicate of banks. The Credit Facility is
unsecured, provides for an aggregate borrowing limit of $215 million (of which
approximately $185 million had been drawn as of September 30, 1998), and matures
three years from the date of execution of the agreement, extendible annually for
an additional year with unanimous bank group consent. The Company has the
option of borrowing under either the United States prime rate (currently at
8.0%) or a formula-driven rate based on the London Interbank Offered Rate
("LIBOR"). If the LIBOR-based option is selected, the applicable interest rate
will vary between LIBOR plus 1.00% and 2.00% per annum, depending on the
Company's ratio of Funded Debt to EBITDA (as defined in the applicable
agreement). Additionally, the Company must pay a commitment fee on the unused
portion of the Facility, which will also fluctuate, between .25% and .50% per
annum, depending on the Company's ratio of Funded Debt to EBITDA. Interest and
the commitment fees are both payable in arrears. Interest is due either monthly
or quarterly depending on the type of funding selected, and the commitment fee
is due quarterly. The Credit Facility contains certain affirmative and negative
covenants which, among other matters, require compliance with various financial
ratios and thresholds including, but not limited to, minimum interest coverage
ratio, maximum funded debt to EBITDA and minimum consolidated net worth, as well
as certain limitations on liens, dividends, indebtedness, acquisitions, capital
expenditures and asset dispositions. The Company utilized the Credit Facility to
refinance certain of its existing indebtedness and for general corporate
purposes. As of November 13, 1998, the lead bank in the facility had not yet
completed a secondary market participation of $25 million of its commitment
under the Credit Facility. Pursuant to an underwriting agreement with that bank,
the terms of the Credit Facility may be modified in connection with this
secondary offering.
NOTE K - INTEREST RATE SWAPS
In September 1998, the Company entered into two interest rate swap contracts
with separate banks, the objective of which was to convert a portion of its
variable interest rate debt to fixed rate. These contracts have a total notional
principal amount of $75 million and mature in approximately three years. The
terms of the swaps provide for the Company to pay a fixed amount quarterly,
based on an annual weighted average interest rate of approximately 5.20%. In
exchange, the Company will receive a variable amount based on LIBOR, as reset
quarterly. The Company has designated these contracts as hedges of $75 million
in variable rate debt currently outstanding under its Credit Facility, which has
been drawn under the LIBOR-based borrowing option. Accordingly, gains and
losses realized under the swap agreements will increase or reduce interest
expense recorded under the Credit Facility. These contracts did not have a
material impact on the Company's results of operations for the three or nine
month periods ended September 30, 1998. Fair market value of the
19
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GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
contracts, as obtained from the respective banks, was approximately ($1.0
million) at September 30, 1998.
NOTE L - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The Company
initially adopted SFAS 128 during the "old" fiscal quarter ended January 31,
1998 and, accordingly, earnings per share amounts for all periods presented in
the accompanying condensed consolidated statement of operations are calculated
and presented in accordance with SFAS 128. The statement specifies new
standards for the computation and presentation of earnings per share, requiring
the presentation of both "basic" and "diluted" earnings per share. Basic
earnings per share is calculated as net earnings divided by average common
shares outstanding. Diluted earnings per share is calculated including the
dilutive effects of potential common shares, which include the Company's stock
options and deferred compensation units.
Outstanding options and deferred compensation units to purchase approximately
(in milions) 2.5, 2.3 and 1.6 shares were excluded from the two months ended
June 30, 1998 and the three and nine months ended September 30, 1998 and July
31, 1997 respective diluted earnings per share calculations as their inclusion
would be anti-dilutive due to the loss from continuing operations incurred for
those periods.
Weighted average common shares outstanding were (in millions) 22.0, 22.0, 22.4,
22.6 and 22.0 for the three and nine month periods ended September 30, 1998, and
July 31, 1997 and the two month period ended June 30, 1998, respectively.
NOTE M - STOCK OPTIONS
In September 1998, options to purchase 946,437 shares of Company common stock
were granted under the Company's 1992 Stock Compensation Plan, and previously
issued options to purchase 1,132,610 shares of common stock were cancelled. The
cancelled options provided for exercise prices ranging from $11.00 to $20.00 per
share. The new option grants, which were subject to employees' agreement to
cancel their previously awarded options, expire ten years after the grant date,
carry an exercise price of $6.91 per share (equal to the closing market price on
September 18, 1998; the grant date) and fully vest on either the first or fifth
anniversary of the grant date, unless otherwise accelerated. Under the terms of
the option agreements, up to 50% of an employee's options will become fully
vested at such time as the average closing price of the Company's common stock
equals or exceeds $10.36 per share for any 21 consecutive trading day period,
and another 50% will become fully vested upon the attainment of at least a
$13.81 average closing price for any period of equal length. In the event of a
change in control of the Company, the options will automatically become fully
vested. The Company accounts for stock option grants under the provisions of
Accounting Principles Board Opinion No. 25 - "Accounting for Stock Issued to
Employees," and, accordingly, no compensation expense will be recognized, since
the options had no intrinsic value on the date of grant.
20
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GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE N - NEW ACCOUNTING PRONOUNCEMENTS
Investor's Accounting for an Investee When the Investor Owns a Majority of the
Voting Stock but the Minority Shareholder or Shareholders Have Certain Approval
or Veto Rights
In July 1997, the Emerging Issues Task Force Release No. 96-16, "Investor's
Accounting for an Investee When the Investor Owns a Majority of the Voting Stock
but the Minority Shareholder or Shareholders Have Certain Approval or Veto
Rights" (EITF 96-16), was issued. The issues are centered around whether
various minority rights held by a minority shareholder (in a partnership, joint
venture, limited liability corporation, etc.) overcome the presumption that all
majority-owned investees should be consolidated. The EITF concluded that if the
minority rights, individually or in the aggregate, provide for the minority
shareholder to effectively participate in significant decisions that would be
expected in the "ordinary course of business," consolidation may not be
appropriate. The application of EITF 96-16 is required for all fiscal years
ending after December 15, 1998, with earlier adoption encouraged. Any resulting
income statement effect on prior years, if material, may be classified as the
cumulative effect of a change in accounting principle. The Company plans to
adopt the provisions of this statement in the fourth quarter of 1998, although
its effects have not yet been determined. Management believes that its effects
will not be material, however, based on the historical results of operations of
its consolidated entities that are less than 100% Company-owned.
Disclosures about Segments of an Enterprise and Related Information
In June 1997, Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information," was
issued. SFAS 131 establishes standards for the way that a public enterprise
reports information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS 131 is
effective for fiscal years beginning after December 15, 1997, and requires
restatement of earlier periods presented - but not for interim periods in the
initial year of adoption. The Company believes that the provisions called for by
this statement have, for the most part, already been applied in its historical
financial statements, which were prepared pursuant to SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." The Company will adopt the
provisions of this statement in the fourth quarter of fiscal 1998, which will
not impact its results of operations or financial position.
21
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GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Employers' Disclosures about Pension and Other Postretirement Benefits
In February 1998, Statement of Financial Accounting Standards No. 132 (SFAS
132), "Employers' Disclosures about Pension and Other Postretirement Benefits,"
was issued. SFAS 132 revises employers' disclosures of pensions and other
postretirement benefits, requires additional information on changes in benefit
obligations and fair value of plan assets and eliminates certain disclosures.
SFAS 132 is effective for the year ending December 31, 1998, and requires
restatement of disclosures for earlier periods. The adoption of this statement
will not have an impact on the results of operations or financial position of
the Company.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair market value. The recording of the offsetting debits or credits is
dependent upon the purpose for which the derivative instrument was entered into.
In cases where specified conditions are met, the Statement permits "hedge"
accounting in which gains and losses on the derivative hedging instrument are
matched with offsetting losses and gains on the underlying item that is being
hedged. This statement is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. Earlier application of most of this statement's
provisions is encouraged, but is only permitted as of the beginning of any
fiscal quarter that begins after June 15, 1998. No decision has been made as to
when the Company will adopt this statement. Currently, management does not
anticipate that its adoption will have a material impact on the results of
operations, financial position, liquidity or compliance with covenants contained
in the Company's debt agreements since, historically, its use of derivative
instruments has been minimal. However, risk management policies and procedures
are continually being refined and the Company may, from time to time, increase
its use of such instruments in order to mitigate potential risks resulting from
foreign currency exchange, commodity price and interest rate fluctuations.
NOTE O - SUBSEQUENT EVENTS
Indebtedness
On October 2, 1998, an agreement was entered into whereby the Company issued $25
million in senior notes to the Prudential Insurance Company of America in a
private placement offering (the "New Senior Notes"). The New Senior Notes are
exempt from registration pursuant to Rule 144A of the Securities Act of 1933
and, as such, carry certain restrictions regarding their resale.
22
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GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The New Senior Notes are unsecured and bear interest at a rate of 7.05% per
annum. Interest is payable quarterly, in January, April, July and October of
each year, with the principal balance due in equal annual installments of $5
million, beginning on October 2, 2006 and ending on October 2, 2009. The New
Senior Notes may be prepaid in whole or in part at any time, although a premium
may apply if this option is elected. The New Senior Notes contain certain
affirmative and negative covenants which, among other matters, require
compliance with various financial ratios and thresholds relating, but not
limited to, minimum consolidated tangible net worth and maximum debt to total
capitalization. The agreement also includes provisions whereby an event of
default under the Company's other debt agreements may also constitute an event
of default under the New Senior Note agreement. The Company utilized proceeds
from the New Senior Notes for general corporate purposes.
Preferred Stock Purchase Rights
On October 5, 1998, the Company signed the third amendment to its Preferred
Stock Purchase Rights Agreement, dated October 31, 1995 (the "Rights
Agreement"), the result of which was to lower the common stock Beneficial
Ownership (as defined in the Rights Agreement) threshold, which triggers the
Right's exercisability. Under the amended Rights Agreement, the Rights will
generally not be exercisable until after 10 days (or such time later as the
Board of Directors may determine) from the earlier of a public announcement that
a person or group has, without Board approval, acquired Beneficial Ownership of
10% or more of the Company's common stock or the commencement of, or public
announcement of an intent to commence a tender or exchange offer which, if
successful, would result in the offeror acquiring 30 percent or more of the
Company's common stock. Beneficial Ownership by any person of 10% or more of
the Company's common stock as of the close of business on October 5, 1998, will
not, however, trigger the exercisability provisions of the Rights until such
time thereafter as any such person shall become the Beneficial Owner (other than
by means of a stock dividend or stock split) of an additional 100,000 shares of
common stock.
23
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GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE P - INFORMATION BY INDUSTRY SEGMENT
Sales and operating profit results are presented below for the three and nine
months ended September 30, 1998 and July 31, 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
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<S> <C> <C> <C> <C>
9/30/98 7/31/97 9/30/98 7/31/97
------- ------- ------- -------
Sales and Operating Revenues:
Refractory Products $122.4 $ 88.8 $ 297.9 $ 246.5
Minerals 9.3 12.3 31.2 39.0
Industrial Lime 13.0 - 13.0 -
Specialty Equipment Products 13.5 18.6 39.4 50.5
Forged Products 14.1 12.1 41.7 39.6
Intersegment sales (3.3) (5.8) (9.6) (16.2)
------ ------- ------- -------
Total sales and operating revenues $169.0 $ 126.0 $ 413.6 $ 359.4
====== ======= ======= =======
Operating Profit(Loss):
Refractory Products $ (2.2) $ 8.9 $ 14.3 $ 22.3
Minerals (0.4) 1.3 (0.4) 4.9
Industrial Lime 0.7 - 0.7 -
Specialty Equipment Products (0.1) (1.2) (0.7) 0.3
Forged Products (3.2) 2.0 (4.2) 8.2
Partnership Operations (0.6) - (1.2) -
------ ------- ------- -------
Subtotal (5.8) 11.0 8.5 35.7
General corporate expenses (11.2) (6.5) (24.9) (19.1)
Special Charges (23.0) (43.5)
Restructuring Charges (31.0) - (31.7) -
Impairment of Long-Lived Assets (23.3) - (23.3) -
------ ------- ------- -------
Loss before taxes $(71.3) $ (18.5) $ (71.4) $ (26.9)
====== ======= ======= =======
Depreciation & amortization
included in operating earnings
Refractory Products $6.1 $ 2.6 $ 11.7 $ 7.3
Minerals .3 .3 1.2 1.0
Industrial Lime 1.2 - 1.2 -
Specialty Equipment Products .8 .3 1.9 1.2
Forged Products 1.4 1.3 4.5 2.9
------ ------- ------- -------
$ 9.8 $ 4.5 $ 20.5 $ 12.4
====== ======= ======= =======
</TABLE>
24
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS
- - -------------------
Change in fiscal year end
On July 30, 1998, the Board of Directors of Global Industrial Technologies, Inc.
(the "Company") changed the Company's annual fiscal accounting period from
October 31 to the twelve months ending December 31. Accordingly, under the new
fiscal year calendar, the Company's quarters are each comprised of three
calendar months ending March 31, June 30, September 30, and December 31.
Formerly, the Company's fiscal quarters were each comprised of the three
calendar months ending January 31, April 30, July 31 and October 31. In
accordance with SEC rules and regulations, on September 14, 1998, the Company
filed a report on Form 10-Q/T, presenting the results of operations for the two-
month periods ended December 31, 1997 (the "Transition Period") and the
comparative period ended December 31, 1996.
Acquisition of A.P. Green Industries, Inc.
As discussed in its filings on Form 8-K and Form 8-K/A, filed with the
Securities and Exchange Commission on July 9, 1998 and September 14, 1998,
respectively, Global Industrial Technologies, Inc. and its wholly owned
subsidiary, BGN Acquisition Corp. (collectively referred to herein as the
"Company") acquired all of the outstanding shares of common stock of A.P. Green
Industries, Inc. ("Green") effective July 1, 1998. The purchase was effected
through a public tender offer for Green's outstanding common stock at an
offering price of $22.00 per share and resulted in a total net cash purchase
price of approximately $203 million (net of $2.4 million in cash acquired),
including approximately $28 million in other direct transaction costs such as
severance and other change-in-control benefits, and accounting, legal and
investment banking fees. The purchase price was funded through cash on hand,
issuance of the Senior Notes (as defined in Note J - INDEBTEDNESS), and unused
lines of credit. The Company has accounted for the acquisition as a purchase,
and, accordingly, the results of operations of Green have been consolidated with
those of the Company as of July 1, 1998.
Green, together with its subsidiaries, conducts its business primarily in two
business segments, Refractory Products and Industrial Lime. Green operates a
total of 22 plants in the United States, Canada, Mexico, the United Kingdom and
Indonesia. As more fully discussed below, the Company is currently in the
process of closing seven of Green's refractory-producing facilities as part of
its integration plans.
The purchase of Green has allowed the Company to increase its share of sales to
the iron and steel sector and, to a greater extent, other industrial markets for
refractory products, and is expected to increase its gross margin on these sales
as a result of various cost reductions. Although the Company believes this
strategy will increase its penetration of the iron and steel sector, it also
believes that it will be able to reduce its reliance on that sector. Supporting
this point of view is the fact that, in 1997, iron and steel producers accounted
for approximately 55% of Harbison-Walker's sales, whereas sales to
25
<PAGE>
this sector made up only 30% of Green's total refractory revenues over the same
time period.
APG Lime Corp., a wholly-owned subsidiary of the Company ("APG Lime"), operates
three plants, Kimballton, Virginia, Ripplemead, Virginia and New Braunfels,
Texas, and is a 51% owner of Palmetto Lime LLC, which is constructing a lime
processing facility in Charleston, South Carolina. The first two kilns at the
Palmetto Lime plant are currently scheduled to be placed into service during the
first quarter of 1999. APG Lime generally serves customers in the geographic
region surrounding its plants. The industrial lime operations are involved in
the mining and processing of limestone into lime for various industrial
applications. Primary customer applications include steel and aluminum
production, pulp and paper processing, soil stabilization for road construction,
water and waste water treatment, masonry and various environmental applications.
High calcium limestone, mined from Company-owned deposits, is processed into two
basic end products quicklime, produced by heating crushed limestone in a rotary
kiln, and hydrated lime, produced by adding water to quicklime through a
controlled process. In addition, the industrial lime operations produce
dolomitic quicklime from purchased limestone and Cal-Dol lime, a blended lime
product.
The net purchase price for Green has been preliminarily allocated to the assets
and liabilities of Green based on their estimated respective fair market values
at the acquisition date. Fair market value of the acquired property, plants and
equipment and net pension assets was determined by an independent third parties.
The excess of purchase price over the fair market value of net assets acquired
was assigned to goodwill, and is being amortized on a straight-line basis over
40 years. The resulting goodwill, along with related amortization, has been
allocated entirely to the Industrial Lime segment, based on an assessment of
fair market value of Green's individual business units. The net purchase price
was allocated as outlined in Note C - ACQUISITION OF A.P. GREEN INDUSTRIES, INC.
in the accompanying notes to consolidated condensed financial statements.
The allocated purchase price includes a current liability of approximately $16
million, which represents the Company's estimate of direct expenditures to be
incurred in connection with the consolidation and integration of certain Green
corporate functions and manufacturing facilities. Management's plans encompass
the elimination of certain historical expenses of Green and the Company,
particularly salary, benefits and various other associated direct overhead costs
related primarily to the manufacturing, executive, legal, accounting, tax,
engineering, sales and marketing functions. The Company expects these actions
to enable it to achieve certain economies of scale in these areas, resulting in
future cost savings. Such costs reflect the actual or planned closure and/or
sale of seven of Green's manufacturing facilities and the termination of
approximately 334 employees. The reserve includes charges for severance,
employee relocation costs, and other employee termination payments; site
restoration and other environmental exit costs; various contract termination
costs; and other costs directly associated with the consolidation and
integration activities. As of September 30, 1998, approximately $1.3 million had
been paid and charged against the reserve. The liability has been established
26
<PAGE>
in accordance with the provisions of the Emerging Issues Task Force Release #95-
3 (EITF 95-3), "Recognition of Liabilities in Connection with a Purchase
Business Combination," and contains estimates of costs under the current plan
which, although continually being refined, is expected to be completed within
one year of the acquisition date. The reserve discussed herein does not include
those expenditures expected to result from reductions of the Company's own
workforce and closing of duplicative Company facilities, as more fully described
below under the heading "Restructuring Charges."
RESULTS OF OPERATIONS
- - ---------------------
Overall Summary
The Company reported net income of $35.7 million, or $1.62 per share and a net
loss of ($15.6) million, or ($.69) per share for the nine month periods ended
September 30, 1998 and July 31, 1997, respectively, and reported net losses of
($54.5) million, or ($2.47) per share and ($14.4) million, or ($.64) per share
for the three month periods ended September 30, 1998 and July 31, 1997,
respectively. The 1998 results reflect restructuring charges, an impairment of
long-lived assets (primarily goodwill), and the adjustment of the effective tax
rate for discontinued operations, offset by a gain on the sale of Industrial
Tool. The 1998 results of operations also include three months of operating
results of A.P. Green Industries, Inc. and nine months of operating results of
Magnesitwerk Aken Gmbh ("Aken"), a German refractories manufacturer acquired in
December 1997. The 1997 results reflect special charges related to the
divestiture of the Marion Power Shovel Company, British Jeffery Diamond of the
United Kingdom and a partnership interest in KOMDRESCO of South Africa. The
unusual items affecting 1998 results are individually discussed in detail under
the respective headings below.
Including Green and Aken, revenues for the nine months of $415.1 million
increased $54.7 million, or 15%, from $360.4 million in 1997. Revenues for the
quarter of $169.5 million increased $43.1 million, or 34%, since the quarter
ended July 31, 1997. Segment operating results from continuing operations for
the nine months of $8.5 million are down $27.2 million, or 76%, from $35.7
million in 1997. Segment operating results from continuing operations for the
quarter of ($5.8) million decreased $16.8 million, or 153%, since the quarter
ended July 31, 1997. Segment revenues and operating results are discussed
individually below under the heading "Segment Results."
General corporate expenses for the nine months of $24.9 million increased $5.8
million, or 30%, from $19.1 million in 1997. General corporate expenses for the
quarter of $11.2 million, increased $4.7 million, or 72% since the quarter ended
July 31, 1997. Increases for both periods are primarily attributable to higher
interest expense, resulting from
27
<PAGE>
increased debt levels and, to a lesser extent, an increase in net expense
relating to asbestos claims (See Note H to the consolidated condensed financial
statements for more information on asbestos claims).
Other - net expense for the nine month periods ended September 30, 1998 of $4.3
million increased $4.8 million, from $0.5 million in income for the nine months
ended July 31, 1997, primarily reflecting $2.4 million in accrued costs incurred
on the closure of the British Jeffrey Diamond ("BJD") operation in Wakefield,
England in April, 1998. Effective October 31, 1998, the Company sold the
majority of the assets of BJD for approximately $370,000, and has signed a sales
agreement for its remaining equipment, which is expected to net the Company an
additional $360,000. The Company expects to complete the sale during the latter
part of the fourth quarter of 1998.
Other - net expense for the quarter of $1 million, which was $0.9 million
greater than for the quarter ended July 31, 1997.
Backlog
The Company's consolidated backlog of unshipped orders was approximately $140.4
million at September 30, 1998 compared to $124.2 million and $146.6 million
(excluding the Industrial Tool operations) at October 31, 1997 and July 31,
1997, respectively.
Sale of Industrial Tool
On March 12, 1998, the Company sold the Industrial Tool segment, including the
common stock of INTOOL, Incorporated (the U.S. subsidiary operating in this
segment) and the assets of Industrial Tool operations in Canada, Mexico, the
Netherlands and Germany, for cash consideration of $229.2 million, including
certain postclosing adjustments. The Industrial Tool segment manufactures and
sells a product line of high-quality pneumatic and electric tools for industrial
applications, including assembly and material removal. Revenues of the
Industrial Tool segment were $24.3 million for the period from January 1, 1998
to March 12, 1998 and $28.7 million and $80.6 million for the three and nine
month periods ended July 31, 1997, respectively.
In connection with the sale of the Industrial Tool segment, the Company retained
certain pension, and postretirement benefits. The Company also retained
liability for certain legal claims, primarily for known claims of alleged
hearing loss and other injuries associated with the use of the Company's
products, and for one-half of any such additional claims made during the five-
year period following the closing date. See description of these claims in Note
H to Consolidated Financial Statements in the Company's Annual Report on Form
10-K for the "old" fiscal year ended October 31, 1997.
Restructuring charges
During the two and three month periods ended June 30 and September 30, 1998,
the Company recognized pre-tax charges of $.7 million and $34.8 million ($3.8
million of which has been recorded as a component of cost of sales, during the
third quarter of 1998), respectively, to reorganize and restructure its current
organization. The restructuring consisted primarily of three parts: (i) the
merging and integration of operations of the
28
<PAGE>
Company and Green, (ii) the termination of a joint venture and (iii) charges
pertaining to the consolidation and integration of CTI into Harbison-Walker
Refractories Company.
Concurrent with the acquisition of Green, management initiated plans to
consolidate and integrate the operations of both companies through workforce
reductions and the closure of duplicative facilities. During the third quarter
of 1998, the Company announced the closure of three former Harbison-Walker
manufacturing facilities, including the termination of approximately 260
employees and, as a result, recorded a $21.1 million charge. Amounts contained
within the restructuring include charges for severance (both statutory and
contractual), pension plan curtailment losses and other employee termination
payments ($7.0 million); adjustments to reflect affected property, plant and
equipment at their estimated fair value (less costs to sell), and site
restoration costs ($8.1 million); adjustments to reflect inventory of
discontinued product lines at estimated net realizable value ($2.2 million,
charged to cost of sales); and other estimated holding costs of vacated
facilities, and contract terminations ($3.8 million).
In addition, during the third quarter, the Company decided to terminate a 50%
owned joint venture and is in the process of closing Harbison-Walkers' Eufala,
Alabama facility, which housed its operations. The venture had produced calcium
aluminates (as slag conditioners for the steel industry) and lightweight
refractory grains, which were not sufficiently accepted by potential customers,
one of whom, for other reasons, cancelled a significant amount of outstanding
orders. As a result, an $11.5 million charge was recorded during the third
quarter of 1998, which included the write down of the Company's investment in,
and net receivable from, the joint venture ($7.1 million); severance, pension
plan curtailment loss and other payments resulting from the termination of
approximately 25 employees ($0.9 million); write down of Company-owned
property, plant and equipment utilized solely by the joint venture to their
estimated fair values (less costs to sell), and site restoration costs ($1.2
million); adjustments to reflect Company-owned inventory of discontinued product
lines at estimated net realizable value ($1.6 million, charged to cost of
sales); and various other exit costs, including contract termination penalties
($0.7 million).
Management has also finalized plans to consolidate the manufacturing and
administrative functions of CTI with those of Harbison-Walker. The move is
being made in an effort to reduce costs and improve productivity and asset
utilization by eliminating duplicative functions and taking advantage of
existing facilities' excess capacity. Consequently, the Company recognized a
charge of $2.9 million during the nine-month period ended September 30, 1998,
$2.2 million of which was recorded during the third quarter; the remaining $0.7
million had been charged to earnings during the two-month period ended June 30,
1998. The charge consisted primarily of employee severance and contract
termination costs.
The aforementioned charges are reflected in the accompanying consolidated
condensed statement of operations under the caption "Restructuring Charges",
with the exception of $3.8 million of inventory write-downs, which are included
in cost of sales. The Company estimates that actions it has already taken will
generate annualized cost savings in excess of $24
29
<PAGE>
million as a result of its restructuring plan (inclusive of actions taken
regarding the former Green facilities), and expects additional cost savings to
result from further planned actions. Approximately $19.6 million of the charge
has been recorded as a reduction in the carrying value of the respective assets,
$3.0 million has been recorded as an increase to long-term pension liabilities,
and $12.1 million (net of approximately $0.8 million in payments, as of
September 30, 1998), representing other future cash expenditures, is reflected
as an other current liability in the accompanying consolidated condensed balance
sheets. Management expects to complete all parts of the restructuring plans by
the end of the third quarter of 1999, with the majority of cash expenditures to
occur during the fourth quarter of 1998 and first quarter of 1999. Given the
nature of the costs reflected herein, increases or decreases may be necessary
throughout the tenure of the Company's restructuring plans. Any such changes
will be reflected in the statement of operations as incurred, and classified in
the manner discussed above.
The Company is also estimating that approximately $8.2 million of additional
cash expenditures associated with these restructurings will be incurred,
primarily in the fourth quarter of 1998. These incremental costs will benefit
future operations and, therefore, do not qualify for accrual at September 30,
1998. Approximately $3.7 million (pre-tax) will be charged to earnings as
incurred, with the remainder recorded as an increase to property, plant and
equipment. These additional costs consist primarily of equipment repairs, and
removal, transportation and re-installation and other capital expenditures
associated with relocating machinery and equipment to continuing manufacturing
facilities.
Impairment of long-lived assets (including goodwill)
During the third quarter of 1998, the Company recognized a pre-tax impairment
loss of $23.3 million reflecting management's estimates that actual operating
cash flows will be insufficient to recover the carrying amount of certain long-
lived assets (including goodwill). The loss, which is presented under the
caption titled "Impairment of long-lived assets" on the accompanying
consolidated condensed statements of operations, primarily represents an
impairment of goodwill generated in the 1996 acquisition of Corrosion
Technologies International, Inc. ("CTI") ($22.0 million) and the write down of
the carrying amounts of various permanently idled machinery and equipment at the
Company's Harbison-Walker Refractories division ($1.3 million).
Depressed copper, zinc and nickel prices, the apparent ongoing financial crisis
in the Asia-Pacific region and additional market knowledge gained through CTI's
alliance with Anticorrosivos Industriales Ltd. ("ANCOR") have caused the Company
to reassess the carrying value of long lived assets (primarily goodwill) at CTI.
Pursuant to SFAS #121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of," the Company compared the sum of the
estimated expected future cash flows (undiscounted and without interest) of CTI
to the carrying amount of such assets (primarily goodwill), which was determined
to be less. Accordingly, an impairment loss was recognized for the excess of
the carrying amount of the impaired assets over their respective fair market
values. Estimated fair market value was based on the expected
30
<PAGE>
future cash flows from the use of these assets, discounted at a rate
commensurate with the risks involved. The impairment loss recognized was
allocated entirely to goodwill, resulting in a remaining net carrying value of
approximately $14 million at September 30, 1998.
Change in accounting principle
The Company changed its method of accounting for start-up costs during the third
quarter of 1998, in response to the issuance of American Institute of Certified
Public Accountants' (AICPA) Statement of Position 98-5, (SOP 98-5) "Reporting on
the Costs of Start-Up Activities." The effect of the change (representing the
charge off of current period additions and the reversal of previously recorded
amortization) on the three and nine month periods ended September 30, 1998, was
to decrease income from continuing operations by $105,000 ($.00 per share) and
$404,000 ($.02 per share), respectively. The effect of the change on the two
month period ended June 30, 1998 was to decrease income from continuing
operations by $85,000 ($.00 per share). In addition, the $6.3 million cumulative
effect on prior years (after reduction for income taxes of $2.1 million) has
been included in net income of the Transition Period. This resulted in an
adjustment to beginning retained earnings as of September 30, 1998, and will be
reflected in net income of the Transition Period when those financial statements
are subsequently presented in the Company's 1998 annual report on Form 10-K. See
Note E - CHANGE IN ACCOUNTING PRINCIPLE, in the Notes to consolidated condensed
financial statements, contained in Part I -Financial Statements, of this Form
10-Q, for more information.
SEGMENT RESULTS
- - ---------------
Refractory Products
- - -------------------
31
<PAGE>
Revenues for the nine months of $297.9 million increased $51.4 million, or 21%
from $246.5 million in 1997. Revenues for the quarter of $122.4 million,
increased $33.6 million, or 38% since the quarter ended July 31, 1997. The
increase in revenues for the two periods resulted primarily from the
acquisitions of Green and Aken, which contributed $68.5 million and $52.2
million during the nine and three month periods ended September 30, 1998,
respectively. Also contributing to the increases, although to a lesser extent,
were revenues of Lota Green Limitada ("Lota Green"), which was purchased by the
Company in June, 1997. Excluding the contributions from Green and Aken, revenues
decreased $17.1 million, or 7%, and $18.6 million, or 21%, for the nine and
three month periods ended September 30, 1998, respectively due primarily to (i)
revenue of $7.1 million and $21 million realized during the three and nine month
periods ended July 31, 1997, respectively, under a contract to provide
refractories in connection with a United States coke oven project, (ii) a sharp
rise in refractories and steel imports from Southeast Asia and the former Soviet
Union, due to economic conditions in these regions, and a comparatively strong
U.S. Dollar, and (iii) shifting of purchases by some Green and Harbison-Walker
customers to "back up" suppliers during the early part of the integration period
of their businesses. The Company believes these disruptions are only temporary.
Green's sales fell somewhat short of the Company's expectations for the quarter
ended September 30, 1998, due in part to the factors discussed above, and to
a temporary reduction in employee productivity resulting from uncertainties
arising out of the pending combination of the refractories businesses of Green
and Harbison-Walker. Although bookings decreased following the announcement in
March of the pending acquisition (due to the aforementioned factors), they began
to recover during the latter part of the third quarter of 1998.
Operating results for the nine months of 1998 of $14.3 million were down $8
million, or 36% from $22.3 million, for the nine-month period ended July 31,
1997. Operating results for the quarter of ($2.2 million) decreased $11.1
million, or 125%, from $8.9 million since the quarter ended July 31, 1997.
Operating results for the two periods included those of Green and Aken, which
contributed ($0.2) million and ($1.7) million during the nine and three month
periods ended September 30, 1998, respectively. Also contributing to operating
results for the two periods were those of Lota Green. Excluding the
contributions from Green and Aken, operating results decreased $7.8 million, or
35% and $9.4 million, or 106%, for the nine and three month periods ended
September 30, 1998, respectively, which is primarily the result of the
following: (i) the effect of the aforementioned sales decreases and pricing
pressures; particularly the absence of the Raytheon contract (ii) the
recognition of approximately $3.8 million in inventory write-downs during the
third quarter of 1998, as part of the Company's overall restructuring plan (iii)
the Company has experienced losses of approximately $0.8 million and $1.9
million for the three and nine month periods ended September 30, 1998 on a
particular contract, which has since been terminated as of December 1, 1998.
These decreases were partially offset, however,
32
<PAGE>
by operating earnings of Lota Green and manufacturing capacity, and general and
administrative cost savings during the third quarter of 1998, resulting from the
elimination of certain redundant functions between the Company and Green.
Minerals
- - --------
Revenues for the nine months of $31.2 million were down $7.8 million, or 20%,
from $39.0 million in 1997. Revenues for the quarter of $9.3 million, decreased
$3.0 million, or 24% since the quarter ended July 31, 1997. Operating results
for the nine months of 1998 of ($.4) million were down $5.3 million, from $4.9
million, for the nine-month period ended July 31, 1997. Operating results for
the quarter of ($0.4) million decreased $ 1.7 million, or 131%, from $1.3
million since the quarter ended July 31, 1997. Decreases in revenues and
operating results for both periods were due to the effect of prevailing exchange
rates between the U.S. Dollar and European currencies on the ability to
competitively price exports. The Company has begun discussions with its primary
supplier of the raw materials used for exported products, in an effort to reduce
costs on a project-by-project basis.
Industrial Lime
- - ---------------
Sales for the Industrial Lime segment of $13.0 million for the quarter ended
September 30, 1998, were adversely affected by operational problems at the
Company's plant in New Braunfels, Texas, which rendered one of its kilns
inoperable for 10 days during July 1998. Operating earnings for the segment were
negatively impacted during the quarter by the Company's share of non-
capitalizable costs to start up the Palmetto Lime facility, including costs
incurred by the Company's plants in Virginia to service Palmetto Lime's future
customer base. In addition, approximately $0.2 million of amortization expense
related to goodwill generated in the Company's purchase of Green, was allocated
to this segment in the third quarter of 1998.
Specialty Equipment Products
- - ----------------------------
The Specialty Equipment Products segment consists of CTI and the Processing
Group. Revenues for the nine months of $39.4 million were down $11.1 million,
or 22%, from $50.5 million in 1997. Revenues for the quarter of $13.5 million
decreased $5.1 million, or 27%, from the quarter ended July 31, 1997. Operating
results for the nine months of 1998 of ($.7) million were down $1 million, from
$.3 million, for the nine-month period
33
<PAGE>
ended July 31, 1997. Operating results for the quarter of ($.1) million
increased $ 1.1 million, or 92%, from ($1.2) million since the quarter ended
July 31, 1997.
Operating results for the three and nine month periods ended July 31, 1997
included an unusual adjustment of ($2.5) million, representing an inventory
write-off at the Processing Group. Operating results for the nine-month period
ended September 30, 1998 included an adjustment of ($2.4) million, representing
accrued costs incurred in connection with the closing of the British Jeffrey
Diamond operation in Wakefield, England in April, 1998. Excluding the
aforementioned charges, operating results would have decreased 39% and 108% for
the respective nine and three month periods.
The significant drop in copper, zinc and nickel commodity prices during the last
quarter of 1997 has had a material adverse effect on operating results of this
segment for 1998. Also, economic conditions in Asia stalled sales of nonferrous
metals refining equipment and, as a result, depressed CTI sales and operating
profits. CTI has taken steps to attempt to decrease its dependency on the
nonferrous metal markets by forming a worldwide business alliance with a
competitor, Anticorrosivos Industrales Ltd. (ANCOR), which is intended to
increase sales to other polymer concrete markets, including pulp and paper, food
processing, and chemical processing. This alliance is also intended to permit
the partners to negotiate reduced raw material costs with its vendors, and to
lower operating costs by closing or consolidating plants which had operated at
low levels of capacity utilization. In addition CTI, in conjunction with a
licensee, is in the preliminary stages of marketing products for the municipal
wastewater market through its Polymer Pipe Technology project.
The Company has also taken steps to consolidate the manufacturing and
administrative functions of the CTI/ANCOR alliance with those of Harbison-
Walker. This move was made in an effort to reduce costs and improve productivity
and asset utilization through elimination of duplicative functions and use of
refractory facilities' excess space. CTI expects to begin realizing the benefits
of this move in 1999. Although the integration with Harbison-Walker and reduced
raw material costs are expected to positively impact operating results over the
next twelve months, CTI does not forsee an increase in sales volumes over the
next six months.
The aforementioned events and circumstances affecting the markets in which CTI
operates, including knowledge of market conditions gained from the alliance with
ANCOR, caused the Company to reassess the carrying value of the CTI business
under FAS-121, "Impairment of Long-Lived Assets". Accordingly, the Company
recognized a pre-tax charge of $22 million during the third quarter of 1998,
representing an impairment of goodwill generated in the 1996 acquisition of CTI
(see Note F in the accompanying footnotes to the condensed consolidated
financial statements for more information).
34
<PAGE>
Forged Products
- - ---------------
Revenues for the nine months of $41.7 million increased $2.1 million, or 5%,
from $39.6 million in 1997. Revenues for the quarter of $14.1 million,
increased $2.0 million, or 17% since the quarter ended July 31, 1997. Operating
results for the nine months of 1998 of ($4.2) million were down $12.4 million,
from $8.2 million for the nine-month period ended July 31, 1997. Operating
results for the quarter of ($3.2) million decreased $ 5.2 million, or 260%, from
$2 million from the quarter ended July 31, 1997.
The increase in sales for the nine and three month periods is due almost
entirely to initial shipments out of this segment's Undercarriage division. The
Company expects significant sales growth at the Undercarriage division
throughout 1999. Most of the decrease in operating profits for both periods is
due to costs incurred to start-up operations at the Undercarriage division.
Pricing pressures from imports and increased preventative maintenance costs at
the Industrial division are also responsible for the decrease in this segment's
operating results.
The slowing of the global economy, continued record low oil and gas prices, and
the relative strength of the U.S. dollar have increased the supply of forged
flanges in the United States and has put pressure on pricing at the Industrial
division. In order to avoid the flange production interruptions it experienced
during 1997, the Company began a program late in the prior year of ordering and
installing new equipment at this segment and implementing more stringent
preventative maintenance programs. As a result of these actions, fixed and
variable costs for this segment have been higher than in 1997. Operating
margins, however, are expected to improve when the intended production
efficiencies are realized.
Partnership Operations
- - ----------------------
Operating results reflect continued equity in losses of a joint venture which
the Company decided to exit during the third quarter of 1998, as discussed above
under the heading "Restructuring charges." The termination of the joint venture
is expected to have an approximate $1.1 million impact on cash, but resulted
in an $11.5 million charge to earnings during the third quarter of 1998 (not
reflected in the segment results).
Discontinued operations
- - -----------------------
During the third quarter of 1998, the Company adjusted the earnings and gain on
sale of discontinued operations by ($0.8) million and ($9.2) million,
respectively, due to changes in estimates of the amount of taxable earnings and
gain.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
- - ----------------------------------------------------
Cash and cash equivalents were $23.7 million at September 30, 1998, $8.8 million
(59%) higher than at October 31, 1997. Net cash used by operating activities
was $63.0 million during the nine month period ended September 30, 1998,
reflecting the operating loss from continuing operations coupled with working
capital increases. The increase in working capital during the period is due
primarily to net inventory additions of $18.7 million, most of which reflects
stocking levels at Ameri-Forge's undercarriage division, decreases in accounts
payable, and other accrued liabilities ($24.2 million) and an
35
<PAGE>
increase in income taxes receivable of approximately $20 million. The Company
expects to collect a $20 million federal income tax refund during the fourth
quarter of 1998. The aforementioned increases in working capital were offset, in
part, by a $19.7 million decrease in receivables.
Excluding the net assets held for sale, the Company's current ratio at September
30, 1998 of 1.7 to 1 was 21% higher than October 31, 1997, primarily reflecting
the acquisition of A.P. Green Industries, Inc.
Net cash used in investing activities was $19.8 million and $42.8 million for
the nine month periods ending September 30, 1998 and July 31, 1997,
respectively. Capital expenditures remained relatively constant due to continued
start-up activities at the undercarriage division of Ameri-Forge. Approximately
33% of capital expenditures during the nine month period ending September 30,
1998 were made by the Company's refractory companies. Cash used for capital
expenditures was offset, in part, by approximately $230 million in proceeds from
the sale of the Company's Industrial Tool division, net of approximately $203
million in cash used to fund the Green acquisition.
Net cash provided by financing activities was $90.8 million and $34.8 million
for the nine month periods ending September 30, 1998 and July 31, 1997,
respectively. The 161% increase primarily reflects borrowings to fund capital
expenditures, the acquisition of Green and working capital needs, net of
proceeds received from the sale of Industrial Tool. During the third quarter of
1998, the Company obtained a new three-year $215 million unsecured variable
rate revolving credit facility with a syndicate of banks (under which,
approximately $160 million had been drawn as of November 5, 1998), and issued
$75 million in unsecured notes bearing a fixed rate of interest of 6.83% per
annum, with the entire principal balance due on June 30, 2008. On October 2,
1998, the Company issued an additional $25 million in unsecured notes bearing a
fixed rate of interest of 7.05% per annum, with the principal balance due in
equal annual installments of $5 million, beginning on October 2, 2006 and ending
on October 2, 2009. Proceeds of this issuance were used to fund current working
capital needs. See Note J -INDEBTEDNESS and Note O - SUBSEQUENT EVENTS, for more
information on these borrowing arrangements.
At September 30, 1998, the Company had total debt of $371.1 million (including
approximately $40 million assumed in the Green acquisition), resulting in a
total debt to total capitalization ratio of .55 to 1, and a total debt to
stockholders' equity ratio of 1.21 to 1. The comparable amounts for the period
ended October 31, 1997, were total debt of $199.0 million, total debt to total
capitalization of .41 to 1 and total debt to stockholders' equity of .70 to 1.
36
<PAGE>
The Company had $23.7 million in cash and cash equivalents on hand at September
30, 1998, and committed and discretionary unused lines of credit aggregating an
additional $48.8 million (including foreign lines of credit). On October 2,
1998, the Company issued an additional $25 million in unsecured long-term notes
(as discussed above), which increased its unused credit availability to $73.8
million. Management believes that internally-generated funds, borrowings under
existing credit facilities and the collection of a $20 million Federal income
tax refund will be adequate to meet working capital and capital expenditure
requirements, while maintaining an appropriate debt to total capitalization
ratio.
Risk management
From time to time, the Company utilizes various derivative financial
instruments, in order to limit its exposure from changes in foreign currency
exchange rates, commodity prices and interest rates. In September 1998, the
Company entered into two interest rate swap contracts with separate banks, the
objective of which was to convert a portion of its variable interest rate debt
to fixed rate. These contracts have a total notional principal amount of $75
million and mature in approximately three years. The terms of the swaps provide
for the Company to pay a fixed amount quarterly, based on an annual weighted
average interest rate of approximately 5.20%. In exchange, the Company will
receive a variable amount based on LIBOR, as reset quarterly. The Company has
designated these contracts as hedges of $75 million in variable rate debt
currently outstanding under its Credit Facility, which has been drawn under the
LIBOR-based borrowing option. Accordingly, gains and losses realized under the
swap agreements will increase or reduce interest expense recorded under the
Credit Facility. The swaps, therefore, serve to "fix" the underlying component
of a portion of the Credit Facility susceptible to market fluctuations, (i.e.
the LIBOR component). The interest rate applicable to LIBOR borrowings under the
Credit Facility may still fluctuate despite these hedging arrangements depending
upon changes in the Company's ratio of Funded Debt to EBITDA.
These contracts did not have a material impact on the Company's results of
operations for the three or nine month periods ended September 30, 1998. Fair
market value of the contracts, as obtained from the respective banks, was
approximately ($1.0 million) at September 30, 1998.
NEW ACCOUNTING PRONOUNCEMENTS
- - -----------------------------
See NOTE N "NEW ACCOUNTING PRONOUNCEMENTS" in the Notes to consolidated
condensed financial statements, contained in Part I - Financial Statements, of
this Form 10-Q.
37
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EFFECT OF THE EURO
- - ------------------
On January 1, 1999, eleven of the fifteen member countries of the European Union
are scheduled to establish fixed conversion rates between their existing
sovereign currencies ("legacy currencies"), and adopt the Euro as their new
common legal currency. As of that date, the Euro will trade on currency
exchanges and the legacy currencies will remain legal tender in the
participating countries for a transition period between January 1, 1999 and
January 1, 2002.
During this transition period, electronic payments can be made in the Euro, and
parties can elect to pay for goods and services, and transact business using
either the Euro or a legacy currency. Between January 1, 2002 and July 1, 2002,
the participating countries will introduce Euro notes and coins and withdraw all
legacy currencies from circulation.
The Company is currently assessing the effect of the Euro on its
pricing/marketing strategy, existing contracts and its information systems. The
Euro conversion may effect the cross-border competition by creating cross-border
price transparency and, as a result, the Company's currency risk for operations
in participating countries may be reduced. In addition, the Company is
implementing new accounting, finance and operating systems, which are fully
equipped to operate effectively in the Euro environment. These systems are
expected to be fully implemented by mid-1999. The Company will continue to
evaluate issues involving the introduction of the Euro, but based on current
information and the Company's current assessment, the Euro conversion is not
expected to have a material effect on its business or financial condition.
YEAR 2000 ISSUE
- - ---------------
The Year 2000 Issue is the result of computer programs having been written using
two digits rather than four to define a specific year. Absent corrective
actions, a computer program that has date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions to various activities and
operations.
The Company previously initiated assessments to identify the work efforts
required to assure that systems supporting the business successfully operate
beyond the turn of the century. The scope of this work effort encompasses
information technology systems and systems utilizing embedded technology, such
as microcontrollers.
Plans for achieving Year 2000 compliance were finalized during 1997, and
implementation work was underway by December 31, 1997. The initial phases of
this work, an inventory and assessment of potential problem areas, have been
essentially completed. Modification and testing phases continue, with most
required system modifications to mission critical systems planned for completion
by mid-1999. A significant portion of the Company's direct risk in the
information system area will be mitigated by the implementation of new
accounting, finance and operating systems, which is expected to be completed by
mid-1999. Although not purchased specifically for the purpose of avoiding such
risks, these systems are, nevertheless, fully "Year 2000" compliant.
With respect to embedded technology other than information systems, the Company
has assessed its risk of major malfunctions to be relatively low at its
refractories divisions, since most of its production machinery and equipment is
not numerically controlled. In any event, non Year 2000 compliance would have
only a minimal impact on manufacturing capacity. Ameri-Forge has several
numerically controlled machines, such as presses, rolling mills, heat treatment
equipment and multi-dimensional drills and lathes, most of which has been
purchased within the last 36 months. The Company is currently working with the
equipment's manufacturers to obtain Year 2000 compliance information and expects
to complete its assessment by the end of the fourth quarter, 1998.
Attention has also been focused on compliance attainment efforts of vendors and
others, including key system interfaces with customers and suppliers. Most key
suppliers and
38
<PAGE>
business partners have been, or will be contacted for clarification of their
Year 2000 plans. These surveys are expected to be completed by January 1999.
Notwithstanding the efforts described above, the Company could potentially
experience disruptions to some aspects of its various activities and operations,
including those resulting from non-compliant systems utilized by unrelated third
party governmental and business entities, for example, banks and suppliers and
other businesses on which the Company's vendors and customers rely to conduct
operations.
Management believes that most potential malfunctions occurring within its
information systems environment could be mitigated with manual processing of
transactions. However, the risk of disruptions to operations caused by non-Year
2000 compliant systems of unrelated third parties, such as customers and
suppliers, remains. Likewise, the Company does not have contingency plans in
place to envoke, should such an event, or series of events occur. The
possibility does therefore exist, that any such disruptions could have a
material adverse effect on the Company.
The Company generally expenses all Year 2000 costs as incurred in accordance
with the provisions established by the Emerging Issues Task Force Release # 96-
14 (EITF 96-14) "Accounting for the Costs Associated with Modifying Computer
Software for the Year 2000." Through November 13, 1998, less than $100,000 of
costs had been incurred in the Company's efforts to achieve Year 2000 compliant
systems (exclusive of costs associated with the purchase and installation of new
hardware and software, more fully discussed above). The ultimate total cost to
the Company of achieving Year 2000 compliant systems is currently estimated to
be less than $500,000, to be expended primarily over the 1998-1999 timeframe,
although the Company expects to have a revised estimate in the fourth quarter of
1998, once the assessment of Ameri-Forge's equipment is complete. The Company
has increased its overall information systems budget to accommodate the
aforementioned Year 2000 compliance projects, but has not delayed other critical
information systems work due to these efforts. Incremental costs incurred
strictly due to Year 2000 compliance issues are not expected to have a material
impact on the Company's results of operations, financial condition or liquidity.
FORWARD-LOOKING STATEMENTS
- - --------------------------
STATEMENTS THE COMPANY MAY PUBLISH THAT ARE NOT STRICTLY HISTORICAL ARE
"FORWARD-LOOKING" STATEMENTS UNDER THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. ALTHOUGH THE COMPANY BELIEVES THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON
REASONABLE ASSUMPTIONS, IT CAN GIVE NO ASSURANCE THAT ITS EXPECTATIONS WILL BE
REALIZED. FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS WHICH MAY
CAUSE THE COMPANY'S ACTUAL RESULTS AND CORPORATE DEVELOPMENTS TO DIFFER
MATERIALLY FROM THOSE EXPECTED. FACTORS THAT COULD CAUSE RESULTS AND
DEVELOPMENTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS INCLUDE,
WITHOUT LIMITATION, CHANGES IN MANUFACTURING AND SHIPMENT SCHEDULES, DELAYS IN
COMPLETING PLANT CONSTRUCTION AND ACQUISITIONS, CURRENCY EXCHANGE RATES, NEW
PRODUCT AND TECHNOLOGY DEVELOPMENTS, COMPETITION WITHIN EACH BUSINESS SEGMENT,
CYCLICALITY OF THE MARKETS FOR THE PRODUCTS OF A MAJOR SEGMENT, LITIGATION,
SIGNIFICANT COST VARIANCES, THE EFFECTS OF ACQUISITIONS AND
39
<PAGE>
DIVESTITURES, DISRUPTIONS TO OPERATIONS CAUSED BY NON-YEAR 2000 COMPLIANT
SYSTEMS OF UNRELATED THIRD PARTIES, AND OTHER RISKS DESCRIBED FROM TIME TO
TIME IN THE COMPANY'S SEC REPORTS INCLUDING QUARTERLY REPORTS ON FORM 10-Q,
ANNUAL REPORTS ON FORM 10-K AND REPORTS ON FORM 8-K.
40
<PAGE>
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
Shareholders Lawsuits
Two purported class action lawsuits (each of which is described below) were
filed in connection with the Company's adoption of an amendment to the Company's
Rights Agreement whereby the Company reduced the threshold for exercise of the
rights created thereby to an acquisition of 10% or more of the Company's Common
Stock. Both of these purported class actions are in the preliminary stages and
no discovery has begun.
Charles Miller vs. David H. Blake, Richard W. Vieser, Samuel B. Casey, Jr.,
Rawles Fulgham and Global Industrial Technologies, Inc. and L.I.S.T., Inc. vs.
Rawles Fulgham, David H. Blake, Richard W. Vieser, and Samuel B. Casey, Jr. and
Global Industrial Technologies, Inc. On October 7, 1998, in connection with the
above amendment to the Rights Agreement, Charles Miller and L.I.S.T., Inc.,
individually and on behalf of all other shareholders of the Company similarly
situated, filed purported class action complaints in the Court of Chancery of
the State of Delaware in and for the County of New Castle against the Company
and each director. The complaints allege, among other things, that the
individual defendants breached their fiduciary duties to the Company and its
shareholders by impairing and undermining the corporate democratic process at
the Company by limiting the right and ability of the Company's shareholders to
vote their preferences without unfair manipulation and restraint. The plaintiffs
seek as relief, among other things, an order from the court declaring the
amendment to the Rights Agreement null and void. The defendants believe that the
lawsuits are without merit and intend to defend themselves vigorously.
On October 1, 1998, Curragh Queensland Mining (Pty) Ltd. filed an action in
Denver District Court of the State of Colorado alleging that a dragline sold to
it by Dresser Industries, Inc. (Dresser) in 1990, which the plaintiffs has used
in its surface mining operations in Australia, failed to meet certain
performance specifications in the contract relating to the sale of the dragline.
Pursuant to the agreement between Dresser and Harbison-Walker Refractories
Company, which previously had been named INDRESCO, Inc., the Company's
predecessor, relating to the public distribution by Dresser of the shares of
INDRESCO, Inc., H-W may be required to indemnify Dresser for certain claims such
as those asserted by the plaintiff. Although management is unable to predict the
outcome of this lawsuit, it believes that legal and contractual defenses
available to H-W may preclude any recovery by the plaintiff and that any
settlement or judgment which the plaintiff may recover is adequately reserved by
the Company and, in any event, such recovery would not have a material effect
upon the consolidated financial position or liquidity of the Company.
For additional information regarding contingencies, see NOTE H to Consolidated
Financial Statements contained in the Company's annual report on Form 10-K for
the year ended October 31, 1997, NOTE 18 to Consolidated Financial Statements
contained in Green's annual report on Form 10-K for the year ended December 31,
1997, and NOTE 5 to Consolidated Financial Statements contained in Green's
quarterly report on Form 10-Q for the quarter ended March 31, 1998.
Item 5 Other Information
On October 2, 1998, an agreement was entered into whereby the Company issued $25
million in senior notes to the Prudential Insurance Company of America in a
private placement offering (the "New Senior Notes"). The New Senior Notes are
exempt from registration pursuant to Rule 144A of the Securities Act of 1933
and, as such, carry certain restrictions regarding their resale. The New Senior
Notes are unsecured and bear interest at a rate of 7.05% per annum. Interest is
payable quarterly, in January, April, July and October of each year, with the
principal balance due in equal annual installments of $5 million, beginning on
October 2, 2006 and ending on October 2, 2009. The New Senior Notes may be
prepaid in whole or in part at any time, although a premium may apply if this
option is elected. The New Senior Notes contain certain affirmative and negative
covenants which, among other matters, require compliance with various financial
ratios and thresholds relating, but not limited, to minimum consolidated
tangible net worth and maximum debt to total capitalization. The agreement also
includes provisions whereby an event of default under the Company's other debt
agreements may also constitute an event of default under the New Senior Note
agreement. The Company utilized proceeds from the New Senior Notes for general
corporate purposes.
Item 6: Exhibits and reports on Form 8-K.
(a) Exhibits
10.1 Note Agreement, dated as of October 2, 1998, with The
Prudential Insurance Company of America for 7.05% Senior
Notes due October 2, 2010.
10.2 Amendment No. 2, dated as of August 31, 1998, to the Note
Agreement dated as of January 31, 1996, for the
41
<PAGE>
6.45% Senior Notes, Series A, due January 31, 2002 and the
6.76% Senior Notes, Series B, due January 31, 2002.
10.3 Amendment No. 1 dated as of August 31, 1998 to the Note
Agreement dated as of June 30, 1998 for the 6.83% Senior
Notes due June 30, 2008.
10.4 Amendment to Severance Agreement dated as of September 18,
1998, to Severance Agreement dated February 23, 1998 by and
between the Company and Mr. Graham L. Adelman (Amendment to
Severance Agreement dated as of September 18, 1998, to
Severance Agreements dated February 23, 1998 by and between
the Company and Mssrs. Juan M. Bravo, Herbert Linser, George
Pasley, James B. Alleman and Maurice W. Barrett omitted and
identified on a Schedule of Omitted Documents, filed
herewith).
SCHEDULE OF OMITTED DOCUMENTS
-----------------------------
1. Amendment to Severance Agreement dated as of September 18, 1998, to
Severance Agreement dated February 23, 1998 by and between the Company and
Mr. Juan M. Bravo; identical to the Amendment to Severance Agreement with
Mr. Graham L. Adelman, filed herewith, except as to the party.
2. Amendment to Severance Agreement dated as of September 18, 1998, to
Severance Agreement dated February 23, 1998 by and between the Company and
Mr. Herbert Linser; identical to the Amendment to Severance Agreement with
Mr. Graham L. Adelman, filed herewith, except as to the party.
3. Amendment to Severance Agreement dated as of September 18, 1998, to
Severance Agreement dated February 23, 1998 by and between the Company and
Mr. George W. Pasley; identical to the Amendment to Severance Agreement with
Mr. Graham L. Adelman, filed herewith, except as to the party.
4. Amendment to Severance Agreement dated as of September 18, 1998, to
Severance Agreement dated February 23, 1998 by and between the Company and
Mr. James B. Alleman; identical to the Amendment to Severance Agreement with
Mr. Graham L. Adelman, filed herewith, except as to the party.
5. Amendment to Severance Agreement dated as of September 18, 1998, to
Severance Agreement dated February 23, 1998 by and between the Company and
Mr. Maurice W. Barrett; identical to the Amendment to Severance Agreement
with Mr. Graham L. Adelman, filed herewith, except as to the party.
42
<PAGE>
(b) Reports on Form 8-K
1. On July 9, 1998, the Company filed a report on Form 8-K,
reporting under Item 2, disclosing the announcement that the
Company had completed its previously announced tender offer
for all of the outstanding shares of common stock, par value
$1.00 per share of A.P. Green Industries, Inc. for $22.00
net per share in cash.
2. On July 31, 1998, the Company filed a report on Form 8-K,
reporting under Item 8, disclosing the announcement that the
Company's Board of Directors had voted to change the
Company's annual fiscal accounting period from October 31,
1997 to December 31, 1997.
3. On September 14, 1998, the Company filed an amendment to
Form 8-K, reporting under Item 7, presenting unaudited
proforma financial information of the company and A.P. Green
Industries, Inc.
43
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL INDUSTRIAL TECHNOLOGIES, Inc.
By: /s/ Donna A. Reeves
---------------------------------------
Donna A. Reeves
Vice President Controller
(Authorized Officer and Chief
Accounting Officer)
Dated: November 16, 1998
44
<PAGE>
EXHIBIT 10.1
- - --------------------------------------------------------------------------------
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
GPX CORP.
$25,000,000 7.05% SENIOR NOTES
DUE OCTOBER 2, 2010
--------------
NOTE AGREEMENT
--------------
Dated as of October 2, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
Page
----
1. AUTHORIZATION OF ISSUE OF NOTES............................................1
2. PURCHASE AND SALE OF NOTES.................................................1
3. CONDITIONS AT CLOSING......................................................2
3A. CERTAIN DOCUMENTS.....................................................2
3B. INTENTIONALLY OMITTED..................................................3
3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT.............................3
3D. PURCHASE PERMITTED BY APPLICABLE LAWS..................................3
3E. LEGAL MATTERS..........................................................3
3F. PROCEEDINGS............................................................3
4. PREPAYMENTS................................................................3
4A. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT......................3
4B. NOTICE OF OPTIONAL PREPAYMENT..........................................4
4C. PARTIAL PAYMENTS PRO RATA..............................................4
4D. RETIREMENT OF NOTES....................................................4
5. AFFIRMATIVE COVENANTS......................................................5
5A. FINANCIAL STATEMENTS...................................................5
5B. INFORMATION REQUIRED BY RULE 144A......................................7
5C. INSPECTION OF PROPERTY AND CORPORATE BOOKS AND RECORDS.................7
5D. COVENANT TO SECURE NOTE EQUALLY........................................7
5E. COMPLIANCE WITH LAWS...................................................7
5F. CORPORATE EXISTENCE....................................................7
5G. NATURE OF BUSINESS.....................................................7
5H. INSURANCE..............................................................8
5I. TAXES AND CLAIMS.......................................................8
5J. MAINTENANCE............................................................8
5K. FURTHER ASSURANCES.....................................................8
5L. OTHER INFORMATION......................................................8
6. NEGATIVE COVENANTS.........................................................8
6A. MINIMUM CONSOLIDATED TANGIBLE NET WORTH................................9
6B. LIMITATION ON CONSOLIDATED TOTAL DEBT..................................9
6C. INTENTIONALLY OMITTED..................................................9
6D. LIMITATION ON RESTRICTED SUBSIDIARY DEBT...............................9
6E. LIMITATION ON LIENS....................................................9
6F. ASSET DISPOSITIONS....................................................10
6G. MERGER AND CONSOLIDATIONS.............................................12
6H. TRANSACTIONS WITH AFFILIATES..........................................12
7. EVENTS OF DEFAULT.........................................................13
7A. ACCELERATION..........................................................13
7B. RESCISSION OF ACCELERATION............................................15
i
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7C. NOTICE OF ACCELERATION OR RESCISSION..................................16
7D. OTHER REMEDIES........................................................16
8. REPRESENTATIONS, COVENANTS AND WARRANTIES.................................16
8A. CORPORATION ORGANIZATION AND AUTHORITY................................16
8B. FINANCIAL STATEMENTS..................................................17
8C. ACTIONS PENDING.......................................................17
8D. OUTSTANDING DEBT......................................................18
8E. TITLE TO PROPERTIES...................................................18
8F. PATENT, TRADEMARKS, LICENSES, ETC.....................................18
8G. TAXES.................................................................18
8H. COMPLIANCE WITH LAW...................................................19
8I. CONFLICTING AGREEMENTS AND OTHER MATTERS..............................19
8J. OFFERING OF NOTES.....................................................19
8K. USE OF PROCEEDS.......................................................19
8L. ERISA.................................................................20
8M. CERTAIN LAWS..........................................................20
8N. GOVERNMENTAL CONSENT..................................................20
8O. ENVIRONMENTAL COMPLIANCE..............................................21
8P. DISCLOSURE............................................................21
8Q. HOSTILE TENDER OFFERS.................................................21
9. REPRESENTATIONS OF EACH PURCHASER.........................................22
9A. NATURE OF PURCHASE....................................................22
9B. SOURCE OF FUNDS.......................................................22
10. DEFINITIONS...............................................................23
10A. YIELD-MAINTENANCE TERMS..............................................23
10B. OTHER TERMS..........................................................25
10C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS......................34
11. MISCELLANEOUS.............................................................34
11A. NOTE PAYMENTS........................................................34
11B. EXPENSES.............................................................35
11C. CONSENT TO AMENDMENTS................................................35
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES.......36
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS................................36
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.........37
11G. SUCCESSORS AND ASSIGNS...............................................37
11H. CONFIDENTIALITY; DISCLOSURE TO OTHER PERSONS.........................37
11I. NOTICES..............................................................38
11J. PAYMENTS DUE ON NON-BUSINESS DAYS....................................38
11K. SEVERABILITY.........................................................39
11L. DESCRIPTIVE HEADINGS.................................................39
11M. SATISFACTION REQUIREMENT.............................................39
11N. GOVERNING LAW........................................................39
11O. COUNTERPARTS.........................................................39
11P. BINDING AGREEMENT....................................................39
11Q. SEVERALTY OF OBLIGATIONS.............................................39
11R. MAXIMUM INTEREST PAYABLE.............................................39
11S. WAIVER BY CO-MAKERS..................................................40
ii
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INFORMATION SCHEDULE
SCHEDULE 6E -- EXISTING LIENS
SCHEDULE 8C -- ACTIONS PENDING
SCHEDULE 8I -- AGREEMENTS RESTRICTING DEBT
SCHEDULE 8O -- ENVIRONMENTAL COMPLIANCE
SCHEDULE 10 -- ACQUISITIONS
EXHIBIT A - FORM OF NOTE
EXHIBIT B - FORM OF OPINION OF COMPANY'S GENERAL COUNSEL
EXHIBIT C1 - FORM OF NOTICE OF DESIGNATION OF RESTRICTED SUBSIDIARY
EXHIBIT C2 - FORM OF NOTICE OF DESIGNATION OF UNRESTRICTED SUBSIDIARY
EXHIBIT D1 - FORM OF GUARANTY AGREEMENT
iii
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
GPX CORP.
2121 SAN JACINTO STREET
SUITE 2500
DALLAS, TEXAS 75201
As of October 2, 1998
To Each of the Purchasers Named in the
Information Schedule Attached Hereto
$25,000,000 7.05% Senior Notes
Ladies and Gentlemen:
The undersigned, GLOBAL INDUSTRIAL TECHNOLOGIES, INC. (the "COMPANY"), and
GPX CORP. (the Company and GPX Corp., collectively, "CO-MAKERS") hereby agree
with the purchasers named in the Information Schedule attached hereto (the
----------- --------
"PURCHASERS") as follows:
PARAGRAPH 1. AUTHORIZATION OF ISSUE OF NOTES.
1. AUTHORIZATION OF ISSUE OF NOTES. The Co-Makers will authorize the issue
of their joint and several senior promissory notes in the aggregate principal
amount of $25,000,000, to be dated the date of issue thereof, to mature
October 2, 2010, to bear interest on the unpaid balance thereof from the date
thereof until the principal thereof shall have become due and payable at the
rate of 7.05% per annum and on overdue payments at the rate specified therein,
and to be substantially in the form of Exhibit A attached hereto. The term
"NOTES" as used herein shall include each such senior promissory note delivered
pursuant to any provision of this Agreement and each such senior promissory note
delivered in substitution or exchange for any other Note pursuant to any such
provision.
PARAGRAPH 2. PURCHASE AND SALE OF NOTES.
2. PURCHASE AND SALE OF NOTES. The Co-Makers hereby agree to sell to each
Purchaser and, subject to the terms and conditions herein set forth, each
Purchaser agrees to purchase from the Co-Makers, the aggregate principal amount
of Notes set forth opposite such Purchaser's name in the Information Schedule
----------- --------
attached hereto at 100% of such aggregate principal amount. The Co-Makers will
deliver to each Purchaser, at the offices of Prudential Capital Group, 2200 Ross
Avenue, Suite 4200E, Dallas, Texas 75201, one or more Notes registered in such
Purchaser's name, evidencing the aggregate principal amount of Notes to be
purchased by such Purchaser and in the denomination or denominations specified
with respect to such Purchaser in the Information Schedule against payment of
----------- --------
the purchase price thereof by transfer of immediately available funds for credit
to the Company's account #74-57006 at Bank of America Illinois, 231 South
LaSalle Street, Chicago, Illinois 60697 on the date of closing,
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which shall be October 2, 1998 or any other date on or before October 30, 1998
upon which the Co-Makers and the Purchasers may mutually agree (the "CLOSING" or
the "DATE OF CLOSING").
PARAGRAPH 3. CONDITIONS PRECEDENT.
3. CONDITIONS AT CLOSING. Each Purchaser's obligation to purchase and pay
for the Notes to be purchased by such Purchaser hereunder is subject to the
satisfaction, on or before the Date of Closing, of the following conditions:
3A. CERTAIN DOCUMENTS. Each Purchaser shall have received the following,
each dated the Date of the Closing:
(i) The Notes to be purchased by such Purchaser.
(ii) Certified copies of the resolutions of the Board of Directors
of each Co-Maker and each Guarantor approving each document to which each
is a party in connection with the transactions contemplated by this
Agreement, the Guaranty Agreements and the Notes, and of all documents
evidencing other necessary corporate action and governmental approvals, if
any, with respect to this Agreement, the Guaranty Agreements and the Notes.
(iii) A certificate of the Secretary or an Assistant Secretary of
each Co-Maker and each Guarantor certifying the names and true signatures
of the officers of such Co-Maker authorized to sign this Agreement, the
Guaranty Agreements and the Notes and the other documents to be delivered
hereunder.
(iv) Certified copies of the Certificate of Incorporation and By-
laws of each Co-Maker and each Guarantor.
(v) A favorable opinion of Graham L. Adelman, Esq., general counsel
of the Company, counsel for the Co-Makers and each Guarantor, satisfactory
to the Purchasers and Purchasers' assistant general counsel and
substantially in the form of Exhibit C attached hereto and as to such other
---------
matters as the Purchasers may reasonably request.
(vi) A good standing certificate for each Co-Maker from the
Secretary of State of Delaware, Nevada and Texas and a good standing
certificate for each Guarantor from the Secretary of State of each
Guarantor's state of incorporation dated as of recent date and such other
evidence of the status of the Co-Makers as the Purchasers may reasonably
request.
(vii) The Guaranty Agreements, duly executed by each Guarantor and
each Co-Maker.
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(viii) Additional documents or certificates with respect to legal
matters or corporate or other proceedings related to the transactions
contemplated hereby as the Purchasers may reasonably request.
3B. INTENTIONALLY OMITTED.
3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and
warranties contained in paragraph 8 shall be true on and as of the Date of
Closing, except to the extent of changes caused by the transactions herein
contemplated; there shall exist on the Date of Closing no Event of Default or
Default; and the Company shall have delivered to such Purchaser an Officer's
Certificate, dated the Date of Closing, to both such effects.
3D. PURCHASE PERMITTED BY APPLICABLE LAWS. The offer by the Co-Makers of,
and the purchase of and payment for the Notes to be purchased by such Purchaser
on the Date of Closing on the terms and conditions herein provided (including
the use of the proceeds of such Notes by the Co-Makers) shall not violate any
applicable law or governmental regulation (including, without limitation,
Section 5 of the Securities Act or Regulation T, U, or X of the Board of
Governors of the Federal Reserve System) and shall not subject such Purchaser to
any tax, penalty, liability or other onerous condition under or pursuant to any
applicable law or governmental regulation.
3E. LEGAL MATTERS. Counsel for Purchasers, including the assistant general
counsel for the Purchasers, shall be satisfied as to all legal matters relating
to such purchase and sale.
3F. PROCEEDINGS. All corporate and other proceedings taken or to be taken
in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to such Purchaser,
and such Purchaser shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably request.
PARAGRAPH 4. PREPAYMENTS.
4. PREPAYMENTS. The Notes shall be subject to prepayment only with
respect to the optional prepayments permitted by paragraph 4A.
4A. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes shall be
subject to prepayment, in whole at any time or from time to time in part (in a
minimum principal amount of at least $1,000,000, in integral multiples of
$100,000), at the option of the Co-Makers, at 100% of the principal amount so
prepaid plus interest thereon to the prepayment date and the Yield-Maintenance
Amount, if any, with respect to each Note as the case may be. Any partial
prepayment of the Notes pursuant to this paragraph 4A shall be applied pro rata
to all of the remaining required payments of principal, including the payment on
the maturity date of such Notes.
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4B. NOTICE OF OPTIONAL PREPAYMENT. The Co-Makers shall give the holder of
each Note to be prepaid pursuant to paragraph 4A irrevocable written notice of
any prepayment not less than 10 Business Days prior to the prepayment date,
specifying such prepayment date and specifying the aggregate principal amount of
the Notes to be prepaid on such date, identifying each Note held by such holder,
and the principal amount of each such Note, to be prepaid on such date and
stating that such prepayment is to be made pursuant to paragraph 4A. Notice of
prepayment having been given as aforesaid, the principal amount of the Notes
specified in such notice, together with interest thereon to the prepayment date
and together with the Yield-Maintenance Amount, if any, herein provided, shall
become due and payable on such prepayment date. The Co-Makers shall, on or
before the day on which it gives written notice of any prepayment pursuant to
paragraph 4A, give telephonic notice of the principal amount of the Notes to be
prepaid and the prepayment date to each Significant Holder which shall have
designated a recipient for such notices in the Information Schedule attached
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hereto or by notice in writing to the Co-Makers.
4C. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of the Notes
pursuant to paragraph 4A, the principal amount to be prepaid shall be applied
pro rata to all outstanding Notes (including, for the purpose of this paragraph
4C only, all Notes prepaid or otherwise retired or purchased or otherwise
acquired by the Co-Makers or any of their Subsidiaries or Affiliates other than
by prepayment pursuant to paragraph 4A) according to the respective unpaid
principal amounts thereof.
4D. RETIREMENT OF NOTES. The Co-Makers shall not, and shall not permit any
of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in
part prior to their stated final maturity (other than by prepayment pursuant to
paragraph 4A or upon acceleration of such final maturity pursuant to paragraph
7A), or purchase or otherwise acquire, directly or indirectly, Notes held by any
holder unless the Co-Makers or such Subsidiaries or Affiliates shall have
offered to prepay or otherwise retire or purchase or otherwise acquire, as the
case may be, the same proportion of the aggregate principal amount of Notes held
by each other holder of Notes at the time outstanding upon the same terms and
conditions. In the event that certain holders of Notes decline to accept the
full proportionate amount offered them pursuant to the preceding sentence, the
Co-Makers may within five Business Days offer, only to the holders of Notes who
accepted the full proportionate amount initially offered to them, to prepay or
otherwise retire or purchase or otherwise acquire, as the case may be, the Notes
of such holders on the same terms as Co-Makers' initial offer, in an aggregate
amount equal to the aggregate amount so declined. The additional amount so
offered to each such holder pursuant to the preceding sentence shall be in
proportion to the aggregate amount of Notes held by all such holders to which
the additional amount is so offered. Any Notes so prepaid or otherwise retired
or purchased or otherwise acquired by the Co-Makers or any of their Subsidiaries
or Affiliates shall not be deemed to be outstanding for any purpose under this
Agreement, except as provided in paragraph 4C.
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PARAGRAPH 5. AFFIRMATIVE COVENANTS.
5. AFFIRMATIVE COVENANTS. So long as any Note is outstanding and unpaid,
the Company covenants as follows:
5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver to
each holder of any Notes one copy of the following, unless more copies are
specified on the Purchaser Schedule:
(i) as soon as practicable and in any event within 50 days after the
end of each quarterly period (other than the last quarterly period) in each
fiscal year: (A) consolidated statements of income, stockholders' equity
and cash flows of the Company and its Subsidiaries for the period from the
beginning of the current fiscal year to the end of such quarterly period,
and a consolidated balance sheet of the Company and its Subsidiaries as at
the end of such quarterly period, and (B) if the total assets of
Unrestricted Subsidiaries (other than Aken) exceeds $15,000,000 at the end
of any quarterly period for which financial statements are required to be
provided by subclause (A) above, consolidated statements of income,
stockholders' equity and cash flows of the Company and its Restricted
Subsidiaries for the period from the beginning of the current fiscal year
to the end of such quarterly period, and a consolidated balance sheet of
the Company and its Restricted Subsidiaries as at the end of such quarterly
period, all statements in subclauses (A) and (B) setting forth in each case
in comparative form figures for the corresponding period in the preceding
fiscal year, all in reasonable detail and satisfactory in form to the
Required Holder(s) and certified by an authorized financial officer of the
Company, subject to changes resulting from year-end adjustments;
(ii) as soon as practicable and in any event within 95 days after the
end of each fiscal year: (A) consolidated statements of income and cash
flows and a consolidated statement of stockholders' equity of the Company
and its Subsidiaries for such year, and a consolidated balance sheet of the
Company and its Subsidiaries as at the end of such year, and (B) if the
total assets of Unrestricted Subsidiaries (other than Aken) exceeds
$15,000,000 at the end of any fiscal year for which financial statements
are required to be provided by subclause (A) above, consolidated statements
of income and cash flows and a consolidated statement of stockholders'
equity of the Company and its Restricted Subsidiaries for such year, and a
consolidated balance sheet of the Company and its Restricted Subsidiaries
as at the end of such year, all statements in subclauses (A) and (B)
setting forth in each case in comparative form corresponding consolidated
figures from the preceding annual audit, to be in reasonable detail and
satisfactory in form to the Required Holder(s) and, as to the consolidated
statements, reported on by independent public accountants of recognized
national standing selected by the Company whose report shall be without
limitation as to scope of the audit and satisfactory in substance to the
Required Holder(s);
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(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its public stockholders and copies of all registration statements
(without exhibits) and all reports which it files with the Securities and
Exchange Commission (or any governmental body or agency succeeding to the
functions of the Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each other material
report submitted to the Company or any Restricted Subsidiary by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Company or any Restricted Subsidiary; and
(v) (A) promptly after the filing or receiving thereof, copies of
all material reports and notices which the Company or any Subsidiary files
under ERISA with the Internal Revenue Service or the PBGC or the U.S.
Department of Labor or which the Company or any Subsidiary receives from
such corporation and (B) with reasonable promptness, notice of the
occurrence of a reportable event currently described under clause (4), (7),
(9) or (11) of Section 4043(c) ERISA.
(vi) with reasonable promptness, such other information respecting
the condition or operations, financial or otherwise, of the Company or any
of its Restricted Subsidiaries as any Significant Holder may reasonably
request; provided, however, that prior to the occurrence of a Default or an
-------- -------
Event of Default, the Company shall have no obligation to furnish to any
Significant Holder information regarding strategic plans and similar non-
public forward-looking information of the Company or any Restricted
Subsidiary.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each holder of any Notes an Officer's
Certificate demonstrating (with computations in reasonable detail) compliance by
the Company and its Restricted Subsidiaries with the provisions of paragraphs
6A, 6B, 6D, 6E, 6F and 6G and stating that there exists no Event of Default or
Default, or, if any Event of Default or Default exists, specifying the nature
and period of existence thereof and what action the Company proposes to take
with respect thereto. Together with each delivery of financial statements
required by clause (ii) above, the Company will deliver to each holder of any
Notes a certificate of such accountants stating that, in making the audit
necessary for their report on such financial statements, they have obtained no
knowledge of any Event of Default or Default, or, if they have obtained
knowledge of any Event of Default or Default, specifying the nature and period
of existence thereof. Such accountants, however, shall not be liable to anyone
by reason of their failure to obtain knowledge of any Event of Default or
Default which would not be disclosed in the course of an audit conducted in
accordance with generally accepted auditing standards.
The Company also covenants that immediately after any Responsible Officer
obtains knowledge of an Event of Default, it will deliver to each holder of any
Notes an Officer's Certificate specifying the nature and period of existence
thereof and what action the Company proposes to take with respect thereto.
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<PAGE>
5B. INFORMATION REQUIRED BY RULE 144A. The Company will, upon the request
of the holder of any Note, provide such holder, and any qualified institutional
buyer designated by such holder, such financial and other information as such
holder may reasonably determine to be necessary in order to permit compliance
with the information requirements of Rule 144A under the Securities Act in
connection with the resale of Notes, except at such times as the Company is
subject to the reporting requirements of section 13 or 15(d) of the Exchange
Act. For the purpose of this paragraph 5B, the term "qualified institutional
buyer" shall have the meaning specified in Rule 144A under the Securities Act.
5C. INSPECTION OF PROPERTY AND CORPORATE BOOKS AND RECORDS. The Company
will permit any Person designated by any holder of any Note in writing, at the
Company's expense if an Event of Default shall have occurred which is continuing
and otherwise at such holder's expense, to visit and inspect any of the
properties of the Company and its Restricted Subsidiaries, to examine the
corporate books and financial records of the Company and its Restricted
Subsidiaries and make copies thereof or extracts therefrom and to discuss the
affairs, finances and accounts of any of such corporations with the principal
officers of the Company and its independent public accountants, all at such
reasonable times and as often as such holder may reasonably request in writing.
5D. COVENANT TO SECURE NOTE EQUALLY. The Company will, if it or any
Restricted Subsidiary shall create or assume any Lien upon any of its property
or assets, whether now owned or hereafter acquired, other than Liens permitted
by the provisions of paragraph 6E (unless prior written consent to the creation
or assumption thereof shall have been obtained pursuant to paragraph 11C), make
or cause to be made effective provision whereby the Notes will be secured by
such Lien equally and ratably with any and all other Debt thereby secured so
long as any such other Debt shall be so secured.
5E. COMPLIANCE WITH LAWS. The Company will comply, and will cause each of
its Restricted Subsidiaries to comply, and in respect to ERISA will cause each
of its ERISA Affiliates to comply, with all applicable laws, rules, regulations
and orders except, in any such case, where failure to comply would not result in
a material adverse effect on the financial position or operations of the Company
and its Restricted Subsidiaries taken as a whole.
5F. CORPORATE EXISTENCE. The Company will and will cause each of its
Restricted Subsidiaries to maintain its corporate existence and all material
licenses and permits necessary for the conduct of its business.
5G. NATURE OF BUSINESS. The Company will not and will not permit any of
its Restricted Subsidiaries to engage in any business, if as a result, when
taken as a whole, the general nature of the business of the Company and its
Restricted Subsidiaries would be substantially changed from the business at the
Date of Closing.
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5H. INSURANCE. The Company will and will cause each of its Restricted
Subsidiaries to maintain insurance in amounts, and against such liabilities and
hazards, and with such carriers, as is customarily maintained in accordance with
prudent business practice by companies operating similar businesses and such
other insurance as required by law, and upon written request by any holder of
any Note, will deliver a certificate specifying the details of such insurance.
5I. TAXES AND CLAIMS. The Company will and will cause each of its
Restricted Subsidiaries to promptly pay all Taxes and such obligations owed by
it to vendors, suppliers and other persons for work, labor and materials, other
than such Taxes and obligations which are being contested in good faith and for
which adequate reserves are established.
5J. MAINTENANCE. The Company will and will cause each of its Restricted
Subsidiaries to maintain its properties in good repair and working order such
that the absence of which would not create a material adverse effect on the
financial position or operation of the Company and its Restricted Subsidiaries,
taken as a whole.
5K. FURTHER ASSURANCES. Each of the Co-Makers will, and will cause each
Subsidiary to, execute and deliver such further agreements and instruments and
take such further action as may be reasonably requested by the Required Holders
to carry out the provisions and purposes of this Note Agreement, the Notes, any
Guaranty executed and delivered by any Guarantor and any other instrument or
agreement executed and delivered pursuant to or in connection with any of the
foregoing (the "NOTE DOCUMENTS"). Without in any way limiting the foregoing, if
at any time any Subsidiary which is not a Guarantor guarantees any Debt of the
Company or GPX under the Credit Agreement, the Co-Makers shall cause each
Subsidiary (which Subsidiary shall then be deemed to be a Restricted Subsidiary)
to execute and deliver a Guaranty in form and substance identical to the
Guaranty Agreement attached as Exhibit D-1, pursuant to which each such
Subsidiary guarantees the prompt payment and performance in full of the Notes
and all other obligations under the Note Agreement and the other Note Documents
and subordinates any and all Debt of any Co-Maker or any Subsidiary to such
Guarantor, together with such legal opinions, corporate and partnership
documents and certificates as the Purchasers or their counsel may require in
connection therewith.
5L. OTHER INFORMATION. Each of the Co-Makers will, and will cause each
Subsidiary to, deliver to the Purchasers copies of any and all information
provided to any of its lenders (including, without limitation, the Banks) under
the terms of any loan, credit or similar agreement to which either Co-Maker is a
party (including, without limitation, the Credit Agreement) at the same time as
such information is delivered to such lenders.
PARAGRAPH 6. NEGATIVE COVENANTS.
6. NEGATIVE COVENANTS. So long as any Note is outstanding and unpaid, the
Company covenants as follows:
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6A. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. The Company will not permit
Consolidated Tangible Net Worth at any time to be less than the sum of
$280,000,000 plus (i) 25% of Consolidated Net Income, if positive, for each
fiscal quarter beginning after July 31, 1998 and (ii) 100% of the consideration,
to the extent such consideration consists of cash, cash-equivalent assets or
debt obligations, received after July 31, 1998 for the sale of any shares of
stock of the Company (other than shares of Redeemable Preferred Stock).
6B. LIMITATION ON CONSOLIDATED TOTAL DEBT. The Company will not and will
not permit any Restricted Subsidiary to create, incur, assume, or suffer to
exist any Debt if Consolidated Total Debt will, (i) at any time during the
period commencing July 1, 1998 and ending June 30, 1999, exceed 55% of Total
Capitalization; (ii) at any time during the period commencing July 1, 1999 and
ending June 30, 2001, exceed 50% of Total Capitalization; or (iii), at any time
after June 30, 2001, exceed 47.5% of Total Capitalization.
6C. INTENTIONALLY OMITTED.
6D. LIMITATION ON RESTRICTED SUBSIDIARY DEBT. The Company will not permit
any of its Restricted Subsidiaries to create, incur, assume, or suffer to exist
Debt except: (i) Debt owed to the Company or another wholly-owned Restricted
Subsidiary, (ii) Debt evidenced by the Notes or a guaranty of the Notes and
(iii) other Debt so long as, after giving effect thereto, the aggregate amount
of Priority Debt does not at any time exceed 17.5% of Consolidated Tangible Net
Worth.
6E. LIMITATION ON LIENS. The Company will not and will not permit any of
its Restricted Subsidiaries to create, incur, assume, or suffer to exist any
Lien on its property or assets except for:
(i) Liens for property Taxes or Liens securing obligations owed to
mechanics and materialmen provided such Taxes or obligations are not
in violation of paragraph 5I;
(ii) Liens resulting from judgments which the Company is contesting in
good faith by appropriate proceedings, provided that adequate book
reserves shall have been made for such judgment and such Liens are
stayed by appropriate proceedings;
(iii) Liens incidental in the ordinary course of the Company's business
which do not secure Debt and do not materially impair or detract
from the value of such property or asset;
(iv) Liens created to secure Debt incurred or assumed to pay all or any
part of the purchase price of, or constituting a lease of, fleet
vehicles or office equipment purchased or leased by the Company or a
Restricted Subsidiary, provided that (i) any such Lien attaches
solely to the vehicles or office equipment so purchased or leased,
(ii) the principal amount of the obligations secured by any such
Lien shall at no time exceed the purchase price of such vehicles or
office equipment, (iii)
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recourse for the obligations secured by any such Lien shall be
limited solely to the vehicles or office equipment so purchased or
leased, and (iv) any such Lien shall be created contemporaneously
with the purchase or lease of such vehicles or office equipment;
(v) Liens securing Debt of a Restricted Subsidiary to the Company,
provided that such Liens secure the Notes and the other obligations
of the Co-Makers under this Agreement and the other Note Documents
equally and ratably with all other Debt secured thereby pursuant to
documentation reasonably satisfactory to the Required Holders;
(vi) Liens in existence at Closing and either (A) permitted by clauses
(i) through (v) of this paragraph 6E, or (B) listed on Schedule 6E;
(vii) Liens securing Debt incurred to pay the purchase price or costs of
construction of fixed assets or assumed as part of the purchase
price of fixed assets, or Liens on fixed assets of a Restricted
Subsidiary securing Debt of such Restricted Subsidiary where such
Liens and Debt existed at the time such Restricted Subsidiary
initially became a Subsidiary (and such Liens and Debt were not
created in contemplation of such Restricted Subsidiary becoming a
Subsidiary) provided (A) in the case of such Liens securing Debt
incurred to pay the purchase price or costs of construction, the
Lien attaches solely to the fixed assets so purchased or
constructed, and the Lien is created not later than 270 days after
the purchase of or completion of construction of such fixed assets;
(B) in the case of such Liens and Debt existing at the time such
Restricted Subsidiary initially became a Subsidiary, the Lien
attaches solely to the fixed assets which were so encumbered, and
secures solely the Debt so secured, at the time such Restricted
Subsidiary initially became a Subsidiary; (C) at the time of the
creation of such Liens, the Debt secured by such Liens does not
exceed the purchase price or costs of construction of such fixed
assets; (D) the aggregate amount of Debt secured by Liens permitted
by this clause (vii) does not at any time exceed the remainder of
(x) 35% of Consolidated Tangible Net Worth minus (y) the aggregate
-----
amount of Priority Debt; (E) the incurrence of such Debt is
economically beneficial to the Company; and (F) after giving effect
to the Debt secured by such Liens, no Default or Event of Default
shall exist;
(viii) Other Liens, provided the aggregate amount of Priority Debt does not
at any time exceed 17.5% of Consolidated Tangible Net Worth.
6F. ASSET DISPOSITIONS. The Company will not and will not permit its
Restricted Subsidiaries to make any Asset Disposition, other than in the
ordinary course of business, unless:
(i) The Company or such Restricted Subsidiary receives full, fair and
reasonable consideration at the time of such Asset Disposition at
least equal to the fair market value of such asset being disposed;
and either:
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(A) the aggregate book value of all Asset Dispositions during any
fiscal year of the Company does not exceed 15% of the book value of
consolidated assets of the Company and its Restricted Subsidiaries as
of the end of the immediately preceding fiscal year of the Company, or
(B) an amount equal to the proceeds attributable to or realized from
the portion of the aggregate book value of Asset Dispositions in any
fiscal year of the Company that exceeds 15% of the book value of
consolidated assets of the Company and its Restricted Subsidiaries as
of the end of the immediately preceding fiscal year of the Company
(the "EXCESS SALE PROCEEDS") is applied by the Company or any
Restricted Subsidiary within 180 days after the applicable Asset
Disposition to: (I) acquire productive assets consistent with the
general nature of the business of the Company and its Restricted
Subsidiaries, taken as a whole; or (II) invest in assets allowed for
in (i) through (ix) of the definition of Restricted Investments;
provided, any Excess Sale Proceeds invested in any Restricted
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Subsidiary as allowed for in (i) of the definition of Restricted
Investments shall be applied by such Restricted Subsidiary in
accordance with this clause (B); provided, further, any Excess Sale
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Proceeds invested in assets allowed for in (iii) through (ix) of the
definition of Restricted Investments shall remain Excess Sale Proceeds
subject to the restrictions set forth in this clause (B), and shall
remain continuously invested in assets allowed for in (iii) through
(ix) of the definition of Restricted Investments or otherwise be
immediately applied as set forth in subclauses (I), (II) or (III) of
this clause (B); or (III) reduce Debt of the Company or its Restricted
Subsidiaries; provided, however, that any such reduction in Debt
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resulting from Excess Sale Proceeds shall be made pro rata with all
Debt which is pari passu with the Notes (including as a voluntary
prepayment of the Notes) outstanding; provided, however, each holder
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may elect to waive, in respect of the Notes held by it, the obligation
to prepay its Notes; or
(ii) such Asset Disposition is the disposition of property within 270 days
following the date such property is acquired or constructed by the
Company or any Restricted Subsidiary, and the Company or any
Restricted Subsidiary leases, as lessee, the same property
simultaneously with such Asset Disposition or
(iii) such Asset Disposition is made to the Company or a wholly owned
Restricted Subsidiary.
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As used herein, "ASSET DISPOSITION" means any sale, lease, transfer,
exchange or other disposition, including any disposition by means of a
merger, consolidation or similar transaction (or series of related sales,
leases, transfers, exchanges or dispositions) of shares of capital stock of
a Restricted Subsidiary, of property or assets (including any interests
therein) by the Company or any Restricted Subsidiary. For purposes of
clause (i) above, the "BOOK VALUE" of any Asset Disposition of property or
assets not wholly-owned by the Company and Restricted Subsidiaries shall be
expressly limited to the Company's and Restricted Subsidiaries' interest in
such property or assets.
6G. MERGER AND CONSOLIDATIONS. The Company will not, and will not permit
any Restricted Subsidiary to, merge or consolidate with any other Person, or
sell, lease, transfer or otherwise dispose of all or a substantial part of its
assets (other than as permitted by paragraph 6F), except that,
(a) any Restricted Subsidiary which is a Guarantor may merge with the
Company or another wholly-owned Restricted Subsidiary which is a
Guarantor;
(b) any Restricted Subsidiary which is not a Guarantor may merge with any
other Restricted Subsidiary which is not a Guarantor;
(c) the Company may merge with any other Person if (i) at the time of such
merger after giving effect thereto no Default or Event of Default
shall exist; and (ii) the surviving entity shall exist under the laws
of any state of the United States of America and shall have a majority
of all of its assets and businesses located within the United States
of America; and (iii) such surviving entity shall expressly assume, by
written agreement, all of the obligations under the Notes, and (iv)
such other Person has a net worth of greater than zero and is
otherwise solvent at the time of such merger.
(d) any Restricted Subsidiary may merge with any other Person if (A)(i)
the surviving entity is, or as a result of the merger or
consolidation, becomes a Restricted Subsidiary and (ii) immediately
following such merger no Default or Event of Default shall exist; or
(B) such Restricted Subsidiary is designated as Unrestricted
Subsidiary and immediately following such designation no Default or
Event of Default would exist.
6H. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not
permit any Restricted Subsidiary to, enter into any material transaction or
material arrangement with any Affiliate on terms, when taken as a whole, less
favorable than available in a comparable arms-length transaction in the ordinary
course of business.
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PARAGRAPH 7. EVENTS OF DEFAULT.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of or
Yield-Maintenance Amount payable with respect to any Note when the same
shall become due, either by the terms thereof or otherwise as herein
provided; or
(ii) the Company defaults in the payment of any interest on any Note
for more than five calendar days after the date due; or
(iii) the Company or any Restricted Subsidiary defaults (whether as
primary obligor or as guarantor or other surety) in any payment of
principal of or interest on any other obligation for money borrowed (other
than Aken Debt) (or any Capitalized Lease Obligation, any obligation under
a conditional sale or other title retention agreement, any obligation
issued or assumed as full or partial payment for property whether or not
secured by a purchase money mortgage or any obligation under notes payable
or drafts accepted representing extensions of credit) beyond any period of
grace provided with respect thereto, or the Company or any Restricted
Subsidiary fails to perform or observe any other agreement, term or
condition contained in any agreement under which any such obligation is
created (or if any other event thereunder or under any such agreement shall
occur and be continuing) and the effect of such failure or other event is
to cause or to permit the holder or holders of such obligation (or a
trustee on behalf of such holder or holders) to cause such obligation to
become due (or to be repurchased by the Company or any Restricted
Subsidiary) prior to any stated maturity, provided that if any such failure
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or other event shall be waived or cured (as evidenced by a writing from
such holder or holders of such obligation or any Person acting on behalf of
such holder or holders then, to the extent of such waiver or cure, the
Default or Event of Default hereunder by reason of such failure or other
event shall be deemed likewise to have been thereupon waived or cured
except to the extent such failure or other event otherwise constitutes a
Default or Event of Default under any provision of this Agreement other
than this Paragraph 7A(iii); provided that the aggregate amount of all
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obligations as to which such a payment default shall occur and be
continuing or such a failure or other event causing or permitting
acceleration (or resale to the Company or any Restricted Subsidiary) shall
occur and be continuing exceeds $10,000,000; or
(iv) any one or more of the representations or warranties made by the
Company herein or by the Company or any of its officers in any writing
furnished in connection with or pursuant to this Agreement shall be false
in any material respect on the date as of which made; or
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(v) (a) the Company fails to perform or observe any term, covenant
or agreement contained in paragraphs 6A or 6B, or (b) the Company fails to
perform or observe any other term, covenant or agreement contained in
paragraph 6 and such failure shall continue for five (5) calendar days;
(vi) the Company fails to perform or observe any other agreement,
covenant, term or condition contained herein and such failure shall not be
remedied within 30 days after any Responsible Officer obtains actual
knowledge thereof; or
(vii) the Company or any Restricted Subsidiary makes an assignment
for the benefit of creditors or is generally not paying its debts as such
debts become due; or
(viii) any decree or order for relief in respect of the Company or
any Restricted Subsidiary is entered under any bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect (the
"BANKRUPTCY LAW"), of any jurisdiction; or
(ix) the Company or any Restricted Subsidiary petitions or applies
to any tribunal for, or consents to, the appointment of, or taking
possession by, a trustee, receiver, custodian, liquidator or similar
official of the Company or any Restricted Subsidiary, or of any substantial
part of the assets of the Company or any Restricted Subsidiary, or
commences a voluntary case under the Bankruptcy Law of the United States or
any proceedings (other than proceedings for the voluntary liquidation and
dissolution of a Restricted Subsidiary) relating to the Company or any
Restricted Subsidiary under the Bankruptcy Law of any other jurisdiction;
or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Restricted Subsidiary
and either (i) the Company or such Restricted Subsidiary by any act
indicates its approval thereof, consent thereto or acquiescence therein, or
(ii) such petition, application or proceedings remains undismissed,
undischarged and unbonded for more than 60 days after the filing or
commencement thereof; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment or decree remains unstayed and in effect for more than 30
days; or
(xii) one or more final judgments or orders in an aggregate amount in
excess of $15,000,000 is rendered against the Company or any Restricted
Subsidiary (exclusive of judgment amounts fully covered by insurance,
subject to applicable deductibles or retentions, except where the insurer
is contesting coverage in respect of such judgment), and either (i) any
creditor has commenced execution of such judgment or order, or (ii) within
30 days after entry thereof, such judgment is not discharged or execution
thereof stayed pending appeal, or within 30 days after the expiration of
any such stay, such judgment is not discharged;
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(xiii) This Agreement or any Guaranty shall cease to be in full force
and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by either Co-Maker,
any Guarantor or any other Subsidiary or any of their respective
shareholders, or any Co-Maker, Guarantor or any other Subsidiary or any of
their respective shareholders, or any Co-Maker, Guarantor or any other
Subsidiary shall deny that is has any further liability or obligation under
this Agreement or any Guaranty; or
(xiv) a "reportable event", as defined in Section 4043 of ERISA and
the regulations issued thereunder, occurs with respect to any Plan,
excluding events currently described in clauses (1), (2), (3), (4), (7),
(8), (9), (11), (12) and (13) of Section 4043(c) ERISA.
then (a) if such event is an Event of Default specified in clause (i) or (ii) of
this paragraph 7A, any holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may at its option, by notice in writing to the
Company, declare all of the Notes held by such holder to be, and all of the
Notes held by such holder shall thereupon be and become, immediately due and
payable together with interest accrued thereon, and together with the Yield-
Maintenance Amount, if any, with respect to each Note, without presentment,
demand, protest or notice of any kind (including, without limitation, notice of
intent to accelerate), all of which are hereby waived by the Company; (b) if
such event is an Event of Default with respect to the Company specified in
clause (viii), (ix) or (x) of this paragraph 7A, all the Notes then outstanding
shall automatically become immediately due and payable together with interest
accrued thereon, with respect to each Note, without presentment, demand, protest
or notice of any kind (including, without limitation, notice of intent to
accelerate), all of which are hereby waived by the Company; and (c) if such
event is any Event of Default other than as specified in preceding clause (a) or
(b), the Required Holder(s) may at its or their option, by notice in writing to
the Company, declare all of the Notes to be, and all of the Notes shall
thereupon be and become, immediately due and payable together with interest
accrued thereon and together with the Yield-Maintenance Amount, if any, with
respect to each Note, without presentment, demand, protest or notice of any kind
(including, without limitation, notice of intent to accelerate), all of which
are hereby waived by the Company.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the Notes
shall have been declared immediately due and payable pursuant to paragraph 7A,
the Required Holder(s) may, by notice in writing to the Company, rescind and
annul such declaration and its consequences if (i) the Company shall have paid
all overdue interest on the Notes, the principal of and Yield-Maintenance
Amount, if any, payable with respect to any Notes which have become due
otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal and Yield-Maintenance Amount at the rate
specified in the Notes, (ii) the Company shall not have paid any amounts which
have become due solely by reason of such declaration, other than payments that
have been returned to the Company or applied pro rata to all outstanding Notes
according to the respective unpaid principal amounts thereof, (iii) all Events
of Default and Defaults, other than non-payment of amounts which have become due
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solely by reason of such declaration, shall have been cured or waived pursuant
to paragraph 11C, and (iv) no judgment or decree shall have been entered for the
payment of any amounts due pursuant to the Notes or this Agreement. No such
rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its rights
under this Agreement and such Note by exercising such remedies as are available
to such holder in respect thereof under applicable law, either by suit in equity
or by action at law, or both, whether for specific performance of any covenant
or other agreement contained in this Agreement or in aid of the exercise of any
power granted in this Agreement. No remedy conferred in this Agreement upon the
holder of any Note is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy conferred herein or now or hereafter existing at law or in equity or by
statute or otherwise.
PARAGRAPH 8. REPRESENTATIONS, COVENANTS AND WARRANTIES.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company and GPX
represent, covenant and warrant as follows:
8A. CORPORATION ORGANIZATION AND AUTHORITY. Each of the Company and its
Restricted Subsidiaries:
(i) is a corporation duly incorporated, validly existing and in good
standing under the laws of their respective jurisdictions of
incorporation;
(ii) has the legal and corporate power and authority to own and operate
their respective properties and to carry on their respective
businesses as now conducted and as presently proposed to be conducted;
(iii) has the necessary licenses, certificates and permits to own and
operate their respective properties and to carry on their respective
businesses as now conducted and as presently proposed to be conducted
in each jurisdiction in which the failure to obtain such licenses,
certificates and permits, in the aggregate, would not be reasonably
likely to have a material adverse effect on the financial position and
results of operations of the Company and its Restricted Subsidiaries,
taken as a whole; and
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(iv) has duly qualified or has been duly licensed, and is authorized to do
business and is in good standing in each jurisdiction in which the
nature of the business transacted by it makes such qualification or
licensing necessary and in which the failure to be so qualified or
licensed would not be reasonably likely to have a material adverse
effect on the financial position or results of operations of the
Company and its Restricted Subsidiaries, taken as a whole.
The execution, delivery and performance by the Company of this Agreement, the
Guaranty Agreement to which the Company is a party and the Notes are within the
Company's corporate powers and have been authorized by all necessary corporation
action. The execution, delivery and performance by each Guarantor of the
Guaranty Agreement to which it is a party are within the Guarantor's corporate
powers and have been authorized by all necessary corporation action.
8B. FINANCIAL STATEMENTS. The Company has furnished each Purchaser with
the following financial statements, identified by a principal financial officer
of the Company: (i) a consolidated balance sheet of the Company and its
Subsidiaries as at October 31 in each of the years 1995, 1996 and 1997, and
consolidated statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for each such year, all reported on by Price
Waterhouse LLP; and (ii) a consolidated balance sheet of the Company and its
Subsidiaries as at April 30 in each of the years 1996, 1997 and 1998 and
consolidated statements of income, stockholders' equity and cash flows for the
six-month period ended on each such date, prepared by the Company. Such
financial statements (including any related schedules and/or notes) are true and
correct in all material respects (subject, as to interim statements, to changes
resulting from audits and year-end adjustments), have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods involved. The balance sheets fairly present the condition
of the Company and its Subsidiaries as at the dates thereof, and the statements
of income, stockholders' equity and cash flows fairly present the results of the
operations of the Company and its Subsidiaries and their cash flows for the
periods indicated. There has been no material adverse change in the business,
property or assets, condition (financial or otherwise), operations or prospects
of the Company and its Restricted Subsidiaries taken as a whole since October
31, 1997 except changes in the ordinary course of business.
8C. ACTIONS PENDING. Except as disclosed on Schedule 8C hereto: (i) there
are no claims, litigation (including, without limitation, derivative actions),
arbitration proceedings, administrative proceedings or investigations that are
pending or threatened against or affecting the Company or any of its Restricted
Subsidiaries (a) which, if adversely determined, after considering the receipt
of proceeds from insurance available to the Company and its Restricted
Subsidiaries, would have a material adverse effect on the financial position or
results of operation of the Company and its Restricted Subsidiaries, taken as a
whole, or (b) which purport to affect the legality, validity, or enforceability
of this Agreement, any Guaranty Agreement or any Note or any action taken or to
be taken pursuant hereto, and there are no inquiries whether formal or informal,
from any governmental agency or authority or otherwise, which would give rise to
any such action, proceeding or investigation; (ii) there are no labor
controversies pending
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or threatened against the Company or any of its Restricted Subsidiaries which,
based on reasonable assumptions of the Company as to the probable outcome of any
and all such labor controversies, would have a material adverse effect on the
financial position or results of operation of the Company and its Restricted
Subsidiaries, taken as a whole; and (iii) other than any liability incident to
any litigation, proceedings or investigations described in Schedule 8C hereto,
neither the Company nor any of its Restricted Subsidiaries has any material
contingent liabilities.
8D. OUTSTANDING DEBT. Neither the Company nor any of its Restricted
Subsidiaries has outstanding any Debt except as permitted by paragraph 6. There
exists no default under the provisions of any instrument evidencing such Debt or
of any agreement relating thereto.
8E. TITLE TO PROPERTIES. The Company has and each of its Restricted
Subsidiaries has good and marketable title to its respective real properties
(other than properties which it leases) and good title to all of its other
respective properties and assets, including the properties and assets reflected
in the balance sheet as at April 30, 1998 referred to in paragraph 8B (other
than properties and assets disposed of in the ordinary course of business),
subject to no Lien of any kind except Liens permitted by paragraph 6E and no
defect or other encumbrance except such which would not be reasonably likely to
have a material adverse effect on the financial position or results of operation
of the Company and its Restricted Subsidiaries, taken as a whole. All leases
necessary in any material respect for the conduct of the respective businesses
of the Company and its Restricted Subsidiaries are valid and subsisting and are
in full force and effect.
8F. PATENT, TRADEMARKS, LICENSES, ETC. To the best of the Company's
knowledge, each of the Company and its Restricted Subsidiaries, owns, possesses
or has the right to use all of the material patents, trademarks, service marks,
trade names, copyrights, trade secrets, and licenses, and rights with respect
thereto, necessary for the present conduct of their respective businesses,
without any known material conflict with the rights of others except for such
intellectual property or conflicts which would not be reasonably likely to have
a material adverse effect on the financial position or results of operations of
the Company and its Restricted Subsidiaries, taken as a whole.
8G. TAXES. All Tax returns required to be filed by each of the Company and
the Restricted Subsidiaries and any other Person with which the Company or any
Restricted Subsidiary files or is required to file a consolidated return in any
jurisdiction have been filed on a timely basis (which timely filing shall
include any instance in which the time for such filing has itself been timely
and properly extended), and all Taxes that are shown to be due and payable have
been paid. Neither the Company nor any Restricted Subsidiary knows of any
proposed additional Tax assessment against it or any such Person that, in the
aggregate, would be reasonably likely to have a material adverse effect on the
financial position or results of operations of the Company and its Restricted
Subsidiaries, taken as a whole.
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8H. COMPLIANCE WITH LAW. Neither the Company nor any Restricted Subsidiary
has received notice, nor does it have any knowledge, that it is in violation of
any law, ordinance, governmental rule or regulation to which it is subject,
which violations, in the aggregate, management believes would be reasonably
likely to have a material adverse effect on the financial position or results of
operations of the Company and its Restricted Subsidiaries, taken as a whole.
8I. CONFLICTING AGREEMENTS AND OTHER MATTERS. Except as set forth in
Schedule 8I attached hereto, neither the Company nor any of its Restricted
Subsidiaries is a party to any contract or agreement or subject to any charter
or other corporate restriction which would be reasonably likely to have a
material adverse effect on the financial position or results of operation of the
Company and its Restricted Subsidiaries, taken as a whole. Neither the execution
nor delivery of this Agreement or the Notes, nor the offering, issuance and sale
of the Notes, nor fulfillment of nor compliance with the terms and provisions
hereof and of the Notes will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any Lien upon any of the properties
or assets of the Company or any of its Restricted Subsidiaries pursuant to, the
charter or by-laws of the Company or any of its Restricted Subsidiaries, any
award of any arbitrator or any agreement (including any agreement with
stockholders), instrument, order, judgment, decree, statute, law, rule or
regulation to which the Company or any of its Restricted Subsidiaries is
subject. Schedule 8I contains a list of all instruments evidencing any Debt of
the Company or such Restricted Subsidiary, any agreement relating thereto or any
other contract or agreement (including its charter) which limits the amount of,
or otherwise imposes restrictions on the incurring of, Debt of the Company of
the type to be evidenced by the Notes.
8J. OFFERING OF NOTES. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes or any similar security of
the Company for sale to, or solicited any offers to buy the Notes or any similar
security of the Company from, or otherwise approached or negotiated with respect
thereto with, any Person other than institutional investors, and neither the
Company nor any agent acting on its behalf has taken or will take any action
which would subject the issuance or sale of the Notes to the provisions of
Section 5 of the Securities Act or to the provisions of any securities or Blue
Sky law of any applicable jurisdiction.
8K. USE OF PROCEEDS. The proceeds of sale of the Notes will be used to
refinance Current Debt and for general corporate purposes including potential
acquisitions and joint venture investments. None of the proceeds of the sale of
the Notes will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any "margin stock"
as defined in Regulation U (12 CFR Part 227) of the Board of Governors of the
Federal Reserve System ("margin stock") or for the purpose of maintaining,
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any stock that is currently a margin stock or for any other purpose
which might constitute this transaction a "purpose credit" within the meaning of
such Regulation U, unless the Company shall have delivered to each Purchaser an
opinion of counsel satisfactory to such Purchaser stating that the purchase of
such Notes does not constitute a violation of such Regulation U. Neither the
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Company nor any agent acting on its behalf has taken or will take any action
which might cause this Agreement or the Notes to violate Regulation T,
Regulation U or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Exchange Act, in each case as in effect now or
as the same may hereafter be in effect.
8L. ERISA. The Company (i) has fulfilled all obligations under the minimum
funding standards of ERISA and the Code with respect to each Plan that is not a
Multiemployer Plan, (ii) is in compliance in all material respects with all
other applicable provisions of ERISA and the Code with respect to each Plan, and
(iii) has not incurred any liability under the Title IV of ERISA to the PBGC
with respect to any Plan or any trust established thereunder. No Plan or trust
created thereunder has been terminated, and there have been no "reportable
events" (as such term is defined in section 4043 of ERISA), with respect to any
Plan or trust created thereunder which reportable event or events will or could
result in the termination of such Plan and give rise to a material liability of
the Company or any ERISA Affiliate in respect thereof. Neither the Company nor
any ERISA Affiliate is or has ever been an employer required to contribute to
any Multiemployer Plan. Neither the Company nor any ERISA Affiliate is or has
ever been a "contributing sponsor" (as such term is defined in section 4001 of
ERISA) in any Multiemployer Plan.
The execution and delivery of this Agreement and the issuance and sale of
the Notes will be exempt from or will not involve any transaction which is
subject to the prohibitions of section 406 of ERISA and will not involve any
transaction in connection with which a penalty could be imposed under section
502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code.
8M. CERTAIN LAWS. Neither the Company nor any Restricted Subsidiary is, or
is directly or indirectly controlled by, or acting on behalf of any Person that
is, an "investment company" within the meaning of the Investment Company Act of
1940, as amended. Neither the Company nor any Restricted Subsidiary is a
"holding company" or an "affiliate" of a "holding company," or a "subsidiary
company" of a "holding company," or a "public utility" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
8N. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any of
its Subsidiaries, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes is such as to require any authorization, consent, approval, exemption or
any action by or notice to or filing with any court or administrative or
governmental or regulatory body (other than routine filings after the Date of
Closing with the Securities and Exchange Commission and/or state Blue Sky
authorities) in connection with the execution and delivery of this Agreement,
the offering, issuance, sale or delivery of the Notes or fulfillment of or
compliance with the terms and provisions hereof or of the Notes.
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8O. ENVIRONMENTAL COMPLIANCE. To the knowledge of a Responsible Officer of
the Company, except as set forth on Schedule 8O hereto, (i) all facilities and
property (including underlying groundwater) owned or leased by the Company or
any of its Restricted Subsidiaries have been and continue to be, in compliance
with all environmental laws, the noncompliance by the Company and its Restricted
Subsidiaries with which, individually or in the aggregate for all such
noncompliance, would have a material adverse effect, (ii) there are no pending,
unresolved or threatened Environmental Actions which (a) individually or in the
aggregate (for all such Environmental Actions) would be reasonably likely to
have a material adverse effect; (iii) there have been no releases of hazardous
materials at, on or under any property now or previously owned or leased by the
Company or any of its Restricted Subsidiaries that, singly or in the aggregate,
have had, have, or may reasonably be expected to have, a material adverse
effect; (iv) the Company and its Restricted Subsidiaries have been issued and
are in compliance with all permits, certificates, approvals, licenses and other
authorizations relating to environmental matters that are necessary or desirable
for their businesses, which failure or failures so to be issued or comply
(individually or in the aggregate) would be likely to have a material adverse
effect; (v) no property now or previously owned or leased by the Company or any
of its Restricted Subsidiaries is listed or proposed for listing (with respect
to owned property only) on the National Priorities List pursuant to CERCLA, on
the CERCLIS (as defined in CERCLA) or on any similar state list of sites
requiring investigation or clean-up; and (vi) no conditions exist at on or under
any property now or previously owned, leased or operated by the Company or any
of its Restricted Subsidiaries which, with the passage of time, or the giving of
notice or both, would give rise to liability under any environmental law, which
liability or liabilities (individually or in the aggregate) would be likely to
have a materially adverse effect. A material adverse effect as used in this
paragraph means a material adverse effect on the financial position or results
of operation of the Company and its Restricted Subsidiaries, taken as a whole.
8P. DISCLOSURE. None of this Agreement, any certificate furnished to any
Purchaser by or on behalf of the Company in connection with the Closing, nor any
certificate furnished to any Purchaser by or on behalf of the Company pursuant
hereto contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein not misleading. There is no fact peculiar to the Company or any of its
Restricted Subsidiaries which materially adversely affects or in the future may
(so far as the Company can now foresee) materially adversely affect the
business, property or assets, condition (financial or otherwise) or operations
of the Company or any of its Restricted Subsidiaries and which has not been set
forth in this Agreement.
8Q. HOSTILE TENDER OFFERS. None of the proceeds of the sale of any Notes
will be used to finance a Hostile Tender Offer.
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PARAGRAPH 9. REPRESENTATIONS OF EACH PURCHASER.
9. REPRESENTATIONS OF EACH PURCHASER. Each Purchaser represents as
follows:
9A. NATURE OF PURCHASE. Such Purchaser is not acquiring the Notes to be
purchased by it hereunder with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act, provided that the
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disposition of such Purchaser's property shall at all times be and remain within
its control.
9B. SOURCE OF FUNDS. At least one of the following statements is an
accurate representation as to each source of funds (a "SOURCE") to be used by
such Purchaser to pay the purchase price of the Notes to be purchased by such
Purchaser hereunder:
(a) the Source is an "INSURANCE COMPANY GENERAL ACCOUNT" (as the term
is defined in PTCE 95-60 (issued July 12, 1995)) in respect of which the
reserves and liabilities (as defined by the annual statement for life
insurance companies approved by the National Association of Insurance
Commissioners (the "NAIC ANNUAL STATEMENT")) for the general account
contract(s) held by or on behalf of any employee benefit plan together with
the amount of the reserves and liabilities for the general account
contract(s) held by or on behalf of any other employee benefit plans
maintained by the same employer (or affiliate thereof as defined in PTCE
95-60) or by the same employee organization in the general account do not
exceed 10% of the total reserves and liabilities of the general account
(exclusive of separate account liabilities) plus surplus as set forth in
the NAIC Annual Statement filed with your state of domicile; or
(b) the Source is a separate account that is maintained solely in
connection with your fixed contractual obligations under which the amounts
payable, or credited, to any employee benefit plan (or its related trust)
that has any interest in such separate account or to any participant or
beneficiary of such plan (including any annuitant), are not affected in any
manner by the investment performance of the separate account; or
(c) the Source is either (i) an insurance company pooled separate
account, within the meaning of PTCE 90-1 (issued January 29, 1990), or (ii)
a bank collective investment fund, within the meaning of the PTCE 91-38
(issued July 12, 1991) and, except as you have disclosed to the Company in
writing pursuant to this paragraph (c), no employee benefit plan or group
of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled
separate account or collective investment fund; or
(d) the Source constitutes assets of an "investment fund" (within the
meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the
QPAM Exemption), no employee benefit plan's assets that are included in
such investment fund, when combined with the assets of all other employee
benefit plans established or maintained by the same employer or by an
affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of
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such employer or by the same employee organization and managed by such
QPAM, exceed 20% of the total client assets managed by such QPAM, the
conditions of Part I(c) and (g) of the QPAM Exemption are satisfied,
neither the QPAM nor a person controlling or controlled by the QPAM
(applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (i) the identity
of such QPAM, (ii) the names of all employee benefit plans whose assets are
included in such investment fund have been disclosed to the Company in
writing pursuant to this paragraph (d); or
(e) the Source is a governmental plan; or
(f) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans, each
of which has been identified to the Company in writing pursuant to this
paragraph (f); or
(g) the Source does not include assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA.
As used in this paragraph 9B, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
PARAGRAPH 10. DEFINITIONS.
10. DEFINITIONS. For the purpose of this Agreement, the terms defined in
paragraphs 1 and 2 or elsewhere in this Agreement shall have the respective
meanings specified therein, and the following terms shall have the meanings
specified with respect thereto below (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
10A. YIELD-MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to paragraph 4B or is declared to be
immediately due and payable pursuant to paragraph 7A, as the context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on such Note is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
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"REINVESTMENT YIELD" shall mean, with respect to the Called Principal of
any Note, 0.50% over the yield to maturity implied by (i) the yields reported,
as of 10:00 A.M. (New York City local time) on the Business Day next preceding
the Settlement Date with respect to such Called Principal, on the display
designated as "Page 678" on the Telerate Service (or such other display as may
replace page 678 on the Telerate Service) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date, or if such yields shall not be reported as
of such time or the yields reported as of such time shall not be ascertainable,
(ii) the Treasury Constant Maturity Series yields reported, for the latest day
for which such yields shall have been so reported as of the Business Day next
preceding the Settlement Date with respect to such Called Principal, in Federal
Reserve Statistical Release H.15 (519) (or any comparable successor publication)
for actively traded U.S. Treasury securities having a constant maturity equal to
the Remaining Average Life of such Called Principal as of such Settlement Date.
Such implied yield shall be determined, if necessary, by (a) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between yields reported for
various maturities.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal
of any Note, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the products
obtained by multiplying (a) each Remaining Scheduled Payment of such Called
Principal (but not of interest thereon) by (b) the number of years (calculated
to the nearest one-twelfth year) which will elapse between the Settlement Date
with respect to such Called Principal and the scheduled due date of such
Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4B or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Called Principal of
such Note over the sum of (i) such Called Principal plus (ii) interest accrued
thereon as of (including interest due on) the Settlement Date with respect to
such Called Principal. The Yield-Maintenance Amount shall in no event be less
than zero.
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10B. OTHER TERMS.
"AFFILIATE" shall mean any Person (other than a Subsidiary) (i) which
directly or indirectly controls another Person; (ii) which beneficially owns 10%
or more of the voting stock of another Person; (iii) of which 10% or more of the
voting stock is owned by such Person; or (iv) that is an officer or director of
such Person. A Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such corporation, whether through the ownership
of voting securities, by contract or otherwise.
"AKEN" shall mean Magnesitwerk Aken GmbH.
"AKEN DEBT" shall mean the indebtedness of Aken, which indebtedness is non-
recourse to the Company.
"AUTHORIZED OFFICER" shall mean the chief executive officer, chief
financial officer or any vice president of the Company designated as an
"AUTHORIZED OFFICER" of the Company in the Information Schedule attached hereto
----------- --------
or any vice president of the Company designated as an "AUTHORIZED OFFICER" of
the Company for the purpose of this Agreement in an Officer's Certificate
executed by the Company's chief executive officer or chief financial officer and
delivered to the holders of the Notes. Any action taken under this Agreement on
behalf of the Company by any individual who on or after the date of this
Agreement shall have been an Authorized Officer of the Company and whom any
holder of any Note in good faith believes to be an Authorized Officer of the
Company at the time of such action shall be binding on the Company even though
such individual shall have ceased to be an Authorized Officer of the Company.
"BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of
paragraph 7A.
"BANKS" shall mean Chase Bank of Texas, N.A., Bank of America National
Trust and Savings Association, ABN Amro Bank, N.V., The Chase Manhattan Bank and
the other financial institutions party to the Credit Agreement.
"BUSINESS DAY" shall mean any day other than (i) a Saturday or a Sunday,
and (ii) a day on which commercial banks in New York City are required or
authorized to be closed.
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which,
under GAAP, would be required to be capitalized on the books of the Company or
any Restricted Subsidiary, taken at the amount thereof accounted for as
indebtedness in accordance with GAAP.
"CLOSING" or "DATE OF CLOSING" shall have the meaning specified in
paragraph 2.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
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"CONSOLIDATED NET INCOME" shall mean, as to any period, consolidated gross
revenues of the Company and its Restricted Subsidiaries less all operating and
non-operating expenses of the Company and its Restricted Subsidiaries for such
period, including all charges of a proper character (including current and
deferred taxes on income, provision for taxes on unremitted foreign earnings
which are included in gross revenues, and current additions to reserves), but
not including in gross revenues (i) any gains (net of expenses and taxes
applicable thereto) in excess of losses resulting from the transfer of assets
(i.e. assets other than current assets); (ii) any gains resulting from the
write-up of assets; (iii) any equity of the Company or any Restricted Subsidiary
in the undistributed earnings (but not losses) of any corporation which is not a
Restricted Subsidiary; (iv) undistributed earnings of any Restricted Subsidiary
to the extent that such Restricted Subsidiary is not at the time permitted to
make or pay dividends, repay intercompany loans or advances, convert such
earnings into U.S. dollars or repatriate earnings; (v) any earnings or losses of
any Person acquired by the Company or any Restricted Subsidiary through
purchase, merger, consolidation or otherwise for any fiscal quarter prior to the
fiscal quarter in which the acquisition occurs; (vi) any deferred credit
representing the excess of equity in any Restricted Subsidiary at the date of
acquisition over the cost of the investment in such Restricted Subsidiary; (vii)
gains from the acquisition of securities or the retirement or extinguishment of
Debt; (viii) gains on collections from insurance policies or settlements; (ix)
any income or gain during such period from any change in accounting principles,
from any discontinued operations or the disposition thereof, from any
extraordinary items or from any prior period adjustments. If the preceding
calculation results in a number less than zero, such amount shall be considered
a consolidated net loss. A change in the designation of a Subsidiary as an
Unrestricted Subsidiary or as a Restricted Subsidiary shall not change
Consolidated Net Income for any period preceding such change.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean consolidated stockholders'
equity of the Company and its Restricted Subsidiaries, as defined according to
GAAP less (i) the book value of all intangibles acquired or created after
January 1, 1996 (excluding intangible assets, up to the amount of $60,000,000,
related to the acquisitions described on Schedule 10, (ii) Redeemable Preferred
Stock, to the extent included in such consolidated shareholders equity; and
(iii) all Restricted Investments that exceed, in aggregate, 15% of such
consolidated stockholder's equity; provided, however, at any time that (a) the
-------- -------
sum of (I) the portion of Consolidated Net Income attributable to the Mexican
Operations, plus (II) interest expense, taxes, depreciation and amortization
which was deducted in determining such portion of Consolidated Net Income
attributable to the Mexican Operations is (b) equal to or greater than U.S.
$7,500,000 during the period of 12 calendar months then most recently ended, the
original U.S. dollar investment in the Mexican Operations will be included in
Consolidated Tangible Net Worth with no adjustments for foreign currency
translation which has been made in accordance with GAAP. For purposes of this
definition, "MEXICAN OPERATIONS" shall mean the refractory operations of
Indresco de Mexico, S.A. de C.V., Refractarios Mexicanos, S.A. de C.V., Refmex,
S.R.L. de C.V. and Refractarios Green S.R.L. de C.V.
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"CONSOLIDATED TOTAL DEBT" shall mean total Debt of the Company and its
Restricted Subsidiaries on a consolidated basis, as determined in accordance
with GAAP.
"CREDIT AGREEMENT" shall mean the Credit Agreement, dated as of August 31,
1998, between the Co-Makers and the Banks, as the same may be amended, modified,
or supplemented from time to time.
"CURRENT DEBT" shall mean, without duplication, Debt other than Funded
Debt.
"DEBT" shall mean, as to the Company and each Restricted Subsidiary,
without duplication, the sum of (i) its liabilities for borrowed money, (ii) its
liabilities for the deferred purchase price of property (including, without
limitation, all liabilities created or arising under any conditional sale or
other title retention agreement with respect to any such property), other than
(A) accounts payable arising in the ordinary course of business, and (B)
installment purchase contracts for equipment with a term of less than 12 months,
(iii) its Capitalized Lease Obligations, and (iv) any Guarantee made by it (but
without duplication of the amount of a liability otherwise treated as Debt under
this definition).
"ENVIRONMENTAL ACTIONS" shall mean:
(a) any complaint, claim (whether absolute or contingent, matured or
unmatured), citation, demand, inquiry or inquiries, notice of violation,
correspondence, report, action, assertion of potential responsibility,
lien, encumbrance, or proceeding (whether formal or informal), brought or
issued by any governmental unit, agency, or body which relates to any of
the following:
i) Environmental Laws;
ii) public health risks;
iii) the environmental condition of any real property that at
any time was, is or hereafter will be owned, leased, operated or
otherwise used or controlled by the Company or any of its Subsidiaries
(the "Premises"), or any portion thereof, any property near the
--------
Premises, or any property at which the Company or any of its
Affiliates is conducting or has conducted operations (including actual
or alleged damage or injury to wildlife, biota, air, surface or
subsurface soil or water, or other natural resources); or
iv) the use, exposure, release, generation, manufacture,
transportation to or from, handling, storage, treatment, recycling,
reclamation, reuse, emission, disposal or presence of any Hazardous
Material either on the Premises, any adjacent property or any property
at which the Company or any of its Subsidiaries
27
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is conducting or has conducted operations, or the transportation of
any Hazardous Material by the Company, any of its Subsidiaries or any
of their respective agents, employees, consultants, or independent
contractors for sale, treatment, storage, recycling, reclamation,
reuse or disposal;
(b) any violation or claim of violation by the Company or any of its
Subsidiaries of any Environmental Laws;
(c) any Lien for damages caused by, or the recovery of any costs
incurred for the investigation, remediation or cleanup of, any release or
threatened release of any Hazardous Material; or
(d) any complaint, claim (whether absolute or contingent, matured or
unmatured), citation, demand, action or proceeding (whether formal or
informal), brought in connection with or otherwise regarding the
destruction or loss of use of property, or the injury, illness or death of
any officer, director, employee, agent, representative, tenant or invitee
of the Company or any of its Subsidiaries or the injury, illness or death
of any other Person, in each case arising from or relating to any of the
matters described in clauses (i) through (iv), inclusive, of section (a) of
this definition.
"ENVIRONMENTAL LAWS" means:
(a) any federal statute, law, code, rule, regulation, ordinance,
order, standard, permit, license or requirement (including consent decrees,
judicial decisions and administrative orders), together with all related
amendments, implementing regulations and reauthorizations, pertaining to
the protection, preservation, conservation or regulation of the
environment, including (without limitation): the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
and any successor statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time ("CERCLA"); the
Resource Conservation and Recovery Act, 42 U.S.C. (S)6901 et seq. and any
successor statute of similar import, together with the regulations
thereunder, in each case as in effect from time to time ("RCRA"); the Toxic
Substances Control Act, 15 U.S.C. (S)2601 et seq.; the Clean Air Act, 42
-- ---
U.S.C. (S)7401 et seq., and
-- ---
(b) any state or local statute, law, code, rule, regulation,
ordinance, order, standard, permit, license or requirement (including
consent decrees, judicial decisions and administrative orders), together
with all related amendments, implementing regulations and reauthorizations,
pertaining to the protection, preservation, conservation or regulation of
the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
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"ERISA AFFILIATE" shall mean any corporation which is a member of the same
controlled group of corporations as the Company within the meaning of section
414(b) of the Code, or any trade or business which is under common control with
the Company within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph 7A,
provided that there has been satisfied any requirement in connection with such
- - --------
event for the giving of notice, or the lapse of time, or the happening of any
further condition, event or act, and "DEFAULT" shall mean any of such events,
whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FUNDED DEBT" shall mean all Debt having a final maturity of more than one
year from the date of creation thereof, including all payments thereof required
to be made within one year.
"GAAP" shall mean those generally accepted accounting principles as in
effect in the United States of America from time to time.
"GUARANTEE" shall mean, with respect to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any Debt of
another, including, without limitation, any such Debt directly or indirectly
guaranteed, endorsed (otherwise than for collection or deposit in the ordinary
course of business) or discounted or sold with recourse by such Person, or in
respect of which such Person is otherwise directly or indirectly liable,
including, without limitation, any such Debt in effect guaranteed by such Person
through any agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such Debt or any security therefor, or to provide funds for
the payment or discharge of such Debt (whether in the form of loans, advances,
stock purchases, capital contributions or otherwise), to provide any indemnity
in connection with such Debt, or to maintain the solvency or any balance sheet
or other financial condition of the obligor of such Debt, or to make payment for
any products, materials or supplies or for any transportation or service,
regardless of the non-delivery or non-furnishing thereof, in any such case if
the purpose or intent of such agreement is to provide assurance that the Debt of
another person will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such Debt will be
protected against loss in respect thereof; provided, however, that any such
-------- -------
agreement constituting a closing condition to an asset purchase by the Company
or any Restricted Subsidiary shall not constitute a Guarantee for purposes of
this definition. The amount of any Guarantee shall be equal to the outstanding
principal amount of the Debt guaranteed or such lesser amount to which the
maximum exposure of the guarantor shall have been specifically limited.
"GUARANTOR" shall mean any Subsidiary that at any time executes a Guaranty
in favor of the holders of the Notes.
"GUARANTY AGREEMENT" shall mean the Guaranty Agreement in substantially the
form of Exhibit D-1 hereto, executed by each of the Guarantors pursuant to the
terms of paragraph 5K, as the same may be amended, modified, or supplemented
from time to time.
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"HAZARDOUS MATERIALS" shall mean (a) any "hazardous substance" as defined
by CERCLA, and including the judicial interpretation thereof; (b) any "pollutant
or contaminant" as defined in 42 U.S.C. (S) 9601(33); (c) any material now
defined as "hazardous waste" by RCRA; (d) any petroleum product, including crude
oil and any fraction thereof; (e) natural gas, natural gas liquids, liquified
natural gas, or synthetic gas usable for fuel; (f) any "hazardous chemical" as
defined pursuant to 29 C.F.R. Part 1910; (g) any radioactive material, including
any source material, special nuclear material or by-product material as defined
at 42 U.S.C. (S)2011 et seq., and any amendments thereto and reauthorizations
thereof; and (h) any other substance, regardless of physical form, that is
regulated under any past, present or future federal, state or local government
statute, rule or regulation.
"HOSTILE TENDER OFFER" shall mean, with respect to the use of proceeds of
any Note, any offer to purchase, or any purchase of, shares of capital stock of
any corporation or equity interests in any other entity, or securities
convertible into or representing the beneficial ownership of, or rights to
acquire, any such shares or equity interests, if such shares, equity interests,
securities or rights are of a class which is publicly traded on any securities
exchange or in any over-the-counter market, other than purchases of such shares,
equity interests, securities or rights representing less than 5% of the equity
interests or beneficial ownership of such corporation or other entity for
portfolio investment purposes, and such offer to purchase has not been duly
approved by the board of directors of such corporation or the equivalent
governing body of such other entity prior to the date hereof.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
minimum or compensating deposit arrangement, lien (statutory or otherwise) or
charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction) or any other type of
preferential arrangement for the purpose, or having the effect, or protecting a
creditor against loss or securing the payment or performance of an obligation.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
"NOTE DOCUMENTS" shall have the meaning specified in paragraph 5K.
"NOTES" shall have the meaning specified in paragraph 1.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the
Company by an Authorized Officer of the Company.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
entity.
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"PERSON" shall mean and include an individual, a corporation, a
partnership, a trust, a joint venture, a limited liability company, an
unincorporated organization and a government or any department or agency
thereof.
"PLAN" shall mean any employee pension benefit plan (as such term is
defined in section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any ERISA
Affiliate.
"PRIORITY DEBT" shall mean the sum of (i) Debt of the Company or any of its
Restricted Subsidiaries secured by Liens other than Liens provided for in
clauses (i) through (vii), inclusive, of paragraph 6E, Limitation on Liens, and
(ii) Debt in respect to which a Restricted Subsidiary, other than GPX Corp., is
liable or has given a Guarantee; provided however that, if such Restricted
Subsidiary has guaranteed the Notes by a guaranty agreement in form and
substance acceptable to the Required Holders and if the holders of such Debt of
such Restricted Subsidiary have entered into an intercreditor agreement with or
for the benefit of the holders of the Notes in form and substance acceptable to
the Required Holders, such Debt of such Restricted Subsidiary will not be
treated as Priority Debt.
"REDEEMABLE PREFERRED STOCK" shall mean each share of the Company's capital
stock that is (a) entitled to preference or priority over any other shares of
the Company's capital stock in respect of payment of dividends or distribution
of assets upon liquidation, and (b) redeemable, payable or required to be
purchased or otherwise retired or extinguished, or convertible into Debt of the
Company (i) at a fixed or determinable date, whether by operation of sinking
fund or otherwise, (ii) at the option of any Person other than the Company, or
(iii) upon the occurrence of a condition not solely within the control of the
Company.
"REQUIRED HOLDER(S)" shall mean the holder or holders of at least 51% of
the aggregate principal amount of the Notes from time to time outstanding.
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief
operating officer, chief financial officer, chief accounting officer and the
general counsel of the Company.
"RESTRICTED INVESTMENT" shall mean all investments made after the Date of
Closing, made in cash or by delivery of property, by the Company and its
Restricted Subsidiaries, (x) in any Person, whether by acquisition of stock,
Debt or other obligation or by loan, advance, or capital contribution, or
otherwise, or (y) in any property (item (x) and (y) herein for purposes of this
definition being referred to an "INVESTMENTS"), except for the following: (i)
Investments in (a) one or more Restricted Subsidiaries or (b) any corporation
which concurrently with such Investment becomes a Restricted Subsidiary; (ii)
any Investment in a business, partnership, joint venture interest, minority
interest or business combination, in the ordinary course of business (other than
investment in Restricted Subsidiaries) provided that the aggregate of such
Investments, as is or would be properly reflected on the then most recent
consolidated balance sheet of the Company and its Restricted Subsidiaries in
accordance with GAAP does not exceed 15% of book value of consolidated assets of
the Company and its Restricted Subsidiaries as so reflected on such balance
sheet; (iii) Investments in money market investment programs which
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are classified as current assets in accordance with generally accepted
accounting principles and which are administered by reputable broker-dealers;
(iv) Investments in certificates of deposit and bankers acceptances maturing
within one year from the date of acquisition, issued by a commercial bank
organized under the laws of the United States or any state thereof, Canada,
Western Europe or Japan, having capital surplus and undivided profits
aggregating at least $500,000,000, provided, either (A) neither the Company nor
--------
any Restricted Subsidiary owes any Debt to such bank, or (B) if the Company or
any Restricted Subsidiary owes any Debt to such bank, either (x) no default has
occurred in the payment of such Debt or in the performance or observance of any
agreement, term or condition contained in any document or agreement evidencing
or governing such Debt, other than any default which has been cured or
permanently waived, or (y) such bank executes a letter agreement, in form and
substance acceptable to Required Holders, expressly waiving any and all Liens
and rights of offset, contractual or otherwise, of such bank regarding such
certificate of deposit or bankers acceptance, (v) Investments in commercial
paper maturing in 270 days or less from the date of issuance which, at the time
of acquisition by the Company or any Restricted Subsidiary, is accorded a rating
no lower than "P-2" by Moody's Investors Services, Inc. or "A-2" by Standard &
Poor's Corporation; (vi) Investments in direct obligations of the United States
of America, or obligations of any agencies or instrumentality of the United
States of America which are fully guaranteed by the United States of America,
maturing in three years or less from the date of acquisition thereof; (vii)
Investments in money market or auction rate preferred stock which, at the time
of acquisition by the Company or any Restricted Subsidiary, is accorded either
of the highest two ratings for such securities by Standard & Poor's Corporation
or by Moody's Investors Services, Inc.; (viii) Investments in municipal bonds
maturing in three years or less from the date of acquisition, which, at the time
of acquisition by the Company or any Restricted Subsidiary, is accorded either
the highest two ratings for such securities by Standard & Poor's Corporation or
by Moody's Investors Services, Inc.; and (ix) other liquid investments maturing
in 180 days or less from the date of acquisition thereof, with respect to which
the risk of loss of principal is not greater than the investments described in
the foregoing clauses (iii) through (viii) of this definition.
"RESTRICTED SUBSIDIARY" means any Subsidiary (i) of which at least 51% of
the voting securities are owned by the Company and/or one or more wholly-owned
Restricted Subsidiaries, and (ii) which is a Subsidiary of the Company on the
Date of Closing or which the Company has designated a Restricted Subsidiary by
notice in writing given to the holders of the Notes in the form attached hereto
as Exhibit C-1, and (iii) which the Company has not thereafter designated as an
Unrestricted Subsidiary by notice in writing given to the holders of the Notes
in the form attached hereto as Exhibit C-2; provided, however, a Subsidiary may
not be designated as a Restricted Subsidiary if (a) it had previously been
designated as a Restricted Subsidiary and had thereafter been designated as an
Unrestricted Subsidiary; (b) it was designated as an Unrestricted Subsidiary
within the preceding 180 days; (c) any of the representations and warranties
contained in paragraph 8 would be false if all such representations and
warranties were to be remade and restated immediately following such
designation; or (d) such designation shall result in any Default or Event of
Default; provided, further, that a Subsidiary may not be designated as an
Unrestricted Subsidiary if (a) it had previously been designated as an
Unrestricted Subsidiary and had thereafter been designated as a Restricted
Subsidiary; (b) it was designated as a Restricted
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Subsidiary within the preceding 180 days; (c) any of the representations and
warranties contained in paragraph 8 would be false if all such representations
and warranties were to be remade and restated immediately following such
designation; (d) such designation shall result in any Default or Event of
Default; or (e) such Subsidiary guarantees or is required pursuant to paragraph
5K to guarantee the Notes and the other obligations of the Co-Makers under this
Agreement and the other Note Documents. For purposes hereof, GPX shall always be
a Restricted Subsidiary.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SIGNIFICANT HOLDER" shall mean (i) each Purchaser, and each Affiliate of
or separate account managed by a Purchaser that shall hold a Note, so long as
such Purchaser, Affiliate or separate account shall hold (or be committed under
this Agreement to purchase) any Note, or (ii) any other holder of at least 5% of
the aggregate principal amount of the Notes from time to time outstanding.
"SUBSIDIARY" shall mean (i) any corporation of which at least 51% of the
total combined voting power of all classes of outstanding Voting Stock of which
shall, at the time as of which any determination is being made, be owned or
controlled by the Company either directly or through Subsidiaries, and (ii) any
other entity (a) of which at least a majority of the ownership, equity, or
voting interests is at the time directly or indirectly owned or controlled by
one or more of the Co-Makers and the Subsidiaries and (b) which is treated as a
subsidiary in accordance with GAAP.
"TAXES" shall mean taxes and assessments of any federal, state or other
governmental authority.
"TOTAL CAPITALIZATION" shall mean the sum of (i) Funded Debt and Current
Debt of the Company and its Restricted Subsidiaries, and (ii) Consolidated
Tangible Net Worth.
"TRANSFEREE" shall mean any direct or indirect transferee of all or any
part of any Note purchased by any Purchaser under this Agreement.
"UNRESTRICTED SUBSIDIARY" shall mean any Subsidiary that is not a
Restricted Subsidiary.
"VOTING STOCK" shall mean, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).
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10C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all unaudited financial statements and certificates and reports as to financial
matters required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles applied on a basis consistent with the
most recent audited consolidated financial statements of the Company and its
Subsidiaries delivered pursuant to clause (ii) of paragraph 5A or, if no such
statements have been so delivered, the most recent audited financial statements
referred to in clause (i) of paragraph 8B. If after the Date of Closing any
change shall occur in GAAP in effect on the Date of Closing (a "GAAP CHANGE")
which results in a change in any computation or definition used in calculating
compliance by the Company with any negative covenant and which has had or may
have a significant effect (whether positive or negative) on the computation of
one or more such covenants (the "AFFECTED COVENANTS") then the Company shall
deliver to each holder of the Notes within 15 days after the effective date of
such GAAP Change (the "EFFECTIVE DATE") a written notice from the Company (i)
describing the GAAP Change and (ii) setting forth in reasonable detail
(including detailed calculations) why the GAAP Change has had or may have a
material effect (whether positive or negative) on the computation of the
Affected Covenants. Within 15 days after such written notice is delivered to
each Holder of the Notes, each party hereby agrees to enter into good faith
negotiations for an amendment to this Agreement of the Affected Covenants so as
to place the parties, insofar as possible, in the same relative position as if
the GAAP Change had not occurred. If a GAAP Change which has had or may have
such a material effect occurs, then during the period of the Effective Date of
such GAAP Change until the effective date of an amendment to this Agreement with
respect thereto, the Company shall calculate compliance with the Affected
Covenants as though such GAAP Change had not occurred (and deliver promptly upon
request therefor compliance certificates with respect thereto, setting forth in
reasonable detail compliance with the Affected Covenants and certified as being
true and correct by the chief financial officer of the Company); provided,
however, that if no such amendment to this Agreement shall become effective
within 90 days from the Effective Date of such GAAP Change, the Company shall
calculate compliance with the Affected Covenants as though such GAAP Change had
occurred (and deliver promptly upon request therefor compliance certificates
with respect thereto, setting forth in reasonable detail compliance with the
Affected Covenants and certified as being true and correct by the chief
financial officer of the Company).
PARAGRAPH 11. MISCELLANEOUS.
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Co-Makers agree that, so long as any Purchaser
shall hold any Note, they will make payments of principal of, interest on and
any Yield-Maintenance Amount payable with respect to such Note, which comply
with the terms of this Agreement, by wire transfer of immediately available
funds for credit (not later than 12:00 noon, New York City local time, on the
date due) to the account or accounts of such Purchaser, if any, as are specified
in the Information Schedule attached hereto, or, in the case of any Purchaser
----------- --------
not named in the Information Schedule or any Purchaser wishing to change the
----------- --------
account specified for it in the
34
<PAGE>
Information Schedule, or such other account or accounts in the United States as
- - ----------- --------
such Purchaser may from time to time designate in writing, notwithstanding any
contrary provision herein or in any Note with respect to the place of payment.
Each Purchaser agrees that, before disposing of any Note, such Purchaser will
make a notation thereon (or on a schedule attached thereto) of all principal
payments previously made thereon and of the date to which interest thereon has
been paid. The Co-Makers agree to afford the benefits of this paragraph 11A to
any Transferee which shall have made the same agreement as each Purchaser has
made in this paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save each Purchaser
harmless against liability for the payment of, all reasonable attorneys' fees
and incremental out-of-pocket expenses of such attorneys arising in connection
with such transactions, including (i) all document production and duplication
charges and the fees and expenses of any special counsel engaged by such
Purchaser in connection with this Agreement, the transactions contemplated
hereby and, as to each Purchaser and any Transferee, any subsequent proposed
modification of, or proposed consent under, this Agreement (other than
modifications proposed by Purchasers prior to a Default or an Event of Default
and not in response to modifications, consents or other transactions proposed by
the Company), whether or not such proposed modification shall be effected or
proposed consent granted, and (ii) the costs and expenses, including attorneys'
fees, incurred by such Purchaser or any Transferee in enforcing (or determining
whether or how to enforce) any rights under this Agreement or the Notes or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement or the transactions contemplated
hereby or by reason of such Purchaser's or such Transferee's having acquired any
Note, including without limitation costs and expenses incurred in any bankruptcy
case; provided, however, that if the transactions contemplated hereby are
-------- -------
consummated, the Company will not be obligated to pay, or save a Purchaser
harmless from, attorney fees of special counsel for the Purchasers incurred in
connection with the preparation, execution and delivery of this Agreement. The
obligations of the Company under this paragraph 11B shall survive the transfer
of any Note or portion thereof or interest therein by any Purchaser or any
Transferee and the payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the Co-
Makers may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Co-Makers shall obtain the written
consent to such amendment, action or omission to act, of the Required Holder(s)
except that, without the written consent of the holder or holders of all Notes
at the time outstanding, no amendment to this Agreement shall change the
maturity of any Note, or change or affect the principal of, or change or affect
the rate or time of payment of interest on or any Yield-Maintenance Amount
payable with respect to any Note, or affect the time, amount or allocation of
any prepayments, or change the definition of Required Holders. Each holder of
any Note at the time or thereafter outstanding shall be bound by any consent
authorized by this paragraph 11C, whether or not such Note shall have been
marked to indicate such consent, but any Notes issued thereafter may bear a
notation referring to any such
35
<PAGE>
consent. No course of dealing between the Co-Makers and the holder of any Note
nor any delay in exercising any rights hereunder or under any Note shall operate
as a waiver of any rights of any holder of such Note. As used herein and in the
Notes, the term "this Agreement" and references thereto shall mean this
Agreement as it may from time to time be amended or supplemented.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The
Notes are issuable as registered notes without coupons. Notes shall not be
transferred in denominations of less than $5,000,000, provided that if necessary
--------
to enable the registration of transfer by a holder of its entire holding of
Notes, a Note may be in a denomination of less than $5,000,000. The Company, on
behalf of Co-Makers, shall keep at its principal office a register in which the
Company shall provide for the registration of Notes and of transfers of Notes.
Upon surrender for registration of transfer of any Note at the principal office
of the Company, each transferee shall deliver to the Company a Purchaser
Schedule for such transferee, and the Co-Makers shall, at their expense, execute
and deliver one or more new Notes of like tenor and of a like aggregate
principal amount, registered in the name of such transferee or transferees. At
the option of the holder of any Note, such Note may be exchanged for other Notes
of like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Note to be exchanged at the principal office of
the Company. Whenever any Notes are so surrendered for exchange, the Co-Makers
shall, at their expense, execute and deliver the Notes which the holder making
the exchange is entitled to receive. Each installment of principal payable on
each installment date upon each new Note issued upon any such transfer or
exchange shall be in the same proportion to the unpaid principal amount of such
new Note as the installment of principal payable on such date on the Note
surrendered for registration of transfer or exchange bore to the unpaid
principal amount of such Note. No reference need be made in any such new Note to
any installment or installments of principal previously due and paid upon the
Note surrendered for registration of transfer or exchange. Every Note
surrendered for registration of transfer or exchange shall be duly endorsed, or
be accompanied by a written instrument of transfer duly executed, by the holder
of such Note or such holder's attorney duly authorized in writing. Any Note or
Notes issued in exchange for any Note or upon transfer thereof shall carry the
rights to unpaid interest and interest to accrue which were carried by the Note
so exchanged or transferred, so that neither gain nor loss of interest shall
result from any such transfer or exchange. Upon receipt of written notice from
the holder of any Note of the loss, theft, destruction or mutilation of such
Note and (i) in the case of any such loss, theft or destruction, upon (A)
receipt of such holder's unsecured indemnity agreement, if such holder is an
institutional investor with capital of at least $100,000,000, or (B) receipt of
a surety bond in the amount of such Note, if such holder is not an institutional
investor or has capital of less than $100,000,000, or (ii) in the case of any
such mutilation, upon surrender and cancellation of such Note, the Co-Makers
will make and deliver a new Note, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for
registration of transfer, the Co-Makers may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of, interest on and any Yield-Maintenance Amount
payable with respect to such Note and for all other purposes whatsoever, whether
or not such Note shall be overdue, and the Co-Makers shall
36
<PAGE>
not be affected by notice to the contrary. Subject to the preceding sentence,
the holder of any Note may from time to time grant participations in such Note
to any Person on such terms and conditions as may be determined by such holder
in its sole and absolute discretion.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained herein or made in writing by or on
behalf of the Co-Makers in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by any Purchaser of any
Note or portion thereof or interest therein and the payment of any Note, and may
be relied upon by any Transferee, regardless of any investigation made at any
time by or on behalf of any Purchaser or any Transferee. Subject to the
preceding sentence, this Agreement and the Notes embody the entire agreement and
understanding between the Purchasers and the Co-Makers with respect to the
subject matter hereof and supersede all prior agreements and understandings
relating to the subject matter hereof.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
11H. CONFIDENTIALITY; DISCLOSURE TO OTHER PERSONS. For the purposes of
this paragraph 11H, "CONFIDENTIAL INFORMATION" means information delivered to a
holder by or on behalf of the Company or any Restricted Subsidiary in connection
with the transactions contemplated by or otherwise pursuant to this Agreement
that is proprietary in nature and that was clearly marked or labeled or
otherwise adequately identified when received by such holder as being
confidential information of the Company or such Restricted Subsidiary,
provided that such term does not include information that (a) was publicly
- - -------- -
known or otherwise known to such holder prior to the time of such disclosure,
(b) subsequently becomes publicly known through no act or omission by such
-
holder or any Person acting on behalf of such holder, (c) otherwise becomes
-
known to such holder other than through disclosure by the Company or any
Restricted Subsidiary or (d) constitutes financial statements delivered to such
-
holder under paragraph 5A that are otherwise publicly available. Each holder
will maintain the confidentiality of such Confidential Information in accordance
with procedures adopted by such holder in good faith to protect confidential
information of third parties delivered to such holder; provided that any holder
--------
may deliver or disclose Confidential Information to (i) such holder's directors,
-
officers, employees, agents, attorneys and affiliates (to the extent such
disclosure reasonably relates to the administration of the investment
represented by such holder's Notes), (ii) such holder's financial advisors and
--
other professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this paragraph 11H,
(iii) any other holder of any Note, (iv) any Institutional Investor to which
- - ---- --
such holder sells or offers to sell such Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this paragraph
11H), (v) any Person from which such holder offers to purchase any security of
-
the Company (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this paragraph 11H),
(vi) any federal or state regulatory authority having jurisdiction over such
- - ---
holder, (vii) the National Association of Insurance Commissioners
---
37
<PAGE>
or any similar organization, or any nationally recognized rating agency that
requires access to information (including Confidential Information) about such
holder's investment portfolio or (viii) any other Person to which such delivery
----
or disclosure may be necessary or appropriate (w) to effect compliance with any
-
law, rule, regulation or order applicable to such holder, (x) in response to any
-
subpoena or other legal process, (y) in connection with any litigation to which
-
such holder is a party or (z) if an Event of Default has occurred and is
-
continuing, to the extent such holder may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under such holder's Notes and this
Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to
have agreed to be bound by and to be entitled to the benefits of this paragraph
11H as though it were a party to this Agreement. On reasonable request by the
Company in connection with the delivery to any holder of a Note of information
required to be delivered to such holder under this Agreement or requested by
such holder (other than a holder that is a party to this Agreement or its
nominee), such holder will enter into an agreement with the Company embodying
the provisions of this paragraph 11H. For purposes of this paragraph 11H,
"Institutional Investor" means (a) any original purchaser of a Note, (b) any
holder of a Note holding more than 10% of the aggregate principal amount of the
Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form that is a qualified
institutional buyer under Rule 144A adopted under the Securities Act.
11I. NOTICES. All written communications provided for hereunder shall be
sent by first class mail or nationwide overnight delivery service (with charges
prepaid) and (i) if to any Person listed in the Information Schedule attached
----------- --------
hereto, addressed to it at the address specified for such communications in such
Information Schedule, or at such other address as it shall have specified in
- - ----------- --------
writing to the Person sending such communication, and (ii) if to any other
holder of any Note which is not a Person listed in such Information Schedule,
----------- --------
addressed to such other holder at such address as such other holder shall have
specified in writing to the Person sending such communication, or, if any such
other holder shall not have so specified an address, then addressed to such
other holder in care of the last holder of such Note which shall have so
specified an address to the Person sending such communication; provided,
--------
however, that any such communication to the Company may also, at the option of
- - -------
the Person sending such communication, be delivered by any other means either to
the Company at its address specified in the Information Schedule or to any
----------- --------
Authorized Officer of the Company. Any telephonic communication pursuant to
paragraph 4C shall be effective to create any rights or obligations under this
Agreement only if an Authorized Officer of the party conveying the information
and of the party receiving the information are parties to the telephone call.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the
Notes to the contrary notwithstanding, any payment of principal of or interest
on, or Yield-Maintenance Amount payable with respect to, any Note that is due on
a date other than a Business Day shall be made on the next succeeding Business
Day. If the date for any payment is extended to the next succeeding Business Day
by reason of the preceding sentence, the period of such extension shall not be
included in the computation of the interest payable on such Business Day.
38
<PAGE>
11K. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
11L. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11M. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to any Purchaser or to the Required Holder(s), the
determination of such satisfaction shall be made by such Purchaser or the
Required Holder(s), as the case may be, in the sole and exclusive judgment
(exercised in good faith) of the Person or Persons making such determination.
11N. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF NEW YORK. This Agreement may not be changed orally, but (subject to
the provisions of paragraph 11C) only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification or discharge
is sought.
11O. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
11P. BINDING AGREEMENT. When this Agreement is executed and delivered by
the Co-Makers and Purchasers, it shall become a binding agreement between the
Co-Makers and Purchasers.
11Q. SEVERALTY OF OBLIGATIONS. The sales of Notes to the Purchasers are to
be several sales, and the obligations of the Purchasers under this Agreement are
several obligations. Except as provided in paragraph 3F, no failure by any
Purchaser to perform its obligations under this Agreement shall relieve any
other Purchaser or any Co-Maker of any of its obligations hereunder, and no
Purchaser shall be responsible for the obligations of, or any action taken or
omitted by, any other Purchaser hereunder.
11R. MAXIMUM INTEREST PAYABLE. Each Co-Maker, each Purchaser and any other
holders of the Notes specifically intend and agree to limit contractually the
amount of interest payable under this Agreement, the Notes and all other
instruments and agreements related hereto and thereto to the maximum amount of
interest lawfully permitted to be charged under applicable law. Therefore, none
of the terms of this Agreement, the Notes or any instrument pertaining to or
relating to this Agreement or the Notes shall ever be construed to create a
contract to pay interest at a rate in excess of the maximum rate permitted to be
charged under applicable law, and neither any Co-Maker, any guarantor nor any
other party liable or to become liable
39
<PAGE>
hereunder, under the Notes, any guaranty or under any other instruments and
agreements related hereto and thereto shall ever be liable for interest in
excess of the amount determined at such maximum rate, and the provisions of this
paragraph 11R shall control over all other provisions of this Agreement, any
Notes, any guaranty or any other instrument pertaining to or relating to the
transactions herein contemplated. If any amount of interest taken or received by
any Purchaser or any holder of a Note shall be in excess of said maximum amount
of interest which, under applicable law, could lawfully have been collected by
such Purchaser or such holder incident to such transactions, then such excess
shall be deemed to have been the result of a mathematical error by all parties
hereto and shall be refunded promptly by the Person receiving such amount to the
party paying such amount, or, at the option of the recipient, credited ratably
against the unpaid principal amount of the Note or Notes held by such Purchaser
or such holder, respectively. All amounts paid or agreed to be paid in
connection with such transactions which would under applicable law be deemed
"interest" shall, to the extent permitted by such applicable law, be amortized,
prorated, allocated and spread throughout the stated term of this Agreement and
the Notes. "APPLICABLE LAW" as used in this paragraph means that law in effect
from time to time which permits the charging and collection of the highest
permissible lawful, nonusurious rate of interest on the transactions herein
contemplated including laws of the State of New York and of the United States of
America, and "maximum rate" as used in this paragraph means, with respect to
each of the Notes, the maximum lawful, nonusurious rates of interest (if any)
which under applicable law may be charged to the Co-Makers from time to time
with respect to such Notes.
11S. WAIVER BY CO-MAKERS. No action which any holder may take or omit to
take in respect of one of the Co-Makers in connection with this Agreement or the
Notes (or any other indebtedness owing by one of the Co-Makers to such holder),
no course of dealing of any holder with one of the Co-Makers, no action or
inaction by one of the Co-Makers, and no change of law or circumstances, shall
release or diminish the other Co-Maker's joint and several obligations,
liabilities, agreements and duties hereunder or under the Notes in any way, or
afford the other Co-Maker any recourse against any holder, regardless of whether
any such action or inaction may increase any risks to or liabilities of such
other Co-Maker. Without limiting the foregoing, the obligations, liabilities,
agreements, and duties of each Co-Maker under this Agreement and the Notes shall
not be released, diminished, impaired, reduced, or affected by the occurrence of
any or all of the following from time to time, even if occurring without notice
to or without the consent of such Co-Maker: Any voluntary or involuntary
liquidation, dissolution, sale of all or substantially all assets, marshaling of
assets or liabilities, receivership, conservatorship, assignment for the benefit
of creditors, insolvency, bankruptcy, reorganization, arrangement, or
composition of the other Co-Maker or any other proceedings involving the other
Co-Maker or any of the assets of the other Co-Maker under laws for the
protection of debtors, or any discharge, impairment, modification, release, or
limitation of the liability of, or stay of actions or lien enforcement
proceedings against, the other Co-Maker, any properties of the other Co-Maker,
or the estate in bankruptcy of the other Co-Maker in the course of or resulting
from any such proceedings; the failure by any holder to file or enforce a claim
in any proceeding described in the immediately preceding clause or to take any
other action in any proceeding to which the other Co-Maker is a party; the
release by operation of law of the other Co-Maker from the Note or any other
obligations to holders; the invalidity, deficiency, illegality, or
unenforceability of the Note
40
<PAGE>
or this Agreement against the other Co-Maker, in whole or in part, any bar by
any statute of limitations or other law of recovery on the Note or this
Agreement against the other Co-Maker or other defense or excuse whatsoever; the
failure of the other Co-Maker to sign any instrument or agreement; without
limiting any of the foregoing, any fact or event (whether or not similar to any
of the foregoing) which in the absence of this provision would or might
constitute or afford a legal or equitable discharge or release of or defense to
a Co-Maker other than the actual payment and performance by such Co-Maker of the
Notes. Any holder may pursue one of the Co-Makers before pursuing any remedies
against the other Co-Maker or any other Person. Any holder may maintain an
action against one of the Co-Makers on the Notes without joining the other Co-
Maker and without bringing a separate action against the other Co-Maker. If any
payment to any holder by any Co-Maker is held to constitute a preference or a
voidable transfer under applicable state or federal laws, or if for any other
reason any holder is required to refund such payment to the payor thereof or to
pay the amount thereof to any other Person, such payment to such holder shall
not constitute a release of the other Co-Maker from any liability hereunder, and
each Co-Maker agrees to pay such amount to such holder on demand and agrees and
acknowledges that the obligations of each Co-Maker under this Agreement and the
Notes shall continue to be effective or shall be reinstated, as the case may be,
to the extent of any such payment or payments. Any transfer by subrogation prior
to any such payment or payments shall (regardless of the terms of such transfer)
be automatically voided upon the making of any such payment or payments, and all
rights so transferred shall thereupon revert to and be vested in holders. Until
all of the Obligations under the Notes and this Agreement have been paid and
performed in full, no Co-Maker shall have any right to exercise any right of
subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which it may now or hereafter have against or to any other Co-Maker, and
each Co-Maker hereby waives any rights to enforce any remedy which such Co-Maker
may have against any other Co-Maker until such time.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
41
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterparts of this letter and return the same to
the Company, whereupon this letter shall become a binding agreement among the
Co-Makers and the Purchasers.
Very truly yours,
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
By:
---------------------------------------------
Title:
GPX CORP.
By:
---------------------------------------------
Title:
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By
-----------------------------------------
Title:
42
<PAGE>
INFORMATION SCHEDULE
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
(1) Address for Notices:
-------------------
2121 San Jacinto Street
Suite 2500 P.O. Box 219022
Dallas, Texas 75201 Dallas, Texas 75221
(2) Receipt of telephonic or facsimile notices:
------------------------------------------
(214) 953-4500
(214) 953-4596/4597/4598 (facsimile)
(3) Authorized Officers:
-------------------
G.L Adelman Senior Vice President, General Counsel, and Secretary
G.G. Garrison Vice President -- Finance, Treasurer, CFO
M.D. Stott Vice President -- Planning and Development
G.W. Pasley Vice President -- Communications
D.A. Reeves Vice President -- Controller
J.B. Alleman Vice President -- Human Resources
J.M. Bravo Vice President
H. Linser Vice President
43
<PAGE>
INFORMATION SCHEDULE
GPX Corp.
(1) Address for Notices:
-------------------
Bank of America Plaza
300 South Fourth Street
Suite 1100 P.O. Box 50401
Las Vegas, Nevada 89101 Henderson, Nevada 89016
(2) Receipt of telephonic or facsimile notices:
------------------------------------------
(702) 386-4789
(702) 598-3651 (facsimile)
(3) Authorized Officers:
-------------------
G.G. Garrison President
G.L. Adelman Vice President and Secretary
D.A. Reeves Vice President and Controller
M.L. Miller Vice President, Asst. Treasurer, and Asst. Secretary
Mark Carter Treasurer
Paul Fehlman Assistant Treasurer
Holly McCool Assistant Treasurer
44
<PAGE>
Aggregate
Principal
Amount of Note
Notes to be Denom-
Purchased ination(s)
----------- ----------
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA $25,000,000 $25,000,000
(1) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
Account No. 890-0304-391
The Bank of New York
New York, New York
ABA No.: 021-000-018
Each such wire transfer shall set forth the name of the
Company, a reference to "7.05% Senior Notes due
2010, PPN# 37933# \B INV 6211," and the due
date and application (as among principal, interest, and
Yield-Maintenance Amount) of the payment being made.
(2) Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Four Gateway Center, 7th Floor
100 Mulberry Street
Newark, New Jersey 07102-4077
Attention: Trade Management Group
(3) Address for all other communications and notices:
The Prudential Insurance Company of America
c/o Prudential Capital Group - Private Placements
1201 Elm Street - Suite 4900
Dallas, Texas 75720
Attention: Managing Director
(4) Recipient of telephonic prepayment notices:
45
<PAGE>
Manager, Trade Management Group
(973) 802-7298
(5) Tax Identification No.: 22-1211670
46
<PAGE>
EXHIBIT A
---------
[FORM OF NOTE]
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
GPX CORP.
7.05% SENIOR NOTE DUE ______________, 2010
NO. R-01
ORIGINAL PRINCIPAL AMOUNT: $25,000,000
ORIGINAL ISSUE DATE: OCTOBER 2, 1998
INTEREST RATE: 7.05%
INTEREST PAYMENT DATES: JANUARY 2ND, APRIL 2ND, JULY 2ND AND
OCTOBER 2ND OF EACH YEAR
FINAL MATURITY DATE: OCTOBER 2, 2010
PRINCIPAL PREPAYMENT DATES AND AMOUNTS:
OCTOBER 2, 2006 - $5,000,000
OCTOBER 2, 2007 - $5,000,000
OCTOBER 2, 2008 - $5,000,000
OCTOBER 2, 2009 - $5,000,000
FOR VALUE RECEIVED, the undersigned, GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
(the "COMPANY"), a corporation organized and existing under the laws of the
State of Delaware, and GPX CORP., a corporation organized and existing under the
laws of the State of Nevada (collectively, "CO-MAKERS"), hereby jointly and
severally promise to pay to __________________________________________, or
registered assigns, the principal sum of _________________________ DOLLARS
payable in required prepayments on the Principal Prepayment Dates and in the
amounts specified above, and on the Final Maturity Date specified above in an
amount equal to the unpaid balance of the principal hereof, with interest
(computed on the basis of a 360-day year--30-day month) (a) on the unpaid
balance thereof at the Interest Rate per annum specified above from the Original
Issue Date specified above, payable on each Interest Payment Date specified
above and on the Final Maturity Date specified above, commencing January 2,
1999, until the principal hereof shall have become due and payable, and (b) on
any overdue payment (including any overdue prepayment) of principal, any overdue
payment of interest and any overdue payment of any Yield-Maintenance Amount (as
defined in the Agreement referred to below), payable quarterly as aforesaid (or,
at the option of the registered holder hereof, on demand), at a rate per annum
from time to time equal to the lesser of (a) the maximum rate permitted by
applicable law or (b) the greater of (i) 9.05% or (ii) 2% over the rate of
interest publicly announced by Bank of New York from time to time in New York
City as its Prime Rate.
Payments of principal of, interest on and any Yield-Maintenance Amount
payable with respect to this Note are to be made at the main office of Bank of
New York in New York City or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States of
America.
A-1
<PAGE>
This Note is one of the 7.05% Senior Notes (the "NOTES") issued pursuant
to a Note Agreement, dated as of October 2, 1998 (the "AGREEMENT"), among the
Co-Makers and the original purchasers of the Notes named in the Information
Schedule attached thereto and is entitled to the benefits thereof. As provided
in the Agreement, this Note is subject to prepayment, in whole or from time to
time in part on the terms specified in the Agreement.
This Note is a registered Note and, as provided in and subject to the
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Co-Makers may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Co-Makers shall not be affected by any notice to
the contrary.
In case an Event of Default, as defined in the Agreement, shall occur and
be continuing, the principal of this Note may be declared or otherwise become
due and payable in the manner and with the effect provided in the Agreement.
The Co-Makers and any and all endorsers, guarantors and sureties
severally waive grace, demand, presentment for payment, notice of dishonor or
default, notice of intent to accelerate, notice of acceleration (to the extent
set forth in the Agreement), protest and diligence in collecting.
Should any indebtedness represented by this Note be collected at law or
in equity, or in bankruptcy or other proceedings, or should this Note be placed
in the hands of attorneys for collection, the Company agrees to pay, in addition
to the principal, Yield-Maintenance Amount, if any, and interest due and payable
hereon, all costs of collecting or attempting to collect this Note, including
reasonable attorneys' fees and expenses (including those incurred in connection
with any appeal).
The Co-Makers, and the purchaser and the registered holder of this Note
specifically intend and agree to limit contractually the amount of interest
payable under this Note to the maximum amount of interest lawfully permitted to
be charged under applicable law. Therefore, none of the terms of this Note
shall ever be construed to create a contract to pay interest at a rate in excess
of the maximum rate permitted to be charged under applicable law, and neither
the Co-Makers nor any other party liable or to become liable hereunder shall
ever be liable for interest in excess of the amount determined at such maximum
rate, and the provisions of paragraph 11R of the Agreement shall control over
any contrary provision of this Note.
A-2
<PAGE>
THIS NOTE IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF SUCH STATE.
GLOBAL INDUSTRIAL
TECHNOLOGIES, INC.
By:
-----------------------------
Vice President
By:
-----------------------------
Treasurer
GPX CORP.
By:
-----------------------------
Vice President
By:
-----------------------------
Treasurer
A-3
<PAGE>
EXHIBIT B
---------
[FORM OF OPINION OF COMPANY'S GENERAL COUNSEL ATTACHED HERETO]
B-1
<PAGE>
EXHIBIT C-1
-----------
Form of Notice of Designation
of Restricted Subsidiary
Global Industrial Technologies, Inc.
2121 San Jacinto Street
Dallas, Texas 75201
[Date]
To: All Holders of Notes of Global Industrial Technologies, Inc. and GPX Corp.
Ladies and Gentlemen:
RE: DESIGNATION OF RESTRICTED SUBSIDIARY
-----------------------------------------
We refer to the Note Agreement (the "Agreement") dated as of October 2,
1998 among Global Industrial Technologies, Inc. (the "Company"), and GPX
Corp., and the Purchasers named in the Purchaser Schedule attached thereto.
Capitalized terms used herein have the meanings ascribed thereto in the
Agreement.
Pursuant to the definition of "Restricted Subsidiary" in paragraph 10B of
the Agreement, we hereby notify you that the following Subsidiary has been
designated by the Company as an Restricted Subsidiary:
<TABLE>
<S> <C> <C> <C> <C>
Name of new Jurisdiction of Jurisdictions in which Percentage Direct or indirect [if
Restricted Incorporation/ it is registered to ownership by indirect, provide details
Subsidiary Continuance/ carry on business the Corporation and confirm that
---------- Amalgamation ----------- --------------- Intermediaries are (or are
------------ concurrently being
designated as)
Restricted Subsidiaries]
------------------------
</TABLE>
We represent, warrant and covenant to each holder of a Note that:
(a) each of the representations and warranties contained in the
Agreement, insofar as they pertain to Subsidiaries or Restricted
Subsidiaries, is true on and as of the date hereof with respect to
the Restricted Subsidiary that is the subject of this notice;
(b) as and from the date hereof each of the covenants contained in the
Agreement, insofar as they pertain to Restricted Subsidiaries, shall
also apply with respect to the Restricted Subsidiary that is the
subject of this notice;
(c) after giving effect to the designation herein referred to, no
Default or Event of
C1 - 1
<PAGE>
Default would occur or exist as a result of such designation.
We confirm that this notice is being concurrently delivered to all
registered holders of Notes under the Agreement in accordance with paragraph
11I thereof.
Very truly yours,
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
By:
-------------------------------------------------
C1 - 2
<PAGE>
EXHIBIT C-2
-----------
Form of Notice of Designation
of Unrestricted Subsidiary
Global Industrial Technologies, Inc.
2121 San Jacinto Street
Dallas, Texas 75201
[Date]
To: All Holders of Notes of Global Industrial Technologies, Inc. and GPX Corp.
Ladies and Gentlemen:
RE: DESIGNATION OF UNRESTRICTED SUBSIDIARY
-------------------------------------------
We refer to the Note Agreement (the "Agreement") dated as of October 2,
1998 among Global Industrial Technologies, Inc. (the "Company"), and GPX Corp.
and the Purchasers named in the Purchaser Schedule attached thereto.
Capitalized terms used herein have the meanings ascribed thereto in the
Agreement.
Pursuant to the definition of "Restricted Subsidiary" in paragraph 10B of
the Agreement, we hereby notify you that the following Subsidiary has been
designated by the Company as an Unrestricted Subsidiary:
<TABLE>
<S> <C> <C> <C> <C>
Name of new Jurisdiction of Jurisdictions in which Percentage Direct or indirect [if
Restricted Incorporation/ it is registered to ownership by indirect, provide details
Subsidiary Continuance/ carry on business the Corporation and confirm that
---------- Amalgamation ----------- --------------- Intermediaries are (or are
------------ concurrently being
designated as)
Restricted Subsidiaries]
------------------------
</TABLE>
We represent, warrant and covenant to each holder of a Note that after
giving effect to the designation herein referred to, no Default or Event of
Default would occur or exist as a result of such designation.
We confirm that this notice is being concurrently delivered to all
registered holders of Notes under the Agreement in accordance with paragraph
11I thereof.
Very truly yours,
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
By:
-------------------------------------------------
C2 - 1
<PAGE>
Title:
-----------------------------------------
C2 - 2
<PAGE>
SCHEDULE 6E
-----------
EXISTING LIENS
None.
<PAGE>
SCHEDULE 8C
-----------
ACTIONS PENDING
<PAGE>
SCHEDULE 8I
-----------
AGREEMENTS RESTRICTING DEBT
<PAGE>
SCHEDULE 8O
-----------
ENVIRONMENTAL COMPLIANCE
<PAGE>
SCHEDULE 10
-----------
ACQUISITIONS
<PAGE>
EXHIBIT 10.2
---------------------------------------------------------------
---------------------------------------------------------------
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
GPX CORP.
________________________________
AMENDMENT NO. 2
DATED AS OF AUGUST 31, 1998
TO
NOTE AGREEMENT DATED AS OF JANUARY 31, 1996
$25,000,000 6.45% SENIOR NOTES, SERIES A, DUE JANUARY 31, 2002
$50,000,000 6.76% SENIOR NOTES, SERIES B, DUE JANUARY 31, 2002
________________________________
---------------------------------------------------------------
---------------------------------------------------------------
<PAGE>
AMENDMENT NO. 2 TO NOTE AGREEMENT
THIS AMENDMENT NO. 2 TO NOTE AGREEMENT dated as of August 31, 1998
(this "AMENDMENT"), is entered into by and between GLOBAL INDUSTRIAL
TECHNOLOGIES, INC., a Delaware corporation (the "COMPANY"), and GPX CORP., a
Nevada corporation ("GPX," and together with the Company, the "CO-MAKERS"), THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA ("PRUDENTIAL") and PRINCIPAL LIFE
INSURANCE COMPANY (formerly Principal Mutual Life Insurance Company) ("PRINCIPAL
LIFE") (collectively, the "PURCHASERS").
RECITALS
--------
A. The Co-Makers and the Purchasers entered into a Note Agreement dated
as of January 31, 1996 (as amended by Amendment No. 1 dated June 20, 1996, and
as further amended, supplemented or otherwise modified from time to time, the
"NOTE AGREEMENT"), pursuant to which the Co-Makers issued and sold to the
Purchasers and the Purchasers purchased, on the terms and conditions therein set
forth, the Co-Makers' 6.45% Senior Notes, Series A, due January 31, 2002 in the
aggregate amount of $25,000,000 and the Co-Makers' 6.76% Senior Notes, Series B,
Due January 31, 2002 in the aggregate amount of $50,000,000 (the "SERIES A
NOTES" and the "SERIES B NOTES", respectively, and collectively the "NOTES").
Principal Life remains the holder of 100% of the outstanding principal amount of
the Series A Notes. Prudential remains the holder of 100% of the outstanding
principal amount of the Series B Notes.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings ascribed to them in the Note Agreement.
B. The Co-Makers and Chase Bank of Texas, N.A., Bank of America National
Trust and Savings Association, ABN Amro Bank N.V., The Chase Manhattan Bank and
the other financial institutions party thereto (collectively, the "BANKS") have
entered into a Credit Agreement dated as of August 31, 1998 (as the same may be
amended, modified, or supplemented from time to time, the "CREDIT AGREEMENT"),
pursuant to which the Banks have agreed to extend credit to the Co-Makers in the
form of revolving credit advances not to exceed an aggregate principal amount of
$215,000,000.
C. The Co-Makers desire that the obligations of certain of the Restricted
Subsidiaries of the Company under Guaranties executed and delivered in
connection with the Credit Agreement (the "BANK GUARANTIES") be excluded from
"Priority Debt" for purposes of the Note Agreement.
<PAGE>
D. The Restricted Subsidiaries (including GPX) that have executed Bank
Guaranties and the Company (collectively, the "GUARANTORS") have agreed to
execute Guaranties in respect of the Co-Makers' obligations under the Notes.
E. The Guarantors, the Banks, and the Purchasers have executed a Sharing
Agreement dated as of August 31, 1998.
F. In furtherance of the foregoing, the Co-Makers and the Purchasers now
desire to amend the Note Agreement in the respects, but only in the respects,
hereinafter set forth.
NOW, THEREFORE, the Co-Makers and the Purchasers, in consideration of the
foregoing and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, do hereby agree as follows:
SECTION 1. AMENDMENT OF THE NOTE AGREEMENT. The Note Agreement is
hereby amended as follows:
(a) Paragraphs 5A(i) and 5A(ii) of the Note Agreement are amended by the
addition of the phrase "(other than Aken)" after the phrase "Unrestricted
Subsidiaries" in subclause (B) of each of paragraph 5A(i) and paragraph 5A(ii).
(b) Paragraph 5A is further amended by deleting the paragraph number and
punctuation "6C," from the fourth line of the text immediately following
paragraph 5A(vi).
(c) The following new paragraphs 5K and 5L are added to the Note
Agreement:
5K. FURTHER ASSURANCES. Each of the Co-Makers will, and will cause
each Subsidiary to, execute and deliver such further agreements and
instruments and take such further action as may be reasonably requested by
the Required Holders to carry out the provisions and purposes of this Note
Agreement, the Notes, any Guaranty executed and delivered by any Guarantor
and any other instrument or agreement executed and delivered pursuant to or
in connection with any of the foregoing (the "NOTE DOCUMENTS"). Without in
any way limiting the foregoing, if at any time any Subsidiary which is not
a Guarantor guarantees any Debt of the Company or GPX under the Credit
Agreement, the Co-Makers shall cause such Subsidiary (which Subsidiary
shall then be deemed to be a Restricted Subsidiary) to execute and deliver
a Guaranty in form and substance identical to the Guaranty Agreement
attached as Exhibit E-1, pursuant to which each such Subsidiary guarantees
the prompt payment and performance in full of the Notes and all other
obligations under the Note Agreement and the other Note Documents and
subordinates any and all Debt of any Co-Maker or any Subsidiary to such
Guarantor, together with such legal opinions,
-2-
<PAGE>
corporate and partnership documents and certificates as the Purchasers or
their counsel may require in connection therewith.
5L. OTHER INFORMATION. Each of the Co-Makers will, and will cause
each Subsidiary to, deliver to the Purchasers copies of any and all
information provided to any of its lenders (including, without limitation,
the Banks) under the terms of any loan, credit, or similar agreement to
which either Co-Maker is a party (including, without limitation, the Credit
Agreement) at the same time as such information is delivered to such
lenders.
(d) Paragraphs 6B and 6C of the Note Agreement are amended in their
entirety to read as follows:
"6B. LIMITATION ON CONSOLIDATED TOTAL DEBT. The Company will not
and will not permit any Restricted Subsidiary to create, incur, assume, or
suffer to exist any Debt if Consolidated Total Debt will (i) at any time
during the period commencing July 1, 1998 and ending June 30, 1999, exceed
55% of Total Capitalization; (ii) at any time during the period commencing
July 1, 1999 and ending June 30, 2001, exceed 50% of Total Capitalization;
or (iii) at any time after June 30, 2001, exceed 47.5% of Total
Capitalization.
6C. INTENTIONALLY DELETED."
(e) Paragraph 6E(v) of the Note Agreement is amended by the addition at
the end of the paragraph, prior to the semicolon, of the following phrase:
", provided that such Liens secure the Notes and the other obligations
of the Co-Makers under this Agreement and the other Note Documents equally
and ratably with all other Debt secured thereby pursuant to documentation
reasonably satisfactory to the Required Holders"
(f) Paragraph 6G(a) of the Note Agreement is replaced with the following
new paragraphs (a) and (b), and existing paragraphs (b) and (c) are renumbered
(c) and (d):
"(a) any Restricted Subsidiary which is a Guarantor may merge with
the Company or another wholly-owned Restricted Subsidiary which is a
Guarantor;
(b) any Restricted Subsidiary which is not a Guarantor may merge with
any other Restricted Subsidiary which is not a Guarantor;"
(g) Paragraph 7A(ii) of the Note Agreement is amended by the replacement
of the phrase "Business Days" in the second line with the phrase "calendar
days".
-3-
<PAGE>
(h) Paragraph 7A(iii) of the Note Agreement is amended (i) by the addition
of the phrase "(other than Aken Debt)" between the phrases "money borrowed" and
"(or any Capitalized Lease" in the third line; (ii) by the addition of the
phrase "or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause," after the phrase "such failure or
other event is to cause" in the twelfth line; by the addition of the phrase
"provided that if any such failure or other event shall be waived or cured (as
evidenced by a writing from such holder or holders of such obligation or any
Person acting on behalf of such holder or holders) then, to the extent of such
waiver or cure, the Default or Event of Default hereunder by reason of such
failure or other event shall be deemed likewise to have been thereupon waived or
cured except to the extent such failure or other event otherwise constitutes a
Default or Event of Default under any provision of this Agreement other than
this Paragraph 7A(iii);" between the words "maturity," and "provided" in the
fourteenth line; by the addition of the phrase "or permitting" between the words
"causing" and "acceleration" in the sixteenth line; and (iii) by the replacement
of the phrase "exceeds $5,000,000" with the phrase "exceeds $10,000,000" in the
seventeenth line.
(i) Paragraph 7A(v) of the Note Agreement is amended in its entirety to
read as follows:
(v)(a) the Company fails to perform or observe any term, covenant or
agreement contained in paragraphs 6A or 6B, or (b) the Company fails to
perform or observe any other term, covenant or agreement contained in
paragraph 6 and such failure shall continue for five (5) calendar days;
(j) Paragraph 7A(xi) of the Note Agreement is amended by the replacement
of the phrase "60 days" in the third line thereof with the phrase "30 days".
(k) Paragraph 7A(xii) of the Note Agreement is amended by the replacement
of the number "$7,500,000" in the second line thereof with the number
"$15,000,000".
(l) Paragraph 7A of the Note Agreement is amended by the addition of the
following new paragraph (xiii) immediately after paragraph (xii) thereof:
"(xiii) This Agreement or any Guaranty shall cease to be in full force
and effect or shall be declared null or void, or the validity or
enforceability thereof shall be contested or challenged by either Co-
Maker, any Guarantor or any other Subsidiary or any of their
respective shareholders, or any Co-Maker, Guarantor or any other
Subsidiary shall deny that it has any further liability or obligations
under this Agreement or any Guaranty; or ";
and by renumbering existing paragraph (xiii) as paragraph (xiv).
-4-
<PAGE>
(m) The definition of "RESTRICTED SUBSIDIARY" in paragraph 10B of the Note
Agreement is amended by the addition of the following phrase at the end of such
paragraph, immediately preceding the period:
"or (e) such Subsidiary guarantees or is required pursuant to
paragraph 5K to guarantee the Notes and the other obligations of the Co-
Makers under this Agreement and the other Note Documents. For purposes
hereof, GPX shall always be a Restricted Subsidiary".
(n) Paragraph 10B of the Note Agreement is amended to read as follows with
respect to the following defined terms:
"SUBSIDIARY" shall mean (i) any corporation of which at least 51% of
the total combined voting power of all classes of outstanding Voting Stock
of which shall, at the time as of which any determination is being made, be
owned or controlled by the Company either directly or through Subsidiaries;
and (ii) any other entity (a) of which at least a majority of the
ownership, equity, or voting interests is at the time directly or
indirectly owned or controlled by one or more of the Co-Makers and the
Subsidiaries and (b) which is treated as a subsidiary in accordance with
GAAP.
"TOTAL CAPITALIZATION" shall mean the sum of (i) Funded Debt and
Current Debt of the Company and its Restricted Subsidiaries, and (ii)
Consolidated Tangible Net Worth.
(o) Paragraph 10B of the Note Agreement is amended by inserting the
following new defined terms in the appropriate alphabetical order within such
paragraph:
"AKEN" shall mean Magnesitwerk Aken GmbH.
"AKEN DEBT" shall mean the indebtedness of Aken, which indebtedness is
non-recourse to the Company.
"BANKS" shall mean Chase Bank of Texas, N.A., Bank of America National
Trust and Savings Association, ABN Amro Bank, N.V., The Chase Manhattan
Bank and the other financial institutions party to the Credit Agreement.
"CONSOLIDATED TOTAL DEBT" shall mean total Debt of the Company and its
Restricted Subsidiaries on a consolidated basis, as determined in
accordance with GAAP.
"CREDIT AGREEMENT" shall mean the Credit Agreement dated as of August
31, 1998 between the Co-Makers and the Banks, as the same may be amended,
modified, or supplemented from time to time.
-5-
<PAGE>
"GUARANTY" means the Guaranty in the form of Exhibit E-1 hereto,
executed by each of the Guarantors other than the Co-Makers, and the Guaranty in
the form of Exhibit E-2 hereto, executed by each of the Co-Makers, pursuant to
the terms of paragraph 5K, as the same may be amended, modified, or supplemented
from time to time.
"GUARANTOR" shall mean the Company and any Subsidiary that at any time
executes a Guaranty in favor of the holders of the Notes.
"NOTE DOCUMENTS" shall have the meaning specified in paragraph 5K.
(p) New Exhibits E-1 and E-2, in the forms attached hereto, are added to
the Note Agreement.
SECTION 2. EFFECTIVENESS OF AMENDMENT TO PARAGRAPH 7A(III). The
addition of the language to paragraph 7A(iii) effected in Section 1(h)(ii) of
this Amendment shall remain effective from and after the Effective Date only for
so long as the Credit Agreement contains the same or substantially similar
language regarding the ability to accelerate the Co-Makers' obligations under
the Credit Agreement. If the Credit Agreement is changed to delete such
language and satisfactory evidence thereof is provided to the Required Holders,
the amendment effected in Section 1(h)(ii) described in this Section 2 with
respect to paragraph 7A(iii) shall cease to be effective.
SECTION 3. EFFECTIVE DATE. This Amendment shall become effective on
the date hereof (the "EFFECTIVE DATE"), subject in all cases to the following
having been received by and being satisfactory to the Purchasers:
(a) duly executed counterparts of this Amendment;
(b) duly executed counterparts of each Guaranty executed and delivered by
the Guarantors and the Co-Makers;
(c) certificates of the Secretary or Assistant Secretary of each of the
Guarantors and the Co-Makers attaching and certifying copies of (i) the
certificate of incorporation of such Guarantor or Co-Maker, as the case may be,
(ii) the bylaws of such Guarantor or Co-Maker, as the case may be, (iii) the
resolutions of the board of directors of such Guarantor authorizing the
execution, delivery and performance of its Guaranty; (iv) the resolutions of the
board of directors of each Co-Maker authorizing the execution, delivery, and
performance of the Amendment; and (v) the name, title and true signature of each
officer of such Guarantor or Co-Maker, as the case may be, executing the
Amendment or the applicable Guaranty; and
-6-
<PAGE>
(d) a favorable opinion of Graham L. Adelman, Esq., general counsel of the
Company, counsel for the Co-Makers and the Guarantors, satisfactory to the
Purchasers and the Purchasers' special counsel and addressing such matters as
the Purchasers may request;
(e) evidence satisfactory to the Purchasers that the Purchasers' special
counsel has received its fees, charges and disbursements charged or incurred in
connection with the preparation, negotiation, execution and delivery of this
Amendment, the Guaranties, and any other documents executed and delivered
contemporaneously herewith or therewith, to the extent such fees, charges and
disbursements are reflected in a statement of such special counsel tendered to
the Co-Makers at least one Business Day prior to the execution of this
Amendment.
SECTION 4. REPRESENTATIONS AND WARRANTIES. In order to induce the
Purchasers to enter into this Amendment, each of the Co-Makers represents and
warrants as follows:
(a) Organization. The Company is a corporation duly organized and validly
------------
existing in good standing under the laws of the State of Delaware. GPX is a
corporation duly organized and validly existing in good standing under the laws
of the State of Nevada. Each other Guarantor is a corporation duly organized
and validly existing in good standing under the laws of the state of its
incorporation.
(b) Power and Authority. Each of the Co-Makers and each Guarantor has all
-------------------
requisite corporate power to execute, deliver and perform its obligations under
this Amendment and under the Guaranty executed by it. The execution, delivery
and performance by the Co-Makers of this Amendment and by the Guarantors of
their respective Guaranties have been duly authorized by all requisite corporate
action on the part of each of the Co-Makers or such Guarantors, as the case may
be. Each of the Co-Makers has duly executed and delivered this Amendment, and
this Amendment constitutes the legal, valid and binding obligation of each of
the Co-Makers, enforceable against the Co-Makers in accordance with its terms.
Each of the Guarantors has duly executed and delivered its Guaranty, and such
Guaranty constitutes the legal, valiud and binding obligation of such Guarantor,
enforceable against it in accordance with its terms.
(c) No Conflicts. Neither the execution and delivery of this Amendment by
------------
the Co-Makers or of the Guaranties by the Guarantors, nor the consummation of
the transactions contemplated hereby, nor fulfillment of nor compliance with the
terms and provisions thereof will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or result in
any violation of, or result in the creation of any security interest, lien or
other encumbrance upon any of the properties or assets of the Co-Makers or the
Guarantors pursuant to the certificate of incorporation or bylaws of the Co-
Makers or the Guarantors, any award of any arbitrator or any agreement
(including any agreement with stockholders), instrument, order, judgment,
decree, statute, law, rule or regulation to which the Co-Makers or the
Guarantors are subject.
-7-
<PAGE>
(d) Consents. Neither the nature of the business conducted by the Co-
--------
Makers, nor any of its properties, nor any relationship between the Co-Makers
and any other Person, nor any circumstance in connection with the transactions
contemplated by this [First] Amendment is such as to require any authorization,
consent, approval, exemption or other action by or notice to or filing with any
court or administrative or governmental body or any other Person in connection
with the execution and delivery of this Amendment or fulfillment of or
compliance with the terms and provisions hereof.
(e) No Event of Default or Default. Immediately following the
------------------------------
effectiveness of this Amendment, no Event of Default or Default exists.
(f) Other. All representations and warranties of the Co-Makers in the
-----
Credit Agreement are true and correct on the date hereof, as though made on and
as of such date.
SECTION 5. MISCELLANEOUS.
(a) References to Note Agreement. Upon and after the Effective Date, each
----------------------------
reference to the Note Agreement in each document relating thereto shall mean and
be a reference to such Note Agreement as amended by this Amendment.
(b) Ratification and Confirmation. Except as specifically amended herein,
-----------------------------
the Note Agreement shall remain in full force and effect, and is hereby ratified
and confirmed.
(c) No Waiver. The execution, delivery and effectiveness of this Amendment
---------
shall not operate as a waiver of any right, power or remedy of any Purchaser or
any other holder of Notes, nor constitute a waiver of any provision of the Note
Agreement, the Notes or any other document relating thereto.
(d) Expenses. The Company confirms its agreement, pursuant to paragraph
--------
11B of the Note Agreement, to pay promptly all expenses of Purchaser related to
this Amendment and all matters contemplated hereby, including, without
limitation, all fees and expenses of the Purchasers' special counsel.
(E) GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN
-------------
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF NEW YORK, AND EACH OF THE PARTIES HERETO CHOOSES NEW YORK LAW TO
========
GOVERN THIS AMENDMENT PURSUANT TO N.Y. GEN. OBLIG. LAW SECTION 5-1401 (CONSOL.
============================================
1995).
=====
(f) Counterparts. This Amendment may be executed in counterparts
------------
(including those transmitted by facsimile), each of which shall be deemed an
original and all of which taken together
-8-
<PAGE>
shall constitute one and the same document. Delivery of this Amendment may be
made by facsimile transmission of a duly executed counterpart copy hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute this Amendment as of the date first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:
--------------------------------------
Name:
Title:
PRINCIPAL LIFE INSURANCE COMPANY
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
By:
--------------------------------------
Name:
Title:
-10-
<PAGE>
GPX CORP.
By:
--------------------------------------
Name:
Title:
-11-
<PAGE>
EXHIBIT 10.3
------------------------------------------------------------------------
------------------------------------------------------------------------
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
GPX CORP.
________________________________
AMENDMENT NO. 1
DATED AS OF AUGUST 31, 1998
TO
NOTE AGREEMENT DATED AS OF JUNE 30, 1998
$75,000,000 6.83% SENIOR NOTES, DUE JUNE 30, 2008
________________________________
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<PAGE>
AMENDMENT NO. 1 TO NOTE AGREEMENT
THIS AMENDMENT NO. 1 TO NOTE AGREEMENT dated as of August 31, 1998
(this "AMENDMENT"), is entered into by and between GLOBAL INDUSTRIAL
TECHNOLOGIES, INC., a Delaware corporation (the "COMPANY"), and GPX CORP., a
Nevada corporation ("GPX," and together with the Company, the "CO-MAKERS"), THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA ("PRUDENTIAL") and U.S. PRIVATE
PLACEMENT FUND ("U.S. FUND"), (collectively, the "PURCHASERS").
RECITALS
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A. The Co-Makers and the Purchasers entered into a Note Agreement dated
as of June 30, 1998 (as amended, supplemented or otherwise modified from time to
time, the "NOTE AGREEMENT"), pursuant to which the Co-Makers issued and sold to
the Purchasers and the Purchasers purchased, on the terms and conditions therein
set forth, the Co-Maker's 6.83% Senior Notes, Due June 30, 2008 in the aggregate
amount of $75,000,000 (the "NOTES"). The Purchasers remain, collectively, the
holders of 100% of the outstanding principal amount of the Notes.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings ascribed to them in the Note Agreement.
B. The Co-Makers and Chase Bank of Texas, N.A., Bank of America National
Trust and Savings Association, ABN Amro Bank N.V., The Chase Manhattan Bank and
the other financial institutions party thereto (collectively, the "BANKS") have
entered into a Credit Agreement dated as of August 31, 1998 (as the same may be
amended, modified, or supplemented from time to time, the "CREDIT AGREEMENT"),
pursuant to which the Banks have agreed to extend credit to the Co-Makers in the
form of revolving credit advances not to exceed an aggregate principal amount of
$215,000,000.
C. The Co-Makers desire that the obligations of certain of the Restricted
Subsidiaries of the Company under Guaranties executed and delivered in
connection with the Credit Agreement (the "BANK GUARANTIES") be excluded from
"Priority Debt" for purposes of the Note Agreement.
D. The Restricted Subsidiaries (including GPX) that have executed Bank
Guaranties and the Company (collectively, the "GUARANTORS") have agreed to
execute Guaranties in respect of the Co-Makers' obligations under the Notes.
E. The Guarantors, the Banks, and the Purchasers have executed a Sharing
Agreement dated as of August 31, 1998.
<PAGE>
F. In furtherance of the foregoing, the Co-Makers and the Purchasers now
desire to amend the Note Agreement in the respects, but only in the respects,
hereinafter set forth.
NOW, THEREFORE, the Co-Makers and the Purchasers, in consideration of the
foregoing and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, do hereby agree as follows:
SECTION 1. AMENDMENT OF THE NOTE AGREEMENT. The Note Agreement is
hereby amended as follows:
(a) Paragraphs 5A(i) and 5A(ii) of the Note Agreement are amended by the
addition of the phrase "(other than Aken)" after the phrase "Unrestricted
Subsidiaries" in subclause (B) of each of paragraph 5A(i) and paragraph 5A(ii).
(b) Paragraph 5A is further amended by deleting the paragraph number and
punctuation "6C," from the fourth line of the text immediately following
paragraph 5A(vi).
(c) The following new paragraphs 5K and 5L are added to the Note
Agreement:
5K. FURTHER ASSURANCES. Each of the Co-Makers will, and will cause
each Subsidiary to, execute and deliver such further agreements and
instruments and take such further action as may be reasonably requested by
the Required Holders to carry out the provisions and purposes of this Note
Agreement, the Notes, any Guaranty executed and delivered by any Guarantor
and any other instrument or agreement executed and delivered pursuant to or
in connection with any of the foregoing (the "NOTE DOCUMENTS"). Without in
any way limiting the foregoing, if at any time any Subsidiary which is not
a Guarantor guarantees any Debt of the Company or GPX under the Credit
Agreement, the Co-Makers shall cause such Subsidiary (which Subsidiary
shall then be deemed to be a Restricted Subsidiary) to execute and deliver
a Guaranty in form and substance identical to the Guaranty Agreement
attached as Exhibit D-1, pursuant to which each such Subsidiary guarantees
the prompt payment and performance in full of the Notes and all other
obligations under the Note Agreement and the other Note Documents and
subordinates any and all Debt of any Co-Maker or any Subsidiary to such
Guarantor, together with such legal opinions, corporate and partnership
documents and certificates as the Purchasers or their counsel may require
in connection therewith.
5L. OTHER INFORMATION. Each of the Co-Makers will, and will cause
each Subsidiary to, deliver to the Purchasers copies of any and all
information provided to any of its lenders (including, without limitation,
the Banks) under the terms of any loan, credit, or similar agreement to
which either Co-Maker is a party (including, without limitation, the Credit
Agreement) at the same time as such information is delivered to such
lenders.
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<PAGE>
(d) Paragraphs 6B and 6C of the Note Agreement are amended in their
entirety to read as follows:
"6B. LIMITATION ON CONSOLIDATED TOTAL DEBT. The Company will not
and will not permit any Restricted Subsidiary to create, incur, assume, or
suffer to exist any Debt if Consolidated Total Debt will (i) at any time
during the period commencing July 1, 1998 and ending June 30, 1999, exceed
55% of Total Capitalization; (ii) at any time during the period commencing
July 1, 1999 and ending June 30, 2001, exceed 50% of Total Capitalization;
or (iii) at any time after June 30, 2001, exceed 47.5% of Total
Capitalization.
6C. INTENTIONALLY DELETED."
(e) Paragraph 6E(v) of the Note Agreement is amended by the addition at
the end of the paragraph, prior to the semicolon, of the following phrase:
", provided that such Liens secure the Notes and the other obligations
of the Co-Makers under this Agreement and the other Note Documents equally
and ratably with all other Debt secured thereby pursuant to documentation
reasonably satisfactory to the Required Holders"
(f) Paragraph 6G(a) of the Note Agreement is replaced with the following
new paragraphs (a) and (b), and existing paragraphs (b) and (c) are renumbered
(c) and (d):
"(a) any Restricted Subsidiary which is a Guarantor may merge with
the Company or another wholly-owned Restricted Subsidiary which is a
Guarantor;
(b) any Restricted Subsidiary which is not a Guarantor may merge with
any other Restricted Subsidiary which is not a Guarantor;"
(g) Paragraph 7A(ii) of the Note Agreement is amended by the replacement of
the phrase "Business Days" in the second line with the phrase "calendar days".
(h) Paragraph 7A(iii) of the Note Agreement is amended (i) by the addition
of the phrase "(other than Aken Debt)" between the phrases "money borrowed" and
"(or any Capitalized Lease" in the third line; (ii) by the addition of the
phrase "or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause," after the phrase "such failure or
other event is to cause" in the eleventh line; by the addition of the phrase
"provided that if any such failure or other event shall be waived or cured (as
evidenced by a writing from such holder or holders of such obligation or any
Person acting on behalf of such holder or holders) then, to the extent of such
waiver or cure, the Default or Event of Default hereunder by reason of such
failure or other event shall be deemed likewise to have been thereupon waived or
cured except to the extent
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<PAGE>
such failure or other event otherwise constitutes a Default or Event of Default
under any provision of this Agreement other than this Paragraph 7A(iii);"
between the words "maturity," and "provided" in the thirteenth line; by the
addition of the phrase "or permitting" between the words "causing" and
"acceleration" in the fourteenth line; and (iii) by the replacement of the
phrase "exceeds $5,000,000" with the phrase "exceeds $10,000,000" in the
fifteenth line.
(i) Paragraph 7A(v) of the Note Agreement is amended in its entirety to
read as follows:
(v)(a) the Company fails to perform or observe any term, covenant or
agreement contained in paragraphs 6A or 6B, or (b) the Company fails to
perform or observe any other term, covenant or agreement contained in
paragraph 6 and such failure shall continue for five (5) calendar days;
(j) Paragraph 7A(xi) of the Note Agreement is amended by the replacement of
the phrase "60 days" in the third line thereof with the phrase "30 days".
(k) Paragraph 7A(xii) of the Note Agreement is amended by the replacement
of the number "$7,500,000" in the second line thereof with the number
"$15,000,000".
(l) Paragraph 7A of the Note Agreement is amended by the addition of the
following new paragraph (xiii) immediately after paragraph (xii) thereof:
"(xiii) This Agreement or any Guaranty shall cease to be in full force
and effect or shall be declared null or void, or the validity or
enforceability thereof shall be contested or challenged by either Co-
Maker, any Guarantor or any other Subsidiary or any of their respective
shareholders, or any Co-Maker, Guarantor or any other Subsidiary shall
deny that it has any further liability or obligations under this
Agreement or any Guaranty; or ";
and by renumbering existing paragraph (xiii) as paragraph (xiv).
(m) The definition of "RESTRICTED SUBSIDIARY" in paragraph 10B of the Note
Agreement is amended by the addition of the following phrase at the end of such
paragraph, immediately preceding the period:
"or (e) such Subsidiary guarantees or is required pursuant to
paragraph 5K to guarantee the Notes and the other obligations of the Co-
Makers under this Agreement and the other Note Documents. For purposes
hereof, GPX shall always be a Restricted Subsidiary".
(n) Paragraph 10B of the Note Agreement is amended to read as follows with
respect to the following defined terms:
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<PAGE>
"SUBSIDIARY" shall mean (i) any corporation of which at least 51% of
the total combined voting power of all classes of outstanding Voting Stock
of which shall, at the time as of which any determination is being made, be
owned or controlled by the Company either directly or through Subsidiaries;
and (ii) any other entity (a) of which at least a majority of the
ownership, equity, or voting interests is at the time directly or
indirectly owned or controlled by one or more of the Co-Makers and the
Subsidiaries and (b) which is treated as a subsidiary in accordance with
GAAP.
"TOTAL CAPITALIZATION" shall mean the sum of (i) Funded Debt and
Current Debt of the Company and its Restricted Subsidiaries, and (ii)
Consolidated Tangible Net Worth.
(o) Paragraph 10B of the Note Agreement is amended by inserting the
following new defined terms in the appropriate alphabetical order within such
paragraph:
"AKEN" shall mean Magnesitwerk Aken GmbH.
"AKEN DEBT" shall mean the indebtedness of Aken, which indebtedness is
non-recourse to the Company.
"BANKS" shall mean Chase Bank of Texas, N.A., Bank of America National
Trust and Savings Association, ABNA Amro Bank, N.V., The Chase Manhattan
Bank and the other financial institutions party to the Credit Agreement.
"CONSOLIDATED TOTAL DEBT" shall mean total Debt of the Company and its
Restricted Subsidiaries on a consolidated basis, as determined in
accordance with GAAP.
"CREDIT AGREEMENT" shall mean the Credit Agreement dated as of August
31, 1998 between the Co-Makers and the Banks, as the same may be amended,
modified, or supplemented from time to time.
"CURRENT DEBT" shall mean, without duplication, Debt other than Funded
Debt.
"GUARANTY" means the Guaranty in the form of Exhibit D-1 hereto,
executed by each of the Guarantors other than the Co-Makers, and the
Guaranty in the form of Exhibit D-2 hereto, executed by each of the
Co-Makers, pursuant to the terms of paragraph 5K, as the same may be
amended, modified, or supplemented from time to time.
"GUARANTOR" shall mean the Company and any Subsidiary that at any time
executes a Guaranty in favor of the holders of the Notes.
"NOTE DOCUMENTS" shall have the meaning specified in paragraph 5K.
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<PAGE>
(p) New Exhibits D-1 and D-2, in the forms attached hereto, are added to
the Note Agreement.
SECTION 2. EFFECTIVENESS OF AMENDMENT TO PARAGRAPH 7A(III). The
addition of the language to paragraph 7A(iii) effected in Section 1(h)(ii) of
this Amendment shall remain effective from and after the Effective Date only for
so long as the Credit Agreement contains the same or substantially similar
language regarding the ability to accelerate the Co-Makers' obligations under
the Credit Agreement. If the Credit Agreement is changed to delete such
language and satisfactory evidence thereof is provided to the Required Holders,
the amendment effected in Section 1(h)(ii) described in this Section 2 with
respect to paragraph 7A(iii) shall cease to be effective.
SECTION 3. TECHNICAL CORRECTIONS TO NOTES. The Co-Makers and the
Purchasers hereby agree that the pages attached hereto as Exhibits E-1, E-2, and
E-3 making certain technical corrections with respect to quarterly, rather than
semi-annual, payment of interest due under the Notes replace the existing first
pages of the Notes, and the Co-Makers hereby authorize the existing pages to be
substituted with the new pages attached hereto as Exhibits E-1, E-2, and E-3.
SECTION 4. EFFECTIVE DATE. This Amendment shall become effective on
the date hereof (the "EFFECTIVE DATE"), subject in all cases to the following
having been received by and being satisfactory to the Purchasers:
(a) duly executed counterparts of this Amendment;
(b) duly executed counterparts of each Guaranty executed and delivered by
the Guarantors and the Co-Makers;
(c) certificates of the Secretary or Assistant Secretary of each of the
Guarantors and the Co-Makers attaching and certifying copies of (i) the
certificate of incorporation of such Guarantor or Co-Maker, as the case may be,
(ii) the bylaws of such Guarantor or Co-Maker, as the case may be, (iii) the
resolutions of the board of directors of such Guarantor authorizing the
execution, delivery and performance of its Guaranty; (iv) the resolutions of the
board of directors of each Co-Maker authorizing the execution, delivery, and
performance of the Amendment; and (v) the name, title and true signature of each
officer of such Guarantor or Co-Maker, as the case may be, executing the
Amendment or the applicable Guaranty; and
(d) a favorable opinion of Graham L. Adelman, Esq., general counsel of the
Company, counsel for the Co-Makers and the Guarantors, satisfactory to the
Purchasers and the Purchasers' special counsel and addressing such matters as
the Purchasers may request;
(e) evidence satisfactory to the Purchasers that the Purchasers' special
counsel has received its fees, charges and disbursements charged or incurred in
connection with the preparation,
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<PAGE>
negotiation, execution and delivery of this Amendment, the Guaranties, and any
other documents executed and delivered contemporaneously herewith or therewith,
to the extent such fees, charges and disbursements are reflected in a statement
of such special counsel tendered to the Co-Makers at least one Business Day
prior to the execution of this Amendment.
SECTION 5. REPRESENTATIONS AND WARRANTIES. In order to induce the
Purchasers to enter into this Amendment, each of the Co-Makers represents and
warrants as follows:
(a) Organization. The Company is a corporation duly organized and validly
------------
existing in good standing under the laws of the State of Delaware. GPX is a
corporation duly organized and validly existing in good standing under the laws
of the State of Nevada. Each other Guarantor is a corporation duly organized
and validly existing in good standing under the laws of the state of its
incorporation.
(b) Power and Authority. Each of the Co-Makers and each Guarantor has all
-------------------
requisite corporate power to execute, deliver and perform its obligations under
this Amendment and under the Guaranty executed by it. The execution, delivery
and performance by the Co-Makers of this Amendment and by the Guarantors of
their respective Guaranties have been duly authorized by all requisite corporate
action on the part of each of the Co-Makers or such Guarantors, as the case may
be. Each of the Co-Makers has duly executed and delivered this Amendment, and
this Amendment constitutes the legal, valid and binding obligation of each of
the Co-Makers, enforceable against the Co-Makers in accordance with its terms.
Each of the Guarantors has duly executed and delivered its Guaranty, and such
Guaranty constitutes the legal, valiud and binding obligation of such Guarantor,
enforceable against it in accordance with its terms.
(c) No Conflicts. Neither the execution and delivery of this Amendment by
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the Co-Makers or of the Guaranties by the Guarantors, nor the consummation of
the transactions contemplated hereby, nor fulfillment of nor compliance with the
terms and provisions thereof will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or result in
any violation of, or result in the creation of any security interest, lien or
other encumbrance upon any of the properties or assets of the Co-Makers or the
Guarantors pursuant to the certificate of incorporation or bylaws of the Co-
Makers or the Guarantors, any award of any arbitrator or any agreement
(including any agreement with stockholders), instrument, order, judgment,
decree, statute, law, rule or regulation to which the Co-Makers or the
Guarantors are subject.
(d) Consents. Neither the nature of the business conducted by the Co-
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Makers, nor any of its properties, nor any relationship between the Co-Makers
and any other Person, nor any circumstance in connection with the transactions
contemplated by this [First] Amendment is such as to require any authorization,
consent, approval, exemption or other action by or notice to or filing with any
court or administrative or governmental body or any other Person in connection
with the
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<PAGE>
execution and delivery of this Amendment or fulfillment of or compliance with
the terms and provisions hereof.
(e) No Event of Default or Default. Immediately following the
------------------------------
effectiveness of this Amendment, no Event of Default or Default exists.
(f) Other. All representations and warranties of the Co-Makers in the
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Credit Agreement are true and correct on the date hereof, as though made on and
as of such date.
SECTION 6. MISCELLANEOUS.
(a) References to Note Agreement. Upon and after the Effective Date, each
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reference to the Note Agreement in each document relating thereto shall mean and
be a reference to such Note Agreement as amended by this Amendment.
(b) Ratification and Confirmation. Except as specifically amended herein,
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the Note Agreement shall remain in full force and effect, and is hereby ratified
and confirmed.
(c) No Waiver. The execution, delivery and effectiveness of this Amendment
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shall not operate as a waiver of any right, power or remedy of any Purchaser or
any other holder of Notes, nor constitute a waiver of any provision of the Note
Agreement, the Notes or any other document relating thereto.
(d) Expenses. The Company confirms its agreement, pursuant to paragraph
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11B of the Note Agreement, to pay promptly all expenses of Purchaser related to
this Amendment and all matters contemplated hereby, including, without
limitation, all fees and expenses of the Purchasers' special counsel.
(E) GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN
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ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF NEW YORK, AND EACH OF THE PARTIES HERETO CHOOSES NEW YORK LAW TO
========
GOVERN THIS AMENDMENT PURSUANT TO N.Y. GEN. OBLIG. LAW SECTION 5-1401 (CONSOL.
============================================
1995).
=====
(f) Counterparts. This Amendment may be executed in counterparts
------------
(including those transmitted by facsimile), each of which shall be deemed an
original and all of which taken together shall constitute one and the same
document. Delivery of this Amendment may be made by facsimile transmission of a
duly executed counterpart copy hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute this Amendment as of the date first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:
-----------------------------------------
Name:
Title:
U.S. PRIVATE PLACEMENT FUND
By: Prudential Private Placement Investors,
L.P., Investment Advisor
By: Prudential Private Placement Investors,
Inc., its General Partner
By:
-----------------------------------------
Title:
---------------------------------
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
By:
-----------------------------------------
Name:
Title:
GPX CORP.
By:
-----------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT 10.4
AMENDMENT NO.1 TO SEVERANCE AGREEMENT
AMENDMENT NO. 1, entered into as of September 18, 1998 ("Amendment"), to
Severance Agreement, dated as of February 23, 1998 (the "Agreement"), by and
between Global Industrial Technologies, Inc., a Delaware corporation (the
"Company"), and ________________ ("Executive").
Company and Executive hereby agree, pursuant to Section 17 of the Agreement
and for and in consideration of the premises and the mutual covenants and
agreements contained herein, to amend the Agreement in the following respects:
1. Paragraph 1(a), "Average Bonus Fraction," is deleted in its entirety.
2. Paragraphs 1(b) through (l) are redesignated as Paragraphs 1(a) through
(k).
3. Paragraph 1(b) as redesignated is amended by restatement in its
entirety to read as follows:
(c) "Bonus Amount" means the Executive's current annual rate of base
salary on the Date of Termination (or, if greater, the base salary in
effect on the date of a Change in Control) multiplied by the percentage
of base pay designated by the Executive Compensation Committee of the
Board for purposes of establishing the "target" bonus opportunity of
the Executive (pursuant to the annual incentive compensation plan in
which the Executive participates) for the fiscal year of the Company in
which the Date of Termination occurs (or, if greater, in which a Change
in Control occurs).
4. Defined terms used in this Amendment shall have the meanings assigned
to them in the Agreement.
5. The Agreement is only amended as expressly set forth herein.
EXECUTED as of the day and year first above written by the undersigned duly
authorized officer of the Company and the Executive.
Global Industrial Technologies, Inc.
By: By:
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Rawles Fulgham [name]
Chairman [title]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 24
<SECURITIES> 0
<RECEIVABLES> 154
<ALLOWANCES> 7
<INVENTORY> 171
<CURRENT-ASSETS> 513
<PP&E> 641
<DEPRECIATION> 221
<TOTAL-ASSETS> 1,309
<CURRENT-LIABILITIES> 305
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 299
<TOTAL-LIABILITY-AND-EQUITY> 1,309
<SALES> 414
<TOTAL-REVENUES> 415
<CGS> 336
<TOTAL-COSTS> 487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> (71)
<INCOME-TAX> 27
<INCOME-CONTINUING> (44)
<DISCONTINUED> 80
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.62
</TABLE>
