<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STEEL HEDDLE MFG. CO.
STEEL HEDDLE INTERNATIONAL, INC.
HEDDLE CAPITAL CORP.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 3552 23-1120950
SOUTH CAROLINA 3552 57-0543389
DELAWARE 3552 57-2024146
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1801 RUTHERFORD ROAD
GREENVILLE, SC 29607
TELEPHONE: (864) 244-4110
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JERRY B. MILLER
STEEL HEDDLE MFG. CO.
1801 RUTHERFORD ROAD
GREENVILLE, SC 29607
TELEPHONE: (864)244-4110
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copy to:
JACK M. FEDER, ESQ.
KIRKLAND & ELLIS
655 15TH STREET, N.W.
WASHINGTON, D.C. 20005
TELEPHONE: (202) 879-5100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]________
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
10 5/8% Series B Senior
Subordinated Notes due
2008..................... $100,000,000 $1,000 principal amount $100,000,000 $29,500
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Guarantees of 10 5/8%
Series B
Senior Subordinated Notes
due 2008................. $100,000,000 (2) (2) None
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(2) No further fee is payable pursuant to Rule 457(n).
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED AUGUST 7, 1998
PROSPECTUS
[STEEL HEDDLE MFG. CO. LOGO]
$100,000,000
STEEL HEDDLE MFG. CO.
OFFER TO EXCHANGE ITS 10 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008 FOR
ANY AND ALL OF ITS OUTSTANDING 10 5/8% SERIES A SENIOR SUBORDINATED NOTES DUE
2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED
Steel Heddle Mfg. Co., a Pennsylvania corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 10 5/8%
Series B Senior Subordinated Notes due 2008 (the "New Notes"), registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 10 5/8% Series A Senior Subordinated Notes
due 2008 (the "Old Notes"), of which $100,000,000 principal amount is
outstanding on the date hereof. The form and terms of the New Notes are the same
as the form and terms of the Old Notes (which they replace) except that the New
Notes will bear a Series B designation and will have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
and will not contain certain provisions relating to an increase in the interest
rate which were included in the terms of the Old Notes in certain circumstances
relating to the timing of the Exchange Offer. The New Notes will evidence the
same debt as the Old Notes (which they replace) and will be issued under and be
entitled to the benefits of the Indenture (the "Indenture") dated as of May 26,
1998 among the Company, the Guarantors (as defined herein) and United States
Trust Company of New York, as trustee, governing the New Notes. See "The
Exchange Offer" and "Description of Notes."
Interest on the New Notes will be payable semi-annually in arrears on June 1
and December 1 of each year, commencing December 1, 1998. The New Notes will
mature on June 1, 2008. The New Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after June 1, 2003, at the
redemption prices set forth herein, plus accrued and unpaid interest thereon, if
any, to the date of redemption. In addition, at any time, prior to June 1, 2001,
the Company may, at its option, on any one or more occasions, redeem up to 35%
of the aggregate principal amount of the New Notes at a redemption price equal
to 110.625% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, there unto the redemption date, with the Net Cash
Proceeds (as defined herein) received by the Company from one or more Equity
Offerings (as defined herein). Upon the occurrence of a Change of Control (as
defined herein), each holder of the New Notes will have the right to require the
Company to purchase such holder's New Notes at 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the date of
repurchase. See "Description of Notes -- Optional Redemption."
The New Notes will be senior subordinated, unsecured, general obligations of
the Company, will rank subordinate in right of payment to all existing and
future Senior Indebtedness (as defined herein) of the Company and will rank
senior or pari passu in right of payment to all existing and future subordinated
indebtedness of the Company. On the Issue Date (as defined herein), the New
Notes will be guaranteed (the "Subsidiary Guarantees") on a senior subordinated
basis by each of the Company's subsidiaries (other than Foreign Subsidiaries and
Unrestricted Subsidiaries (each as defined herein)) (each a "Guarantor" and
collectively the "Guarantors"). Each Subsidiary Guarantee will be a general
unsecured obligation of the Guarantor, subordinated in rights of payment to all
Guarantor Senior Indebtedness (as defined herein) of such Guarantor. As of April
4, 1998, on a pro forma basis after giving effect to the Acquisition
Transactions (as defined herein), the Company and its subsidiaries would have
had approximately $34.9 million of Senior Indebtedness and Guarantor Senior
Indebtedness, all of which would effectively rank senior in right of payment to
the New Notes and the Subsidiary Guarantees. The Indenture permits the Company
and its subsidiaries to incur additional indebtedness, including Senior
Indebtedness and Guarantor Senior Indebtedness subject to certain limitations.
See "Description of Notes -- Certain Covenants."
Concurrently with the Exchange Offer, Steel Heddle Group, Inc. ("SH Group"),
the Company's sole shareholder, is offering to exchange pursuant to a separate
prospectus $15.0 million gross proceeds amount of its 13 3/4 Series B Senior
Discount Debentures due 2009 for each $1,000 principal amount of its outstanding
Series A 13 3/4 Senior Discount Debentures due 2009 ("Old SH Group Debentures").
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1998,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
The Old Notes were issued on May 26, 1998 to the Initial Purchasers (as defined
herein) in a transaction not registered under the Securities Act in reliance
upon an exemption under the Securities Act. The Initial Purchasers subsequently
placed the Old Notes with qualified institutional buyers in reliance upon Rule
144A under the Securities Act. Accordingly, the Old Notes may not be reoffered,
resold or otherwise transferred in the United States unless registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available. The New Notes are being offered
hereunder in order to satisfy the obligations of the Company and the Guarantors
under the Registration Rights Agreement (as defined herein) entered into by the
Company and the Guarantors in connection with the original transfer of the Old
Notes to the Initial Purchasers. See "The Exchange Offer."
The Old Notes were offered by SH-AIP Acquisition Corporation ("Merger Sub"),
a corporation formed by AIP (as defined herein) to partially fund the
acquisition (the "Acquisition") by Merger Sub's parent, SH Group, of all of the
capital stock of SH Holdings Corp. ("Old Holdings"). After the Acquisition and
related transactions, the Company, successor by merger to Merger Sub, became a
direct wholly-owned subsidiary of SH Group.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement or understanding with any person to participate in the
distribution of such New Notes. See "The Exchange Offer -- Purpose and Effect of
the Exchange Offer" and "The Exchange Offer -- Resale of the New Notes." Each
broker-dealer (a "Participating Broker-Dealer") that receives New Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such Participating Broker-Dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of one year after the thirtieth business day
following the Expiration Date (or such shorter period as will terminate when all
of the Old Notes offered hereby for exchange have been sold), it will make this
Prospectus available to any Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
There has not previously been any public market for the Old Notes or the New
Notes. The Company does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the New Notes will
develop. See "Risk Factors -- Lack of a Public Market for the Notes." Moreover,
to the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected.
SEE "RISK FACTORS," BEGINNING ON PAGE , FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE
EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the New
Notes being offered hereby. This Prospectus does not contain all the information
set forth in the Exchange Offer Registration Statement. For further information
with respect to the Exchange Offer, reference is made to the Exchange Offer
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Exchange Offer Registration Statement, reference is made to
the exhibit for a more complete description of the document or matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Exchange Offer Registration Statement, including the exhibits
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, at the Regional Offices of the Commission at 75 Park Place, New
York, New York 10007 and at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Additionally, the Commission
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, including the Company.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Company will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports and
other information with the Commission. The obligation of the Company to file
periodic reports and other information with the Commission will be suspended if
the New Notes are held of record by fewer than 300 holders as of the beginning
of any fiscal year of the Company other than the fiscal year in which the
Exchange Offer Registration Statement is declared effective. The Company will
nevertheless be required to continue to file reports with the Commission if the
New Notes are listed on a national securities exchange. In the event the Company
ceases to be subject to the informational requirements of the Exchange Act, the
Company will be required under the Indenture to continue to file with the
Commission the annual and quarterly reports, information, documents or other
reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K,
which would be required pursuant to the informational requirements of the
Exchange Act. Under the Indenture, the Company shall file with the Trustee
annual, quarterly and other reports within fifteen days after it files such
reports with the Commission. Further, to the extent that annual, quarterly or
other financial reports are furnished by the Company to shareholders generally
it will mail such reports to holders of New Notes. The Company will furnish
annual and quarterly financial reports to shareholders of the Company and will
mail such reports to holders of New Notes pursuant to the Indenture, thus
holders of New Notes will receive financial reports every quarter. Annual
reports delivered to the Trustee and the holders of New Notes will contain
financial information that has been examined and reported upon, with an opinion
expressed by an independent public or certified public accountant. The Company
will also furnish such other reports as may be required by law.
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The New Notes will be available initially only in book-entry form. The
Company expects that the New Notes issued pursuant to this Exchange Offer will
be issued in the form of Global Notes (as defined herein) and will be deposited
with, or on behalf of, DTC and registered in its name or in the name of Cede &
Co., its nominee. Beneficial interests in the Global Notes will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants. Beneficial interests in the New Notes issued pursuant to
Regulation S may be held only through Euroclear (as defined herein) or CEDEL (as
defined herein). See "Description of Notes--Book-Entry; Delivery; Form and
Transfer."
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including the "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
sections, contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, which can be identified by the
use of forward-looking terminology, such as "may," "intend," "will," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. In particular, any statement,
express or implied, concerning future operating results or the ability to
generate revenues, income or cash flow to service the New Notes are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. All
forward-looking statements are expressly qualified by such cautionary
statements.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY NOTES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
---------------------
The terms "SH(R)", "Duralite(R)", "Draw-O(R)" and "Jet Eye(R)" are
trademarks of the Company. All other trademarks, service marks or trade names
referred to in the Prospectus are the property of their respective owners.
Market data used throughout the Prospectus were obtained from internal
Company surveys, industry publications or other publicly available information.
Although the Company believes that such sources are reliable, the accuracy and
completeness of such information is not guaranteed and has not been
independently verified.
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SUMMARY
The following is a summary of certain information contained herein and is
qualified in its entirety by, and should be read in conjunction with, the more
detailed information and financial data, including the consolidated financial
statements and notes thereto, included elsewhere in this Prospectus. Unless the
context indicates otherwise, all references to the "Company" or "Steel Heddle"
shall mean Steel Heddle Mfg. Co. and its consolidated subsidiaries. References
to the Company's "fiscal year" are to the 52-week or 53-week period ending on
the Saturday closest to December 31 of each year.
THE COMPANY
The Company, founded in 1898, is one of the world's leading manufacturers
of precision textile loom accessories. The Company designs, manufactures and
markets virtually all of the replaceable wear parts necessary to operate a
commercial weaving loom, including heddles, dropwires, harness frames, reeds and
shuttles and bobbins, which are used to hold or guide individual yarns during
the weaving process. Textile loom accessories are highly engineered and often
customized products which require a high degree of precision to ensure a uniform
weave and to achieve desired fabric patterns while being able to withstand the
stresses of modern, high-speed weaving looms. While technology and performance
specifications vary, all commercial weaving looms require these accessories.
Because loom manufacturers do not produce these accessories, all woven fabric
producers must purchase textile loom accessories from third-party suppliers. In
addition to textile loom accessories, the Company manufactures precision rolled,
heat treated, bare and tinned flat wire used in the electronics, automotive,
solar power and other industries.
The Company has achieved adjusted EBITDA (as defined herein) margins
exceeding 24% in each of the last ten years. Beginning in 1995 and continuing
through 1996, the Company implemented a profitability-enhancing cost-reduction
program. This program contributed to an increase in adjusted EBITDA margin to
31.3% in 1997. For the 52-week period ended April 4, 1998, the Company had net
sales, Adjusted EBITDA and operating income of $73.6 million, $23.3 million and
$17.9 million, respectively.
Steel Heddle is a critical supplier to virtually all North American textile
weaving mills, including such companies as WestPoint Stevens, Inc., Milliken &
Co. and Burlington Industries, Inc., many of which have been customers for
decades. In North America, management estimates that the Company holds
substantial market shares in all of its major product lines and estimates that
it supplies over 80% of the market for heddles, dropwires and harness frames,
over 50% of reeds and over 90% of the market for shuttles and bobbins. Although
international markets such as Europe and Asia have different competitive
dynamics than the North American market, the Company also has a strong presence
in many international markets in which it perceives the opportunity for
profitable growth. International sales accounted for approximately 22% of the
Company's net sales in 1997.
Textile loom accessories have represented a steady source of revenue and
cash flow because these parts require frequent replacement due to wear and
changes in production runs. Approximately 75% of the Company's net sales were
derived from the sale of replacement parts in 1997. The Company estimates that
more than 90% of all looms installed in North America are delivered
"unaccessorized," with the accessories being designed and supplied by a
third-party supplier such as Steel Heddle. Once the Company has outfitted new
looms with its accessories, its has generally been able to continue to supply
replacement parts for the life of the loom. The Company believes it has achieved
its leading position in the industry primarily because of its willingness and
ability to work closely with its customers, both before and after the
installation of new looms, to design the appropriate accessories to meet
specific manufacturing needs and then continue to meet those needs on an ongoing
basis.
In addition to its textile loom accessories business, the Company converts
round rod to flat wire through a rolling process which results in a flat wire
with a round edge. Originally developed to satisfy in-house heddle manufacturing
needs, the Company recognized that its ability to produce these products to
extremely tight tolerances could be tailored to meet similar needs in other
industries and began to pursue outside sales. Because these rolled products are
custom-made for specific applications, they have historically commanded
attractive margins. The Company's rolled products can be found in a variety of
other industries, including electronics, automotive and solar power. Among the
end-use applications for the Company's products are notebook computers, cellular
telephones, electronic control devices and automotive applications such as
1
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control mechanisms for air bags, turn signals and cruise controls. Major
customers include Kemet Corporation, Parlex Corporation, AMP Incorporated and
Siemens Corporation. Rolled products generated approximately $9.0 million in net
sales in 1997.
LOOM ACCESSORY INDUSTRY OVERVIEW
The textile industry is comprised of several subsectors: (i) apparel
production (consisting primarily of "cut and sew" business), (ii) synthetic and
natural yarn production, (iii) knitted fabric and (iv) woven fabric production.
Woven fabric production is the focus of the Company's customers. The end users
of weaving looms and weaving loom accessories are textile mills which utilize
looms to produce woven fabric. The U.S. weaving market is estimated at
approximately $19.5 billion and accounted for approximately 16.4 billion square
yards of fabric in 1997. This output has remained relatively stable since 1986,
varying between 15.2 and 16.6 billion square yards annually.
The U.S. textile industry, after having undergone significant restructuring
during the 1980s and early 1990s, has emerged as one of the most
capital-intensive, modern and efficient producers in the world. Annual capital
expenditures by woven fabric mills, while subject to fluctuations in the demand
for woven fabric, have risen in the 1990s, from approximately $550 million in
1991 to approximately $850 million in 1996. In order to maintain their
competitive position in the world markets, U.S. textile mills are expected to
continue to invest heavily in faster, newer generations of loom technology. With
modern equipment and increased automation, labor cost differentials are not a
significant factor in the competitiveness of U.S. producers. In addition, the
advantages of producing in the U.S., one of the world's largest end-markets,
have increased with manufacturers' demands for rapid response times and
retailers' desire to reduce inventories.
The U.S. installed textile loom base has shifted away from older-technology
shuttle looms towards faster, shuttleless looms such as air-jet and water-jet
looms. This trend benefits the Company in two ways. Higher weaving speeds lead
to faster wear of loom accessories, driving an increase in unit demand for
replacement parts. In addition, faster looms require a higher degree of
precision and performance from accessories, increasing the dollar value of
accessories sold per loom and the demand for the higher-priced, quality
accessories for which Steel Heddle is known.
LOOM ACCESSORY PRODUCT OVERVIEW
Heddles and Dropwires. Heddles are flat, specially-designed, stamped parts
manufactured to precise tolerances (as tight as two thousandths of an inch) from
high-performance steel. Heddles are designed to guide and hold individual yarns
during high-speed weaving. Dropwires are precision-made plated-carbon steel or
stainless steel stamped parts specially engineered to trigger a loom shutdown in
the event of broken yarn. The Company estimates that 50% to 60% of heddles and
dropwires are made to order, and approximately 75% of the Company's net sales of
heddles and dropwires are derived from replacement sales. Heddles and dropwires
accounted for approximately 37.9% of the Company's 1997 net sales.
Harness Frames. Harness frames are specialized carriages constructed from
special aluminum alloys and composite materials which raise and lower heddles
during the weaving process, creating a woven fabric pattern. As modern,
high-performance looms operate at 650 to 1,000 picks per minute (two to four
times faster than older technology), harness frames must withstand the
tremendous stress from continuous acceleration and deceleration without buckling
or breaking. The Company estimates that 90% of harness frames are made to order
and approximately 65% of harness frame revenue results from replacement sales.
Harness frames accounted for approximately 20.6% of the Company's 1997 net
sales.
Reeds. Reeds are precision-made, comb-like devices used to evenly space
yarn on the loom. Individual, specially designed, flat wire spacers called
"dents" are assembled in a reed to yield a particular fabric pattern or style.
Reed production requires exacting manufacturing processes as absolutely smooth,
straight and precisely spaced dents are critical to the production of quality
woven fabric. Reeds must be replaced each time a loom is used to weave a new
fabric pattern. Virtually all reeds are made to order and replacement sales
accounted for approximately 90% of reed net sales. Reeds accounted for
approximately 24.6% of the Company's 1997 net sales.
Shuttles and Bobbins. Shuttles, used in older, slower looms, are specially
fabricated from composite materials to carry "pick" or "filling" yarns across
the loom as the main yarn or "warp" yarn is pulled through
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the reed. Bobbins are cylindrical wooden yarn carriers held by the shuttle.
Shuttles and bobbins are exclusively made to order. All shuttle and bobbin sales
are made as replacements. Shuttles and bobbins accounted for approximately 3.5%
of the Company's 1997 net sales.
COMPETITIVE STRENGTHS
The Company's objective is to maintain and enhance its competitive position
as the foremost supplier of loom accessories in the U.S. while broadening its
presence in international markets. The Company intends to achieve its objectives
by capitalizing on the following competitive strengths:
Leading Market Position. The Company is a critical supplier to virtually
all North American textile weaving mills, with leading market shares across all
of its product lines in North America. The Company is the sole domestic
manufacturer of heddles, dropwires, harness frames, shuttles and bobbins, with
estimated market share in North America in each category of over 80%, and over
90% market share in shuttles and bobbins. Steel Heddle is also the largest
domestic manufacturer of reeds, with an estimated 50% market share in North
America. In addition, the Company has a strong presence in those international
markets in which it sees profitable growth opportunities.
Cost-efficient Manufacturing. The Company is the only vertically-integrated
producer of loom accessories in the world. The Company has developed and tooled
proprietary production machinery and produces its own heat-treated, flat-rolled
carbon and stainless steel wire which is the key raw material in the production
of heddles and dropwires. In 1995 and continuing through 1996, the Company
implemented a comprehensive profitability enhancing, cost-reduction program
which, among other things, eliminated 120 full-time positions and decreased
pension and benefit costs. Because of its vertical integration, proprietary
production machinery, experienced low-cost labor force and economies of scale,
the Company believes it is one of the most efficient producers in the textile
loom accessory industry.
Long-standing and Diverse Customer Relationships. The Company has developed
and maintained long-term relationships with its customers, in some cases for
over 50 years. The Company has built its customer relationships by providing
consistent quality, a broad product line and technical support as well as
maintaining a strong customer service orientation. The Company's sales people
visit each customer every two to four weeks, enabling the Company to gain early
knowledge of a customer's intent to purchase new looms and accessories. In
addition, the Company's technical personnel work closely with the weaving mills
and original equipment manufacturers ("OEMs") to help them select the
appropriate accessories and resolve design or engineering issues. The Company's
customer base is diversified, with no one customer representing more than 6.6%
of net sales. Sales to top ten customers represented approximately 31.2% of the
Company's net sales in 1997.
Strong Brand Name. The Company's brand name enjoys significant worldwide
recognition in the textile industry as a result of its 100-year history. Since
it introduced flat steel heddles to U.S. weaving mills in 1898, the Company has
manufactured high-quality loom accessories. Because of its longevity, product
innovation, high-quality reputation, strong service orientation and broad
product line, the Company has built and maintained its significant market share
in the North American market and has built a strong presence internationally.
The Company's headquarters are located at 1801 Rutherford Road, Greenville,
S.C. 29607, and its telephone number is (864) 244-4110.
THE ACQUISITION
Pursuant to a stock purchase agreement dated May 1, 1998 (the "Stock
Purchase Agreement"), SH Group, a corporation formed by American Industrial
Partners Capital Fund II, L.P. (together with its affiliates, "AIP") in
contemplation of the Acquisition, acquired all of the issued and outstanding
capital stock of Old Holdings from certain affiliates of Butler Capital
Corporation and certain other stockholders (collectively, the "Sellers"), in a
purchase accounting transaction, for an aggregate purchase price (including the
repayment of outstanding indebtedness of the Company, transaction expenses of
approximately $8.6 million and an estimated purchase price adjustment of
approximately $1.1 million) of approximately $175.2 million, subject to
post-closing adjustments. Immediately after the consummation of the Acquisition,
(i) SH Intermediate Corp., a direct, wholly-owned subsidiary of Old Holdings,
was merged with and into its
3
<PAGE> 9
direct, wholly owned subsidiary, the Company, with the Company being the
surviving corporation ("Merger I"), (ii) Old Holdings was merged with and into
its direct wholly-owned subsidiary, the Company, with the Company being the
surviving corporation ("Merger II"), and (iii) Merger Sub was merged with and
into the Company, with the Company being the surviving corporation ("Merger III"
and, together with Merger I and Merger II, the "Mergers"). The Company is a
direct, wholly owned subsidiary of SH Group.
In order to finance the Acquisition and to repay certain existing
indebtedness of the Company, (i) AIP and certain members of management
contributed $25.0 million in exchange for common equity of SH Group, including
management's rollover of approximately $1.7 million of securities of Old
Holdings in the Acquisition (the "Common Equity Contribution"), (ii) SH Group
contributed proceeds of approximately $15.0 million from the issuance and sale
of Old SH Group Debentures, (iii) the Company (as successor by merger to Merger
Sub) entered into syndicated senior secured loan facilities (the "New Credit
Agreement") providing for term loan borrowings in the aggregate principal amount
of $30.0 million and revolving loan borrowings of up to $20.0 million (including
letters of credit) and borrowed all term loans available and approximately $4.9
million of revolving loans, (iv) the Company (as successor by merger to Merger
Sub) issued and sold $100.0 million aggregate principal amount of Old Notes and
(v) the Company loaned approximately $66.0 million of the net proceeds from the
issuance and sale of the Old Notes and borrowings under the New Credit Agreement
to SH Group pursuant to an intercompany note (the "Intercompany Note") to pay
part of the purchase price of the Acquisition. Upon consummation of the
Acquisition, the Company forgave the Intercompany Note. The Acquisition, the
Mergers, the Offering, the Common Equity Contribution, the issuance and sale of
the Old SH Group Debentures and the execution of, and initial borrowings under,
the New Credit Agreement are referred to herein collectively as the "Acquisition
Transactions." Upon consummation of the Mergers, the Company succeeded to the
obligations of Merger Sub under the New Credit Agreement and the Indenture.
AIP is a private investment fund based in San Francisco and New York which,
together with its affiliates, has committed capital of approximately $800
million. AIP does not seek to play a role in daily management; rather, AIP seeks
to provide its portfolio companies with access to the management expertise of
its operating partners, all of whom are former Chief Executive Officers of
Fortune 500 corporations, through active board-level participation as well as
on-call advice when desired. Robert Purdum, an operating partner of AIP and
former Chairman of Armco, Inc., is the Company's Non-Executive Chairman of the
Board.
4
<PAGE> 10
THE INITIAL OFFERING
OLD NOTES.................. The Old Notes were sold by the Company on May 26,
1998 (the "Issue Date") to Donaldson, Lufkin &
Jenrette Securities Corporation and NationsBanc
Montgomery Securities LLC (the "Initial
Purchasers") pursuant to a Purchase Agreement dated
as of May 21, 1998. The Initial Purchasers
subsequently resold the Old Notes to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act.
REGISTRATION RIGHTS
AGREEMENT.................. Pursuant to the Purchase Agreement, the Company,
the Guarantors and the Initial Purchasers entered
into a Registration Rights Agreement dated May 26,
1998 (the "Registration Rights Agreement"), which
grants the holders of the Old Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange and
registration rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED......... $100,000,000 aggregate principal amount of 10 5/8%
Series B Senior Subordinated Notes due 2008.
THE EXCHANGE OFFER......... $1,000 principal amount of the New Notes in
exchange for each $1,000 principal amount of Old
Notes. As of the date hereof, $100,000,000
aggregate principal amount of Old Notes are
outstanding. The Company will issue the New Notes
on or promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other
than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes
are acquired in the ordinary course of such
holder's business and that such holder does not
intend to participate and has no arrangement or
understanding with any person to participate in the
distribution of such New Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives New Notes
for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer
in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading
activities.
The Company and the Guarantors have agreed to use
their best efforts to keep the Exchange Offer
Registration Statement, including this Prospectus,
continuously effective for one year from the
consummation of the Exchange Offer.
5
<PAGE> 11
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the New Notes
could not rely on the position of the staff of the
Commission enunciated in no-action letters and, in
the absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale transaction. Failure to comply with
such requirements in such instance may result in
such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
EXPIRATION DATE............ 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
ACCRUED INTEREST ON THE NEW
NOTES AND THE OLD NOTES.. Each New Note will bear interest from its issuance
date. Holders of Old Notes that are accepted for
exchange will receive, in cash, accrued interest
thereon to, but not including, the issuance date of
the New Notes. Such interest will be paid with the
first interest payment on the New Notes. Interest
on the Old Notes accepted for exchange will cease
to accrue upon issuance of the New Notes.
CONDITIONS TO THE EXCHANGE
OFFER.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
PROCEDURES FOR TENDERING
OLD NOTES................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof or transmit an Agent's Message (as defined
herein) in connection with a book-entry transfer,
in accordance with the instructions contained
herein and therein, and mail or otherwise deliver
such Letter of Transmittal, or such facsimile or
such Agent's Message, together with the Old Notes
and any other required documentation to the
Exchange Agent (as defined herein) at the address
set forth herein. By executing the Letter of
Transmittal or Agent's Message, each holder will
represent to the Company that, among other things,
the New Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of
business of the person receiving such New Notes,
whether or not such person is the holder, that
neither the holder nor any such other person (i)
has any arrangement or understanding with any
person to participate in the distribution of such
New Notes, (ii) is engaging or intends to engage in
the distribution of such New Notes or (iii) is an
"affiliate," as defined under Rule 405 of the
Securities Act, of the Company. See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer"
and "-- Procedures for Tendering."
UNTENDERED NOTES........... Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have any
further exchange rights and such Old Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market
for such Old Notes could be adversely affected.
CONSEQUENCES OF FAILURE TO
EXCHANGE................. The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144
6
<PAGE> 12
under the Securities Act or pursuant to some other
exemption under the Securities Act, (iii) outside
the United States to a foreign person pursuant to
the requirements of Rule 904 under the Securities
Act, or (iv) pursuant to an effective registration
statement under the Securities Act. See "The
Exchange Offer -- Consequences of Failure to
Exchange."
SHELF REGISTRATION
STATEMENT................ If any holder of the Old Notes (other than any such
holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) is not eligible under applicable securities
laws to participate in the Exchange Offer, and such
holder has provided information regarding such
holder and the distribution of such holder's Old
Notes to the Company for use therein, the Company
has agreed to register the Old Notes on a shelf
registration statement (the "Shelf Registration
Statement") and use its best efforts to cause it to
be declared effective by the Commission as promptly
as practical on or after the consummation of the
Exchange Offer. The Company and the Guarantors have
agreed to maintain the effectiveness of the Shelf
Registration Statement for, under certain
circumstances, a maximum of two years, to cover
resales of the Old Notes held by any such holders.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes
in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer
of registered ownership may take considerable time.
The Company will keep the Exchange Offer open for
not less than twenty business days in order to
provide for the transfer of registered ownership.
GUARANTEED DELIVERY
PROCEDURES............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date
must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
ACCEPTANCE OF NOTES AND
DELIVERY OF NEW NOTES.... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange."
7
<PAGE> 13
FEDERAL INCOME TAX
CONSEQUENCES............. The exchange pursuant to the Exchange Offer should
not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Consequences."
USE OF PROCEEDS............ There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
EXCHANGE AGENT............. United States Trust Company of New York.
THE NEW NOTES
GENERAL.................... The form and terms of the New Notes are the same as
the form and terms of the Old Notes (which they
replace) except that (i) the New Notes bear a
Series B designation, (ii) the New Notes have been
registered under the Securities Act and, therefore,
will not bear legends restricting the transfer
thereof, and (iii) the holders of New Notes will
not be entitled to certain rights under the
Registration Rights Agreement, including the
provisions providing for an increase in the
interest rate on the Old Notes in certain
circumstances relating to the timing of the
Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. See "The
Exchange Offer -- Purpose and Effect of the
Exchange Offer." The New Notes will evidence the
same debt as the Old Notes and will be entitled to
the benefits of the Indenture. See "Description of
Notes." The Old Notes and the New Notes are
referred to herein collectively as the "Notes."
SECURITIES OFFERED......... $100 million aggregate principal amount of 10 5/8%
Series B Senior Subordinated Notes due 2008.
MATURITY DATE.............. June 1, 2008.
INTEREST RATE.............. The New Notes will bear interest at the rate of
10 5/8% per annum, payable semi-annually in arrears
on June 1 and December 1 of each year, commencing
December 1, 1998.
SUBORDINATION.............. The New Notes will be senior subordinated,
unsecured, general obligations of the Company, will
rank subordinate in right of payment to all
existing and future Senior Indebtedness and will
rank senior or pari passu in right of payment to
all existing and future subordinated indebtedness
of the Company. On the Issue Date, the New Notes
will be guaranteed on a senior subordinated basis
pursuant to the Subsidiary Guarantees by the
Guarantors. Each Subsidiary Guarantee will be a
general, unsecured obligation of the Guarantor,
subordinate in right of payment to all Guarantor
Senior Indebtedness of such Guarantor. In addition,
the New Notes will be effectively subordinated to
the Indebtedness of Foreign Subsidiaries (as
defined herein), which, except in limited
circumstances, will not be Guarantors. On the Issue
Date, no Indebtedness of Foreign Subsidiaries will
be outstanding. As of April 4, 1998, on a pro forma
basis after giving effect to the Acquisition
Transactions, the New Notes and the Subsidiary
Guarantees would have been subordinated to $34.9
million of Senior Indebtedness and Guarantor Senior
Indebtedness. See "Risk Factors--Subordination."
OPTIONAL REDEMPTION........ The New Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or
after June 1, 2003, at the redemption prices set
forth herein, plus accrued and unpaid interest, if
any, thereon to the applicable date of redemption.
In addition, at any time prior to June 1, 2001, the
Company may, on any one or more occasions, redeem
8
<PAGE> 14
up to 35% of the aggregate principal amount of New
Notes originally issued at a redemption price equal
to 110.625% of the principal amount thereof, plus
accrued and unpaid interest, if any, thereon to the
date of redemption with the Net Cash Proceeds
received by the Company from one or more Equity
Offerings. See "Description of Notes."
CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control, each
holder of New Notes will have the right to require
the Company to repurchase all or any part of such
holder's New Notes at an offer price in cash equal
to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any, thereon
to the date of repurchase. See "Description of
Notes--Repurchase at the Option of Holders--Change
of Control." There can be no assurance that, in the
event of a Change of Control, the Company would
have sufficient funds to repurchase all New Notes
tendered. See "Risk Factors--Possible Inability to
Repurchase New Notes Upon Change of Control."
NOTE GUARANTEES............ The New Notes will be guaranteed on a senior
subordinated basis by all Guarantors of the
Company. The Subsidiary Guarantees will be general
unsecured obligations of the Guarantors,
subordinated in right of payment to all Guarantor
Senior Indebtedness. Unrestricted Subsidiaries (as
defined herein) and, except under certain limited
circumstances, Foreign Subsidiaries will not be
Guarantors.
CERTAIN COVENANTS.......... The Indenture contains certain covenants that
limit, among other things, the ability of the
Company and its Subsidiaries to (i) pay dividends,
redeem capital stock or make certain other
restricted payments or investments; (ii) incur
additional indebtedness or issue certain preferred
equity interests; (iii) merge, consolidate or sell
all or substantially all of its assets; (iv) create
liens on assets and (v) enter into certain
transactions with affiliates or related persons.
See "Description of Notes--Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered before deciding whether to tender Old Notes for the New Notes offered
hereby.
9
<PAGE> 15
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary consolidated historical and pro
forma financial, operating and other data of the Company and its subsidiaries.
The summary consolidated financial data for each of the fiscal years in the
three-year period ended January 3, 1998 has been derived from the audited
Consolidated Financial Statements of the Company and the related notes thereto
included elsewhere herein. The summary financial data for the fiscal quarters
ended April 4, 1998 and April 5, 1997 have been derived from the Unaudited
Consolidated Financial Statements of the Company and include, in the opinion of
management, all adjustments necessary to present fairly the data for such
periods. The results for the fiscal quarter ended April 4, 1998 are not
necessarily indicative of the results to be expected for the year ending January
2, 1999 or for any future period. The summary consolidated pro forma balance
sheet data give effect to the Acquisition Transactions as if they had occurred
as of April 4, 1998. The data presented below should be read in conjunction with
the Consolidated Financial Statements and the related notes thereto included
elsewhere herein, the other financial information included elsewhere herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FISCAL QUARTER
FISCAL YEAR ENDED
------------------------------ -------------------
APRIL 4, APRIL 5,
1997 1996 1995 1998 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............................................. $72,983 $64,484 $68,118 $19,266 $18,606
Gross profit.......................................... 26,535 20,410 20,412 7,336 6,525
Selling, general and administrative expenses.......... 8,489 8,875 8,667 2,178 2,231
Operating income(a)................................... 16,842 10,081 9,920 4,908 3,844
Interest expense, net................................. 5,148 5,844 6,307 1,010 1,459
Net income (loss)(b).................................. 4,714 2,599 1,130 2,501 (1,316)
OTHER DATA:
Adjusted EBITDA(c).................................... $22,841 $17,523 $16,906 $ 6,149 $ 5,697
Adjusted EBITDA margin(d)............................. 31.3% 27.2% 24.8% 31.9% 30.6%
Capital expenditures.................................. $ 2,558 $ 2,809 $ 3,455 $ 618 $ 416
Depreciation and amortization......................... 4,409 6,019 6,096 1,139 1,337
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 4, 1998
----------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Net working capital(f)............................................................... $18,953 $ 23,131
Net property, plant and equipment.................................................... 16,298 40,815
Total assets......................................................................... 66,394 196,562
Long-term debt (including current portion)........................................... 53,492 134,907
Redeemable common stock.............................................................. 1,366 --
Shareholders' equity (deficit)....................................................... (2,008) 33,185
</TABLE>
- ------------------------------
(a) Operating income includes restructuring charges of $0.8 million in 1995
relating to a reduction in the domestic workforce, closure of the Company's
Canadian operation and writedown of certain assets.
(b) Includes a cumulative effect of change in method of accounting for
postretirement benefits of $0.9 million, net of taxes, in fiscal 1995 and
an extraordinary loss on early extinguishment of debt of $2.8 million, net
of taxes, in fiscal 1997 and fiscal quarter ended April 5, 1997.
(c) Adjusted EBITDA, as presented herein, represents operating income plus
depreciation, amortization and items which management believes to be
unusual, including, but not limited to, management and transaction fees
paid to BCC Industrial Services, Inc. ("BCC") and AIP, director's fees,
non-recurring restructuring charges, supplemental bonus compensation,
compensation expense
10
<PAGE> 16
for certain eliminated management positions and incremental increases in
obsolete inventory reserves. EBITDA represents operating income plus
depreciation and amortization. The following is a summary of historical
adjustments to operating income:
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED
FISCAL YEAR ---------------------
--------------------------- APRIL 4, APRIL 5,
1997 1996 1995 1998 1997
------- ------- ------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating income............................................ $16,842 $10,081 $ 9,920 $4,908 $3,844
Depreciation................................................ 3,550 5,118 5,161 924 943
Amortization................................................ 729 729 729 182 182
------- ------- ------- ------ ------
EBITDA.................................................... 21,121 15,928 15,810 6,014 4,969
Unusual items:
Management and transaction fees........................... 475 725 275 68 268
Director's fees........................................... -- -- -- -- --
Non-recurring restructuring charges....................... -- -- 821 -- --
Supplemental bonus compensation........................... 775 870 -- -- 185
Compensation expense for certain eliminated management
positions............................................... 260 -- -- 67 65
Incremental increases in obsolete inventory reserves...... 210 -- -- -- 210
------- ------- ------- ------ ------
Adjusted EBITDA......................................... $22,841 $17,523 $16,906 $6,149 $5,697
======= ======= ======= ====== ======
</TABLE>
EBITDA and Adjusted EBITDA are not intended to represent cash flow from
operations as defined by GAAP (as defined herein) and should not be used as
an alternative to net income as an indicator of operating performance or to
cash flows as a measure of liquidity. EBITDA and Adjusted EBITDA are not
defined in the same manner as "Consolidated EBITDA" in the Indenture or in
the "Description of Notes" herein. See "Description of Notes -- Certain
Definitions." EBITDA and Adjusted EBITDA are included herein as it is a
basis upon which the Company assesses its financial performance, and
certain covenants in the Company's borrowing arrangements are tied to
similar measures. EBITDA and Adjusted EBITDA, as presented, represent a
useful measure of assessing the Company's ongoing operating activities
without the impact of financing activities and unusual items. While EBITDA
and Adjusted EBITDA are frequently used as a measure of operations and the
ability to meet debt service requirements, it is not necessarily comparable
to other similarly titled captions of other companies due to potential
inconsistencies in the method of calculation.
(d) Adjusted EBITDA as a percentage of net sales.
(e) Excludes amortization of financing costs.
(f) Net working capital represents (i) current assets excluding cash less (ii)
current liabilities excluding the current portion of long-term debt.
11
<PAGE> 17
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors before
deciding whether to tender their Old Notes for New Notes offered hereby. This
Prospectus, including the "Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Business" sections,
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology, such as "may," "intend," "will," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. In particular, any statements,
express or implied, concerning future operating results or the ability to
generate revenues, income or cash flow to service the New Notes are
forward-looking statements. The matters set forth below constitute cautionary
statements identifying important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially from those in such forward-looking statements.
FAILURE TO EXCHANGE OLD NOTES
New Notes will be issued in exchange for Old Notes only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documentation. Therefore,
holders of Old Notes desiring to tender such Old Notes in exchange for New Notes
should allow sufficient time to ensure timely delivery. Neither the Exchange
Agent nor the Company are under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes for exchange. Old Notes that
are not tendered or are tendered but not accepted will, following consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof. In addition, any holder of Old Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each Participating Broker-Dealer that received New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or any other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected due to the limited amount,
or "float," of the Old Notes that are expected to remain outstanding following
the Exchange Offer. Generally, a lower "float" of a security could result in
less demand to purchase such security and could, therefore, result in lower
prices for such security. For the same reason, to the extent that a large amount
of Old Notes are not tendered or are tendered and not accepted in the Exchange
Offer, the trading market for the New Notes could be adversely affected. See
"Plan of Distribution" and "The Exchange Offer."
SUBSTANTIAL LEVERAGE; LIQUIDITY
The Company has a significant amount of indebtedness. As of April 4, 1998,
on a pro forma basis after giving effect to the Acquisition Transactions, the
Company would have had $134.9 million of indebtedness. In addition, subject to
the restrictions in the New Credit Agreement and the Indenture, the Company may
incur additional senior or other indebtedness from time to time to finance
acquisitions or capital expenditures or for other general corporate purposes.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of Notes" and
"Description of New Credit Agreement."
The level of the Company's indebtedness could have important consequences
to the holders of the Notes, including, but not limited to, the following: (i)
the Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, product development, general
corporate purposes or other purposes may be materially limited or impaired; (ii)
a significant portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for its operations and future
business opportunities; (iii) significant amounts of the Company's borrowings
bear interest at variable rates, which could result in higher interest expense
in the event of increases in interest rates; (iv) the Indenture and the New
Credit Agreement contain financial and restrictive covenants, the failure to
comply with which may result in an event
12
<PAGE> 18
of default which, if not cured or waived, could have a material adverse effect
on the Company; (v) the indebtedness outstanding under the New Credit Agreement
is secured and matures prior to the maturity of the Notes; (vi) the Company may
be substantially more leveraged than certain of its competitors, which may place
the Company at a competitive disadvantage and (vii) the Company's substantial
degree of leverage may limit its flexibility to adjust to changing market
conditions, reduce its ability to withstand competitive pressures and make it
more vulnerable to a downturn in general economic conditions or in its business
or be unable to carry out capital spending. See "Description of Notes" and
"Description of New Credit Agreement."
The Company's ability to make scheduled payments or to refinance its debt
obligations will depend upon its future financial and operating performance,
which will be affected by prevailing economic conditions and financial, business
and other factors, certain of which are beyond its control. There can be no
assurance that the Company's operating results, cash flow and capital resources
will be sufficient for payment of its indebtedness in the future. In the absence
of such operating results and capital resources, the Company could face
substantial liquidity problems, may be forced to reduce or delay capital
expenditures, dispose of material assets or operations, reduce, restructure or
refinance its indebtedness or seek additional equity capital to meet its debt
service and other obligations. There can be no assurance that any of these
actions could be effected on satisfactory terms, if at all.
RESTRICTIVE DEBT COVENANTS
The Indenture and the New Credit Agreement contain a number of significant
covenants that, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, prepay other
indebtedness (including the Notes), amend certain debt instruments (including
the Indenture), pay dividends, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
engage in mergers or consolidations, make capital expenditures, change the
business conducted by the Company or its subsidiaries, or engage in certain
transactions with affiliates and otherwise restrict certain corporate
activities. In addition, under the New Credit Agreement, the Company is required
to maintain specified financial ratios and tests, including leverage ratio tests
and interest coverage levels. See "Description of Notes" and "Description of New
Credit Agreement."
The Company's ability to comply with such agreements may be affected by
events beyond its control, including prevailing economic, financial and industry
conditions. The breach of any of such covenants or restrictions could result in
a default under the New Credit Agreement and/or the Indenture, which would
permit the senior lenders, or the holders of the Notes, or both, as the case may
be, to declare all amounts borrowed thereunder to be due and payable, together
with accrued and unpaid interest, and the commitments of the senior lenders to
make further extensions of credit under the New Credit Agreement could be
terminated. If the Company were unable to repay its indebtedness to its senior
lenders, such lenders could proceed against the collateral securing such
indebtedness as described under "Description of New Credit Agreement."
SUBORDINATION
The New Notes will be unsecured and subordinated to the prior payment in
full of all Senior Indebtedness of the Company, whether existing upon the
consummation of the Offering or thereafter incurred, including borrowings under
the New Credit Agreement. The New Notes will also be effectively subordinated to
all secured indebtedness of either the Company or any of its subsidiaries to the
extent of the assets securing such indebtedness. The Subsidiary Guarantees are
subordinated to all Guarantor Senior Indebtedness of each Guarantor (which
includes the Guarantors' guarantees under the New Credit Agreement) to the same
extent that the New Notes are subordinated to Senior Indebtedness of the
Company, and the ability to collect under the Subsidiary Guarantees may
therefore be similarly limited. In addition, the Company's Foreign Subsidiaries,
none of which will be Guarantors, are permitted to incur Indebtedness (as
defined herein), subject to certain limitations. The New Notes will be
effectively subordinated in such Indebtedness. As of April 4, 1998, on a pro
forma basis and after giving effect to the Acquisition Transactions, the
aggregate outstanding principal amount of all Senior Indebtedness of the Company
and the Guarantors would have been approximately $34.9 million. By reason of
such subordination, in the event of a bankruptcy, liquidation or
13
<PAGE> 19
reorganization of the Company, the assets of the Company and the Guarantors will
be available to pay obligations on the Notes and the Subsidiary Guarantees only
after all such Senior Indebtedness and Guarantor Senior Indebtedness has been
paid in full, and there may not be sufficient assets remaining to pay amounts
due on any or all of the Notes or under the Subsidiary Guarantees. In addition,
the Company may not pay principal or premium, or Liquidated Damages, if any, or
interest on the Notes if any Senior Indebtedness is not paid when due or any
other default on any Senior Indebtedness occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms, unless, in either
case, such amount has been paid in full or the default has been cured or waived
and such acceleration has been rescinded. Moreover, if any default occurs with
respect to certain Senior Indebtedness and certain other conditions are
satisfied, the Company may not make any payments on the Notes for up to 179
days.
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL
The New Credit Agreement generally prohibits the Company from purchasing
any of the Notes, including upon the occurrence of a Change of Control, and also
provides that certain change of control events with respect to the Company will
constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing the
Notes, the Company could seek the consent of its lenders to the purchase of the
Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such consent or repay such
borrowings, the Company will remain prohibited from purchasing the Notes by the
terms of the relevant Senior Indebtedness. In such case, the Company's failure
to purchase the tendered Notes would constitute an event of default under the
Indenture which would, in turn, constitute a default under the New Credit
Agreement and could constitute a default under other Senior Indebtedness. In
such circumstances, the subordination provisions in the Indenture would likely
restrict payments to the holders of the Notes. Furthermore, no assurance can be
given that the Company will have sufficient resources to satisfy its repurchase
obligation with respect to the Notes following a Change of Control. See
"Description of Notes" and "Description of New Credit Agreement."
FRAUDULENT TRANSFER CONSIDERATIONS
The Company's obligations under the New Notes may be subject to review
under state or federal fraudulent transfer laws in the event of the bankruptcy
or other financial difficulty of the Company.
Under those laws, if a court, in a lawsuit by an unpaid creditor or
representative of creditors of the Company, such as a trustee in bankruptcy or
the Company as a Chapter 11 debtor in possession, were to find that when the
Company issued the New Notes, it (a) received less than fair consideration or
reasonably equivalent value therefor and (b) either (i) was or was rendered
insolvent, (ii) was engaged in a business or transaction for which its remaining
unencumbered assets constituted unreasonably small capital or (iii) intended to
incur or believed (or reasonably should have believed) that it would incur debts
beyond its ability to pay as such debts matured, the court could avoid the Notes
and the Company's obligations thereunder, or subordinate the New Notes to all of
the Company's other obligations, and in either case direct the return of any
amounts paid thereunder to the Company or to a fund for the benefit of its
creditors. It should be noted that a court could avoid the New Notes and the
Company's obligations thereunder without regard to factors (a) and (b) above if
it found that the Company issued the New Notes with actual intent to hinder,
delay, or defraud its creditors.
Similarly, a Subsidiary Guarantee may be subject to review in the event of
the bankruptcy or financial difficulty of any Guarantor. In that event, if a
court found that when a Guarantor issued its guarantee (or, in some
jurisdictions, when it became liable to make payments thereunder), factors (a)
and (b) above applied to the Guarantor (or if the court found that the Guarantor
had issued its guarantee with actual intent to hinder, delay, or defraud its
creditors), then the court could avoid the respective Subsidiary Guarantee and
direct the repayment of any amounts paid thereunder. A court will likely find
that a Guarantor did not receive fair consideration or reasonably equivalent
value for its guarantee to the extent that its liability thereunder exceeds any
direct benefit it received from the issuance of the Notes.
The Indenture limits the liability of each Guarantor under its guarantee to
the maximum amount that it could pay without the guarantee being deemed a
fraudulent transfer. See "Description of Notes." There can
14
<PAGE> 20
be no assurance that (if this limitation is effective) the limited amount so
guaranteed will suffice to pay amounts owed under the New Notes in full.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair salable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured.
LACK OF A PUBLIC MARKET FOR THE NOTES
As of the date hereof, the only registered holder of Old Notes is Cede &
Co., as the nominee of DTC. Prior to the offering of the Old Notes, there had
been no market for the Notes and there can be no assurance that such a market
will develop, or if such market develops, as to the liquidity of such market.
The New Notes will not be listed on any securities exchange, but the Old Notes
are eligible for trading in the PORTAL market. The Initial Purchasers have
advised the Company that they currently intend to make a market in the Notes, as
permitted by applicable laws and regulations; however, the Initial Purchasers
are not obligated to do so and may discontinue such market-making at any time
without notice to the holders of the Notes. In addition, such market-making
activities may be limited during the Exchange Offer and the pendency of the
Shelf Registration Statement. Accordingly, there can be no assurance that a
trading market for the Notes will develop or will provide liquidity to the
holders thereof. Historically, the market for non-investment grade debt has been
subject to disruptions that have caused substantial volatility in the prices of
securities similar to the Notes. There can be no assurance that, if a market for
the Notes were to develop, such a market would not be subject to similar
disruptions. See "The Exchange Offer" and "Plan of Distribution."
TEXTILE INDUSTRY DEPENDENCE; CYCLICALITY
The principal operations of the Company have been, and will continue to be,
directly dependent upon domestic and foreign production of woven fabric.
Historically, the textile industry has experienced periodic, cyclical downturns.
Industry sales and production can be affected by the general strength of the
economy and by other factors, including the cost of raw materials and the demand
for woven fabric, which may have an effect on the level of the Company's sales.
There is no assurance that the demand for textile products will continue. A
substantial decrease in demand for woven fabric would have a material adverse
effect on the Company's financial condition and operating results.
ASIAN MARKET INSTABILITY
Economies and financial markets in Asia have recently experienced
significant turmoil. Approximately 12% of the Company's 1997 revenues were
derived from sales to Asian customers. The recent turmoil in the Asian financial
markets has not had a material impact on the Company's sales orders. However,
the financial instability in this region may have an adverse impact on the
financial position of customers in the region which could impact future orders
from such customers and/or the ability of such customers to pay the Company. If
the Company's customers in Asia are unable to maintain sales or current margins
on their sales, then the Company's sales and/or sales margins may be adversely
affected.
COMPETITION
The market for textile loom accessories is competitive. One of the
Company's international competitors is larger and has greater financial and
other resources available to it than the Company. There can be no assurance that
the Company's products will continue to compete successfully with the products
of other companies. The Company has a leading market share in the U.S., but the
Company could face additional competition as other established and emerging
companies enter the textile loom accessory market. Increased competition could
result in price reductions, fewer customer orders, reduced gross margins and
loss of market share, any of which could materially adversely affect the
Company's business, financial condition and operating results. The Company faces
substantially greater competition in foreign markets. See "Business--
Competition and Market Share."
15
<PAGE> 21
YEAR 2000
The Company uses software that will be affected by the date change in the
year 2000 and recognizes that the arrival of the year 2000 poses challenges that
will require modifications of portions of its software to enable it to function
properly. As the year 2000 approaches, date sensitive systems will recognize the
year 2000 as 1900, or not at all. This may cause systems to process critical
financial and operational information incorrectly. The Company, like may other
companies, is expected to incur expenditures over the next year to address this
issue. The Company has taken various actions to understand the nature and work
required to make its systems year 2000 compliant. The Company continues to
evaluate the estimated costs and has commenced portions of the work required to
achieve compliance. While compliance has and will involve additional costs,
estimated to be $1.0 million in total, the Company believes, based on current
information, it will achieve year 2000 compliance without a material adverse
effect on its operations, cash flows or financial position. The Company's
failure to address successfully year 2000 issues could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team. Although the Company believes it could replace key employees in an orderly
fashion should the need arise, the loss of such key personnel could have a
material adverse effect on the Company's financial condition or results of
operations. See "Management--Directors and Executive Officers".
CONTROL OF THE COMPANY BY AIP
Upon consummation of the Acquisition Transactions, the Company became a
wholly-owned subsidiary of SH Group. AIP owns a substantial majority of the
outstanding capital stock of SH Group which allows AIP to elect the directors of
SH Group and indirectly control the Company. AIP is in a position to cause the
Company to enter into transactions that in its judgment could ultimately enhance
shareholder value but involve risks to holders of the Notes. See "Acquisition
Transactions" and "Certain Relationships and Related Transactions."
RISKS RELATED TO POSSIBLE ACQUISITIONS
The Company may, from time to time, seek to expand its operations through
the acquisition of competing or complimentary businesses. There can be no
assurance that the Company will be able to finance, acquire, profitably manage
or successfully integrate into the Company any such business without incurring
substantial expenses (including additional indebtedness), delays or other
operational or financial problems. Further, acquisitions may involve a number of
special risks, including diversion of management's attention, failure to retain
key acquired personnel, increased costs to improve managerial, operational,
financial and administrative systems, legal liabilities, and increased interest
expense and amortization of acquired intangible assets, some or all of which
could materially and adversely affect the Company's business, operating results
and financial condition.
ENVIRONMENTAL MATTERS
The Company's facilities are subject to federal, state and local
environmental requirements, including those governing discharges to the air and
water, the handling and disposal of solid and hazardous wastes, and the
remediation of contamination associated with releases of hazardous substances.
The Company's manufacturing operations involve the use of hazardous substances
and, as is the case with manufacturers in general, if a release of hazardous
substances occurs or has occurred on or from the Company's facilities, the
Company may be held liable and may be required to pay the cost of remedying the
condition. The amount of any such liability could be material. In 1989, the
Company began a groundwater remediation program at the Company's Greenville, SC
facility under the federal Resource Conservation and Recovery Act ("RCRA"). As
required by RCRA, the Company has posted financial assurance in the amount of
$671,000 to ensure funds are available to complete the permit requirements.
Nonetheless, the Company is continuing to investigate certain areas of the
facility. It is possible that, based on the results of such investigation,
additional actions could be required, in which case the costs could materially
increase. See "Business -- Environmental Matters."
16
<PAGE> 22
LEGAL PROCEEDINGS
Although the Company may be subject to litigation from time to time in the
ordinary course of its business, it is not a party to any pending or threatened
legal proceedings that it believes will have a material impact on its business.
The risks, costs and uncertainties associated with litigation, include legal
fees and expenses, disruption of executive schedules and focus, the possibility
that the Company may be called upon to satisfy a judgment and the possibility
that the Company will be unable to realize proceeds from any judgment it may
obtain.
17
<PAGE> 23
ACQUISITION TRANSACTIONS
Pursuant to the Stock Purchase Agreement, SH Group, a corporation formed by
AIP in contemplation of the Acquisition, acquired all of the issued and
outstanding capital stock of Old Holdings from the Sellers, in a purchase
accounting transaction, for an aggregate purchase price (including the repayment
of outstanding indebtedness of the Company, transaction expenses of
approximately $8.6 million and an estimated purchase price adjustment of
approximately $1.1 million) of approximately $175.2 million, subject to
post-closing adjustments. Immediately after the consummation of the Acquisition,
the Mergers were consummated. Immediately after the consummation of the Mergers,
the Company became a direct wholly owned subsidiary of SH Group.
In order to finance the Acquisition and to repay the existing indebtedness
of the Company, (i) AIP and certain members of management contributed the Common
Equity Contribution, (ii) SH Group contributed the proceeds from the issuance
and sale of the Old SH Group Debentures, (iii) the Company (as successor by
merger to Merger Sub) entered into the New Credit Agreement and borrowed all
term loans available and approximately $4.9 million of revolving loans, (iv) the
Company (as successor by merger to Merger Sub) issued and sold $100.0 million
aggregate principal amount of Old Notes and (v) the Company loaned approximately
$66.0 million of the net proceeds from the issuance and sale of the Old Notes
and the New Credit Agreement to SH Group pursuant to the Intercompany Note to
pay part of the purchase price of the Acquisition. Shortly after the
consummation of the Acquisition, the Company forgave the Intercompany Note.
The Stock Purchase Agreement contains provisions customary for transactions
of this size and type, including representations and warranties with respect to
the condition and operations of the business, covenants with respect to the
conduct of the business prior to the consummation of the Acquisition and the
receipt of all material consents and approvals. The Stock Purchase Agreement
provides that, subject to certain time and dollar limitations, the Sellers shall
indemnify the Company and SH Group for liabilities arising from inaccuracies of
representations and warranties and breaches of covenants or agreements contained
in the Stock Purchase Agreement. With respect to certain matters relating to
environmental liabilities, see "Business--Environmental Matters."
AIP is a private investment fund based in San Francisco and New York which,
together with its affiliates, has committed capital of approximately $800
million. AIP does not seek to play a role in daily management; rather, AIP seeks
to provide its portfolio companies with access to the management expertise of
its operating partners, all of whom are former Chief Executive Officers of
Fortune 500 corporations, through active board-level participation as well as
on-call advice when desired. Following consummation of the Acquisition, Robert
Purdum, an operating partner of AIP and former Chairman of Armco, Inc., became
the Company's Non-Executive Chairman of the Board.
18
<PAGE> 24
USE OF PROCEEDS
USE OF PROCEEDS OF THE NEW NOTES
The Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the New Notes offered hereby. In consideration
for issuing the New Notes as contemplated in this Prospectus, the Company will
receive, in exchange, Old Notes in like principal amount. The form and terms of
the New Notes are substantially identical in all material respects to the form
and terms of the Old Notes, except as otherwise described herein under "The
Exchange Offer -- Terms of the Exchange." The Old Notes surrendered in exchange
for the New Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the New Notes will not result in any increase in the
outstanding indebtedness of the Company
USE OF PROCEEDS OF THE OLD NOTES
The gross proceeds from the sale of the Old Notes, estimated to be $100.0
million, together with the borrowings under the New Credit Agreement, the Common
Equity Contribution and the proceeds from the issuance and sale of Old SH Group
Debentures were used to finance the Acquisition Transactions and to pay related
fees and expenses and certain expenses of the Sellers (including discounts and
commissions and estimated expenses of the Offering). See "Acquisition
Transactions."
The following table sets forth the estimated sources and uses of funds as
if the Acquisition Transactions, including the application of the proceeds
therefrom, occurred and were completed on April 4, 1998:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Total Sources:
Existing cash............................................. $ 260
Borrowings under New Credit Agreement(a).................. 34,907
Old Notes................................................. 100,000
Old SH Group Debentures................................... 15,016
Common Equity Contribution(b)............................. 25,000
--------
Total Sources......................................... $175,183
========
Total Uses:
Purchase Price of Acquisition(c).......................... $165,451
Estimated purchase price adjustment(d).................... 1,130
Estimated transaction fees and expenses................... 8,602
--------
Total Uses............................................ $175,183
========
</TABLE>
- ------------------------------
(a) The New Credit Agreement provides for a $30 million Term Loan Facility (as
defined herein) and a $20 million Revolving Credit Facility (as defined
herein). All available amounts under the Term Loan Facility and
approximately $4.9 million under the Revolving Credit Facility were drawn at
closing. The Revolving Credit Facility is expected to be used to finance
working capital and capital expenditures. See "Description of New Credit
Agreement."
(b) Includes the value of management's rollover interest of approximately $1.7
million.
(c) Estimate of amounts payable to the Sellers under the Stock Purchase
Agreement and approximately $53.5 million used to repay outstanding
indebtedness of the Company.
(d) Based upon preliminary findings of net working capital, as defined, at May
25, 1998.
19
<PAGE> 25
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of April 4, 1998 and as adjusted to give effect to the
consummation of the Acquisition Transactions, including the sale of the Old
Notes, as of such date. The following table should be read in conjunction with
the "Unaudited Pro Forma Condensed Consolidated Financial Data" and the related
notes thereto included elsewhere herein and the "Selected Consolidated
Historical Financial Data" and the related notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
AS OF APRIL 4, 1998
-------------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and short-term cash investments........................ $ 276 $ 16
======= ========
Debt:
Existing credit facility.................................. $53,492 $ --
New Revolving Credit Facility(a).......................... -- 4,907
New Term Loan Facility.................................... -- 30,000
Old Notes................................................. -- 100,000
------- --------
Total debt............................................. 53,492 134,907
Redeemable common stock..................................... 1,366 --
Shareholders' equity (deficit).............................. (2,008) 33,185
------- --------
Total capitalization................................... $52,850 $168,092
======= ========
</TABLE>
- ------------------------------
(a) The Revolving Credit Facility provides for up to $20 million of borrowing
availability, $4.9 million of which was drawn at closing. See "Description
of New Credit Agreement."
20
<PAGE> 26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Condensed Consolidated Financial Data
have been derived by the application of pro forma adjustments to the Company's
historical financial data included elsewhere herein. The pro forma consolidated
statements of operations for the periods presented give effect to the
Acquisition Transactions as if such Acquisition Transactions were consummated as
of the beginning of each of the periods presented. The pro forma consolidated
balance sheet gives effect to the Acquisition Transactions as if such
Acquisition Transactions had occurred as of April 4, 1998. The adjustments are
described in the accompanying notes and reflect a preliminary allocation of the
purchase price. The Unaudited Pro Forma Condensed Consolidated Financial Data do
not purport to represent what the Company's results of operations or financial
position actually would have been if the Acquisition Transactions had been
consummated on the date indicated, or what such results will be as of any future
date or for any future period. The Unaudited Pro Forma Condensed Consolidated
Financial Data should be read in conjunction with the "Selected Consolidated
Historical Financial Data" and the related notes thereto included elsewhere
herein.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 3, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................. $72,983 -- $ 72,983
Cost of goods sold........................................ 46,448 $ 2,479(a) 48,927
------- -------- --------
Gross profit......................................... 26,535 (2,479) 24,056
Selling, general and administrative expenses(b)........... 8,489 150(c) 8,639
Management fees........................................... 475 420(d) 895
Amortization of goodwill.................................. 729 1,894(e) 2,623
------- -------- --------
Operating income..................................... 16,842 (4,943) 11,899
Other income (expense):
Interest income......................................... 136 -- 136
Interest expense........................................ (5,284) (9,004)(f) (14,288)
Other financing expense................................. (212) -- (212)
------- -------- --------
Income (loss) before income taxes and extraordinary
item............................................... 11,482 (13,947) (2,465)
Income tax expense (benefit).............................. 4,015 (3,955)(g) 60
------- -------- --------
Income (loss) before extraordinary item.............. $ 7,467 $ (9,992) $ (2,525)
======= ======== ========
Adjusted EBITDA(h)........................................ $22,841 $ -- $ 22,841
======= ======== ========
Net cash flow provided by operating activities............ $ 9,960 $ -- $ 9,960
======= ======== ========
</TABLE>
See accompanying notes to the unaudited pro forma statements of operations and
"Selected Consolidated Historical Financial Data."
21
<PAGE> 27
FISCAL QUARTER ENDED APRIL 4, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................. $19,266 -- $19,266
Cost of goods sold......................................... 11,930 $ 584 (a) 12,514
------- ------- -------
Gross profit.......................................... 7,336 (584) 6,752
Selling, general and administrative expenses(b)............ 2,178 38 (c) 2,216
Management fees............................................ 68 156 (d) 224
Amortization of goodwill................................... 182 474 (e) 656
------- ------- -------
Operating income...................................... 4,908 (1,252) 3,656
Other income (expense):
Interest income.......................................... 17 -- 17
Interest expense......................................... (1,027) (2,479)(f) (3,506)
Other financing expense.................................. (50) -- (50)
------- ------- -------
Income (loss) before income taxes..................... 3,848 (3,731) 117
Income tax expense (benefit)............................... 1,347 (1,053)(g) 294
------- ------- -------
Net income (loss)..................................... $ 2,501 $(2,678) $ (177)
======= ======= =======
Adjusted EBITDA(h)......................................... $ 6,149 $ -- $ 6,149
======= ======= =======
Net cash flow used in operating activities................. $ (258) $ -- $ (258)
======= ======= =======
</TABLE>
See accompanying notes to the unaudited pro forma statements of operations and
"Selected Consolidated Historical Financial Data."
22
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(a) The following table summarizes the pro forma adjustments to cost of
goods sold:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL QUARTER
ENDED ENDED
JANUARY 3, 1998 APRIL 4, 1998
--------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Pro forma depreciation for property, plant and equipment
(estimated useful lives ranging from six to thirty
years)................................................... $ 5,071 $1,268
Pro forma amortization for identifiable intangible assets
(estimated useful lives of thirteen years)............... 959 240
Less: Historical depreciation expense...................... (3,551) (924)
------- ------
$ 2,479 $ 584
======= ======
</TABLE>
(b) The pro forma financial statements do not include non-recurring
charges of approximately $3.6 million of fees associated with
identifying a buyer, $3.8 million of bonuses to management and $1.1
million of fees associated with bridge financing.
(c) Represents director's fees.
(d) Represents the difference between the new subordinated management fee
and the historical management fee.
(e) Represents the estimated increase in amortization expense on
assignment of purchase price to goodwill which is amortized over forty
years.
(f) The following table reflects the pro forma adjustments to interest
expense:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL QUARTER
ENDED ENDED
JANUARY 3, 1998 APRIL 4, 1998
--------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Old Notes and New Credit Agreement at rates ranging from
8.0% to 10.625%.......................................... $13,668 $ 3,354
Amortization of debt issuance costs........................ 620 152
Less: Historical interest expense.......................... (5,284) (1,027)
------- -------
Total............................................ $ 9,004 $ 2,479
======= =======
</TABLE>
(g) Reflects the adjustment to income tax expense to arrive at pro forma
income tax expense (benefit) equal to pro forma pre-tax income (loss)
plus non-deductible goodwill expense multiplied by the effective rate
of 38%.
(h) Adjusted EBITDA, as presented herein, represents operating income plus
depreciation, amortization and items which management believes to be
unusual, including, but not limited to, management and transaction
fees paid to BCC and AIP, director's fees, non-recurring restructuring
charges, supplemental bonus compensation, compensation expense for
certain eliminated management positions and incremental increases in
obsolete inventory reserves. EBITDA represents operating income plus
depreciation and amortization. EBITDA and Adjusted EBITDA are not
intended to represent cash flow from operations as defined by GAAP and
should not be used as an alternative to net income as an indicator of
operating performance or to cash flows as a measure of liquidity.
EBITDA and Adjusted EBITDA are not defined in the same manner as
"Consolidated EBITDA" in the Indenture or in the "Description of
Notes" herein. See "Description of Notes -- Certain Definitions."
EBITDA and Adjusted EBITDA are included in the Prospectus as it is a
basis upon which the Company assesses its financial performance, and
certain covenants in the Company's borrowing arrangements are tied to
similar measures. EBITDA and Adjusted EBITDA, as presented, represent
a useful measure of assessing the Company's ongoing operating
activities without the impact of financing activities and unusual
items. While EBITDA and Adjusted EBITDA are frequently used as a
measure of operations and the ability to meet debt service
requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in
the method of calculation.
23
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF APRIL 4, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 276 $ (260)(b) $ 16
Accounts receivable, net......................... 11,115 -- 11,115
Inventories...................................... 15,071 4,512(a) 19,583
Prepaid expenses and other assets................ 50 -- 50
------- -------- --------
Total current assets........................ 26,512 4,252 30,764
Property, plant and equipment, net.................... 16,298 24,517(a) 40,815
Intangible and other assets, net...................... 22,355 99,398(a) 121,753
Other................................................. 1,229 2,001(a) 3,230
------- -------- --------
Total assets................................ $66,394 $130,168 $196,562
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................. $ 2,194 $ -- $ 2,194
Accrued liabilities.............................. 3,130 281(a) 3,411
Current maturities of long-term debt............. 6,500 (5,500)(b) 1,000
Income taxes payable............................. 1,289 -- 1,289
Deferred income taxes............................ 670 53(a) 723
------- -------- --------
Total current liabilities........................ 13,783 (5,166) 8,617
Long-term debt, excluding current maturities.......... 46,992 86,915(b) 133,907
Deferred taxes........................................ 1,120 14,592(a) 15,712
Other noncurrent liabilities.......................... 5,141 -- 5,141
------- -------- --------
Total liabilities................................ 67,036 96,341 163,377
Redeemable common stock............................... 1,366 (1,366)(d) --
Total shareholders' equity (deficit).................. (2,008) 35,193(c) 33,185
------- -------- --------
Total liabilities and shareholders' equity
(deficit)...................................... $66,394 $130,168 $196,562
======= ======== ========
</TABLE>
See accompanying notes to the unaudited pro forma balance sheet.
24
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(a) The acquisition will be accounted for as a purchase, applying the
provisions of Accounting Principles Board Opinion No. ("APB") 16. The purchase
cost will be allocated to the acquired assets and liabilities based on their
relative fair values at the closing date, based on valuations and other studies
which are not yet complete. Furthermore, the aggregate purchase price is subject
to adjustment as set forth in the Stock Purchase Agreement. Accordingly, the
excess of the purchase cost over the book value of the net assets acquired has
not yet been allocated to individual assets and liabilities. The Company does
not expect the final allocation to differ significantly from amounts reflected
in the pro forma presentation.
The purchase cost and preliminary allocation of the excess of cost over the
net book value of assets acquired is as follows (dollars in thousands):
<TABLE>
<S> <C>
Purchase cost pursuant to the Stock Purchase Agreement:
Enterprise value..................................... $164,150
Add: Compensation tax benefit........................ 1,301
Add: Estimated purchase price adjustment............. 1,130
Less: Existing indebtedness to be repaid............. (53,492)
Less: Unpaid seller's expenses....................... (7,457)
Less: Value of management's rollover securities...... (1,655)
--------
Purchase of stock of Old Holdings...................... 103,977
Transaction fees and expenses.......................... 8,602
--------
Total purchase cost.................................... 112,579
Book value of redeemable common stock................ 1,366
Book value of net assets acquired (deficit).......... (2,008)
--------
Excess of purchase price over the net book value of
assets acquired..................................... $113,221
========
Allocated to:
Increase in value of property, plant and equipment... $ 24,517
Increase in value of inventory....................... 4,512
Increase in pension cost to the projected benefit
obligation.......................................... 2,001
Increase in value of identifiable intangible
assets.............................................. 11,983
Elimination of existing goodwill..................... (22,355)
Liabilities assumed for unpaid seller's expenses..... (7,457)
Increase in environmental liability accrual.......... (281)
Adjustment of deferred taxes for step-up in asset
bases............................................... (15,063)
Deferred debt issuance costs......................... 5,200
Bridge loan financing costs.......................... 1,100
Adjustment to equity for carryover stockholder
basis............................................... 4,494
Remaining excess purchase cost over the net book
value of assets acquired............................ 104,570
--------
Total allocation....................................... $113,221
========
</TABLE>
25
<PAGE> 31
<TABLE>
<S> <C>
Adjustments to intangibles include:
Excess of purchase cost over the net book value of
assets acquired..................................... $104,570
Adjustment to increase value of identifiable
intangible assets................................... 11,983
Deferred debt issuance costs......................... 5,200
Less: Goodwill written off........................... (22,355)
--------
$ 99,398
========
Adjustments to deferred income taxes:
Adjustment of deferred taxes for step-up in asset
bases............................................... $(15,063)
Tax effect of bridge loan financing costs............ 418
--------
Total............................................. (14,645)
Current liability.................................... (53)
--------
Noncurrent liability................................. $(14,592)
========
b) The net effect on cash and cash equivalents reflects the
following:
TOTAL SOURCES:
Existing cash.......................................... $ 260
New Credit Agreement proceeds.......................... 34,907
Old Notes.............................................. 100,000
Common Equity Contribution............................. 23,345
SH Group Debentures.................................... 15,016
--------
$173,528
========
TOTAL USES:
Total assets acquired.................................. $103,977
Payment of seller's expenses........................... 7,457
Repayment of existing debt............................. 53,492
Estimated transaction fees and expenses................ 8,602
--------
$173,528
========
c) Represents the net change in stockholders' equity as a
result of the Acquisition Transactions:
Equity contribution.................................... $ 38,361
Adjustment to equity for carryover stockholder basis... (4,494)
Write-off of bridge loan financing expenses, net of
income tax............................................ (682)
--------
Pro forma stockholders' equity......................... 33,185
Book value of net assets acquired (deficit)............ (2,008)
--------
Pro forma adjustments to stockholders' equity.......... $ 35,193
========
d) Represents elimination of redeemable common stock sold
in the transaction.
</TABLE>
26
<PAGE> 32
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated historical financial,
operating, other and balance sheet data of the Company for each of the fiscal
years in the five-year period ended January 3, 1998, derived from the audited
Consolidated Financial Statements of the Company and the related notes thereto
included elsewhere herein. The selected consolidated financial data for the
fiscal quarters ended April 4, 1998 and April 5, 1997 have been derived from the
Unaudited Consolidated Financial Statements of the Company, and include, in the
opinion of management, all adjustments necessary to present fairly the data for
such periods. The results for the fiscal quarter ended April 4, 1998 are not
necessarily indicative of the results to be expected for the fiscal year 1998 or
for any future period. The data presented below should be read in conjunction
with the Consolidated Financial Statements and the related notes thereto
included elsewhere herein, the unaudited condensed consolidated financial
statements and notes thereto, the other financial information included elsewhere
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED
FISCAL YEAR -------------------
------------------------------------------------- APRIL 4, APRIL 5,
1997 1996 1995 1994 1993 1998 1997
-------- ------- ------- -------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 72,983 $64,484 $68,118 $ 68,302 $67,115 $19,266 $18,606
Cost of goods sold............................. 46,448 44,074 47,706 47,996 46,389 11,930 12,081
-------- ------- ------- -------- ------- ------- -------
Gross profit................................. 26,535 20,410 20,412 20,306 20,726 7,336 6,525
Selling, general and administrative expenses... 8,489 8,875 8,667 8,198 7,712 2,178 2,231
Management fees................................ 475 725 275 275 275 68 268
Amortization of goodwill....................... 729 729 729 936 943 182 182
Restructuring charges(a)....................... -- -- 821 -- -- -- --
-------- ------- ------- -------- ------- ------- -------
Operating income............................. 16,842 10,081 9,920 10,897 11,796 4,908 3,844
Interest expense, net.......................... (5,148) (5,844) (6,307) (7,061) (6,672) (1,010) (1,459)
Other financing expense........................ (212) -- -- -- (112) (50) (175)
-------- ------- ------- -------- ------- ------- -------
Income before taxes, extraordinary item and
cumulative effect of change in
accounting................................. 11,482 4,237 3,613 3,836 5,012 3,848 2,210
Income tax expense............................. 4,015 1,638 1,628 1,788 1,916 1,347 773
-------- ------- ------- -------- ------- ------- -------
Income before extraordinary item and
cumulative effect of change in
accounting................................. 7,467 2,599 1,985 2,048 3,096 2,501 1,437
Extraordinary item(b).......................... (2,753) -- -- -- -- -- (2,753)
Effect of change in accounting(c).............. -- -- 855 -- -- -- --
-------- ------- ------- -------- ------- ------- -------
Net income (loss)............................ $ 4,714 $ 2,599 $ 1,130 $ 2,048 $ 3,096 $ 2,501 $(1,316)
======== ======= ======= ======== ======= ======= =======
OPERATING AND OTHER DATA:
Net cash provided by (used in) operating
activities................................... $ 9,960 $11,236 $ 7,612 $ 9,623 $10,857 $ (258) $(1,345)
Net cash provided by (used in) investing
activities................................... (2,529) (2,767) (3,357) (2,784) (3,174) (537) (416)
Net cash provided by (used in) financing
activities................................... (11,697) (4,700) (5,000) (10,262) (7,341) 692 (2,537)
Adjusted EBITDA(d)............................. 22,841 17,523 16,906 16,825 17,512 6,149 5,697
Adjusted EBITDA margin(e)...................... 31.3% 27.2% 24.8% 24.6% 26.1% 31.9% 30.6%
Depreciation and amortization.................. $ 4,409 $ 6,019 $ 6,096 $ 5,859 $ 5,728 $ 1,139 $ 1,337
Capital expenditures........................... 2,558 2,809 3,455 2,839 3,200 618 416
Ratio of earnings to fixed charges(f).......... 3.2x 1.7x 1.6x 1.5x 1.7x 4.7x 2.5x
BALANCE SHEET DATA (AT PERIOD END):
Net working capital(g)......................... $ 14,968 $10,235 $11,169 $ 13,401 $15,530 $18,953 $17,046
Net property, plant and equipment.............. 16,685 17,756 20,106 21,911 24,050 16,298 17,229
Total assets................................... 64,340 68,716 68,771 71,890 79,072 66,394 64,909
Long-term debt (including current portion)..... 52,800 50,000 52,700 59,700 70,000 53,492 61,875
Redeemable common stock........................ 1,366 1,350 1,350 1,350 1,316 1,366 1,366
Shareholders' equity (deficit)................. (4,523) (1,309) (3,911) (5,025) (7,042) (2,008) (10,654)
</TABLE>
- ------------------------------
(a) Includes restructuring charges of $0.8 million in 1995 related to a
reduction in the domestic workforce, closure of the Company's Canadian
operation and writedown of certain assets.
27
<PAGE> 33
(b) Extraordinary item relates to a loss on early extinguishment of debt, net of
taxes, of $1.7 million.
(c) Includes a cumulative effect of change in method of accounting for
postretirement benefits of $0.9 million net of taxes in fiscal year 1995.
(d) Adjusted EBITDA, as presented herein, represents operating income plus
depreciation, amortization and items which management believes to be
unusual, including, but not limited to, management and transaction fees paid
to BCC and AIP, non-recurring restructuring charges, supplemental bonus
compensation, compensation expense for certain eliminated management
positions and incremental increases in obsolete inventory reserves. EBITDA
represents operating income plus depreciation and amortization. The
following is a summary of historical adjustments to operating income:
<TABLE>
<CAPTION>
FISCAL QUARTER
ENDED
FISCAL YEAR ---------------------
---------------------------------------------------- APRIL 4, APRIL 5,
1997 1996 1995 1994 1993 1998 1997
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating income................................. $16,842 $10,081 $ 9,920 $10,897 $11,796 $4,908 $3,844
Depreciation..................................... 3,550 5,118 5,161 4,924 4,785 924 943
Amortization..................................... 729 729 729 729 656 182 182
------- ------- ------- ------- ------- ------ ------
EBITDA......................................... 21,121 15,928 15,810 16,550 17,237 6,014 4,969
Unusual items:
Management and transaction fees................ 475 725 275 275 275 68 268
Non-recurring restructuring charges............ -- -- 821 -- -- -- --
Supplemental bonus compensation................ 775 870 -- -- -- -- 185
Compensation expense for certain eliminated
management positions......................... 260 -- -- -- -- 67 65
Incremental increases in obsolete inventory
reserves..................................... 210 -- -- -- -- -- 210
------- ------- ------- ------- ------- ------ ------
Adjusted EBITDA.............................. $22,841 $17,523 $16,906 $16,825 $17,512 $6,149 $5,697
======= ======= ======= ======= ======= ====== ======
</TABLE>
EBITDA and Adjusted EBITDA are not intended to represent cash flow from
operations as defined by GAAP and should not be used as an alternative to
net income as an indicator of operating performance or to cash flows as a
measure of liquidity. EBITDA and Adjusted EBITDA are not defined in the
same manner as "Consolidated EBITDA" in the Indenture or in the
"Description of Notes" herein. See "Description of Notes -- Certain
Definitions." EBITDA and Adjusted EBITDA are included in this Prospectus as
it is a basis upon which the Company assesses its financial performance,
and certain covenants in the Company's borrowing arrangements are tied to
similar measures. EBITDA and Adjusted EBITDA, as presented, represent a
useful measure of assessing the Company's ongoing operating activities
without the impact of financing activities and unusual items. While EBITDA
and Adjusted EBITDA are frequently used as a measure of operations and the
ability to meet debt service requirements, it is not necessarily comparable
to other similarly titled captions of other companies due to potential
inconsistencies in the method of calculation.
(e) Adjusted EBITDA as a percentage of net sales.
(f) For purposes of this computation, fixed charges consist of interest expense
and amortization of deferred financing fees. Earnings consist of income
before income taxes, extraordinary item and cumulative effect of changes in
accounting principles, plus fixed charges. Pro forma fixed charges exceeded
pro forma earnings by $2.5 million for the year ended January 3, 1998. The
ratio of earnings to fixed charges for the quarter ended April 4, 1998 was
1.0x.
(g) Net working capital represents (i) current assets excluding cash less (ii)
current liabilities excluding the current portion of long-term debt.
28
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Historical Financial Data" and the Consolidated Financial
Statements and the related notes thereto included elsewhere herein.
GENERAL
The Company, founded in 1898, is one of the world's leading manufacturers
of precision textile loom accessories. The Company manufactures and markets
virtually all of the replaceable wear parts necessary to operate a commercial
weaving loom including heddles, dropwires, harness frames, reeds and shuttles
and bobbins. In addition to textile loom accessories, the Company also
manufactures precision rolled, heat treated, bare, ferrous and nonferrous and
tinned flat wire used in the electronics, automotive, solar power and other
industries. The Company has achieved adjusted EBITDA margins exceeding 24% in
each of the last ten years. For the 52-week period ended April 4, 1998, the
Company had net sales, adjusted EBITDA and operating income of $73.6 million,
$23.3 million and $17.9 million, respectively.
In November 1995, after a comprehensive review of the business, the Company
initiated a cost reduction plan which was completed in December 1996. As part of
the cost reduction plan, the Company eliminated 120 full-time positions from its
work force including 36 direct labor positions and 84 indirect and
administrative positions. The Company's headcount reduction has not resulted in
any unforeseen effects on operations, and the Company has not found it necessary
to replace any of the eliminated positions. In addition, the Company also
undertook other cost savings initiatives in its manufacturing and administrative
functions, including aggressively renegotiating certain raw material supply
contracts, reconfiguring manufacturing space, outsourcing certain manufacturing
functions and modifying certain employee benefit programs. The Company's
financial results for fiscal 1997 represent the first full fiscal year to
benefit from this cost-reduction plan. Primarily as a result of these cost
savings initiatives, gross profit margins increased to 36.4% in fiscal 1997 from
31.7% in fiscal 1996 and 30.0% in 1995. In addition, selling, general and
administrative expenses ("SG&A") as a percentage of net sales decreased to 11.6%
in fiscal 1997 from 13.8% in fiscal 1996 and 12.7% in 1995.
In 1996, output of woven fabrics in the United States declined to 15.8
billion square yards, compared to an average annual output of 16.3 billion
square yards for the prior four years. This textile industry recession, which
began in 1995, was caused primarily by record high cotton prices as a result of
flooding and pest problems in the key cotton producing nations of India,
Pakistan and China. Consequently, many textile mills attempted to reduce non-raw
material costs by delaying the purchase of new weaving looms and loom
accessories. Despite such industry-related pressure on sales, as a result of the
Company's cost reductions program and related initiatives, the Company improved
its gross margin and operating income in fiscal 1996.
As weaving technology has evolved, and faster, more efficient, air-jet and
water-jet looms replace older, slower shuttle and bobbin looms, the demand for
shuttles and bobbins has decreased while demand for accessories of newer
technology looms has increased. The Company expects this trend to continue as
shuttle looms continue to be replaced. Commensurate with this decrease, the
Company expects net sales of shuttle and bobbins to decrease while net sales
related to newer technologies take their place. Net sales, excluding shuttle and
bobbin sales, have increased since fiscal 1993 from $61.0 million to $70.4
million while net sales of shuttles and bobbins during the same period decreased
from $6.1 million in fiscal 1993 to $2.6 million. Shuttles and bobbins
contributed $0.1 million to gross profit in fiscal 1997.
BASIS OF PRESENTATION
The Company's fiscal year ended January 3, 1998 was 53 weeks in duration
compared to 52 weeks for the fiscal year ended December 28, 1996. As a result,
the Company's results from operations for the fiscal year ended January 3, 1998
will include an additional week of financial results.
29
<PAGE> 35
The following table summarizes the Company's historical results of
operations (in millions of dollars) and as a percentage of net sales for the
fiscal years 1997, 1996 and 1995 and the fiscal quarters ended April 4, 1998 and
April 5, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $73.0 100.0% $64.5 100.0% $68.1 100.0%
Cost of goods sold............. 46.4 63.6 44.1 68.3 47.7 70.0
Gross profit................... 26.5 36.4 20.4 31.7 20.4 30.0
SG&A........................... 8.5 11.6 8.9 13.8 8.7 12.7
Operating income............... 16.8 23.1 10.1 15.6 9.9 14.6
Net income (loss).............. 4.7 6.4 2.6 4.0 1.1 1.6
Adjusted EBITDA................ 22.8 31.3 17.5 27.2 16.9 24.8
<CAPTION>
FISCAL QUARTER ENDED
-----------------------------------------
APRIL 4, 1998 APRIL 5, 1997
------------------- -------------------
<S> <C> <C> <C> <C>
Net sales...................... $19.3 100.0% $18.6 100.0%
Cost of goods sold............. 11.9 61.9 12.1 64.9
Gross profit................... 7.3 38.1 6.5 35.1
SG&A........................... 2.2 11.3 2.2 12.0
Operating income............... 4.9 25.5 3.8 20.7
Net income (loss).............. 2.5 13.0 (1.3) (7.0)
Adjusted EBITDA................ 6.1 31.9 5.7 30.6
</TABLE>
The costs of goods sold as a percentage of net sales partially decreased in
fiscal 1997 as compared to earlier years because certain fixed assets were fully
depreciated.
COMPARISON OF RESULTS OF OPERATIONS
FISCAL QUARTER ENDED APRIL 4, 1998 COMPARED TO FISCAL QUARTER ENDED APRIL 5,
1997
Net Sales. Net sales increased to $19.3 million for the first quarter of
1998 from $18.6 million for the first quarter of 1997, an increase of 3.5%. This
increase is primarily attributable to increased sales of rolled products which
increased 23% to $2.7 million. Due primarily to a decline in international sales
caused by the economic and monetary crisis in Asia, textile product sales were
flat at $16.2 million. The decline in international textile sales was offset by
an increase of $0.4 million in domestic sales.
Gross Profit. Gross profit increased to $7.3 million during the first
quarter of 1998 from $6.5 million in first quarter of 1997, an increase of
12.4%. As a percentage of net sales, gross profit margin increased to 38.1% from
35.1%. The increase in both gross profit and gross profit margin as a percentage
of sales is due primarily to the increase in sales of domestic textile products
and rolled products (both generally carrying higher margins than products sold
internationally), as well as cost savings derived from improved purchasing of
raw materials used in the production of rolled products.
Selling, General and Administrative Expenses. SG&A remained flat at $2.2
million for the first quarter of 1998 and 1997. As a percentage of net sales,
SG&A decreased to 11.3% from 12.0%. This decrease was due primarily to lower
executive bonuses of approximately $0.4 million, partially offset by increases
associated with the Company's year 2000 computer project, which is expected to
increase SG&A for 1998 by approximately $0.3 million.
Operating Income. Operating income increased to $4.9 million for the first
quarter of 1998 from $3.8 million in the first quarter of 1997, an increase of
27.7%. This increase in operating income resulted from the increase in net sales
and gross profit. As a percentage of net sales, operating income increased to
25.5% from 20.7%.
Net Income. Net income increased to $2.5 million for the quarter ended
April 4, 1998 from a net loss of $1.3 million for the prior year comparable
quarter. The increase in net income is attributable to the factors noted above.
Adjusted EBITDA. Adjusted EBITDA increased to $6.1 million in the first
quarter of 1998 from $5.7 million in the first quarter of 1997, an increase of
7.9%.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Net Sales. Net sales increased to $73.0 million in 1997 from $64.5 million
in 1996, an increase of 13.2%. The growth in net sales was primarily
attributable to increased sales of loom accessories driven by the emergence of
the U.S. textile industry from the recession of 1996. Of the Company's loom
accessory products, heddle and dropwire sales increased 12.4%, frame sales
increased 13.2% and reed sales increased 8.1%. The
30
<PAGE> 36
growth in net sales of loom accessories was partially offset by a 6.4% decrease
in shuttle sales as older-technology shuttle-type looms continued to be phased
out. Further contributing to the Company's strong growth in net sales, sales of
rolled products increased to $9.0 million in 1997 from $7.4 million in 1996, an
increase of 21.9%.
Gross Profit. Gross profit increased to $26.5 million in 1997 from $20.4
million in 1996, an increase of 30.0%. As a percentage of net sales, the
Company's gross profit margin increased to 36.4% from 31.7%. The increase in
both gross profit and gross profit margin was due primarily to the
implementation of the cost reduction plan which was implemented between August
1995 and December 1996 and efficiency gains resulting from increased unit
production. In addition, gross profit margin increased as a result of the
Company's shift in product mix towards more customized, higher margin loom
accessories and the reduction of depreciation expense associated with certain
assets which became fully depreciated in 1996.
Selling, General and Administrative Expenses. SG&A decreased from $8.9
million for 1996 to $8.5 million for 1997. As a percentage of net sales, SG&A
decreased to 11.6% from 13.8%. The improvement in SG&A as a percentage of net
sales primarily stems from the implementation of the Company's cost reduction
plan.
Operating Income. Operating income increased to $16.8 million in 1997 from
$10.1 million in 1996, an increase of 67.1%, primarily as a result of the
increase in net sales, as well as the improvement in gross profit margin. As a
percentage of net sales, operating income increased to 23.1% from 15.6%.
Net Income. Net income increased to $4.7 million in 1997 from $2.6 million
in 1996, an increase of 80.8%. The increase is a result of the items noted
above.
Adjusted EBITDA. Adjusted EBITDA increased to $22.8 million in 1997 from
$17.5 million in 1996, an increase of 30.3%.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net Sales. Net sales decreased to $64.5 million in 1996 from $68.1 million
in 1995, a decrease of 5.3%. The decrease in net sales of loom accessories can
be attributed largely to the difficulties of the textile industry which began in
1995 and continued through 1996. Net sales of heddles declined 3.2%, frame sales
declined by approximately 9.2% although frame export sales increased due
primarily to an increase in higher-priced, higher-margin section frame sales.
Reed sales increased by 2.4% due to slight increases in both units and prices,
primarily attributable to a 8.0% increase in tunnel reed sales. Shuttle sales
declined as older-technology shuttle-type looms continued to be phased out.
Rolled product sales decreased to $7.4 in 1996 from $8.4 in 1995, a decline of
11.9% due primarily to two key customers decreasing inventory levels.
Gross Profit. Gross profit was flat at $20.4 million in 1995 and 1996. As a
percentage of net sales, gross profit increased to 31.7% from 30.0%. The
increase in gross profit margin was due primarily to the initiation of the
Company's cost-reduction plan in August 1995, which eliminated overhead and
direct labor positions and established tight controls over manufacturing costs.
The gross margin increases achieved through the cost-reduction plan were
partially offset by a decrease in heddle export prices.
Selling, General and Administrative Expenses. SG&A increased to $8.9
million in 1996 from $8.7 million in 1995, an increase of 2.4%. As a percentage
of net sales, SG&A increased to 13.8% from 12.7%. This increase is related to
performance bonuses paid during the year of approximately $1.3 million. No such
bonuses were paid in 1995. Excluding these bonuses, SG&A in 1996 would have been
$7.6 million, a decrease of $1.1 million, due primarily to the Company's cost
reduction plan.
Operating Income. Operating income increased to $10.1 million in 1996 from
$9.9 million in 1995, an increase of 1.6%. Included in 1995 operating income was
a one-time restructuring charge of $0.8 million related to a reduction of the
U.S. workforce, closure of the Company's Canadian operation and writedown of
certain assets. In addition, management fees paid to BCC increased to $0.7
million in 1996 from $0.3 million in 1995. Excluding the effects of these
charges, operating income decreased to $10.8 million in 1996 from $11.0 million
in 1995, a decrease of $0.2 million or 1.9%.
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Net Income. Net income increased to $2.6 million in 1996 from $1.1 million
in 1995, an increase of $1.5 million. The increase is attributable to the
factors noted above.
Adjusted EBITDA. Adjusted EBITDA increased to $17.5 million in 1996 from
$16.9 million in 1995, an increase of 3.6%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated sufficient internal cash flow from
operations to fund its operations, capital expenditures and working capital
requirements. Cash used in operating activities for the three months ended April
4, 1998 decreased to $0.3 million from $1.3 million for the three months ended
April 5, 1997. The decrease was primarily due to the improvement in net income
and reduction in working capital, partially offset by the extraordinary loss
incurred upon the early extinguishment of debt. Cash provided by operating
activities for the fiscal year ended January 3, 1998 decreased to $10.0 million
from $11.2 million for the fiscal year ended December 28, 1996. The decrease was
primarily due to an increase in working capital requirements, as the Company
increased its inventory levels due to the higher sales volume in 1997 and
reduced its accounts payable and accrued expense balances. The increase in
working capital requirements were partially offset by the increase in the
Company's net income.
Capital expenditures were $3.5 million, $2.8 million and $2.6 million in
1995, 1996 and 1997, respectively. These amounts primarily reflect cash outlays
for maintaining and upgrading the Company's manufacturing plant and equipment.
Management estimates that the Company will continue to spend, approximately $3.0
million annually to maintain and upgrade its plant and equipment.
In January 1997, the Company undertook a recapitalization led by Butler
Capital Corporation. In connection with this recapitalization, the Company
entered into a $67.5 million credit facility consisting of a $52.5 million term
loan and a $15.0 million revolving credit facility (the "Existing Credit
Facility"). Proceeds from the Existing Credit Facility were used to refinance
existing indebtedness of $55.7 million (including a prepayment penalty of $5.7
million) and pay shareholders a $7.9 million dividend.
Following the Acquisition, the Company's principal sources of liquidity
will be cash flow from operations supplemented by borrowings under the Revolving
Credit Facility.
In connection with the Acquisition, the Company issued Old Notes for $100.0
million in gross proceeds and entered into the Term Loan Facility and the
Revolving Credit Facility under the New Credit Agreement. The Revolving Credit
Facility provides revolving loans in an aggregate amount of up to $20.0 million
(including letters of credit). Upon closing of the Acquisition Transactions, the
Company borrowed $30.0 million available under the Term Loan Facility and
approximately $4.9 million under the Revolving Credit Facility. Proceeds to the
Company from the issuance of the Old Notes and from initial borrowings under the
New Credit Agreement were distributed to SH Group to finance, in part, the
Acquisition and the fees and expenses in connection therewith and the repayment
of outstanding indebtedness of the Company under the Existing Credit Facility.
To provide additional financing to fund the Acquisition, SH Group raised $25.0
million through an equity contribution by AIP and its related investors,
including certain members of management and an additional $15.0 million through
the offering of the Old SH Group Debentures.
Borrowings under the New Credit Agreement bear interest at a rate per annum
equal (at the Company's option) to a margin over either a base rate or LIBOR.
The Term Loan Facility and Revolving Credit Facility mature in six years. The
Company's obligations under the New Credit Agreement are guaranteed by each of
the Company's direct and indirect domestic subsidiaries. The New Credit
Agreement and the guarantees thereof are secured by a perfected first priority
security interest in substantially all assets of SH Group and its direct and
indirect domestic subsidiaries and, to the extent no adverse tax consequences
would result, foreign subsidiaries.
The New Credit Agreement contains a number of covenants that, among other
things, restrict the ability of SH Group, the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, prepay other indebtedness or
amend certain debt instruments, pay dividends, create liens on assets, enter
into sale and leaseback transactions, make investments, loans or advances, make
acquisitions, engage in mergers or
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consolidations, make capital expenditures, change the business conducted by the
Company or its subsidiaries or engage in certain transactions with affiliates
and otherwise restrict certain corporate activities. In addition, under the New
Credit Agreement, the Company is required to maintain specified financial ratio
tests, including leverage ratios below a specified maximum and minimum interest
coverage levels. See "Risk Factors -- Restrictive Debt Covenants" and
"Description of New Credit Agreement."
Management believes that, upon completion of the Acquisition Transactions,
cash flow from operations and availability under the Revolving Credit Facility
will provide adequate funds for the Company's foreseeable working capital needs,
planned capital expenditures and debt service obligations. The Company's ability
to fund its operations and make planned capital expenditures, to make scheduled
debt payments, to refinance indebtedness and to remain in compliance with all of
the financial covenants under its debt agreements depends on its future
operating performance and cash flow, which in turn, are subject to prevailing
economic conditions and to financial, business and other factors, some of which
are beyond its control. See "Risk Factors."
YEAR 2000 MATTERS
Steel Heddle initiated the process of preparing its computer systems and
applications for the year 2000 in 1997. This process involves modifying or
replacing certain hardware and software maintained by the Company as well as
communicating with customers and suppliers to ensure that they are taking
appropriate actions to remedy their year 2000 issues. Management expects to have
substantially all of the systems and applications changes completed by mid-year
1999 and believes that its level of preparedness is appropriate.
The Company will utilize both internal and external resources to reprogram
or replace, and test the software for year 2000 modifications. The Company
anticipates completing the year 2000 project by mid-year 1999, which is prior to
any anticipated impact on its operating systems. The cost of the year 2000
project is estimated at $1.0 million and is being funded through operating cash
flows. Of the total project cost, approximately $0.4 million is attributable to
the purchase of new software and hardware and will be capitalized. The remaining
$0.6 million, which is being expensed as incurred, is not expected to have a
material effect on the results of operations.
The Company has initiated communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failures to remediate
their own year 2000 issue.
The costs of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates can
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information." Additionally, in
February 1998, the FASB issued SFAS No. 132 "Employer's Disclosures about
Pensions and Other Postretirement Benefits." Each of these standards is
effective in 1998 but affects only the display and disclosure of financial
information in the Company's financial statements.
SFAS No. 130 requires comprehensive income to be displayed in a financial
statement with the same prominence as net income.
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SFAS No. 131 requires entities to disclose financial and detailed
information about its operating segments in a manner consistent with internal
reporting used by the Company to allocate resources and assess financial
performance. The Company has not completed the analyses required to determine
such segment disclosures or additional disclosure requirements, if any, arising
from the adoption of SFAS No. 131. The Company will adopt this statement
retroactively during the fiscal year ending January 2, 1999.
SFAS No. 132 standardizes the disclosures for pensions and other
postretirement liabilities, requires additional information on changes in the
benefit obligations and fair values of plan assets and eliminates certain other
disclosures.
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BUSINESS
THE COMPANY
The Company, founded in 1898, is one of the world's leading manufacturers
of precision textile loom accessories. The Company designs, manufactures and
markets virtually all of the replaceable wear parts necessary to operate a
commercial weaving loom, including heddles, dropwires, harness frames, reeds and
shuttles and bobbins, which are used to hold or guide individual yarns during
the weaving process. Textile loom accessories are highly engineered and often
customized products which require a high degree of precision to ensure a uniform
weave and to achieve desired fabric patterns while being able to withstand the
stresses of modern, high-speed weaving looms. While technology and performance
specifications vary, all commercial weaving looms require these accessories.
Because loom manufacturers do not produce these accessories, all woven fabric
producers must purchase textile loom accessories from third-party suppliers. In
addition to textile loom accessories, the Company manufactures precision rolled,
heat treated, bare and tinned flat wire used in the electronics, automotive,
solar power and other industries.
The Company has achieved adjusted EBITDA margins exceeding 24% in each of
the last ten years. Beginning in 1995 and continuing through 1996, the Company
implemented a profitability enhancing, cost-reduction program. This program
contributed to an increase in adjusted EBITDA margin to 31.3% in 1997. For the
52-week period ended April 4, 1998, the Company had net sales, adjusted EBITDA
and operating income of $73.6 million, $23.3 million and $17.9 million,
respectively.
Steel Heddle is a critical supplier to virtually all North American textile
weaving mills, including such companies as WestPoint Stevens, Inc., Milliken &
Co. and Burlington Industries, Inc., many of which have been customers for
decades. In North America, management estimates that the Company holds
substantial market shares in all of its major product lines and estimates that
it supplies over 80% of the market for heddles, dropwires and harness frames,
over 50% of reeds and over 90% of the market for shuttles and bobbins. Although
international markets such as Europe and Asia have different competitive
dynamics than the North American market, the Company also has a strong presence
in many international markets in which it perceives the opportunity for
profitable growth. International sales accounted for approximately 22% of the
Company's net sales in 1997.
Textile loom accessories have represented a steady source of revenue and
cash flow because these parts require frequent replacement due to wear and
changes in production runs. Approximately 75% of the Company's net sales were
derived from the sale of replacement parts in 1997. The Company estimates that
more than 90% of all looms installed in North America are delivered
"unaccessorized," with the accessories being designed and supplied by a
third-party supplier such as Steel Heddle. Once the Company has outfitted new
looms with its accessories it has generally been able to continue to supply
replacement parts for the life of the loom. The Company believes it has achieved
its leading position in the industry primarily because of its willingness and
ability to work closely with its customers, both before and after the
installation of new looms, to design the appropriate accessories to meet
specific manufacturing needs and then continue to meet those needs on an ongoing
basis.
In addition to its textile loom accessories business, the Company converts
round rod to flat wire through a rolling process which results in a flat wire
with a round edge. Originally developed to satisfy in-house heddle manufacturing
needs, the Company recognized that its ability to produce these products to
extremely tight tolerances could be tailored to meet similar needs in other
industries and began to pursue outside sales. Because these rolled products are
custom-made for specific applications, they have historically commanded
attractive margins. The Company's rolled products can be found in a variety of
other industries, including electronics, automotive and solar power. Among the
end-use applications for the Company's products are notebook computers, cellular
telephones, electronic control devices and automotive applications such as
control mechanisms for air bags, turn signals and cruise controls. Major
customers include Kemet Corporation, Parlex Corporation, AMP Incorporated and
Siemens Corporation. Rolled products generated approximately $9.0 million in net
sales in 1997.
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COMPETITIVE STRENGTHS
The Company's objective is to maintain and enhance its competitive position
as the foremost supplier of loom accessories in the U.S. while broadening its
presence in international markets. The Company intends to achieve its objectives
by capitalizing on the following competitive strengths:
Leading Market Position. The Company is a critical supplier to virtually
all North American textile weaving mills, with leading market shares across all
of its product lines in North America. The Company is the sole domestic
manufacturer of heddles, dropwires, harness frames, shuttles and bobbins, with
estimated market share in North America in each category of over 80%, and over
90% market share in shuttles and bobbins. Steel Heddle is also the largest
domestic manufacturer of reeds, with an estimated 50% market share in North
America. In addition, the Company has a strong presence in those international
markets in which it sees profitable growth opportunities.
Cost-efficient Manufacturing. The Company is the only vertically-integrated
producer of loom accessories in the world. The Company has developed and tooled
proprietary production machinery and produces its own heat-treated, flat-rolled
carbon and stainless steel wire which is the key raw material in the production
of heddles and dropwires. In 1995 and continuing through 1996, the Company
implemented a comprehensive profitability enhancing, cost-reduction program
which, among other things, eliminated 120 full time positions and decreased
pension and benefit costs. Because of its vertical integration, proprietary
production machinery, experienced low-cost labor force and economies of scale,
the Company believes it is one of the most efficient producers in the textile
loom accessory industry.
Long-standing and Diverse Customer Relationships. The Company has developed
and maintained long-term relationships with its customers, in some cases for
over 50 years. The Company has built its customer relationships by providing
consistent quality, a broad product line and technical support as well as
maintaining a strong customer service orientation. The Company's sales people
visit each customer every two to four weeks, enabling the Company to gain early
knowledge of a customer's intent to purchase new looms and accessories. In
addition, the Company's technical personnel work closely with the weaving mills
and OEMs to help them select the appropriate accessories and resolve design or
engineering issues. The Company's customer base is diversified, with no one
customer representing more than 6.6% of net sales. Sales to top ten customers
represented approximately 31.2% of the Company's net sales in 1997.
Strong Brand Name. The Company's brand name enjoys significant worldwide
recognition in the textile industry as a result of its 100-year history. Since
it introduced flat steel heddles to U.S. weaving mills in 1898, the Company has
manufactured high-quality loom accessories. Because of its longevity, product
innovation, high-quality reputation, strong service orientation and broad
product line, the Company has built and maintained its significant market share
in the North American market and has built a strong presence internationally.
LOOM ACCESSORY INDUSTRY OVERVIEW
The textile industry is comprised of several subsectors: (i) apparel
production (consisting primarily of "cut and sew" business), (ii) synthetic and
natural yarn production, (iii) knitted fabric and (iv) woven fabric production.
Woven fabric production is the focus of the Company's customers. The end users
of weaving looms and weaving loom accessories are textile mills which utilize
looms to produce woven fabric. The U.S. weaving market is estimated at
approximately $19.5 billion and accounted for approximately 16.4 billion square
yards of fabric in 1997. This output has remained relatively stable since 1986,
varying between 15.2 and 16.6 billion square yards annually.
The U.S. textile industry, after having undergone significant restructuring
during the 1980s and early 1990s, has emerged as one of the most
capital-intensive, modern and efficient producers in the world. Annual capital
expenditures by woven fabric mills, while subject to fluctuations in the demand
for woven fabric, have risen in the 1990s, from approximately $550 million in
1991 to approximately $850 million in 1996. In order to maintain their
competitive position in the world markets, U.S. textile mills are expected to
continue to invest heavily in faster, newer generations of loom technology. With
modern equipment and increased automation,
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labor cost differentials are not a significant factor in the competitiveness of
U.S. producers. In addition, the advantages of producing in the U.S., one of the
world's largest end-markets, have increased with manufacturers' demands for
rapid response times and retailers' desire to reduce inventories.
The U.S. installed textile loom base has shifted away from older-technology
shuttle looms towards faster, shuttleless looms such as air-jet and water-jet
looms. This trend benefits the Company in two ways. Higher weaving speeds lead
to faster wear of loom accessories, driving an increase in unit demand for
replacement parts. In addition, faster looms require a higher degree of
precision and performance from accessories, increasing the dollar value of
accessories sold per loom and the demand for the higher-priced, quality
accessories for which Steel Heddle is known.
TEXTILE LOOM TECHNOLOGY
Weaving is the process of forming a fabric by interlacing, at right angles,
two or more sets of yarn or other material. The first step in weaving is to
install the longitudinal yarns, called the warp. The pick, or filling yarn,
crosses the warp, to create fabric. After the installation of the warp, there
are three essential steps: (i) shedding -- raising every alternative warp yarn
or set of yarns to receive the pick, (ii) picking -- inserting the filling and
(iii) beating up -- pressing home the pick to make the fabric compact.
Fabric is woven on a loom. The fundamental accessories of a loom include:
(i) heddles, each with an eye through which is drawn a warp thread; (ii) the
harness frame, a rectangular frame set with a series of heddles operated to form
a shed between the warp threads for insertion of pick threads; (iii) the reed, a
comb-like frame that pushes the filling yarn firmly against the finished cloth
after each pick and (iv) the shuttle, a boat-shaped bobbin holder that carries
the pick through the shed. Modern looms are "shuttleless;" the pick is carried
through the shed by a stream of air ("air jet") or water ("water jet") or other
gripper device, permitting faster speeds of production. Steel Heddle
manufactures heddles, reeds, harness frames, and shuttles and bobbins.
Older technology involves the use of a shuttle to move the yarn through the
shed, known as a "shuttle loom." Since the late 1970s, shuttle looms have
steadily been replaced with faster shuttleless looms. Shuttleless looms can be
classified into four types: (i) air jet, (ii) water jet, (iii) rapier and (iv)
projectile. Loom technology is continually evolving--early shuttleless looms
installed in the 1980s are being replaced with even faster, more user-friendly
shuttleless looms. Faster looms require a high degree of precision and
performance from installed accessories. Higher loom speeds lead to faster wear
of loom accessories, increasing the demand for replacement parts. Accessories
sold as replacements generally carry higher margins as compared to accessories
sold with new looms.
TEXTILE LOOM ACCESSORIES
Textile loom accessories are highly engineered products, requiring
precision manufacturing to ensure a uniform weave and to achieve the desired
fabric patterns. In addition, given the high speeds at which shuttleless looms
operate, the parts must be extremely smooth to avoid snags or breakages in the
yarn. Any unintended variance in a reed, heddle or frame can result in broken or
damaged yarn, unusable cloth, or wasted weaving time.
The loom accessory market is driven by four primary factors: (i) faster
loom speeds; (ii) flexible production requirements; (iii) new loom purchases;
and (iv) weaving mill utilization rates.
The North American Loom Accessory Market. In North America, more than 90%
of looms are purchased by mills from OEMs without accessories. No loom maker
produces accessories. The Company believes that several factors deter OEMs from
manufacturing accessories. Among these are: (i) limited possibilities for growth
or economies of scale because OEMs are reluctant to buy accessories produced by
their competitors; (ii) the focus of OEMs on original equipment/capital goods
markets rather than the after-market/replacement business; (iii) worldwide
competition among accessory manufacturers resulting in stable supplies of
competitively priced accessories; (iv) the cost of investment in proprietary
tooling and production machinery; and (v) the incompatibility of accessory
manufacturing and OEM production schemes. In
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addition, the Company believes that U.S. textile mills prefer the flexibility to
select accessories that are engineered to meet their individual needs. Textile
mills base purchases of loom accessories on (a) product performance, (b) service
and technical support provided by the accessory manufacturer, (c) long-term
business relationships and (d) price. In addition, a local manufacturing
presence providing timely response is important to textile manufacturers.
The Global Market for Loom Accessories. The global loom accessory market is
divided into four major regional markets: North America, Europe, Asia, and Latin
America. Asia is, by far, the largest market for textile loom accessories. Of
textile loom accessories, generally only heddles are sold internationally.
Harness frames, reeds and shuttles and bobbins are produced and sold within
regional markets and competition tends to be among smaller local companies.
However, the Company does pursue, on an opportunistic basis, sales of all of its
loom accessories into the international loom accessory market.
PRODUCTS
The Company's core business strategy is to manufacture a full range of
technically advanced textile loom accessories capable of fulfilling its
customers' varying weaving requirements. The Company manufactures the broadest
range of loom accessories in the textile industry, providing the Company with a
distinct competitive advantage. The accessories that are essential to the
successful operation of a loom include heddles, dropwires, harness frames and
reeds. Each of these accessories has differing demand and replacement dynamics.
HEDDLES AND DROPWIRES
Steel Heddle manufactures a full range of high-quality heddles and
dropwires for all types of looms. Heddles and dropwires are precision-made to
perform within tight parameters. Stamped from flat-rolled steel and polished to
be extremely smooth, heddles and dropwires require exacting manufacturing
specifications, thorough quality control and expert metal-working capabilities.
All of the Company's heddles and dropwires are produced to precise tolerances of
two-thousandths to three-thousandths of an inch. The Company estimates that
50-60% of heddles and dropwires are made to order, and approximately 75% of net
sales of heddles and dropwires are derived from replacement sales. Both products
are generally shipped within one to three days of order if from stock and four
to six weeks if custom manufactured. In 1997, heddles and dropwires formed the
largest single product line at Steel Heddle, accounting for approximately 37.9%
of net sales, with export sales accounting for approximately 41.0% of such net
sales.
HEDDLES
Heddles are flat, specially designed stamped parts that guide and hold
individual yarn during the high-speed weaving process. Steel Heddle produces a
wide variety of heddle types, each designed to meet specific performance
parameters. The Company's heddles accommodate a vast range of customer
specifications. All of the Company's heddles are available in two material
types: stainless steel and plated carbon steel. In 1997, heddles accounted for
approximately 84% of total heddle and dropwire net sales.
DROPWIRES
Dropwires are precision-made plated-carbon steel or stainless steel stamped
parts which detect broken yarns and trigger a loom to shut down, minimizing
energy and yarn used in the production of imperfect cloth. The Company's
dropwires are precision manufactured from similar flat rolled steel as is used
to manufacture heddles and are held to the same exacting tolerances. The Company
believes the use of its tempered steel dropwires contributes to the production
of superior cloth, increased machine running time and lower operating costs. In
1997, dropwires accounted for approximately 17% of total heddle and dropwire net
sales.
HARNESS FRAMES
Steel Heddle manufactures a full range of harness frames for all types of
looms. Harness frames are specialized carriages for heddles constructed from
special aluminum alloys and composite materials. Each frame holds between 200
and 1,500 heddles, and each loom holds between 2 and 28 harness frames,
depending
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upon the complexity of the final woven fabric. Harness frames raise and lower
the heddles, creating the woven fabric pattern. As modern, high-performance
looms operate at 650 to 1,000 picks per minute (two to four times faster than
older technology), harness frames must be precision engineered in order to
withstand the tremendous stress caused by continuous acceleration and
deceleration without buckling or bending. Approximately 90% of harness frames
are made to order, and approximately 65% of net sales of harness frames are
derived from replacement sales.
The Company manufactures the following four types of harness frames: high
speed jet frames; standard aluminum frames; projectile frames; and section
frames. In addition, the Company manufactures supporting hardware and components
and offers frame repair and frame reconditioning services. In 1997, harness
frames accounted for approximately 20.6% of Steel Heddle's total net sales, with
export sales accounting for approximately 17% of such net sales.
REEDS
Reeds are precision-manufactured, comb-like devices used to evenly space
yarns on the loom. One reed per loom is mounted on the loom's drive mechanism
which moves the reed forward to beat up, or press, the pick into the finished
fabric. Each reed is composed of a series of dents. Dents are specially designed
flat wire spacers and are assembled in a reed to yield a particular fabric
pattern or style. Reed production requires exacting manufacturing processes as
absolutely smooth, straight and precisely spaced dents are critical to the
production of quality woven fabric. In 1997, reeds accounted for approximately
24.6% of Steel Heddle's net sales, with only 4.0% derived from export sales of
domestically produced reeds.
While the demand for most loom accessories is driven by the purchase of new
looms or replacement of worn accessories, reed purchases are primarily driven by
style changes. Reeds must be replaced each time a loom is used to weave a new
fabric pattern. Thus, reeds are rarely used for their entire useful life. To
remain competitive, the Company's customers must react quickly to fabric style
changes and as a result, frequently purchase new reeds. For reeds, the Company
fulfills its customers' exacting demands for product performance and rapid
delivery through its three U.S.-based reed manufacturing facilities located in
the primary U.S. woven-textile producing regions of Virginia/North Carolina,
South Carolina, and Georgia/Alabama.
The Company custom manufactures reeds for use in all types of looms. The
Company produces two types of reeds: profile and flat. The Company's profile
reeds are required in air-jet weaving looms and are manufactured using precision
engineering. In addition to close tolerance assembly, these reeds require
precision stamped and polished profile dents and specific air management
settings. As a result, profile reeds are sold at prices that are four to six
times higher than prices of flat reeds. Profile reeds currently account for
approximately 60% of net sales of reeds, but the Company expects demand to
increase for these reeds as weaving mills continue to purchase the more
technically advanced air jet looms. In comparison, the Company's flat reeds are
comprised of flat dents (i.e., without profiles or contours) and are used
primarily on shuttle, projectile, rapier and water jet weaving looms. Flat reeds
accounted for approximately 33% of net sales of reeds in 1997. In addition to
the Company's profile and flat reeds, the Company produces warp preparation
products, which are used for preparing the warp prior to the weaving process.
Warp preparation products consist of expansion combs, slasher combs, comb
panels, fan reeds, hock reeds and lease rods. Warp preparation products
accounted for approximately 10% of net sales of reeds in 1997.
SHUTTLES AND BOBBINS
Shuttles, used in older, slower looms, are specially fabricated from
composite materials to carry "pick" or "filling" yarns across the loom as the
main yarn or "warp" yarn is pulled through the reed. Bobbins are cylindrical
wooden yarn carriers held by the shuttle. Shuttles and bobbins account for 80%
of the net sales in the product line, with the remaining 20% derived from the
sale of tension products. Most of the Company's shuttles and bobbins are
consumed domestically, but approximately 18% are exported primarily to South
America. Steel Heddle is the sole supplier of automatic shuttles and bobbins to
textile mills in the United States. All shuttles and bobbins sales are
replacement sales. Shuttles and bobbins accounted for 3.5% of the Company's net
sales in 1997.
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ROLLED PRODUCTS
The Company manufactures precision rolled ferrous and non-ferrous, heat
treated, bare and tinned flat wire. The finished flat wire is then precision
wound and packaged to customer specifications. Because the Company rolls rather
than slits the flat wire, it benefits from the product advantages of round,
smooth edges and long continuous strand lengths. Through its vertical
integration, the Company supplies its internal annual requirements of tempered
stainless and carbon steel of approximately 2.9 million pounds.
Originally established to satisfy in-house needs, the Company recognized
that it possessed the technical expertise to produce rolled products to exacting
tolerances and, as a result, has opportunistically pursued outside sales. With
no commodity-oriented or standard inventory production, the Company's rolled
products are custom-produced for specific applications, generating attractive
gross margins to the Company. Excluding internal consumption, in 1997 the
Company sold approximately 1.7 million pounds to customers in the electronics,
automotive and solar power industries and in a variety of other industries in
which tight tolerances and smooth edges are required. The Company's rolled
products can be found in a variety of end-use products, including notebook
computers, cellular phones, electronic control devices, automotive applications
such as control mechanisms for air bags, turn signals and cruise controls. The
Company's major customers include Kemet Corporation, Paralex Corporation, AMP
Incorporated and Siemens Corporation. In 1997, outside rolled product sales
accounted for approximately 12.2% of the Company's net sales.
All rolled products are custom-manufactured for specific applications and
can be grouped into three broad categories: flat rolled steel, copper wire and
aluminum wire. The Company manufactures flat rolled steel wire which is used for
specialty applications such as garment stays, orthopaedic braces and saw blades.
Flat rolled steel wire is also used internally in the production of heddles and
dropwires. The Company manufactures tinned and bare copper flat wire for use in
a variety of applications including capacitor leads and laminated cable in which
smooth wire edges are necessary to prevent the cutting of layers which cause
short circuits. The Company also manufactures flat wire which is used as wire
connectors and conductors in electronic products and tin-coated copper wire used
in solar cells. In addition, the Company rolls aluminum flat wire for use in a
variety of applications, including capacitor leads and carrier bars for
capacitor manufacturing.
COMPETITION AND MARKET SHARE
Over the past ten years, the U.S. woven textile industry has consolidated
and invested in modern loom technology. Today, loom accessories are highly
engineered products that require sophisticated manufacturing techniques. Steel
Heddle's capabilities in producing a broad range of accessories, its reputation
for quality and service and its long-term customer relationships, provide it
with an important competitive advantage. None of Steel Heddle's domestic
competition has its breadth of products, established relationships or ability to
customize its products to its customers' needs.
North American Competition and Market Share. Steel Heddle is the leading
supplier of loom accessories in the North American market. The Company estimates
that its market share in North America exceeds 80% for all major product lines
other than reeds. In heddles, dropwires, and harness frames, Grob & Co. AG
("Grob"), holding an estimated 13% market share, is the Company's only
significant competitor. The Company believes Grob is at a significant cost and
delivery disadvantage in the U.S. compared to Steel Heddle because, among other
things, Grob does not have manufacturing operations in the U.S. In addition,
Steel Heddle believes it is more flexible and responsive to customer needs than
Grob. With manufacturing and technical personnel located in Switzerland, it is
difficult for Grob to service the U.S. market. Although Grob has sold into the
U.S. market since 1960 and has had a sales office in the U.S. since 1972, its
manufacturing operations have remained outside of North America, and it has been
largely unsuccessful at obtaining incremental market share.
The Company estimates it has a 50% market share of the reed market and that
its nearest competitor, Palmetto Loom Reed, Inc. ("Palmetto"), has a market
share of approximately 30%. Palmetto is a privately-held, family-run business
based in Greenville, South Carolina. There are only two other reed manufacturers
in the U.S. which split the remaining 20% of the market. Reed sales are affected
by timeliness of delivery,
40
<PAGE> 46
making competition regional. Consequently, the reed market is slightly more
fragmented than any of the other accessory markets.
Steel Heddle is the major producer of automatic shuttles and bobbins
serving the North American market. Demand for shuttles and bobbins has decreased
over the last several years as shuttle looms have been retired or replaced with
more efficient shuttleless technology.
International Competition and Market Share. With an estimated 30% global
market share (excluding the United States), Steel Heddle is the number two
producer of heddles and dropwires worldwide. The Company's only significant
competitor, Grob, has an estimated 45% global market share. The Company
differentiates itself from Grob by its ability to service all weaving accessory
requirements and its technical expertise that it uses to solve its customers'
weaving problems. Management also believes that Grob incurs higher production
costs than the Company. The Company believes it is poised to capture additional
worldwide market share from Grob as customers seek better service and technical
support.
Steel Heddle has been building relationships with OEMs (which are more
important internationally than domestically), foreign textile mills and trading
companies over the last several years as part of its international strategy.
Management expects its international market share to grow over time. Steel
Heddle's international strategy is focused on (i) building long-term
relationships, (ii) customer service and technical support and (iii) providing
superior quality. In addition, the Company continues to strengthen its
international sales agent networks. The Company believes that as it strengthens
its relationships with its international customers and becomes a critical
partner in their success, as it has done in the U.S., its international sales
will increase.
MANUFACTURING
Steel Heddle is headquartered in Greenville, South Carolina and conducts
its primary operations through a manufacturing facility located adjacent to the
Company's headquarters. In addition, rolled products are manufactured in Oconee
County, South Carolina, and reeds are manufactured in North Carolina, Georgia
and Mexico. Below is a summary of the Company's existing facilities:
<TABLE>
<CAPTION>
SQUARE
LOCATION FUNCTION FOOTAGE OWNED/LEASED
-------- -------- ------- ------------
<S> <C> <C> <C>
Greenville, S.C. Corporate offices; Heddle, Frame, Reed, Shuttle
and Bobbin Manufacturing..................... 474,036 Owned
Oconee County, SC Rolled Products Manufacturing.................. 123,312 Owned
Greensboro, NC Reed Manufacturing............................. 12,000 Owned
Meriwether County, GA Reed Manufacturing............................. 18,000 Owned
Mexico City, Mexico Reed Manufacturing............................. 6,000 Leased
</TABLE>
The Company believes that its manufacturing operations are among the most
efficient in the textile loom accessory industry. Most of the machinery used by
the Company has been specifically designed and/or manufactured by the Company
and most of its products are made-to-order.
Heddles. Heddles are precision stamped from flat rolled, heat treated, high
carbon or stainless steel. Each heddle passes through eight to ten stamping
stations before being cut to length. Precision stamping tools are manufactured
in-house to support this stamping operation. Close dimensional control is
assured by computer-controlled optical measuring equipment. Thorough polishing
of each stamped area assures smooth yarn contact edges. Electroplating of nickel
or zinc on carbon steel or passivation of stainless steel provides the proper
resistance to corrosion.
Frames. Frames are assemblies of high strength aluminum alloy extrusions,
high carbon or stainless steel heddle carrying rods and precision machined loom
connection devices. Highly engineered material selection, along with precision
machining and assembly provide for frames suitable to withstand extreme stresses
associated with today's high speed looms.
Reeds. Profile reeds are assembled from individual dents that are held in
place by precision spacing wires and specially formulated thermoplastic
adhesive. The top and bottom edges of the reed are encased in steel or
41
<PAGE> 47
aluminum channel or bands. Proper air management specifications are then set
according to required weaving parameters. The individual dents are stamped from
precision wide strip steel then deburred and polished to achieve suitable yarn
contact surfaces. Flat reeds are similar assemblies, except straight dents are
cut from coils of wire and used in place of profile dents.
Rolled Products. Rolled products are produced by rolling round cross
section materials of copper, aluminum, carbon steel or stainless steel to flat
wire. As required, rolled materials then undergo heat treatment for annealing or
hardening. In addition, the copper products may be tin coated. A variety of
precision wound packages are tailored to customer requirements.
SALES, MARKETING AND CUSTOMERS
The Company markets its loom accessories through a 14-person sales force,
eight of whom are located in the United States and six of whom are located
abroad. In North America, sales are made directly to woven textile mills, the
end-users of the Company's loom accessories. In international markets, the
majority of sales are also made to end-users primarily through a network of (i)
ten agents located in Asia, (ii) seven agents located in Europe and Turkey and
(iii) 28 agents located throughout the rest of the world. Sales are also made to
OEMs, primarily manufacturers of textile machinery that also package accessories
with their new looms. Steel Heddle also cooperates with large Japanese trading
companies that are active in the weaving machinery business. Rolled products are
sold through a dedicated sales force of two people who also manage four
independent sales representatives.
The Company has long-term relationships with its customers, many of which
extend beyond 50 years. Steel Heddle's consistent quality, broad product line,
technical support and customer service orientation continue to underpin its
relationships. The Company's customer base is diversified, with no one customer
representing more than 6.6% of net sales. Sales to top ten customers represents
approximately 31.2% of total net sales.
RAW MATERIALS
Aluminum extrusions, aluminum and copper rod and wire, and stainless and
carbon steel in rod, round wire and flat wire form are the primary raw materials
used by the Company. All raw materials are readily available from multiple
sources. The Company does not experience much volatility in its raw materials
prices. Steel Heddle has well-established long-term relationships with each of
its raw material suppliers.
INTELLECTUAL PROPERTY
The Company has numerous trademarks and patents effective in the United
States and several trademarks effective in several foreign countries for varying
lengths of time. Company trademarks include "SH(R)", "Duralite(R)", "Draw-O(R)",
and "Jet Eye(R)" under which it markets certain weaving accessory products. The
Company also has a number of applications for trademarks pending in the United
States and abroad. Management considers its various trademarks, trademark
applications and patents to be valuable assets but believes that the loss of any
one trademark or patent would not have a material adverse effect on the
Company's operations.
EMPLOYEES AND EMPLOYEES RELATIONS
As of April 4, 1998, the Company employed approximately 626 employees in
the United States and approximately 17 employees outside the United States. None
of the Company's hourly employees are covered by collective bargaining
agreements. The Company believes its employee and labor relationships are good.
LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. Management believes that none of
these matters in which the Company is currently involved, either individually or
in the aggregate, are expected to have a material adverse effect on the
Company's business or financial condition. See "--Environmental Matters."
42
<PAGE> 48
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local environmental
requirements, including those governing discharges to the air and water, the
handling and disposal of solid and hazardous wastes, and the remediation of
contamination associated with releases of hazardous substances. Based on a
review conducted by independent environmental consultants in connection with the
Acquisition, the Company believes that it is currently in substantial compliance
with environmental requirements, except as would not be expected to have a
material adverse effect on the Company. Nevertheless, the Company's
manufacturing operations involve the use of hazardous substances and, as is the
case with manufacturers in general, if a release of hazardous substances occurs
or has occurred on or from the Company's facilities, the Company may be held
liable and may be required to pay the cost of remedying the condition. The
amount of any such liability could be material.
The Company has made, and will continue to make, expenditures to comply
with current and future environmental requirements. The Company does not
anticipate material capital expenditures for environmental controls in the
current or succeeding fiscal year. However, because environmental requirements
are becoming increasingly stringent, the Company's expenditures for
environmental compliance or clean up may increase in the future.
In 1987, the United States Environmental Protection Agency certified the
closure of three former wastewater lagoons at the Company's Greenville, SC
facility under RCRA. In 1989, the Company began a groundwater remediation
program at the facility in accordance with RCRA requirements. In 1996, the
Company received a post-closure care permit for the former lagoons. This permit
requires post-closure care for the former lagoons, continued groundwater
remediation, and investigation of certain areas of the facility. As required by
RCRA, the Company has posted financial assurance in the amount of $671,000 to
ensure funds are available to complete the permit requirements. Nonetheless, the
Company is continuing to investigate certain areas of the facility. It is
possible that, based on the results of such investigation, additional actions
could be required, in which case the costs could materially increase.
The Company is involved as a potentially responsible party ("PRP") under
the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") with regard to past waste disposal at the Aqua Tech Superfund site in
Greer, SC. Some risk of similar environmental liability is inherent in the
nature of the Company's current and former operations. While strict joint and
several liability is authorized under CERCLA, cleanup costs are usually
allocated among the PRPs. The Company has paid its share of past cleanup costs
for the site. Because the amount of future cleanup costs at the site is not yet
known, the Company cannot predict with certainty the amount of its share of
these future costs. However, based on its allocated share of past cleanup costs,
the Company does not expect its share of future costs to be material.
In connection with the Acquisition, Sellers have indemnified the Company,
subject to time and dollar limitations, for breaches of certain representations
and warranties pertaining to environmental matters. There can be no assurance,
however, that Sellers will have the ability to indemnify the Company if called
upon to do so. The Sellers also agreed to clean up a past release of mineral
spirits at the Company's Oconee County, SC facility. To pay for this clean up,
$350,000 of the purchase price has been placed in an escrow account. The
Sellers' cleanup obligation is limited to the escrow amount. Based on a
preliminary investigation of the area, the Company believes it is unlikely that
the clean up will exceed the escrow amount.
43
<PAGE> 49
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age as of April 4, 1998 and
position with the Company of each person who is expected to serve as director or
executive officer of the Company following the Acquisition Transactions.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Benjamin G. Team............................ 57 President, Chief Executive Officer and Director
Robert W. Dillon............................ 50 Executive Vice President and Director
Jerry B. Miller............................. 51 Vice President--Finance and Secretary
J. Brant Conner............................. 53 General Sales Manager
Thomas A. Korbutt........................... 55 Vice President--Frame Division
John D. Wright.............................. 53 Manager--Heddle Division
Randy Boggs................................. 38 Manager--Reed Division
Edward J. Treglia........................... 37 Manager--Rolled Products Division
Nathan L. Belden............................ 28 Director
Robert J. Klein............................. 33 Director
Kim A. Marvin............................... 35 Director
Robert L. Purdum............................ 62 Non-Executive Chairman and Director
Theodore C. Rogers.......................... 63 Director
</TABLE>
BENJAMIN G. TEAM--PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Mr. Team joined Steel Heddle after seven years with Textile Loom Reed
Company which was acquired by Steel Heddle in 1969. He began with Steel Heddle
as Manager of the Greensboro Reed Plant in 1969 and was later named Manager of
the Company's Reed Division in 1975. Mr. Team was elected Vice President in 1978
and was named head of all textile products manufacturing in 1986. Mr. Team was
appointed President in 1992.
ROBERT W. DILLON--EXECUTIVE VICE PRESIDENT AND DIRECTOR
Mr. Dillon joined Steel Heddle in 1969 after receiving a B.S. degree from
Philadelphia College of Textile and Science. Mr. Dillon has held positions of
increasing responsibility in the sales, administrative, and manufacturing areas
of the Company. He was promoted to Vice President-Heddle Division in 1988 and
Executive Vice President in 1992.
JERRY B. MILLER--VICE PRESIDENT-FINANCE AND SECRETARY
Mr. Miller joined Steel Heddle in 1988 in his present position. He had
previously worked as an audit supervisor for Ernst & Whinney from 1975-1984, as
a Controller for Carolina Tool & Equipment Company and as Vice President and
Controller of Ballenger Group, Inc. Mr. Miller holds a B.A. degree from Clemson
University, a Master's degree from the University of Georgia and is a Certified
Public Accountant.
J. BRANT CONNER--GENERAL SALES MANAGER
Mr. Conner joined Steel Heddle in 1972 as a Sales Representative. He was
promoted to District Sales Manager for the Southwest Region in 1978. Mr. Conner
also served as plant manager for the Meriwether Reed Plant and was promoted to
his present position in 1994. Mr. Conner received his B.S. and Masters degrees
in Textiles from Georgia Tech and served in the U.S. Army for two years,
obtaining the rank of First Lieutenant.
THOMAS A. KORBUTT--VICE PRESIDENT-FRAME DIVISION
Mr. Korbutt joined Steel Heddle in 1973 as a project engineer after working
in various engineering and manufacturing positions in the automotive and
shipbuilding industries. He was appointed Engineering
44
<PAGE> 50
Manager in 1975. In 1984, he was promoted to his present position. Mr. Korbutt
received a degree in Tool Engineering Design from Henry Ford Community College.
JOHN D. WRIGHT--MANAGER-HEDDLE DIVISION
Mr. Wright joined Steel Heddle in early 1997 after overseeing engineering
and manufacturing at Freudenberg North America. Before Freudenberg, Mr. Wright
worked for twelve years at Johnson & Johnson in several engineering and
manufacturing positions. Mr. Wright holds a degree in Mechanical Engineering
from Texas Tech University and served as an engineering officer in the U.S.
Navy.
RANDY BOGGS--MANAGER-REED DIVISION
Mr. Boggs joined Steel Heddle in 1994 after leaving Palmetto Loom Reed,
Inc. where he was Plant Manager. Previously, he was Weaving Superintendent with
the Bibb Company's White Horse Plant. He was also employed with J.P. Stevens
where he held various management positions in the Greige Fabrics Division. He
has a B.A. in Business Administration from Southern Wesleyan College.
EDWARD J. TREGLIA--MANAGER-ROLLED PRODUCTS DIVISION
Mr. Treglia joined Steel Heddle in 1987 as an Industrial Engineer and in
1989 was transferred to the Rolled Products Division. In September 1996, he was
named Plant Manager. Before joining Steel Heddle, he worked with Southeastern
Kusan and Sheller-Globe. Mr. Treglia graduated from the University of Cincinnati
with a B.S. in Industrial Engineering. While working on his degree, he was a
co-op Industrial Engineer with IBM and Wierton Steel.
NATHAN L. BELDEN--DIRECTOR
Mr. Belden joined AIP in 1995 from the Mergers & Acquisitions Department of
Kidder, Peabody & Co., Inc. where he was employed since 1993.
ROBERT J. KLEIN--DIRECTOR
Mr. Klein is a Principal of AIP. He has been an employee of AIP since 1992.
From 1991 to 1992, he was an associate at The First Boston Corporation and prior
thereto was an associate with Rosecliff, Inc., an affiliate of Acadia Partners,
L.P. Mr. Klein is a director of Easco Corporation and RBX Corporation.
KIM A. MARVIN--DIRECTOR
Mr. Marvin is a Principal of AIP. He joined the San Francisco office of AIP
in 1997 from the Mergers & Acquisitions Department of Goldman, Sachs & Co. where
he was employed since 1994. Mr. Marvin is a director of Bucyrus International,
Inc.
ROBERT L. PURDUM--NON-EXECUTIVE CHAIRMAN AND DIRECTOR
Mr. Purdum is a Director and Managing Director of American Industrial
Partners Corporation. Mr. Purdum is expected to become the Non-Executive
Chairman of the Company's Board following the Acquisition Transactions. Mr.
Purdum retired as Chairman of Armco Inc., in 1994. From November 1990 to 1993,
Mr. Purdum was Chairman and Chief Executive Officer of Armco. Mr. Purdum has
been a director of AIP Management Co. since joining AIP in 1994. Mr. Purdum is
also a director of Bucyrus International, Inc., Holophane Corporation, Berlitz
International, Inc. and Kettering University.
THEODORE C. ROGERS--DIRECTOR
Mr. Rogers is a Director, the Chairman of the Board and the Secretary of
American Industrial Partners Corporation. He co-founded AIP and has been a
director and officer of the firm since 1989. He is currently a director of
Bucyrus International, Inc., Easco Corporation, Sweetheart Holdings, Inc., SF
Holdings, Inc., RBX Corporation, Stanadyne Automotive Corp. and Derby
International.
Directors are not expected to receive compensation for their services as
directors, except for the Non-Executive Chairman of the Board who will receive
$150,000 per year.
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<PAGE> 51
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for each of
the three years ended December 31, 1997, of these persons who served as (i) the
chief executive officer during such years and (ii) the other four most highly
compensated executive officers of the Company during such years:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
OTHER
NAME AND PRINCIPAL ANNUAL
POSITION YEAR SALARY($) BONUS($)(a) COMPENSATION($)(b)
------------------ ---- --------- ----------- ------------------
<S> <C> <C> <C> <C>
Benjamin G. Team............................................ 1997 244,800 344,746 35,356
Chief Executive 1996 235,000 231,894 23,348
Officer and President 1995 235,000 -- 24,629
Robert W. Dillon............................................ 1997 182,200 249,102 28,297
Executive Vice President 1996 174,900 195,561 19,504
1995 174,900 -- 21,037
Jerry B. Miller............................................. 1997 155,200 222,837 28,376
Vice President Finance 1996 148,700 189,703 18,358
1995 148,700 -- 19,786
Thomas A. Korbutt........................................... 1997 121,400 124,727 21,536
Vice President Frame Division 1996 117,700 145,884 15,381
1995 117,700 -- 16,391
J.E. Merritt*............................................... 1997 120,100 104,727 21,973
1996 117,700 127,884 15,381
1995 117,700 -- 16,390
</TABLE>
- ------------------------------
(a) Bonuses are reported in the year earned even if paid in a subsequent year.
(b) Other annual compensation includes the Company's contribution to the
Employee Thrift and Savings Plan and the Cash Balance Plan.
* Retired December 1997
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
-------------------------------------------------------------------- -----------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE OR BASE
NAME GRANTED FISCAL YEAR PRICE ($/sh) EXPIRATION DATE 5%($) 10%($)
---- ------------ --------------- ----------------- --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Benjamin G. Team................. 6,764 25.7 15 02/20/02 148,824 183,807
Robert W. Dillon................. 4,924 18.7 15 02/20/02 99,692 123,418
Jerry B. Miller.................. 4,924 18.7 15 02/20/02 99,692 123,418
Thomas A. Korbutt................ 2,204 8.4 15 02/20/02 27,060 34,147
J.E. Merritt..................... 2,204 8.4 15 02/20/02 27,060 34,147
</TABLE>
46
<PAGE> 52
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES (a)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY
FISCAL YEAR END(#) OPTIONS AT
SHARES ACQUIRED ON EXERCISABLE/ FISCAL YEAR END($) EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ------------------ ----------------- ------------------ -------------------------------
<S> <C> <C> <C> <C>
Benjamin G. Team.............. 420 9,038 6,344 136,523
Robert W. Dillon.............. -- -- 4,924 105,964
Jerry B. Miller............... 660 14,203 4,264 91,761
Thomas A. Korbutt............. -- -- 2,204 47,430
J.E. Merritt.................. -- -- 2,204 47,430
</TABLE>
- ------------------------------
(a) Options held by certain employees of the Company were converted at the
consummation of the Acquisition into options to purchase common stock of SH
Group. In addition, SH Group adopted a performance-based option plan
pursuant to which options to acquire up to 7% of SH Group's common stock (on
a fully diluted basis) were awarded to certain members of the Company's
management.
PENSION PLANS
The Company maintains a cash balance pension plan that provides a monthly
annuity payable at age 65. The amount of such annuity is the actuarial
equivalent of the value of an individual account balance which is comprised of
the following: (i) a participant's accrued benefit under the plan determined as
of December 31, 1994; (ii) a percentage (from 2.25% to 7.00%) of the
participant's annual earnings plus a percentage (from 3.0% to 5.0%) of the
participant's annual earnings in excess of 50% of the Social Security wage base
for the calendar year, with such percentages determined based on the
participant's age at the beginning of each year; and (iii) interest credits
based on an index weighted to reflect 60% of the return of the Lehman Brothers
Governmental/Corporate Bond Index and 40% of the return of the S&P 500 stock
index, determined as of December 31 of the calendar year in which the interest
is credited. The estimated annual benefit payable at age 65 for each of the
named executive officers is shown below. For purposes of determining such
benefit, no increases in salary or Social Security wage base were assumed, and a
5% interest rate was used for determining interest credits and for converting
the individual account balance to an annuity at age 65:
<TABLE>
<CAPTION>
PROJECTED ANNUAL
ANNUITY PAYABLE AT
NORMAL
PROJECTED INDIVIDUAL RETIREMENT
NAME ACCOUNT BALANCE AGE
- ---- -------------------- ------------------
<S> <C> <C>
Benjamin G. Team................................... $442,924 $38,103
Robert W. Dillon................................... $563,832 $48,504
Jerry B. Miller.................................... $401,004 $34,479
Thomas A. Korbutt.................................. $309,992 $26,667
J.E. Merritt....................................... $309,144 $26,594
</TABLE>
EMPLOYMENT AGREEMENTS
Messrs. Team, Miller and Dillon each are party to a severance arrangement
under which each will receive severance pay if his employment is terminated by
the Company (other than for cause) for the number of months between the date of
termination and December 31, 2000 if termination occurs on or before December
31, 1999 or for twelve months if termination occurs on or after January 1, 2000.
Messrs. Team, Miller and Dillon each are a party to a Sale Bonus Agreement dated
April 21, 1998, pursuant to which each received approximately $1.3 million upon
the consummation of a sale of the Company.
Messrs. Connor and Korbutt each are a party to a severance arrangement
under which each will receive severance pay if his employment is terminated by
the Company (other than for cause) for the number of months between the date of
termination and December 31, 1999 if termination occurs on or before December
31, 1998 or for twelve months if termination occurs on or after January 1, 1999.
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<PAGE> 53
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION ARRANGEMENTS
In connection with the Acquisition Transactions, the Company, AIP and
management investors entered into a stockholders' agreement (the "Stockholders'
Agreement") pursuant to which such persons were granted certain registration
rights and participation rights. Pursuant to the Stockholders' Agreement, AIP
has the right to elect the majority of the directors of the Company.
At the close of the Acquisition Transactions, AIP was paid a fee of $2.0
million and reimbursed for out-of-pocket expenses in connection with the
negotiation of the Acquisition and for providing certain investment banking
services to the Company including the arrangement and negotiation of the terms
of the New Credit Agreement, the arrangement and negotiation of the terms of the
Old Notes and for other financial advisory and management consulting services.
Upon consummation of the Acquisition, Messrs. Team, Miller and Dillon each
received sale bonuses of approximately $1.3 million.
MANAGEMENT SERVICES AGREEMENTS
BCC, an affiliate of Butler Capital Corporation, provided consulting
services to the Company pursuant to a Consulting Services Agreement dated as of
January 1, 1996 and received remuneration of $275,000 in each of fiscal 1997,
1996 and 1995. In fiscal 1996, BCC received a special one-time payment of
$450,000. Such agreement was terminated upon consummation of the Acquisition
Transactions. In connection with the Company's refinancing in fiscal 1997, BCC
received payment of $200,000.
AIP expects to provide substantial ongoing financial and management
services to the Company utilizing the extensive operating and financial
experience of AIP's principals. AIP will receive an annual fee of $895,000 for
providing general management, financial and other corporate advisory services to
the Company and will be reimbursed for out-of-pocket expenses. The fees will be
paid to AIP pursuant to a management services agreement among AIP and the
Company and will be subordinated in right of payment to the Notes.
48
<PAGE> 54
DESCRIPTION OF COMPANY COMMON STOCK
The Company's authorized capital stock consists of 100 shares of common
stock, par value $0.10 per share (the "Common Stock"). SH Group owns all of the
outstanding Common Stock. AIP, its related investors and management of the
Company own all of the outstanding common stock of SH Group. In addition to the
management rollover interest, SH Group issued options to members of management
pursuant to an option plan established by its board of directors. Holders of
shares of Common Stock are entitled to one vote per share on all matters to be
voted on by shareholders. The holders of shares of Common Stock are entitled to
receive such dividends, if any, as may be declared from time to time by the
board of directors in its discretion from funds legally available therefor, and
upon liquidation or dissolution are entitled to receive all assets available for
distribution to the shareholders.
SECURITY OWNERSHIP
As of July 30, 1998, SH Group was the only holder of record of shares of
Common Stock. As of July 30, 1998, there were 13 holders of record of shares of
common stock of SH Group. The following table sets forth certain information
regarding beneficial ownership of common stock of SH Group as of July 30, 1998,
assuming the exercise of stock options exercisable within 60 days of such date,
by (i) each person who is known by SH Group to be the beneficial owner of more
than 5% of the common stock of SH Group, (ii) each of SH Group's directors and
the named executive officers in the Summary Compensation Table and (iii) all
directors and executive officers as a group. To the knowledge of SH Group, each
stockholder has sole voting and investment power as to the shares of common
stock of SH Group shown unless otherwise noted. Except as indicated below, the
address for each such person is c/o Steel Heddle Mfg., Co., 1801 Rutherford
Road, Greenville, South Carolina 29607.
<TABLE>
<CAPTION>
NAME NUMBER(1) PERCENTAGE(2)
---- --------- -------------
<S> <C> <C>
American Industrial Partners Capital Fund II, L.P.(3)....... 226,299 96.3
Nathan L. Belden(3)......................................... 200 *
Kim A. Marvin(3)............................................ 0 0
Theodore C. Rogers(4)....................................... 0 0
Robert J. Klein(4).......................................... 250 *
Robert L. Purdum(4)......................................... 1,000 *
Benjamin G. Team............................................ 6,334(5) *
Robert W. Dillon............................................ 4,916(5) *
Jerry B. Miller............................................. 4,257(5) *
Thomas A. Korbutt........................................... 2,200(5) *
All directors and executive officers as a group
(9 persons).............................................. 19,157(6) 7.6
</TABLE>
- ---------------
* Represents less than 1%
(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities and Exchange Commission. In computing the number of shares of
common stock of SH Group beneficially owned by a person and the percentage
of beneficial ownership of that person, shares of common stock of SH Group
subject to options held by that person that are currently exercisable or
exercisable within 60 days are deemed outstanding. Such shares, however, are
not deemed outstanding for the purposes of computing the percentage
ownership of each other person. The persons named in this table have sole
voting and investment power with respect to all shares of common stock of SH
Group shown as beneficially owned by them, subject to community property
laws where applicable and except as indicated in the other footnotes to this
table.
(2) Based upon 234,949 shares of common stock of SH Group outstanding as of July
30, 1998.
(3) The address of such entity or person is One Maritime Plaza, Suite 2525, San
Francisco, California 94111.
(4) The address of such person is 551 Fifth Avenue, Suite 3800, New York, New
York 10176.
(5) Represents shares of common stock of SH Group which are issuable upon
exercise of options within 60 days of the date hereof.
(6) Includes an aggregate of 17,707 shares of common stock of SH Group held by
directors and executive officers which are issuable upon exercise of options
exercisable within 60 days of the date hereof.
49
<PAGE> 55
DESCRIPTION OF NOTES
GENERAL
The New Notes will be issued as a separate series pursuant to the Indenture
between Steel Heddle Mfg. Co. (the "Company") and United States Trust Company of
New York, as trustee (the "Trustee"). The terms of the New Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (the "Trust Indenture Act"). The New Notes are
subject to all such terms, and Holders of New Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The form and
terms of the New Notes are identical in all material respects to the form and
terms of the Old Notes (which they replace) except that (i) the New Notes bear a
Series B designation, (ii) the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof and (iii) the holders of the New Notes will not be entitled to certain
rights under the Registration Rights Agreement, including the provisions
increasing the interest rate on the Old Notes in certain circumstances relating
to the timing of the Exchange Offer, which rights terminate when the Exchange
Offer is consummated. The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. A copy of the proposed form of Indenture and Registration Rights
Agreement is available as set forth under "--Additional Information." The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions."
The New Notes will be senior subordinated, unsecured, general obligations
of the Company, limited in aggregate principal amount to $100.0 million. The New
Notes will be jointly and severally irrevocably and unconditionally guaranteed
on a senior subordinated basis by each of the Company's present and future
domestic Subsidiaries (the "Guarantors"). The obligations of each Guarantor
under its guarantee, however, will be limited in a manner intended to avoid it
being deemed a fraudulent conveyance under applicable law. See "--Certain
Bankruptcy Limitations" below. The term "Subsidiaries" as used herein, however,
does not include Unrestricted Subsidiaries.
As of the date of the Indenture, none of the Company's Subsidiaries will be
Unrestricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries generally will not be subject to the
restrictive covenants set forth in the Indenture and will not be Guarantors.
Notwithstanding anything herein to the contrary, the provisions of the Indenture
shall not prevent or restrict consummation of any of the Acquisition
Transactions.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $100.0 million and
will mature on June 1, 2008. Interest on the Notes will accrue at the rate of
10 5/8% per annum and will be payable semi-annually in arrears on June 1 and
December 1, commencing on December 1, 1998, to Holders of record on the
immediately preceding May 15 and November 15. Interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal, premium if
any, and interest and Liquidated Damages, if any, on the Notes will be payable
at the office or agency of the Company maintained for such purpose within the
City and State of New York or, at the option of the Company, any payment of
interest and Liquidated Damages, if any, may be made by check mailed to the
Holders of the Notes at their respective addresses set forth in the register of
Holders of Notes; provided, that all payments with respect to Global Notes and
Certificated Notes, the Holders of whom have given wire transfer instructions to
the Company, will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. Until
otherwise designated by the Company, the Company's office or agency in New York
will be the office of the Trustee maintained for such purpose. The Notes will be
issued in denominations of $1,000 and integral multiples thereof.
50
<PAGE> 56
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes,
and Liquidated Damages, if any, are subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full in cash or Cash Equivalents
of all Obligations in respect of Senior Indebtedness, whether outstanding on the
date of the Indenture or thereafter incurred. In addition, as set forth in
"Subsidiary Guarantees" below, the Subsidiary Guarantees are general unsecured
obligations of the Guarantors subordinated in right of payment to all
Obligations in respect of Guarantor Senior Indebtedness. Under certain
circumstances, the Indenture permits Foreign Subsidiaries to incur Indebtedness
to which the Notes would be effectively subordinated. As of April 4, 1998, on a
pro forma basis after giving effect to the Acquisition Transactions, the Company
and its subsidiaries would have had approximately $34.9 million of Senior
Indebtedness and Guarantor Senior Indebtedness and no indebtedness of Foreign
Subsidiaries.
Upon any distribution to creditors of the Company or a Guarantor in a
liquidation or dissolution of the Company or a Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or a Guarantor or its property, whether voluntary or involuntary, an
assignment for the benefit of creditors or any marshalling of the Company's or
Guarantors' assets and liabilities, the holders of Senior Indebtedness or the
applicable Guarantor Senior Indebtedness, as applicable, will be entitled to
receive payment in full in cash or Cash Equivalents of all Obligations due in
respect of such Senior Indebtedness or the applicable Guarantor Senior
Indebtedness, as applicable (including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior Indebtedness or
the applicable Guarantor Senior Indebtedness, as applicable, whether or not
allowable as a claim in any such proceeding), before the Holders of Notes or,
the applicable Subsidiary Guarantees, will be entitled to receive any payment
with respect to the Notes, or the applicable Subsidiary Guarantees, and until
all such Obligations with respect to the applicable Senior Indebtedness or the
applicable Guarantor Senior Indebtedness, as applicable, are paid in full in
cash or Cash Equivalents, any distribution to which the Holders of Notes or the
applicable Subsidiary Guarantees would be entitled shall be made to the holders
of the applicable Senior Indebtedness' or the applicable Guarantor Senior
Indebtedness, as applicable (except that Holders of Notes or the applicable
Subsidiary Guarantees may receive (i) securities that are subordinated at least
to the same extent as the Notes or the applicable Subsidiary Guarantees to
Senior Indebtedness or the applicable Guarantor Senior Indebtedness, as
applicable, and any securities issued in exchange for the applicable Senior
Indebtedness or the applicable Guarantor Senior Indebtedness, as applicable and
that have a final maturity date and weighted average life to maturity that is
the same as or greater than the Notes or the applicable Subsidiary Guarantees,
and that are not secured by any collateral and (ii) payments made from the trust
described under "--Legal Defeasance and Covenant Defeasance").
The Company and the Guarantors also may not make any payment upon or in
respect of the Notes or the applicable Subsidiary Guarantees (except in such
subordinated securities or from the trust described under "--Legal Defeasance
and Covenant Defeasance") if (i) a default in the payment of any Obligations due
in respect of Designated Senior Indebtedness occurs and is continuing beyond any
applicable grace period (a "Payment Default") or (ii) any other default occurs
and is continuing with respect to Designated Senior Indebtedness that permits
holders of the Designated Senior Indebtedness as to which such default relates
to accelerate its maturity (a "Nonpayment Default") and the Trustee receives a
notice of such default (a "Payment Blockage Notice") from the Company or the
representative of the holders of any Designated Senior Indebtedness. Payments on
the Notes may and shall be resumed (a) in the case of a Payment Default, upon
the date on which such default is cured or waived and (b) in case of a
Nonpayment Default, the earlier of the date on which such Nonpayment Default is
cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior
Indebtedness has been accelerated. No new period of payment blockage may be
commenced unless and until 360 days have elapsed since the commencement of the
immediately prior Payment Blockage Notice. No Nonpayment Default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice
(it being acknowledged that any subsequent action, or any breach of any
financial covenant for a period ending after the expiration of such payment
blockage period that, in either case, would give rise to a new event of default,
even though it is a
51
<PAGE> 57
breach pursuant to any provision under which a prior event of default previously
existed, shall constitute a new event of default for this purpose).
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company and the Guarantors who are holders of Senior
Indebtedness and Guarantor Senior Indebtedness. See "Risk
Factors -- Subordination." The Indenture limits, subject to certain financial
tests, the amount of additional Indebtedness, including Senior Indebtedness and
Guarantor Senior Indebtedness that the Company and its subsidiaries can incur.
See "-- Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
No provision contained in the Indenture or the Notes will affect the
obligation of the Company and the Guarantors, which is absolute and
unconditional, to pay, when due, principal of, premium, if any, and interest on
the Notes. The subordination provisions of the Indenture and the Notes will not
prevent the occurrence of any Default or Event of Default under the Indenture or
limit the rights of the Trustee or any Holder to pursue any other rights or
remedies with respect to the Notes.
SUBSIDIARY GUARANTEES
The Company's Obligations under the Notes are guaranteed pursuant to the
Guarantees and any future subsidiary guarantees (collectively, the "Subsidiary
Guarantees") on a senior subordinated basis by the present Guarantors and any
other Subsidiaries that become guarantors (collectively, the "Guarantors") under
the covenant entitled "Additional Subsidiary Guarantees." The Subsidiary
Guarantees of the Guarantors are subordinated to the prior payment in full of
all Guarantor Senior Indebtedness, of which there would be $34.9 million as of
April 4, 1998 on a pro forma basis, and the amounts for which the Guarantors
will be liable under the Guarantees issued from time to time with respect to
Guarantor Senior Indebtedness. The obligations of each Guarantor under its
Subsidiary Guarantee are limited in a manner intended to not constitute a
fraudulent conveyance under applicable law. See, however, "Risk
Factors--Fraudulent Transfer Considerations," and "Certain Bankruptcy
Limitations" below.
The Indenture provides that no Guarantor (other than as provided in the
immediately following paragraph) may consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person) another corporation,
Person or entity whether or not affiliated with such Guarantor unless (i)
subject to the provisions of the following paragraph, the Person formed by or
surviving any such consolidation or merger (if other than such Guarantor) is
organized under the laws of the United States or any state thereof, (ii) such
person assumes all the obligations of such Guarantor pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the Trustee under the
Indenture; (iii) immediately after giving effect to such transaction no Default
or Event of Default exists; and (iv) such Guarantor, or any Person formed by or
surviving any such consolidation or merger, would be permitted by virtue of the
Company's pro forma Fixed Charge Coverage Ratio to incur, immediately after
giving effect to such transaction, at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant
described under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; provided, however, that the foregoing may not apply to the
merger of two or more Guarantors with and into each other.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, by way of merger, consolidation or otherwise, then such Guarantor (in
the event of a sale or other disposition of all of the capital stock of such
Guarantor) or the corporation acquiring the property (in the event of a sale or
other disposition of all of the assets of such Guarantor) will be released and
relieved of any obligations under its Subsidiary Guarantee; provided that the
Net Proceeds of such sale or other disposition are applied in accordance with
the applicable provisions of the Indenture. See "--Releases Following Sale of
Assets."
CERTAIN BANKRUPTCY LIMITATIONS
The Company conducts certain of its business through Guarantors, which have
guaranteed or will guarantee the Company's Obligations with respect to the Notes
and Unrestricted Subsidiaries and Foreign
52
<PAGE> 58
Subsidiaries, which Unrestricted Subsidiaries and Foreign Subsidiaries are not
required to guarantee the Notes. See "Risk Factors." Holders of the Notes will
be direct creditors of each Guarantor by virtue of its Subsidiary Guarantee.
Nonetheless, in the event of the bankruptcy or financial difficulty of a
Guarantor, such Guarantor's obligations under its Subsidiary Guarantee may be
subject to review and avoidance under state and federal fraudulent transfer
laws. Among other things, such obligations may be avoided if a court concludes
that such obligations were incurred for less than reasonably equivalent value or
fair consideration at a time when the Guarantor was insolvent, was rendered
insolvent, or was left with inadequate capital to conduct its business. A court
would likely conclude that a Guarantor did not receive reasonably equivalent
value or fair consideration to the extent that the aggregate amount of its
liability on its Subsidiary Guarantee exceeds the economic benefits it receives
in the Offering. The obligations of each Guarantor under its Subsidiary
Guarantee will be limited in a manner intended to cause it not to be a
fraudulent conveyance under applicable law, although no assurance can be given
that a court would give the holder the benefit of such provision. See "Risk
Factors--Fraudulent Transfer Considerations."
If the obligations of a Guarantor under its Subsidiary Guarantee were
avoided, Holders of Notes would have to look to the assets of any remaining
Guarantors for payment. There can be no assurance in that event that such assets
would suffice to pay the outstanding principal of, premium, if any and interest
on the Notes, and Liquidated Damages, if any.
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to June 1, 2003
except as provided below. Thereafter, the Notes are subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages,
if any, thereon to the applicable redemption date if redeemed during the
twelve-month period beginning on June 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003........................................................ 105.313%
2004........................................................ 103.542%
2005........................................................ 101.771%
2006 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to June 1, 2001, the
Company may (but shall not have the obligation to) redeem up to 35% of the
original aggregate principal amount of the Notes at a redemption price of
110.625% of the principal amount thereof, in each case plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date, with
the Net Cash Proceeds received by the Company from one or more Equity Offerings;
provided that, in each case at least 65% of the aggregate principal amount of
Notes originally issued remain outstanding immediately after the occurrence of
such redemption; and provided further, that such redemption shall occur within
60 days of the date of the closing of such Equity Offering.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on the Notes or portions of them called for redemption unless
the Company defaults in such payments due on the redemption date.
53
<PAGE> 59
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase (the
"Change of Control Payment") on a date (the "Change of Control Payment Date") no
later than 60 Business Days after the occurrence of the Change of Control.
Within 35 days following any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Notes pursuant to the procedures
required by the Indenture and described in such notice, which offer shall remain
open for at least 20 Business Days following its commencement, but in any event
no longer than 30 Business Days. The Company will comply with the requirements
of Rule 14e-1 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control. To the extent that
the provisions of any such securities laws or regulations conflict with the
provisions of this paragraph, compliance by the Company or any of the Guarantors
with such laws and regulations shall not in and of itself cause a breach of its
obligations under such covenant.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 30 days following a Change of Control, the
Company will either repay all outstanding Designated Senior Indebtedness or
obtain the requisite consents, if any, under all agreements governing
outstanding Designated Senior Indebtedness to permit the repurchase of Notes
required by this covenant. The Company will not be required to purchase any
Notes until it has complied with the preceding sentence, but the Company's
failure to make a Change of Control Offer when required or to purchase tendered
Notes when tendered would constitute an Event of Default. See "Risk Factors."
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar restructuring.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred. In addition, no assurances can
be given that the Company will be able to acquire Notes tendered upon the
occurrence of a Change of Control.
54
<PAGE> 60
If the Change of Control Payment Date hereunder is on or after an interest
payment Record Date and on or before the associated Interest Payment Date, any
accrued and unpaid interest (and Liquidated Damages, if any) due on such
Interest Payment Date will be paid to the person in whose name a Note is
registered at the close of business on such Record Date, and such interest (and
Liquidated Damages, if applicable) will not be payable to Holders who tender the
Notes pursuant to the Change of Control Offer.
The Credit Agreement provides that certain change of control events with
respect to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Indebtedness to which the
Company becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the Credit Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of Notes.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, engage in an Asset Sale in excess of $1.0 million unless
(i) the Company (or such Subsidiary, as the case may be) receives consideration
at the time of such Asset Sale at least equal to the fair market value of the
assets or Equity Interests sold or otherwise disposed of and, in the case of a
lease of assets, a lease providing for rent and other conditions which are no
less favorable to the Company (or such Subsidiary, as the case may be) in any
material respect than the then prevailing market conditions (evidenced in each
case by a resolution of the Board of Directors of such entity set forth in an
Officers' Certificate delivered to the Trustee) and (ii) at least 75% (100% in
the case of lease payments) of the consideration therefor received by the
Company or such Subsidiary is in the form of cash or Cash Equivalents; provided
that the amount of (x) any liabilities (as shown on the Company's or such
Subsidiary's most recent balance sheet or in the notes thereto, but excluding
contingent liabilities and trade payables) of the Company or any Subsidiary
(other than liabilities that are by their terms subordinated to the Notes or any
Guarantee thereof) that are assumed by the transferee of any such assets and
from which the Company or such Subsidiary are unconditionally released from
liability and (y) any notes, securities or other obligations received by the
Company or any such Subsidiaries from such transferee that are promptly, but in
no event more than 30 days after receipt, converted by the Company or such
Subsidiary into cash shall (to the extent of the cash received) be deemed to be
cash for purposes of this provision and the receipt of such cash shall be
treated as cash received from the Asset Sale for which such notes or obligations
were received.
The Company or any of its Subsidiaries may apply the Net Proceeds from each
Asset Sale, at its option, within 360 days after the consummation of such Asset
Sale, (a) to permanently reduce any Senior Indebtedness, Guarantor Senior
Indebtedness or, in the case of an Asset Sale by a Foreign Subsidiary, to
permanently reduce Indebtedness of such Foreign Subsidiary (and in the case of
any senior revolving indebtedness to correspondingly permanently reduce
commitments with respect thereto), (b) to make capital expenditures, for the
acquisition of another business or the acquisition of other long-term assets, in
each case, in the same or a Related Business, or (c) to reimburse the Company or
its Subsidiaries for expenditures made, and costs incurred, to repair, rebuild,
replace or restore property subject to loss, damage or taking to the extent that
the Net Proceeds consist of insurance proceeds received on account of such loss,
damage or taking. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce Senior Revolving Debt or otherwise invest such
Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company
will be required to make an offer to all Holders of Notes (an "Asset Sale
Offer") and to holders of other Indebtedness of the Company outstanding ranking
on a parity with the Notes with similar provisions requiring the Company to make
a similar offer with proceeds from asset sales, pro rata
55
<PAGE> 61
in proportion to the respective principal amounts (or accreted values in the
case of Indebtedness issued with an original issue discount) of the Notes and
such other Indebtedness then outstanding, to purchase the maximum principal
amount (or accreted value, as applicable) of Notes and such other Indebtedness,
if any, that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount (or accreted value, as
applicable) thereof plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the date of purchase, in accordance with the procedures set
forth in the Indenture. If the aggregate principal amount (or accreted value, as
applicable) of Notes and such Indebtedness surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
such Indebtedness to be purchased on a pro rata basis. Upon completion of such
offer to purchase, the amount of Excess Proceeds shall be reset at zero.
Any Asset Sale Offer shall remain open for at least 20 Business Days, in
any event no longer than 30 Business Days, and shall be made in compliance with
all applicable laws, rules, and regulations, including, if applicable,
Regulation 14E of the Exchange Act and the rules and regulations thereunder and
all other applicable Federal and state securities laws. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this paragraph, compliance by the Company or any of its Subsidiaries with such
laws and regulations shall not in and of itself cause a breach of its
obligations under such covenant.
If the payment date in connection with an Asset Sale Offer hereunder is on
or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages,
if any, due on such Interest Payment Date) will be paid to the person in whose
name a Note is registered at the close of business on such Record Date, and such
interest (or Liquidated Damages, if applicable) will not be payable to Holders
who tender Notes pursuant to such Asset Sale Offer.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to directly or indirectly: (i) declare or pay any dividend
or make any distribution on account of the Company or any of its Subsidiaries'
or direct or indirect parent's Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation involving the
Company) (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable to the Company or any Subsidiary of the Company); (ii) purchase, redeem
or otherwise acquire or retire for value any Equity Interests of the Company or
any direct or indirect parent of the Company or other Affiliate or Subsidiary of
the Company (other than any such Equity Interests owned by the Company or any
Subsidiary of the Company); (iii) make any principal payment on or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness that
is subordinated to or pari passu (unless, in the case of pari passu Indebtedness
only, such purchase, redemption, defeasance, acquisition, or retirement is made,
or offered (if applicable), pro rata with the Notes or the Subsidiary
Guarantees, if applicable) with the Notes or any of the Subsidiary Guarantees,
as applicable (and other than Notes or the Subsidiary Guarantees, as
applicable), except for any scheduled repayment or at the final maturity
thereof; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
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(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the
Issue Date (including Restricted Payments permitted by clauses (i), (vi),
(vii), (viii) and (ix), but excluding Restricted Payments permitted by
clauses (ii), (iii), (iv), (v) and (x) of the next succeeding paragraph),
is less than the sum of (i) 50% of the Consolidated Net Income (adjusted to
exclude any amounts that are otherwise included in this clause (c) to the
extent there would be, and to avoid, any duplication in the crediting of
any such amounts) of the Company for the period (taken as one accounting
period) from the beginning of the first fiscal quarter commencing after the
Issue Date to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate Net
Proceeds received by the Company after the Issue Date from a Capital
Contribution or from the issue or sale of Equity Interests of the Company
or of debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary or an Unrestricted Subsidiary of the
Company and other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock), plus (iii) 100% of any cash dividends
received by the Company or a Wholly Owned Subsidiary of the Company after
the Issue Date from an Unrestricted Subsidiary, plus (iv) 100% of the Net
Proceeds realized by the Company or a Wholly Owned Subsidiary of the
Company upon the sale of any Unrestricted Subsidiary (less the amount of
any reserve established for purchase price adjustments and less the maximum
amount of any indemnification or similar contingent obligation for the
benefit of the purchaser, any of its Affiliates or any other third party in
such sale, in each case as adjusted for any permanent reduction in any such
amount on or after the date of such sale, other than by virtue of a payment
made to such person) following the Issue Date, plus (v) to the extent that
any Restricted Investment that was made after the Issue Date is sold for
cash or otherwise liquidated or repaid for cash, the amount of Net Proceeds
received by the Company or a Wholly Owned Subsidiary of the Company with
respect to such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the payment of a fee to AIP or its designee on the Issue Date of
not more than $2.0 million for certain investment banking, advisory and
management services rendered to the Company in connection with the Acquisition
Transactions and if no Default or Event of Default shall have occurred and be
continuing (and shall not have been waived) or shall occur as a consequence
thereof, the payment by the Company (either directly or indirectly, e.g.,
through the Parent) of a management fee to AIP in an amount not to exceed
$895,000 in any year plus an additional amount in such year (not to exceed
$895,000) to the extent such management fee was not payable by reason of this
clause (ii) in any prior fiscal year and the reimbursement by the Company of
AIP's reasonable out-of-pocket expenses incurred in connection with the
rendering of management services to or on behalf of the Company; provided,
however, that the obligation of the Company to pay such management fee will be
subordinated to the payment of all Obligations with respect to the Notes (and
any Subsidiary Guarantee thereof); (iii) the making of any Restricted
Investment, directly or indirectly, in exchange for, or out of the Net Cash
Proceeds of, the substantially concurrent Capital Contribution or sale (other
than to a Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); provided, that any Net Cash Proceeds that are utilized
for any such Restricted Investment shall be excluded from clauses (c)(i) and
(c)(ii) of the preceding paragraph; (iv) the redemption, repurchase, retirement
or other acquisition of any Equity Interests of the Company in exchange for, or
out of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Equity Interests of the Company (other than
any Disqualified Stock); provided that any Net Cash Proceeds that are utilized
for any such redemption, repurchase, retirement or other acquisition shall be
excluded from clauses (c)(i) and (c)(ii) of the preceding paragraph; (v) the
defeasance, redemption, repurchase, acquisition or other retirement of pari
passu or subordinated Indebtedness with the Net Cash Proceeds from an incurrence
of Permitted Refinancing Indebtedness or, in exchange for, or out of the Net
Cash Proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of Equity Interests of the Company (other than Disqualified
Stock); provided, that any Net Cash Proceeds that are utilized for any such
defeasance, redemption, repurchase shall be excluded from clauses (c)(i) and
(c)(ii) of the preceding paragraph;
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(vi) the repurchase, redemption, or other acquisition or retirement for value of
any Equity Interests of the Company or any Subsidiary of the Company held by any
member of the Company's (or any Subsidiaries') management pursuant to any
management agreement or stock option agreement; provided that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed $5.0 million in the aggregate (net of the Net Cash
Proceeds received by the Company from subsequent reissuances of such Equity
Interests to new members of management), and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction; (vii)
so long as no Default or Event of Default shall have occurred and is continuing,
Restricted Payments in an aggregate amount not to exceed $1.0 million; (viii)
pro rata dividends and other distributions on the Capital Stock of any
Subsidiary of the Company by such Subsidiary; (ix) payments in lieu of
fractional shares in an amount not to exceed $250,000 in the aggregate; and (x)
Permitted Payments to Parent.
Additionally, the foregoing provisions of this covenant will not prohibit,
so long as no Default or Event of Default shall have occurred and be continuing,
any payment to Parent (i) made not more than 10 Business Days after an Interest
Payment Date if the Company shall first have paid to the Holders all principal,
premium (if any) and interest (and Liquidated Damages, if any) due and owing on
the Notes on or prior to such Interest Payment Date and (ii) used by Parent
concurrently with such payment to make a scheduled interest payment on the SH
Group Debentures as required by the SH Group Debentures as they exist on the
Issue Date. The full amount of any Restricted Payments made pursuant to this
paragraph, however, will be deducted in the calculation of the aggregate amount
of Restricted Payments available to be made pursuant to clause (c) of the first
paragraph of this covenant.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default. For purposes of making
such determination, all outstanding Investments by the Company and its
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greatest of (x) the
net book value of such Investments at the time of such designation, (y) the fair
market value of such Investments at the time of such designation and (z) the
original fair market value of such Investments at the time they were made. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "--Restricted Payments" were computed, which calculations may be
based upon the Company's latest available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness) and that the Company will not issue any Disqualified
Stock and will not permit any of its Subsidiaries to issue any shares of
preferred stock or Disqualified Stock; provided, however, that the Company may
incur Indebtedness (including Acquired Indebtedness) and issue shares of
Disqualified Stock and the Company's Subsidiaries that are Guarantors may incur
Indebtedness and issue preferred stock or Disqualified Stock if, in each case:
(i) the Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock or preferred stock is issued would have been at least
2.0 to 1, determined on a pro forma basis (including a pro forma application of
the net proceeds
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therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock or preferred stock had been issued, as the case may be, at
the beginning of such four-quarter period; and (ii) no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof; provided, that no Guarantee may be incurred pursuant to this paragraph,
unless the guaranteed Indebtedness is incurred by the Company or a Subsidiary of
the Company pursuant to this paragraph. The foregoing provisions will not apply
to:
(i) the incurrence of Indebtedness by the Company or its Subsidiaries
under the Credit Agreement in an aggregate principal amount at any time
outstanding (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Company and its
Subsidiaries thereunder) not to exceed an amount (including any
Indebtedness incurred to refinance, retire, renew, defease, refund or
otherwise replace any such Indebtedness) equal to $70.0 million, less (i)
an amount equal to the cumulative mandatory amortization payments required
under the Credit Agreement in existence as of the Issue Date (irrespective
of whether any such payments are actually made or whether the Credit
Agreement remains in existence) and (ii) the aggregate amount of all Net
Proceeds of Asset Sales applied to permanently reduce the outstanding
amount or, as applicable, the commitments with respect to such Indebtedness
pursuant to the covenant described above under the caption "--Asset Sales;"
(ii) the Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes (up to an aggregate principal amount of $100.0 million) and by the
Subsidiaries of Indebtedness represented by the Subsidiary Guarantees of
such Notes;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or Purchase Money Obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of the Company or such
Subsidiary, in an aggregate principal amount not to exceed $10.0 million at
any time outstanding (including any Indebtedness incurred to refinance,
retire, renew, defease, refund or otherwise replace any such Indebtedness);
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred or was
outstanding on the Issue Date, after giving effect to the Acquisition
Transactions;
(vi) the incurrence by the Company or any of its Wholly Owned
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly Owned Subsidiaries or between or among any Wholly Owned
Subsidiaries; provided, however, that (i) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than a Wholly Owned Subsidiary and (ii) any sale or
other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the Indenture to be incurred;
(viii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in an aggregate principal amount at any time outstanding
(including any Indebtedness incurred to refinance, retire, renew, defease,
refund or otherwise replace any such Indebtedness) not to exceed $10.0
million;
(ix) the incurrence by the Company or any Subsidiary of Indebtedness
in respect of judgment, appeal, surety, performance and other like bonds,
bankers acceptance and letters of credit provided by the Company and its
Subsidiaries in the ordinary course of business in an aggregate amount
outstanding
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(including any indebtedness incurred to refinance, retire, renew, defease,
refund or otherwise replace any such indebtedness) at any time of not more
than $500,000; and
(x) Indebtedness incurred by the Company or any of its Subsidiaries
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from guarantees of letters of
credit, surety bonds or performance bonds securing the performance of the
Company or any of its Subsidiaries to any person acquiring all or a portion
of such business or assets of a Subsidiary of the Company for the purpose
of financing such acquisition, in a principal amount not to exceed 25% of
the gross proceeds (with proceeds other than cash or Cash Equivalents being
valued at the fair market value thereof as determined by the Board of
Directors of the Company in good faith) actually received by the Company or
any of its Subsidiaries in connection with such disposition.
Notwithstanding any other provision of this covenant, a Guarantee by a
Guarantor of Indebtedness of the Company or another Guarantor permitted by the
terms of the Indenture at the time such Indebtedness was incurred will not
constitute a separate incurrence of Indebtedness.
Indebtedness or Disqualified Stock of any person which is outstanding at
the time such Person becomes a Subsidiary of the Company (including upon
designation of any subsidiary or other person as a Subsidiary) or is merged with
or into or consolidated with the Company or a Subsidiary of the Company shall be
deemed to have been incurred at the time such Person becomes such a Subsidiary
of the Company or is merged with or into or consolidated with the Company or a
Subsidiary of the Company, as applicable.
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to directly or indirectly, create, incur, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens, unless the Notes and the Subsidiary Guarantees of the
Guarantors are secured by such Lien on an equal and ratable basis; provided,
that if the Obligation secured by any Lien is subordinate or junior in right of
payment to the Notes or such Subsidiary Guarantees, the Lien securing such
Obligation shall be subordinate and junior to the Lien securing the Notes and
such Subsidiary Guarantees with the same or lesser relative priority as such
Obligation shall have been with respect to the Notes and such Subsidiary
Guarantees.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the Credit Agreement as in effect as of the date of the
Indenture, and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof; provided that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings may be no more restrictive with respect
to such dividend and other payment restrictions than the most restrictive of
those contained in the Credit Agreement as in effect on the date of the
Indenture, (c) the Indenture and the Notes or Indebtedness permitted to be
incurred pursuant to the Indenture and ranking pari passu with the Notes or the
Guarantees, as applicable, to the extent such restrictions are no more
restrictive than those of the Indenture, (d) applicable law, (e) any instrument
governing Acquired Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Subsidiaries as in effect at the time of such acquisition
(except to the extent such Acquired Indebtedness was incurred in connection with
or in contemplation of such acquisition), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired, (f) by
reason of
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customary non-assignment provisions in leases and licenses entered into in the
ordinary course of business and consistent with past practices, (g) Purchase
Money Obligations or Capital Lease Obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above only on the property so acquired, (h) agreements relating to
the financing of the acquisition of real or tangible personal property acquired
after the date of the Indenture, provided, that such encumbrance or restriction
relates only to the property which is acquired and in the case of any
encumbrance or restriction that constitutes a Lien, such Lien constitutes a
Permitted Lien as set forth in clause (xi) of the definition of "Permitted
Lien," (i) any restriction or encumbrance contained in contracts for sale of
assets permitted by this Indenture in respect of the assets being sold pursuant
to such contract, (j) Senior Indebtedness, Guarantor Senior Indebtedness or
Indebtedness of a Foreign Subsidiary permitted to be incurred under the
Indenture and incurred on or after the date of the Indenture; provided, that
such encumbrances or restrictions in such Indebtedness are no more onerous than
the most restrictive of those contained in the Credit Agreement on the date of
the Indenture, or (k) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced.
LIMITATION ON LAYERING DEBT
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that by its
terms or the terms of any document or instrument relating thereto is subordinate
or junior in right of payment to any Senior Indebtedness and senior in any
respect in right of payment to the Notes, and (ii) no Guarantor will incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that by its terms or the terms of any document or instrument relating thereto is
subordinate or junior in right of payment to any Guarantor Senior Indebtedness
and senior in any respect in right of payment to any Subsidiary Guarantees.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company will not in a single transaction or
series of related transactions consolidate or merge with or into (whether or not
the Company is the surviving corporation), or directly or indirectly, sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company, as the case may be, under the Notes, the Subsidiary Guarantees and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; (iv) the Company, or the entity or Person formed by or surviving
any such consolidation or merger (if other than the Company), or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; and (v) the
Company shall have delivered to the Trustee an Officer's Certificate and an
opinion of counsel, each stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with the Indenture. Notwithstanding
the foregoing, the transactions comprising the Acquisition Transactions shall be
deemed to be expressly permitted under the Indenture and shall not require the
execution and delivery of a supplemental indenture.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the
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Company is merged or to which such transfer is made shall succeed to and (except
in the case of a lease) be substituted for, and may exercise every right and
power of, the Company under the Indenture with the same effect as if such
successor corporation had been named therein as the Company, and (except in the
case of a lease) the Company shall be released from the obligations under the
Notes and the Indenture except with respect to any obligations that arise from,
or are related to, such transaction.
For the purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries of the Company, the Company's interest in which constitutes
all or substantially all of the properties and assets of the Company shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to enter into any transaction (including the sale, lease,
exchange, transfer or other disposition of any of its properties or assets or
services, or the purchase of any property, assets or services), or enter into or
make any contract, agreement, understanding, loan, advance or guarantee with, or
for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person and (ii) the Company delivers to the Trustee (a) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
entered into after the date of the Indenture involving aggregate consideration
in excess of $5.0 million, a resolution of the Board of Directors set forth in
an officers' certificate certifying that such Affiliate Transactions comply with
clause (i) above and that such Affiliate Transactions have been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transactions or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, a
favorable written opinion as to the fairness to the Company or such Subsidiary
of such Affiliate Transactions from a financial point of view issued by an
investment banking firm of national standing in the United States, or in the
event such transaction is a type that investment bankers do not generally render
fairness opinions, a valuation or appraisal firm of national standing; provided,
that, the following shall not be deemed to be Affiliate Transactions: (w) the
provision of administrative or management services by the Company or any of its
officers to any of its Subsidiaries in the ordinary course of business
consistent with past practice, (x) any employment agreement entered into by the
Company or any of its Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Subsidiary, (y)
transactions between or among the Company and/or its Wholly Owned Subsidiaries
or Guarantors and (z) transactions permitted by the provisions of the Indenture
described above under the caption "Restricted Payments." In addition, none of
the Acquisition Transactions shall be deemed to be Affiliate Transactions.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that all Subsidiaries of the Company (other than
Foreign Subsidiaries) shall be Guarantors. Notwithstanding anything herein or in
the Indenture to the contrary, if any subsidiary of the Company that is not a
Guarantor guarantees any other Indebtedness of the Company or any Subsidiary of
the Company that is a Guarantor, or the Company or a Subsidiary of the Company
pledges more than 65% of the capital stock of such Subsidiary to a United States
lender, then such Subsidiary must become a Guarantor.
LINE OF BUSINESS
The Indenture provides that neither the Company nor any of its Subsidiaries
shall directly or indirectly engage to any substantial extent in any line or
lines of business activity other than that which, in the reasonable good faith
judgment of the Board of Directors of the Company, is a Related Business.
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REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information and a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, at any time after
the effectiveness of a registration statement with respect to the Exchange
Offer, the Company will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company and the Guarantors
have agreed that, for so long as any Transfer Restricted Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (ii) default in
payment when due of the principal of or premium, if any, on the Notes (whether
or not prohibited by the subordination provisions of the Indenture); (iii)
failure by the Company to comply with the provisions described under the
captions "Repurchase at the Option of Holders," which failure is not cured
within 30 days; (iv) failure by the Company to comply with any of its other
agreements or covenants in, or provisions of, the Indenture or the Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Subsidiaries (or the payment of which is
Guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness
or Guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium on such
Indebtedness when due (after giving effect to any applicable grace period
provided in such Indebtedness) or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been such a payment default or the
maturity of which has been so accelerated, aggregates $5.0 million or more; (vi)
failure by the Company or any of its Significant Subsidiaries to pay
nonappealable final judgments (not fully covered by insurance) aggregating in
excess of $5.0 million, which judgments are not paid, bonded, discharged or
stayed within a period of 60 days; (vii) except as permitted by the Indenture,
any Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall
deny or disaffirm its obligations under its Subsidiary Guarantee; and (viii)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes may declare all the Notes to be due and payable immediately by notice in
writing to the Company (and to the Trustee if given by the Holders).
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in aggregate principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of
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Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by written notice to the Trustee may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in the
payment of interest on, or the principal of, or premium and Liquidated Damages,
if any, on the Notes.
The Company is required to deliver to the Trustee quarterly a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes, the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to all outstanding Notes ("Legal
Defeasance") except for the following provisions which shall survive until
otherwise terminated or discharged under the Indenture (i) the rights of Holders
of outstanding Notes to receive payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages on such Notes when such
payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee under the Indenture, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance and Covenant Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including nonpayment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, interest and Liquidated Damages, if
any, on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date; (ii) in
the case of Legal Defeasance, the Company shall deliver to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and
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will be subject to federal income tax on the same amounts, in the same manner
and at same times as would have been the case if such Covenant Defeasance had
not occurred; (iv) no Event of Default or Default shall have occurred and be
continuing on the date of such deposit (other than an Event of Default or
Default resulting from the borrowing of funds to be applied to such deposit);
(v) such Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under the Senior Bank Debt or any other
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for, in the case of the Officers' Certificate, (i)
through (vii) and, in the case of the opinion of counsel, clauses (i) (with
respect to the validity and perfection of the trust), (ii), (iii) and (v) of
this paragraph relating to the Legal Defeasance or the Covenant Defeasance, as
applicable, have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the written consent of the Holders
of at least a majority in aggregate principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Notes) and any existing Default or compliance with any
provision of the Indenture or the Notes may be waived with the written consent
of the Holders of at least a majority in aggregate principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
aggregate principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders"), (iii) reduce the rate of or
change the time for payment of interest on any Note, (iv) waive a Default or
Event of Default in the payment of Liquidated Damages, if any, or principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of a majority in aggregate principal
amount of the then outstanding Notes and a waiver of the payment default that
resulted from such acceleration), (v) make any Note payable in money other than
that stated in the Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal of or interest on the Notes, (vii) waive a
redemption payment with respect to any Note (other than a payment required by
one of the covenants described above under the caption "Repurchase at the Option
of Holders") or (viii) make any change in the foregoing amendment and waiver
provisions. In addition, any amendment to the subordination provisions of the
Indenture requires the consent
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of the holders of Designated Senior Indebtedness if the amendment would
adversely affect the holders of Designated Senior Indebtedness.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes:
(i) to cure any ambiguity, defect or inconsistency; (ii) to provide for
uncertificated Notes in addition to or in place of certificated Notes; (iii) to
provide for the assumption of the Company's obligations to Holders of Notes in
the case of a merger or consolidation; (iv) to provide for additional
Guarantors; (v) to make any change that would provide any additional rights or
benefits to the Holders of Notes (including the addition of any Subsidiary
Guarantors) or that does not adversely affect the legal rights under the
Indenture of any such Holder; or (vi) to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
as trustee or resign. The Trustee will also serve as trustee under the Indenture
for the SH Group Debentures.
The Holders of a majority in aggregate principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Notes, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to the Company at 1801
Rutherford Road, Greenville, South Carolina 29607, Attention: Chief Financial
Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more
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of the voting securities of a Person shall be deemed to be control.
Notwithstanding the foregoing, the limited partners in AIP shall not be deemed
to be Affiliates of AIP solely by reason of their investment in such funds.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
that does not constitute a Restricted Payment or an Investment by such person of
any of its non-cash assets (including, without limitation, by way of a sale and
leaseback and including the issuance, sale or other transfer of any of the
capital stock of any Subsidiary of such person but excluding Cash Equivalents
liquidated in the ordinary course of business) other than to the Company or to
any of its Wholly Owned Subsidiaries that is a Guarantor (including the receipt
of proceeds of insurance paid on account of the loss of or damage to any asset
and awards of compensation for any asset taken by condemnation, eminent domain
or similar proceeding, and including the receipt of proceeds of business
interruption insurance); and (ii) the issuance of Equity Interests in any
Subsidiaries or the sale of any Equity Interests in any Subsidiaries, in each
case, in one or a series of related transactions, provided, that notwithstanding
the foregoing, the term "Asset Sale" shall not include: (a) the sale, lease,
conveyance, disposition or other transfer of all or substantially all of the
assets of the Company, as permitted pursuant to the covenant entitled "Merger,
Consolidation or Sale of Assets," (b) the sale or lease of equipment, inventory,
accounts receivable or other assets in the ordinary course of business
consistent with past practice, (c) the sale or disposal of damaged, worn out or
other obsolete personal property in the ordinary course of business so long as
such property is no longer necessary for the proper conduct of the business of
the Company or such Subsidiary, as applicable; (d) a transfer of assets by the
Company to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the
Company or to another Wholly Owned Subsidiary, (e) an issuance of Equity
Interests by a Wholly Owned Subsidiary to the Company or to another Wholly Owned
Subsidiary, (f) the surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind, (g) the
grant in the ordinary course of business of any non-exclusive license of
patents, trademarks, registrations therefor and other similar intellectual
property, or (h) Permitted Investments.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a Capital Lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Contribution" means any contribution to the equity of the Company
for which no consideration is given other than common stock with no redemption
rights and no special privileges, preferences, or special voting rights.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities not more than twelve
months from the date of acquisition, (b) U.S. dollar denominated (or foreign
currency fully hedged) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit of (i) any domestic commercial
bank of recognized standing having capital and surplus in excess of $100 million
or (ii) any bank whose short-term commercial paper rating from S&P is at least
A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank being an "Approved Lender"), in each case with maturities
of not more than twelve months from the date of acquisition, (c) commercial
paper and variable or fixed rate notes issued by any Approved Lender (or by the
parent company thereof) or any variable rate notes issued by, or guaranteed by,
any domestic corporation rated A-2 (or the equivalent thereof) or better by S&P
or P-2 (or the equivalent thereof) or better by Moody's and maturing within
twelve months of the date of acquisition, (d) repurchase agreements with a bank
or trust company or recognized securities dealer having capital and
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surplus in excess of $100 million for direct obligations issued by or fully
guaranteed by the United States of America in which the Company shall have a
perfected first priority security interest (subject to no other Liens) and
having, on the date of purchase thereof, a fair market value of at least 100% of
the amount of repurchase obligations, and (e) interests in money market mutual
funds which invest solely in assets or securities of the type described in
subparagraphs (a), (b), (c) or (d) hereof.
"Change of Control" means such time as (i) prior to the initial public
offering by the Company of any shares of its common stock (other than a public
offering pursuant to a registration statement on Form S-8), AIP and its
Affiliates (collectively, the "Initial Investors") cease to be, directly or
indirectly, the beneficial owners, in the aggregate of at least 51% of the
voting power of the voting common stock of the Company or (ii) after the initial
public offering by the Company of any shares of its common stock (other than a
public offering pursuant to a registration statement on Form S-8), (A) any
Schedule 13D, Form 13F or Schedule 13G under the Exchange Act, or any amendment
to such Schedule or Form, is received by the Company which indicates that, or
the Company otherwise becomes aware that, a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) (except, in the case
of the Company, the Parent) has become, directly or indirectly, the "beneficial
owner", by way of merger, consolidation or otherwise, of 35% or more of the
voting power of the voting capital stock of the Company and (B) any such person
or group has become, directly or indirectly, the beneficial owner of a greater
percentage of the voting capital stock of the Company than is beneficially owned
by the Initial Investors, or (iii) the sale, lease or transfer of all or
substantially all of the assets of the Company to any person or group (other
than the Initial Investors or their Related Parties (as defined below)), or (iv)
during any period of two consecutive calendar years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any Continuing Directors) cease for any reason to constitute a
majority of the directors of the Company, then in office. "Related Party" with
respect to any Initial Investor means (A) any controlling stockholder, 80% (or
more) owned Subsidiary, or spouse, or immediate family member (in the case of
any individual) of such Initial Investor or (B) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or persons beneficially holding an 80% or more controlling interest of which
consist of such Initial Investor and/or such other persons referred to in the
immediately preceding clause (A).
"Consolidated EBITDA" means, with respect to the Company and its
Subsidiaries for any period, the sum of, without duplication, (i) the
Consolidated Net Income for such period, plus (ii) the Fixed Charges for such
period, plus (iii) provision for taxes based on income or profits for such
period (to the extent such income or profits were included in computing
Consolidated Net Income for such period), plus (iv) consolidated depreciation,
amortization and other non-cash charges of the Company and its Subsidiaries
required to be reflected as expenses on the books and records of the Company,
minus (v) cash payments with respect to any non-recurring, non-cash charges
previously added back pursuant to clause (iv), and (vi) excluding the impact of
foreign currency translations. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and other non-cash charges of, a Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent (and
in the same proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be paid
as a dividend to the Company by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by operation
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of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Subsidiary or
its stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded, (v) the Net Income of, or any dividends or other
distributions from, any Unrestricted Subsidiary, to the extent otherwise
included, shall be excluded, whether or not distributed to the Company or one of
its Subsidiaries, and (vi) all other extraordinary gains and extraordinary
losses shall be excluded.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the Issue Date, (ii) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing Directors
who were members of such Board of Directors at the time of such nomination or
election or (iii) was appointed by AIP pursuant to the Shareholders Agreement.
"Credit Agreement" means that certain Credit Agreement, dated as of the
date of the Indenture, by and among the Company and NationsBank, N.A., as
administrative agent, and the lenders parties thereto, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced, extended, restated or refinanced from time to time, including any
agreement restructuring or adding Subsidiaries of the Company as additional
borrowers or guarantors thereunder and whether by the same or any other agent,
lender or group of lenders; provided that the total amount of Senior
Indebtedness is not thereby increased beyond the amount that may then be
incurred at such time pursuant to the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock".
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means (i) so long as the Senior Bank Debt
is outstanding, the Senior Bank Debt and (ii) thereafter, any other Senior
Indebtedness permitted under the Indenture the principal amount of which is
$25.0 million or more and that has been designated by the Company as "Designated
Senior Indebtedness."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an underwritten public offering of Equity Interests
of the Company, or the Parent, other than Disqualified Stock, pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act.
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, amortization of deferred
financing fees, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the
consolidated interest expense of such Person and its Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or one of its Subsidiaries or
secured by a Lien on assets of
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such Person or one of its Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all cash dividend payments (and non
cash dividend payments in the case of a Person that is a Subsidiary) on any
series of preferred stock of such Person payable to a party other than the
Company or a Wholly Owned Subsidiary, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal state and local statutory tax rate of such Person, expressed as a
decimal, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Subsidiaries
for such period to the Fixed Charges of such Person and its Subsidiaries for
such period. In the event that the Company or any of its Subsidiaries incurs,
assumes, retires, Guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement of
the four-quarter reference period for which the Fixed Charge Coverage Ratio is
being calculated but on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, retirement, Guarantee or redemption of
Indebtedness, or such issuance or redemption of preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter reference period.
For purposes of making the computation referred to above, (i) acquisitions that
have been made by the Company or any of its Subsidiaries, including through
mergers or consolidations and including any related financing and refinancing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period, (ii) the
Consolidated EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of on or prior to
the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of on or prior to the Calculation Date,
shall be excluded, but only to the extent that the obligations giving rise to
such Fixed Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means any Wholly Owned Subsidiary organized and
incorporated in a jurisdiction outside of the United States that is not a
Guarantor.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such Person (whether arising by virtue of agreements to keep
well, to purchase assets, goods, letters of credit, reimbursement agreements,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has corresponding meaning.
"Guarantor Senior Indebtedness" means (i) the Senior Bank Debt and any
Guarantees by any Guarantor of the Senior Bank Debt and (ii) any other
Indebtedness permitted to be incurred by any Guarantor under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Subsidiary Guarantees. Notwithstanding anything to the contrary
in the foregoing, Guarantor Senior Indebtedness will not include (w) any
liability for federal, state, local, or other taxes owed or owing by any
Guarantor, (x) any Indebtedness of any Guarantor to
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any of its Subsidiaries or other Affiliates, (y) any trade payables or (z) any
Indebtedness that is incurred in violation of the Indenture.
"Guarantors" means each Subsidiary of the Company that executes a
Subsidiary Guarantee guaranteeing the Notes in accordance with the provisions of
the Indenture, and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Indebtedness" means, with respect to any Person, any (i) indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable
incurred in the ordinary course of business, but only (other than with respect
to, letters of credit and Hedging Obligations) if and to the extent any of the
foregoing indebtedness would appear as a liability upon a consolidated balance
sheet of such Person prepared in accordance with GAAP, (ii) all Obligations of
such Person with respect to any conditional sale or title retention agreement,
(iii) the amount of all Obligations of such Person with respect to redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Subsidiary of such Person, any preferred stock, (iv) all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person), and (v) to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations, but
excluding guarantees of Indebtedness of the Company or any Subsidiary to the
extent such guarantee is permitted by the covenant "Incurrence of Indebtedness
and Issuance of Preferred Stock"), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), transfers of assets outside the ordinary course of
business other than Asset Sales, purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified, as investments on a balance sheet
prepared in accordance with GAAP; provided that an acquisition of assets, Equity
Interests or other securities by the Company for consideration consisting of
common equity securities of the Company shall not be deemed to be an Investment.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means, the amounts payable by the Company, if any,
pursuant to the provisions described under "Registration Rights; Liquidated
Damages."
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale or equity contribution in respect
of Qualified Capital Stock plus, in the case of an issuance of Qualified Capital
Stock upon any exercise, exchange or conversion of securities (including
options, warrants, rights and convertible or exchangeable debt) of the Company
that were issued for cash after the Issue Date, the amount of cash originally
received by the Company upon the issuance of such securities (including options,
warrants, rights and convertible or exchangeable debt) less, the sum of all
payments, fees,
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commissions, and customary and reasonable expenses (including, without
limitation, the fees and expenses of legal counsel and investment banking fees
and expenses) incurred in connection with such sale or equity contribution in
respect of Qualified Capital Stock.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash and Cash Equivalents received by
the Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale) and, with respect to the
covenant "Restricted Payments," by the Company or any Subsidiary in respect of
the sale of an Unrestricted Subsidiary and the sale, liquidation or repayment
for cash of a Restricted Investment, in each case, net of the direct costs
relating thereto (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax-sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damage and other liabilities payable under the
documentation governing any Indebtedness.
"Parent" means Steel Heddle Group, Inc. or its successor.
"Permitted Investments" means (a) any Investments in the Company or in a
Wholly Owned Subsidiary of the Company and that is engaged in one or more
Related Businesses; (b) any Investments in Cash Equivalents; (c) Investments by
the Company or any Subsidiary of the Company in a Person if as a result of such
Investment (i) such Person becomes a Wholly Owned Subsidiary of the Company that
is engaged in one or more Related Businesses or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Wholly Owned
Subsidiary of the Company that is engaged in one or more Related Businesses; (d)
Investments made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales"; (e) Investments outstanding as of the date of the Indenture; (f)
Investments in the form of promissory notes of members of the Company's
management in consideration of the purchase by such members of Equity Interests
(other than Disqualified Stock) in the Company; (g) Investments which constitute
Existing Indebtedness of the Company or any of its Subsidiaries; (h) accounts
receivable, endorsements for collection or deposits arising in the ordinary
course of business; and (i) other Investments in any Person or Persons that do
not in the aggregate exceed $10.0 million at any time outstanding; provided,
however, that to the extent there would be, and to avoid, any duplication in
determining the amounts of investments outstanding under this clause (i) any
amounts which were credited under clause (c) of the covenant "Restricted
Payments" shall reduce the amounts outstanding under this clause (i).
"Permitted Liens" means (i) Liens securing Senior Indebtedness or Guarantor
Senior Indebtedness in an aggregate principal amount at any time outstanding not
to exceed amounts permitted under the covenant "Incurrence of Indebtedness and
Issuance of Preferred Stock"; (ii) Liens in favor of the Company; (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Subsidiary of the Company, including any
Permitted Refinancings with respect thereto; provided, that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company; (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company;
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provided, that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens existing on the date of
the Indenture; (vii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; provided,
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (viii) Liens incurred in the
ordinary course of business of the Company or any Subsidiary of the Company with
respect to obligations that do not exceed in the aggregate $5.0 million at any
one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary; (ix)
Liens incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security; (x) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of the Company or any of
its Subsidiaries, (xi) Purchase Money Liens (including extensions and renewals
thereof); (xii) Liens securing reimbursement obligations with respect to letters
of credit which encumber only documents and other property relating to such
letters of credit and the products and proceeds thereof; (xiii) judgment and
attachment Liens not giving rise to an Event of Default; (xiv) Liens encumbering
deposits made to secure obligations arising from statutory, regulatory,
contractual or warranty requirements; (xv) Liens arising out of consignment or
similar arrangements for the sale of goods; (xvi) any interest or title of a
lessor in property subject to any capital lease obligation or operating lease;
(xvii) Liens on assets of Subsidiaries with respect to Acquired Indebtedness
(including Liens securing Permitted Refinancing Indebtedness with respect
thereto;) provided such Liens are only on assets or property acquired with such
Acquired Indebtedness and that such Liens were not created in contemplation of
or in connection with such Acquisition; and (xviii) Liens granted by a Foreign
Subsidiary to secure Indebtedness of such Foreign Subsidiary.
"Permitted Payments to Parent" means without duplication, (a) payments to
Parent in an amount sufficient to permit Parent to pay reasonable and necessary
operating expenses and other general corporate expenses to the extent such
expenses relate or are fairly allocable to the Company and its Subsidiaries
including any reasonable professional fees and expenses, but excluding all
expenses payable to or to be paid to or on behalf of AIP, its other Affiliates
and its Related Parties, not in excess of $500,000 in any fiscal year, and (b)
payments to Parent to enable Parent to pay foreign, federal, state or local tax
liabilities ("Tax Payment"), not to exceed the amount of any tax liabilities
that would be otherwise payable by the Company and its Subsidiaries and
Unrestricted Subsidiaries to the appropriate taxing authorities if they filed
separate tax returns, to the extent that Parent has an obligation to pay such
tax liabilities relating to the operations, assets or capital of the Company or
its Subsidiaries and Unrestricted Subsidiaries; provided, however, that (i),
notwithstanding the foregoing, in the case of determining the amount of a Tax
Payment that is permitted to be paid by Company and any of its United States
subsidiaries in respect of their Federal income tax liability, such payment
shall be determined assuming that the Company is the parent company of an
affiliated group (the "Company Affiliated Group") filing a consolidated Federal
income tax return and that Parent and each such United States subsidiary is a
member of the Company Affiliated Group and (ii) any Tax Payments shall either be
used by Parent to pay such tax liabilities within 90 days of Parent's receipt of
such payment or refunded to the payee.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided, that: (a) the
principal amount of such Permitted Refinancing Indebtedness does not exceed
(after deduction of reasonable and customary fees and expenses incurred in
connection with such refinancing and the amount of any premium or prepayment
penalty paid in connection with such refinancing transaction to the extent in
accordance with the terms of the document governing such Indebtedness (except
for any modification to any such document made in connection with or in
contemplation of such refinancing) the lesser of (i) the principal amount of the
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Indebtedness so extended refinanced, renewed, replaced, defeased or refunded;
and (ii) if such Indebtedness being refinanced was issued with an original issue
discount, the accreted value thereof (as determined in accordance with GAAP) at
the time of such refinancing, plus, in each case accrued interest on such
Indebtedness being refinanced; (b) such Permitted Refinancing Indebtedness has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (c) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (d) such
Indebtedness is incurred either by the Company or by the Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Purchase Money Lien" means a Lien granted on an asset or property to
secure a Purchase Money Obligation permitted to be incurred under the Indenture
and incurred solely to finance the acquisition, including, in the case of a
Capital Lease, the lease, of such asset or property; provided, however, that
such Lien encumbers only such asset or property and is granted within 180 days
of such acquisition.
"Purchase Money Obligations" of any person means any obligations of such
person to any seller or any other person incurred or assumed to finance solely
the acquisition, including, in the case of a Capital Lease, the lease, of real
or personal property to be used in the business of such person or any of its
Subsidiaries in an amount that is not more than 100% of the cost of such
property, and incurred within 180 days after the date of such acquisition
(excluding accounts payable to trade creditors incurred in the ordinary course
of business).
"Qualified Capital Stock" means any Capital Stock of the Company, or, if
expressly applicable, the Parent, that is not Disqualified Stock.
"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are materially related businesses, including reasonable extensions or
expansions thereof.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Bank Debt" means all Obligations in respect of the Indebtedness
(including, without limitation, interest accruing after filing of a petition in
bankruptcy, whether or not such interest is an allowable claim in such
proceeding) outstanding under the Credit Agreement.
"Senior Indebtedness" means (i) the Senior Bank Debt and (ii) any other
Indebtedness permitted to be incurred by the Company under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes. Notwithstanding anything to the contrary in the foregoing,
Senior Indebtedness will not include (w) any liability for federal, state, local
or other taxes owed or owing by the Company, (x) any Indebtedness of the Company
to any of its Subsidiaries or other Affiliates, (y) any trade payables or (z)
any Indebtedness that is incurred in violation of the Indenture.
"Senior Revolving Debt" means revolving credit borrowings and letters of
credit under the Credit Agreement and/or any successor facility or facilities.
"Senior Term Debt" means term loans under the Credit Agreement and/or any
successor facility or facilities.
"Shareholders Agreement" means the shareholders agreement by and between
Parent and certain of its shareholders.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Exchange Act, as such Regulation is in effect on the date
hereof.
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"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof). Unrestricted
Subsidiaries shall not be included in the definition of Subsidiary for any
purposes of the Indenture (except, as the context may otherwise require, for
purposes of the definition of "Unrestricted Subsidiary").
"Subsidiary Guarantor" means, a Subsidiary which has guaranteed the Notes
in accordance with the Indenture.
"Unrestricted Subsidiary" means (i) any Subsidiary (other than Guarantors
or any successors) that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent
that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b)
is not party to any agreement, contract, arrangement or understanding with the
Company or any Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company; (c) is a Person with respect to which neither
the Company nor any of the Subsidiaries has any direct or indirect obligation to
subscribe for additional Equity Interests or maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified level of
operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Subsidiaries, and (ii) any Subsidiary of an Unrestricted Subsidiary. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolutions giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Subsidiary
of the Company as of such date (and, if such Indebtedness is not permitted nor
incurred as of such date under the covenant described under the caption "Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a
Subsidiary; provided, that such designation shall be deemed to be an incurrence
of Indebtedness by a Subsidiary of the Company of any outstanding Indebtedness
of such Unrestricted Subsidiary and such designation shall only be permitted if
(i) such Indebtedness is permitted under the covenant described under the
caption "Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," and (ii) no Default or Event of Default would be in existence following
such designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each of the remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twentieth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person. Unrestricted
Subsidiaries shall not be included in the definition of Wholly Owned Subsidiary
for any purposes of the Indenture (except, as the context may otherwise require,
for purposes of the definition of "Unrestricted Subsidiary.")
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REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on May 26, 1998. In the Registration Rights
Agreement, the Company and the Guarantors agreed to file this Registration
Statement with the Commission within 75 days of the Closing Date and to use
their best efforts to have it declared effective within 150 days of the Closing
Date. The Company also agreed to use its best efforts to cause the Exchange
Offer Registration Statement (of which this Prospectus is a part) to be
effective continuously, to keep the Exchange Offer open for a period of not less
than 20 business days and cause the Exchange Offer to be consummated no later
than the 30th business day after it is declared effective by the Commission. To
participate in the Exchange Offer, each Holder must represent that it is not an
affiliate of the Company, it is not engaged in, and does not intend to engage
in, and has no arrangement or understanding with any person to participate in, a
distribution of the New Notes and it is acquiring the New Notes in the Exchange
Offer in its ordinary course of business.
If (i) the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any Holder of Old Notes which are Transfer Restricted Securities
notifies the Company prior to the 20th business day following the consummation
of the Exchange Offer that (a) it is prohibited by law or Commission policy from
participating in the Exchange Offer, (b) it may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus, and the Prospectus contained in this Registration Statement is not
appropriate or available for such resales by it or (c) it is a broker-dealer and
holds the Old Notes acquired directly from the Company or any of the Company's
affiliates, the Company will file with the Commission a Shelf Registration
Statement to register for public resale the Transfer Restricted Securities held
by any such Holder who provides the Company with certain information for
inclusion in the Shelf Registration Statement.
For the purposes of the Registration Rights Agreement, "Transfer Restricted
Securities" means each Old Note until the earliest of the date of which (i) such
Old Note is exchanged hereby and entitled to be resold to the public by the
Holder thereof without complying with the prospectus delivery requirements of
the Securities Act, (ii) such Old Note has been disposed of in accordance with
the Shelf Registration Statement, (iii) such Old Note is disposed of by a
broker-dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (iv) such Old Note is distributed to the public pursuant
to Rule 144 under the Securities Act.
The Registration Rights Agreement provides that (i) if the Company fails to
file an Exchange Offer Registration Statement with the Commission on or prior to
the 75th day after the Closing Date, (ii) if the Exchange Offer Registration
Statement is not declared effective by the Commission on or prior to the 150th
day after the Closing Date, (iii) the Exchange Offer is not consummated on or
before the 30th business day after the Exchange Offer Registration Statement is
declared effective, (iv) if obligated to file the Shelf Registration Statement
and the Company fails to file the Shelf Registration Statement with the
Commission on or prior to the 30th business day after such filing obligation
arises, (v) if obligated to file a Shelf Registration Statement and the Shelf
Registration Statement is not declared effective on or prior to the 90th day
after the obligation to file a Shelf Registration Statement arises or (vi) if
the Exchange Offer Registration Statement or the Shelf Registration Statement,
as the case may be, is declared effective but thereafter ceases to be effective
or useable in connection with resales of the Transfer Restricted Securities,
such time of non-effectiveness or non-useability (each, a "Registration
Default"), the Company agrees to pay to each Holder of Transfer Restricted
Securities affected thereby liquidated damages ("Liquidated Damages") in an
amount equal to $0.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues for the first 90-day period immediately
following the occurrence of such Registration Default. The amount of the
Liquidated Damages shall increase by an additional $0.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90 day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $0.50 per week, per $1,000 in
principal amount of Transfer Restricted Securities. The Company shall not be
required to pay Liquidated Damages for more than one Registration Default at any
given time. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
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All accrued Liquidated Damages shall be paid by the Company to Holders
entitled thereto in the same manner as interest payments on the Notes on
semi-annual damages payment dates which correspond to interest payment dates for
the Notes.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The Notes sold to Qualified Institutional Buyers initially will be in the
form of one or more registered global notes without interest coupons
(collectively, the "U.S. Global Notes"). Upon issuance, the U.S. Global Notes
will be deposited with the Trustee, as custodian for DTC, in New York, New York,
and registered in the name of DTC or its nominee, in each case for credit to the
accounts of DTC's Direct and Indirect Participants (as defined below). The Notes
being offered and sold in offshore transactions in reliance on Regulation S, if
any, initially will be in the form of one or more temporary, registered, global
book-entry notes without interest coupons (the "Reg S Temporary Global Notes").
The Reg S Temporary Global Notes will be deposited with the Trustee, as
custodian for the DTC, in New York, New York, and registered in the name of a
nominee of DTC (a "Nominee") for credit to the accounts of Indirect Participants
at the Euroclear System ("Euroclear") and Cedel Bank, societe anonyme ("CEDEL").
During the 40-day period commencing on the day after the later of the Offering
and the original Issue Date (as defined) of the Notes (the "40-Day Restricted
Period"), beneficial interests in the Reg S Temporary Global Note may be held
only through Euroclear or CEDEL, and, pursuant to DTC's procedures, Indirect
Participants that hold a beneficial interest in the Reg S Temporary Global Note
will not be able to transfer such interest to a person that takes delivery
thereof in the form of an interest in the U.S. Global Notes. Within a reasonable
time after the expiration of the 40-Day Restricted Period, the Reg S Temporary
Global Notes will be exchanged for one or more permanent global notes (the "Reg
S Permanent Global Notes"; collectively with the Reg S Temporary Global Notes,
the "Reg S Global Notes") upon delivery to DTC of certification of compliance
with the transfer restrictions applicable to the Notes and pursuant to
Regulation S as provided in the Indenture. After the 40-Day Restricted Period,
(i) beneficial interests in the Reg S Permanent Global Notes may be transferred
to a person that takes delivery in the form of an interest in the U.S. Global
Notes and (ii) beneficial interests in the U.S. Global Notes may be transferred
to a person that takes delivery in the form of an interest in the Reg S
Permanent Global Notes, provided, in each case, that the certification
requirements described below are complied with. See "--Transfers of Interests in
One Global Note for Interests in Another Global Note." All registered global
notes are referred to herein collectively "Global Notes."
Beneficial interests in all Global Notes and all Certificated Notes, if
any, will be subject to certain restrictions on transfer and will bear a
restrictive legend. In addition, transfer of beneficial interests in any Global
Notes will be subject to the applicable rules and procedures of DTC and its
Direct or Indirect Participants (including, if applicable, those of Euroclear
and CEDEL), which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for Notes in certificated form in certain limited circumstances. See
"--Transfers of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations, including
Euroclear and CEDEL. Access to DTC's system is also available to other entities
that clear through or maintain a direct or indirect, custodial relationship with
a Direct Participant (collectively, the "Indirect Participants"). DTC may hold
securities beneficially owned by other persons only through the Direct
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Participants or Indirect Participants and such other persons' ownership interest
and transfer of ownership interest will be recorded only on the records of the
Direct Participant and/or Indirect Participant, and not on the records
maintained by DTC.
DTC has also advised the Company that, pursuant to DTC's procedures, (i)
upon deposit of the Global Notes, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchaser with portions of the principal
amount of the Global Notes allocated by the Initial Purchaser to such Direct
Participants, and (ii) DTC will maintain records of the ownership interests of
such Direct Participants in the Global Notes and the transfer of ownership
interests by and between Direct Participants. DTC will not maintain records of
the ownership interests of, or the transfer of ownership interests by and
between, Indirect Participants or other owners of beneficial interests in the
Global Notes. Direct Participants and Indirect Participants must maintain their
own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the Global Notes.
Investors in the U.S. Global Notes may hold their interests therein
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC. Investors in the Reg
S Temporary Global Notes may hold their interests therein directly through
Euroclear or CEDEL or indirectly through organizations that are participants in
Euroclear or CEDEL. After the expiration of the 40-Day Restricted Period (but
not earlier), investors may also hold interests in the Reg S Permanent Global
Notes through organizations other than Euroclear and CEDEL that are Direct
Participants in the DTC system. Morgan Guaranty Trust Company of New York,
Brussels office, is the operator and depository of Euroclear and Citibank, N.A.
is the depository of CEDEL (each a "Nominee" of Euroclear and CEDEL,
respectively). Therefore, they will each be recorded on DTC's records as the
holders of all ownership interests held by them on behalf of Euroclear and
CEDEL, respectively. Euroclear and CEDEL will maintain on their records the
ownership interests, and transfers of ownership interests by and between, their
own customer's securities accounts. DTC will not maintain records of the
ownership interests of, or the transfer of ownership interests by and between,
customers of Euroclear or CEDEL. All ownership interests in any Global Notes,
including those of customers' securities accounts held through Euroclear or
CEDEL, may be subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a Global Note to such
persons. Because DTC can act only on behalf of Direct Participants, which in
turn act on behalf of Indirect Participants and others, the ability of a person
having a beneficial interest in a Global Note to pledge such interest to persons
or entities that are not Direct Participants in DTC, or to otherwise take
actions in respect of such interests, may be affected by the lack of physical
certificates evidencing such interests. For certain other restrictions on the
transferability of the Notes see "--Reg S Temporary and Reg S Permanent Global
Notes" and "--Transfers of Interests in Global Notes for Certificated Notes."
EXCEPT AS DESCRIBED IN "TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, the Company and the Trustee will treat
the persons in whose names the Notes are registered (including Notes represented
by Global Notes) as the owners thereof for the purpose of receiving payments and
for any and all other purposes whatsoever. Payments in respect of the principal,
premium, Liquidated Damages, if any, and interest on Global Notes registered in
the name of DTC or its nominee will be payable by the Trustee to DTC or its
nominee as the registered holder under the Indenture. Consequently, neither the
Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of DTC's records or any
Direct Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interests in the Global Notes or for
maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Note or (ii) any other matter relating to the
actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
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DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
Notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the Notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee or the Company. Neither the Company nor the Trustee will be liable for
any delay by DTC or its Direct Participants or Indirect Participants in
identifying the beneficial owners of the Notes, and the Company and the Trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the Notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect Participants
who hold an interest in the Notes through Euroclear or CEDEL) who hold an
interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but generally will settle in immediately
available funds. Transfers between and among Indirect Participants who hold
interests in the Notes through Euroclear and CEDEL will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes described herein, crossmarket transfers between Direct Participants in
DTC, on the one hand, and Indirect Participants who hold interests in the Notes
through Euroclear or CEDEL, on the other hand, will be effected by Euroclear or
CEDEL's respective Nominee through DTC in accordance with DTC's rules on behalf
of Euroclear or CEDEL; however, delivery of instructions relating to crossmarket
transactions must be made directly to Euroclear or CEDEL, as the case may be, by
the counterparty in accordance with the rules and procedures of Euroclear or
CEDEL and within their established deadlines (Brussels time for Euroclear and
United Kingdom time for CEDEL). Indirect Participants who hold interest in the
Notes through Euroclear and CEDEL may not deliver instructions directly to
Euroclear's or CEDEL's Nominee. Euroclear or CEDEL will, if the transaction
meets its settlement requirements, deliver instructions to its respective
Nominee to deliver or receive interests on Euroclear's or CEDEL's behalf in the
relevant Global Note in DTC, and make or receive payment in accordance with
normal procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the Notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or CEDEL, during
the European business day immediately following the settlement date of DTC in
New York. Although recorded in DTC's accounting records as of DTC's settlement
date in New York. Euroclear and CEDEL customers will not have access to the cash
amount credited to their accounts as a result of a sale of an interest in a Reg
S Permanent Global Note to a DTC Participant until the European business day for
Euroclear or CEDEL immediately following DTC's settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the Notes
as to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the Notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended Notes in certificated form, and to
distribute such certificated forms of Notes to its Direct Participants. See
"--Transfers of Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the Reg S Permanent Global Notes and in
the U.S. Global Notes among Direct Participants, Euroclear and CEDEL, they are
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. None of the Company, the
Initial Purchaser or the Trustee will have any responsibility for the
performance by DTC, Euroclear or CEDEL or their respective
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Direct and Indirect Participants of their respective obligations under the rules
and procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
REG S TEMPORARY AND REG S PERMANENT GLOBAL NOTES
An Indirect Participant who holds an interest in the Reg S Temporary Global
Notes through Euroclear or CEDEL must provide Euroclear or CEDEL, as the case
may be, with a certificate in the form required by the Indenture certifying that
such Indirect Participant is either not a U.S. Person (as defined below) or has
purchased such interests in a transaction that is exempt from the registration
requirements under the Securities Act, and Euroclear or CEDEL, as the case may
be, must provide to the Trustee (or the Paying Agent, if other than the Trustee)
a certificate in the form required by the Indenture prior to (i) the payment of
interest or principal with respect to such Indirect Participant's beneficial
interests in such Reg S Temporary Global Notes or (ii) any exchange of such
beneficial interests for beneficial interests in Reg S Permanent Global Notes.
"U.S. Person" means (i) any individual resident in the United States, (ii)
any partnership or corporation organized or incorporated under the laws of the
United States, (iii) any estate of which an executor or administrator is a U.S.
Person (other than an estate governed by foreign law and of which at least one
executor or administrator is a non-U.S. Person who has sole or shared investment
discretion with respect to its assets), (iv) any trust of which any trustee is a
U.S. Person (other than a trust of which at least one trustee is a non-U.S.
Person who has sole or shared investment discretion with respect to its assets
and no beneficiary of the trust (and no settlor, if the trust is revocable) is a
U.S. Person), (v) any agency or branch of a foreign entity located in the United
States, (vi) any non-discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a U.S.
Person, (vii) any discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated or (if an
individual) resident in the United States (other than such an account held for
the benefit or account of a non-U.S. Person), (viii) any partnership or
corporation organized or incorporated under the laws of a foreign jurisdiction
and formed by a U.S. Person principally for the purpose of investing in
securities not registered under the Securities Act (unless it is organized or
incorporated and owned, by "accredited investors" within the meaning of Rule 501
(a) under the Securities Act who are not natural persons, estates or trusts);
provided however that the term "U.S. Person" shall not include (A) a branch or
agency of a U.S. Person that is located and operating outside the United States
for valid business purposes as a locally regulated branch or agency engaged in
the banking or insurance business, (B) any employee benefit plan established and
administered in accordance with the law, customary practices and documentation
of a foreign country and (C) the international organizations set forth in
Section 902(o)(vii) of Regulation S under the Securities Act and any other
similar international organizations, and their agencies, affiliates and pension
plans.
TRANSFERS OF INTERESTS IN ONE GLOBAL NOTE FOR INTERESTS IN ANOTHER GLOBAL NOTE
Prior to the expiration of the 40-Day Restricted Period, an Indirect
Participant who holds an interest in the Reg S Temporary Global Note through
Euroclear or CEDEL will not be permitted to transfer its interest to a U.S.
Person who takes delivery in the form of an interest in U.S. Global Notes. After
the expiration of the 40-Day Restricted Period, an Indirect Participant who
holds an interest in Reg S Permanent Global Notes will be permitted to transfer
its interest to a U.S. Person who takes delivery in the form of an interest in
U.S. Global Notes only upon receipt by the Trustee of a written certification
from the transferor to the effect that such transfer is being made in accordance
with the restrictions on transfer set forth in the legend printed on the Reg S
Permanent Global Notes.
Prior to the expiration of the 40-Day Restricted Period, a Direct or
Indirect Participant who holds an interest in the U.S. Global Note will not be
permitted to transfer its interests to any person that takes delivery thereof in
the form of an interest in the Reg S Temporary Global Notes. After the
expiration of the 40-Day Restricted Period, a Direct or Indirect Participant who
holds an interest in U.S. Global Notes may transfer its interests to a person
who takes delivery in the form of an interest in Reg S Permanent Global Notes
only upon
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receipt by the Trustee of a written certification from the transferor to the
effect that such transfer is being made in accordance with Rule 904 of
Regulation S.
Transfers involving an exchange of a beneficial interest in Reg S Global
Notes for a beneficial interest in U.S. Global Notes or vice versa will be
effected by DTC by means of an instruction originated by the Trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection with
such transfer, appropriate adjustments will be made to reflect a decrease in the
principal amount of the one Global Note and a corresponding increase in the
principal amount of the other Global Note, as applicable. Any beneficial
interest in the one Global Note that is transferred to a person who takes
delivery in the form of the other Global Note will, upon transfer, cease to be
an interest in such first Global Note and become an interest in such other
Global Note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
other Global Note for as long as it remains such an interest.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive Notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC (x)
notifies the Company that it is unwilling or unable to continue as depositary
for the Global Notes and the Company thereupon fails to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Certificated Notes or (iii)
there shall have occurred and be continuing a Default or an Event of Default
with respect to the Notes. In any such case, the Company will notify the Trustee
in writing that, upon surrender by the Direct and Indirect Participants of their
interest in such Global Note, Certificated Notes will be issued to each person
that such Direct or Indirect Participants and the DTC identify as being the
beneficial owner of the related Notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
In all cases described herein, such Certificated Notes will bear a
restrictive legend unless the Company determines otherwise in compliance with
applicable law.
Neither the Company, nor the Trustee will be liable for any delay by the
holder of the Global Notes or DTC in identifying the beneficial owners of Notes,
and the Company and the Trustee may conclusively rely on, and will be protected
in relying on, instructions from the holder of the Global Note or DTC for all
purposes.
TRANSFERS OF CERTIFICATED NOTES FOR INTERESTS IN GLOBAL NOTES
Certificated Notes may only be transferred if the transferor first delivers
to the Trustee a written certificate (and in certain circumstances, an opinion
of counsel) confirming that, in connection with such transfer, it has complied
with the restrictions on transfer required by applicable law.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such Global Note.
With respect to Certificated Notes, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. The Company expects that secondary
trading in the Certificated Notes will also be settled in immediately available
funds.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on May 26, 1998 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to qualified institutional buyers in reliance
on Rule 144A under the Securities Act. As a condition to the Purchase Agreement,
the Company and the Guarantors entered into the Registration Rights Agreement
with the Initial Purchasers pursuant to which the Company and the Guarantors
agreed, for the benefit of the holders of the Old Notes, to, among other things,
(i) file with the Commission the Exchange Offer Registration Statement within 75
days after the Closing Date of the Exchange Offer and (ii) cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act
within 150 days after the Closing Date. The Company will keep the Exchange Offer
open for not less than 20 business days (or longer if required by applicable
law) after the date on which notice of the Exchange Offer is mailed to the
holders of the Old Notes. For each Old Note surrendered to the Company pursuant
to the Exchange Offer, the holder of such Old Note will receive a New Note
having a principal amount equal to that of the surrendered Old Note. Interest on
each New Note will accrue from the date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Notes would in general be
freely tradeable after the Exchange Offer without further registration under the
Securities Act. However, any purchaser of Old Notes who is an "affiliate" of the
Company or who intends to participate in the Exchange Offer for the purpose of
distributing the New Notes (i) will not be able to rely on the interpretation of
the staff of the Commission, (ii) will not be able to tender its Old Notes in
the Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Old Notes, unless such sale or transfer is made pursuant to an
exemption from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging and does not intend to engage, in the distribution of
the New Notes, (iii) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act and (v) the
holder or any such other person acknowledges that if such holder or other person
participates in the Exchange Offer for the purpose of distributing the New Notes
it must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the New Notes and cannot rely on
such no-action letters. As indicated above, each Participating Broker-Dealer
that receives a New Note for its own account in exchange for Old Notes must
acknowledge that it (i) acquired the Old Notes for its own account as a result
of market-making activities or other trading activities, (ii) has not entered
into any arrangement or understanding with the Company or any "affiliate" of the
Company (within the meaning of Rule 405 under the Securities Act) to distribute
the New Notes to be received in the Exchange Offer and (iii) will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes. For a description of the procedures for such resales
by Participating Broker-Dealers, see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect such an Exchange
Offer, or if for any other reason the Exchange Offer is not consummated or if
any holder of the Old Notes (other than an "affiliate" of the Company or the
Initial Purchasers) is not eligible to participate in the Exchange Offer, the
Company will (a) file the Shelf Registration Statement covering resales of the
Old Notes, (b) use its reasonable best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act and (c) use its
reasonable best efforts to keep effective the Shelf Registration Statement until
the earlier of two years after its effective date and such time as all of the
applicable Old Notes have been sold thereunder. The Company will, in the event
of the filing
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of the Shelf Registration Statement, provide to each applicable holder of the
Old Notes copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Old Notes. A holder of Old Notes that sells such Old
Notes pursuant to the Shelf Registration Statement generally will be required to
be named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations). In
addition, each holder of the Old Notes will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and to benefit from the provisions set forth
in the following paragraph.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which is filed as an exhibit to the Exchange Offer Registration Statement of
which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
TERMS OF THE EXCHANGE
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of outstanding Old Notes accepted
in the Exchange Offer. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes bear a Series B designation and a
different CUSIP Number from the Old Notes, (ii) the New Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and (iii) the holders of the New Notes will not be entitled
to certain rights under the Registration Rights Agreement, including the
provisions providing for an increase in the interest rate on the Old Notes in
certain circumstances relating to the timing of the Exchange Offer, all of which
rights will terminate when the Exchange Offer is terminated. The New Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes were outstanding. This Prospectus and the Letter of Transmittal
will be mailed initially to the holders of record of the Old Notes as of the
close of business on , 1998.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
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returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from their date of issuance. Holders of
Old Notes that are accepted for exchange will receive accrued interest thereon
to, but not including, the date of issuance of the New Notes. Such interest will
be paid with the first interest payment on the New Notes on December 1, 1998 in
the manner provided in the New Notes. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the New Notes. Interest on the
New Notes is payable semi-annually on each June 1 and December 1, commencing on
December 1, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a properly completed and duly executed Letter
of Transmittal (or facsimile thereof), with any required signature guarantee, or
(in the case of a book-entry transfer), an Agent's Message in lieu of the Letter
of Transmittal, and any other required documents, must be received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. In addition, prior to
5:00 p.m. New York City time, on the Expiration Date either (a) certificates for
tendered Old Notes must be received by the Exchange Agent at such address or (b)
such Old Notes must be transferred pursuant to the procedures for book-entry
transfer described below (and a confirmation of such tender received by the
Exchange Agent, including an Agent's Message if the tendering holder has not
delivered a Letter of Transmittal).
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the confirmation of a book-entry
transfer, which states that DTC has received an express acknowledgment from the
participant in DTC tendering Old Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Company may enforce such
agreement against such participant. In the case of an Agent's Message relating
to guaranteed delivery, the term means a message transmitted by DTC and received
by the Exchange Agent, which states that DTC has received an express
acknowledgment from the participant in DTC tendering Old Notes that such
participant has received and agrees to be bound by the Notice of Guaranteed
Delivery.
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By executing the Letter of Transmittal, each holder will make to the
Company the representations set forth above in the third paragraph under the
heading "-- Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instruction
to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of the Medallion System (an
"Eligible Institution") unless the Old Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal or (ii) the account of an Eligible Institution. In the
event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantee must be by an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, an appropriate Letter of Transmittal properly completed and
duly executed with any required signature guarantee, or (in the case of a
book-entry transfer) an Agent's Message in lieu of the Letter of Transmittal,
and all other required documents must in each case be transmitted to and
received or confirmed by the Exchange Agent at its address set forth below on or
prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit
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their acceptance of the Exchange Offer by causing DTC to transfer Old Notes to
the Exchange Agent in accordance with DTC's ATOP procedures for transfer. DTC
will then send an Agent's Message to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to waive such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
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<PAGE> 92
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old Notes register the transfer of such Old Notes
into the name of the person withdrawing the tender and (iv) specify the name in
which any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders to withdraw such Old
Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
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EXCHANGE AGENT
The United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Mail: By Overnight Courier:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 844 Cooper Station 770 Broadway, 13th Floor
New York, New York 10276-0844 Corporate Trust Operations Department
(registered or certified mail recommended) New York, New York 10003
By Hand: By Facsimile Transmission:
United States Trust Company of New York (212) 780-0592
111 Broadway (for Eligible Institutions only)
Lower Level
New York, New York 10006 For Information or Confirmation by Telephone:
Attention: Corporate Trust Services (800) 548-6565
</TABLE>
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Officer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so
long as the Old Notes are eligible for resale pursuant to Rule 144A, to a person
inside the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
meeting the requirements of Rule 144A, in accordance with Rule 144 under the
Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Company), (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under
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the Securities Act, or (iv) pursuant to an effective registration statement
under the Securities Act, in each case in accordance with any applicable
securities laws of any state of the United States.
RESALE OF THE NEW NOTES
With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties, the
Company believes that a holder or other person who receives NewNotes, whether or
not such person is the holder (other than a person that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) who receives
New Notes in exchange for Old Notes in the ordinary course of business and who
is not participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes, will be allowed to resell the New Notes to the public without further
registration under the Securities Act and without delivering to the purchasers
of the New Notes a prospectus that satisfies the requirements of Section 10 of
the Securities Act. However, if any holder acquires New Notes in the Exchange
Offer for the purpose of distributing or participating in a distribution of the
New Notes, such holder cannot rely on the position of the staff of the
Commission enunciated in such no-action letters or any similar interpretive
letters, and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available. Further, each
Participating Broker-Dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging and does not intend to engage, in the distribution of
the New Notes, (iii) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act and (v) the
holder or any such other person acknowledges that if such holder or other person
participates in the Exchange Offer for the purpose of distributing the New Notes
it must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the New Notes and cannot rely on
such no-action letters. As indicated above, each Participating Broker-Dealer
that receives a New Note for its own account in exchange for Old Notes must
acknowledge that it (i) acquired the Old Notes for its own account as a result
of market-making activities or other trading activities, (ii) has not entered
into any arrangement with the Company (within the meaning of Rule 405 under the
Securities Act or understanding with the Company or any "affiliate" of the
Securities Act) to distribute the New Notes to be received in the Exchange Offer
and (iii) will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such New Notes. For a description of the
procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
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DESCRIPTION OF NEW CREDIT AGREEMENT
The Company entered into the New Credit Agreement among the Company, SH
Group, the domestic subsidiaries of SH Group from time to time parties thereto,
the several lenders from time to time parties thereto (collectively, the
"Lenders"), NationsBank, N.A. as administrative agent (the "Administrative
Agent") and DLJ Capital Funding, Inc. as syndication agent (collectively, the
"Agents"). The following is a summary description of the principal terms of the
New Credit Agreement and the other loan documents. The description set forth
below does not purport to be complete and is qualified in its entirety by
reference to certain agreements setting forth the principal terms and conditions
of the New Credit Agreement, which are available upon request from the Company.
The Company's obligations under the New Credit Agreement constitute Senior
Indebtedness with respect to the Notes.
Structure. The Lenders committed to provide the Company with (i) senior
secured term loan facilities (the "Term Loan Facility") of up to $30.0 million
and (ii) a senior secured revolving credit facility (the "Revolving Credit
Facility") of up to $20.0 million (including letters of credit).
The Company borrowed the full amount of Term Loan Facility and
approximately $4.9 million of Revolving Credit Facility on the closing date
under the New Credit Agreement (i) to partially finance the Acquisition, (ii) to
repay certain existing outstanding indebtedness of the Company and (iii) to pay
certain fees and expenses related to the Acquisition. See "Use of Proceeds."
Thereafter, the New Credit Agreement may be utilized to fund the Company's
working capital requirements, including issuance of stand-by and trade letters
of credit and for other general corporate purposes.
The Term Loan Facility is a single tranche term facility of $30.0 million
which has a maturity of six years, subject to quarterly amortization commencing
in the thirteenth month after the Closing Date, in the following aggregate
annual amounts for the fiscal years ending in: 1999--$3.0 million; 2000--$4.75
million; 2001--$5.75 million; 2002--$6.75 million; 2003--$7.75 million and
2004--$2.0 million. Loans and letters of credit under the Revolving Credit
Facility are available at any time during its six-year term subject to the
fulfillment of customary conditions precedent including the absence of a default
under the New Credit Agreement.
Security; Guaranty. The Company's obligations under the New Credit
Agreement are guaranteed by each of the Company's direct and indirect domestic
subsidiaries. The New Credit Agreement and the guarantees thereof are secured by
a perfected first priority security interest in substantially all assets of the
Company and its direct and indirect domestic subsidiaries including: (i) all
real property; (ii) all accounts receivable, inventory and intangibles; and
(iii) all of the capital stock of the Company and its direct and indirect
domestic and, to the extent no adverse tax consequences would result, foreign
subsidiaries.
Interest, Maturity. Borrowings under the New Credit Agreement bear interest
at a rate per annum equal (at the Company's option) to: (i) the Administrative
Agent's reserve-adjusted LIBOR rate ("LIBOR") plus an applicable margin or (ii)
an alternate base rate equal to the highest of the Administrative Agent's prime
rate, plus an applicable margin. Initially, the applicable margin for the Term
Loan Facility and the Revolving Credit Facility is 2.25% per annum for LIBOR
loans and 1.00% per annum for alternate base rate loans and after the first six
months will be tied to a grid based on the Company's leverage ratio.
Fees. The Company is required to pay the Lenders, on a quarterly basis, a
commitment fee on the undrawn portion of the Revolving Credit Facility at a rate
equal to 0.50%. The Company is also obligated to pay (i) certain letter of
credit fees on the aggregate amount of outstanding letters of credit; (ii) a
fronting bank fee for the letter of credit issuing bank; and (iii) customary
agent, arrangement and other similar fees.
Covenants. The New Credit Agreement contains a number of covenants that,
among other things, restrict the ability of SH Group, the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, prepay other
indebtedness or amend certain debt instruments (including the Indenture), pay
dividends, create liens on assets, enter into sale and leaseback transactions,
make investments, loans or advances, make acquisitions, engage in mergers or
consolidations, make capital expenditures, change the business conducted by the
Company or its subsidiaries or engage in certain transactions with affiliates
and otherwise restrict certain corporate activities. In addition, under the New
Credit Agreement, the Company is
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required to maintain specified financial ratios and tests, including leverage
ratios below a specified maximum and minimum interest coverage levels. See "Risk
Factors--Restrictive Debt Covenants."
Events of Default. The New Credit Agreement contains customary events of
default, including nonpayment of principal, interest or fees, material
inaccuracy of representations and warranties, violation of covenants,
cross-default and cross-acceleration to certain other indebtedness, certain
events of bankruptcy and insolvency, material judgments against the Company,
invalidity of any guarantee or security interest and a change of control of the
Company in certain circumstances as set forth therein.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion (including the opinion of special counsel
described below) is based upon current provisions of the Internal Revenue Code
of 1986, as amended, applicable Treasury regulations, judicial authority and
administrative rulings and practice. There can be no assurance that the Internal
Revenue Service (the "Service") will not take a contrary view, and no ruling
from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. The Company recommends that
each holder consult such holder's own tax advisor as to the particular tax
consequences of exchanging such holder's Old Notes for New Notes, including the
applicability and effect of any state, local or foreign tax laws.
Kirkland & Ellis, special counsel to the Company, has advised the Company
that in its opinion, the exchange of the Old Notes for New Notes pursuant to the
Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such holder.
As a result, there will be no federal income tax consequences to holders
exchanging Old Notes for New Notes pursuant to the Exchange Offer.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of one year after the thirtieth business day following the
Expiration Date (or such shorter period as will terminate when all of the Old
Notes offered for exchange hereby have been sold), it will make this Prospectus,
as amended or supplemented, available to any Participating Broker-Dealer for use
in connection with any such resale.
The Company will not receive any proceeds from any sales of the New Notes
by Participating Broker-Dealers. New Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such New Notes. Any Participating Broker-Dealer that resells the New Notes
that were received by it for its own account pursuant to the Exchange Offer and
any broker or dealer that participates in a distribution of New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
LEGAL MATTERS
The validity of the issuance of the New Notes offered hereby will be passed
upon for the Company by Kirkland & Ellis, Washington, D.C.
EXPERTS
The consolidated financial statements of the Company at January 3, 1998 and
December 28, 1996, and for each of the three years in the period ended January
3, 1998, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
CHANGE IN ACCOUNTANTS
On May 26, 1998, the Company dismissed its certified public accountants,
Ernst & Young LLP, and replaced them with Deloitte & Touche LLP. The report of
Ernst & Young LLP dated January 28, 1998, except for Note 11 as to which the
date is May 26, 1998, on the Company's financial statements as of and for the
two fiscal years in the period ended January 3, 1998 did not contain an adverse
opinion or a disclaimer opinion; further the Company had no disagreements with
Ernst & Young LLP during that time period. The change in accountants was
recommended by the Board of Directors of the Company.
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<PAGE> 100
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
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PAGE
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REPORT OF INDEPENDENT AUDITORS.............................. F-2
CONSOLIDATED FINANCIAL STATEMENTS AS OF JANUARY 3, 1998 AND
DECEMBER 28, 1996 AND FOR EACH OF THE THREE FISCAL YEARS
IN THE PERIOD ENDED JANUARY 3, 1998:
Consolidated Balance Sheets as of January 3, 1998 and
December 28, 1996...................................... F-3
Consolidated Statements of Operations for the Years Ended
January 3, 1998, December 28, 1996 and December 30,
1995................................................... F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended January 3, 1998, December 28, 1996 and
December 30, 1995...................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
January 3, 1998, December 28, 1996 and December 30,
1995................................................... F-6
Notes to Consolidated Financial Statements................ F-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF
APRIL 4, 1998 AND JANUARY 3, 1998:
Consolidated Balance Sheets as of April 4, 1998 and
January 3, 1998........................................ F-23
Consolidated Statements of Operations for the Fiscal
Quarter Ended April 4, 1998 and April 5, 1997.......... F-24
Consolidated Statements of Cash Flows for the Fiscal
Quarter Ended April 4, 1998 and April 5, 1997.......... F-25
Notes to Unaudited Consolidated Financial Statements...... F-26
</TABLE>
F-1
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Steel Heddle Mfg. Co.
We have audited the accompanying consolidated balance sheets of Steel
Heddle Mfg. Co. and subsidiaries as of January 3, 1998 and December 28, 1996 and
the related consolidated statements of operations, shareholders'
equity/(deficit) and cash flows for each of the three years in the period ended
January 3, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Steel Heddle
Mfg. Co. and subsidiaries at January 3, 1998 and December 28, 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 3, 1998 in conformity with generally
accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements, in 1995
the Company changed its method of accounting for postretirement benefits other
than pensions.
Ernst & Young LLP
Greenville, SC
January 28, 1998, except for Note 11,
as to which the date
is May 26, 1998
F-2
<PAGE> 102
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 379 $ 4,645
Accounts receivable....................................... 9,290 8,862
Inventories............................................... 14,030 12,970
Prepaid expenses.......................................... 99 108
-------- --------
Total current assets................................... 23,798 26,585
Property, plant and equipment:
Cost...................................................... 52,561 50,781
Less accumulated depreciation............................. 35,876 33,025
-------- --------
16,685 17,756
Other assets and deferred charges:
Prepaid pension costs..................................... 546 952
Goodwill, net............................................. 22,537 23,266
Sundry.................................................... 774 157
-------- --------
23,857 24,375
-------- --------
Total Assets........................................... $ 64,340 $ 68,716
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 2,166 $ 2,334
Accrued and sundry liabilities............................ 5,313 8,208
Deferred income taxes..................................... 670 802
Income taxes.............................................. 302 361
Current portion of long-term debt......................... 6,500 6,500
-------- --------
Total current liabilities.............................. 14,951 18,205
Long-term debt, less current portion........................ 46,300 43,500
Retirement benefits payable................................. 5,126 5,372
Deferred income taxes....................................... 1,120 1,598
Redeemable Common Stock:
Parent company class A, $.01 par value per
share--authorized 2,000,000 shares, issued and
outstanding 91,080 shares in 1997 and 90,000 shares in
1996--Note 7........................................... 1,366 1,350
Shareholders' equity/(deficit):
Common Stock par value $1.00 per share--authorized
1,500,000 shares, issued and outstanding 10 shares..... -- --
Additional paid-in capital................................ 13,689 13,689
Foreign currency translation adjustment................... (48) (49)
(Deficit)................................................. (18,164) (14,949)
-------- --------
(4,523) (1,309)
-------- --------
Total liabilities and shareholders' equity (deficit)... $ 64,340 $ 68,716
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 103
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
---------- ------------ ------------
<S> <C> <C> <C>
Net sales............................................. $72,983 $64,484 $68,118
Cost of goods sold.................................... 46,448 44,074 47,706
------- ------- -------
Gross profit.......................................... 26,535 20,410 20,412
Selling, general and administrative costs............. 8,489 8,875 8,667
Management fees....................................... 475 725 275
Amortization of goodwill.............................. 729 729 729
Restructuring charges................................. -- -- 821
------- ------- -------
Operating income...................................... 16,842 10,081 9,920
Other income (expense):
Interest income..................................... 136 110 128
Interest expense, including amortization of deferred
financing costs.................................. (5,284) (5,954) (6,435)
Other financing expenses.............................. (212) -- --
------- ------- -------
Income before income taxes, extraordinary item and
cumulative effect of accounting change.............. 11,482 4,237 3,613
Income tax expense.................................... 4,015 1,638 1,628
------- ------- -------
Income before extraordinary item and cumulative effect
of accounting change................................ 7,467 2,599 1,985
Extraordinary (loss) on the early extinguishment of
debt,
net of income taxes of $1,688....................... (2,753) -- --
------- ------- -------
Income before cumulative effect of accounting
change.............................................. 4,714 2,599 1,985
Cumulative effect of change in method of accounting
for postretirement benefits net of taxes of $570.... -- -- 855
------- ------- -------
Net income............................................ $ 4,714 $ 2,599 $ 1,130
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 104
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON FOREIGN
STOCK-- ADDITIONAL RETAINED CURRENCY
$1.00 PAID-IN (DEFICIT) TRANSLATION
PAR VALUE CAPITAL EARNINGS ADJUSTMENTS TOTAL
--------- ---------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994............... $-- $13,689 $(18,678) $(35) $(5,024)
Foreign currency translation
adjustments........................... -- -- -- (17) (17)
Net income............................... -- -- 1,130 -- 1,130
------- ------- -------- ---- -------
Balance at December 30, 1995............... -- 13,689 (17,548) (52) (3,911)
Foreign currency translation
adjustments........................... -- -- -- 3 3
Net income............................... -- -- 2,599 -- 2,599
------- ------- -------- ---- -------
Balance at December 28, 1996............... -- 13,689 (14,949) (49) (1,309)
Foreign currency translation
adjustments........................... 1 1
Dividends paid........................... -- -- (7,929) -- (7,929)
Net income............................... -- -- 4,714 -- 4,714
------- ------- -------- ---- -------
Balance at January 3, 1998................. $-- $13,689 $(18,164) $(48) $(4,523)
======= ======= ======== ==== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 105
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
---------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 4,714 $ 2,599 $ 1,130
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 4,409 6,019 6,096
Loss on disposal of property, plant and equipment....... 50 -- --
Provision for deferred income taxes..................... (610) (600) (1,200)
Accrued retirement benefit costs........................ 160 (220) 150
Extraordinary item...................................... 4,441 -- --
Cumulative effect of accounting changes................. -- -- 1,425
Changes in operating assets and liabilities:
Accounts receivable.................................. (428) (548) 408
Inventories.......................................... (1,060) 1,018 (818)
Prepaid expenses..................................... 8 14 27
Accounts payable..................................... (167) 303 553
Accrued and sundry liabilities....................... (1,498) 2,489 241
Income taxes payable................................. (59) 162 (400)
-------- ------- -------
Net cash provided by operating activities................. 9,960 11,236 7,612
INVESTING ACTIVITIES:
Purchase of property, plant and equipment............... (2,558) (2,809) (3,455)
Proceeds on disposals of property, plant and equipment,
net.................................................. 29 42 98
-------- ------- -------
Net cash used in investing activities..................... (2,529) (2,767) (3,357)
FINANCING ACTIVITIES:
Issuance of parent company common stock................. 16 -- --
Prepayment of debt, including penalty................... (55,690) -- --
Proceeds from debt...................................... 66,500 -- --
Payments of debt........................................ (13,700) (2,700) (7,000)
Dividends paid.......................................... (7,929) -- --
Short-term borrowings................................... -- (2,000) 2,000
Loan acquisition costs.................................. (894) -- --
-------- ------- -------
Net cash used in financing activities................... (11,697) (4,700) (5,000)
-------- ------- -------
(Decrease) increase in cash and cash equivalents.......... (4,266) 3,769 (745)
Cash and cash equivalents at beginning of year............ 4,645 876 1,621
-------- ------- -------
Cash and cash equivalents at end of year.................. $ 379 $ 4,645 $ 876
======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 106
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization--Steel Heddle Mfg. Co. ("Steel Heddle") is a wholly-owned
subsidiary of SH Intermediate Corp. ("Intermediate"). Intermediate is a
wholly-owned subsidiary of SH Holdings Corp. ("Holdings" or "Parent Company").
In accordance with Securities Exchange Commission Staff Accounting Bulletin No.
55, these financial statements include balances for debt and redeemable common
stock that are held at the Intermediate and Holdings level. Related interest
expense has also been reflected in these financial statements. Holdings,
Intermediate, Steel Heddle and Steel Heddle subsidiaries are collectively
referred to hereinafter as "the Company".
Operations -- Steel Heddle manufactures products and loom accessories used by
textile mills which accounted for approximately 85%, 88% and 87% of its sales in
1997, 1996 and 1995, respectively. It also processes and sells metal products
from its wire rolling facilities to industrial users. Steel Heddle sells to
foreign and domestic companies, with foreign sales making up approximately 22%,
24% and 22% of its sales in 1997, 1996 and 1995, respectively. The Company
generally does not require collateral for its domestic receivables. A majority
of the related foreign receivables are insured or secured by letters of credit.
Principles of Consolidation -- All subsidiaries are wholly-owned, and their
accounts are included in the consolidated financial statements. All significant
intercompany items and transactions have been eliminated in consolidation.
Fiscal Year--The Company's fiscal year ends on the Saturday closest to December
31. The years ended January 3, 1998, December 28, 1996 and December 30, 1995 are
53-weeks, 52-weeks and 52-week periods, respectively.
Foreign Currency--Assets and liabilities of the Company's foreign subsidiaries
are translated into United States dollars at current exchange rates. Income and
expense accounts of these operations are translated at the average of exchange
rates during the period.
Effective December 29, 1996, the Company changed the functional currency for its
Mexican subsidiary from the Mexican peso to the United States dollar because the
cumulative inflation index in Mexico has been approximately 100% over a three
year period ended December 28, 1996. In accordance with FAS 52, the cumulative
translation adjustment at December 28, 1996, accumulated in shareholders' equity
prior to this change in functional currency, remains as a separate component of
shareholders' equity.
Cash Equivalents--The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents. Included
in cash equivalents at January 3, 1998 is approximately $757, which approximates
fair value invested in an overnight investment fund with a bank.
Inventories--Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method, average cost method or
last-in, first-out (LIFO) method.
Property, Plant and Equipment--Property, plant and equipment is stated at cost.
Depreciation is computed by straight-line and accelerated methods based on
estimated useful lives of the assets. Depreciation expense for 1997, 1996 and
1995 was approximately $3,500, $5,100 and $5,100, respectively.
Other Assets and Deferred Charges--Deferred debt expense, included in sundry
other assets, is being amortized over the lives of the related debt. Goodwill
resulting from the purchase of Steel Heddle is being amortized over forty years
on the straight-line method.
Income Taxes--The Company accounts for income taxes under Statement of
Accounting Standards No. 109, "Accounting for Income Taxes".
F-7
<PAGE> 107
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Fair Value of Financial Statements--The carrying value of cash and cash
equivalents, accounts receivable, accounts payable, accrued and sundry
liabilities and long-term debt approximate their fair values.
Pension Costs--The Company's funding policy is to contribute amounts to its
formal funded plans sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974, plus such
additional amounts as the Company may determine to be appropriate from time to
time.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
New Accounting Standards--In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." Both are
required for financial statements in fiscal years beginning after December 15,
1997.
SFAS No. 130 requires comprehensive income to be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Adoption of this statement is expected to have no impact on the
Company's consolidated financial position, results of operations or cash flows.
SFAS No. 131 requires entities to disclose financial and detailed
information about its operating segments in a manner consistent with internal
segment reporting used by the Company to allocate resources and assess financial
performance. The Company has not completed the analyses required to determine
the additional disclosures requirements, if any, for the adoption of SFAS No.
131, but the adoption of the statement will not affect results of operations or
financial position. It will affect the disclosure of segment reporting. The
Company will adopt this statement retroactively during the fiscal year ending
January 2, 1999.
2. INVENTORIES
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials and component parts........................... $ 6,312 $ 6,276
Work in process and finished goods.......................... 7,718 6,694
------- -------
$14,030 $12,970
======= =======
</TABLE>
Inventories priced by the LIFO method were approximately $11,100 at January 3,
1998, and $10,000 at December 28, 1996. If all inventories had been priced by
the FIFO or average cost method, they would have been higher than the amounts
reported by approximately $600 in 1997 and $1,700 in 1996.
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land........................................................ $ 855 $ 855
Buildings and improvements.................................. 10,692 10,449
Machinery and equipment..................................... 32,362 31,205
Furniture and fixtures...................................... 7,640 6,636
Automotive equipment........................................ 827 817
Construction in progress.................................... 185 819
------- -------
$52,561 $50,781
======= =======
</TABLE>
F-8
<PAGE> 108
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ACCRUED AND SUNDRY LIABILITIES
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Wages, salaries and other compensation...................... $3,006 $2,776
Accrual for hazardous waste site maintenance................ 269 276
Interest.................................................... 709 3,336
Group insurance............................................. 475 505
Other....................................................... 854 1,315
------ ------
$5,313 $8,208
====== ======
</TABLE>
The Company has included in accrued and sundry liabilities an accrual for
hazardous waste site maintenance for the estimated total cost over an initial
period of thirty years to close out and monitor its inactive hazardous waste
site. Payment is secured by a standby letter of credit of approximately $700.
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Senior Notes, due in 28 quarterly installments beginning in
March 1997 and ranging from $1,600 to $2,400 plus interest
payable as described below................................ $46,000 $ --
Revolving Line of Credit, interest payable quarterly, due in
February 2002............................................. 6,800 --
Senior Notes, plus interest, payable quarterly at 10%....... -- 24,900
Subordinated Notes, plus interest payable quarterly at
12.75%.................................................... -- 25,100
------- -------
52,800 50,000
Less current portion........................................ 6,500 6,500
------- -------
$46,300 $43,500
======= =======
</TABLE>
The $24,900 of Senior Notes and the Subordinated Notes were issued pursuant to
certain recapitalization and refinancing transactions and were payable to
shareholders who collectively own 100% of the Company's outstanding Class B
Common Stock.
On February 21, 1997, the Company entered into a credit arrangement with a bank
group consisting of a Term Loan Facility of $52,500 and a $15,000 Revolving Line
of Credit. The Company utilized proceeds of the Term Loan and the Revolving Line
of Credit to repay its senior notes with principal amount of $24,900 plus
penalty of $2,500 and to repay its subordinated notes with principal amount of
$25,100 plus penalty of $3,200. The total penalty net of other losses and gains
on the refinancing is reported as an extraordinary item, net of taxes of
approximately $1,700. Included in the net extraordinary loss is a reversal of
accrued interest of approximately $1,400. This reversal resulted from the
difference between the stated rate of interest and the effective rate of
interest.
The Term Loan and the Revolving Line of Credit bear interest at the bank's prime
rate plus 0.5% or at Eurodollar rates plus 1.5% per annum, at the Company's
option. Interest based on prime is payable quarterly; interest based on
Eurodollars is payable at the end of the elected interest period, but not less
often than the end of a three-month period. The weighted average interest rate
in effect at January 3, 1998 was 7.4%.
The agreement contains certain restrictive covenants which, among other matters,
require fixed charge coverage, interest coverage, and leverage coverage ratio
tests as defined in the agreement and limits payment of dividends. The agreement
also restricts change in control of the Company and requires mandatory principal
F-9
<PAGE> 109
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT--(CONTINUED)
prepayments annually based on excess cash flow, as defined. Substantially all of
the Company's assets are pledged as collateral under the new debt agreement.
Future annual principal payments are due as follows:
<TABLE>
<S> <C>
1998........................................................ $ 6,500
1999........................................................ 6,500
2000........................................................ 7,000
2001........................................................ 8,000
2002........................................................ 15,300
Thereafter.................................................. 9,500
-------
$52,800
=======
</TABLE>
Interest paid totaled approximately $7,800, $4,700 and $5,800 for 1997, 1996 and
1995, respectively.
The carrying amount of the Company's borrowings under its short-term revolving
credit agreement approximates fair value. The fair value of the Company's
long-term debt is estimated based on the quoted market prices for the same or
similar issues or on the current notes offered to the Company for the debt of
the same remaining maturities. The carrying value of the debt approximates
market value at January 3, 1998.
6. RETIREMENT PLANS AND DEFERRED COMPENSATION AGREEMENTS
The Company has a funded defined benefit noncontributory pension plan for
employees meeting certain eligibility requirements and an unfunded Supplemental
Pension Plan which is a nonqualified plan under which direct payments are made
to certain retired personnel based on years of service and compensation.
A summary of the components of the net pension cost for the funded defined
benefit plan for 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost........................................ $ 642 $ 337 $ 138
Interest cost on projected benefit obligation....... 1,271 1,239 1,202
Return on plan assets............................... (1,433) (1,415) (3,562)
Net amortization.................................... (74) (74) 2,240
------- ------- -------
$ 406 $ 87 $ 18
======= ======= =======
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.75% in 1997 and 7.50% in 1996.
The rate of increase in compensation was 4.75% for each year and the expected
long-term rate of return on assets was 8% in each year.
F-10
<PAGE> 110
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RETIREMENT PLANS AND DEFERRED COMPENSATION AGREEMENTS--(CONTINUED)
Accumulated plan benefits and projected benefit obligations, as estimated by
consulting actuaries, and plan net assets and funded status for the funded
defined benefit plan as of January 3, 1998 and December 28, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $17,316 $16,870
Nonvested benefit obligation.............................. 114 107
------- -------
Accumulated benefit obligation............................ $17,430 $16,977
======= =======
Projected benefit obligation................................ $17,430 $16,977
Plan assets at fair value................................... 20,113 18,744
------- -------
Funded status--projected benefit obligation less than plan
assets.................................................... $ 2,683 $ 1,767
======= =======
Comprised of:
Prepaid pension cost...................................... $ 546 $ 952
Unrecognized net gain..................................... 1,597 815
Unrecognized prior service cost........................... 540 --
------- -------
$ 2,683 $ 1,767
======= =======
</TABLE>
Plan assets are invested in fixed income securities, equities and money market
securities.
At January 3, 1998 and December 28, 1996, the projected benefit obligation (all
of which is vested) for the unfunded plan totaled approximately $778 and $809,
respectively, and is included in retirement benefits payable in the accompanying
consolidated balance sheet.
The Company has an employee savings and investment plan qualified under Section
401(k) of the Internal Revenue Code. This plan is funded in part from member
voluntary contributions, with the Company's contribution equal to 65% of the
amount of member basic contributions, but limited to 3.9% of the total
compensation of the members. The plan provides for additional member voluntary
contributions of up to 10% of member's total compensation.
The Company has an informal arrangement under which it provides certain life
insurance benefits for retired hourly and salary employees. No separate funding
is provided under this arrangement. Expense under the life insurance plan is
recognized by an annual computation of the present value of the Company's
liability for future payments for active and retired employees and a charge to
operations for the current year portion of the computed liability.
In addition to the above plan, the Company has an informal arrangement under
which it provides certain health care benefits for retired employees. No
separate funding is provided under this arrangement. Only those active employees
born before January 1, 1935 who have worked at least five years for the Company
may become eligible for these benefits. Prior to 1995, expense under the health
care plan was recognized by an annual computation of the present value of the
Company's liability for future payments based on current retirees only and a
charge to operations for the current portion of the computed liability.
Effective January 1, 1995, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" whereby the cost of
providing the benefits is accrued during the employees' working years. The
Company elected to immediately recognize this obligation, resulting in a charge
of $1,425 ($855 after-tax) to 1995 operations.
F-11
<PAGE> 111
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RETIREMENT PLANS AND DEFERRED COMPENSATION AGREEMENTS--(CONTINUED)
Components of postretirement expense for the years ended January 3, 1998,
December 28, 1996 and December 30, 1995 included the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ------
<S> <C> <C> <C>
Service cost.............................................. $ 4 $ 5 $ 6
Interest cost on accumulated postretirement benefit
obligation.............................................. 307 326 342
Transition obligation..................................... -- -- 1,424
---- ---- ------
$311 $331 $1,772
==== ==== ======
</TABLE>
The following schedule reconciles the status of the Company's plans with the
unfunded postretirement benefit obligation included in its balance sheets at
January 3, 1998 and December 28, 1996:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
MEDICAL LIFE MEDICAL LIFE
<S> <C> <C> <C> <C>
Retirees......................................... $3,649 $205 $3,680 $167
Fully eligible active plan participants.......... 239 171 517 198
------ ---- ------ ----
Accrued postretirement benefit obligation........ $3,888 $376 $4,197 $365
====== ==== ====== ====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9.5% in 1997, gradually declining to 5.5%
in the year 2005 and remaining at that level thereafter. A discount rate of
7.75% was used in determining the postretirement expense at December 28, 1996. A
discount rate of 7.75% was used to determine the postretirement benefit
obligation at January 3, 1998. A 1% increase in the per capita cost of health
care benefits results in a $25 increase in the accrued postretirement benefit
obligation and a $2 increase in postretirement benefit expense.
The Company's total expense under all retirement benefit plans was approximately
$1,200, $863 and $2,753 in 1997, 1996 and 1995, respectively.
7. SHAREHOLDERS' EQUITY
Upon the death of a holder of class A common stock of Parent Company, the estate
of such holder can require Parent Company to redeem such shares. This redemption
feature is not within the control of Parent Company; accordingly, all of the
class A common stock of Parent Company is presented outside the shareholders'
equity section of the balance sheet. There were 1,080 shares of Parent Company
class A common stock issued during the year ended January 3, 1998.
The holders of the class A and class B common stock of Parent Company are
entitled to the same powers, rights and privileges, except that with regards to
the election of the Board of Directors, the holders of class A stock are
entitled to elect two directors and the holders of class B stock are entitled to
elect four directors.
In connection with the debt refinancing completed in February 1997, the Board
reviewed the terms of the 1992 Stockholders Agreement and the options granted to
certain employee shareholders. The Board concluded that the Unallocated Shares
as described in the 1992 Stockholders Agreement should remain available for
issuance at $15.00 per share and that new employee options should be issued in
exchange for the employee stock options issued in 1992.
Accordingly, in September 1997 the Board issued rights to the 10,000 previously
Unallocated Shares to certain officers and members of management. At January 3,
1998, 1,080 of these shares had been exercised and 8,920 remained exercisable.
F-12
<PAGE> 112
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. SHAREHOLDERS' EQUITY--(CONTINUED)
In addition, the 1997 Stock Option Agreement canceled the outstanding options
under the 1992 Agreement and granted certain officers and members of management
options to purchase shares of Parent Company's class A common stock at an
exercise price of $15.00 per share. All options under the 1997 Agreement are
immediately exercisable and terminate February 20, 2002.
A summary of the Parent Company's stock option activity, including the
previously Unallocated Shares, and related information for the years ended
January 3, 1998, December 28, 1996 and December 30, 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning of year........ 24,620 $15 24,620 $15 24,620 $15
Canceled............................ (24,620) 15
Granted............................. 26,310 15 -- -- -- --
Exercised........................... (1,080) -- -- -- -- --
Retired............................. (2,204) 15
------- --- ------ --- ------ ---
Outstanding at end of year............ 23,026 $15 24,620 $15 24,620 $15
======= === ====== === ====== ===
Exercisable at end of year............ 23,026 $15 -- $-- -- $--
</TABLE>
Exercise price of all options outstanding as of January 3, 1998 is $15. The
weighted-average remaining contractual life of those options is 4 years.
In addition, the Parent Company has outstanding warrants to purchase 30,928
shares of class A common stock of Parent Company at $15 per share. At January 3,
1998, 32,100 shares of class A common stock of Parent Company were reserved for
issuance under these warrants.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, whenever the exercise price of the Company's employee stock options
equals or exceeds the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
The Company used the minimum value method to develop the pro-forma income
effect. Assumptions used in valuing stock options include a risk free rate of
6%, dividend yield of 0.0% and an expected life of 4 years. The difference
between pro-forma net income and reported earnings is not material.
The Company paid a dividend of $7,929 to shareholders on February 26, 1997.
F-13
<PAGE> 113
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
Deferred tax liabilities:
Funded pension........................................... $ 219 $ 381
LIFO..................................................... 1,317 1,410
Tax over book depreciation............................... 3,385 3,610
Other.................................................... 37 237
------ ------
4,958 5,638
Deferred tax assets:
Unfunded pension......................................... 2,017 2,149
Vacation accrual......................................... 436 430
Healthcare accrual....................................... 190 202
Hazardous waste accrual.................................. 107 110
Inventory obsolescence................................... 276 186
Other.................................................... 142 161
------ ------
3,168 3,238
------ ------
$1,790 $2,400
====== ======
</TABLE>
Significant components of the provision for income taxes, including the tax
provision for extraordinary items and cumulative effects of change in method of
accounting are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Current:
Federal............................................. $2,964 $2,024 $ 1,998
State............................................... (27) 214 260
------ ------ -------
2,937 2,238 2,258
Deferred:
Federal............................................. (521) (512) (1,025)
State............................................... (89) (88) (175)
------ ------ -------
(610) (600) (1,200)
------ ------ -------
$2,327 $1,638 $ 1,058
====== ====== =======
</TABLE>
F-14
<PAGE> 114
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES--(CONTINUED)
The reconciliation of income tax attributable to continuing operations computed
at the U.S. statutory rate to income tax expense is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory
rates..................... $2,394 34.0% $1,440 34.0% $ 744 34.0%
State income tax (benefit),
net of federal tax
effect.................... (77) (1.1) 83 2.0 56 2.6
Goodwill amortization....... 248 3.5 248 5.9 248 11.3
Meals and entertainment..... 38 0.5 33 0.8 27 1.3
Benefit of foreign
subsidiary................ (140) (2.0) (110) (2.6) (84) (3.8)
Other, net.................. (136) (1.9) (56) (1.4) 67 2.9
------ ---- ------ ---- ------ ----
$2,327 33.0% $1,638 38.7% $1,058 48.3%
====== ==== ====== ==== ====== ====
</TABLE>
Income taxes paid in excess of tax refunds in 1997, 1996 and 1995 were $2,954,
$2,105 and $2,660, respectively.
9. BUSINESS SEGMENTS
The Company manufactures and sell products and loom accessories used by textile
mills. In addition, the Company processes and sells rolled products from its
wire, foundry and metal fabricating facilities to industrial users. Export sales
were approximately $16,031, $15,218 and $14,911 in 1997, 1996 and 1995,
respectively. Foreign operations are not significant.
F-15
<PAGE> 115
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. BUSINESS SEGMENTS--(CONTINUED)
The information required by Statement of Financial Standards No. 14 is shown
below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Net sales and other income
Textile mill accessories................................. $ 63,127 $56,588 $58,943
Metal products
Unaffiliated customers................................ 9,856 7,896 9,175
Intersegment (1)...................................... 7,393 6,023 6,990
Eliminations--intersegment sales(1)...................... (7,393) (6,023) (6,990)
-------- ------- -------
Total net sales and other income.................... $ 72,983 $64,484 $68,118
======== ======= =======
Operating profit (loss)
Textile mill accessories................................. $ 15,979 $11,861 $ 9,755
Metal products........................................... 3,885 2,289 2,671
-------- ------- -------
Total operating profit.............................. 19,864 14,150 12,426
General corporate expenses................................. (3,234) (4,069) (2,506)
Net interest (expense) income.............................. (5,148) (5,844) (6,307)
-------- ------- -------
Earnings before income taxes............................... $ 11,482 $ 4,237 $ 3,613
======== ======= =======
Identifiable assets
Textile mill accessories................................. $ 49,307 $50,469 $52,263
Metal products........................................... 12,770 12,163 13,660
Corporate assets(2)...................................... 2,263 6,084 2,848
-------- ------- -------
Total assets........................................ $ 64,340 $68,716 $68,771
======== ======= =======
Depreciation and amortization
Textile mill accessories................................. $ 3,220 $ 4,404 $ 4,388
Metal products........................................... 863 1,309 1,353
Corporate................................................ 326 306 355
-------- ------- -------
Total depreciation and amortization................. $ 4,409 $ 6,019 $ 6,096
======== ======= =======
Capital expenditures
Textile mill accessories................................. $ 1,329 $ 1,717 $ 2,108
Metal products........................................... 342 637 741
Corporate................................................ 887 455 606
-------- ------- -------
Total capital expenditures.......................... $ 2,558 $ 2,809 $ 3,455
======== ======= =======
</TABLE>
- ---------------
(1) Intersegment sales are accounted for substantially at cost and have been
eliminated in consolidation.
(2) Corporate assets shown are principally cash, short-term investments and
other assets and deferred charges.
10. RESTRUCTURING
During the fourth quarter of 1995, the Company initiated a restructuring program
which resulted in a one-time pretax expense of approximately $821. This program
includes the closing of the Company's Canadian operation, the write down of
certain assets to be disposed of and a reduction in work force in the Company's
domestic operations. Severance costs included in the one-time charge totaled
approximately $561.
11. SUBSEQUENT EVENT
On May 26, 1998, the Company and its subsidiaries were acquired in a purchase
transaction by Steel Heddle Group, Inc., a corporation formed in contemplation
of the purchase transaction. To partially fund the costs of
F-16
<PAGE> 116
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the acquisition, the Company issued 10 5/8% Senior Subordinated Notes due 2008
in the principal amount of $100,000,000.
Payment of the Company's Senior Subordinated Notes is unconditionally
guaranteed, jointly and severally, on a senior subordinated basis by certain of
the Company's wholly-owned subsidiaries. Management has determined that separate
complete financial statements of the guarantor entities would not be material to
readers of the financial statements; therefore, the following sets forth
condensed consolidating financial statements (dollars in thousands):
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 3, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents........ $ 16 $ 96 $ 267 $ $ 379
Accounts receivable.............. 212 294 8,784 9,290
Inventories...................... 315 13,715 14,030
Prepaid expenses................. 5 94 99
------- ------ -------- --------- -------
Total current assets... 228 710 22,860 23,798
Due from affiliates.............. 3,348 (3,348)
Notes receivable from
affiliates..................... 69,443 (69,443)
Investments in subsidiaries...... 176 71,029 (71,205)
Property, plant & equipment,
net............................ 334 16,351 16,685
Other assets and deferred
charges, net................... 7 23,850 23,857
------- ------ -------- --------- -------
Total assets........... $69,847 $4,399 $134,090 $(143,996) $64,340
======= ====== ======== ========= =======
Liabilities and shareholders'
equity:
Accounts payable and accrued and
sundry liabilities............. $ 23 $ 7,456 $ $ 7,479
Due to affiliates, net........... 3,018 330 (3,348)
Deferred income taxes............ 670 670
Income taxes..................... 302 302
Current portion of long-term
debt........................... 6,500 6,500
------- ------ -------- --------- -------
Total current
liabilities.......... 3,018 23 15,258 (3,348) 14,951
Long-term debt, less current
portion........................ 115,743 (69,443) 46,300
Retirement benefits payable...... 5,126 5,126
Deferred income taxes............ 1,120 1,120
Redeemable common stock.......... 1,366 1,366
Shareholders' equity (deficit)... 66,829 4,376 (4,523) (71,205) (4,523)
------- ------ -------- --------- -------
Total liabilities and
shareholders'
equity............... $69,847 $4,399 $134,090 $(143,996) $64,340
======= ====== ======== ========= =======
</TABLE>
F-17
<PAGE> 117
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 28, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents......... $ $ 105 $ 4,540 $ $ 4,645
Accounts receivable............... 164 8,698 8,862
Inventories....................... 234 12,736 12,970
Prepaid expenses.................. 10 98 108
----- ------ ------- ------- -------
Total current assets.... 513 26,072 26,585
Due from affiliates............... 2,907 (2,907)
Investments in subsidiaries....... 149 0 3,273 (3,422)
Property, plant & equipment,
net............................. 377 17,379 17,756
Other assets and deferred charges,
net............................. 10 24,365 24,375
----- ------ ------- ------- -------
Total assets............ $ 149 $3,807 $71,089 $(6,329) $68,716
===== ====== ======= ======= =======
Liabilities and shareholders'
equity:
Accounts payable and accrued and
sundry liabilities.............. $ 14 $10,528 $ $10,542
Due to affiliates, net............ 520 2,387 (2,907)
Deferred income taxes............. 802 802
Income taxes...................... 361 361
Current portion of long-term
debt............................ 6,500 6,500
----- ------ ------- ------- -------
Total current
liabilities........... 520 14 20,578 (2,907) 18,205
Long-term debt, less current
portion......................... 43,500 43,500
Retirement benefits payable....... 5,372 5,372
Deferred income taxes............. 1,598 1,598
Redeemable common stock........... 1,350 1,350
Shareholders' equity (deficit).... (371) 3,793 (1,309) (3,422) (1,309)
----- ------ ------- ------- -------
Total liabilities and
shareholders'
equity................ $(149) $3,807 $71,089 $(6,329) $68,716
===== ====== ======= ======= =======
</TABLE>
F-18
<PAGE> 118
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales........................ $ $1,601 $ 72,017 $ (635) $72,983
Cost of goods sold............... 927 45,521 46,448
------ ------ -------- ------- -------
Gross profit..................... 674 26,496 (635) 26,535
Selling, general and
administrative costs........... 4 18 9,102 (635) 8,489
Other operating expenses......... 1,204 1,204
------ ------ -------- ------- -------
Operating income (loss).......... (4) 656 16,190 16,842
Other income (expense)........... 7,145 (12,505) (5,360)
Income before income taxes and
extraordinary item............. 7,141 656 3,685 11,482
------ ------ -------- ------- -------
Income tax expense............... 2,500 74 1,441 4,015
------ ------ -------- ------- -------
Income before extraordinary
item........................... 4,641 582 2,244 7,467
Extraordinary (loss) on the early
extinquishment of debt, net of
income taxes................... (2,753) (2,753)
Equity in earnings of
subsidiaries................... 26 5,223 (5,249)
------ ------ -------- ------- -------
Net income (loss)................ $4,667 $ 582 $ 4,714 $(5,249) $ 4,714
====== ====== ======== ======= =======
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales......................... $ $645 $63,839 $ $64,484
Cost of goods sold................ 598 43,476 44,074
--- ---- ------- ----- -------
Gross profit...................... 47 20,363 20,410
Selling, general and
administrative costs............ 10 8,865 8,875
Other operating expenses.......... 1,454 1,454
--- ---- ------- ----- -------
Operating income.................. 37 10,044 10,081
Other income (expense)............ 453 (6,297) (5,844)
--- ---- ------- ----- -------
Income before income taxes........ 490 3,747 4,237
Income tax expense................ (52) (1,586) (1,638)
Equity in earnings of
subsidiaries.................... 45 438 (483)
--- ---- ------- ----- -------
Net income (loss)................. $45 $438 $ 2,599 $(483) $ 2,599
=== ==== ======= ===== =======
</TABLE>
F-19
<PAGE> 119
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 1995
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales......................... $ $625 $67,815 $(322) $68,118
Cost of goods sold................ 310 47,396 47,706
---- ---- ------- ----- -------
Gross profit...................... 315 20,419 (322) 20,412
Selling, general and
administrative costs............ 80 8,909 $(322) 8,667
Other operating expenses.......... 1,825 1,825
---- ---- ------- ----- -------
Operating income.................. 235 9,685 9,920
Other income (expense)............ (68) (6,239) (6,307)
Income before income taxes, and
cumulative effect of accounting
change.......................... 167 3,446 3,613
---- ---- ------- ----- -------
Income tax expense................ 18 1,610 1,628
---- ---- ------- ----- -------
Income before cumulative effect of
accounting change............... 149 1,836 1,985
Cumulative effect of change in
method of accounting for
postretirement benefits net of
taxes of $570................... (855) (855)
Equity in earnings (loss) of
subsidiaries.................... (81) 149 (68)
---- ---- ------- ----- -------
Net income (loss)............... $(81) $149 $ 1,130 $ (68) $ 1,130
==== ==== ======= ===== =======
</TABLE>
F-20
<PAGE> 120
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 3, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities..................... $ 4,431 $ 439 $ 5,090 $ $ 9,960
Investing activities:
Purchases of property, plant
and equipment............... (7) (2,522) (2,529)
Advances to subsidiaries....... (69,443) 69,443
-------- ----- -------- -------- --------
Net cash provided by (used in)
investing activities........ (69,443) (7) (2,522) 69,443 (2,529)
Financing activities:
Prepayment of debt, including
penalty..................... (55,690) (55,690)
Proceeds from debt............. 135,943 (69,443) 66,500
Payments of debt............... (13,700) (13,700)
Dividends paid................. (7,929) (7,929)
Intercompany transactions,
net......................... 2,498 (441) (2,057)
Capital contributions.......... 62,530 (62,530)
Other.......................... (878) (878)
-------- ----- -------- -------- --------
Net cash used in financing
activities..................... 65,028 (441) (6,841) (69,443) (11,697)
-------- ----- -------- -------- --------
Net increase (decrease) in cash
and equivalents................ 16 (9) (4,273) (4,266)
Cash and equivalents at beginning
of year........................ 105 4,540 4,645
-------- ----- -------- -------- --------
Cash and equivalents at end of
year........................... $ 16 $ 96 $ 267 $ $ 379
======== ===== ======== ======== ========
</TABLE>
F-21
<PAGE> 121
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities...................... $ 28 $ 414 $10,794 $ $11,236
Net cash used in investing
activities...................... (4) (2,763) (2,767)
Financing activities:
Payments of debt............. (2,700) (2,700)
Short-term borrowings........ (2,000) (2,000)
Intercompany transactions,
net........................ 30 (377) 347
Capital accounts............. (58) 10 48
Other........................
---- ----- ------- ----- -------
Net cash used in financing
activities................. (28) (367) (4,305) (4,700)
---- ----- ------- ----- -------
Net increase (decrease) in cash
and equivalents................. 43 3,726 3,769
Cash and equivalents at beginning
of year......................... 62 814 876
---- ----- ------- ----- -------
Cash and equivalents at end of
year............................ $ $ 105 $ 4,540 $ $ 4,645
==== ===== ======= ===== =======
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 30, 1995
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by
operating activities............. $(508) $ 508 $ 7,612 $ $ 7,612
Net cash used in investing
activities....................... (340) (3,017) (3,357)
Financing activities:
Payments of debt................. (7,000) (7,000)
Short-term borrowings............ 2,000 2,000
Intercompany transactions, net... 508 (169) (339)
Other............................
----- ----- ------- ----- -------
Net cash used in financing
activities.................... 508 (169) (5,339) (5,000)
----- ----- ------- ----- -------
Net increase (decrease) in cash and
equivalents...................... (1) (744) (745)
Cash and equivalents at beginning
of year.......................... 63 1,558 1,621
----- ----- ------- ----- -------
Cash and equivalents at end of
year............................. $ $ 62 $ 814 $ $ 876
===== ===== ======= ===== =======
</TABLE>
F-22
<PAGE> 122
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 4, JANUARY 3,
1998 1998
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 276 $ 379
Accounts receivable....................................... 11,115 9,290
Inventories............................................... 15,071 14,030
Prepaid expenses.......................................... 50 99
-------- --------
Total current assets........................................ 26,512 23,798
Property, plant and equipment:
Cost...................................................... 52,368 52,561
Less accumulated depreciation............................. (36,070) (35,876)
-------- --------
16,298 16,685
Other assets and deferred charges:
Prepaid pension costs..................................... 488 546
Goodwill, net............................................. 22,355 22,537
Sundry.................................................... 741 774
-------- --------
23,584 23,857
-------- --------
Total Assets...................................... $ 66,394 $ 64,340
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 2,194 $ 2,166
Accrued and sundry liabilities............................ 3,130 5,313
Deferred income taxes..................................... 670 670
Income taxes.............................................. 1,289 302
Current portion of long-term debt......................... 6,500 6,500
-------- --------
Total current liabilities................................... 13,783 14,951
Long-term debt, less current portion........................ 46,992 46,300
Retirement benefits payable................................. 5,141 5,126
Deferred income taxes....................................... 1,120 1,120
Redeemable common stock:
Parent company class A, $.01 par value per
share -- authorized 2,000,000 shares, issued and
outstanding 91,080 shares in 1997 and 90,000 in 1996... 1,366 1,366
Shareholders' equity/(deficit):
Common Stock par value $1 per share -- authorized
1,500,000 shares, issued and outstanding 10 shares..... -- --
Additional paid-in capital................................ 13,689 13,689
Foreign currently translation adjustment.................. (34) (48)
(Deficit)................................................. (15,663) (18,164)
-------- --------
(2,008) (4,523)
-------- --------
Total liabilities and shareholders' equity
(deficit)....................................... $ 66,394 $ 64,340
======== ========
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE> 123
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
--------------------
APRIL 4, APRIL 5,
1998 1997
-------- --------
<S> <C> <C>
Net sales................................................... $19,266 $18,606
Cost of goods sold.......................................... 11,930 12,081
------- -------
Gross profit................................................ 7,336 6,525
Selling, general and administrative costs................... 2,178 2,231
Management fees............................................. 68 268
Amortization of goodwill.................................... 182 182
------- -------
Operating income............................................ 4,908 3,844
Other income (expense):
Interest income........................................... 17 44
Interest expense, including amortization of deferred
financing costs........................................ (1,027) (1,503)
Other financing expense................................... (50) (175)
------- -------
Income before income taxes and extraordinary item........... 3,848 2,210
Income tax expense.......................................... 1,347 773
------- -------
Income before extraordinary item............................ 2,501 1,437
Extraordinary (loss) on the early extinguishment of debt,
net of income taxes of $1,688............................. -- (2,753)
------- -------
Net income (loss)........................................... $ 2,501 $(1,316)
======= =======
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE> 124
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
--------------------
APRIL 4, APRIL 5,
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 2,501 $ (1,316)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 924 943
Amortization.............................................. 215 394
Loss on disposal of property, plant and equipment......... -- --
Provision for deferred income taxes....................... -- --
Accrued retirement benefit costs.......................... 73 48
Extraordinary item........................................ -- 4,441
Changes in operating assets and liabilities:
Accounts receivable.................................... (1,825) (379)
Inventories............................................ (1,041) (327)
Prepaid expenses....................................... 49 86
Accounts payable....................................... 28 (421)
Accrued and sundry liabilities......................... (2,169) (3,696)
Income taxes payable................................... 987 (1,118)
------- --------
Net cash used in operating activities....................... (258) (1,345)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment................. (618) (416)
Proceeds on disposals of property, plant and equipment,
net.................................................... 81 --
------- --------
Net cash used in investing activities....................... (537) (416)
FINANCING ACTIVITIES:
Prepayments of debt, including penalty.................... -- (56,315)
Proceeds from debt........................................ 692 62,500
Dividends paid............................................ -- (7,929)
Loan acquisition costs.................................... -- (793)
------- --------
Net cash provided by (used in) financing activities....... 692 (2,537)
------- --------
(Decrease) increase in cash and cash equivalents............ (103) (4,298)
Cash and cash equivalents at beginning of period............ 379 4,645
------- --------
Cash and cash equivalents at end of period.................. $ 276 $ 347
======= ========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 125
STEEL HEDDLE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Steel Heddle Mfg. Co. ("Steel Heddle" or the "Company") manufactures
products and loom accessories used by textile mills. It also processes and sells
metal products from its wire rolling facilities to industrial users. The Company
sells to foreign and domestic companies.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the management of Steel
Heddle, these unaudited consolidated financial statements contain all of the
adjustments of a normal recurring nature necessary for fair presentation.
Operating results for the fiscal quarter ended April 4, 1998 are not necessarily
indicative of the results that may be expected for fiscal 1998. Certain amounts
previously presented in the consolidated financial statements for prior periods
have been reclassified to conform to current classification. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of revenues and expense during the reporting period. Actual results
could differ from those estimates.
During the quarter ended April 4, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income," which requires comprehensive income to be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Adoption of this statement did not have any impact
on the Company's consolidated financial position, results of operations or cash
flows.
2. EXTRAORDINARY ITEM
On February 21, 1997, the Company entered into a credit arrangement with a
bank group consisting of a Term Loan Facility of $52,500 and a $15,000 Revolving
Line of Credit. The Company utilized proceeds of the Term Loan and the Revolving
Credit Facility to repay its senior notes in the principal amount of $24,900
plus a penalty of $2,500 and to repay its subordinated notes in the principal
amount of $25,100 plus a penalty of $3,200. The total penalty net of other
losses and gains on the refinancing is reported as an extraordinary item, net of
taxes of approximately $1,700. Included in the net extraordinary loss is a
reversal of accrued interest of approximately $1,400. This reversal resulted
from the difference between the stated rate of interest and the effective rate
of interest.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 4, JANUARY 3,
1998 1998
----------- ----------
(UNAUDITED)
<S> <C> <C>
Raw materials and component parts........................... $ 6,148 $ 6,312
Work in process and finished goods.......................... 8,923 7,718
------- -------
$15,071 $14,030
======= =======
</TABLE>
If all inventories had been priced by FIFO or average cost method, they
would have been higher than the amounts reported by approximately $725 at April
4, 1998 and $627 at January 3, 1998.
F-26
<PAGE> 126
4. SUBSEQUENT EVENT
On May 26, 1998, the Company and its subsidiaries were acquired in a
purchase transaction by Steel Heddle Group, Inc., a corporation formed in
contemplation of the purchase transaction. To partially fund the costs of the
acquisition, the Company issued 10 5/8% Senior Subordinated Notes due 2008 in
the principal amount of $100,000,000.
Payment of the Company's Senior Subordinated Notes is unconditionally
guaranteed, jointly and severally, on a senior subordinated basis by certain of
the Company's wholly-owned subsidiaries. Management has determined that separate
complete financial statements of the guarantor entities would not be material to
users of the financial statements; therefore, the following sets forth condensed
consolidating financial statements (in thousands):
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
AS OF APRIL 4, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents........ $ 17 $ 34 $ 225 $ $ 276
Accounts receivable.............. 240 265 10,610 11,115
Inventories...................... 351 14,720 15,071
Prepaid expenses................. 31 19 50
------- ------ -------- --------- -------
Total current assets... 257 681 25,574 26,512
Due from affiliates.............. 3,361 (3,361) --
Notes receivable from
affiliates..................... 69,443 (69,443) --
Investments in subsidiaries...... 163 72,371 (72,534) --
Property, plant & equipment,
net............................ 322 15,976 16,298
Other assets and deferred
charges, net................... 7 23,577 23,584
------- ------ -------- --------- -------
Total assets........... $69,863 $4,371 $137,498 $(145,338) $66,394
======= ====== ======== ========= =======
Liabilities and shareholders'
equity:
Accounts payable and accrued and
sundry liabilities............. $ $ 32 $ 5,292 $ $ 5,324
Due to affiliates, net........... 853 2,508 (3,361) --
Deferred income taxes............ 670 670
Income taxes..................... 834 (19) 474 1,289
Current portion of long-term
debt........................... 6,500 6,500
------- ------ -------- --------- -------
Total current
liabilities.......... 1,687 13 15,444 (3,361) 13,783
Long-term debt, less current
portion........................ 116,435 (69,443) 46,992
Retirement benefits payable...... 5,141 5,141
Deferred income taxes............ 1,120 1,120
Redeemable common stock.......... 1,366 1,366
Shareholders' equity (deficit)... 68,176 4,358 (2,008) (72,534) (2,008)
------- ------ -------- --------- -------
Total liabilities and
shareholders'
equity............... $69,863 $4,371 $137,498 $(145,338) $66,394
======= ====== ======== ========= =======
</TABLE>
F-27
<PAGE> 127
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE FISCAL QUARTER ENDED APRIL 4, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales......................... $ $230 $19,036 $ $19,266
Cost of goods sold................ 251 11,678 11,930
------ ---- ------- ------- -------
Gross profit...................... (21) 7,357 7,336
Selling, general and
administrative costs............ 5 2,173 2,178
Other operating expenses.......... 250 250
------ ---- ------- ------- -------
Operating income (loss)........... (26) 4,934 4,908
Other income (expense)............ 2,194 (3,254) (1,060)
------ ---- ------- ------- -------
Income (loss) before income
taxes........................... 2,194 (26) 1,680 3,848
Income tax (expense) benefit...... (834) 9 (522) (1,347)
Equity in earnings of
subsidiaries.................... 1,343 (1,343) --
------ ---- ------- ------- -------
Net income (loss)................. $1,360 $(17) $ 2,501 $(1,343) $ 2,501
====== ==== ======= ======= =======
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE FISCAL QUARTER ENDED APRIL 5, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales......................... $ $201 $18,405 $ $10,606
Cost of goods sold................ 174 11,907 12,081
---- ---- ------- ----- -------
Gross profit...................... 27 6,498 6,525
Selling, general and
administrative costs............ 5 2,226 2,231
Other operating expenses.......... 450 450
---- ---- ------- ----- -------
Operating income.................. 22 3,822 3,844
Other income (expense)............ 922 (2,556) (1,634)
---- ---- ------- ----- -------
Income before income taxes and
extraordinary item.............. 922 22 1,266 2,210
Income tax expense................ 351 8 414 773
---- ---- ------- ----- -------
Income before extraordinary
item............................ 571 14 852 1,437
Extraordinary (loss)on early
extinguishment of debt, net of
income taxes.................... (2,753) (2,753)
Equity in earnings of
subsidiaries.................... 17 585 (602) 3
---- ---- ------- ----- -------
Net income (loss)................. $588 $ 14 $(1,316) $(602) $(1,316)
==== ==== ======= ===== =======
</TABLE>
F-28
<PAGE> 128
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE FISCAL QUARTER ENDED APRIL 4, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities...................... $ 2,166 $(49) $(2,375) $ $(258)
Net cash used in investing
activities...................... (537) (537)
Financing activities:
Proceeds from debt.............. 692 692
Dividends paid.................. --
Intercompany transactions,
net.......................... (2,165) (13) 2,178
Other........................... --
------- ---- ------- --------- -----
Net cash used in financing
activities...................... (2,165) (13) 2,870 692
------- ---- ------- --------- -----
Net increase (decrease) in cash
and equivalents................. 1 (62) (42) (103)
Cash and equivalents at beginning
of year......................... 16 96 267 379
------- ---- ------- --------- -----
Cash and equivalents at end of
year............................ $ 17 $ 34 $ 225 $ $ 276
======= ==== ======= ========= =====
</TABLE>
F-29
<PAGE> 129
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE FISCAL QUARTER ENDED APRIL 5, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR THE AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities..................... $ 706 $ 55 $ (2,106) $ $ (1,345)
Investing activities:
Purchases of property, plant
and equipment............. (416) (416)
Advances to subsidiaries.... (63,220) 63,220
-------- ---- -------- -------- --------
Net cash used in investing
activities................ (63,220) (416) 63,220 416
Financing activities:............
Dividends paid.............. (7,929) (7,929)
Pre-payments of debt,
including penalty......... (56,315) (56,315)
Proceeds from debt.......... 125,720 (63,220) 62,500
Intercompany transactions,
net....................... (3) (2) 5
Capital accounts............ 62,531 (62,531)
Other....................... (793) (793)
-------- ---- -------- -------- --------
Net cash used in financing
activities................ 62,528 (2) (1,843) (63,220) (2,537)
-------- ---- -------- -------- --------
Net increase (decrease) in cash
and equivalents................ 14 53 (4,365) (4,298)
Cash and equivalents at beginning
of year........................ 105 4,540 4,645
-------- ---- -------- -------- --------
Cash and equivalents at end of
year........................ $ 14 $158 $ 175 $ $ 347
======== ==== ======== ======== ========
</TABLE>
F-30
<PAGE> 130
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING NOT
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information.................. i
Summary................................ 1
Risk Factors........................... 12
Acquisition Transactions............... 18
Use of Proceeds........................ 19
Capitalization......................... 20
Unaudited Pro Forma Condensed
Consolidated Financial Data.......... 21
Selected Consolidated Historical
Financial Data....................... 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 29
Business............................... 35
Management............................. 44
Certain Relationships and Related
Transactions......................... 48
Description of Company Common Stock.... 49
Security Ownership..................... 49
Description of Notes................... 50
The Exchange Offer..................... 82
Description of New Credit Agreement.... 90
Certain Federal Income Tax
Considerations....................... 92
Plan of Distribution................... 93
Legal Matters.......................... 93
Experts................................ 93
Change in Accountants.................. 93
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
PROSPECTUS
$100,000,000
LOGO
STEEL HEDDLE MFG. CO.
OFFER TO EXCHANGE
$1,000 PRINCIPAL AMOUNT OF ITS
10 5/8% SERIES B SENIOR
SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT FOR
EACH $1,000 PRINCIPAL AMOUNT
OF ITS OUTSTANDING
10 5/8% SERIES A SENIOR
SUBORDINATED NOTES DUE 2008
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 131
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the Commonwealth of
Pennsylvania. Pennsylvania law provides that a Pennsylvania corporation may
indemnify directors, officers, employees and agents of the corporation against
liabilities they may incur in such capacities for any action taken or any
failure to act, whether or not the corporation would have the power to indemnify
the person under any provisions of law, unless such action or failure to act is
determined by a court to have constituted recklessness or willful misconduct.
Pennsylvania law also permits the adoption of a bylaw amendment, approved by
shareholders, providing for the elimination of a director's liability for
monetary damages for any action taken or any failure to take any action unless
(1) the director has breached or failed to perform the duties of his office and
(2) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
The bylaws of the Company provide for indemnification of directors,
officers, employees and agents of the Company and every fiduciary or
administrator of any of its deferred compensation or other employee benefit
plans to the full extent permitted by the Pennsylvania Business Corporation Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<C> <S>
3.1 Articles of Incorporation of the Company.
3.2 By-laws of the Company.
3.3 Articles of Incorporation of Steel Heddle International,
Inc.
3.4 By-Laws of Steel Heddle International, Inc.
3.5 Certificate of Incorporation of Heddle Capital Corp.
3.6 By-Laws of Heddle Capital Corp.
4.1 Indenture, dated as of May 26, 1998, among the Company, the
Guarantors and United States Trust Company of New York, as
Trustee.
4.2 Purchase Agreement, dated as of May 21, 1998, among the
Company, the Guarantors, Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBanc Montgomery Securities
LLC.
4.3 Registration Rights Agreement, dated as of May 26, 1998, by
and among the Company, the Guarantors, Donaldson, Lufkin &
Jenrette Securities Corporation and NationsBanc Montgomery
Securities LLC
5.1 Opinion of Kirkland & Ellis.
10.1 Credit Agreement, dated as of May 26, 1998, among the
Company, the other credit parties from time to time parties
thereto, the lenders identified therein, NationsBank, N.A.,
as administrative agent and documentation agent (the
"Agent") and DLJ Capital Funding, Inc., as syndication
agent.
10.2 Security Agreement, dated as of May 26, 1998, made by the
Company and each of the Guarantors in favor of the Agent.
10.3 Pledge Agreement, dated as of May 26, 1998, among the
Company, Steel Heddle Group, Inc., the Guarantors and the
Agent.
10.4 Stock Purchase Agreement dated as of May 1, 1998, by and
among SH Holdings Corp., Butler Capital Corporation, Steel
Heddle Group, Inc. and the shareholders of SH Holdings Corp.
10.5 Management Services Agreement, dated as of May 26, 1998, by
and among the Company, the Guarantors, SH Group, Steel
Heddle International Ltd., Steel Heddle (Canada) LTEE/LTD
and American Industrial Partners Corporation.
10.6 Sale Bonus Agreement, dated April 21, 1998, among each of
Messrs. Dillon, Team and Miller and the Company and SH
Holdings Corp.
10.7 Bonus Agreement, dated as of January 5, 1998, among SH
Holdings Corp., the Company and employees of the Company
signatories thereto.
</TABLE>
II-1
<PAGE> 132
<TABLE>
<C> <S>
12.1 Computation of earnings to fixed charges.*
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page).
25.1 Statement of Eligibility of Trustee on Form T-1.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Tender Instructions.
</TABLE>
- ------------------
* to be filed by amendment
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by sec. 210.3-19 of this chapter at the start
of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, provided, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act or sec. 210.3-19 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form F-3.
II-2
<PAGE> 133
(5) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(6) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 20 or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Greenville, State of
South Carolina, on August 7, 1998.
STEEL HEDDLE MFG. CO.
By: /s/ JERRY B. MILLER
------------------------------------
Name: Jerry B. Miller
Title: Vice President Finance and
Secretary
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jerry B. Miller, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (including
his capacity as a director and/or officer of Steel Heddle Mfg. Co.), to sign any
or all amendments (including post-effective amendments) to this registration
statement and any subsequent registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ BENJAMIN G. TEAM President, Chief Executive Officer and August 7, 1998
- ------------------------------------------ Director (principal executive officer)
BENJAMIN G. TEAM
/s/ JERRY B. MILLER Vice President Finance and Secretary August 7, 1998
- ------------------------------------------ (principal financial and accounting
JERRY B. MILLER officer)
/s/ ROBERT W. DILLON Executive Vice President and Director August 7, 1998
- ------------------------------------------
ROBERT W. DILLON
/s/ NATHAN L. BELDEN Director August 7, 1998
- ------------------------------------------
NATHAN L. BELDEN
/s/ ROBERT J. KLEIN Director August 7, 1998
- ------------------------------------------
ROBERT J. KLEIN
/s/ KIM A. MARVIN Director August 7, 1998
- ------------------------------------------
KIM A. MARVIN
/s/ THEODORE C. ROGERS Director August 7, 1998
- ------------------------------------------
THEODORE C. ROGERS
/s/ ROBERT L. PURDUM Director August 7, 1998
- ------------------------------------------
ROBERT L. PURDUM
</TABLE>
II-4
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Greenville, State of
South Carolina, on August 7, 1998.
STEEL HEDDLE INTERNATIONAL, INC.
By: /s/ JERRY B. MILLER
------------------------------------
Name: Jerry B. Miller
Title: Vice President Finance and
Secretary
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jerry B. Miller, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (including
his capacity as a director and/or officer of Steel Heddle International, Inc.),
to sign any or all amendments (including post-effective amendments) to this
registration statement and any subsequent registration statement filed pursuant
to Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ BENJAMIN G. TEAM President, Chief Executive Officer and August 7, 1998
- ------------------------------------------ Director (principal executive officer)
BENJAMIN G. TEAM
/s/ JERRY B. MILLER Vice President Finance and Secretary August 7, 1998
- ------------------------------------------ and Director (principal financial and
JERRY B. MILLER accounting officer)
/s/ ROBERT W. DILLON Executive Vice President and Director August 7, 1998
- ------------------------------------------
ROBERT W. DILLON
</TABLE>
II-5
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Greenville, State of
South Carolina, on August 7, 1998.
HEDDLE CAPITAL CORP.
By: /s/ JERRY B. MILLER
------------------------------------
Name: Jerry B. Miller
Title: President
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jerry B. Miller, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (including
his capacity as a director and/or officer of Heddle Capital Corp.), to sign any
or all amendments (including post-effective amendments) to this registration
statement and any subsequent registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ JERRY B. MILLER President and Director (principal August 7, 1998
- ------------------------------------------ executive officer)
JERRY B. MILLER
/s/ BENJAMIN G. TEAM Vice President, Treasurer and Director August 7, 1998
- ------------------------------------------
BENJAMIN G. TEAM
/s/ FRANCIS B. JACOBS Director August 7, 1998
- ------------------------------------------
FRANCIS B. JACOBS
</TABLE>
II-6
<PAGE> 1
EXHIBIT 3.1
RESTATED
ARTICLES OF INCORPORATION
OF
STEEL HEDDLE MFG. CO.
1. The name of the corporation is Steel Heddle Mfg. Co.
2. The location and post office address of the registered office of the
corporation in the Commonwealth of Pennsylvania is CT Corporation
System, 123 S. Broad Street, Philadelphia, Philadelphia County, PA
19109.
3. The corporation is incorporated under the Pennsylvania Business
Corporation law and shall have unlimited power to engage in and do any
lawful act concerning any lawful business for which corporations may
be incorporated under the Pennsylvania Business Corporation Law.
4. The term for which the corporation is to exist is perpetual.
5. The aggregate number of share which the corporation shall have
authority to issue is 100 Common Shares, par value $.10 per share.
6. Section 910 of the Pennsylvania Business Corporation Law shall not be
applicable to the corporation.
<PAGE> 1
EXHIBIT 3.2
STEEL HEDDLE MFG. CO.
BY-LAWS
ARTICLE I
OFFICES
Section 1. The Registered Office shall be located at
2100 west Allegheny Avenue, Philadelphia, Philadelphia County, in the
Commonwealth of Pennsylvania.
Section 2. The corporation may also have offices at such
other places both within and without the Commonwealth of Pennsylvania as the
Board of Directors may from time to time determine, or as the business of the
corporation may require.
<PAGE> 2
ARTICLE II
SEAL
Section 1. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the
words, "Corporate Seal, Pennsylvania". The Seal may be used by causing it or a
facsimile thereof to be impressed or affixed or otherwise reproduced.
2
<PAGE> 3
ARTICLE III
MEETINGS OF SHAREHOLDERS
Section 1. All meetings of the shareholders shall be
held at such places within or without the Commonwealth of Pennsylvania as may
from time to time be fixed or determined by the Board of Directors.
Section 2. An annual meeting of the shareholders,
commencing with the year 1977, shall be held on the fourth Wednesday of April
in each year, if not a legal holiday, and, if a legal holiday, then on the next
secular day following, at such hour as may be fixed by the Board of Directors,
when they shall elect, by a plurality vote, a Board of Directors and transact
such other business as may properly be brought before the meeting.
Section 3. Special meetings of the shareholders, for any
purpose of purposes, unless otherwise prescribed by the statute or by the
Articles of Incorporation, may be called at any time by the President, or a
majority of the Board of Directors, or the holders of not less than one-fifth
of all the shares issued and outstanding and entitled to vote at the particular
meeting, upon written request delivered to the Security of the corporation.
Such request shall state the purpose or purposes of the proposed meeting. Upon
receipt of any such request, it shall be the duty of the Secretary to call a
special meeting of the shareholders to be held at such time, not less than ten
or more than sixty days thereafter, [unreadable]
Section 4. Written notice of every meeting of the
shareholders, specifying the place, date and hour and the general nature of the
business of the meeting, shall be served upon or mailed, postage prepaid, at
least ten days prior to the meeting, unless a greater period of notice is
required by statute, to each shareholder entitled to vote thereat.
Section 5. The officer having charge of the transfer
books for shares of the corporation shall prepare and make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at the meeting, arranged in alphabetical order with the
address and the number of shares held by each, which list shall be kept on file
at the registered office of the corporation and shall be subject to inspection
by any shareholder at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall
be subject to the inspection of any shareholder during the whole time of the
meeting.
Section 6. Business transacted at all special meetings
of shareholders shall be limited to the purposes stated in the notice.
Section 7. The holders of a majority of the outstanding
shares entitled to vote, present in person or represented by proxy, shall be
requisite and shall constitute a quorum at all meetings of the shareholders for
the transaction of business, except as otherwise provided by statute or by the
Articles of Incorporation or by these By-Laws. If, however, any meeting of
shareholders cannot be organized because a quorum has not attended, the
3
<PAGE> 4
shareholders entitled to vote thereat, present in person or by proxy, shall
have power, except as otherwise provided by statute, to adjourn the meeting to
such time and place as they may determine, but in the case of any meeting
called for the election of Directors, such meeting may be adjourned only from
day to day or for such longer periods, not exceeding fifteen days each, as the
holders of a majority of the shares present in person or by proxy shall direct,
and those who attend the second of such adjourned meetings, although less than
a quorum, shall nevertheless constitute a quorum for the purpose of electing
Directors. At any adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally called.
Section 8. When a quorum is present or represented at
any meeting, the vote of the holders of a majority of the shares having voting
power, present in person or represented by proxy, shall decide any question
brought before in meeting, unless the question is one upon which by express
provision of the statutes or of the Articles of Incorporation or of these
By-Laws, a different vote is required, in which case such express provisions
shall govern and control the decision of such question.
Section 9. Each shareholder shall at every meeting of
the shareholders be entitled to one vote in person or by proxy for each share
having voting power held by such shareholder, except that in elections for
Directors there shall be cumulative voting, but no unrevoked proxy shall be
voted on after eleven months after the date of its execution, unless a longer
time is expressly provided therein, but in no event after three years from its
date, unless coupled with an interest, and, except where the transfer books of
the corporation have been closed or a date has been fixed as a record date for
the determination of its shareholders entitled to vote, transferees of shares
which are transferred on the books of the corporation within fourteen days next
preceding the date of such meeting shall not be entitled to vote at such
meeting.
Section 10. Any action which may be taken at a meeting of
the shareholders may be taken without a meeting, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of record of
a least two-thirds of the outstanding shares entitled to vote at a meeting for
such purpose and shall be filed with the Secretary of the corporation.
Section 11. In advance of any meeting of shareholders,
the Board of Directors may appoint Judges of Election, who need not be
shareholders, to act at such meeting or any adjournment thereof. If Judges of
Election be not so appointed, the Chairman of any such meeting may, and on the
request of any shareholder or his proxy shall, make such appointment at the
meeting. The number of Judges shall be one or three. If appointed at a
meeting on the request of one or more shareholders or proxies, the majority of
shares present and entitled to vote shall determine whether one or three Judges
are to be appointed. No person who is a candidate for office shall act as a
Judge. The Judges of Election shall do all such acts as may be proper to
conduct the election or vote with fairness to all shareholders, and shall make
a written report of any matter determined by them and execute a certificate of
any fact found by them, if requested by the Chairman of the meeting or any
shareholder or his proxy. If there be three Judges of Election, the decision,
act or certificate of a majority shall be effective in all respects as the
decision, act or certificate of all.
4
<PAGE> 5
Section 12. Whenever in a notice of meeting of
shareholders a resolution proposed to be acted on at the meeting is set forth
at length, amendments thereof may be made at the meeting without further notice
to shareholders not in attendance.
ARTICLE IV
DIRECTORS
Section 1. (a) The Board of Directors shall consist
of no less than three and not more than fifteen directors. Subject these
limits, the number of directors shall be the number determined from time to
time by resolution of the shareholders.
(b) Commencing with the election of
directors the Annual Meeting of Shareholders in 1981, the Directors shall
classified in respect to the time for which they shall severally hold office by
dividing them into three classes, to be known as Class I, Class II and Class
III, which shall be as nearly equally number as possible. At the Annual
Meeting of Shareholders in Directors of Class I shall be elected for a term of
one year, Directors of Class II shall be elected for a term of two years and
directors of Class III shall be elected for a term of three years. At each
annual Meeting of Shareholders after 1981, successors to the Directors of the
class whose terms of office expire in that year shall be elected to hold office
until the third succeeding Annual Meeting of Shareholders, so that the term of
office one class of Directors shall expire in each year.
(c) Notwithstanding the terms for which
a director shall have been elected, he shall not serve as such and his office
shall become vacant at the first Annual Meeting of Shareholders convened
following his seventy-second birthday.
Section 2. Vacancies in the Board of Directors shall be
formed by a majority of the remaining directors, through less than a quorum and
each person so elected shall hold office for the unexpired time of the Director
whose vacancy is thereby filled.
Section 3. The business of the corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not a statute or by
the Articles of Incorporation or by these By-Laws directed or required to be
exercised and done by the shareholder.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may
hold meetings, both regular and special, either within or without the
Commonwealth of Pennsylvania. Any director may participate in a meeting of the
Board or of any committee by means of a conference telephone or similar
communications equipment by means of which each participant can hear and be
heard by all other participants.
Section 5. The first meeting of each newly-elected Board
of Directors shall be held immediately following adjournment of the meeting of
shareholders at which they shall have been elected, at the place of such
meeting of shareholders, and no notice to the newly-elected
5
<PAGE> 6
Directors of such meeting shall be necessary in order legally to constitute the
meeting, provided a majority of the whole Board shall be present. In the event
such meeting is not held at that time and place, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all the Directors.
Section 6. Regular meetings of the Board of Directors
shall be held at such times and places as may be determined by the Board of
Directors.
Section 7. Special meetings of the Board may be called
by the President on no less than two days' notice to each telegram special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of three Directors.
Section 8. At all meetings of the Board, a majority of
the Directors in office shall be necessary to constitute a quorum for the
transaction of business, and the acts of a majority of the Directors present at
a meeting at which a quorum is present shall be the acts of the Board of
Directors, except as may be otherwise specifically provided by statute or by
the Articles of Incorporation. If a quorum shall not be present at any meeting
of Directors, the Directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. If all the Directors shall severally or
collectively consent in writing to any action to be taken by the corporation,
such action shall be as valid a corporate action as though it had been
authorized at a meeting of the Board of Directors.
COMMITTEE
Section 10. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate two or more of its number to
constitute one or more Committees, including an Executive Committee, which, to
the extent provided in such resolution, shall have and exercise the authority of
the Board of Directors in the management of the business of the corporation.
Vacancies in the membership of a Committee shall be filled by the Board of
Directors. In addition, in the absence or disqualification of any member of a
Committee, the remaining member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another Director to act at the meeting in the place of such
absent or disqualified member. All Committees shall keep regular minutes of
their proceedings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 11. Directors, as such, shall not receive any
stated salary for their services but, by resolution of the Board, a fixed sum,
and expenses of attendance if any, may be allowed for attendance at each
regular or special meeting of the Board or at meetings of any Committee;
6
<PAGE> 7
provided that nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
ARTICLES V
NOTICES
Section 1. Notices to Directors and shareholders shall
be in writing and delivered personally or mailed to them by sending a copy
thereof through the mail, or by telegram, charges prepaid, to their addresses
appearing on the books of the corporation or supplied by them to the
corporation for the purpose of notices. If the notice is sent by mail or by
telegram, it shall be deemed to have been given tot he person entitled thereto
when deposited in the United States mail or with a telegraph office for
transmission to such person. Notices to Directors may also be given by
telegraph or by telephone.
Section 2. Whenever any notice is required to be given
under the provisions of the statutes or of the Articles of Incorporation or of
these By-Laws, a waiver thereof in writing signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE VI
OFFICERS
Section 1. The officers of the corporation shall be
chosen by the Board of Directors and shall include a Chairman of the Board, a
President, an Executive Vice president, a Secretary and a Treasurer. All
officers shall be natural persons of full age, except that the Treasurer may be
a corporation. Any two or more of the aforesaid offices may be held by the
same person.
Section 2. The Board of Directors, at their first
meeting after each annual meeting of shareholders, shall elect a Chairman of
the Board, a president, as Secretary and a treasurer, none of whom need be
members of the Board except the Chairman of the Board.
Section 3. The Board of Directors may elect such other
officers and agents as it shall deem necessary, who shall hold their officers
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board.
Section 4. The salaries of all officers of the
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold
office until their successors are chosen and qualify. Any officer elected by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of
the corporation shall be filled by the Board of Directors.
7
<PAGE> 8
CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board shall preside at
all meetings of the Directors and shareholders and he shall have such other
powers and perform such duties as the President and/or the Board of Directors
may from time to time determine.
THE PRESIDENT
Section 7. The President shall be the Chief Executive,
Operating and Administrative Officer of the corporation. He shall be in
general charge of its business and have full power of supervision and
management of the affairs of the corporation, except as otherwise provided by
the Board. In the absence of the Chairman of the Board, he shall preside at
all meetings of the shareholders and of the Board of Directors.
Section 8. The President may execute bonds, mortgages
and other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the corporation.
THE VICE PRESIDENTS
Section 9. The Executive Vice President, or if he shall
be absent or disabled, the Vice Presidents in the order determined by the Board
of Directors, shall, in the absence or disability of the President, perform the
duties and exercise the powers of the President, and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 10. The Secretary shall attend all meetings of
the Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the shareholders and of the Board of Directors
in a book to be kept for that purpose and shall perform like duties for any
Committee when required. He shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or President, under whose supervision he shall be. He shall keep in
safe custody the Seal of the corporation, and, when authorized by the Board of
Directors, affix the same to any instrument requiring it, and when so affixed,
it shall be attested by his signature or by the signature of an Assistant
Secretary. In the absence of the Secretary or Assistant Secretary, the
Corporate Seal may be attested by the treasurer or Assistant Treasurers.
Section 11. The Assistant Secretary, if any, or if there
be more than one, the Assistant Secretaries, in the order determined by the
Board of Directors, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall
8
<PAGE> 9
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 12. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors.
Section 13. He shall disburse the funds of the
corporation as may be ordered by the Board of directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings or when the Board of Directors so requires,
an account of all his transactions as Treasurer and of the financial condition
of the corporations.
Section 14. If required by the Board of Directors, he
shall give the corporation a bond in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession
or under his control belonging to the corporation.
Section 15. The Assistant Treasurer, if any, or if there
shall be more than one, the Assistant Treasurers, in the order determined by
the Board of Directors, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribes.
ARTICLE VII
CERTIFICATES OF SHARES
Section 1. The certificates of shares of the corporation
shall be numbered and registered in a share register as they are issued. They
shall exhibit the name of the registered holder and the number and class of
shares and the series, if any, represented thereby and the par value of each
share of a statement that such shares are without par value as the case may be.
Section 2. Every share certificate shall be signed by
the President or a Vice President and the Secretary or an Assistant Secretary
or the Treasurer or an Assistant Treasurer and shall be sealed with the
corporate seal, which may be facsimile, engraved or printed.
Section 3. Where a certificate is signed (1) by a
transfer agent or an assistant transfer agent, or (2) by a transfer clerk
acting on behalf of the corporation and a registrar, the signature of any such
President, Vice President, Treasurer, Assistant Treasurer, Secretary or
9
<PAGE> 10
Assistant Secretary, may be facsimile. In case any officer of officers who
have signed, or whose facsimile signature or signatures have been used on any
such certificate or certificates, shall cease to be such officer or officers of
the corporation, whether because of death, resignation or otherwise, before
such certificate or certificates have been delivered by the corporation, such
certificates or certificates may nevertheless be [unreadable] and be issued
and delivered AS through the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not caused to be such officer or officers of the corporation.
LOST CERTIFICATES
Section 4. The Board of Directors shall direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
destroyed or wrongfully taken, upon the making of an affidavit of that fact by
the person claiming the share certificate to the lost, destroyed or wrongfully
taken. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, destroyed or wrongfully taken
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or give the corporation a bond in such
sum and with such sureties as it may direct as indemnity against any claim that
may be made against the corporation with respect to the certificate or
certificates alleged to have been lost, destroyed or wrongfully taken.
TRANSFER OF SHARES
Section 5. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 6. The Board of Directors may fix a time, not
more than fifty days prior to the date of any meeting of shareholders or the
ate fixed for the payment of any dividend or distribution or the date for the
allotment of rights or the date when any change or conversion or exchange of
shares will be made or go into effect, as a record date for the determination
of the shareholders entitled to notice of and to vote at any such meeting or
entitled to receive payment of any such dividend or distribution or to receive
any such allotment of rights or to exercise the rights in respect to any such
chance, conversion or exchange of shares. In such case, only such shareholders
as shall be shareholders of record on the date so fixed shall be entitled to
notice of and to vote at such meeting, or any adjournment thereof, or to
receive payment of such dividend or distribution or to receive such allotment o
rights or to exercise such rights in respect to any such change, conversion or
exchange of shares, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after any record date so fixed. The
Board of Directors may close the books of the corporation against transfers of
shares during the whole or any part of such
10
<PAGE> 11
period and in such case written or printed notice thereof shall be given to
each shareholder of record at the address appearing on the records of the
corporation or supplied by him to the corporation for the purpose of notice.
REGISTERED SHAREHOLDERS
Section 7. The corporation shall be entitled to treat
the holder of record of any share or shares as the holder in fact thereof and
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, and shall not be liable for any
registration or transfer of shares which are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with actual
knowledge that a fiduciary or nominee of a fiduciary is committing a breach of
trust in requesting such registration or transfer, or with knowledge of such
facts that its participation therein amounts to bad faith.
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the shares of the corporation,
subject to the provisions of the Articles of Incorporation, if any, may be
declared by the Board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property or in its shares, subject
to the provisions of the Articles of Incorporation.
Section 2. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the Directors shall think in the best interest of the
corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
FINANCIAL REPORT TO SHAREHOLDERS
Section 3. The directors of the corporation shall cause
to be sent to the shareholders, within one hundred (100) days after the close of
each fiscal year, financial statements for the corporation which shall include a
balance sheet as of the close of such fiscal year, other statements of income
and surplus for such year, which financial statements shall be prepared so as to
present fairly the corporation's financial condition and the results of its
operations, shall have been examined in accordance with generally accepted
auditing standards by an independent certified public accountant or by a firm
thereof and shall be accompanied by such accountant's or firm's opinion as to
the fairness of the presentation thereof.
11
<PAGE> 12
CHECKS
Section 4. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall end
at the close of business on the Sunday closest to each December 31.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS
OFFICERS AND OTHER PERSONS
Section 1. The corporation shall indemnify every
officer, Director, employee and agent of the corporation and every fiduciary,
or administrator of any of its deferred compensation or other employee benefit
plans and anyone who, at the request of the Board of Directors, serves as an
officer, Director, employee, agent or such fiduciary or administrator for any
other corporation, to the full extent permitted by the Pennsylvania Business
Corporation Act.
Section 2. The indemnification provided by this Article
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under law, agreement, or vote of shareholders,
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, Executors and Administrators of such a person.
ARTICLE X
AMENDMENTS
Section 1. These By-Laws, except for ARTICLE IV, Section
1 hereof, may be altered, amended or repealed by a majority vote of the
shareholders present and voting at any regular or special meeting duly convened
after notice to the shareholders of that purpose, or by a majority of the
members of the Board of Directors present and voting at any regular or special
meeting duly convened after notice to the Directors of that purpose, subject
always to the power of the shareholders to change such action of the Directors.
ARTICLE IV, section 1 hereof may be altered, amended or repealed only by a vote
or shareholder owning of record a majority of the capital stock of the
corporation then issued and outstanding at any regular or special meeting duly
convened after notice to the shareholders of that propose.
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<PAGE> 1
EXHIBIT 3.3
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
STEHEDCO INTERNATIONAL, LTD.
<TABLE>
<S> <C> <C>
- ---------------------------------
For Use by (File This Form in This Space For Use By
The Secretary of State Duplicate Originals) The Secretary of State
File No._____________________ (Sect. 12-14.3 of 1962 Code)
Fee Paid$____________________
C. B._________________________
Date_________________________
------------------------------
</TABLE>
1. The name of the proposed corporation is Stehedco International, Ltd.
2. The initial registered office of the corporation is P.O. Box 1867 located
in the city of Greenville, county of Greenville and the state of South
Carolina and the name of its initial registered agent at such address is
Robert W. Hassold.
3. The period of duration of the corporation shall be perpetual
(_______________ years).
4. The corporation is authorized to issue shares of stock as follows:
<TABLE>
<CAPTION>
Class of Shares Authorized No. of each class Par value
--------------- ---------------------------- ---------
<S> <C> <C>
common 1,000 $100.00
---------------------------- ----------------------------- ----------------------------
--------------------------- ---------------------------- ---------------------------
--------------------------- ---------------------------- ---------------------------
--------------------------- ---------------------------- ---------------------------
</TABLE>
If shares are divided into two or more classes or if any class of shares is
divided into series within a class, the relative rights, preferences, and
limitations of the shares of each class, and of each series within a class,
are as follows:
5. Total authorized capital stock $100,000.00
6. It is represented that the corporation will not begin business until there
has been paid into the corporation the minimum consideration for the issue
of shares, which is $1,000.00 of which at least $500.00 is in cash.
7. The number of directors constituting the initial board of directors of the
corporation is 3, and the names and addresses of the persons who
are to serve as directors until the first annual meeting of shareholders or
until their successors be elected and qualify are:
<TABLE>
<S> <C>
John J. Kaufmann, Jr. P. O. Box 1867, Greenville, S.C. 29602
---------------------------------------------- -------------------------------------------------------
Name Address
Frank H. Kaufmann P. O. Box 1867, Greenville, S.C. 29602
--------------------------------------------- -------------------------------------------------------
Name Address
Robert w. Hassold P. O. Box 1867, Greenville, S.C. 29602
-------------------------------------------------- -------------------------------------------------------
Name Address
</TABLE>
<PAGE> 2
-------------------------------- ------------------------------
Name Address
-------------------------------- ------------------------------
Name Address
8. THE GENERAL NATURE OF THE BUSINESS FOR WHICH THE CORPORATION IS
ORGANIZED IS (IT IS NOT NECESSARY TO SET FORTH IN THE PURPOSES POWERS
ENUMERATED IN SECTION 2.2) (12-12.2 SUPPLEMENTAL CODE 1962).
To buy, sell, lease, store, handle, transport, package, assemble or
service export property which has been manufactured, produced, grown
or extracted in the United States by an entity other than this
corporation, for direct use, consumption or disposition outside the
United States; to perform engineering services on foreign construction
projects located or proposed to be located abroad; to perform
management services for other exporters; to invest in stock or
securities of a foreign export sales subsidiary, a controlled foreign
real estate title holding corporation, or, to a maximum of 10% voting
power, an unrelated foreign corporation; and generally to carry on a
domestic international sales corporation business as defined and
authorized in Title V of Public Law 92-178 of the United States and
any amendments or additions thereto.
9. Provisions which the incorporators elect to include in the articles of
incorporation are as follows:
None
10. The name and address of each incorporator is:
<TABLE>
<CAPTION>
Name Street & Box No. City County State
<S> <C> <C>
John J. Kaufmann, Jr. P.O. Box 1867 Greenville, Greenville, S.C.
Frank H. Kaufmann. P.O. Box 1867 Greenville, Greenville, S.C.
</TABLE>
<TABLE>
<S> <C>
DATE: /s/ John J. Kaufmann, Jr.
------------------------------- ------------------------------------------------------
(Signature of Incorporator)
By: John J. Kaufmann, Jr.
---------------------------------------------------
(Type or Print Name)
/s/ Frank H. Kaufmann
------------------------------------------------------
(Signature of Incorporator)
By: Frank H. Kaufmann
---------------------------------------------------
(Type or Print Name)
------------------------------------------------------
(Signature of Incorporator)
By:
-----------------------------------------------
(Type or Print Name)
</TABLE>
<PAGE> 3
STATE OF SOUTH CAROLINA )
) ss:
COUNTY OF GREENVILLE )
The undersigned John J. Kaufmann, Jr. and Frank H. Kaufmann
do hereby certify that they are the incorporators of corporation and
are authorized to execute this verification; that each of the
undersigned for himself does hereby further certify that he has read
the foregoing document, understands the meaning and purport of the
statements therein contained and the same are true to the best of his
information and belief.
/s/ John J. Kaufmann, Jr.
---------------------------------------------
(Signature of Incorporator)
/s/ Frank H. Kaufmann
---------------------------------------------
(Signature of Incorporator)
-------------------------------------------
(Signature of Incorporator)
(Each Incorporator Must Sign)
CERTIFICATE OF ATTORNEY
11. I, Andrew B. Marion , an attorney licensed to practice
in the State of South Carolina, certify that the corporation,
to whose articles of incorporation this certificate is
attached, has complied with the requirements of chapter 4 of
the South Carolina Business Corporation Act of 1962, relating
to the organization of corporations, and that in my opinion,
the corporation is organized for a lawful purpose.
<TABLE>
<S> <C>
DATE:
--------------------------------- ---------------------------------------------------
(Signature)
Andrew B. Marion
------------------------------------------------------
(Type or Print Name)
Address: 409 East North Street
-------------------------------------------------
P.O. Box 2048
--------------------------------------------------
Greenville, S.C. 29602
---------------------------------------------------
</TABLE>
SCHEDULE OF FEES
(Payable at time of filing Articles of With Secretary of State)
Fee for filing Articles __________________ $ 5.00
In addition to the above, $.40 for each
$1,000.00 of the aggregate value of shares
which the Corporation is authorized to issue,
but in no case less than ________________ 40.00
nor more than ________________________ 1,000.00
NOTE: THIS FORM MUST BE COMPLETED IN ITS ENTIRETY BEFORE IT WILL BE ACCEPTED
FOR FILING.
<PAGE> 4
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
Pursuant to Section 3-10-106 of the 1976 South Carolina Code, as
amended, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
1. The name of the corporation is STEHEDCO INTERNATIONAL, LTD.
2. On December 18, 1991, the corporation adopted the following Amendment(s)
of its Articles of Incorporation:
(Type or attach the complete text of Each Amendment)
RESOLVED that the name of the Corporation shall be changed from Stehedco
International, Ltd. to Steel Heddle International, Inc.
RESOLVED FURTHER to amend the general nature for which the Corporation is
organized to include the manufacturing, distribution and sale of heddles
and other accessories to weaving equipment and to do any and all things
permitted under the laws of the State of South Carolina.
3. The manner, if not set forth in the amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
Amendment shall be effected, is as follows: (if not applicable, insert
"not applicable" or "NA").
n/a
4. Complete either a or b, whichever is applicable.
a. [x] Amendment(s) adopted by shareholder action.
At the date of adoption of the amendment, the number of
outstanding shares of each voting group entitled to
vote separately on the Amendment, and the vote of
such shares was:
<TABLE>
<CAPTION>
Number of
Number of Number of Votes Undisputed
Outstanding Number of Votes Represented at Shares Voted
Voting Group Shares Entitled to be Cast the meeting For Against
------------ ----------- ------------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Common 25 25 25 25 0
Stock
$100 par
</TABLE>
<PAGE> 5
Note: Pursuant to Section 33-10-106(6)(i), the corporation can alternatively
state the total number of undisputed shares cast for the amendment by
each voting group together with a statement that the number of cast for
the amendment by each voting group was sufficient for approval by that
voting group.
b. [ ] The Amendment(s) was duly adopted by the incorporators or
board of directors without shareholder approval pursuant to
Sections 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South
Carolina Code as amended, and shareholder action was not
required.
5. Unless a delayed date is specified, the effective date of these Articles
of Amendment shall be the date of acceptance for filing by the Secretary
of State (See Section 33-1-230(b)):
----------------------
DATE: December 18, 1991 STEHEDCO INTERNATIONAL, LTD.
------------------------- --------------------------------------
(Name of Corporation)
By: /s/ Hugh I. Cash
------------------------------------
(Signature)
Hugh I. Cash, President
------------------------------------
(Type or Print Name and Office)
FILING INSTRUCTIONS
1 Two copies of this form, the original and either a duplicate original of a
conformed copy, must be filed.
2. If the space in this form is insufficient, please attach additional sheets
containing a reference to the appropriate paragraph in this form.
3. Filing fees and taxes payable to the Secretary of State at time of filing
application.
Filing Fee $ 10.00
Filing Tax 100.00
Total $110.00
<PAGE> 1
EXHIBIT 3.4
STEHEDCO INTERNATIONAL, LTD.
BY-LAWS
ARTICLE I
CORPORATE NAME
The exclusive name of this corporation which has been reserved
as required by law shall be as above written.
ARTICLE II
CORPORATE SEAL
This corporation shall use as its official corporate seal, a
seal which shall be circular in form and shall have inscribed thereon the
following:
Stehedco International, Ltd.
South Carolina
ARTICLE III
REGISTERED OFFICE AND AGENT
Section 1. The Registered Office of the corporation
required by law shall be initially designated and continuously maintained by
the Board of Directors. The Registered Office need not be identical with the
principal place of business of the corporation. The corporation may maintain
such principal place of business or other offices, either within or without the
State of South Carolina, as the business of the corporation may from time to
time require.
Section 2. The Registered Agent of the corporation
required by law shall be initially designated and continuously maintained by
the Board of Directors.
Section 3. The Board of Directors may change the
Registered Office and the Registered Agent of the Board of Directors at its
discretion from time to time after giving due notice of such change or changes
as required by law to the Secretary of State of South Carolina.
ARTICLE IV
CORPORATE PURPOSES AND POWERS
In addition to the powers and authorities now or hereafter
granted by law to corporations, the general nature of the business for which
the corporation is organized shall be that set forth in the Articles of
Incorporation and any amendments thereto, together with any acts or things in
furtherance of, or incidental or conductive to, said objects and purposes.
<PAGE> 2
ARTICLE V
CAPITAL STOCK AND TRANSFER OF SAME
Section 1. The capital stock of this corporation shall
consist of such shares, divided into one or more classes of either common or
preferred, with or without par value, and with such designations, preferences,
limitations and relative rights as shall be specifically set forth in the
Articles of Incorporation and any amendments thereto.
Section 2. Certificates of stock shall be issued in
numerical order and shall be signed by the President or Vice President and the
Secretary or Assistant Secretary, and shall have affixed thereto the corporate
seal.
Section 3. Shares of stock may be transferred by the
registered holders thereof or by their attorneys legally constituted, or by
their legal representatives by delivery of the certificates and an assignment
of said shares in writing. No transfer or assignment of shares shall affect
the right of this corporation to pay any dividend due upon the stock, or to
treat the registered holder as the holder in fact until such transfer or
assignment is registered on the books of this corporation.
ARTICLE VI
FISCAL YEAR
Section 1. The fiscal year of this corporation shall end
on __________________, provided, however, the Board of Directors of this
corporation shall have the power to change the fiscal year at its discretion by
resolution duly adopted.
ARTICLE VII
SHAREHOLDERS
Section 1. Meetings of the shareholders shall be held at
the Registered Office of the corporation, unless notice of the meeting shall
specify another place or places, which may be either within or without the
State of South Carolina.
Section. 2. The annual meeting of the shareholders of the
corporation shall be held on the first Tuesday of the eighth week following the
end of each fiscal year at such time and place as may be designated in the
notice thereof. If such date is a legal holiday, the annual meeting shall be
held on the next succeeding day.
Section 3. The President, the Chairman of the Board of
Directors, a majority of the Board of Directors, or the holders of not less
than ten (10%) percent of the shares entitled to vote at the meeting, shall
have authority to call special meetings at such times as he or they may deem
best, the hour, place and purpose of such meeting to be stated in the notice
thereof.
2
<PAGE> 3
Section 4. At least ten (10) days' notice and not more
than fifty (50) days' notice of all meetings shall be given in writing to each
shareholder either by way of delivery in person, or by mail, addressed to the
shareholders, respectively, at their last known addresses, such notice to state
the time and place of meetings, and in case of special meetings, the purpose
thereof. Notice may be waived in writing by the shareholders before or after
the meeting in question.
Section 5. A majority of the shares entitled to vote at
any meeting of the shareholders shall constitute a quorum for the transaction
of any business. This quorum, once established shall continue through the
meeting and any adjournment thereof.
ARTICLE VIII
DIRECTORS
Section 1. At each annual meeting of the shareholders,
or at any special meeting of the shareholders called for that purpose, the
shareholders of the corporation shall elect not less than three (3) persons as
Directors of the corporation, except that if all shares of the capital stock of
the corporation are owned by fewer than three (3) shareholders, the number of
Directors may be equal to the number of shareholders of record. The Directors
of this corporation need not be residents of the State of South Carolina or
shareholders of the corporation. The members of such Board of Directors shall
hold office at the will of the shareholders and until their successors shall
have been elected and shall qualify and shall have general supervision over the
affairs of this corporation. Vacancies may be filled by the Directors.
Section 2. There shall be an annual meeting of the
Directors immediately following the annual meeting of the shareholders.
Special meetings may be called at any time by the President or by any one
Director or officer of the corporation upon at least one (1) day's advance
notice, which need not state the object of the meeting. Notice of the meeting
may be waived either before or after the meeting.
Section 3. A majority of the total number of directors
then in office shall constitute a quorum for the transaction of any business at
any meeting of the Directors. A vote of the majority of the Directors at any
meeting at which a quorum is present shall be the act of the Board of
Directors.
Section 4. By resolution of the Board of Directors, the
Directors may be paid their expenses of attendance at each meeting of the Board
of Directors, or a stated salary as Director. No such payment shall preclude
any director from serving the corporation in any other capacity and receiving
compensation therefor.
ARTICLE IX
OFFICERS
Section 1. The Directors shall elect the following
officers who shall hold office until the next annual meeting and until their
successors have been elected and shall qualify, to-wit:
3
<PAGE> 4
a President, one or more Vice-Presidents, one of whom may be designated as an
Executive Vice-President; a Secretary, a Treasurer, and one or more Assistant
Secretaries and Assistant Treasurers and if the Directors deem it advisable, a
General Manager; but any two of said officers, with the exception of President
and Vice-President, may be filled by the same person. They may also elect or
appoint other officers and agents and assistants and fix their duties.
Section 2. The officers of the corporation shall be
elected at the Annual Meeting of the Board of Directors, or at any special
meeting of the Board of Directors called for that purpose. Each officer shall
hold office until his successor shall have been elected and shall have
qualified. The compensation, together with any employment contracts of any
officer of the corporation shall be determined by the Board of Directors.
Section 3. The President shall be the chief executive
officer of the corporation and have generals supervision of all of the affairs
and business of the corporation. The President, together with the Secretary,
shall sign all deeds, mortgages, certificates of capital stock or other
instruments which the Board of Directors has authorized to be executed, except
documents in the normal course of the business of the corporation which the
President may sign alone.
Section 4. The Vice-President, or Vice-Presidents, as
the case may be, including the Executive Vice-President, if any, shall assist
the President as the President may request, and perform such other duties as
are properly requested by the Board of Directors. In the absence of the
President or in the event of his death or disability, the Vice-Presidents so
designated by the Board of Directors, shall perform the duties of the
President, and when so acting, shall have all the powers and be subject to all
of the restrictions upon the President.
Section 5. If the Board of Directors deems it advisable
to elect a General Manager, said person shall be responsible for the day to day
operations of the corporation and shall be directly responsible to the
President.
Section 6. The Secretary shall keep the minutes of
meetings of the shareholders and the Board of Directors and be the custodian of
the corporate records and of the seal of the corporation and affix the
corporate seal to such documents as may require the corporate seal. The
Secretary with the President shall sign all deeds, mortgages, certificates of
capital stock and other documents of a formal nature.
Section 7. The Treasurer shall have charge and custody
of and be responsible for all funds and securities of the corporation and shall
keep regular books of amount, in accordance with accepted accounting practices,
of all receipts and disbursements of the corporation. The Treasurer shall
disburse out of the funds of the corporation payment of such just demands
against the corporation as may from time to time be authorized by the Board of
Directors.
Section 8. An Assistant Secretary and an Assistant
Treasurer, when authorized by the Board of Directors, shall have all of the
powers and be subject to all of the restrictions upon the Secretary Treasurer,
respectively, of the corporation.
4
<PAGE> 5
Section 9. The Board of Directors may grant, delegate or
assign to any officer of the corporation any of the duties and authorities
hereinabove designated to be performed by any officer, either temporarily or
permanently, as long as such powers and authorities shall not be inconsistent
with these By-Laws.
ARTICLE X
PROXIES
Any shareholder of the corporation may vote at any meeting of
the shareholders either in person or by proxy in writing in due form of law,
which may be a telegram or cablegram appearing to have been transmitted by the
shareholder. All proxies shall be filed with the Secretary of the corporation
before or at the time of any meeting of the shareholders. No proxy shall be
valid after the expiration of eleven (11) months from the date of its
execution, unless said proxy qualifies as an "irrevocable proxy" under the
corporate laws of the State of South Carolina.
ARTICLE XI
NOTICES AND WAIVERS
Section 1. Any notice of any meeting of the shareholders
or Directors of this corporation herein required to be given may be waived in
writing by the signature of the party to receive notice, either before or after
the meeting, which waiver need not specify the business transacted at the
meeting or the purpose thereof, and such waiver shall be deemed equivalent to
the giving of such notices.
Section 2. In computing the period of time for the
giving of any notice under these By-Laws, the day of which notice is given
shall be excluded, and the day when the act for which notice is given shall be
included.
ARTICLE XII
AMENDMENT OF BY-LAWS
These By-Laws may be amended, modified or added to by vote of
a majority of the outstanding common stock, or by a vote of a majority of the
members of the Board of Directors, at any meeting, provided notice of such
amendment has been given as required by Section 3 of Article VI hereof or
Section 2 of Article VII, as the case may be.
5
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF INCORPORATION
OF
HEDDLE CAPITAL CORP.
FIRST: The name of the corporation is Heddle Capital Corp. (the
"Corporation").
SECOND: The registered office of the Corporation in the State of
Delaware is located at 900 North Market Street, Suite 200, Wilmington, County of
New Castle, Delaware 19801. The registered agent of the Corporation at that
address is Griffin Corporate Services, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware; provided that the Corporation's
activities shall be confined to the maintenance and management of its intangible
investments and the collection and distribution of the income from such
investments or from tangible property physically located outside Delaware, all
as defined in, and in such manner to qualify for exemption from income taxation
under, Section 1902(b)(8) of Title 30 of the Delaware Code, or under the
corresponding provision of any subsequent law.
FOURTH: The Corporation shall have authority to issue 1000 shares of
common stock, having a par value of $.01 per share.
FIFTH: The Corporation shall indemnify directors and officers of the
Corporation to the fullest extent permitted by law.
SIXTH: The directors of the Corporation shall incur no personal
liability to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, provided, however, that the directors
of the Corporation shall continue to be subject to liability (i)
<PAGE> 2
for any breach of their duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from which
the directors derived any improper personal benefit. In discharging the duties
of their respective positions, the board of directors, committees of the board,
individual directors and individual officers may, in considering the best
interest of the Corporation, consider the effects of any action upon employees,
suppliers and customers of the Corporation, communities in which officers or
other establishments of the Corporation are located, and all other pertinent
factors. In addition, the personal liability of directors shall further be
limited or eliminated to the fullest extent permitted by any future amendments
to Delaware law.
SEVENTH: The business and affairs of the Corporation shall be managed
by or under the direction of the board of directors, the number of members of
which shall be set forth in the by-laws of the Corporation. The directors need
not be elected by ballot unless required by the by-laws of the Corporation.
EIGHTH: Meetings of the stockholders will be held within the State of
Delaware. The books of the Corporation will be kept (subject to the provisions
contained in the General Corporation Law) in the State of Delaware at such place
or places as may be designated from time to time by the board of directors or in
the by-laws of the Corporation.
NINTH: In the furtherance and not in limitation of the objects,
purposes and powers prescribed herein and conferred by the laws of the State of
Delaware, the board of directors is expressly authorized to make, amend and
repeal the by-laws.
2
<PAGE> 3
TENTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner now or
hereinafter prescribed by the laws of the Sate of Delaware. All rights herein
conferred are granted subject to the reservation.
ELEVENTH: The Corporation shall have no power and may not be authorized
by its stockholders or directors (i) to perform or omit to do any act that would
cause the Corporation to lose its status as a corporation exempt from the
Delaware Corporation Income Tax under Section 1902(b)(8) of Title 30 of the
Delaware Code, or under the corresponding provision of any subsequent law, or
(ii) to conduct any activities outside of Delaware which could result in the
Corporation being subject to tax outside of Delaware.
TWELFTH: The name and mailing address of the Incorporation is Joan L.
Dobrzyski, 900 North Market Street, Wilmington, Delaware 19801.
THIRTEENTH: The powers of the Incorporation shall terminate upon election
of directors.
I, THE UNDERSIGNED, being the incorporator hereinbefore named for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this ____ day of _____________, 199__.
-----------------------------
, Incorporator
3
<PAGE> 1
EXHIBIT 3.6
HEDDLE CAPITAL CORP.
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of
directors to succeed those whose terms expire and for the transaction of such
other business as may properly come before the meeting, shall be held at such
place, on such date, and at such time as the Board of Directors shall each year
fix, which date shall be within thirteen (13) months subsequent to the later of
the date of incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
Special meetings of the stockholders, for any purpose or
purposes prescribed in the notice of the meeting, may be called by the Board of
Directors or the chief executive officer and shall be held at such place, on
such date, and at such time as they or he or she shall fix.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of
the stockholders shall be given, not less than ten (10) nor more than sixty
(60) days before the date on which the meeting is to be held, to each
stockholder entitled to vote at such meeting, except as otherwise provided
herein or required by law (meaning, here and hereinafter, as required from time
to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date, or time,
written notice need not be given of the adjourned meeting if the place, date,
and time thereof are announced at the meeting at which
<PAGE> 2
the adjournment is taken; provided, however, that if the date of any adjourned
meeting is more than thirty (30) days after the date for which the meeting was
originally noticed, or if a new record date is fixed for the adjourned meeting,
written notice of the place, date, and time of the adjourned meeting shall be
given in conformity herewith. At any adjourned meeting, any business may be
transacted which might have been transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority
of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes, unless or
except to the extent that the presence of a larger number may be required by
law. Where a separate vote by a class or classes is required, a majority of the
shares of such class or classes present in person or represented by proxy shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
If a quorum shall fail to attend any meeting, the chairman of
the meeting or the holders of a majority of the shares of stock entitled to
vote who are present, in person or by proxy, may adjourn the meeting to another
place, date, or time.
If a notice of any adjourned special meeting or stockholders
is sent to all stockholders entitled to vote thereat, stating that it will be
held with those present constituting a quorum, then except as otherwise
required by law, those present at such adjourned meeting shall constitute a
quorum, and all matters shall be determined by a majority of the votes cast at
such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designate
and/or, in the absence of such a person, the chief executive officer of the
Corporation or, in his or her absence, such person as may
2
<PAGE> 3
be chosen by the holders of a majority of the shares entitled to vote who are
present, in person or by proxy, shall call to order any meeting of the
stockholders and act as chairman of the meeting. In the absence of the
Secretary of the Corporation, the secretary of the meeting shall be such person
as the chairman appoints.
Section 6. Conduct of Business.
The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
or her in order.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled
to vote may vote in person or by proxy authorized by an instrument in writing
filed in accordance with the procedure established for the meeting.
Each stockholder shall have one (1) vote for every share of
stock entitled to vote which is registered in his or her name on the record
date for the meeting, except as otherwise provided herein or required by law.
All voting, including on the election of directors but
excepting where otherwise required by law, may be by a voice vote; provided,
however, that upon demand therefore by a stockholder entitled to vote or by his
or her proxy, a stock vote shall be taken. Every stock vote shall be taken by
ballots, each of which shall state the name of the stockholder or proxy voting
and such other information as maybe required under the procedure established
for the meeting. Every vote taken by ballots shall be counted by an inspector
or inspectors appointed by the chairman of the meeting.
3
<PAGE> 4
All elections shall be determined by a plurality of the votes
cast, and except as otherwise required by law, all other matters shall be
determined by a majority of the votes cast.
Section 8. Stock List.
A complete list of stockholders entitled to vote at any meeting
of stockholders, arranged in alphabetical order for each class of stock and
showing the address of each such stockholder and the number of shares registered
in his or her name, shall be open to the examination of any such stockholder,
for any propose[sic] germane to the meeting, during ordinary business hours for
a period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or if not so specified, at the place where the
meeting is to be held.
The stock list shall also be kept at the place of the meeting
during the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
Any action required to be taken at any annual or special
meeting of stockholders of the Corporation, or any action which may be taken at
any annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consent in
writing, setting forth the action so taken, shall be signed by the holders of
the outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted and shall be delivered
to the Corporation by delivery to its registered office in Delaware, its
principal place of
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business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made
to the Corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the date of the earliest dated consent is delivered to the Corporation, a
written consent or consents signed by a sufficient number of holders to take
action are delivered to the Corporation in the manner prescribed in the first
paragraph of this Section.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Term of Officer.
The number of directors who shall constitute the whole Board
shall be such number as the Board of Directors shall from time to time have
designated, except that in the absence of any such designation, such number
shall be three (3). Each director shall be elected for a term of one year and
until his or her successor is elected and qualified, except as otherwise
provided herein or required by law.
Whenever the authorized number of directors is increased
between annual meeting of the stockholders, a majority of the directors then in
office shall have the power to elect such new directors for the balance of a
term and until their successors are elected and qualified. Any decrease in the
authorized number of directors shall not become effective until the expiration
of the term of
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the directors then in office unless, at the time of such decrease, there shall
be vacancies on the board which are being eliminated by the decrease.
Section 2. Vacancies.
If the office of any director becomes vacant by reason of
death, resignation, disqualification, removal or other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his or her successor is elected and
qualified.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at
such place or places, on such date or dates, and at such time or times as shall
have been established by the Board of Directors and publicized among all
directors. A notice for each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by
one-third (1/3) of the directors then in office (rounded up to the nearest
whole number) or by the chief executive officer and shall be held at such
place, on such date, and at such time as they or he or she shall fix. Notice
of the place, date, and time of each such special meeting shall be given each
director by whom it is not waived by mailing written notice not less than five
(5) days before the meeting or by telegraphing or telexing or by facsimile
transmission of the same not less than twenty-four (24) hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the
total number of the whole Board shall constitute a quorum for all purposes. If
a quorum shall fail to attend any meeting, a majority
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of those present may adjourn the meeting to another place, date, or tie,
without further notice or waiver thereof.
Section 6. Participation in Meetings by Conference Telephone.
Members of the Board of Directors, or of any committee
thereof, may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and such participation
shall constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be
transacted in such order and manner as the Board may from time to time
determine, and all matters shall be determined by the vote of a majority of the
directors present, except as otherwise provided herein or required by law.
Action may be taken by the Board of Directors without a meeting if all members
thereof consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Directors.
Section 8. Powers.
The Board of Directors may, except as otherwise required by
law, exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance
with law;
(2) To purchase or otherwise acquire any property, rights
or privileges on such terms as it shall determine;
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(3) To authorize the creation, making and issuance, in
such form as it may determine, or written obligations
of every kind, negotiable or non-negotiable, secured
or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or
without cause, and from time to time to confer the
powers and duties of any officer upon any other
person for the time being;
(5) To confer upon any officer of the Corporation the
power to appoint, remove and suspend subordinate
officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for
directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance,
retirement, and other benefit plans for directors,
officers, employees and agents of the Corporation and
its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not
inconsistent with these By-laws, for the management
of the Corporation's business and affairs.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the whole
Board, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby
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confers, to serve at the pleasure of the Board and shall, for those committees
and any others provided for herein, elect a director or directors to serve as
the member or members, designating, if it desires, other directors as alternate
members who may replace any absent or disqualified member at any meeting of the
committee. Any committee so designated may exercise the power and authority of
the Board of Directors to declare a dividend, to authorize the issuance o stock
or to adopt a certificate of ownership and merger pursuant to Section 253 of
the Delaware General Corporation Law if the resolution which designates the
committee or a supplemental resolution of the Board of Directors shall so
provide. In the absence or disqualification of any member of any committee and
any alternate member in his or her place, the member or members of the
committee present at the meeting and not disqualified from voting, whether or
not he or she or they constitute a quorum, may by unanimous vote appoint
another member of the Board of Directors to act at the meeting in the place of
the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting
and conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event, one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
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ARTICLE IV
OFFICERS
Section 1. Officers.
The officers of the Corporation shall be elected by the Board
of Directors, and shall include a President, a Secretary, a Treasurer, and such
other officers, employees and agents as appointed, from time to time, in
accordance with these By-laws. Additionally, the President shall have the
power to appoint such Vice Presidents and other officers equivalent or junior
thereto as the President may deem appropriate.
Section 2. Term.
Each officer of the Corporation shall serve at the pleasure of
the Board of Directors, and the Board may remove any officer at any time with
or without cause. Any officer, if appointed by the President of the
Corporation, may likewise be removed by the President of the Corporation.
Section 3. Authority and Duties.
All officers and agents of the Corporation shall have such
authority and perform such duties in the management of the property and affairs
of the Corporation as generally pertain to their respective offices, as well as
such authority and duties as may be determined by the Board of Directors.
Section 4. Execution of Instruments.
Checks, notes, drafts, other commercial instruments,
assignments, guarantees of signatures, and contracts (except as otherwise
provided herein or by law) shall be executed by the President, any Vice
President, the Secretary, the Treasurer, or such officers or employees or
agents as the Board of Directors or any of such designated officers may elect.
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Section 5. Compensation.
The Board of Directors shall have power to fix, or to delegate
the power to fix, the compensation for services in any capacity of all
officers, employees or agents of the Corporation. The Board of Directors shall
have the authority to establish, within legal limits, such pension, retirement,
stock purchase and stock option plans, and such other fringe benefit plans for
the benefit of officers, employees, or agents as it deems to be in the best
interest of the Corporation.
Section 6. Action with Respect to Securities of Other
Corporations.
Unless otherwise directed by the Board of Directors, the
President, any Vice President, the Secretary, the Treasurer or any officer of
the Corporation authorized by such officers shall have the power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise
to exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by,
or in the name of the Corporation by, the President or a Vice President, and by
the Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
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Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books
of the Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-Laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders, or to receive
payment of any dividend or other distribution or allotment of any rights or to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date on which the
resolution fixing the record date is adopted and which record date shall not be
more than sixty (60) nor less than ten (10) days before the date of any meeting
of stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion, or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
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A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall be not more than ten (10) days after the date upon
which the resolution fixing the record date is adopted. If no record date has
been fixed by the Board of Directors and no prior action by the Board of
Directors is required by the Delaware General Corporation Law, the record date
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation in the
manner prescribed by Article I, Section 9 hereof, If no record date has been
fixed by the Board of Directors and prior action by the Board of Directors is
required by the Delaware General Corporation Law with respect to the proposed
action by written consent of the stockholders, the record date for determining
stockholders entitled to consent to corporate action in writing shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
Section 4. Lost, Stolen, or Destroyed Certificates.
In the event of the loss, theft, or destruction of any
certificate of stock, another may be issued in its place pursuant to such
regulations as the Board of Directors may establish concerning proof of such
loss, theft, or destruction and concerning the giving of a satisfactory bond or
bonds or indemnity.
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Section 5. Regulations.
The issue, transfer, conversion, and registration of
certificates of stock shall be governed by such other regulations as the Board
of Directors may establish.
ARTICLE VI
NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required
by law, all notices required to be given to any stockholder, director, officer,
employee, or agent shall be in writing and may in every instance be effectively
given by hand delivery to the recipient thereof, by depositing such notice in
the mails, postage paid, or by sending such notice by prepaid telegram or
mailgram. Any such notice shall be addressed to such stockholder, director,
officer, employee, or agent at this or her last known address as the same
appears on the books of the Corporation. The time when such notice is
received, if hand-delivered, or dispatched, if delivered through the mails or
by telegram or mailgram, shall be the time of the giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder,
director, officer, employee, or agent, whether before or after the time of the
event for which notice is to be given, shall be deemed equivalent to the notice
required to be given to such stockholder, director, officer, employee, or
agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
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ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures
elsewhere specifically authorized in these By-Laws, facsimile signatures of any
officer or officers of the Corporation may be used whenever and as authorized
by the Board of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing
the name of the Corporation, which seal shall be in the charge of the
Secretary. If and when so directed by the Board of Directors or a committee
thereof, duplicates of the seal may be kept and used by the Treasurer or by an
Assistant Secretary or Assistant Treasurer.
Section 3. Reliance upon Books, Reports, and Records.
Each director, each member of any committee designated by the
Board of Directors, and each officer of the Corporation shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the books of account or other records of the Corporation and upon such
information, opinion, reports or statements presented to the Corporation by any
of its officers or employees, or committees of the Board of Directors so
designated, or by any other person as to matters which such director or
committee member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Corporation.
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Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the
Board of Directors.
Section 5. Time Periods.
In applying any provision of these By-Laws which requires that
an act be done or not be done a specified number of days prior to an event or
that an act be done during a period of a specified number of days prior to an
event, calendar days shall be used, the day of the doing of the act shall be
excluded, and the day of the event shall be included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative, or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director or an
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another corporation
or of a partnership, joint venture, trust, or other enterprise, including
service with respect to an employee benefit plan (hereinafter an "indemnitee"0,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee, or agent or in any other capacity while
serving as a director, officer, employee, or agent, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader
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indemnification rights than such law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorney's fees, judgments, fines, ERISA excise taxes, or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith; provided, however, that, except as provided in Section 3
of this Article VIII with respect to proceedings to enforce rights to
indemnification, the corporation shall indemnify any such indemnitee in
connection with a proceeding (or part hereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors
of the Corporation.
Section 2. Right to Advancement of Expenses.
The right to indemnification conferred in Section 1 of this
Article VIII shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amount so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section 2 or otherwise. The rights to indemnification and tot he
advancement of expenses conferred in Sections 1 and 2 of this Article VIII
shall be contract rights and such rights
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shall continue as to an indemnitee who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the indemnitee's heirs,
executors, and administrators.
Section 3. Right of Indemnitee to Bring Suit.
If a claim under Section 1 or 2 of this Article VIII is not
paid in full by the Corporation within sixty (60) days after a written claim
has been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
(20) days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole
or in part in any such suit, or in a suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that,
and (ii) in any suit brought by the Corporation to recover an advancement of
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior tot he commencement of such suit that indemnification of
the indemnitee is proper in the circumstances because the indemnitee has met
the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of conduct
or, in the case of such a suite brought by the indemnitee,
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be a defense to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses pursuant to the terms
of an undertaking, the burden of proving that the indemnitee is not entitled to
be indemnified, or to such advancement of expenses, under this Article VIII or
otherwise shall be on the Corporation.
Section 4. Non-Exclusivity of Rights.
The rights to indemnification and to the advancement of
expenses conferred in this Article VIII shall not be exclusive of any other
right which any person may have or hereafter acquire under any statue, the
Corporation's Certificate of Incorporation, By-Laws, agreement, vote of
stockholders, or disinterested directors or otherwise.
Section 5. Insurance.
The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee, or agent of the Corporation
or another corporation, partnership, joint venture, trust, or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expenses, liability or
loss under the Delaware General Corporation Law.
Section 6. Indemnification of Employee and Agents of the
Corporation.
The Corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
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ARTICLE IX
AMENDMENTS
These By-Laws may be amended or repealed by the Board of
Directors at any meeting or by the stockholders at any meeting.
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Exhibit 4.1
Steel Heddle Mfg. Co.
as Issuer
Heddle Capital Corp.
Steel Heddle International, Inc.
as Guarantors
$100,000,000
10.625% Senior Subordinated Notes
due June 1, 2008
-------------
INDENTURE
Dated as of May 26, 1998
-------------
United States Trust Company of New York
Trustee
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.03 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . 16
1.04 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 2
THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.01 Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.02 Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . 18
2.03 Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . 18
2.04 Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . 19
2.05 Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.06 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.07 Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.08 Outstanding Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.09 Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.10 Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.11 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.12 Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 3
REDEMPTION AND PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.01 Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.02 Selection of Notes to Be Redeemed . . . . . . . . . . . . . . . . . . . . 27
3.03 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.04 Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . 28
3.05 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . 28
3.06 Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.07 Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.08 No Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 4
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.01 Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.02 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . 30
4.03 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.04 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.05 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.06 Stay, Extension and Usury Laws. . . . . . . . . . . . . . . . . . . . . . 32
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4.07 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.08 Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.09 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.10 Incurrence of Indebtedness and Issuance of Preferred Stock . . . . . . . 39
4.11 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.12 Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . 41
4.13 Limitation on Layering Debt . . . . . . . . . . . . . . . . . . . . . . . 42
4.14 transactions with affiliates . . . . . . . . . . . . . . . . . . . . . . 42
4.15 Additional Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . . 43
4.16 Line of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.17 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.18 Status as an investment company . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 5
SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.01 Merger, Consolidation, or Sale of Assets . . . . . . . . . . . . . . . . 44
5.02 Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . 44
ARTICLE 6
DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.02 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.03 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.04 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.05 Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.06 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.07 Rights of Holders of Notes to Receive Payment . . . . . . . . . . . . . . 49
6.08 Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . 49
6.09 Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . 49
6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.11 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.12 Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . 50
ARTICLE 7
TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.01 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.02 Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.03 Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . 53
7.04 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.05 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.06 Reports by Trustee to Holders of the Notes . . . . . . . . . . . . . . . 53
7.07 Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . 54
7.08 Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.09 Successor Trustee by Merger, etc. . . . . . . . . . . . . . . . . . . . . 56
7.10 Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . 56
7.11 Preferential Collection of Claims Against Company . . . . . . . . . . . . 56
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . 56
8.01 Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . 56
8.02 Legal Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . 56
8.03 Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.04 Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . 57
8.05 Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . 59
8.06 Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.07 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.01 Without Consent of Holders of Notes . . . . . . . . . . . . . . . . . . . 60
9.02 With Consent of Holders of Notes . . . . . . . . . . . . . . . . . . . . 61
9.03 Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . . . . 62
9.04 Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . 62
9.05 Notation on or Exchange of Notes . . . . . . . . . . . . . . . . . . . . 63
9.06 Trustee to Sign Amendments, etc. . . . . . . . . . . . . . . . . . . . . 63
ARTICLE 10
SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.01 Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . 63
10.02 Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . . . . . 63
10.03 Default on Designated Senior Indebtedness . . . . . . . . . . . . . . . . 64
10.04 Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.05 When Distribution Must Be Paid Over . . . . . . . . . . . . . . . . . . . 65
10.06 Notice by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.07 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.08 Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.09 Subordination May Not Be Impaired by Company . . . . . . . . . . . . . . 67
10.10 Distribution or Notice to Representative . . . . . . . . . . . . . . . . 67
10.11 Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . . . . . 67
10.12 Authorization to Effect Subordination . . . . . . . . . . . . . . . . . . 68
10.13 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE 11
SUBSIDIARY GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.01 Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.02 Execution and Delivery of Subsidiary Guarantees . . . . . . . . . . . . . 70
11.03 Guarantors May Consolidate, etc., on Certain Terms . . . . . . . . . . . 70
11.04 Releases Following Sale of Assets . . . . . . . . . . . . . . . . . . . . 71
11.05 Limitation of Guarantor's Liability . . . . . . . . . . . . . . . . . . . 71
11.06 Application of Certain Terms and Provisions to the Guarantor . . . . . . 72
11.07 Subordination of Subsidiary Guarantees . . . . . . . . . . . . . . . . . 72
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
ARTICLE 12
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
12.01 Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . 73
12.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
12.03 Communication by Holders of Notes with Other Holders of Notes . . . . . . 74
12.04 Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . 74
12.05 Statements Required in Certificate or Opinion . . . . . . . . . . . . . . 74
12.06 Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . 75
12.07 No Personal Liability of Directors, Officers, Employees and Stockholders 75
12.08 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
12.09 No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . 75
12.10 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
12.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
12.12 Counterpart Originals . . . . . . . . . . . . . . . . . . . . . . . . . . 76
12.13 Table of Contents, Headings, etc. . . . . . . . . . . . . . . . . . . . . 76
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A FORM OF NOTE A-1
Exhibit B FORM OF GUARANTEE B-1
Exhibit C CERTIFICATE OF TRANSFEROR C-1
</TABLE>
iv
<PAGE> 6
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
-------------- -----------------
<S> <C>
310(a)(1)
7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.08; 7.10; 12.02
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.05
(b) 12.03
(c) 12.03
313(a) 7.06
(b)(1) N.A.
(b)(2) 7.06
(c) 7.06; 12.02
(d) 7.06
314(a) 4.09; 12.02
(b) N.A.
(c)(1) 12.04
(c)(2) 7.02; 12.04
(c)(3) N.A.
(d) N.A.
(e) 12.05
(f) N.A.
315(a) 7.01(2)
(b) 7.05; 12.02
(c) 7.01(1)
(d) 7.01(3)
(e) 6.11
316(a)(last sentence)
2.09
(a)(1)(A)
6.05
(a)(1)(B) 6.04
(a)(2) N.A.
(b) 6.07
317(a)(1) 6.08
(a)(2) 6.09
(b) 2.04
318(a) 12.01
</TABLE>
- ---------------------
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
1
<PAGE> 7
2
<PAGE> 8
INDENTURE dated as of May 26, 1998, among Steel Heddle Mfg.
Co., a Pennsylvania corporation (the "Company"), Heddle Capital Corp., a
Delaware corporation, and Steel Heddle International, Inc., a South Carolina
corporation, as guarantors (collectively, the "Guarantors"), and United States
Trust Company of New York, as trustee (the "Trustee").
Each party agrees as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the 10.625% Series A
Senior Subordinated Notes due 2008 (the "Series A Notes") and the 10.625%
Series B Senior Subordinated Notes due 2008 (the "Series B Notes" and, together
with the Series A Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01 DEFINITIONS
"Acquired Indebtedness" means, with respect to any specified
Person, (i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Acquisition Transactions" means, the series of transactions
whereby pursuant to a Stock Purchase Agreement dated May 1, 1998 AIP will
purchase (the "Stock Purchase") from Butler Capital Corporation and certain
other persons all of the issued and outstanding shares of capital stock of SH
Holdings Corp., a Pennsylvania corporation ("Old Holdings"). Pursuant to the
Stock Purchase and certain related transactions that will be consummated
substantially simultaneously, (i) AIP and certain management investors will
purchase common equity of Steel Heddle Group, Inc., a Delaware corporation ("SH
Group"), (ii) the Company will issue and sell the Notes, together with the
guarantee thereof of the Guarantors, (iii) the Company will enter into a Credit
Agreement with the lenders and administrative and collateral agents named
therein pursuant to which it will borrow $30,000,000 in term loans and
approximately $3,600,000 in revolving loans, (iv) the Company will advance
$63,000,000 to SH Group in the form of an intercompany note, and (v) SH Group
will purchase the issued and outstanding capital stock of Old Holdings.
Immediately upon the consummation of the Stock Purchase, (a) SH Intermediate
Corp., a Delaware corporation and wholly owned subsidiary of Old Holdings will
merge with and into its wholly owned subsidiary, the Company, with the Company
being the surviving corporation, (b) Old Holdings will merge with and into the
Company, with the Company being the surviving corporation, and (c) SH-AIP
Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of
SH Group will merge with and into the Company, with the Company being the
surviving corporation.
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<PAGE> 9
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control. Notwithstanding the foregoing, the
limited partners in AIP shall not be deemed to be Affiliates of AIP solely by
reason of their investment in such funds.
"Agent" means any Registrar, Paying Agent or co-registrar.
"AIP" means, collectively, American Industrial Partners
Capital Fund, L.P., a Delaware limited partnership, and American Industrial
Partners Capital Fund II, L.P., a Delaware limited partnership.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition that does not constitute a Restricted Payment or an Investment by
such person of any of its non-cash assets (including, without limitation, by
way of a sale and leaseback and including the issuance, sale or other transfer
of any of the capital stock of any Subsidiary of such person but excluding Cash
Equivalents liquidated in the ordinary course of business) other than to the
Company or to any of its Wholly Owned Subsidiaries that is a Guarantor
(including the receipt of proceeds of insurance paid on account of the loss of
or damage to any asset and awards of compensation for any asset taken by
condemnation, eminent domain or similar proceeding, and including the receipt
of proceeds of business interruption insurance); and (ii) the issuance of
Equity Interests in any Subsidiaries or the sale of any Equity Interests in any
Subsidiaries, in each case, in one or a series of related transactions,
provided, that notwithstanding the foregoing, the term "Asset Sale" shall not
include: (a) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company, as permitted pursuant to
Section 5.01 hereof, (b) the sale or lease of equipment, inventory, accounts
receivable or other assets in the ordinary course of business consistent with
past practice, (c) the sale or disposal of damaged, worn out or other obsolete
personal property in the ordinary course of business so long as such property
is no longer necessary for the proper conduct of the business of the Company or
such Subsidiary, as applicable; (d) a transfer of assets by the Company to a
Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or to
another Wholly Owned Subsidiary, (e) an issuance of Equity Interests by a
Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary,
(f) the surrender or waiver of contract rights or the settlement, release or
surrender of contract, tort or other claims of any kind, (g) the grant in the
ordinary course of business of any non-exclusive license of patents,
trademarks, registrations therefor and other similar intellectual property and
(h) Permitted Investments.
"Board of Directors" means the Board of Directors of the
Company, or any authorized committee of the Board of Directors.
"Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in New
York are authorized or obligated by law or executive order to close.
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<PAGE> 10
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of
a Capital Lease that would at such time be required to be capitalized on a
balance sheet in accordance with GAAP.
"Capital Contribution" means any contribution to the equity
of the Company for which no consideration is given other than common stock with
no redemption rights and no special privileges, preferences, or special voting
rights.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (a) securities issued or directly
and fully guaranteed or insured by the United States of America or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities not more than
twelve months from the date of acquisition, (b) U.S. dollar denominated (or
foreign currency fully hedged) time deposits, certificates of deposit,
Eurodollar time deposits or Eurodollar certificates of deposit of (i) any
domestic commercial bank of recognized standing having capital and surplus in
excess of $100,000,000 or (ii) any bank whose short-term commercial paper
rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at
least P-1 or the equivalent thereof (any such bank being an "Approved Lender"),
in each case with maturities of not more than twelve months from the date of
acquisition, (c) commercial paper and variable or fixed rate notes issued by
any Approved Lender (or by the parent company thereof) or any variable rate
notes issued by, or guaranteed by, any domestic corporation rated A-2 (or the
equivalent thereof) or better by S&P or P-2 (or the equivalent thereof) or
better by Moody's and maturing within twelve months of the date of acquisition,
(d) repurchase agreements with a bank or trust company or recognized securities
dealer having capital and surplus in excess of $100,000,000 for direct
obligations issued by or fully guaranteed by the United States of America in
which the Company shall have a perfected first priority security interest
(subject to no other Liens) and having, on the date of purchase thereof, a fair
market value of at least 100% of the amount of repurchase obligations, and (e)
interests in money market mutual funds which invest solely in assets or
securities of the type described in subparagraphs (a), (b), (c) or (d) hereof.
"Change of Control" means such time as (i) prior to the
initial public offering by the Company of any shares of its common stock (other
than a public offering pursuant to a registration statement on Form S-8), AIP
and its Affiliates (collectively, the "Initial Investors") cease to be,
directly or indirectly, the beneficial owners, in the aggregate of at least 51%
of the voting power of the voting common stock of the Company or (ii) after the
initial public offering by the Company of any shares of its common stock (other
than a public offering pursuant to a registration statement on Form S-8), (A)
any Schedule 13D, Form 13F or Schedule 13G under the Exchange Act, or any
amendment to such Schedule or Form, is received by the Company which indicates
that, or the Company otherwise becomes aware that, a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
(except, in the case of the Company, the Parent) has become,
3
<PAGE> 11
directly or indirectly, the "beneficial owner," by way of merger, consolidation
or otherwise, of 35% or more of the voting power of the voting capital stock of
the Company and (B) any such person or group has become, directly or
indirectly, the beneficial owner of a greater percentage of the voting capital
stock of the Company than is beneficially owned by the Initial Investors, or
(iii) the sale, lease or transfer of all or substantially all of the assets of
the Company to any person or group (other than the Initial Investors or their
Related Parties (as defined below)), or (iv) during any period of two
consecutive calendar years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any Continuing
Directors) cease for any reason to constitute a majority of the directors of
the Company then in office. "Related Party" with respect to any Initial
Investor means (A) any controlling stockholder, 80% (or more) owned Subsidiary,
or spouse, or immediate family member (in the case of any individual) of such
Initial Investor or (B) any trust, corporation, partnership or other entity,
the beneficiaries, stockholders, partners, owners or persons beneficially
holding an 80% or more controlling interest of which consist of such Initial
Investor and/or such other persons referred to in the immediately preceding
clause (A).
"Consolidated EBITDA" means, with respect to the Company and
its Subsidiaries for any period, the sum of, without duplication, (i) the
Consolidated Net Income for such period, plus (ii) the Fixed Charges for such
period, plus (iii) provision for taxes based on income or profits for such
period (to the extent such income or profits were included in computing
Consolidated Net Income for such period), plus (iv) consolidated depreciation,
amortization and other non-cash charges of the Company and its Subsidiaries
required to be reflected as expenses on the books and records of the Company,
minus (v) cash payments with respect to any non-recurring, non-cash charges
previously added back pursuant to clause (iv), and (vi) excluding the impact of
foreign currency translations. Notwithstanding the foregoing, the provision
for taxes based on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Subsidiary of a Person shall be
added to Consolidated Net Income to compute Consolidated EBITDA only to the
extent (and in the same proportion) that the Net Income of such Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if
a corresponding amount would be permitted at the date of determination to be
paid as a dividend to the Company by such Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that
is not a Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Subsidiary
thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be
4
<PAGE> 12
excluded, (v) the Net Income of, or any dividends or other distributions from,
any Unrestricted Subsidiary, to the extent otherwise included, shall be
excluded, whether or not distributed to the Company or one of its Subsidiaries,
and (vi) all other extraordinary gains and extraordinary losses shall be
excluded.
"Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who (i) was
a member of such Board of Directors on the Issue Date, (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board of Directors at the
time of such nomination or election or (iii) was appointed by AIP pursuant to
the Shareholders Agreements.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 12.02 hereof or such other address
as to which the Trustee may give notice to the Company.
"Credit Agreement" means that certain Credit Agreement,
dated as of the date of this Indenture, by and among the Company and
NationsBank, N.A., as administrative agent and the lenders parties thereto,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced, extended, restated or refinanced from
time to time, including any agreement restructuring or adding Subsidiaries of
the Company as additional borrowers or guarantors thereunder and whether by the
same or any other agent, lender or group of lenders; provided that the total
amount of Senior Indebtedness is not thereby increased beyond the amount that
may then be incurred at such time pursuant to the covenant described in Section
4.10.
"Default" means any event that is or with the passage of
time or the giving of notice or both would be an Event of Default.
"Definitive Notes" means Notes that are in the form of the
Notes attached hereto as Exhibit A, that do not include the information called
for by footnotes 1 and 2 thereof.
"Depository" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depository with respect to the Notes, until a successor shall
have been appointed and become such Depository pursuant to the applicable
provision of this Indenture, and, thereafter, "Depository" shall mean or
include such successor.
"Designated Senior Indebtedness" means (i) so long as the
Senior Bank Debt is outstanding, the Senior Bank Debt and (ii) thereafter, any
other Senior Indebtedness permitted under this Indenture the principal amount
of which is $25,000,000 or more and that has been designated by the Company as
"Designated Senior Indebtedness."
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
5
<PAGE> 13
or redeemable at the option of the Holder thereof, in whole or in part, on or
prior to the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an underwritten public offering of
Equity Interests of the Company or the Parent, other than Disqualified Stock,
pursuant to a registration statement filed with the SEC in accordance with the
Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer that may be made by the
Company pursuant to the Registration Rights Agreement to exchange Series B
Notes for Series A Notes.
"Existing Indebtedness" means the Indebtedness of the
Company and its Subsidiaries (other than Indebtedness under the Credit
Agreement) in existence on the date of this Indenture until such amounts are
repaid.
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of original issue discount,
amortization of deferred financing fees, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), (ii) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period, (iii) any interest
expense on Indebtedness of another Person that is Guaranteed by such Person or
one of its Subsidiaries or secured by a Lien on assets of such Person or one of
its Subsidiaries (whether or not such Guarantee or Lien is called upon) and
(iv) the product of (a) all cash dividend payments (and non-cash dividend
payments in the case of a Person that is a Subsidiary) on any series of
preferred stock of such Person payable to a party other than the Company or a
Wholly Owned Subsidiary, times (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any
Person for any period, the ratio of the Consolidated EBITDA of such Person and
its Subsidiaries for such period to the Fixed Charges of such Person and its
Subsidiaries for such period. In the event that the Company or any of its
Subsidiaries incurs, assumes, retires, Guarantees or redeems any Indebtedness
(other than revolving credit borrowings) or issues preferred stock subsequent
to the commencement of the four-quarter reference period for which the Fixed
Charge Coverage Ratio is being calculated but on or prior to the date on which
the event for which the calculation of the Fixed Charge Coverage Ratio is made
(the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, retirement,
Guarantee or redemption of Indebtedness, or
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<PAGE> 14
such issuance or redemption of preferred stock, as if the same had occurred at
the beginning of the applicable four-quarter reference period. For purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Subsidiaries, including through mergers or
consolidations and including any related financing and refinancing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to
have occurred on the first day of the four-quarter reference period, and (ii)
the Consolidated EBITDA attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of on or prior
to the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of on or prior to the Calculation Date,
shall be excluded, but only to the extent that the obligations giving rise to
such Fixed Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means any Wholly Owned Subsidiary
organized and incorporated in a jurisdiction outside of the United States that
is not a Guarantor.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of this
Indenture.
"Global Note" means a Note that contains the paragraph
referred to in footnote 1 and the additional schedule referred to in footnote 2
to the form of the Note attached hereto as Exhibit A.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of the United States
is pledged.
"Guarantee" means any obligation, contingent or otherwise,
of any person directly or indirectly guaranteeing any Indebtedness of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue of
agreements to keep well, to purchase assets, goods, letters of credit,
reimbursement agreements, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has corresponding meaning.
"Guarantor Senior Indebtedness" means (i) the Senior Bank
Debt and any Guarantees by any Guarantor of the Senior Bank Debt and (ii) any
other Indebtedness permitted to be incurred by any Guarantor under the terms of
this Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Subsidiary Guarantees. Notwithstanding anything to the contrary
in the foregoing, Guarantor Senior Indebtedness will not include (w) any
liability for federal, state, local, or other taxes owed or owing
7
<PAGE> 15
by any Guarantor, (x) any Indebtedness of any Guarantor to any of its
Subsidiaries or other Affiliates, (y) any trade payables or (z) any
Indebtedness that is incurred in violation of this Indenture.
"Guarantors" means each Subsidiary of the Company that
executes a Subsidiary Guarantee guaranteeing the Notes in accordance with the
provisions of this Indenture, and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) currency exchange or interest rate swap
agreements, interest rate cap agreements and interest rate collar agreements
and (ii) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates or currency exchange rates.
"Holder" means a Person in whose name a Note is registered
on the Registrar's books.
"Indebtedness" means, with respect to any Person, any (i)
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, incurred in the ordinary course of business, but other than with
respect to, letters of credit and Hedging Obligations only, if and to the
extent any of the foregoing indebtedness would appear as a liability upon a
consolidated balance sheet of such Person prepared in accordance with GAAP,
(ii) all Obligations of such Person with respect to any conditional sale or
title retention agreement, (iii) the amount of all Obligations of such Person
with respect to redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any Subsidiary of such Person, any preferred stock,
(iv) all indebtedness of others secured by a Lien on any asset of such Person
(whether or not such indebtedness is assumed by such Person) and, (v) to the
extent not otherwise included, the Guarantee by such Person of any indebtedness
of any other Person.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations, but excluding guarantees of Indebtedness of the Company or any
Subsidiary to the extent such guarantee is permitted in Section 4.10), advances
or capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), transfers of
assets outside the ordinary course of business (other than Asset Sales),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment.
"Issue Date" means the date of first issuance of the Notes
under this Indenture.
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<PAGE> 16
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"Net Cash Proceeds" means the aggregate amount of cash or
Cash Equivalents received by the Company in the case of a sale or equity
contribution in respect of Qualified Capital Stock plus, in the case of an
issuance of Qualified Capital Stock upon any exercise, exchange or conversion
of securities (including options, warrants, rights and convertible or
exchangeable debt) of the Company that were issued for cash after the Issue
Date, the amount of cash originally received by the Company upon the issuance
of such securities (including options, warrants, rights and convertible or
exchangeable debt) less, the sum of all payments, fees, commissions, and
customary and reasonable expenses (including, without limitation, the fees and
expenses of legal counsel and investment banking fees and expenses) incurred in
connection with such sale or equity contribution in respect of Qualified
Capital Stock.
"Net Income" means, with respect to any Person, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions)
or (b) the disposition of any securities by such Person or any of its
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not
loss), together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash and Cash
Equivalents received by the Company or any of its Subsidiaries in respect of
any Asset Sale (including, without limitation, any cash received upon the sale
or other disposition of any non-cash consideration received in any Asset Sale)
and, with respect to Section 4.09 hereof, by the Company or any Subsidiary in
respect of the sale of an Unrestricted Subsidiary and the sale, liquidation or
repayment for cash of a Restricted Investment, in each case, net of the direct
costs relating thereto (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax
9
<PAGE> 17
credits or deductions and any tax-sharing arrangements), and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which
neither the Company nor any Subsidiary of SH Group (a) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness) or (b) is directly or indirectly liable (as a
guarantor or otherwise), and (ii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company, or the stock or assets of any Subsidiary of the Company, including the
stock of any Unrestricted Subsidiary.
"Note Custodian" means the Trustee, as custodian with
respect to the Global Notes, or any successor entity thereto.
"Obligations" means any principal, interest, penalties,
fees, indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Indebtedness.
"Offering" means the Offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the
principal executive officer, the principal financial officer, the treasurer or
the principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee, that meets the
requirements of Section 12.05 hereof. The counsel may be an employee of or
counsel to the Company, any Subsidiary of the Company or the Trustee.
"Parent" means Steel Heddle Group, Inc., a Delaware
corporation, or its successor.
"Permitted Investments" means (a) any Investments in the
Company or in a Wholly Owned Subsidiary of the Company and that is engaged in
one or more Related Businesses; (b) any Investments in Cash Equivalents; (c)
Investments by the Company or any Subsidiary of the Company in a Person if as a
result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of
the Company that is engaged in one or more Related Businesses or (ii) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Wholly Owned Subsidiary of the Company that is engaged in one or more
Related Businesses; (d) Investments made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.08; (e) Investments outstanding as of the date of this
Indenture; (f) Investments in the form of promissory notes of members of the
Company's management in consideration of the purchase by such members
10
<PAGE> 18
of Equity Interests (other than Disqualified Stock) in the Company; (g)
Investments which constitute Existing Indebtedness of the Company of any of its
Subsidiaries; (h) accounts receivable, endorsements for collection or deposits
arising in the ordinary course of business; and (i) other Investments in any
Person or persons that do not in the aggregate exceed $10,000,000 at any time
outstanding; provided, however, that to the extent there would be, and to
avoid, any duplication in determining the amounts of investments outstanding
under this clause (i), any amounts which were credited under clause (c) of
Section 4.09 hereof shall reduce the amounts outstanding under this clause (i).
"Permitted Liens" means (i) Liens securing Senior
Indebtedness or Guarantor Senior Indebtedness in an aggregate principal amount
at any time outstanding not to exceed amounts permitted under Section 4.10
hereof; (ii) Liens in favor of the Company; (iii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the
Company or any Subsidiary of the Company including any permitted Refinancings
thereof; provided that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than
those of the Person merged into or consolidated with the Company; (iv) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company, provided that such Liens were in existence prior to
the contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens existing on the date of this Indenture; (vii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (viii) Liens incurred in the ordinary course of business of
the Company or any Subsidiary of the Company with respect to obligations that
do not exceed in the aggregate $5,000,000 at any one time outstanding and that
(a) are not incurred in connection with the borrowing of money or the obtaining
of advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of business
by the Company or such Subsidiary; (ix) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (x) easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with
the business of the Company or any of its Subsidiaries; (xi) Purchase Money
Liens (including extensions and renewals thereof); (xii) Liens securing
reimbursement obligations with respect to letters of credit which encumber only
documents and other property relating to such letters of credit and the
products and proceeds thereof; (xiii) judgment and attachment Liens not giving
rise to an Event of Default; (xiv) Liens encumbering deposits made to secure
obligations arising from statutory, regulatory, contractual or warranty
requirements; (xv) Liens arising out of consignment or similar arrangements for
the sale of goods; (xvi) any interest or title of a lessor in property subject
to any capital lease obligation or operating lease; (xvii) Liens on assets of
Subsidiaries with respect to Acquired Indebtedness (including Liens securing
Permitted Refinancing Indebtedness thereof); provided, such Liens are only on
assets or property acquired with such Acquired Indebtedness and that such Liens
were not created in contemplation of or in connection with such Acquisition;
and (xviii) Liens granted by a Foreign Subsidiary to secure Indebtedness of
such Foreign Subsidiary.
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<PAGE> 19
"Permitted Payments to Parent" means without duplication,
(a) payments to Parent in an amount sufficient to permit Parent to pay
reasonable and necessary operating expenses and other general corporate
expenses to the extent such expenses relate or are fairly allocable to the
Company and its Subsidiaries including any reasonable professional fees and
expenses, but excluding all expenses payable to or to be paid to or on behalf
of AIP, its other Affiliates and its Related Parties not in excess of $500,000
in any fiscal year; and (b) payments to Parent to enable Parent to pay foreign,
federal, state or local tax liabilities ("Tax Payment"), not to exceed the
amount of any tax liabilities that would be otherwise payable by the Company
and its Subsidiaries and Unrestricted Subsidiaries to the appropriate taxing
authorities if they filed separate tax returns to the extent that Parent has an
obligation to pay such tax liabilities relating to the operations, assets or
capital of the Company or its Subsidiaries and Unrestricted Subsidiaries
provided, however, that (i), notwithstanding the foregoing, in the case of
determining the amount of a Tax Payment that is permitted to be paid by Company
and any of its United States subsidiaries in respect of their Federal income
tax liability, such payment shall be determined assuming that the Company is
the parent company of an affiliated group (the "Company Affiliated Group")
filing a consolidated Federal income tax return and that Parent and each such
United States subsidiary is a member of the Company Affiliated Group and (ii)
any Tax Payments shall either be used by Parent to pay such tax liabilities
within 90 days of Parent's receipt of such payment or refunded to the payee.
"Permitted Refinancing Indebtedness" means any Indebtedness
of the Company or any of its Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Subsidiaries; provided
that: (a) the principal amount of such Permitted Refinancing Indebtedness does
not exceed (after deduction of reasonable and customary fees and expenses
incurred in connection with the refinancing and the amount of any premium or
prepayment penalty paid in connection with such refinancing transaction to the
extent in accordance with the terms of the document governing such Indebtedness
(except for any modification to any such document made in connection with or in
contemplation of such refinancing) the lesser of (i) the principal amount of
the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded and (ii) if such Indebtedness being refinanced was issued with an
original issue discount, the accreted value thereof (as determined in
accordance with GAAP) at the time of such refinancing, plus, in each case
accrued interest on such Indebtedness being refinanced; (b) such Permitted
Refinancing Indebtedness has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (c) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (d) such Indebtedness is incurred either by
the Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or agency or political subdivision thereof
(including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
12
<PAGE> 20
"Purchase Money Lien" means a Lien granted on an asset or
property to secure a Purchase Money Obligation permitted to be incurred under
this Indenture and incurred solely to finance the acquisition, including, in
the case of a Capital Lease, the lease, of such asset or property; provided,
however, that such Lien encumbers only such asset or property and is granted
within 180 days of such acquisition.
"Purchase Money Obligations" of any person means any
obligations of such person to any seller or any other person incurred or
assumed to finance solely the acquisition, including, in the case of a Capital
Lease, the lease, of real or personal property to be used in the business of
such person or any of its Subsidiaries in an amount that is not more than 100%
of the cost of such property, and incurred within 180 days after the date of
such acquisition (excluding accounts payable to trade creditors incurred in the
ordinary course of business).
"Qualified Capital Stock" means any Capital Stock of the
Company, or, if expressly applicable, the Parent, that is not Disqualified
Stock.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated as of the date of this Indenture, by and among the
Company and the other parties named on the signature pages thereof, as such
agreement may be amended, modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Related Business" means the business conducted (or proposed
to be conducted) by the Company and its Subsidiaries as of the Issue Date and
any and all businesses that in the good faith judgment of the Board of
Directors of the Company are materially related businesses, including
reasonable extensions or expansions thereof.
"Representative" means the indenture trustee or other
trustee, agent or representative for any Senior Indebtedness.
"Responsible Officer," when used with respect to the
Trustee, means any officer within the Corporate Trust Department of the Trustee
(or any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"SEC" means the United States Securities and Exchange
Commission.
"Securities Act" means the Securities Act of 1933, as
amended.
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<PAGE> 21
"Senior Bank Debt" means all Obligations in respect of the
Indebtedness (including, without limitation, interest accruing after filing of
a petition in bankruptcy, whether or not such interest is an allowable claim in
such proceeding) outstanding under the Credit Agreement.
"Senior Indebtedness" means (i) the Senior Bank Debt and
(ii) any other Indebtedness permitted to be incurred by the Company under the
terms of this Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in
right of payment to the Notes. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness shall not include (w) any liability for federal,
state, local or other taxes owed or owing by the Company, (x) any Indebtedness
of the Company to any of its Subsidiaries or other Affiliates, (y) any trade
payables or (z) any Indebtedness that is incurred in violation of this
Indenture.
"Senior Revolving Debt" means revolving credit borrowings
and letters of credit under the Credit Agreement and/or any successor facility
or facilities.
"Senior Term Debt" means term loans under the Credit
Agreement and/or any successor facility or facilities.
"SH-AIP Acquisition Corporation" means the predecessor to
the Company, immediately before the consummation of the Acquisition
Transactions.
"Shareholders Agreement" means the shareholders agreement by
and between Parent and certain of its shareholders.
"Significant Subsidiary" means any Subsidiary that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Exchange Act, as such Regulation is in effect
on the date hereof.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or indirectly,
by such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof). Unrestricted
Subsidiaries shall not be included in the definition of Subsidiary for any
purposes of this Indenture (except, as the context may otherwise require, for
purposes of the definition of "Unrestricted Subsidiary").
"Subsidiary Guarantees" means the Subsidiary Guarantees of
the Guarantors in the form set forth as Exhibit B hereto.
"Subsidiary Guarantor" means a Subsidiary which has
guaranteed the Notes in accordance with this Indenture.
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<PAGE> 22
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"Transfer Restricted Notes" means Notes that bear or are
required to bear the legend set forth in Section 2.06 hereof.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary (other
than Guarantors or any successors) that is designated by the Board of Directors
as an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the
extent that such Subsidiary: (a) has no Indebtedness other than Non-recourse
Debt; (b) is not party to any agreement, contract, arrangement or understanding
with the Company or any Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Subsidiaries has any direct or
indirect obligation to subscribe for additional Equity Interests or maintain or
preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; and (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness
of the Company or any of its Subsidiaries and (ii) any Subsidiary of an
Unrestricted Subsidiary. Any such designation by the Board of Directors shall
be evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by Section 4.09 hereof. If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of this
Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under Section 4.10
hereof, the Company shall be in default of such covenant). The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Section 4.10 hereof, and
(ii) no Default or Event of Default would be in existence following such
designation.
"Weighted Average Life to Maturity" means, when applied to
any Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of each of the
remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twentieth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary
of such Person all of the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying
15
<PAGE> 23
shares) shall at the time be owned by such Person or by one or more Wholly
Owned Subsidiaries of such Person. Unrestricted Subsidiaries shall not be
included in the definition of Wholly Owned Subsidiary for any purposes of this
Indenture (except, as the context may otherwise require, for purposes of the
definition of "Unrestricted Subsidiary.")
SECTION 1.02 OTHER DEFINITIONS
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Acceleration Notice" 6.02
"Affiliate Transaction" 4.14
"Asset Sale Offer" 4.08
"Bankruptcy Law" 6.01
"Benefited Party" 11.01
"Change of Control Offer" 4.07
"Change of Control Payment" 4.07
"Change of Control Payment Date" 4.07
"Covenant Defeasance" 8.03
"DTC" 2.03
"Event of Default" 6.01
"Excess Proceeds" 4.08
"incur" 4.10
"Legal Defeasance" 8.02
"Offer Amount" 4.08
"Offer Period" 4.08
"Paying Agent" 2.03
"Payment Blockage Notice" 10.03
"Payment Default" 10.03
"Purchase Date" 4.08
"Registrar" 2.03
"Restricted Payments" 4.09
</TABLE>
SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the TIA,
the provision is incorporated by reference in and made a part of this
Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
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"obligor" on the Notes means the Company, the Guarantors and
any successor obligor upon the Notes.
All other terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule
under the TIA have the meanings so assigned to them.
SECTION 1.04 RULES OF CONSTRUCTION
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in
the plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute, replacement of
successor sections or rules adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
SECTION 2.01 FORM AND DATING
The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. In the
event of a conflict, the terms of the Indenture shall control.
Global Notes shall be substantially in the form of Exhibit A
attached hereto (including the text referred to in footnotes 1 and 2 thereto).
Notes issued in definitive form shall be substantially in the form of Exhibit A
attached hereto (but without including the text referred to in footnotes 1 and
2 thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified
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therein and each shall provide that it shall represent the aggregate amount of
outstanding Notes from time to time endorsed thereon and that the aggregate
amount of outstanding Notes represented thereby may from time to time be
reduced or increased, as appropriate, to reflect exchanges and redemptions.
Any endorsement of a Global Note to reflect the amount of any increase or
decrease in the amount of outstanding Notes represented thereby shall be made
by the Trustee or the Note Custodian, at the direction of the Trustee, in
accordance with instructions given by the Holder thereof as required by Section
2.06 hereof.
SECTION 2.02 EXECUTION AND AUTHENTICATION
Two Officers shall sign the Notes for the Company by manual
or facsimile signature. The Company's seal shall be reproduced on the Notes
and may be in facsimile form.
If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company
signed by two Officers, authenticate Notes for original issue up to the
aggregate principal amount stated in paragraph 4 of the Notes. The aggregate
principal amount of Notes outstanding at any time may not exceed such amount
except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable
to the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate of the Company.
SECTION 2.03 REGISTRAR AND PAYING AGENT
The Company shall maintain an office or agency where Notes
may be presented for registration of transfer or for exchange ("Registrar") and
an office or agency where Notes may be presented for payment ("Paying Agent").
The Registrar shall keep a register of the Notes and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and
the term "Paying Agent" includes any additional paying agent. The Company may
change any Paying Agent or Registrar without notice to any Holder. The Company
shall notify the Trustee in writing of the name and address of any Agent not a
party to this Indenture. If the Company fails to appoint or maintain another
entity as Registrar or Paying Agent, the Trustee shall act as such. The
Company or any of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depository with respect to the Global Notes.
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<PAGE> 26
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes.
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee and
account for any funds disbursed, and the Trustee may at any time during the
continuance of any default in the payment of principle of, premium, if any or
accrued interest or Liquidated Damages, if any, on the Notes pursuant to
Sections 6.01(1) and 6.01(2) hereof, upon written request to a Paying Agent,
require such Paying Agent to pay all money held by it to the Trustee and to
account for all funds disbursed. Upon payment over to the Trustee, the Paying
Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company or a Subsidiary acts as Paying Agent,
it shall segregate and hold in a separate trust fund for the benefit of the
Holders all money held by it as Paying Agent. Upon any bankruptcy or
reorganization proceedings relating to the Company, the Trustee shall serve as
Paying Agent for the Notes.
SECTION 2.05 HOLDER LISTS
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA Section 312(a).
If the Trustee is not the Registrar, the Company shall furnish to the Trustee
at least seven Business Days before each interest payment date and at such
other times as the Trustee may request in writing, a list in such form and as
of such date as the Trustee may reasonably require of the names and addresses
of the Holders of Notes and the Company shall otherwise comply with TIA Section
312(a).
SECTION 2.06 TRANSFER AND EXCHANGE
(a) Transfer and Exchange of Definitive Notes.
When Definitive Notes are presented by a Holder to the Registrar with a
request: (x) to register the transfer of the Definitive Notes; or (y) to
exchange such Definitive Notes for an equal principal amount of Definitive
Notes of other authorized denominations, the Registrar shall register the
transfer or make the exchange as requested if its requirements for such
transactions are met; provided, however, that the Definitive Notes presented or
surrendered for register of transfer or exchange: (i) shall be duly endorsed or
accompanied by a written instruction of transfer in form satisfactory to the
Registrar duly executed by such Holder or by his attorney, duly authorized in
writing; and (ii) in the case of a Definitive Note that is a Transfer
Restricted Note, such request shall be accompanied by the following additional
information and documents, as applicable: (A) if such Transfer Restricted Note
is being delivered to the Registrar by a Holder for registration in the name of
such Holder, without transfer, a certification to that effect from such Holder
(in substantially the form of Exhibit C hereto); or (B) if such Transfer
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<PAGE> 27
Restricted Note is being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in accordance with Rule 144A
under the Securities Act or pursuant to an exemption from registration in
accordance with Rule 144 or Rule 904 under the Securities Act or pursuant to an
effective registration statement under the Securities Act, a certification to
that effect from such Holder (in substantially the form of Exhibit C hereto);
or (C) if such Transfer Restricted Note is being transferred in reliance on
another exemption from the registration requirements of the Securities Act, a
certification to that effect from such Holder (in substantially the form of
Exhibit C hereto) and an Opinion of Counsel from such Holder or the transferee
reasonably acceptable to the Company and to the Registrar to the effect that
such transfer is in compliance with the Securities Act.
(b) Transfer of a Definitive Note for a Beneficial
Interest in a Global Note. A Definitive Note may not be exchanged for a
beneficial interest in a Global Note except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive
Note, duly endorsed or accompanied by appropriate instruments of transfer, in
form satisfactory to the Trustee, together with: (i) if such Definitive Note is
a Transfer Restricted Note, a certification from the Holder thereof (in
substantially the form of Exhibit C hereto) to the effect that such Definitive
Note is being transferred by such Holder to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act) in accordance with Rule 144A
under the Securities Act; and (ii) whether or not such Definitive Note is a
Transfer Restricted Note, written instructions from the Holder thereof
directing the Trustee to make, or to direct the Note Custodian to make, an
endorsement on the Global Note to reflect an increase in the aggregate
principal amount of the Notes represented by the Global Note, in which case the
Trustee shall cancel such Definitive Note in accordance with Section 2.11
hereof and cause, or direct the Note Custodian to cause, in accordance with the
standing instructions and procedures existing between the Depository and the
Note Custodian, the aggregate principal amount of Notes represented by the
Global Note to be increased accordingly. If no Global Notes are then
outstanding, the Company shall issue and, upon receipt of an authentication
order in accordance with Section 2.02 hereof, the Trustee shall authenticate a
new Global Note in the appropriate principal amount.
(c) Transfer and Exchange of Global Notes. The
transfer and exchange of Global Notes or beneficial interests therein shall be
effected through the Depository, in accordance with this Indenture and the
procedures of the Depository therefor, which shall include restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act.
(d) Transfer of a Beneficial Interest in a Global
Note for a Definitive Note.
(i) Any Person having a beneficial
interest in a Global Note may upon request exchange such beneficial interest
for a Definitive Note. Upon receipt by the Trustee of written instructions or
such other form of instructions as is customary for the Depository, from the
Depository or its nominee on behalf of any Person having a beneficial interest
in a Global Note, and, in the case of a Transfer Restricted Note, the following
additional information and documents (all of which may be submitted by
facsimile): (A) if such beneficial interest is being transferred to the Person
designated by the Depository as being the beneficial owner, a certification to
that effect from such Person (in substantially the form of Exhibit C hereto);
or (B) if such beneficial interest is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act or pursuant to an exemption
from registration in
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<PAGE> 28
accordance with Rule 144 or Rule 904 under the Securities Act or pursuant to an
effective registration statement under the Securities Act, a certification to
that effect from the transferor (in substantially the form of Exhibit C
hereto); or (C) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the Securities Act, a
certification to that effect from the transferor (in substantially the form of
Exhibit C hereto) and an Opinion of Counsel from the transferee or transferor
reasonably acceptable to the Company and to the Registrar to the effect that
such transfer is in compliance with the Securities Act, in which case the
Trustee or the Note Custodian, at the direction of the Trustee, shall, in
accordance with the standing instructions and procedures existing between the
Depository and the Note Custodian, cause the aggregate principal amount of
Global Notes to be reduced accordingly and, following such reduction, the
Company shall execute and, upon receipt of an authentication order in
accordance with Section 2.02 hereof, the Trustee shall authenticate and deliver
to the transferee a Definitive Note in the appropriate principal amount.
(ii) Definitive Notes issued in exchange
for a beneficial interest in a Global Note pursuant to this Section 2.06(d)
shall be registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect participants
or otherwise, shall instruct the Trustee. The Trustee shall deliver such
Definitive Notes to the Persons in whose names such Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global
Notes. Notwithstanding any other provision of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.06), a Global Note may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Authentication of Definitive Notes in Absence of
Depository. If at any time: (i) the Depository for the Notes notifies the
Company that the Depository is unwilling or unable to continue as Depository
for the Global Notes and a successor Depository for the Global Notes is not
appointed by the Company within 90 days after delivery of such notice; or (ii)
the Company, at its sole discretion, notifies the Trustee in writing that it
elects to cause the issuance of Definitive Notes under this Indenture, then the
Company shall execute, and the Trustee shall, upon receipt of an authentication
order in accordance with Section 2.02 hereof, authenticate and deliver,
Definitive Notes in an aggregate principal amount equal to the principal amount
of the Global Notes in exchange for such Global Notes.
(g) Legends.
(i) Except as permitted by the following
paragraphs (ii) and (iii), each Note certificate evidencing Global Notes and
Definitive Notes (and all Notes issued in exchange therefor or substitution
thereof) shall bear legends in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A NOMINEE OR A DEPOSITORY OR A SUCCESSOR DEPOSITORY.
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<PAGE> 29
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A
NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY
OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE
TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS
THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT
AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (As defined in Rule 144A
under the Securities Act) (A "QIB") OR (B) IT
HAS ACQUIRED THIS NOTE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S
UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR
ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR 904 OF THE SECURITIES ACT, (D) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, (E) IN ACCORDANCE
WITHANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND
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<PAGE> 30
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND
"UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE
902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING.
(ii) Upon any sale or transfer of a Transfer
Restricted Note (including any Transfer Restricted Note represented by a Global
Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective
registration statement under the Securities Act: (A) in the case of any
Transfer Restricted Note that is a Definitive Note, the Registrar shall permit
the Holder thereof to exchange such Transfer Restricted Note for a Definitive
Note that does not bear the first legend set forth in (i) above and rescind any
restriction on the transfer of such Transfer Restricted Note; and (B) in the
case of any Transfer Restricted Note represented by a Global Note, such
Transfer Restricted Note shall not be required to bear the first legend set
forth in (i) above, but shall continue to be subject to the provisions of
Section 2.06(c) hereof; provided, however, that with respect to any request for
an exchange of a Transfer Restricted Note that is represented by a Global Note
for a Definitive Note that does not bear the first legend set forth in (i)
above, which request is made in reliance upon Rule 144, the Holder thereof
shall certify in writing to the Registrar that such request is being made
pursuant to Rule 144 (such certification to be substantially in the form of
Exhibit C hereto).
(iii) Notwithstanding the foregoing, upon
consummation of the Exchange Offer, the Company shall issue and, upon receipt
of an authentication order in accordance with Section 2.02 hereof, the Trustee
shall authenticate Series B Notes in exchange for Series A Notes accepted for
exchange in the Exchange Offer, which Series B Notes shall not bear the first
legend set forth in (i) above, and the Registrar shall rescind any restriction
on the transfer of such Notes, in each case unless the Holder of such Series A
Notes is either (A) a broker-dealer, (B) a Person participating in the
distribution of the Series A Notes or (C) a Person who is an affiliate (as
defined in Rule 144A) of the Company.
(h) Cancellation and/or Adjustment of Global Notes.
At such time as all beneficial interests in Global Notes have been exchanged
for Definitive Notes, redeemed, repurchased or cancelled, all Global Notes
shall be returned to or retained and cancelled by the Trustee in accordance
with Section 2.11 hereof. At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for Definitive Notes,
redeemed, repurchased or cancelled, the principal amount of Notes represented
by such Global Note shall be reduced accordingly and an endorsement shall be
made on such Global Note, by the Trustee or the Notes Custodian, at the
direction of the Trustee, to reflect such reduction.
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<PAGE> 31
(i) General Provisions Relating to Transfers and
Exchanges.
(i) To permit registrations of transfers
and exchanges, the Company shall execute and the Trustee shall authenticate
Definitive Notes and Global Notes at the Registrar's request.
(ii) No service charge shall be made to a
Holder for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchange or transfer
pursuant to Sections 4.07 and 4.08 hereto).
(iii) The Registrar shall not be required to
register the transfer of or exchange any Note selected for redemption in whole
or in part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Definitive Notes and Global Notes
issued upon any registration of transfer or exchange of Definitive Notes or
Global Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Definitive
Notes or Global Notes surrendered upon such registration of transfer or
exchange.
(v) The Company shall not be required: (A)
to issue, to register the transfer of or to exchange Notes during a period
beginning at the opening of business 15 days before the day of any selection of
Notes for redemption under Section 3.02 hereof and ending at the close of
business on the day of selection; or (B) to register the transfer of or to
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part; or (C) to register the
transfer of or to exchange a Note between a record date and the next succeeding
interest payment date.
(vi) Prior to due presentment for the
registration of a transfer of any Note, the Trustee, any Agent and the Company
may deem and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of principal
of and interest on such Notes, and neither the Trustee, any Agent nor the
Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate
Definitive Notes and Global Notes in accordance with the provisions of Section
2.02 hereof.
SECTION 2.07 REPLACEMENT NOTES
If any mutilated Note is surrendered to the Trustee, or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the
Trustee, upon the written order of the Company signed by two Officers of the
Company, shall authenticate a replacement Note if the Trustee's requirements
are met. If required by the Trustee or the Company, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and
the Company to protect the Company, the Trustee, any Agent and
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<PAGE> 32
any authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
SECTION 2.08 OUTSTANDING NOTES
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Note
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. Except as set forth in Section
2.09 hereof, a Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date,
money sufficient to pay Notes payable on that date, then on and after that date
such Notes shall be deemed to be no longer outstanding and shall cease to
accrue interest.
SECTION 2.09 TREASURY NOTES
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, amendment, supplement, waiver
or consent, Notes owned by the Company, or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Company, shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on
any such direction, amendment, supplement, waiver or consent, only Notes that
the Trustee knows are so owned shall be so disregarded. The Company shall
notify the Trustee in writing, when it or any Affiliate of the Company
repurchases or otherwise acquires Notes, and of the aggregate principle amount
of such Notes so repurchased or otherwise acquired.
SECTION 2.10 TEMPORARY NOTES
Until definitive Notes are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Notes upon a written
order of the Company signed by two Officers of the Company. Temporary Notes
shall be substantially in the form of definitive Notes but may have variations
that the Company considers appropriate for temporary Notes and as shall be
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<PAGE> 33
reasonably acceptable to the Trustee. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Notes in exchange
for temporary Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
SECTION 2.11 CANCELLATION
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be
delivered to the Company. The Company may not issue new Notes to replace Notes
that it has paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12 DEFAULTED INTEREST
If the Company defaults in a payment of interest on the
Notes, it shall pay the defaulted interest in any lawful manner plus, to the
extent lawful, interest payable on the defaulted interest, to the Persons who
are Holders on a subsequent special record date, in each case at the rate
provided in the Notes and in Section 4.01 hereof. The Company shall notify the
Trustee in writing of the amount of defaulted interest proposed to be paid on
each Note and the date of the proposed payment. The Company shall fix or cause
to be fixed each such special record date and payment date, provided that no
such special record date shall be less than 10 days prior to the related
payment date for such defaulted interest. At least 15 days before the special
record date, the Company (or, upon the written request of the Company, the
Trustee in the name and at the expense of the Company) shall mail or cause to
be mailed to Holders a notice that states the special record date, the related
payment date and the amount of such interest to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01 NOTICES TO TRUSTEE
If the Company elects to redeem Notes pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall furnish to the
Trustee, at least 30 days (unless a shorter period is consented to in writing
by the Trustee) but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant
to which the redemption shall occur, (ii) the redemption date, (iii) the
principal amount of Notes to be redeemed and (iv) the redemption price.
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SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED
If less than all of the Notes are to be redeemed at any
time, the Trustee shall select the Notes to be redeemed among the Holders of
the Notes in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes are
not so listed, on a pro rata basis, by lot or in accordance with any other
method the Trustee considers fair and appropriate. In the event of partial
redemption by lot, the particular Notes to be redeemed shall be selected,
unless otherwise provided herein, not less than 30 nor more than 60 days prior
to the redemption date by the Trustee from the outstanding Notes not previously
called for redemption.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or integral multiples
of $1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not an integral
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
SECTION 3.03 NOTICE OF REDEMPTION
Subject to the provisions of Section 3.07 hereof, at least
30 days but not more than 60 days before a redemption date, the Company shall
mail or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and
shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the
portion of the principal amount of such Note to be redeemed and that,
after the redemption date upon surrender of such Note, a new Note or
Notes in principal amount equal to the unredeemed portion shall be
issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the redemption date;
(g) the paragraph of the Notes and/or Section of
this Indenture pursuant to which the Notes called for redemption are
being redeemed; and
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<PAGE> 35
(h) that no representation is made as to the correctness
or accuracy of the CUSIP number, if any, listed in such notice or
printed on the Notes.
At the Company's request, the Trustee shall give the notice
of redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as
provided in the preceding paragraph.
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed in accordance with
Section 3.03 hereof, Notes called for redemption become irrevocably due and
payable on the redemption date at the redemption price. A notice of redemption
may not be conditional.
SECTION 3.05 DEPOSIT OF REDEMPTION PRICE
One Business Day prior to the redemption date, the Company
shall deposit with the Trustee or with the Paying Agent in immediately
available funds sufficient to pay the redemption price of and accrued interest
on all Notes to be redeemed on that date. The Trustee or the Paying Agent
shall promptly return to the Company any money deposited with the Trustee or
the Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, and accrued interest and Liquidated Damages, if any, on,
all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption unless the Company
defaults in such payments due on the redemption date. If a Note is redeemed on
or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender
for redemption because of the failure of the Company to comply with the
preceding paragraph, interest shall be paid on the unpaid principal, from the
redemption date until such principal is paid, and to the extent lawful on any
interest not paid on such unpaid principal, in each case at the rate provided
in the Notes and in Section 4.01 hereof.
SECTION 3.06 NOTES REDEEMED IN PART
Upon surrender of a Note that is redeemed in part, the
Company shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
SECTION 3.07 OPTIONAL REDEMPTION
(a) Except as set forth in clause (b) of this Section 3.07,
the Company shall not have the option to redeem the Notes pursuant to this
Section 3.07 prior to June 1, 2003. Thereafter, the Company shall have the
option to redeem the Notes, in whole or in part, upon not less than 30 nor
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<PAGE> 36
more than 60 days notice to the Holders, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date if redeemed during the twelve-month period beginning on June 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . 105.313%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . 103.542%
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 101.771%
2006 and thereafter . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this
Section 3.07, at any time prior to June 1, 2001, the Company may (but shall not
have the obligation to) redeem up to 35% of the original aggregate principal
amount of Notes at a redemption price of 110.625% of the principal amount
thereof, in each case plus accrued and unpaid interest and Liquidated Damages,
if any, thereon to the redemption date, with the Net Cash Proceeds received by
the Company from one or more Equity Offerings; provided that, in each case, at
least 65% of the aggregate principal amount of the Notes originally issued
remain outstanding immediately after the occurrence of such redemption; and
provided, further, that such redemption shall occur within 60 days of the date
of the closing of such Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be
made pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08 NO MANDATORY REDEMPTION
The Company shall not be required to make mandatory
redemption payments with respect to the Notes.
ARTICLE 4
COVENANTS
SECTION 4.01 PAYMENT OF NOTES
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Trustee or Paying Agent, if other than
the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the
due date money deposited by the Company in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, and
interest then due. The Company shall pay all Liquidated Damages, if any, in
the same manner on the dates and in the amounts set forth in the Registration
Rights Agreement. The Company shall notify the Trustee of the amount of
Liquidated Damages, if any, within one day of any payment date. In the absence
of such notice, the Trustee is conclusively entitled to assume that no
Liquidated Damages are payable under the Registration Rights Agreement.
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The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at
the rate equal to 1% per annum in excess of the then applicable interest rate
on the Notes to the extent lawful; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages (without regard to any
applicable grace period) at the same rate to the extent lawful.
Section 4.02 Maintenance of Office or Agency
The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may
be served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one
or more other offices or agencies where the Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency in the Borough of Manhattan, the City of New York for such purposes.
The Company shall give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
The Company hereby designates the Corporate Trust
Office of the Trustee as one such office or agency of the Company in accordance
with Section 2.03 hereof.
Section 4.03 Reports
(a) Whether or not required by the rules and regulations of
the SEC, so long as any Notes are outstanding, the Company shall furnish to all
Holders (i) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the
Company were required to file such forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if the Company were required to
file such reports. In addition, whether or not required by the rules and
regulations of the SEC, at any time after the effectiveness of a registration
statement with respect to the Exchange Offer, the Company shall file a copy of
all such information with the SEC for public availability (unless the SEC will
not accept such a filing) and shall promptly make such information available to
all securities analysts and prospective investors upon request.
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<PAGE> 38
(b) For so long as any Transfer Restricted Notes remain
outstanding, the Company and the Subsidiary Guarantors shall furnish to all
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
SECTION 4.04 COMPLIANCE CERTIFICATE
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in
the performance or observance of any of the terms, provisions and conditions of
this Indenture (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge and what action the Company is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Notes is prohibited or if such event
has occurred, a description of the event and what action the Company is taking
or proposes to take with respect thereto.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.03(a) hereof
shall be accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial
statements, nothing has come to their attention that would lead them to believe
that the Company has violated any provisions of Article 4 or Article 5 hereof
or, if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be
liable directly or indirectly to any Person for any failure to obtain knowledge
of any such violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes
to take with respect thereto.
SECTION 4.05 TAXES
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
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SECTION 4.06 STAY, EXTENSION AND USURY LAWS
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so), hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law has been enacted.
SECTION 4.07 CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of
Notes shall have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of purchase (the "Change of Control Payment") on a date (the "Change of
Control Payment Date") no later than 60 Business Days after the occurrence of
the Change of Control. Within 35 days following any Change of Control, the
Company shall mail a notice to each Holder, with a copy to the Trustee,
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes pursuant to the procedures required by
this Indenture and described in such notice, which offer shall remain open for
at least 20 Business Days following its commencement, but in any event no
longer than 30 Business Days. The Company shall comply with the requirements
of Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Notes as a result of a Change of
Control. To the extent that the provisions of any such securities laws or
regulations conflict with the provisions of this Section 4.07, compliance by
the Company or any of the Guarantors with such laws and regulations shall not
in and of itself cause a breach of its obligations under this Section 4.07.
On the Change of Control Payment Date, the Company shall, to
the extent lawful, (1) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of all
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of Notes or portions thereof being
purchased by the Company. The Paying Agent shall promptly mail to each Holder
of Notes so tendered the Change of Control Payment for such Notes, and the
Trustee shall promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
Prior to complying with the provisions of this covenant,
but in any event within 30 days following a Change of Control, the Company will
either repay all outstanding Designated
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<PAGE> 40
Senior Indebtedness or obtain the requisite consents, if any, under all
agreements governing outstanding Designated Senior Indebtedness to permit the
repurchase of Notes required by this Section 4.07. The Company will not be
required to purchase any Notes until it has complied with the preceding
sentence, but the Company's failure to make a Change of Control Offer when
required or to purchase tendered Notes when tendered shall constitute an Event
of Default.
If the Change of Control Payment Date hereunder is on or
after an interest payment Record Date and on or before the associated Interest
Payment Date, any accrued and unpaid interest (and Liquidated Damages, if any)
due on such Interest Payment Date will be paid to the person in whose name a
Note is registered at the close of business on such Record Date, and such
interest (and Liquidated Damages, if applicable) will not be payable to Holders
who tender the Notes pursuant to the Change of Control Offer.
SECTION 4.08 ASSET SALES
The Company shall not, and shall not permit any of its
Subsidiaries to, engage in an Asset Sale in excess of $1,000,000 unless (i) the
Company (or the Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value, of the assets
or Equity Interests sold or otherwise disposed of and, in the case of a lease
of assets, a lease providing for rent and other conditions which are no less
favorable to the Company (or such Subsidiary, as the case may be) in any
material respect than the then prevailing market conditions (evidenced in each
case by a resolution of the Board of Directors of such entity set forth in an
Officers' Certificate delivered to the Trustee) and (ii) at least 75% (100% in
the case of lease payments) of the consideration therefor received by the
Company or such Subsidiary is in the form of cash or Cash Equivalents; provided
that the amount of (x) any liabilities (as shown on the Company's or such
Subsidiary's most recent balance sheet or in the notes thereto, but excluding
contingent liabilities and trade payables) of the Company or any Subsidiary
(other than liabilities that are by their terms subordinated to the Notes or
any Guarantee thereof) that are assumed by the transferee of any such assets
and from which the Company or such Subsidiary are unconditionally released from
liability and (y) any notes, securities or other obligations received by the
Company or any such Subsidiary from such transferee that are promptly, but in
no event more than 30 days after receipt, converted by the Company or such
Subsidiary into cash shall (to the extent of the cash received) be deemed to be
cash for purposes of this provision and the receipt of such cash shall be
treated as cash received from the Asset Sale for which such Notes or
obligations were received.
The Company or any of its Subsidiaries may apply the Net
Proceeds from each Asset Sale, at its option, within 360 days after the
consummation of such Asset Sale, (a) to permanently reduce any Senior
Indebtedness, Guarantor Senior Indebtedness or, in the case of an Asset Sale by
a Foreign Subsidiary, to permanently reduce Indebtedness of such Foreign
Subsidiary (and in the case of any senior revolving indebtedness to
correspondingly permanently reduce commitments with respect thereto), (b) to
make capital expenditures, for the acquisition of another business or the
acquisition of other long-term assets, in each case, in the same or a Related
Business or (c) to reimburse the Company or its Subsidiaries for expenditures
made, and costs incurred, to repair, rebuild, replace or restore property
subject to loss, damage or taking to the extent that the Net Proceeds consist
of insurance proceeds received on account of such loss, damage or taking.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Senior
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Revolving Debt or otherwise invest such Net Proceeds in any manner that is not
prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph shall
be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5,000,000, the Company shall be required to make an offer to
all Holders of Notes (an "Asset Sale Offer") and to holders of other
Indebtedness of the Company outstanding ranking on a parity with the Notes with
similar provisions requiring the Company to make a similar offer with proceeds
from asset sales, pro rata in proportion to the respective principal amounts
(or accreted values in the case of Indebtedness issued with an original issue
discount) of the Notes and such other Indebtedness then outstanding, to
purchase the maximum principal amount (or accreted value, as applicable) of
Notes and such other Indebtedness, if any, that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount (or accreted value, as applicable) thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase, in accordance with the procedures set forth in this Indenture. If
the aggregate principal amount (or accreted value, as applicable) of Notes and
such Indebtedness surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes and such Indebtedness to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
Any Asset Sale Offer shall remain open for at least 20
Business Days, but in any event no longer than 30 Business Days, except to the
extent that a longer period is required by applicable law (the "Offer Period").
No later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to this Section 4.08 (the "Offer Amount") or,
if less than the Offer Amount has been tendered, all Notes tendered in response
to the Asset Sale Offer. Payment for any Notes so purchased shall be made in
the same manner as interest payments are made. Any Asset Sale Offer shall be
made in compliance with all applicable laws, rules, and regulations, including,
if applicable, Regulation 14E of the Exchange Act and the rules and regulations
thereunder and all other applicable Federal and state securities laws. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of this Section 4.08, compliance by the Company or any of its
subsidiaries with such laws and regulations shall not in and of itself cause a
breach of its obligations under this Section 4.08.
If the payment date in connection with an Asset Sale
Offer hereunder is on or after an interest payment Record Date and on or before
the associated Interest Payment Date, any accrued and unpaid interest (and
Liquidated Damages, if any, due on such Interest Payment Date) will be paid to
the person in whose name a Note is registered at the close of business on such
Record Date, and such interest (or Liquidated Damages, if applicable) will not
be payable to Holders who tender Notes pursuant to such Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company
shall send, by first class mail, a notice to each of the Holders, with a copy
to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
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Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made
pursuant to this Section 4.08 and the length of time the
Asset Sale Offer shall remain open;
(b) the Offer Amount, the purchase price and the
Purchase Date;
(c) that any Note not tendered or accepted for
payment shall continue to accrete or accrue interest;
(d) that, unless the Company defaults in making
such payment, any Note accepted for payment pursuant to the
Asset Sale Offer shall cease to accrete or accrue interest on
and after the Purchase Date;
(e) that Holders electing to have a Note
purchased pursuant to an Asset Sale Offer may only elect to
have all of such Note purchased and may not elect to have
only a portion of such Note purchased;
(f) that Holders electing to have a Note
purchased pursuant to any Asset Sale Offer shall be required
to surrender the Note, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the
Company, a Depositary, if appointed by the Company, or a
Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw
their election if the Company, the Depositary or the Paying
Agent, as the case may be, receives, not later than the
expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder,
the principal amount of the Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his
election to have such Note purchased;
(h) that, if the aggregate principal amount of
Notes surrendered by Holders exceeds the Offer Amount, the
Company shall select the Notes to be purchased on a pro rata
basis (with such adjustments as may be deemed appropriate by
the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only
in part shall be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered (or
transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the
extent lawful, accept for payment, on a pro rata basis to the extent necessary,
the Offer Amount of Notes or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered, all Notes
tendered, and shall deliver to the Trustee an Officers' Certificate stating
that such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 4.08. The Company, the Depository or
the Paying Agent, as the case may be, shall promptly
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<PAGE> 43
(but in any case not later than five days after the Purchase Date) mail or
deliver to each tendering Holder an amount equal to the purchase price of the
Notes tendered by such Holder and accepted by the Company for purchase, and the
Company shall promptly issue a new Note, and the Trustee, upon written request
from the Company shall authenticate and mail or deliver such new Note to such
Holder, in a principal amount equal to any unpurchased portion of the Note
surrendered. Any Note not so accepted shall be promptly mailed or delivered by
the Company to the Holder thereof. The Company shall publicly announce the
results of the Asset Sale Offer on the Purchase Date.
SECTION 4.09 RESTRICTED PAYMENTS
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any distribution on account of the Company's or any of its Subsidiaries'
or direct or indirect parent's Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation involving the
Company) (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable to the Company or any Subsidiary of the Company; (ii) purchase, redeem
or otherwise acquire or retire for value any Equity Interests of the Company or
any direct or indirect parent of the Company or other Affiliate or Subsidiary
of the Company (other than any such Equity Interests owned by the Company or
any Subsidiary of the Company); (iii) make any principal payment on or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to or pari passu (unless, in the case of pari
passu Indebtedness only, such purchase, redemption, defeasance, acquisition, or
retirement is made, or offered (if applicable), pro rata with the Notes or the
Subsidiary Guarantees, if applicable) with the Notes or any of the Subsidiary
Guarantees, as applicable (and other than Notes or the Subsidiary Guarantees,
as applicable), except for any scheduled repayment or at the final maturity
thereof; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such
Restricted Payment and after giving pro forma effect thereto as
if such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 4.10 hereof; and
(c) such Restricted Payment, together with the
aggregate of all other Restricted Payments made by the Company
and its Subsidiaries after the Issue Date (including Restricted
Payments permitted by clauses (i), (vi), (vii), (viii) and (ix), but
excluding Restricted Payments permitted by clauses (ii), (iii), (iv),
(v) and (x) of the next succeeding paragraph), is less than the sum of
(i) 50% of the Consolidated Net Income (adjusted to exclude any amounts
that are otherwise included in this clause (c) to the extent there
would be, and to avoid, any duplication in the crediting of any such
amounts) of the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing
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<PAGE> 44
after the Issue Date to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate Net Proceeds received by the
Company after the Issue Date from a Capital Contribution or from the
issue or sale of Equity Interests of the Company or of debt securities
of the Company that have been converted into such Equity Interests
(other than Equity Interests (or convertible debt securities) sold to a
Subsidiary or an Unrestricted Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (iii) 100% of any cash dividends received by
the Company or a Wholly Owned Subsidiary of the Company after the Issue
Date from an Unrestricted Subsidiary of the Company, plus (iv) 100% of
the Net Proceeds realized by the Company or a Wholly Owned Subsidiary
of the Company upon the sale of any Unrestricted Subsidiary (less the
amount of any reserve established for purchase price adjustments and
less the maximum amount of any indemnification or similar contingent
obligation for the benefit of the purchaser, any of its Affiliates or
any other third party in such sale, in each case as adjusted for any
permanent reduction in any such amount on or after the date of such
sale, other than by virtue of a payment made to such person) following
the Issue Date, plus (v) to the extent that any Restricted Investment
that was made after the Issue Date is sold for cash or otherwise
liquidated or repaid for cash, the amount of Net Proceeds received by
the Company or a Wholly Owned Subsidiary of the Company with respect to
such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of
this Indenture; (ii) the payment of a fee to AIP or its designee on the Issue
Date of not more than $2,000,000 for certain investment banking, advisory and
management services rendered to the Company in connection with the Acquisition
Transactions and if no Default or Event of Default shall have occurred and be
continuing (and shall not have been waived) or shall occur as a consequence
thereof, the payment by the Company (either directly or indirectly, e.g.
through the Parent) of a management fee to AIP in an amount not to exceed
$895,000 in any year plus an additional amount in such year (not to exceed
$895,000) to the extent such management fee was not payable by reason of this
clause (ii) in any prior fiscal year and the reimbursement by the Company of
AIP's reasonable out-of-pocket expenses incurred in connection with the
rendering of management services to or on behalf of the Company; provided,
however, that the obligation of the Company to pay such management fee will be
subordinated to the payment of all Obligations with respect to the Notes (and
any Subsidiary Guarantee thereof); (iii) the making of any Restricted
Investment, directly or indirectly, in exchange for, or out of the Net Cash
Proceeds of, the substantially concurrent capital contribution or sale (other
than to a Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); provided, that any Net Cash Proceeds that are
utilized for any such Restricted Investment shall be excluded from clauses
(c)(i) and (c)(ii) of the preceding paragraph; (iv) the redemption, repurchase,
retirement or other acquisition of any Equity Interests of the Company in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of other Equity Interests of the
Company (other than any Disqualified Stock); provided that any Net Cash
Proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clauses (c)(i) and (c)(ii) of the
preceding paragraph; (v) the defeasance, redemption, repurchase, acquisition or
other retirement of pari passu or subordinated Indebtedness with the Net Cash
Proceeds from an incurrence
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of Permitted Refinancing Indebtedness or, in exchange for, or out of the Net
Cash proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of Equity Interests of the Company (other than Disqualified
Stock); provided, that any Net Cash Proceeds that are utilized for any such
defeasance, redemption, repurchase shall be excluded from clauses (c)(i) and
(c)(ii) of the preceding paragraph; (vi) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any member of the Company's (or any
Subsidiaries') management pursuant to any management agreement or stock option
agreement; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $5,000,000 in
the aggregate (net of the Net Cash Proceeds received by the Company from
subsequent reissuances of such Equity Interests to new members of management),
and no Default or Event of Default shall have occurred and be continuing
immediately after such transaction; (vii) so long as no Default or Event of
Default shall have occurred and is continuing, Restricted Payments in an
aggregate amount not to exceed $1,000,000; (viii) pro rata dividends and other
distributions on the Capital Stock of any Subsidiary of the Company by such
Subsidiary; (ix) payments in lieu of fractional shares in an amount not to
exceed $250,000 in the aggregate; and (x) Permitted Payments to Parent.
Additionally, the foregoing provisions of this Section 4.09
will not prohibit, so long as no Default or Event of Default shall have
occurred and be continuing, any payment to Parent (i) made not more than 10
Business Days after an Interest Payment Date if the Company shall first have
paid to the Holders all principal, premium (if any) and interest (and
Liquidated Damages, if any) due and owing on the Notes on or prior to such
Interest Payment Date and (ii) used by Parent concurrently with such payment to
make a scheduled interest payment on the SH Group Debentures as required by the
SH Group Debentures as they exist on the Issue Date. The full amount of any
Restricted Payments made pursuant to this paragraph, however, will be deducted
in the calculation of the aggregate amount of Restricted Payments available to
be made pursuant to clause (c) of the first paragraph of this Section 4.09.
The Board of Directors may designate any Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Subsidiaries (except to the extent repaid in cash) in the
Subsidiary so designated will be deemed to be Restricted Payments at the time
of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this Section 4.09. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greatest of (x) the net book value of such Investments at the time of such
designation, (y) the fair market value of such Investments at the time of such
designation and (z) the original fair market value of such Investments at the
time they were made. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall
be the fair market value (evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee) on the date of
the Restricted Payment of the asset(s) proposed to be transferred by the
Company or such Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
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calculation required by this Section 4.09 were computed, which calculations may
be based upon the Company's latest available financial statements.
SECTION 4.10 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Indebtedness) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock
or Disqualified Stock; provided, however, that the Company may incur
Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified
Stock and the Company's Subsidiaries that are Guarantors may incur Indebtedness
and issue preferred stock or Disqualified Stock if, in each case: (i) the Fixed
Charge Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred or such
Disqualified Stock or preferred stock is issued would have been at least 2.0 to
1, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred,
or the Disqualified Stock or preferred stock had been issued, as the case may
be, at the beginning of such four-quarter period; and (ii) no Default or Event
of Default shall have occurred and be continuing or would occur as a
consequence thereof; provided, that no Guarantee may be incurred pursuant to
this paragraph, unless the guaranteed Indebtedness is incurred by the Company
or a Subsidiary of the Company pursuant to this paragraph.
The foregoing provisions will not apply to:
(i) the incurrence of Indebtedness by the Company or its
Subsidiaries under the Credit Agreement in an aggregate principal
amount at any time outstanding (with letters of credit being
deemed to have a principal amount equal to the maximum potential
liability of the Company and its Subsidiaries thereunder) not to exceed
an amount (including any Indebtedness incurred to refinance, retire,
renew, defease, refund or otherwise replace any such Indebtedness)
equal to $70,000,000, less (i) an amount equal to the cumulative
mandatory amortization payments required under the Credit Agreement in
existence as of the Issue Date (irrespective of whether any such
payments are actually made or whether the Credit Agreement remains in
existence and (ii) the aggregate amount of all Net Proceeds of Asset
Sales applied to permanently reduce the outstanding amount or, as
applicable the commitments with respect to such Indebtedness pursuant
to Section 4.08 hereof;
(ii) the Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness
represented by the Notes (up to an aggregate principal amount
of $100,000,000) and by the Subsidiaries of Indebtedness represented by
the Subsidiary Guarantees of such Notes;
(iv) the incurrence by the Company or any of its
Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or Purchase Money Obligations, in each
case incurred for the purpose of financing all or any part of the
purchase
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price or cost of construction or improvement of property used
in the business of the Company or such Subsidiary, in an
aggregate principalamount not to exceed $10,000,000 at any
time outstanding (including any Indebtedness incurred to
refinance, retire, renew, defease, refund or otherwise
replace any such Indebtedness);
(v) the incurrence by the Company or any of its
Subsidiaries of Permitted Refinancing Indebtedness in
exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by this Indenture to be
incurred or was outstanding on the Issue Date, after giving
effect to the Acquisition Transactions;
(vi) the incurrence by the Company or any of its Wholly
Owned Subsidiaries of intercompany Indebtedness between or
among the Company and any of its Wholly Owned Subsidiaries or
between or among any Wholly Owned Subsidiaries; provided,
however, that (i) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being
held by a Person other than a Wholly Owned Subsidiary and
(ii) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned
Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its
Subsidiaries of Hedging Obligations that are incurred for the
purpose of fixing or hedging interest rate risk with respect
to any floating rate Indebtedness that is permitted by this
Indenture to be incurred;
(viii) the incurrence by the Company or any of its
Subsidiaries of Indebtedness in an aggregate principal amount
at any time outstanding (including any Indebtedness incurred
to refinance, retire, renew, defease, refund or otherwise
replace any such Indebtedness) not to exceed $10,000,000;
(ix) the incurrence by the Company or any Subsidiary of
Indebtedness in respect of judgment, appeal, surety,
performance and other like bonds, bankers acceptance and
letters of credit provided by the Company and its
Subsidiaries in the ordinary course of business in an
aggregate amount outstanding (including any indebtedness
incurred to refinance, retire, renew, defease, refund or
otherwise replace any such indebtedness) at any time of not
more than $500,000; and
(x) Indebtedness incurred by the Company or any of its
Subsidiaries arising from agreements providing for
indemnification, adjustment of purchase price or similar
obligations, or from guarantees of letters of credit, surety
bonds or performance bonds securing the performance of the
Company or any of its Subsidiaries to any person acquiring
all or a portion of such business, or assets of a Subsidiary
of the Company for the purpose of financing such acquisition,
in a principal amount not to exceed 25% of the gross proceeds
(with proceeds other than cash or Cash Equivalents being
valued at the fair market value thereof as determined by the
Board of Directors of the Company in good faith) actually
received by the Company or any of its Subsidiaries in
connection with such disposition.
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Notwithstanding any other provision of this Section 4.10, a
Guarantee by a Guarantor of Indebtedness of the Company or another Guarantor
permitted by the terms of this Indenture at the time such Indebtedness was
incurred will not constitute a separate incurrence of Indebtedness.
Indebtedness or Disqualified Stock of any person which is
outstanding at the time such Person becomes a Subsidiary of the Company
(including upon designation of any subsidiary or other person as a Subsidiary)
or is merged with or into or consolidated with the Company or a Subsidiary of
the Company shall be deemed to have been incurred at the time such Person
becomes such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company, as applicable.
SECTION 4.11 LIENS
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens, unless the Notes and the Subsidiary Guarantees of the
Guarantors are secured by such Lien on an equal and ratable basis; provided,
that if the Obligation secured by any Lien is subordinate or junior in right of
payment to the Notes or such Subsidiary Guarantees, the Lien securing such
Obligation shall be subordinate and junior to the Lien securing the Notes and
such Subsidiary Guarantees with the same or lesser relative priority as such
Obligation shall have been with respect to the Notes and such Subsidiary
Guarantees.
SECTION 4.12 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary to (i)(a) pay dividends or make any other distributions to the
Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect
to any other interest or participation in, or measured by, its profits, or (b)
pay any indebtedness owed to the Company or any of its Subsidiaries, (ii) make
loans or advances to the Company or any of its Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the date of this Indenture, (b) the
Credit Agreement as in effect as of the date of this Indenture, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof; provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings may be no more restrictive with
respect to such dividend and other payment restrictions than the most
restrictive of those contained in the Credit Agreement as in effect on the date
of this Indenture, (c) this Indenture and the Notes or Indebtedness permitted
to be incurred pursuant to the Indenture and ranking pari passu with the Notes
or the Subsidiary Guarantees, as applicable, to the extent such restrictions
are no more restrictive than those of the Indenture, (d) applicable law, (e)
any instrument governing Acquired Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Subsidiaries as in effect at the time of
such acquisition (except to the extent such Acquired Indebtedness was incurred
in connection with or in contemplation of such acquisition), which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person,
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other than the Person, or the property or assets of the Person, so acquired,
(f) by reason of customary non-assignment provisions in leases and licenses
entered into in the ordinary course of business and consistent with past
practices, (g) Purchase Money Obligations or Capital Lease Obligations for
property acquired in the ordinary course of business that impose restrictions
of the nature described in clause (iii) above only on the property so acquired,
(h) agreements relating to the financing of the acquisition of real or tangible
personal property acquired after the date of this Indenture, provided, that
such encumbrance or restriction relates only to the property which is acquired
and in the case of any encumbrance or restriction that constitutes a Lien, such
Lien constitutes a Permitted Lien as set forth in clause (xi) of the definition
of "Permitted Lien," (i) any restriction or encumbrance contained in contracts
for sale of assets permitted by this Indenture in respect of the assets being
sold pursuant to such contract, (j) Senior Indebtedness, Guarantor Senior
Indebtedness or Indebtedness of a Foreign Subsidiary permitted to be incurred
under this Indenture and incurred on or after the date of this Indenture,
provided, that such encumbrances or restrictions in such Indebtedness are no
more onerous than the most restrictive of the restrictions contained in the
Credit Agreement on the date of this Indenture, or (k) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced.
SECTION 4.13 LIMITATION ON LAYERING DEBT
The Company shall not incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness that by its terms or the terms
of any document or instrument relating thereto is subordinate or junior in
right of payment to any Senior Indebtedness and senior in any respect in right
of payment to the Notes. No Guarantor shall incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that by its terms or
the terms of any document or instrument relating thereto is subordinate or
junior in right of payment to any Guarantor Senior Indebtedness and senior in
any respect in right of payment to any Subsidiary Guarantees.
SECTION 4.14 TRANSACTIONS WITH AFFILIATES
The Company shall not, and shall not permit any of its
Subsidiaries to enter into any transaction (including the sale, lease,
exchange, transfer or other disposition of any of its properties or assets or
services, or the purchase of any property, assets or services) or enter into or
make any contract, agreement, understanding, loan, advance or guarantee with,
or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions entered into after the date of this Indenture involving
aggregate consideration in excess of $5,000,000, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transactions comply with clause (i) above and that such Affiliate Transactions
have been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transactions or series of
related Affiliate Transactions involving aggregate consideration in excess of
$10,000,000, a favorable written opinion as to the fairness to the Company or
such Subsidiary of such Affiliate Transactions from a financial point of view
issued by an investment banking firm of national standing in the United States,
or in the event
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such transaction is a type that investment bankers do not generally render
fairness opinions, a valuation or appraisal firm of national standing; provided
that the following shall not be deemed to be Affiliate Transactions: (w) the
provision of administrative or management services by the Company or any of its
officers to any of its Subsidiaries in the ordinary course of business
consistent with past practice, (x) any employment agreement entered into by the
Company or any of its Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Subsidiary, (y)
transactions between or among the Company and/or its Wholly Owned Subsidiaries
or Guarantors and (z) transactions permitted by Section 4.09 hereof. In
addition, none of the Acquisition Transactions shall be deemed to be Affiliate
Transactions.
SECTION 4.15 ADDITIONAL SUBSIDIARY GUARANTEES
All Subsidiaries of the Company (other than Foreign
Subsidiaries) shall be Guarantors. Notwithstanding anything in this Indenture
to the contrary, if any subsidiary of the Company that is not a Guarantor
guarantees any other Indebtedness of the Company or any Subsidiary of the
Company that is a Guarantor, or the Company or a Subsidiary of the Company
pledges more than 65% of the capital stock of such subsidiary to a United
States lender, then such Subsidiary must become a Guarantor.
SECTION 4.16 LINE OF BUSINESS
Neither the Company nor any of its Subsidiaries shall
directly or indirectly engage to any substantial extent in any line or lines of
business activity other than that which, in the reasonable good faith judgment
of the Board of Directors of the Company, is a Related Business.
Section 4.17 Corporate Existence
Subject to Article 5 hereof, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect (i) its corporate existence, and the corporate, partnership or other
existence of each of its Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Subsidiary and (ii) the rights (charter and statutory),
licenses and franchises of the Company and its Subsidiaries; provided, however,
that the Company shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of any of its
Subsidiaries if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company
and its Subsidiaries, taken as a whole, and that the loss thereof is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.18 STATUS AS AN INVESTMENT COMPANY
The Company and its Subsidiaries are not required to register
as an "investment company" (as that term is defined in the Investment Company
Act of 1940, as amended), or otherwise become subject to regulation under the
Investment Company Act.
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ARTICLE 5
SUCCESSORS
SECTION 5.01 MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Company will not in a single transaction or series of
related transactions consolidate or merge with or into (whether or not the
Company is the surviving corporation), or directly or indirectly sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia, (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes, the Subsidiary Guarantees and this
Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, (iii) immediately after such transaction, no
Default or Event of Default exists; (iv) the Company or the entity or Person
formed by or surviving any such consolidation or merger (if other than the
Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made will, at the time of such transaction
and after giving pro forma effect thereto as if such transaction had occurred
at the beginning of the applicable four-quarter period, be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph in Section 4.10 hereof; and (v) the
Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer
and such supplemental indenture (if any) comply with the Indenture.
Notwithstanding the foregoing, the mergers and the related transactions
comprising the Acquisition Transactions shall be deemed to be expressly
permitted under the Indenture and shall not require the execution and delivery
of a supplemental indenture.
SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.01
hereof, the successor corporation formed by such consolidation or into or with
which the Company is merged or to which such transfer is made shall succeed to,
and (except in the case of a lease) be substituted for and may exercise every
right and power of the Company under this Indenture with the same effect as if
such successor corporation had been named therein as the Company, and (except
in the case of a lease) the Company shall be released from the obligations
under the Notes and the Indenture except with respect to any obligations that
arise from, or are related to, such transaction.
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For the purposes of this Article 5, the transfer (by lease,
assignment, sale or otherwise) of all or substantially all of the properties
and assets of one or more Subsidiaries of the Company, the Company's interest
in which constitutes all or substantially all of the properties and assets of
the Company shall be deemed to be the transfer of all or substantially all of
the properties and assets of the Company.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01 EVENTS OF DEFAULT
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest or
Liquidated Damages, if any on any Note when the same becomes due and
payable and the Default continues for a period of 30 days, whether or
not such payment is prohibited by the provisions of Article 10 hereof;
(2) the Company defaults in the payment of the principal of
or premium, if any, on any Note when the same becomes due and payable
at maturity, upon redemption or otherwise, whether or not such payment
is prohibited by the provisions of Article 10 hereof;
(3) the Company fails to observe or perform any covenant,
condition or agreement on the part of the Company to be observed or
performed pursuant to Sections 4.07 or 4.08 hereof, which failure
remains uncured for 30 days;
(4) the Company fails to comply with any of its other
agreements or covenants in, or provisions of, the Notes or this
Indenture;
(5) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Subsidiaries (or the payment of which is
Guaranteed by the Company or any of its Subsidiaries), whether such
Indebtedness or Guarantee now exists or shall be created hereafter,
which default (a) is caused by a failure to pay principal of or
premium on such Indebtedness when due (after giving effect to any
applicable grace period provided in such Indebtedness) or (b) results
in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other Indebtedness as to
which there has been such a payment default or the maturity of which
has been so accelerated, aggregates $5,000,000 or more;
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(6) one or more nonappealable final judgments for the
payment of money (not fully covered by insurance) are entered by a
court or courts of competent jurisdiction against the Company or any
of its Significant Subsidiaries and such judgment or judgments are not
paid, bonded, discharged or stayed for a period (during which
execution shall not be effectively stayed) of 60 days, provided that
the aggregate of all such undischarged judgments exceeds $5,000,000;
(7) any Subsidiary Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee;
(8) the Company or any of its Significant Subsidiaries
pursuant to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief
against it in an involuntary case,
(c) consents to the appointment of a Custodian of
it or for all or substantially all of its property,
(d) makes a general assignment for the benefit of
its creditors, or
(e) generally is not paying its debts as they
become due; or
(9) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(a) is for relief against the Company or any
Subsidiary in an involuntary case,
(b) appoints a Custodian of the Company or any
Subsidiary or for all or substantially all of the property of
the Company or any Subsidiary, or
(c) orders the liquidation of the Company or any
Subsidiary,
and the order or decree remains unstayed and in effect for 60
consecutive days.
The term "Bankruptcy Law" means title 11, U.S. Code or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
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An Event of Default shall not be deemed to have occurred
under clause (3), (5) or (6) until the Trustee shall have received written
notice from the Company or any of the Holders or unless a Responsible Officer
shall have knowledge of such Event of Default. A Default under clause (4) is
not an Event of Default until the Trustee notifies the Company, or the Holders
of at least 25% in principal amount of the then outstanding Notes notify the
Company and the Trustee, of the Default and the Company does not cure the
Default within 60 days after receipt of the notice. The notice must specify
the Default, demand that it be remedied and state that the notice is a "Notice
of Default."
SECTION 6.02 ACCELERATION
If an Event of Default (other than an Event of Default
specified in clauses (8) and (9) of Section 6.01 relating to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary) occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes by notice in writing to the Company (and to the Trustee if
given by the Holders) and the representative of holders of Indebtedness under
the Credit Agreement, if any amounts are outstanding thereunder (an
"Acceleration Notice"). Upon such declaration the principal and interest shall
be due and payable immediately (together with the premium referred to in
Section 6.01, if applicable). If an Event of Default specified in clause (8)
or (9) of Section 6.01 relating to the Company, any Significant Subsidiary or
any group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary occurs all outstanding Notes will become due and payable without
further action or notice. The Holders of a majority in aggregate principal
amount of the then outstanding Notes by written notice to the Trustee may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal or interest that has become due solely because
of the acceleration) have been cured or waived.
SECTION 6.03 OTHER REMEDIES
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by preceeding at law or in equity to collect
the payment of principal, premium or Liquidated Damages, if any, and interest
on the Notes or to enforce the performance of any provision of the Notes or
this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any
right or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
SECTION 6.04 WAIVER OF PAST DEFAULTS
Holders of not less than a majority in aggregate principal
amount of the then outstanding Notes by written notice to the Trustee may on
behalf of the Holders of all of the Notes waive an existing Default or Event of
Default and its consequences hereunder, except a continuing Default or Event of
Default in the payment of the principal of, premium and Liquidated Damages, if
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any, or interest on, the Notes (including in connection with an offer to
purchase) (provided, however, that the Holders of a majority in aggregate
principal amount of the then outstanding Notes may rescind an acceleration and
its consequences, including any related payment default that resulted from such
acceleration). Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
SECTION 6.05 CONTROL BY MAJORITY
Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee, in its
sole discretion, determines may be unduly prejudicial to the rights of other
Holders of Notes, that may involve the Trustee in personal liability or if the
Trustee determines that it does not have adequate indemnification against any
loss or espense; provided, that the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such direction. This
Section 6.05 shall be in lieu of TIA Section 315(d)(3) and said TIA section is
hereby expressly excluded from this Indenture, as permitted by the TIA.
SECTION 6.06 LIMITATION ON SUITS
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee
written notice of a continuing Event of Default;
(b) the Holders of at least 25% in principal
amount of the then outstanding Notes make a written request
to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes
offer and, if requested, provide to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or
expense;
(d) the Trustee does not comply with the request
within 30 days after receipt of the request and the offer
and, if requested, the provision of in the indemnity; and
(e) during such 30-day period the Holders of a
majority in aggregate principal amount of the then
outstanding Notes do not give the Trustee a direction which,
in the opinion of the Trustee, is inconsistent with the
request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
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SECTION 6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Note, on or after the
respective due dates expressed in the Note (including in connection with an
offer to purchase), or to bring suit for the enforcement of any such payment on
or after such respective dates, shall not be impaired or affected without the
consent of such Holder.
SECTION 6.08 COLLECTION SUIT BY TRUSTEE
If an Event of Default specified in Section 6.01 occurs and
is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent
lawful, interest and such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel and
any other amounts due to the Trustee pursuant to Section 7.07.
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof. To the extent that
the payment of any such compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 7.07 hereof out of the estate in any such proceeding, shall be
denied for any reason, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties that the Holders may be entitled to receive in such
proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
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SECTION 6.10 PRIORITIES
If the Trustee collects any money pursuant to this Article,
it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on
the Notes for principal and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any and
interest, respectively; and
Third: to the Company or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
SECTION 6.12 RESTORATION OF RIGHTS AND REMEDIES
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discountinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders
shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
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ARTICLE 7
TRUSTEE
SECTION 7.01 DUTIES OF TRUSTEE
(a) If an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture
and no others, and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, in the case of an Officers' Certificate
or Opinion of Counsel, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture. This subparagraph (b)(ii) shall be in lieu of TIA
Section 315(d)(3) and said TIA section is hereby expressly excluded
from this Indenture, as permitted by the TIA.
(c) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii)the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b), and (c) of this Section; provided, that the standard of
liability of the Trustee under this Indenture shall be interpreted in
accordance with New York law.
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its
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rights and powers under this Indenture at the request of the Company or any
Holders, unless the Company or such Holder, as the case may be, shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree in writing with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
SECTION 7.02 RIGHTS OF TRUSTEE
(a) The Trustee may conclusively rely upon any document
believed by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both, which shall
conform to Section 10.05 hereof. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel. The Trustee may consult with counsel and
the written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection from liability in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this
Indenture, any demand, request, direction or notice from the Company shall be
sufficient if signed by two Officers of the Company.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
(g) Except with respect to Section 4.01 herein, the Trustee
shall have no duty to inquire as to the performance of the Company's covenants
in Article 4 hereof. In addition, the Trustee shall not be deemed to have
knowledge of any Default or Event of Default except (i) any Event of Default
occurring pursuant to Sections 6.01(1), 6.01(2) and 4.01 or (ii) any Default or
Event of Default of which the Trustee shall have received written notification
or obtained actual knowledge.
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SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE
The Trustee in its individual or any other capacity may
become the owner or pledgee of Notes and may otherwise deal with the Company or
any Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
SECTION 7.04 TRUSTEE'S DISCLAIMER
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes,
it shall not be accountable for the Company's use of the proceeds from the
Notes or any money paid to the Company or upon the Company's direction under
any provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05 NOTICE OF DEFAULTS
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs.
Except in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Note, the Trustee may withhold the notice
if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of
the Notes. The second sentence of this Section 7.05 shall be in lieu of the
proviso to TIA Section 315(b) and said TIA section is hereby expressly excluded
from this Indenture, as permitted by the TIA.
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES
Within 60 days after each December 1 beginning with the
December 1 following the date of this Indenture, and for so long as Notes
remain outstanding, the Trustee shall mail to the Holders of the Notes a brief
report dated as of such reporting date that complies with TIA Section 313(a)
(but if no event described in TIA Section 313(a) has occurred within the twelve
months preceding the reporting date, no report need be transmitted). The
Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also
transmit by mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Notes are
listed on any stock exchange.
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SECTION 7.07 COMPENSATION AND INDEMNITY
The Company shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents, accountants, experts and
counsel.
The Company shall indemnify the Trustee for, and hold the
Trustee harmless against, any and all losses, liabilities or expenses
(including, without limitation reasonable attorneys' fees and expenses)
incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against the Company (including this
Section 7.07) and defending itself against any claim (whether asserted by the
Company or any Holder or any other person) or liability in connection with the
exercise or performance of any of its powers or duties hereunder, except to the
extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel and the Company shall pay the reasonable
fees and expenses of such counsel. The Company need not pay for any settlement
made without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall
survive the resignation or removal of the Trustee and/or the satisfaction and
discharge of this Indenture.
To secure the Company's payment obligations in this Section,
the Trustee shall have a Lien prior to the Notes on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(8) or (9) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
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SECTION 7.08 REPLACEMENT OF TRUSTEE
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of Notes of a majority in principal amount of the then outstanding
Notes may remove the Trustee by so notifying the Trustee and the Company in
writing, and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of
the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists
in the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in aggregate principal amount of the then outstanding
Notes may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of Notes of at least 10% in aggregate principal amount
of the then outstanding Notes may petition any court of competent jurisdiction
for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, such Holder
of a Note may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Company's obligations under Section
7.07 hereof shall continue for the benefit of the retiring Trustee.
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SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC.
Subject to Section 7.10, if the Trustee consolidates, merges
or converts into, or transfers all or substantially all of its corporate trust
business to, another corporation, the successor corporation without any further
act shall be the successor Trustee. The provisions of TIA Section 310 shall
apply to the Company as obligor on the Notes.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $50,000,000 as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein. The provisions of TIA Section 311 shall apply to the Company as
obligor on the Notes.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article 8.
SECTION 8.02 LEGAL DEFEASANCE AND DISCHARGE
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to
have been discharged from its obligations with respect to all outstanding Notes
on the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by
the outstanding Notes, which shall thereafter be deemed to be "outstanding"
only for the purposes of Section 8.05 hereof and the other Sections of this
Indenture referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute
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proper instruments acknowledging the same), except for the following provisions
which shall survive until otherwise terminated or discharged hereunder: (a)
the rights of Holders of outstanding Notes to receive solely from the trust
fund described in Section 8.04 hereof, and as more fully set forth in such
Section, payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages, if any, on such Notes when such payments are due, (b)
the Company's obligations with respect to such Notes under Article 2 and
Section 4.01 hereof, (c) the rights, powers, trusts, duties and immunities of
the Trustee hereunder and the Company's obligations in connection therewith
including, without limitation, Section 7.07 hereof, and (d) this Article 8.
The Company may exercise its option under this Section 8.02 notwithstanding the
prior exercise of its option under Section 8.03 hereof.
SECTION 8.03 COVENANT DEFEASANCE
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be released
from its obligations under the covenants contained in Sections 4.07, 4.08,
4.09, 4.10, 4.11, 4.12, 4.13 and 4.14 hereof with respect to the outstanding
Notes on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed
not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 6.01 hereof, but, except as
specified above, the remainder of this Indenture and such Notes shall be
unaffected thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to this Section 8.03 hereof, subject to
the satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(5) through 6.01(7) hereof shall not constitute Events of Default.
SECTION 8.04 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders, cash in
United States dollars, non-callable Government Securities, or
a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any,
and interest and Liquidated Damages, if any, on the
outstanding Notes on the stated maturity
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or on the applicable redemption date, as the case may be and
the Company must specify whether the Notes are being defeased
to maturity or to a particular redemption date;
(b) in the case of an election under Section 8.02
hereof, the Company shall have delivered to the Trustee an
Opinion of Counsel in the United States reasonably acceptable
to the Trustee confirming that (A) the Company has received
from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of this Indenture,
there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders of
the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not
occurred;
(c) in the case of an election under Section 8.03
hereof, the Company shall have delivered to the Trustee an
Opinion of Counsel in the United States reasonably acceptable
to the Trustee confirming that the Holders of the outstanding
Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not
occurred;
(d) no Event of Default or Default shall have occurred
and be continuing on the date of such deposit (other than an
Event of Default or Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Sections
6.01(8) or 6.01(9) hereof is concerned, at any time in the
period ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance will
not result in a breach or violation of, or constitute a
default under the Senior Bank Debt or any other material
agreement or instrument (other than this Indenture) to which
the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that on the 91st day
following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights
generally;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made
by the Company with the intent of preferring the Holders over
any other creditors of the Company or with the intent of
defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(h) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent provided for, in the case of
the Officer's Certificate, (a) through (g) and, in the case
of the Opinion of Counsel, clauses (a) (with respect to the
validity and perfection of the trust), (b), (c) and (e) of
this paragraph
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relating to the Legal Defeasance or the Covenant Defeasance,
as applicable, have been complied with.
SECTION 8.05 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee satisfactory to the Company and the
Trustee, collectively for purposes of this Section 8.05, the "Trustee")
pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be
held in trust and applied by the Trustee, in accordance with the provisions of
such Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as Paying Agent) as the Trustee may
determine, to the Holders of such Notes of all sums due and to become due
thereon in respect of principal, premium, if any, Liquidated Damages, if any,
and interest, but such money need not be segregated from other funds except to
the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or
non-callable Government Securities deposited pursuant to Section 8.04 hereof or
the principal and interest received in respect thereof other than any such tax,
fee or other charge which by law is for the account of the Holders of the
outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or non-callable Government Securities held by
it as provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06 REPAYMENT TO COMPANY
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of,
premium, if any, Liquidated Damages, or interest on any Note and remaining
unclaimed for two years after such principal, and premium, if any, Liquidated
Damages or interest has become due and payable shall be paid to the Company on
its request or (if then held by the Company) shall be discharged from such
trust; and the Holder of such Note shall thereafter, as a secured creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
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SECTION 8.07 REINSTATEMENT
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit
had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if
the Company makes any payment of principal of, premium, if any, Liquidated
Damages, if any, or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01 WITHOUT CONSENT OF HOLDERS OF NOTES
Notwithstanding Section 9.02 of this Indenture, the Company
and the Trustee may amend or supplement this Indenture or the Notes without the
consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition
to or in place of certificated Notes;
(c) to provide for the assumption of the Company's
obligations to the Holders of the Notes in the case of a merger or
consolidation pursuant to Article 5 hereof;
(d) to provide for additional Guarantors as set forth
in Section 4.15;
(e) to make any change that would provide any
additional rights or benefits to the Holders of the Notes
(including the addition of any Subsidiary Guarantors) or that does not
adversely affect the legal rights hereunder of any Holder of the Note;
(f) to comply with requirements of the SEC in order
to effect or maintain the qualification of this Indenture under
the TIA; or
(g) to evidence, and provide for acceptance of,
the appointment of a successor Trustee hereunder.
Upon the request of the Company accompanied by a resolution
of its Board of Directors authorizing the execution of any such
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amended or supplemental Indenture, and upon receipt by the Trustee of the
documents described in Section 7.02 hereof, states that the execution of such
amended or supplemental Indenture is authorized or permitted by this Indenture,
the Trustee shall join with the Company in the execution of any amended or
supplemental Indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations that may be
therein contained, but the Trustee shall not be obligated to enter into such
amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.02 WITH CONSENT OF HOLDERS OF NOTES
Except as provided below in this Section 9.02, the Company
and the Trustee may amend or supplement this Indenture (including Sections 4.07
and 4.08 hereof) and the Notes may be amended or supplemented with the written
consent of the Holders of at least a majority in aggregate principal amount of
the Notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the Notes), and, subject to Sections 6.04
and 6.07 hereof, any existing Default or Event of Default (other than a Default
or Event of Default in the payment of the principal of, premium, if any,
Liquidated Damages, if any, or interest on the Notes, except a payment default
resulting from an acceleration that has been rescinded) or compliance with any
provision of this Indenture or the Notes may be waived with the written consent
of the Holders of at least a majority in aggregate principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for the Notes).
Upon the request of the Company accompanied by a resolution
of its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in
Section 9.06 hereof, the Trustee shall join with the Company in the execution
of such amended or supplemental Indenture unless such amended or supplemental
Indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its sole discretion,
but shall not be obligated to, enter into such amended or supplemental
Indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof. The calculation of Holders of Notes so consenting shall be
made pursuant to Section 2.09 hereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof,
the Holders of a majority in aggregate principal amount of the Notes then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Notes. However, without the written
consent of each Holder affected, an amendment or waiver may not (with respect
to any Notes held by a non-consenting Holder):
(a) reduce the aggregate principal amount of Notes whose
Holders must consent to an amendment, supplement or waiver;
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(b) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the
redemption of the Notes, except as provided above with respect to
Sections 4.07 and 4.08 hereof;
(c) reduce the rate of or change the time for payment of
interest, including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of
principal of, premium, if any, Liquidated Damages, if any, or
interest on the Notes (except a rescission of acceleration of the Notes
by the Holders of a majority in aggregate principal amount of the then
outstanding Notes and a waiver of the payment default that resulted
from such acceleration);
(e) make any Note payable in money other than that stated in
the Notes;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders
of Notes to receive payments of principal of or interest on the Notes;
(g) waive a redemption payment with respect to any Note
(other than a payment required by Section 4.07 or 4.08 hereof);
or
(h) make any change in Section 6.04 or 6.07 hereof or in
the foregoing amendment and waiver provisions.
In addition, any amendment to the subordination provisions of
this Indenture will require the consent of the holders of Designated Senior
Indebtedness if the amendment would adversely affect the holders of Designated
Senior Indebtedness.
SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT
Every amendment or supplement to this Indenture or the Notes
shall be set forth in a amended or supplemental Indenture that complies with
the TIA as then in effect.
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent
Holder of a Note may revoke the consent as to its Note if the Trustee receives
written notice of revocation before the date the waiver, supplement or
amendment becomes effective. An amendment, supplement or waiver becomes
effective in accordance with its terms and thereafter binds every Holder.
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SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall authenticate
new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01) shall be
fully protected in relying upon, an Officer's Certificate and an Opinion of
Counsel stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture and that such supplemental indenture
and this Indenture, as so amended or supplemented, constitute the valid and
binding obligations of the Issuers, enforceable against each of them in
accordance with their respective terms (subject to customary and necessary
exceptions) and all conditions precedent have been complied with.
ARTICLE 10
SUBORDINATION
SECTION 10.01 AGREEMENT TO SUBORDINATE
The Company agrees, and each Holder by accepting a Note
agrees, that the Indebtedness evidenced by the Note is subordinated in right of
payment, to the extent and in the manner provided in this Article 10, to the
prior payment in full in cash or Cash Equivalents of all Obligations in respect
of Senior Indebtedness (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), and that the subordination is for
the benefit of the holders of Senior Indebtedness. This Article 10 shall
constitute a continuing offer to all Persons who become holders of, or continue
to hold, Senior Indebtedness, and such provisions are made for the benefit of
the holders of Senior Indebtedness.
SECTION 10.02 LIQUIDATION; DISSOLUTION; BANKRUPTCY
Upon any distribution to creditors of the Company or a
Guarantor in a liquidation or dissolution of the Company or a Guarantor or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or a Guarantor or its property, whether voluntary or
involuntary, an assignment for the benefit of creditors or any marshalling of
the Company's or Guarantors' assets and liabilities:
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(1) holders of Senior Indebtedness or the applicable
Guarantor Senior Indebtedness, as applicable, shall be entitled
to receive payment in full in cash or Cash Equivalents of all
Obligations due in respect of such Senior Indebtedness or the
applicable Guarantor Senior Indebtedness, as applicable (including
interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Indebtedness or the applicable
Guarantor Senior Indebtedness, as applicable, whether or not allowable
as a claim in any such proceeding), before Holders shall be entitled to
receive any payment with respect to the Notes or the applicable
Guarantees (except that Holders may receive (i) securities that are
subordinated to at least the same extent as the Notes to (a) Senior
Indebtedness and (b) any securities issued in exchange for Senior
Indebtedness and (ii) payments and other distributions made from any
defeasance trust created pursuant to Section 8.01 hereof); and
(2) until all Obligations with respect to the
applicable Senior Indebtedness or the applicable Guarantor
Senior Indebtedness, as applicable (as provided in subsection (1)
above) are paid in full in cash or Cash Equivalents, any distribution
to which Holders or the applicable Subsidiary Guarantees would be
entitled but for this Article shall be made to holders of Senior
Indebtedness or the applicable Guarantor Senior Indebtedness, as
applicable (except that Holders or the applicable Guarantees may
receive (i) securities that are subordinated to at least the same
extent as the Notes or the applicable Subsidiary Guarantees to (a)
Senior Indebtedness or the applicable Guarantor Senior Indebtedness, as
applicable, and (b) any securities issued in exchange for the
applicable Senior Indebtedness or the applicable Guarantor Senior
Indebtedness, as applicable, and that have a final maturity date and
weighted average life to maturity that is the same as or greater than
the Notes or the applicable Subsidiary Guarantees, and that are not
secured by collateral and (ii) payments made from the trust described
under Section 8.02), as their interests may appear.
SECTION 10.03 DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS
The Company and the Guarantors may not make any payment or
distribution to the Trustee or any Holder in respect of Obligations with
respect to the Notes or the applicable Subsidiary Guarantees and may not
acquire from the Trustee or any Holder any Notes or the applicable Subsidiary
Guarantees for cash or property (other than (i) securities that are
subordinated to at least the same extent as the Notes or the applicable
Subsidiary Guarantees to (a) Senior Indebtedness or the applicable Guarantor
Senior Indebtedness and (b) any securities issued in exchange for Senior
Indebtedness or the applicable Guarantor Senior Indebtedness and (ii) payments
and other distributions made from any defeasance trust created pursuant to
Section 8.04 hereof) until all principal and other Obligations with respect to
the Senior Indebtedness or the applicable Guarantor Senior Indebtedness have
been paid in full if:
(i) a default in the payment of any principal or other
Obligations with respect to Designated Senior Indebtedness
occurs and is continuing beyond any applicable grace period in the
agreement, indenture or other document governing such Designated Senior
Indebtedness (a "Payment Default"); or
(ii) a default, other than a Payment Default, on
Designated Senior Indebtedness occurs and is continuing that
then permits holders of such Designated Senior Indebtedness to
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accelerate its maturity and the Trustee receives a notice of
the default (a "Payment Blockage Notice") from a Person who may give it
pursuant to Section 10.11 hereof. If the Trustee receives any such
Payment Blockage Notice, no subsequent Payment Blockage Notice shall be
effective for purposes of this Section 10.03 unless and until at least
360 days shall have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice (it being acknowledged that any subsequent action, or
any breach of any financial covenant for a period ending after the
expiration of such period of payment blockage that, in either case,
would give rise to a new event of default, even though it is a breach
pursuant to any provision under which a prior event of default
previously existed, shall constitute a new event of default for this
purpose).
The Company may and shall resume payments on and
distributions in respect of the Notes and may acquire them upon the earlier of:
(1) the date upon which the default is cured or
waived, or
(2) in the case of a default referred to in Section
10.03(ii) hereof, 179 days pass after notice is received if the
maturity of such Designated Senior Indebtedness has not been
accelerated,
if this Article 10 otherwise permits the payment, distribution or acquisition
at the time of such payment or acquisition.
SECTION 10.04 ACCELERATION OF NOTES
If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Indebtedness of
the acceleration.
SECTION 10.05 WHEN DISTRIBUTION MUST BE PAID OVER
In the event that the Trustee or any Holder receives any
payment of any Obligations with respect to the Notes at a time when the Trustee
or such Holder, as applicable, has actual knowledge that such payment is
prohibited by Section 10.03 hereof, such payment shall be held by the Trustee
or such Holder, in trust for the benefit of, and shall be paid forthwith over
and delivered, upon written request, to, the holders of Senior Indebtedness or
Guarantor Senior Indebtedness, as applicable, as their interests may appear or
their Representative under the indenture or other agreement (if any) pursuant
to which Senior Indebtedness or Guarantor Senior Indebtedness, as applicable,
may have been issued, as their respective interests may appear, for application
to the payment of all Obligations with respect to Senior Indebtedness or
Guarantor Senior Indebtedness, as applicable, remaining unpaid to the extent
necessary to pay such Obligations in full in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders
of Senior Indebtedness or Guarantor Senior Indebtedness, as applicable.
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With respect to the holders of Senior Indebtedness, or
Guarantor Senior Indebtedness, as applicable, the Trustee undertakes to perform
only such obligations on the part of the Trustee as are specifically set forth
in this Article 10, and no implied covenants or obligations with respect to the
holders of Senior Indebtedness or Guarantor Senior Indebtedness, as applicable,
shall be read into this Indenture against the Trustee. The Trustee shall not
be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, or
Guarantor Senior Indebtedness, as applicable, and shall not be liable to any
such holders if the Trustee shall pay over or distribute to or on behalf of
Holders or the Company or any other Person money or assets to which any holders
of Senior Indebtedness or Guarantor Senior Indebtedness, as applicable, shall
be entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
SECTION 10.06 NOTICE BY COMPANY
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to the Company that would cause a payment of any
Obligations with respect to the Notes to violate this Article 10, but failure
to give such notice shall not affect the subordination of the Notes to the
Senior Indebtedness or Guarantor Senior Indebtedness, as applicable, as
provided in this Article 10.
SECTION 10.07 SUBROGATION
After all Senior Indebtedness or Guarantor Senior
Indebtedness, as applicable, is paid in full and until the Notes are paid in
full, Holders shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness or Guarantor Senior Indebtedness, as applicable, to receive
distributions applicable to Senior Indebtedness or Guarantor Senior
Indebtedness, as applicable, to the extent that distributions otherwise payable
to the Holders have been applied to the payment of Senior Indebtedness or
Guarantor Senior Indebtedness, as applicable. A distribution made under this
Article 10 to holders of Senior Indebtedness or Guarantor Senior Indebtedness,
as applicable, that otherwise would have been made to Holders is not, as
between the Company or a Guarantor, as applicable, and Holders, a payment by
the Company or a Guarantor, as applicable, on the Notes.
SECTION 10.08 RELATIVE RIGHTS
This Article 10 defines the relative rights of Holders and
holders of Senior Indebtedness or Guarantor Senior Indebtedness, as applicable.
Nothing in this Indenture shall:
(1) impair, as between the Company and Holders, the
obligation of the Company, which is absolute and unconditional,
to pay principal of and interest on the Notes in accordance with their
terms;
(2) affect the relative rights of Holders and
creditors of the Company other than their rights in relation to
holders of Senior Indebtedness or Guarantor Senior Indebtedness, as
applicable; or
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(3) prevent the Trustee or any Holder from
exercising its available remedies upon a Default or Event of
Default, subject to the rights of holders and owners of Senior
Indebtedness or Guarantor Senior Indebtedness, as applicable, to
receive distributions and payments otherwise payable to Holders.
If the Company fails because of this Article 10 to pay
principal of or interest on a Note on the due date, the failure is still a
Default or Event of Default.
SECTION 10.09 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY
No right of any holder of Senior Indebtedness or Guarantor
Senior Indebtedness, as applicable, to enforce the subordination of the
Indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by the Company or any Holder or by the failure of the Company or a
Guarantor, as applicable, or any Holder to comply with this Indenture.
SECTION 10.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE
Whenever a distribution is to be made or a notice given to
holders of Senior Indebtedness or Guarantor Senior Indebtedness, as applicable,
the distribution may be made and the notice given to their Representative. The
Company shall provide the Trustee with notice of the name and address of any
Representative. In the absence of such notice, the Trustee may conclusively
assume that no Representative exists.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee and the Holders shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
for the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other Indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
10.
SECTION 10.11 RIGHTS OF TRUSTEE AND PAYING AGENT
Notwithstanding the provisions of this Article 10 or any
other provision of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any facts that would prohibit the making of any
payment or distribution by the Trustee, and the Trustee and the Paying Agent
may continue to make payments on the Notes, unless the Trustee shall have
received at its Corporate Trust Office at least five Business Days prior to the
date of such payment written notice of facts that would cause the payment of
any Obligations with respect to the Notes to violate this Article 10. Only the
Company or a Representative of Designated Senior Indebtedness may give the
notice. Nothing in this Article 10 shall impair the claims of, or payments to,
the Trustee under or pursuant to Section 7.07 hereof.
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The Trustee in its individual or any other capacity may hold
Senior Indebtedness or Guarantor Senior Indebtedness, as applicable, with the
same rights it would have if it were not Trustee. Any Agent may do the same
with like rights.
SECTION 10.12 AUTHORIZATION TO EFFECT SUBORDINATION
Each Holder of a Note by the Holder's acceptance thereof
authorizes and directs the Trustee on the Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination as provided
in this Article 10, and appoints the Trustee to act as the Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.09 hereof at least 30 days before the expiration of
the time to file such claim, the Representative is hereby authorized to file an
appropriate claim for and on behalf of the Holders of the Notes.
SECTION 10.13 AMENDMENTS
The provisions of this Article 10 shall not be amended or
modified in a manner materially adverse to the Holders of Senior Indebtedness
without the written consent of the holders of all Designated Senior
Indebtedness.
ARTICLE 11
SUBSIDIARY GUARANTEES
SECTION 11.01 SUBSIDIARY GUARANTEES
Subject to the provisions of this Article 11, each Guarantor,
jointly and severally, hereby unconditionally guarantees to each Holder of a
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, that: (a) the principal of, and premium, if any,
Liquidated Damages, if any, and interest on the Notes will be duly and
punctually paid in full when due, whether at maturity, by acceleration or
otherwise, and interest on overdue principal of, and premium, if any,
Liquidated Damages, if any and (to the extent permitted by law) interest on any
interest, if any, on the Notes and all other obligations of the Company to the
Holders or the Trustee hereunder or under the Notes (including fees, expenses
or other) will be promptly paid in full or performed, all in accordance with
the terms hereof; and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or failing performance of
any other obligation of the Company to the Holders, for whatever reason, each
Guarantor will be obligated to pay, or to perform or to cause the performance
of, the same immediately. An Event of Default under this Indenture or the
Notes shall constitute an event of default under this Subsidiary Guarantee, and
shall entitle the Holders of Notes to accelerate the obligations of each
Guarantor hereunder in the same manner and to the same extent as the
obligations of the Company. Each Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with
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respect to any thereof, the entry of any judgment against the Company, any
action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor. Each
Guarantor hereby waives and relinquishes: (a) any right to require the
Trustee, the Holders or the Company (each, a "Benefitted Party") to proceed
against the Company, the Subsidiaries or any other Person or to proceed against
or exhaust any security held by a Benefitted Party at any time or to pursue any
other remedy in any secured party's power before proceeding against the
Guarantors; (b) any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other Person or Persons or the failure of
a Benefitted Party to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of any other Person or
Persons; (c) demand, protest and notice of any kind (except as expressly
required by this Indenture), including but not limited to notice of the
existence, creation or incurring of any new or additional Indebtedness or
obligation or of any action or non-action on the part of the Guarantors, the
Company, the Subsidiaries, any Benefitted Party, any creditor of the
Guarantors, the Company or the Subsidiaries or on the part of any other Person
whomsoever in connection with any obligations the performance of which are
hereby guaranteed; (d) any defense based upon an election of remedies by a
Benefitted Party, including but not limited to an election to proceed against
the Guarantors for reimbursement; (e) any defense based upon any statute or
rule of law which provides that the obligation of a surety must be neither
larger in amount nor in other respects more burdensome than that of the
principal; (f) any defense arising because of a Benefitted Party's election, in
any proceeding instituted under the Bankruptcy Law, of the application of
Section 1111(b)(2) of the Bankruptcy Code; and (g) any defense based on any
borrowing or grant of a security interest under Section 364 of the Bankruptcy
Code. The Guarantors hereby covenant that the Subsidiary Guarantee will not be
discharged except by payment in full of all principal, premium, if any,
Liquidated Damages, if any, and interest on the Notes and all other costs
provided for under this Indenture, or as provided in Section 8.01.
If any Holder or the Trustee is required by any court or
otherwise to return to either the Company or the Guarantors, or any trustee or
similar official acting in relation to either the Company or the Guarantors,
any amount paid by the Company or the Guarantors to the Trustee or such Holder,
the Subsidiary Guarantees, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each of the Guarantors agrees that it
will not be entitled to any right of subrogation in relation to the Holders in
respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Guarantor agrees that, as between it, on
the one hand, and the Holders of Notes and the Trustee, on the other hand, (x)
the maturity of the obligations guaranteed hereby may be accelerated as
provided in Article 6 hereof for the purposes hereof, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any acceleration of such
obligations as provided in Article 6 hereof, such obligations (whether or not
due and payable) shall forthwith become due and payable by such Guarantor for
the purpose of the Subsidiary Guarantee.
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SECTION 11.02 EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES
To evidence the Subsidiary Guarantees set forth in Section
11.01 hereof, each of the Guarantors agrees that a notation of the Subsidiary
Guarantees substantially in the form included in Exhibit B shall be endorsed on
each Note authenticated and delivered by the Trustee and that this Indenture
shall be executed on behalf of the Guarantors by the Chairman of the Board, any
Vice Chairman, the President or one of the Vice Presidents of the Guarantors,
under a facsimile of its seal reproduced on this Indenture and attested to by
an Officer other than the Officer executing this Indenture.
Each of the Guarantors agree that the Subsidiary Guarantees
set forth in this Article 11 will remain in full force and effect and apply to
all the Notes notwithstanding any failure to endorse on each Note a notation of
the Subsidiary Guarantees.
If an Officer whose facsimile signature is on a Note no
longer holds that office at the time the Trustee authenticates the Note on
which the Subsidiary Guarantees are endorsed, the Subsidiary Guarantees shall
be valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantees set forth in this Indenture on behalf of the Guarantors.
SECTION 11.03 GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS
(a) Nothing contained in this Indenture or in the Notes
shall prevent any consolidation or merger of a Guarantor with or into the
Company or another Guarantor, or shall prevent the transfer of all or
substantially all of the assets of a Guarantor to the Company or another
Guarantor. Upon any such consolidation, merger, transfer or sale, the
Subsidiary Guarantee of such Guarantor shall no longer have any force or
effect.
(b) Except as set forth in paragraph (c) of this Section
11.03, a Guarantor may consolidate with or merge with or into (whether or not
such Guarantor is the surviving Person) another corporation, Person or entity
(whether or not affiliated with such Guarantor), unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) is organized under
the laws of the United States or any state thereof, (ii) such person assumes
all the obligations of such Guarantor pursuant to a supplemental indenture in
form and substance reasonably satisfactory to the Trustee under the Indenture;
(iii) immediately after giving effect to such transaction no Default or Event
of Default exists; and (iv) such Guarantor, or any Person formed by or
surviving any such consolidation or merger, would be permitted by virtue of the
Company's pro forma Fixed Charge Coverage Ratio to incur, immediately after
giving effect to such transaction, at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.10 hereof. In case of any such consolidation, merger or
transfer of assets and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and
the due and punctual performance of all of the covenants and conditions of this
Indenture to be performed by
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<PAGE> 78
such Guarantor, such successor corporation shall succeed to and be substituted
for such Guarantor with the same effect as if it had been named herein as a
Guarantor. Such successor corporation thereupon may cause to be signed any or
all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all
respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
(c) The Trustee, subject to the provisions of Section 11.04
hereof, shall be entitled to receive an Officers' Certificate and an Opinion of
Counsel as conclusive evidence that any such consolidation, merger, sale or
conveyance, and any such assumption of Obligations, comply with the provisions
of this Section 11.03. Such certificate and opinion shall comply with the
provisions of Section 11.05.
SECTION 11.04 RELEASES FOLLOWING SALE OF ASSETS
Concurrently with any sale of assets (including, if
applicable, all of the Capital Stock of any Guarantor), any Liens in favor of
the Trustee in the assets sold thereby shall be released; provided that in the
event of an Asset Sale, the Net Proceeds from such sale or other disposition
are treated in accordance with the provisions of Section 4.08 hereof. If the
assets sold in such sale or other disposition include all or substantially all
of the assets of any Guarantor or all of the Capital Stock of any Guarantor in
each case, in compliance with the terms hereof, then such Guarantor (in the
event of a sale or other disposition of all of the Capital Stock of such
Guarantor) or the corporation acquiring the property (in the event of a sale or
other disposition of all or substantially all of the assets of such Guarantor)
shall be released from and relieved of its obligations under its Subsidiary
Guarantee or Section 11.03 hereof as the case may be; provided that in the
event of an Asset Sale, the Net Proceeds from such sale or other disposition
are treated in accordance with the provisions of Section 4.08 hereof. Upon
delivery by the Company to the Trustee of an Officer's Certificate and Opinion
of Counsel, and to the effect that such sale or other disposition was made by
the Company in accordance with the provisions of this Indenture, including
without limitation Section 4.08 hereof, the Trustee shall execute any documents
reasonably required in order to evidence the release of any such Guarantor from
its obligations under its Subsidiary Guarantee. Any Guarantor not released
from its obligations under its Subsidiary Guarantee shall remain liable for the
full amount of principal of and interest on the Notes and for the other
obligations of any Guarantor under this Indenture as provided in this Article
11.
SECTION 11.05 LIMITATION OF GUARANTOR'S LIABILITY
Each Guarantor, and by its acceptance hereof each Holder,
hereby confirms that it is the intention of all such parties that the guarantee
by such Guarantor pursuant to its Subsidiary Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law. To effectuate the foregoing intention, the
Holders and such Guarantor hereby irrevocably agree that the obligations of
such Guarantor under this Article 11 shall be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and
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<PAGE> 79
after giving effect to any collections from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
this Article 11, result in the obligations of such Guarantor under the
Subsidiary Guarantee of such Guarantor not constituting a fraudulent transfer
or conveyance.
SECTION 11.06 APPLICATION OF CERTAIN TERMS AND PROVISIONS TO THE GUARANTOR
(a) For purposes of any provision of this Indenture which
provides for the delivery by any Guarantor of an Officers' Certificate and/or
an Opinion of Counsel, the definitions of such terms in Section 1.01 shall
apply to such Guarantor as if references therein to the Company were references
to such Guarantor.
(b) Any request, direction, order or demand which by any
provision of this Indenture is to be made by any Guarantor, shall be sufficient
if evidenced as described in Section 12.02 as if references therein to the
Company were references to such Guarantor.
(c) Any notice or demand which by any provision of this
Indenture is required or permitted to be given or served by the Trustee or by
the holders of Notes to or on any Guarantor may be given or served as described
in Section 12.02 as if references therein to Company were references to such
Guarantor.
(d) Upon any demand, request or application by any Guarantor
to the Trustee to take any action under this Indenture, such Guarantor shall
furnish to the Trustee such certificates and opinions as are required in
Section 11.04 hereof as if all references therein to the Company were
references to such Guarantor.
SECTION 11.07 SUBORDINATION OF SUBSIDIARY GUARANTEES
The Obligations of each Guarantor under its Subsidiary
Guarantee pursuant to this Article 11 shall be junior and subordinated to all
Obligations in respect of the Guarantor Senior Indebtedness of such Guarantor
on the same basis as the Notes are junior and subordinated to all Obligations
in respect of the Senior Indebtedness of the Company. For the purposes of the
foregoing sentence, (a) each Guarantor may make, and the Trustee and the
Holders of the Notes shall have the right to receive and/or retain, payments by
any of the Guarantors only at such times as they may receive and/or retain
payments in respect of the Notes pursuant to this Indenture, including Article
10 hereof, and (b) the rights and obligations of the relevant parties relative
to the Subsidiary Guarantees and the Guarantor Senior Indebtedness shall be the
same as their respective rights and obligations relative to the Notes and
Senior Indebtedness of the Company pursuant to Article 10.
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ARTICLE 12
MISCELLANEOUS
SECTION 12.01 TRUST INDENTURE ACT CONTROLS
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA Section 318(c), the imposed duties
shall control.
SECTION 12.02 NOTICES
Any notice or communication by the Company or the Trustee to
the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company:
Steel Heddle Mfg. Co.
1801 Rutherford Road
Greenville, South Carolina 29607
Telecopier No.: (864) 244-4110
Attention: Chief Financial Officer
If to the Trustee:
United States Trust Company
of New York
114 West 47th Street
New York, New York 10036
Telephone No.: (212) 852-1000
Telecopier No.: (212) 852-1626
Attention: Corporate Trust Department
The Company or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
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Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on
the register kept by the Registrar. Any notice or communication shall also be
so mailed to any Person described in TIA Section 313(c), to the extent required
by the TIA. Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 12.03 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the Notes.
The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION 12.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and
substance reasonably satisfactory to the Trustee (which shall
include the statements set forth in Section 12.05 hereof) stating that,
in the opinion of the signers, all conditions precedent and covenants,
if any, provided for in this Indenture relating to the proposed action
have been satisfied; and
(b) an Opinion of Counsel in form and substance
reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 12.05 hereof) stating that, in the
opinion of such counsel, all such conditions precedent and covenants
have been satisfied.
SECTION 12.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of
TIA Section 314(e) and shall include:
(a) a statement that the Person making such
certificate or opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope
of the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are based;
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<PAGE> 82
(c) a statement that, in the opinion of such
Person, he or she has made such examination or investigation as
is necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been satisfied; and
(d) a statement as to whether or not, in the opinion
of such Person, such condition or covenant has been satisfied.
SECTION 12.06 RULES BY TRUSTEE AND AGENTS
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules
and set reasonable requirements for its functions.
SECTION 12.07 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No past, present or future director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under the Notes, this Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Notes.
SECTION 12.08 GOVERNING LAW
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES,
WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS THEREOF TO THE EXTENT THAT
THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
IF ANY ACTION OR PROCEEDING SHALL BE BROUGHT BY A HOLDER OF ANY OF THE NOTES OR
BY THE TRUSTEE IN ORDER TO ENFORCE ANY RIGHT OR REMEDY UNDER THIS INDENTURE OR
UNDER THE NOTES, THE ISSUERS HEREBY CONSENTS AND WILL SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN THE CITY OF NEW
YORK OR ANY FEDERAL COURT SITTING IN THE CITY OF NEW YORK. THE ISSUERS HEREBY
AGREES TO ACCEPT SERVICE OF PROCESS BY NOTICE GIVEN TO IT PURSUANT TO THE
PROVISIONS OF SECTION 12.02.
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SECTION 12.09 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 12.10 SUCCESSORS
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successors.
SECTION 12.11 SEVERABILITY
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 12.12 COUNTERPART ORIGINALS
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 12.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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<PAGE> 84
IN WITNESS WHEREOF, the parties have executed this Indenture
as of the dates set forth opposite each signature block below.
Dated as of May 26, 1998 STEEL HEDDLE MFG. CO.
By: /s/ Benjamin G. Team
---------------------------------
Benjamin G. Team
President
Attest:
--------------------------
Name:
Title:
Dated as of May 26, 1998 HEDDLE CAPITAL CORP.
By: /s/ Jerry B. Miller
---------------------------------
Jerry B. Miller
President
Attest:
--------------------------
Name:
Title:
Dated as of May 26, 1998 STEEL HEDDLE INTERNATIONAL, INC.
By: /s/ Benjamin G. Team
---------------------------------
Benjamin G. Team
President
Attest:
--------------------------
Name:
Title:
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<PAGE> 85
Dated as of May 26, 1998 UNITED STATES TRUST COMPANY OF NEW
YORK
By: /s/ Christine C. Collins
---------------------------------
Name: Christine C. Collins
Title: Assistant Vice President
(SEAL)
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<PAGE> 86
Exhibit A
(Face of Note)
10.625% [Series A] [Series B] Senior Subordinated Notes due 2008
No. $100,000,000
STEEL HEDDLE MFG. CO.
promises to pay to Cede & Co. or registered assigns, the principal
sum of
___________________ Dollars on June 1, 2008
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
Dated: ____________, 1998
STEEL HEDDLE MFG. CO.
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
(SEAL)
This is one of the 10.625% Senior
Subordinated Notes referred to in the
within-mentioned Indenture:
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
By:
----------------------------------------------
A-1
<PAGE> 87
(Back of Note)
10.625% [Series A] [Series B] Senior Subordinated Notes due 2008
[THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A NOMINEE OR A DEPOSITORY OR A SUCCESSOR DEPOSITORY. UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT
BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME
AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.](1)
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE.
BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (As defined in Rule 144A under the Securities
Act) (A "QIB") OR (B) IT HAS ACQUIRED THIS NOTE IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S
UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO THE COMPANYOR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS
- --------------------
(1) Include this paragraph only if the certificate represents a Global Note.
A-2
<PAGE> 88
OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT,
(D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (E) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY) OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING.
Capitalized terms used herein shall have the meanings
assigned to them in this Indenture referred to below unless otherwise
indicated.
1. Interest. Steel Heddle Mfg. Corp., a Pennsylvania
corporation (the "Company"), promises to pay interest on the principal amount
of this Note at 10.625% per annum from May 26, 1998 until maturity and shall
pay the Liquidated Damages, if any, payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. The Company will pay interest
and Liquidated Damages semi-annually on June 1 and December 1 of each year, or
if any such day is not a Business Day, on the next succeeding Business Day
(each an "Interest Payment Date"). Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance; provided that if there is no existing Default
in the payment of interest, and if this Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be December 1,
1998. The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the
rate then in effect; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
and Liquidated Damages (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
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<PAGE> 89
2. Method of Payment. The Company will pay interest on the
Notes (except defaulted interest) and Liquidated Damages, if any, to the
Persons who are registered Holders of Notes at the close of business on the May
15 or November 15 next preceding the Interest Payment Date, even if such Notes
are cancelled after such record date and on or before such Interest Payment
Date, except as provided in Section 2.12 of the Indenture with respect to
defaulted interest. The Notes will be payable as to principal, premium,
interest and Liquidated Damages, if any, at the office or agency of the Company
maintained for such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest and Liquidated Damages,
if any, may be made by check mailed to the Holders at their addresses set forth
in the register of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of,
interest, premium and Liquidated Damages, if any, on all Global Notes and all
other Notes the Holders of which shall have provided wire transfer instructions
to the Company or the Paying Agent. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, United States
Trust Company of New York, the Trustee under the Indenture, will act as Paying
Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company or any of its Subsidiaries may act
in any such capacity.
4. Indenture. The Company issued the Notes under an
Indenture dated as of May 26, 1998 ("Indenture") between the Company and the
Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject
to all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. The Notes are unsecured obligations of the Company
limited to $100,000,000 in aggregate principal amount.
5. Optional Redemption.
(a) Except as set forth in clause (b) of this Section
of this Note, the Company shall not have the option to redeem the Notes prior
to June 1, 2003. Thereafter, the Company shall have the option to redeem the
Notes, in whole or in part, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the applicable redemption date, if
redeemed during the twelve-month period beginning on June 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . . . . 105.313%
2004 . . . . . . . . . . . . . . . . . . . . . . 103.542%
2005 . . . . . . . . . . . . . . . . . . . . . . . 101.771%
2006 and thereafter . . . . . . . . . . . . . . . 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of
this Section of the Notes, at any time prior to June 1, 2001, the Company may
(but shall not have the obligation to) redeem up to 35% of the original
aggregate principal amount of the Notes at a redemption price of 110.625% of
A-4
<PAGE> 90
the principal amount thereof, in each case plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the Net Cash
Proceeds received by the Company from one or more of Equity Offerings; provided
that at least 65% of the aggregate principal amount of Notes originally issued
remain outstanding immediately after the occurrence of such redemption; and
provided, further, that such redemption shall occur within 60 days of the date
of the closing of such Equity Offering.
(c) Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note
in principal amount equal to the unredeemed portion thereof will be issued in
the name of Holder thereof upon cancellation of the original Note. Notes in
denominations larger than $1,000 may be redeemed in part but only in integral
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption unless the Company defaults in such
payments due on the redemption date.
6. Mandatory Redemption.
The Company shall not be required to make mandatory
redemption payments with respect to the Notes.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control,
each Holder of Notes will have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase on a date (the "Change of Control Payment") no
later than 60 Business Days after the occurrence of the Change of Control.
Within 35 days following any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Notes pursuant to the procedures
required by the Indenture and described in such notice, which offer shall
remain open for at least 20 Business Days following its commencement, but in
any event no longer than 30 Business Days. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control. To the extent that the provisions of any such securities
laws or regulations conflict with the provisions of this paragraph, compliance
by the Company or any of the Guarantors with such laws and regulations shall
not in and of itself cause a breach of its obligations under such covenant.
On the Change of Control Payment Date, the Company will, to
the extent lawful, (1) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of all
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the
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<PAGE> 91
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. Prior to complying
with the provisions of this covenant, but in any event within 30 days following
a Change of Control, the Company will either repay all outstanding Designated
Senior Indebtedness or obtain the requisite consents, if any, under all
agreements governing outstanding Designated Senior Indebtedness to permit the
repurchase of Notes required by this covenant. The Company will not be
required to purchase any Notes until it has complied with the preceding
sentence, but the Company's failure to make a Change of Control Offer when
required or to purchase tendered Notes when tendered shall constitute an Event
of Default. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
(b) The Company will not, and will not permit any
of its Subsidiaries to, engage in an Asset Sale in excess of $1,000,000 unless
(i) the Company (or the Subsidiary, as the case may be) receives consideration
at the time of such Asset Sale at least equal to the fair market value of the
assets or Equity Interest sold or otherwise disposed of and, in the case of a
lease of assets, a lease providing for rent and other conditions which are no
less favorable to the Company (or the Subsidiary, as the case may be) in any
material respect than the then prevailing market conditions (evidenced in each
case by a resolution of the Board of Directors of such entity set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests sold or otherwise disposed of, and (ii) at least 75% (100% in the
case of lease payments) of the consideration therefor received by the Company
or such Subsidiary is in the form of cash or Cash Equivalents; provided that
the amount of (x) any liabilities (as shown on the Company's or such
Subsidiary's most recent balance sheet or in the notes thereto, but excluding
contingent liabilities and trade payables) of the Company or any Subsidiary
(other than liabilities that are by their terms subordinated to the Notes or
any Guarantee thereof) that are assumed by the transferee of any such assets
and from which the Company or such Subsidiary are unconditionally released from
liability and (y) any notes, securities or other obligations received by the
Company or any such Subsidiary from such transferee that are promptly, but in
no event more than 30 days after receipt, converted by the Company or such
Subsidiary into cash shall (to the extent of the cash received) be deemed to be
cash for purposes of this provision and the receipt of such cash shall be
treated as cash received from the Asset Sale for which such Notes or
obligations were received.
The Company or any of its Subsidiaries may apply the Net
Proceeds from each Asset Sale, at its option within 360 days, (a) to
permanently reduce any Senior Indebtedness, Guarantor Senior Indebtedness or,
in the case of an Asset Sale by a Foreign Subsidiary to permanently reduce
Indebtedness of such Foreign Subsidiary (and in the case of any senior
revolving indebtedness to correspondingly permanently reduce commitments with
respect thereto), (b) to make capital expenditures, to commit to the
acquisition of another business or the acquisition of other long-term assets,
in each case, in the same or a Related Business, or (c) to reimburse the
Company or its Subsidiaries for expenditures made, and costs incurred, to
repair, rebuild, replace or restore property subject to loss, damage or taking
to the extent that the Net Proceeds consist of insurance proceeds
A-6
<PAGE> 92
received on account of such loss, damage or taking. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce Senior
Revolving Debt or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5,000,000, the Company will be required to make an offer to
all Holders of Notes (an "Asset Sale Offer") and to holders of other
Indebtedness of the Company outstanding ranking on a parity with the Notes with
similar provisions requiring the Company to make a similar offer with proceeds
from asset sales, pro rata in proportion to the respective principal amounts
(or accreted values in the case of Indebtedness issued with an original issue
discount) of the Notes and such other Indebtedness then outstanding, to
purchase the maximum principal amount (or accreted value, as applicable) of
Notes and such other Indebtedness, if any, that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture. If the aggregate principal amount (or
accreted value, as applicable) of Notes and such Indebtedness surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes and such Indebtedness to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
8. Denominations, Transfer, Exchange. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
9. Persons Deemed Owners. The registered Holder of a Note
may be treated as its owner for all purposes.
10. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of a majority in aggregate principal amount of the then
outstanding Notes, and any existing default or compliance with any provision of
the Indenture or the Notes may be waived with the consent of the Holders of a
majority in aggregate principal amount of the then outstanding Notes. Without
the consent of any Holder of a Note, the Indenture or the Notes may be amended
or supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes (including the
addition of any Subsidiary Guarantors) or that does not adversely affect the
legal rights under the Indenture of any such Holder, to comply with the
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the
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<PAGE> 93
Trust Indenture Act or to evidence and provide for acceptance of, the
appointment of a successor Trustee.
11. Defaults and Remedies. Events of Default include: (i)
default for 30 days in the payment when due of interest on or Liquidated
Damages, if any, with respect to the Notes; (ii) default in payment when due of
principal of or premium, if any, on the Notes when the same becomes due and
payable at maturity, upon redemption (including in connection with an offer to
purchase) or otherwise, (iii) failure by the Company to comply with Section
4.07 and 4.08 of the Indenture, which failure remains uncured for 30 days; (iv)
failure by the Company for 60 days after notice to the Company by the Trustee
or the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding to comply with certain other agreements in the Indenture or the
Notes; (v) default under certain other agreements relating to Indebtedness of
the Company which default results in the acceleration of such Indebtedness
prior to its express maturity; (vi) certain nonappealable final judgments for
the payment of money that remain undischarged for a period of 60 days; (vii) a
declaration that any of the Subsidiary Guarantees is unenforceable; or (viii)
certain events of bankruptcy or insolvency with respect to the Company or any
of its Significant Subsidiaries. If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the then outstanding Notes may declare all the Notes to be due and
payable immediately by notice in writing to the Company (and to the Trustee if
given by the Holders) and the representative of holders of Indebtedness under
the Credit Agreement, if any amounts are outstanding thereunder.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes will (i)
become due and payable without further action or notice or (ii) if there are
any amounts outstanding under the Credit Agreement, become due and immediately
payable upon the first to occur of an acceleration under the Credit Agreement
or five Business Days after receipt by the Company and the representative of
the holders of the Indebtedness under the Credit Agreement of the Acceleration
Notice, but only if an Event of Default is then continuing. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. Subject
to certain limitations, Holders of a majority in aggregate principal amount of
the then outstanding Notes may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in
aggregate principal amount of the Notes then outstanding by notice to the
Trustee may on behalf of the Holders of all of the Notes waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, the Notes. The Company is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the Company
is required upon becoming aware of any Default or Event of Default, to deliver
to the Trustee a statement specifying such Default or Event of Default.
12. Subordination. The payment of principal of, premium,
if any, and interest on the Notes will be subordinated in right of payment to
the prior payment in full of Senior Indebtedness as set forth in Article 10 of
the Indenture.
13. Trustee Dealings with Company. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
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<PAGE> 94
14. No Recourse Against Others. A director, officer,
employee, incorporator or stockholder, of the Company, as such, shall not have
any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. Authentication. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
16. Abbreviations. Customary abbreviations may be used in
the name of a Holder or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. Additional Rights of Holders of Transfer Restricted
Notes. In addition to the rights provided to Holders of Notes under the
Indenture, Holders of Transfer Restricted Notes shall have all the rights set
forth in the Registration Rights Agreement dated as of the date of the
Indenture, between the Company and the parties named on the signature pages
thereof (the "Registration Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Steel Heddle Mfg. Co.
1801 Rutherford Road
Greenville, South Carolina 29607
Telecopier No.: (864) 268-3823
Attention: Chief Financial Officer
A-9
<PAGE> 95
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE
The following exchanges of a part of this Global Note
for Definitive Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note following authorized officer of
Principal Amount of Principal Amount of such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
------------------- ---------------------- ---------------------- ------------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
A-10
<PAGE> 96
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:
-------------------------------------
Your Signature:
-----------------------------------------------
(Sign exactly as your name appears on the face
of this Note)
Signature Guarantee.
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<PAGE> 97
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.07 or 4.08 of the Indenture, check the box below:
[ ] Section 4.07 [ ] Section 4.08
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.07 or Section 4.08 of the Indenture, state
the amount you elect to have purchased: $___________
Date: Your Signature:
--------------------- ------------------------------
(Sign exactly as your name
appears on the Note)
Tax Identification No.:
----------------------
Signature Guarantee.
B-2
<PAGE> 98
EXHIBIT B
SUBSIDIARY GUARANTEE
The Guarantors listed below (hereinafter referred to as the
"Guarantors," which term includes any successor or assign under the Indenture
(the "Indenture") and any additional Guarantors), has irrevocably and
unconditionally guaranteed (i) the due and punctual payment of the principal
of, premium, if any, and interest on the 10.625% Senior Subordinated Notes due
2008 (the "Notes") of Steel Heddle Mfg. Co., a Pennsylvania corporation (the
"Company"), whether at stated maturity, by acceleration or otherwise, the due
and punctual payment of interest on the overdue principal, and premium if any,
and (to the extent permitted by law) interest on any interest, if any, on the
Notes, and the due and punctual performance of all other obligations of the
Company, to the Holders or the Trustee all in accordance with the terms set
forth in Article 11 of the Indenture, (ii) in case of any extension of time of
payment or renewal of any Notes or any such other obligations, that the same
will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise, and (iii) the payment of any and all costs and expenses
(including reasonable attorneys' fees) incurred by the Trustee or any Holder in
enforcing any rights under this Subsidiary Guarantee.
The obligations of each Guarantor to the Holder and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
set forth in Article 11 of the Indenture and reference is hereby made to such
Indenture for the precise terms of this Guarantee.
No stockholder, officer, director or incorporator, as such,
past, present or future of each Guarantor shall have any liability under this
Subsidiary Guarantee by reason of his or its status as such stockholder,
officer, director or incorporator.
This is a continuing Guarantee and shall remain in full force
and effect and shall be binding upon each Guarantor and its successors and
assigns until full and final payment of all of the Company's obligations under
the Notes and Indenture and shall inure to the benefit of the successors and
assigns of the Trustee and the Holders, and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and privileges
herein conferred upon that party shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
This is a Guarantee of payment and not of collectibility.
This Subsidiary Guarantee shall not be valid or obligatory for
any purpose until the certificate of authentication on the Note upon which this
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
The Obligations of each Guarantor under its Subsidiary
Guarantee shall be limited to the extent necessary to insure that it does not
constitute a fraudulent conveyance under applicable law.
The Obligations of each Guarantor under its Subsidiary
Guarantee pursuant to Article 11 of the Indenture shall be junior and
subordinated to the
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<PAGE> 99
Guarantor Senior Indebtedness (as defined in the Indenture) of such Guarantor
on the same basis as the Notes are junior and subordinated to the Senior
Indebtedness of the Company. For the purposes of the foregoing sentence, (a)
each Guarantor may make, and the Trustee and the Holders of the Notes shall
have the right to receive and/or retain, payments by any of the Guarantors only
at such times as they may receive and/or retain payments in respect of the
Notes pursuant to the Indenture, including Article 10 thereof, and (b) the
rights and obligations of the relevant parties relative to the Subsidiary
Guarantees and the Guarantor Senior Indebtedness shall be the same as their
respective rights and obligations relative to the Notes and Senior Indebtedness
of the Company pursuant to Article 10 of the Indenture.
THE TERMS OF ARTICLE 11 OF THE INDENTURE ARE INCORPORATED
HEREIN BY REFERENCE.
Capitalized terms used herein have the same meanings given in
the Indenture unless otherwise indicated.
Guarantors:
HEDDLE CAPITAL CORP.
By:
-------------------------------------
Jerry B. Miller
President
STEEL HEDDLE INTERNATIONAL, INC.
By:
-------------------------------------
Benjamin G. Team
President
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<PAGE> 100
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
Re: 10.625% Senior Subordinated Notes due 2008
This Certificate relates to $____________ principal amount of
Notes held in * ________ book-entry or *_______ definitive form by
________________ (the "Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver in
exchange for its beneficial interest in the Global Note held by the Depository
a Note or Notes in definitive, registered form of authorized denominations in
an aggregate principal amount equal to its beneficial interest in such Global
Note (or the portion thereof indicated above); or
[ ] has requested the Trustee by written order to exchange or
register the transfer of a Note or Notes.
[ ] In connection with such request and in respect of each such
Note, the Transferor does hereby certify that Transferor is familiar with the
Indenture relating to the above captioned Notes and as provided in Section 2.06
of such Indenture, the transfer of this Note does not require registration
under the Securities Act (as defined below) because:*
[ ] Such Note is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section
2.06(d)(i)(A) of the Indenture).
[ ] Such Note is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act")) in reliance on Rule 144A (in satisfaction of Section
2.06(a)(ii)(B), Section 2.06(b)(i) or Section 2.06(d)(i)(B) of the Indenture)
or pursuant to an exemption from registration in accordance with Rule 904 under
the Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of the Indenture.)
[ ] Such Note is being transferred in accordance with Rule 144
under the Securities Act, or pursuant to an effective registration statement
under the Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of the Indenture).
- --------------------
* Check applicable box.
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<PAGE> 101
[] Such Note is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the
Securities Act, other than Rule 144A, 144 or Rule 904 under the Securities Act.
An Opinion of Counsel to the effect that such transfer does not require
registration under the Securities Act accompanies this Certificate (in
satisfaction of Section 2.06(a)(ii)(C) or Section 2.06(d)(i)(C) of the
Indenture).
----------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
-------------------------------------
Date:
-----------------------------------
- --------------------
* Check applicable box.
C-2
<PAGE> 1
Exhibit 4.2
SH-AIP ACQUISITION CORPORATION
as Issuer
$100,000,000
10 5/8% Senior Subordinated Notes due 2008
Purchase Agreement
May 21, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES
LLC
<PAGE> 2
SH-AIP ACQUISITION CORPORATION
$100,000,000
10 5/8% Senior Subordinated Notes due 2008
Purchase Agreement
May 21, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
SH-AIP Acquisition Corporation, a Delaware corporation
("ACQUISITION CORP."), proposes to cause the Issuers (as defined below) to
issue and sell to Donaldson, Lufkin & Jenrette Securities Corporation and
NationsBanc Montgomery Securities LLC (each an "INITIAL PURCHASER" and,
collectively the "INITIAL PURCHASERS") an aggregate of $100,000,000 in
principal amount of its 10 5/8% Series A Senior Subordinated Notes due 2008
(the "SERIES A NOTES), subject to the terms and conditions set forth herein.
The Series A Notes are to be issued pursuant to the provisions of an indenture
(the "INDENTURE"), to be dated as of the Closing Date (as defined below), among
Steel Heddle Mfg. Co., a Pennsylvania corporation ("OLD HEDDLE" and, upon
completion of the Mergers (as defined below), the "COMPANY"), the Guarantors
(as defined below) and U.S. Trust Company of New York as trustee (the
"TRUSTEE"). The Series A Notes and the Series B Notes (as defined below)
issuable in exchange therefore are collectively referred to herein as the
"NOTES." The Notes will be guaranteed (the "SUBSIDIARY GUARANTEES") by each of
the entities listed on Schedule A, hereto (each, a "GUARANTOR" and collectively
the "GUARANTORS"). The Company and the Guarantors are referred to herein
collectively as the "ISSUERS." Capitalized terms used but not defined herein
shall have the meanings given to such terms in the Indenture, except where
noted otherwise.
-1-
<PAGE> 3
The Notes are being issued and sold in connection with the
purchase pursuant to a Stock Purchase Agreement dated May 1, 1998 (the "STOCK
PURCHASE AGREEMENT"), by Steel Heddle Group, Inc., a Delaware corporation ("SH
GROUP") formed by American Industrial Partners Capital Fund II, L.P. ("AIP"),
from Butler Capital Corporation and certain other stockholders of all of the
issued and outstanding shares of capital stock (the "ACQUISITION") of SH
Holding Corp., a Pennsylvania corporation ("OLD HOLDINGS"). Substantially
concurrent with the Acquisition, SH Intermediate Corp., a South Carolina
corporation and Old Holdings' direct subsidiary ("INTERMEDIATE"), will be
merged with and into Old Heddle, Intermediate's direct subsidiary, with Old
Heddle being the surviving corporation ("MERGER I"), (ii) Old Holdings will be
merged with and into Old Heddle,, with Old Heddle being the Surviving
Corporation ("MERGER II") and (iii) Acquisition Corp. will be merged with and
into Old Heddle, with Old Heddle being the surviving corporation and the
successor to Acquisition Corp. hereunder ("MERGER III" and, together with
Merger I and Merger II, collectively, the "MERGERS").
In order to finance the Acquisition and substantially
concurrent therewith, (i) AIP and certain members of management will contribute
$25 million in exchange for common equity of SH Group, including management's
rollover of $1.8 million of securities of Old Holdings as part of the
Acquisition (the "COMMON EQUITY CONTRIBUTION"), (ii) SH Group will contribute
proceeds of $15 million from the issuance and sale by SH Group (the "SH GROUP
DEBENTURE OFFERING") of 13 3/4% Senior Discount Debentures due 2009 (the "SH
GROUP DEBENTURES"), (iii) the Company will enter into syndicated senior secured
loan facilities providing for term loan borrowings in the aggregate principal
amount of $30 million and revolving loan borrowings of up to $20 million (the
"NEW CREDIT AGREEMENT") and will borrow $30 million in term loans and
approximately $3.6 million of revolving loans, (iv) the Company will issue and
sell $100 million aggregate principle amount of Notes and (v) the Company will
(a) loan to SH Group approximately $63 million pursuant to an intercompany note
to pay part of the purchase price of the Acquisition and (b) use the remaining
net proceeds from the issuance and sale of the Notes together with the proceeds
of the borrowings under the New Credit Agreement to repay certain outstanding
indebtedness of the Company and related transaction expenses.
As used in this Agreement, (I) the term "ACQUISITION
TRANSACTIONS" shall mean, collectively, the Acquisition, the Mergers and all of
the transactions described in the immediately foregoing paragraph; (II) the
term "ACQUISITION DOCUMENTS" shall mean, collectively, the Stock Purchase
Agreement and all related acquisition agreements and documentation (including
without limitation all documentation relating to or providing for the Mergers),
(III) the term "BANK AGREEMENTS" shall mean, collectively, the New Credit
Agreement and all related agreements creating security interests in the assets
of the Company for the benefit of the holders of indebtedness arising under the
New Credit Agreement, and (IV) the term "TRANSACTION DOCUMENTS" shall mean,
collectively, the Acquisition Documents, the Bank Agreements, this Agreement,
the Letter Agreement referred to in Section 9(q) hereof, the Notes, the
Subsidiary Guarantees and the Indenture.
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<PAGE> 4
1. OFFERING MEMORANDUM. The Series A Notes will be
offered and sold to the Initial Purchasers pursuant to one or more exemptions
from the registration requirements under the Securities Act of 1933, as amended
(the "ACT"). Acquisition Corp. and the Issuers have prepared a preliminary
offering memorandum, dated May 7, 1998 (the "PRELIMINARY OFFERING MEMORANDUM")
and a final offering memorandum, dated May 21, 1998 (the "OFFERING
MEMORANDUM"), relating to the Series A Notes and the Subsidiary Guarantees.
Upon original issuance thereof, and until such time as the
same is no longer required pursuant to the Indenture, the Series A Notes (and
all securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT
SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER:
(1) REPRESENTS THAT (i) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT)(a "QIB") OR
(ii) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE ACT,
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
NOTE EXCEPT (i) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES,
(ii) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (iii) IN
AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR 904 OF THE ACT, (iv) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE ACT, (v) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY) OR (vi) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION, AND
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<PAGE> 5
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, Acquisition Corp. agrees
to cause the Issuers to issue and sell to the Initial Purchasers, and each
Initial Purchaser agrees, severally and not jointly, to purchase from the
Issuers, the principal amounts of Series A Notes set forth opposite the name of
such Initial Purchaser on Schedule B hereto at a purchase price equal to 97% of
the principal amount thereof (the "PURCHASE PRICE").
3. TERMS OF OFFERING. The Initial Purchasers have
advised Acquisition Corp. and the Issuers that the Initial Purchasers will make
offers (the "EXEMPT RESALES") of the Series A Notes purchased hereunder on the
terms set forth in the Offering Memorandum, as amended or supplemented, solely
to (i) persons whom the Initial Purchasers reasonably believe to be "qualified
institutional buyers" as defined in Rule 144A under the Act ("QIBs") and (ii)
to persons permitted to purchase the Notes in offshore transactions in reliance
upon Regulation S under the Act (each, a "REGULATION S PURCHASER") (such
persons specified in clauses (i) and (ii) being referred to herein as the
"ELIGIBLE PURCHASERS"). The Initial Purchasers will offer the Series A Notes
to Eligible Purchasers initially at a price equal to 100% of the principal
amount thereof. Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Series A
Notes will have the registration rights set forth in the registration rights
agreement (the "REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date,
in substantially the form of Exhibit A hereto, for so long as such Series A
Notes constitute "TRANSFER RESTRICTED SECURITIES" (as defined in the
Registration Rights Agreement). Pursuant to the Registration Rights Agreement,
the Issuers will agree to file with the Securities and Exchange Commission (the
"COMMISSION") under the circumstances set forth therein, (i) a registration
statement under the Act (the EXCHANGE OFFER REGISTRATION STATEMENT") relating
to the Company's 10-5/8% Series B Senior Subordinated Notes (the "SERIES B
NOTES"), to be offered in exchange for the Series A Notes and the Subsidiary
Guarantees thereof (such offer to exchange being referred to as the "EXCHANGE
OFFER") and (ii) a shelf registration statement pursuant to Rule 415 under the
Act (the "SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer
Registration
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<PAGE> 6
Statement, the "REGISTRATION STATEMENTS") relating to the resale by certain
holders of the Series A Notes and to use its best efforts to cause such
Registration Statements to be declared and remain effective and usable for the
periods specified in the Registration Rights Agreement and to consummate the
Exchange Offer. This Agreement, the Indenture, the Notes, the Subsidiary
Guarantees and the Registration Rights Agreement are hereinafter sometimes
referred to collectively as the "OPERATIVE DOCUMENTS."
4. DELIVERY AND PAYMENT.
(a) Delivery of, and payment of the Purchase Price
for, the Series A Notes shall be made at the offices of Kirkland & Ellis, New
York, New York, or such other location as may be mutually acceptable. Such
delivery and payment shall be made at 9:00 a.m. New York City time, on May 26,
1998 or at such other time on the same date or such other date as shall be
agreed upon by the Initial Purchasers and Acquisition Corp. in writing. The
time and date of such delivery and the payment for the Notes are herein called
the "CLOSING DATE."
(b) One or more of the Notes in definitive global
form, registered in the name of Cede & Co., as nominee of the Depository Trust
Company ("DTC"), having an aggregate principal amount corresponding to the
aggregate principal amount of the Notes (collectively, the "GLOBAL NOTE"),
shall be delivered by the Company to the Initial Purchasers (or as the Initial
Purchasers direct) in each case with any transfer taxes thereon duly paid by
the Company against payment by the Initial Purchasers of the Purchase Price
thereof by wire transfer in same day funds to the order of the Company. The
Global Note shall be made available to the Initial Purchasers for inspection
not later than 9:30 a.m., New York City time, on the business day immediately
preceding the Closing Date.
5. AGREEMENTS OF ACQUISITION CORP. Acquisition Corp.
hereby agrees with the Initial Purchasers as follows:
(a) To advise, and to cause the Issuers to
advise, the Initial Purchasers promptly and, if requested by the Initial
Purchasers, confirm such advice in writing, (i) of the issuance by any state
securities commission of any stop order suspending the qualification or
exemption from qualification of any Series A Notes for offering or sale in any
jurisdiction designated by the Initial Purchasers pursuant to Section 5(e)
hereof, or the initiation of any proceeding by any state securities commission
or any other federal or state regulatory authority for such purpose and (ii) of
the happening of any event during the period referred to in Section 5(c) below
that makes any statement of a material fact made in the Preliminary Offering
Memorandum or the Offering Memorandum untrue or that requires any additions to
or changes in the Preliminary Offering Memorandum or the Offering Memorandum in
order to make the statements therein not misleading. Acquisition Corp. shall
use, and shall cause each Issuer to use, its best efforts to prevent the
issuance of any stop order or order suspending the qualification or exemption
of any Series A Notes under
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<PAGE> 7
any state securities or Blue Sky laws and, if at any time any state securities
commission or other federal or state regulatory authority shall issue an order
suspending the qualification or exemption of any Series A Notes under any state
securities or Blue Sky laws, Acquisition Corp. shall use, and cause each Issuer
to use, its best efforts to obtain the withdrawal or lifting of such order at
the earliest possible time.
(b) To furnish, or cause the Issuers to furnish,
the Initial Purchasers and those persons identified by the Initial Purchasers
to Acquisition Corp. as many copies of the Preliminary Offering Memorandum and
the Offering Memorandum, and any amendments or supplements thereto, as the
Initial Purchasers may reasonably request for the time period specified in
Section 5(c). Subject to the Initial Purchasers' compliance with its
representations and warranties and agreements set forth in Section 7 hereof,
Acquisition Corp. consents to the use of the Preliminary Offering Memorandum
and the Offering Memorandum, and any amendments and supplements thereto
required pursuant hereto, by the Initial Purchasers in connection with Exempt
Resales.
(c) During such period as in the opinion of
counsel for the Initial Purchasers an Offering Memorandum is required by law to
be delivered in connection with Exempt Resales by the Initial Purchasers and in
connection with market-making activities of the Initial Purchasers for so long
as any Series A Notes are outstanding, (i) not to make, or permit the Issuers
to make, any amendment or supplement to the Offering Memorandum of which the
Initial Purchasers shall not previously have been advised or to which the
Initial Purchasers shall reasonably object after being so advised and (ii) to
prepare, or cause the Issuers to prepare, promptly upon the Initial Purchasers'
reasonable request, any amendment or supplement to the Offering Memorandum
which may be necessary or advisable in connection with such Exempt Resales or
such market-making activities.
(d) If, during the period referred to in Section
5(c) above, any event shall occur or condition shall exist as a result of
which, in the opinion of counsel to the Initial Purchasers, it becomes
necessary to amend or supplement the Offering Memorandum in order to make the
statements therein, in the light of the circumstances when such Offering
Memorandum is delivered to an Eligible Purchaser, not misleading, or if, in the
opinion of counsel to the Initial Purchasers, it is necessary to amend or
supplement the Offering Memorandum to comply with any applicable law, forthwith
to prepare, or cause the Issuers to prepare, an appropriate amendment or
supplement to such Offering Memorandum so that the statements therein, as so
amended or supplemented, will not, in the light of the circumstances when it is
so delivered, be misleading, or so that such Offering Memorandum will comply
with applicable law, and to furnish to the Initial Purchasers and such other
persons as the Initial Purchasers may designate such number of copies thereof
as the Initial Purchasers may reasonably request.
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<PAGE> 8
(e) Prior to the sale of all Series A Notes
pursuant to Exempt Resales as contemplated hereby, to cooperate, and to cause
the Issuers to cooperate, with the Initial Purchasers and counsel to the
Initial Purchasers in connection with the registration or qualification of the
Series A Notes for offer and sale to the Initial Purchasers and pursuant to
Exempt Resales under the securities or Blue Sky laws of such jurisdictions as
the Initial Purchasers may request and to continue such registration or
qualification in effect so long as required for Exempt Resales and to file such
consents to service of process or other documents as may be necessary in order
to effect such registration or qualification; provided, however, that neither
Acquisition Corp. nor any of the Issuers shall be required in connection
therewith to qualify as a foreign corporation in any jurisdiction in which it
is not now so qualified or to take any action that would subject it to general
consent to service of process or taxation other than as to matters and
transactions relating to the Preliminary Offering Memorandum, the Offering
Memorandum or Exempt Resales, in any jurisdiction in which it is not now so
subject.
(f) So long as the Notes are outstanding, (i) to
mail and make generally available (or to cause the Issuers to do the same) as
soon as practicable after the end of each fiscal year to the record holders of
the Notes a financial report of the Company and its subsidiaries on a
consolidated basis (and a similar financial report of all unconsolidated
subsidiaries, if any), all such financial reports to include a consolidated
balance sheet, a consolidated statement of operations, a consolidated statement
of cash flows and a consolidated statement of shareholders' equity as of the
end of and for such fiscal year, together with comparable information as of the
end of and for the preceding year, certified by the Company's independent
public accountants and (ii) to mail and make generally available (or to cause
the Issuers to do the same) as soon as practicable after the end of each
quarterly period (except for the last quarterly period of each fiscal year) to
such holders, a consolidated balance sheet, a consolidated statement of
operations and a consolidated statement of cash flows (and similar financial
reports of all unconsolidated subsidiaries, if any) as of the end of and for
such period, and for the period from the beginning of such year to the close of
such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(g) So long as the Notes are outstanding, to
furnish, or cause the Issuers to furnish, to the Initial Purchasers as soon as
available copies of all reports or other communications furnished by any of the
Issuers to its security holders or furnished to or filed with the Commission or
any national securities exchange on which any class of securities of such
Issuer is listed and such other publicly available information concerning the
Company and/or its subsidiaries as the Initial Purchasers may reasonably
request.
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<PAGE> 9
(h) So long as any of the Series A Notes remain
outstanding and during any period in which the Issuers are not subject to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), to make available, or cause the Issuers to make available, to
any holder of Series A Notes in connection with any sale thereof and any
prospective purchaser of such Series A Notes from such holder, the information
("RULE 144A INFORMATION") required by Rule 144A(d)(4) under the Act.
(i) Whether or not the transactions contemplated
in this Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid, or cause the Issuers to make available all expenses incident
to the performance of the obligations of the Issuers under this Agreement,
including: (i) the fees, disbursements and expenses of counsel to Acquisition
Corp. and the Issuers and accountants of Acquisition Corp. and the Issuers in
connection with the sale and delivery of the Series A Notes to the Initial
Purchasers and pursuant to Exempt Resales, and all other fees and expenses in
connection with the preparation, printing, filing and distribution of the
Preliminary Offering Memorandum, the Offering Memorandum and all amendments and
supplements to any of the foregoing (including financial statements), including
the mailing and delivering of copies thereof to the Initial Purchasers and
persons designated by them in the quantities specified herein, (ii) all fees
and expenses incurred by Acquisition Corp., SH Group, AIP or Old Heddle in
connection with the roadshow; provided, however, that the Initial Purchasers
shall, in addition to their own fees and expenses incurred in connection with
the roadshow, pay 50% of the costs and expenses related to the services of the
airplane used for such roadshow, (iii) all costs and expenses related to the
transfer and delivery of the Series A Notes to the Initial Purchasers and
pursuant to Exempt Resales, including any transfer or other taxes payable
thereon, (iv) all costs of printing or producing this Agreement, the other
Operative Documents and any other agreements or documents in connection with
the offering, purchase, sale or delivery of the Series A Notes, (v) all
expenses in connection with the registration or qualification of the Series A
Notes and the Subsidiary Guarantees for offer and sale under the securities or
Blue Sky laws of the several states and all costs of printing or producing any
preliminary and supplemental Blue Sky memoranda in connection therewith
(including the filing fees and fees and disbursements of counsel for the
Initial Purchasers in connection with such registration or qualification and
memoranda relating thereto), (vi) the cost of printing certificates
representing the Series A Notes and the Subsidiary Guarantees, (vii) all
expenses and listing fees in connection with the application for quotation of
the Series A Notes in the National Association of Securities Dealers, Inc.
("NASD") Automated Quotation System - PORTAL ("PORTAL"), (viii) the fees and
expenses of the Trustee and the Trustee's counsel in connection with the
Indenture, the Notes and the Subsidiary Guarantees, (ix) the costs and charges
of any transfer agent, registrar and/or depositary (including DTC), (x) any
fees charged by rating agencies for the rating of the Notes, (xi) all costs and
expenses of the Exchange Offer and any Registration Statement, as set forth in
the Registration Rights Agreement, and (xii) and all other costs and expenses
incident to the performance of the obligations of Acquisition Corp. and the
Issuers hereunder for which provision is not otherwise made in this Section.
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<PAGE> 10
(j) To use, and to cause each of the Issuers to
use, its best efforts to effect the inclusion of the Series A Notes in PORTAL
and to maintain the listing of the Series A Notes on PORTAL for so long as the
Series A Notes are outstanding.
(k) To obtain the approval of DTC for
"book-entry" transfer of the Notes, and to comply with all of its agreements
set forth in the representation letters of the Issuers to DTC relating to the
approval of the Notes by DTC for "book-entry" transfer.
(l) During the period beginning on the date
hereof and continuing to and including the Closing Date, not to offer, sell,
contract to sell or otherwise transfer or dispose of, and to prevent any Issuer
from offering, selling, contracting to sell or otherwise transferring or
disposing of, any debt securities of any Issuer or any warrants, rights or
options to purchase or otherwise acquire debt securities of any Issuer
substantially similar to the Notes and the Subsidiary Guarantees (other than
(i) the Notes and the Subsidiary Guarantees and (ii) commercial paper issued in
the ordinary course of business), without the prior written consent of the
Initial Purchasers.
(m) Not to, and to cause each Issuer not to,
sell, offer for sale or solicit offers to buy or otherwise negotiate in respect
of any security (as defined in the Act) that would be integrated with the sale
of the Series A Notes to the Initial Purchasers or pursuant to Exempt Resales
in a manner that would require the registration of any such sale of the Series
A Notes under the Act.
(n) Not to, and to not allow any Issuer to,
voluntarily claim, and to actively resist, and cause each Issuer to actively
resist, any attempts to claim, the benefit of any usury laws against the
holders of any Notes and the related Subsidiary Guarantees.
(o) To cause the Exchange Offer to be made by the
Issuers in the appropriate form to permit Series B Notes and guarantees thereof
by the Guarantors registered pursuant to the Act to be offered in exchange for
the Series A Notes and the Subsidiary Guarantees and to comply with all
applicable federal and state securities laws in connection with the Exchange
Offer.
(p) To comply, and to cause the Issuers to
comply, with all of their respective agreements set forth in the Registration
Rights Agreement.
(q) To use, and to cause each Issuer to use, its
best efforts to do and perform all things required or necessary to be done and
performed under this Agreement by it prior to the Closing Date and to satisfy
all conditions precedent to the delivery of the Series A Notes and the
Subsidiary Guarantees.
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<PAGE> 11
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE ISSUERS.
As of the date hereof, Acquisition Corp. represents and warrants to, and agrees
with, the Initial Purchasers that:
(a) Each of the parties to each of the
Transaction Documents have all requisite corporate power and authority to
execute, deliver and perform their respective obligations under each of the
Transaction Documents to which it is and will be a party; each of the
Transaction Documents, and the transactions contemplated thereby, has been and
upon completion of the Acquisition Transactions, will be duly and validly
authorized, executed and delivered by each party thereto, and each constitutes
a valid and legally binding agreement of such party enforceable against each
such party in accordance with its terms except that enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity); except as set forth in the
Offering Memorandum, no consent, approval, authorization or order of any court
or governmental agency or body is required for the performance of any of the
Transaction Documents by or the consummation by any party thereto of any of the
transactions contemplated thereby, except such as may be required and have been
obtained, or upon effectiveness of the Registration Statements, will have been
obtained, under the Act, the Trust Indenture Act or state securities or "Blue
Sky" laws in connection with the purchase and distribution of the Notes by the
Initial Purchasers; and no party to any of the Transaction Documents is (i) in
violation of its certificate of incorporation or bylaws, (ii) in violation of
any statute, judgment, decree, order, rule or regulation applicable to any of
them or any of their respective properties or assets, which violation would
have a Material Adverse Effect (as defined below), or (iii) in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any of the Transaction Documents or any other contract, indenture,
mortgage, deed of trust, loan agreement, note, lease, license, franchise
agreement, permit, certificate or agreement or instrument to which any of them
is a party or to which any of them is subject, which default would have a
Material Adverse Effect.
(b) The execution, delivery and performance of
each of the Transaction Documents, and the consummation of the transactions
contemplated thereby, will not violate, conflict with or constitute or result
in a breach of or a default under (or an event which, with notice or lapse of
time, or both, would constitute a breach of or a default under) any of (i) the
terms or provisions of any of the Transaction Documents or any other indenture,
mortgage, deed of trust, loan agreement, note, lease, license, franchise
agreement, or agreement or instrument to which any party to any of the
Transaction Documents is a party or to which any of their respective properties
or assets are subject, which violation, conflict, breach or default would have
a Material Adverse Effect, (ii) the certificate of incorporation or bylaws of
any such party, or (iii) (assuming compliance with all applicable state
securities and "Blue Sky" laws) any statute, judgment, decree, order, rule or
regulation of any court or
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<PAGE> 12
governmental agency or other body applicable to any such party, or any of their
respective properties or assets, which violation, conflict, breach or default
would have a Material Adverse Effect.
(c) Immediately after the consummation of the
Acquisition Transactions, the fair value and present fair saleable value of the
assets of the Company will exceed the sum of its stated liabilities and
identified contingent liabilities; the Company will not be, after giving effect
to the execution, delivery and performance of the Transaction Documents, to the
extent it is a party thereto, and the consummation of the transactions
contemplated thereby, (i) left with unreasonably small capital with which to
carry on its business as it is proposed to be conducted, (ii) unable to pay its
debts (contingent or otherwise) as they mature or (iii) otherwise insolvent.
(d) Acquisition Corp. has delivered to the
Initial Purchasers a true and correct copy of each of the Transaction Documents
that have been executed and delivered prior to the date of this Agreement and
each other Transaction Document in the form substantially as it will be
executed and delivered on or prior to the Closing Date, together with all
related agreements and all schedules and exhibits thereto, and there have been
no amendments, alterations, modifications or waivers of any of the provisions
of any of the Transaction Documents since their date of execution or from the
form in which it has been delivered to the Initial Purchasers; there exists as
of the date hereof (after giving effect to the transactions contemplated by
each of the Transaction Documents) no event or condition which would constitute
a default or an event of default (in each case as defined in each of the
Transaction Documents) under any of the Transaction Documents which would
result in a Material Adverse Effect or materially adversely effect the ability
of the parties to the Transaction Documents to consummate the Acquisition
Transactions and the transactions contemplated by the Transaction Documents.
(e) The Preliminary Offering Memorandum and the
Offering Memorandum do not, and any supplement or amendment to them will not,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties contained in this paragraph
shall not apply to statements in or omissions from the Preliminary Offering
Memorandum or the Offering Memorandum (or any supplement or amendment thereto)
based upon information relating to the Initial Purchasers furnished to
Acquisition Corp. in writing by the Initial Purchasers expressly for use
therein. No stop order preventing the use of the Preliminary Offering
Memorandum or the Offering Memorandum, or any amendment or supplement thereto,
or any order asserting that any of the transactions contemplated by this
Agreement are subject to the registration requirements of the Act, has been
issued.
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<PAGE> 13
(f) Each of SH Group, Acquisition Corp., Old
Heddle and their respective subsidiaries has been duly incorporated, is validly
existing as a corporation in good standing under the laws of its jurisdiction
of incorporation and has the corporate power and authority to carry on its
business as described in the Preliminary Offering Memorandum and the Offering
Memorandum and to own, lease and operate its properties, and each is duly
qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of
Acquisition Corp., Old Heddle and their respective subsidiaries, taken as a
whole or draw into question the validity of this Agreement or the other
Operative Documents (a "MATERIAL ADVERSE EFFECT").
(g) All outstanding shares of capital stock of
each of SH Group, Acquisition Corp. and Old Heddle have been duly authorized
and validly issued and are fully paid, non-assessable and not subject to any
preemptive or similar rights. After giving effect to the Acquisition
Transactions, all of the outstanding shares of capital stock of the Company
will be owned by SH Group, and all of the outstanding shares of capital stock
of SH Group will be owned by AIP and management investors, in each case free
and clear of any security interest, claim, lien, pledge, encumbrance or adverse
interest of any nature (each, a "LIEN") (except as may arise pursuant to (i)
the Bank Agreements and (ii) the pledge of shares of common stock of SH Group
to be purchased by Messrs. Boggs, Connor, Treglia and Wright in order to secure
payment of the purchase price of such shares), and except as set forth in the
Offering Memorandum there are no, and at the Closing Date there will not be,
any outstanding rights (including without limitation preemptive rights,
warrants or options to acquire, or instruments convertible into or exchangeable
for, any shares of capital stock or other equity interest in the Company or SH
Group or any of their direct or indirect subsidiaries (including without
limitation the Guarantors), or any contract, commitment, agreement,
understanding or arrangement of any kind relating to the issuance of any
capital stock of the Company or SH Group or any such subsidiary, any such
convertible or exchangeable securities or any such rights, warrants or options.
(h) The entities listed on Schedule C hereto are
the only subsidiaries, direct or indirect, of the Company. All of the
outstanding shares of capital stock of each of the Company's subsidiaries have
been duly authorized and validly issued and are fully paid and non-assessable,
and are owned by the Company, directly or indirectly through one or more
subsidiaries, free and clear of any Lien except for Liens under the Bank
Agreements.
(i) This Agreement has been duly authorized,
executed and delivered by Acquisition Corp.
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<PAGE> 14
(j) The Indenture has been duly authorized by
each of the Issuers and, on the Closing Date, will have been validly executed
and delivered by each of the Issuers. When the Indenture has been duly
executed and delivered by each of the Issuers, and assuming the due
authorization, execution and delivery of the Indenture by the Trustee, the
Indenture will be a valid and binding agreement of each of the Issuers,
enforceable against each of the Issuers in accordance with its terms except as
(i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the
Indenture will conform in all material respects to the requirements of the
Trust Indenture Act of 1939, as amended (the "TIA" or "TRUST INDENTURE ACT"),
and the rules and regulations of the Commission applicable to an indenture
which is qualified thereunder.
(k) The Series A Notes have been duly authorized
and, on the Closing Date, will have been validly executed and delivered by the
Company. When the Series A Notes have been issued, executed and authenticated
in accordance with the provisions of the Indenture and delivered to and paid
for by the Initial Purchasers in accordance with the terms of this Agreement,
the Series A Notes will be entitled to the benefits of the Indenture and will
be valid and binding obligations of the Company, enforceable in accordance with
their terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally
and (ii) rights of acceleration and the availability of equitable remedies may
be limited by equitable principles of general applicability. On the Closing
Date, the Series A Notes will conform as to legal matters to the description
thereof contained in the Offering Memorandum.
(l) On the Closing Date, the Series B Notes will
have been duly authorized by the Company. When the Series B Notes are issued,
executed and authenticated in accordance with the terms of the Exchange Offer
and the Indenture, the Series B Notes will be entitled to the benefits of the
Indenture and will be the valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles
of general applicability.
(m) The Subsidiary Guarantee to be endorsed on
the Series A Notes by each Guarantor has been duly authorized by such Guarantor
and, on the Closing Date, will have been duly executed and delivered by each
such Guarantor. When the Series A Notes have been issued, executed and
authenticated in accordance with the Indenture and delivered to and paid for by
the Initial Purchasers in accordance with the terms of this Agreement, the
Subsidiary Guarantee of each Guarantor endorsed thereon will be entitled to the
benefits of the Indenture and will be the valid and binding obligation of such
Guarantor, enforceable against such Guarantor in accordance with its terms,
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting
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<PAGE> 15
creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. On the Closing Date, the Subsidiary Guarantees to be
endorsed on the Series A Notes will conform as to legal matters to the
description thereof contained in the Offering Memorandum.
(n) The Subsidiary Guarantee to be endorsed on
the Series B Notes by each Guarantor has been duly authorized by such Guarantor
and, when issued, will have been duly executed and delivered by each such
Guarantor. When the Series B Notes have been issued, executed and
authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the Subsidiary Guarantee of each Guarantor endorsed thereon will be
entitled to the benefits of the Indenture and will be the valid and binding
obligation of such Guarantor, enforceable against such Guarantor in accordance
with its terms, except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally
and (ii) rights of acceleration and the availability of equitable remedies may
be limited by equitable principles of general applicability. When the Series B
Notes are issued, authenticated and delivered, the Subsidiary Guarantees to be
endorsed on the Series B Notes will conform as to legal matters to the
description thereof in the Offering Memorandum.
(o) The Registration Rights Agreement has been
duly authorized by each of the Issuers and, on the Closing Date, will have been
duly executed and delivered by each of the Issuers. When the Registration
Rights Agreement has been duly executed and delivered, the Registration Rights
Agreement will be a valid and binding agreement of each of the Issuers,
enforceable against each Issuer in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. On the Closing Date, the Registration Rights Agreement
will conform as to legal matters to the description thereof in the Offering
Memorandum.
(p) Neither SH Group, Acquisition Corp., Old
Heddle nor any of their respective subsidiaries is in violation of its
respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
SH Group, Acquisition Corp, Old Heddle and their respective subsidiaries, taken
as a whole, to which SH Group, Acquisition Corp., Old Heddle or any of their
respective subsidiaries is a party or by which SH Group, Acquisition Corp., Old
Heddle or any of their respective subsidiaries or their respective property is
bound.
(q) The execution, delivery and performance of
this Agreement by Acquisition Corp. and each of the Issuers, compliance by
Acquisition Corp. and each of the Issuers with all provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or
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<PAGE> 16
qualification with, any court or governmental body or agency (except such as
may be required under the securities or Blue Sky laws of the various states),
(ii) conflict with or constitute a breach of any of the terms or provisions of,
or a default under, the charter or by-laws of SH Group, Acquisition Corp., Old
Heddle or any of their respective subsidiaries or any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
SH Group, Acquisition Corp., Old Heddle or any of their respective
subsidiaries, taken as a whole, to which SH Group, Acquisition Corp., Old
Heddle or any of their respective subsidiaries is a party or by which SH Group,
Acquisition Corp., Old Heddle or any of their respective subsidiaries or their
respective property is bound, (iii) violate or conflict with any applicable law
or any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over SH Group, Acquisition
Corp., Old Heddle any of their respective subsidiaries or their respective
property, (iv) result in the imposition or creation of (or the obligation to
create or impose) a Lien under, any agreement or instrument to which SH Group,
Acquisition Corp., Old Heddle or any of their respective subsidiaries is a
party or by which SH Group, Acquisition Corp., Old Heddle or any of their
respective subsidiaries or their respective property is bound, or (v) result in
the termination, suspension or revocation of any Authorization (as defined
below) of SH Group, Acquisition Corp., Old Heddle or any of their respective
subsidiaries or result in any other impairment of the rights of the holder of
any such Authorization except, in each case, as would not have a Material
Adverse Effect.
(r) There are no legal or governmental
proceedings pending or threatened to which SH Group, Acquisition Corp., Old
Heddle or any of their respective subsidiaries is or could be a party or to
which any of their respective property is or could be subject, which would
reasonably be expected to result, singly or in the aggregate, in a Material
Adverse Effect.
(s) Neither Acquisition Corp., Old Heddle nor any
of their respective subsidiaries has violated any material foreign, federal,
state or local law or regulation relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("ENVIRONMENTAL LAWS"), any material provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
(t) There are no costs or liabilities associated
with Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any Authorization, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
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<PAGE> 17
(u) All material tax returns required to be filed
by Acquisition Corp., Old Heddle and any of their respective subsidiaries in
any jurisdiction have been filed, other than those filings being contested in
good faith, and all material taxes, including withholding taxes, penalties and
interest, assessments, fees and other charges due pursuant to such returns or
pursuant to any assessment received by Acquisition Corp., Old Heddle or any of
their respective subsidiaries have been paid, other than those being contested
in good faith and for which adequate reserves have been provided.
(v) Acquisition Corp., Old Heddle and their
respective subsidiaries have good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned by
them which is material to the business of Acquisition Corp., Old Heddle and
their respective subsidiaries, in each case free and clear of all Liens and
defects, except such as are described in the Offering Memorandum or such as do
not materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by Acquisition Corp., Old
Heddle and their respective subsidiaries; and any real property and buildings
held under lease by Acquisition Corp., Old Heddle and their respective
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by Acquisition Corp.,
Old Heddle and their respective subsidiaries, in each case except as described
in the Offering Memorandum.
(w) The assets of Acquisition Corp., Old Heddle
and their respective subsidiaries include all of the assets and properties used
by Acquisition Corp., Old Heddle and their respective subsidiaries in, and
material to, the conduct of the businesses of Acquisition Corp., Old Heddle and
their respective subsidiaries as currently conducted, and such assets are in
working condition, except where the failure of such assets to be in working
condition will not be reasonably expected to have a Material Adverse Effect.
(x) Acquisition Corp., Old Heddle and their
respective subsidiaries own or possess, or can acquire on reasonable terms, all
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names ("INTELLECTUAL PROPERTY") currently employed by them in connection
with the business now operated by them except where the failure to own or
possess or otherwise be able to acquire such intellectual property would not,
singly or in the aggregate, have a Material Adverse Effect; and neither SH
Group, Acquisition Corp., Old Heddle nor any of their respective subsidiaries
has received any notice of infringement of or conflict with asserted rights of
others with respect to any of such intellectual property which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect.
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<PAGE> 18
(y) Each of SH Group, Acquisition Corp., Old
Heddle and their respective subsidiaries has such permits, licenses, consents,
exemptions, franchises, authorizations and other approvals (each, an
"AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and
all courts and other tribunals, including without limitation, under any
applicable Environmental Laws, as are necessary to own, lease, license and
operate its respective properties and to conduct its business, except where the
failure to have any such Authorization or to make any such filing or notice
would not, singly or in the aggregate, have a Material Adverse Effect. Each
such Authorization is valid and in full force and effect and each of
Acquisition Corp., Old Heddle and their respective subsidiaries is in
compliance with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having jurisdiction with
respect thereto; and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which allows or,
after notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or results or, after notice or lapse of
time or both, would result in any other impairment of the rights of the holder
of any such Authorization; and such Authorizations contain no restrictions that
are burdensome to Acquisition Corp., Old Heddle or any of their respective
subsidiaries; except where such failure to be valid and in full force and
effect or to be in compliance, the occurrence of any such event or the presence
of any such restriction would not, singly or in the aggregate, have a Material
Adverse Effect.
(z) The accountants, Ernst & Young LLP, that have
certified the financial statements and supporting schedules included in the
Preliminary Offering Memorandum and the Offering Memorandum are independent
public accountants with respect to Acquisition Corp. and the Issuers, as
required by the Act and the Exchange Act. The historical financial statements,
together with related schedules and notes, set forth in the Preliminary
Offering Memorandum and the Offering Memorandum comply as to form in all
material respects with the requirements applicable to registration statements
on Form S-1 under the Act.
(aa) The historical financial statements, together
with related schedules and notes forming part of the Offering Memorandum (and
any amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of Old Heddle
and its subsidiaries on the basis stated in the Offering Memorandum at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved, except as disclosed therein; and the other financial and
statistical information and data set forth in the Offering Memorandum (and any
amendment or supplement thereto) are, in all material respects, accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of Old Heddle.
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<PAGE> 19
(bb) The pro forma financial statements and the
related notes thereto included in the Preliminary Offering Memorandum and the
Offering Memorandum (and in each case any amendment or supplement thereto) have
been prepared on a basis consistent with the historical financial statements
and related notes thereto of Old Heddle and its subsidiaries except as
specifically referred to therein or in the notes thereto and give effect to
assumptions used in the preparation thereof on a reasonable basis and in good
faith and present fairly the historical and proposed transactions contemplated
by the Preliminary Offering Memorandum and the Offering Memorandum; and such
pro forma financial statements comply as to form in all material respects with
the requirements applicable to pro forma financial statements included in
registration statements on Form S-1 under the Act. The other pro forma
financial and statistical information and data included in the Offering
Memorandum are, in all material respects, accurately presented and prepared on
a basis consistent with the pro forma financial statements.
(cc) Acquisition Corp., Old Heddle and each of
their respective subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(dd) Acquisition Corp., Old Heddle and each of
their respective subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which they are engaged; and neither
Acquisition Corp., Old Heddle nor any of their respective subsidiaries (i) has
received notice from any insurer or agent of such insurer that substantial
capital improvements or other material expenditures will have to be made in
order to continue such insurance or (ii) has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers at a cost that
would not have a Material Adverse Effect.
(ee) Neither Acquisition Corp. nor Old Heddle is
and, after giving effect to the offering and sale of the Series A Notes and the
application of the net proceeds thereof as described in the Offering
Memorandum, neither SH Group nor the Company will be, an "investment company,"
as such term is defined in the Investment Company Act of 1940, as amended.
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<PAGE> 20
(ff) Except for the Registration Rights Agreement
(attached hereto as Exhibit A), there are no contracts, agreements or
understandings between Acquisition Corp., Old Heddle or any Issuer and any
person granting such person the right to require Acquisition Corp., Old Heddle
or such Issuer to file a registration statement under the Act with respect to
any securities of Acquisition Corp., Old Heddle or such Issuer or to require
Acquisition Corp., Old Heddle or such Issuer to include such securities with
the Notes and Subsidiary Guarantees registered pursuant to any Registration
Statement.
(gg) Neither SH Group, Acquisition Corp., Old
Heddle, nor any of their respective subsidiaries nor any agent thereof acting
on the behalf of them has taken, and none of them will take, any action that
might cause this Agreement, the Bank Agreements or the issuance or sale of the
Series A Notes to violate Regulation G (12 C.F.R. Part 207), Regulation T (12
C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R.
Part 224) of the Board of Governors of the Federal Reserve System.
(hh) No "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act (i) has imposed (or has informed Acquisition Corp., Old Heddle or any
Issuer that it is considering imposing) any condition (financial or otherwise)
on any such Person's retaining any rating assigned to Acquisition Corp., Old
Heddle or any Issuer or any securities of any Issuer or (ii) has indicated to
Acquisition Corp., Old Heddle or any Issuer that it is considering (a) the
downgrading, suspension, or withdrawal of, or any review for a possible change
that does not indicate the direction of the possible change in, any rating so
assigned or (b) any change in the outlook for any rating of any Issuer or any
securities of any Issuer.
(ii) Since the respective dates as of which
information is given in the Offering Memorandum other than as set forth in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there has not occurred any
material adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or the earnings,
business, management or operations of Acquisition Corp., Old Heddle and their
respective subsidiaries, taken as a whole, (ii) there has not been any material
adverse change or any development involving a prospective material adverse
change in the capital stock or in the long-term debt of Acquisition Corp., Old
Heddle or any of their respective subsidiaries and (iii) neither Acquisition
Corp., Old Heddle nor any of their respective subsidiaries has incurred any
material liability or obligation, direct or contingent.
(jj) Each of the Preliminary Offering Memorandum
and the Offering Memorandum, as of its date, contains all the information
specified in, and meeting the requirements of, Rule 144A(d)(4) under the Act.
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<PAGE> 21
(kk) When the Series A Notes and the Subsidiary
Guarantees are issued and delivered pursuant to this Agreement, neither the
Series A Notes nor the Subsidiary Guarantees will be of the same class (within
the meaning of Rule 144A under the Act) as any security of any of the Issuers
that is listed on a national securities exchange registered under Section 6 of
the Exchange Act or that is quoted in a United States automated inter-dealer
quotation system.
(ll) No form of general solicitation or general
advertising (as defined in Regulation D under the Act) was used by SH Group,
Acquisition Corp., Old Heddle, the Issuers or any of their respective
representatives (other than the Initial Purchasers, as to whom Acquisition
Corp. makes no representation) in connection with the offer and sale of the
Notes contemplated hereby, including, but not limited to, articles, notices or
other communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising. No
securities of the same class as the Notes have been issued and sold by
Acquisition Corp. or Old Heddle within the six-month period immediately prior
to the date hereof.
(mm) Except as disclosed in the Offering
Memorandum, no relationship, direct or indirect, exists between or among SH
Group, Acquisition Corp., Old Heddle or any of their respective subsidiaries on
the one hand, and the directors, officers, stockholders, customers or suppliers
of SH Group, Acquisition Corp., Old Heddle or any of their respective
subsidiaries on the other hand, which would be required by the Act to be
described in the Offering Memorandum if the Offering Memorandum were a
prospectus included in a registration statement on Form S-1 filed with the
Commission.
(nn) No action has been taken and no law, statute,
rule or regulation or order has been enacted, adopted or issued by any
governmental agency or body which prevents the execution, delivery and
performance of any of the Operative Documents, the issuance of the Series A
Notes or the Subsidiary Guarantees, or suspends the sale of the Series A Notes
or the Subsidiary Guarantees in any jurisdiction referred to in Section 4(e);
and no injunction, restraining order or other order or relief of any nature by
a federal or state court or other tribunal of competent jurisdiction has been
issued with respect to SH Group, Acquisition Corp., Old Heddle or any of their
respective subsidiaries which would prevent or suspend the issuance or sale of
the Notes or the Subsidiary Guarantees in any jurisdiction referred to in
Section 4(e).
(oo) There is no (i) significant unfair labor
practice complaint, grievance or arbitration proceeding pending or threatened
against Acquisition Corp., Old Heddle or any of their respective subsidiaries
before the National Labor Relations Board or any state or local labor relations
board, (ii) strike, labor dispute, slowdown or stoppage pending or threatened
against Acquisition Corp., Old Heddle or any of their respective subsidiaries
or (iii) union representation question existing with respect to the employees
of
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<PAGE> 22
Acquisition Corp., Old Heddle or any of their respective subsidiaries, except
in the case of clauses (i), (ii) and (iii) for such actions which, singly or in
the aggregate, would not have a Material Adverse Effect.
(pp) Prior to the effectiveness of any
Registration Statement, the Indenture is not required to be qualified under the
TIA.
(qq) None of SH Group, Acquisition Corp., Old
Heddle or any of the Guarantors nor any of their respective affiliates or any
person acting on its or their behalf (other than the Initial Purchasers, as to
whom Acquisition Corp. makes no representation) has engaged or will engage in
any directed selling efforts within the meaning of Regulation S under the Act
("REGULATION S") with respect to the Notes or the Subsidiary Guarantees.
(rr) The Series A Notes offered and sold in
reliance on Regulation S have been and will be offered and sold only in
offshore transactions.
(ss) The sale of the Series A Notes pursuant to
Regulation S is not part of a plan or scheme to evade the registration
provisions of the Act.
(tt) No registration under the Act of the Series A
Notes or the Subsidiary Guarantees is required for the sale of the Series A
Notes and the Subsidiary Guarantees to the Initial Purchasers as contemplated
hereby or for the Exempt Resales assuming the accuracy of the Initial
Purchasers' representations and warranties and agreements set forth in Section
7 hereof.
(uu) SH Group, Acquisition Corp., Old Heddle and
the Guarantors and their respective affiliates and all persons acting on their
behalf (other than the Initial Purchasers, as to whom Acquisition Corp. makes
no representation) have complied with and will comply with the offering
restrictions requirements of Regulation S in connection with the offering of
the Series A Notes outside the United States and, in connection therewith, the
Offering memorandum will contain the disclosure required by Rule 902(h).
(vv) The Series A Notes sold in reliance on
Regulation S will be represented upon issuance by a temporary global security
that may not be exchanged for definitive securities until the expiration of the
40-day restricted period referred to in Rule 903(c)(3) of the Act and only upon
certification of beneficial ownership of such Series A Notes by non-U.S.
persons or U.S. persons who purchased such Series A Notes in transactions that
were exempt from the registration requirements of the Act.
(ww) Each certificate signed by any officer of
Acquisition Corp., Old Heddle or any Guarantor and delivered to the Initial
Purchasers or counsel for the Initial Purchasers shall be deemed to be a
representation and warranty by Acquisition Corp., Old Heddle or such Guarantor
to the Initial Purchasers as to the matters covered thereby.
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<PAGE> 23
Acquisition Corp. acknowledges that the Initial Purchasers
and, for purposes of the opinions to be delivered to the Initial Purchasers
pursuant to Section 9 hereof, counsel to Acquisition Corp. and the Issuers and
counsel to the Initial Purchasers will rely upon the accuracy and truth of the
foregoing representations and hereby consents to such reliance.
7. INITIAL PURCHASERS' REPRESENTATIONS AND WARRANTIES.
Each of the Initial Purchasers, severally and not jointly, represents and
warrants to and agrees with Acquisition Corp. that:
(a) Such Initial Purchaser is a QIB with such
knowledge and experience in financial and business matters as is necessary in
order to evaluate the merits and risks of an investment in the Series A Notes.
(b) Such Initial Purchaser (A) is not acquiring
the Series A Notes with a view to any distribution thereof or with any present
intention of offering or selling any of the Series A Notes in a transaction
that would violate the Act or the securities laws of any state of the United
States or any other applicable jurisdiction and (B) will be reoffering and
reselling the Series A Notes only to (x) QIBs in reliance on the exemption from
the registration requirements of the Act provided by Rule 144A and (y) in
offshore transactions in reliance upon Regulation S under the Act.
(c) Such Initial Purchaser agrees that no form of
general solicitation or general advertising (within the meaning of Regulation D
under the Act) has been or will be used by such Initial Purchaser in connection
with the offer and sale of the Series A Notes pursuant hereto, including, but
not limited to, articles, notices or other communications published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(d) Such Initial Purchaser agrees that, in
connection with Exempt Resales, such Initial Purchaser will solicit offers to
buy the Series A Notes only from, and will offer to sell the Series A Notes
only to, Eligible Purchasers. The Initial Purchaser further agrees that it
will offer to sell the Series A Notes only to, and will solicit offers to buy
the Series A Notes only from (A) Eligible Purchasers that the Initial Purchaser
reasonably believes are QIBs, and (B) Regulation S Purchasers, in each case,
that agree that (x) the Series A Notes purchased by them may be resold, pledged
or otherwise transferred within the time period referred to under Rule 144(k)
(taking into account the provisions of Rule 144(d) under the Act, if
applicable) under the Act, as in effect on the date of the transfer of such
Series A Notes, only (I) to the Company or any of its subsidiaries, (II) to a
person whom the seller reasonably believes is a QIB purchasing for its own
account or for the account of a QIB in a transaction meeting the requirements
of Rule 144A under the Act, (III) in an offshore transaction (as defined in
Rule 902 under the Act) meeting the requirements of Rule 904 of the Act, (IV)
in a transaction meeting the requirements of Rule
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<PAGE> 24
144 under the Act, (V) in accordance with another exemption from the
registration requirements of the Act (and based upon an opinion of counsel
acceptable to the Company) or (VI) pursuant to an effective registration
statement and, in each case, in accordance with the applicable securities laws
of any state of the United States or any other applicable jurisdiction and (y)
they will deliver to each person to whom such Series A Notes or an interest
therein is transferred a notice substantially to the effect of the foregoing.
(e) Such Initial Purchaser and its affiliates or
any person acting on its or their behalf have not engaged or will not engage in
any directed selling efforts within the meaning of Regulation S with respect to
the Series A Notes or the Subsidiary Guarantees.
(f) The Series A Notes offered and sold by such
Initial Purchaser pursuant hereto in reliance on Regulation S have been and
will be offered and sold only in offshore transactions.
(g) The sale of the Series A Notes offered and
sold by such Initial Purchaser pursuant hereto in reliance on Regulation S is
not part of a plan or scheme to evade the registration provisions of the Act.
(h) Such Initial Purchaser agrees that it has not
offered or sold and will not offer or sell the Series A Notes in the United
States or to, or for the benefit or account of, a U.S. Person (other than a
distributor), in each case, as defined in Rule 902 under the Act (i) as part of
its distribution at any time and (ii) otherwise until 40 days after the later
of the commencement of the offering of the Series A Notes pursuant hereto and
the Closing Date, other than in accordance with Regulation S of the Act or
another exemption from the registration requirements of the Act. Such Initial
Purchaser agrees that, during such 40-day restricted period, it will not cause
any advertisement with respect to the Series A Notes (including any "tombstone"
advertisement) to be published in any newspaper or periodical or posted in any
public place and will not issue any circular relating to the Series A Notes,
except such advertisements as permitted by and include the statements required
by Regulation S.
(i) Such Initial Purchaser agrees that, at or
prior to confirmation of a sale of Series A Notes by it to any distributor,
dealer or person receiving a selling concession, fee or other remuneration
during the 40-day restricted period referred to in Rule 903(c)(3) under the
Act, it will send to such distributor, dealer or person receiving a selling
concession, fee or other remuneration a confirmation or notice to substantially
the following effect:
"The Series A Notes covered hereby have not been registered under the
U.S. Securities Act of 1933, as amended (the "Securities Act"), and
may not be offered and sold within the United States or to, or for the
account or benefit of, U.S. persons (i) as part of your distribution
at any time or (ii) otherwise
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<PAGE> 25
until 40 days after the later of the commencement of the Offering and
the Closing Date, except in either case in accordance with Regulation S
under the Securities Act (or Rule 144A under the Securities Act),
and in connection with any subsequent sale by you of the Series A
Notes covered hereby in reliance on Regulation S during the period
referred to above to any distributor, dealer or person receiving a
selling concession, fee or other remuneration, you must deliver a
notice to substantially the foregoing effect. Terms used above have
the meanings assigned to them in Regulation S."
(j) Such Initial Purchaser agrees that the Series
A Notes offered and sold in reliance on Regulation S will be represented upon
issuance by a global security that may not be exchanged for definitive
securities until the expiration of the 40-day restricted period referred to in
Rule 903(c)(3) of the Act and only upon certification of beneficial ownership
of such Series A Notes by non-U.S. persons or U.S. persons who purchased such
Series A Notes in transactions that were exempt from the registration
requirements of the Act.
Such Initial Purchaser acknowledges that the Issuers
and, for purposes of the opinions to be delivered to each Initial Purchaser
pursuant to Section 9 hereof, counsel to the Issuers and counsel to the Initial
Purchasers will rely upon the accuracy and truth of the foregoing
representations and such Initial Purchaser hereby consents to such reliance.
8. INDEMNIFICATION.
(a) Acquisition Corp. agrees to indemnify and
hold harmless and to cause each Issuer to indemnify and hold harmless, jointly
and severally, each Initial Purchaser, its directors, its officers and each
person, if any, who controls such Initial Purchaser within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages, liabilities and judgments (including, without
limitation, any legal or other expenses incurred in connection with
investigating or defending any matter, including any action, that could give
rise to any such losses, claims, damages, liabilities or judgments) caused by
any untrue statement or alleged untrue statement of a material fact contained
in the Offering Memorandum (or any amendment or supplement thereto), the
Preliminary Offering Memorandum or any Rule 144A Information provided by any
Issuer to any holder or prospective purchaser of Series A Notes pursuant to
Section 5(h) or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or judgments are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to such
Initial Purchaser furnished in writing to Acquisition Corp. by such Initial
Purchaser; provided, however, that the foregoing indemnity agreement with
respect to any Preliminary Offering Memorandum shall not inure to the benefit
of any Initial Purchaser who failed to deliver a Final Offering Memorandum (as
then amended or supplemented, provided
-24-
<PAGE> 26
by Acquisition Corp. to such Initial Purchaser in the requisite quantity and on
a timely basis to permit proper delivery on or prior to the Closing Date) to
the person asserting any losses, claims, damages and liabilities and judgements
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Offering Memorandum, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, if such material
misstatement or omission or alleged material misstatement or omission was cured
in the Final Offering Memorandum.
(b) Each Initial Purchaser agrees, severally and
not jointly, to indemnify and hold harmless Acquisition Corp., the Issuers and
their respective directors and officers and each person, if any, who controls
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act)
Acquisition Corp. or the Issuers, to the same extent as the foregoing indemnity
from Acquisition Corp. to such Initial Purchaser but only with reference to
information relating to such Initial Purchaser furnished in writing to
Acquisition Corp. by such Initial Purchaser expressly for use in the
Preliminary Offering Memorandum or the Offering Memorandum.
(c) In case any action shall be commenced
involving any person in respect of which indemnity may be sought pursuant to
Section 8(a) or 8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall
promptly notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing and the indemnifying party shall assume the
defense of such action, including the employment of counsel reasonably
satisfactory to the indemnified party and the payment of all fees and expenses
of such counsel, as incurred (except that in the case of any action in respect
of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), the
Initial Purchasers shall not be required to assume the defense of such action
pursuant to this Section 8(c), but may employ separate counsel and participate
in the defense thereof, but the fees and expenses of such counsel, except as
provided below, shall be at the expense of the Initial Purchasers). Any
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing
by the indemnifying party, (ii) the indemnifying party shall have failed to
assume the defense of such action or employ counsel reasonably satisfactory to
the indemnified party or (iii) the named parties to any such action (including
any impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different
from or additional to those available to the indemnifying party (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of the indemnified party). In any such case, the indemnifying
party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to
-25-
<PAGE> 27
any local counsel) for all indemnified parties and all such fees and expenses
shall be reimbursed as they are incurred. Such firm shall be designated in
writing by Donaldson, Lufkin & Jenrette Securities Corporation, in the case of
the parties indemnified pursuant to Section 8(a), and by Acquisition Corp., in
the case of parties indemnified pursuant to Section 8(b). The indemnifying
party shall indemnify and hold harmless the indemnified party from and against
any and all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel
(in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided
for in this Section 8 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages, liabilities or judgments referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities and judgments (i) in
such proportion as is appropriate to reflect the relative benefits received by
Acquisition Corp., Old Heddle and the Issuers, on the one hand, and the Initial
Purchasers on the other hand from the offering of the Notes or (ii) if the
allocation provided by clause 8(d)(i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of Acquisition
Corp., Old Heddle and the Issuers, on the one hand, and the Initial Purchasers,
on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations. The relative benefits received by
Acquisition Corp., Old Heddle and the Issuers, on the one hand and the Initial
Purchasers, on the other hand, shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Series A Notes (after
underwriting discounts and commissions, but before deducting expenses) received
by the Company, and the total discounts and commissions received by the Initial
Purchasers bear to the total price to investors of the Series A Notes, in each
case as set forth in the table on the cover page of the Offering Memorandum.
The relative fault of Acquisition Corp., Old Heddle and the Issuers, on the one
hand, and the Initial Purchasers, on the other hand, shall be determined
-26-
<PAGE> 28
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by Acquisition Corp., Old Heddle
and the Issuers, on the one hand, or the Initial Purchasers, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
Acquisition Corp. and the Initial Purchasers agree
that it would not be just and equitable if contribution pursuant to this
Section 8(d) were determined by pro rata allocation (even if the Initial
Purchasers were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or judgments referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses incurred by such indemnified party in connection with investigating or
defending any matter, including any action, that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, no Initial Purchaser shall be required to
contribute any amount in excess of the amount by which the total discounts and
commissions received by such Initial Purchaser exceeds the amount of any
damages which such Initial Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Initial
Purchasers' obligations to contribute pursuant to this Section 8(d) are several
in proportion to the respective principal amount of Series A Notes purchased by
each of the Initial Purchasers hereunder and not joint.
(e) The remedies provided for in this Section 8
are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
9. CONDITIONS OF INITIAL PURCHASER'S OBLIGATIONS. The
obligations of the Initial Purchasers to purchase the Notes under this
Agreement are subject to the satisfaction of each of the following conditions:
(a) There have been no amendments, alterations,
modifications, or waivers of any provisions of the Transaction Documents,
except such amendments, alterations, modifications or waivers which, in the
judgment of Acquisition Corp., as evidenced by a certificate signed by the
Chairman of the Board, the President, an Executive Vice President, Vice
President or Secretary of Acquisition Corp. were necessitated by a materially
adverse change in the business, operations or financial condition of
Acquisition Corp., Old Heddle or their respective subsidiaries, and do not
modify the maturities of or security arrangements for other indebtedness being
incurred to consummate the transactions
-27-
<PAGE> 29
contemplated by the Transaction Documents. You shall have received a
certificate dated the Closing Date and signed by the Chairman of the Board, the
President, an Executive Vice President, Vice President or Secretary of
Acquisition Corp. to such effect.
(b) The following events shall have taken place
at the time of the purchase of the Series A Notes by the Initial Purchasers (i)
the Acquisition shall have been consummated, (ii) Intermediate will have merged
with and into Old Heddle, which will be the surviving corporation of such
merger, (iii) Old Holdings will have merged with and into Old Heddle, which
will be the surviving corporation of such merger, and (iv) Acquisition Corp.
will have merged with and into Old Heddle, which will be the surviving
corporation of such merger.
(c) On or before the Closing Date, the Initial
Purchasers and Milbank Tweed Hadley & McCloy, counsel for the Initial
Purchasers, shall have received such further documents, opinions, certificates
and schedules or instruments relating to the business, corporate, legal and
financial affairs of the Acquisition Corp., Old Heddle and the Guarantors as
each of them shall have requested.
(d) All the representations and warranties of
Acquisition Corp. contained in this Agreement shall be true and correct on the
Closing Date with the same force and effect as if made on and as of the Closing
Date.
(e) On or after the date hereof, (i) there shall
not have occurred any downgrading, suspension or withdrawal of, nor shall any
notice have been given of any potential or intended downgrading, suspension or
withdrawal of, or of any review (or of any potential or intended review) for a
possible change that does not indicate the direction of the possible change in,
any rating of any of the Issuers or the Notes or any Subsidiary Guarantee
(including, without limitation, the placing of any of the foregoing ratings on
credit watch with negative or developing implications or under review with an
uncertain direction) by any "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act, (ii) there shall not have occurred any change, nor shall any notice have
been given of any potential or intended change, in the outlook for any rating
of any of the Issuers or the Notes or any Subsidiary Guarantee by any such
rating organization and (iii) no such rating organization shall have given
notice that it has assigned (or is considering assigning) a lower rating to the
Notes than that on which the Notes were marketed.
(f) Since the respective dates as of which
information is given in the Offering Memorandum other than as set forth in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there shall not have occurred
any change or any development involving a prospective change in the condition,
financial or otherwise, or the earnings, business, management or operations of
Acquisition Corp. and Old Heddle and their respective subsidiaries, taken as a
whole, (ii)
-28-
<PAGE> 30
there shall not have been any change or any development involving a prospective
change in the capital stock or in the long-term debt of Acquisition Corp., Old
Heddle or any of their respective subsidiaries and (iii) neither Acquisition
Corp., Old Heddle nor any of their respective subsidiaries shall have incurred
any liability or obligation, direct or contingent, the effect of which, in any
such case described in clause 9(f)(i), 9(f)(ii) or 9(f)(iii), in your judgment,
is material and adverse and, in your judgment, makes it impracticable to market
the Series A Notes on the terms and in the manner contemplated in the Offering
Memorandum.
(g) You shall have received on the Closing Date a
certificate dated the Closing Date, signed by the President and the Chief
Financial Officer of each of Acquisition Corp. and the Issuers, confirming the
matters set forth in Sections 6(ii), 9(d) and 9(e) and stating that each of
Acquisition Corp. and the Issuers have complied with all the agreements and
satisfied all of the conditions herein contained and required to be complied
with or satisfied on or prior to the Closing Date.
(h) You shall have received on the Closing Date
an opinion (satisfactory to you and counsel for the Initial Purchasers), dated
the Closing Date, of Kirkland & Ellis, counsel for the Issuers substantially in
the form of Exhibit B hereto.
(i) The Initial Purchasers shall have received on
the Closing Date opinions, each dated the Closing Date and in form and
substance satisfactory to the Initial Purchasers, of Pennsylvania counsel and
South Carolina counsel with respect to Old Heddle and the Guarantors.
(j) The Initial Purchaser shall have received on
the Closing Date an opinion, dated the Closing Date, of Milbank Tweed Hadley &
McCloy, counsel for the Initial Purchasers, in form and substance reasonably
satisfactory to the Initial Purchasers.
(k) The Initial Purchasers shall have received,
at the time this Agreement is executed and at the Closing Date, letters dated
the date hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchasers from Ernst & Young LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to the Initial Purchasers
with respect to the financial statements and certain financial information
contained in the Offering Memorandum.
(l) The Series A Notes shall have been approved
by the NASD for trading and duly listed in PORTAL.
(m) The Initial Purchasers shall have received a
counterpart, conformed as executed, of the Indenture which shall have been
entered into by the Company, the Guarantors and the Trustee.
-29-
<PAGE> 31
(n) The Company and the Guarantors shall have
executed the Registration Rights Agreement and the Initial Purchasers shall
have received an original copy thereof, duly executed by the Company and the
Guarantors.
(o) The Initial Purchasers shall have received
from Valuation Research Corporation an opinion in form and substance
satisfactory to the Initial Purchasers regarding the solvency of the Company
following the issuance and sale of the Series A Notes hereunder and
consummation of the Acquisition Transactions.
(p) SH Group shall have consummated the SH Group
Debenture Offering.
(q) Each Guarantor shall have executed and
delivered to the Initial Purchasers a letter agreement, in form and substance
satisfactory to the initial Purchasers, agreeing to be bound, on a joint and
several basis with the Company, by this Agreement as though an original
signatory hereto.
(r) The Initial Purchasers shall have received an
executed copy of the Credit Agreement and Acquisition Corp. and the Issuers
shall have satisfied all conditions precedent thereunder.
(s) The Initial Purchasers shall have received an
executed copy of the employment agreements between SH Group and each of Messrs.
Team, Dillon and Miller.
(t) The Company shall have paid, or shall have
authorized payment out of the proceeds of the Offering of the Notes of, the
commitment fee of $1,000,000 due to DLJ Bridge Finance, Inc. and NationsBridge,
L.L.C. (the "BRIDGE LENDERS") pursuant to the Fee Letter Agreement dated April
28, 1998 between the Bridge Lenders and AIP.
(u) Neither Acquisition Corp. nor any Issuer
shall have failed at or prior to the Closing Date to perform or comply with any
of the agreements herein contained and required to be performed or complied
with by Acquisition Corp. or such Issuer at or prior to the Closing Date.
10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time on or prior to
the Closing Date by the Initial Purchasers by written notice to Acquisition
Corp. if any of the following has occurred: (i) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change in
economic conditions or in the financial markets of the United States or
elsewhere that, in the Initial Purchasers' judgment, is material and adverse
and, in
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<PAGE> 32
the Initial Purchasers' judgment, makes it impracticable to market the Series A
Notes on the terms and in the manner contemplated in the Offering Memorandum,
(ii) the suspension or material limitation of trading in securities or other
instruments on the New York Stock Exchange, the American Stock Exchange, the
Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago
Board of Trade or the Nasdaq National Market or limitation on prices for
securities or other instruments on any such exchange or the Nasdaq National
Market, (iii) the suspension of trading of any securities of any of the Issuers
on any exchange or in the over-the-counter market, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
your opinion materially and adversely affects, or will materially and adversely
affect, the business, prospects, financial condition or results of operations
of Acquisition Corp., Old Heddle and their respective subsidiaries, taken as a
whole, (v) the declaration of a banking moratorium by either federal or New
York State authorities or (vi) the taking of any action by any federal, state
or local government or agency in respect of its monetary or fiscal affairs
which in your opinion has a material adverse effect on the financial markets in
the United States.
If on the Closing Date any one or more of the Initial
Purchasers shall fail or refuse to purchase the Series A Notes which it or they
have agreed to purchase hereunder on such date and the aggregate principal
amount of the Series A Notes which such defaulting Initial Purchaser or Initial
Purchasers, as the case may be, agreed but failed or refused to purchase is not
more than one-tenth of the aggregate principal amount of the Series A Notes to
be purchased on such date by all Initial Purchasers, each non-defaulting
Initial Purchaser shall be obligated severally, in the proportion which the
principal amount of the Series A Notes set forth opposite its name in Schedule
B bears to the aggregate principal amount of the Series A Notes which all the
non-defaulting Initial Purchasers, as the case may be, have agreed to purchase,
or in such other proportion as you may specify, to purchase the Series A Notes
which such defaulting Initial purchaser or Initial Purchasers, as the case may
be, agreed but failed or refused to purchase on such date; provided that in no
event shall the aggregate principal amount of the Series A Notes which any
Initial Purchaser has agreed to purchase pursuant to Section 2 hereof be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such principal amount of the Series A Notes without the written consent of such
Initial Purchaser. If on the Closing Date any Initial Purchaser or Initial
Purchasers shall fail or refuse to purchase the Series A Notes and the
aggregate principal amount of the Series A Notes with respect to which such
default occurs is more than one-tenth of the aggregate principal amount of the
Series A Notes to be purchased by all Initial Purchasers and arrangements
satisfactory to the Initial Purchasers and Acquisition Corp. for purchase of
such the Series A Notes are not made within 48 hours after such default, this
Agreement will terminate without liability on the part of any non-defaulting
Initial Purchaser and Acquisition Corp. In any such case which does not result
in termination of this Agreement, either you or Acquisition Corp. shall have
the right to postpone the Closing Date, but in no event for longer than seven
days, in order that the required changes, if any, in the Offering Memorandum or
any other documents or arrangements may be effected. Any
-31-
<PAGE> 33
action taken under this paragraph shall not relieve any defaulting Initial
Purchaser from liability in respect of any default of any such Initial
Purchaser under this Agreement.
11. MISCELLANEOUS. Notices given pursuant to any
provision of this Agreement shall be addressed as follows: (i) if to
Acquisition Corp. or the Issuers, to Steel Heddle Mfg. Co., 1801 Rutherford
Road, Greenville, South Carolina, 29607, Attention: Chief Financial Officer,
(864) 244-4110 and (ii) if to the Initial Purchasers, Donaldson, Lufkin &
Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, or in any case to such other address as the
person to be notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of Acquisition Corp. and the
Issuers and the Initial Purchasers set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will survive
delivery of and payment for the Series A Notes, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
the Initial Purchasers, the officers or directors of the Initial Purchasers,
any person controlling the Initial Purchasers, Acquisition Corp. and the
Issuers, the officers or directors of Acquisition Corp. and any of the Issuers,
or any person controlling any of Acquisition Corp. and the Issuers, (ii)
acceptance of the Series A Notes and payment for them hereunder and (iii)
termination of this Agreement.
If for any reason the Series A Notes are not delivered by or
on behalf of the Company as provided herein (other than as a result of any
termination of this Agreement pursuant to Section 10), Acquisition Corp. agrees
to reimburse the Initial Purchasers for all out-of-pocket expenses (including
the fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement, Acquisition Corp. shall be liable for all
expenses which it has agreed to pay pursuant to Section 5(i) hereof.
Acquisition Corp. also agrees to reimburse, or to cause the Issuers to
reimburse each Initial Purchaser and its officers, directors and each person,
if any, who controls such Initial Purchaser within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act for any and all fees and expenses
(including without limitation the fees and expenses of counsel) incurred by
them in connection with enforcing their rights under this Agreement (including
without limitation its rights under Section 8).
With respect to Sections 6(e), 8(a), 8(b), and 8(d) hereof,
the statements set forth in the last paragraph on the cover page and the first
four paragraphs and the ninth paragraph under the caption "Plan of
Distribution" in the Offering Memorandum constitute the written information
furnished by or on behalf of each Initial Purchaser, in each case, with respect
to such Initial Purchaser.
-32-
<PAGE> 34
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon Acquisition Corp., the
Initial Purchasers, the Initial Purchasers' directors and officers, any
controlling persons referred to herein, the directors, officers and controlling
persons of Acquisition Corp. and the Issuers, and their respective successors
and assigns, and, upon execution and delivery of the letter agreement
referenced in Section 9(q) hereof, the Issuers, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include a purchaser of any of the Series A Notes from the Initial
Purchasers merely because of such purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the
agreement among Acquisition Corp. and the Initial Purchasers.
Very truly yours,
SH-AIP ACQUISITION CORPORATION
By: /s/ Robert Klein
---------------------
Robert Klein
President
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<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Purchase Agreement
as of the date first written above.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ William Baumgart
---------------------------------
William Baumgart
Vice President
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Gary Wolfe
---------------------------------
Gary Wolfe
Managing Director
-34-
<PAGE> 36
SCHEDULE A
GUARANTORS
Heddle Capital Corp., a Delaware corporation
Steel Heddle International, Inc., a South Carolina Corporation
-1-
<PAGE> 37
SCHEDULE B
<TABLE>
<CAPTION>
Principal
Amount
Initial Purchaser of Notes
----------------- ---------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation $ 70,000,000
NationsBanc Montgomery Securities LLC $ 30,000,000
----------
Total $ 100,000,000
===========
</TABLE>
-2-
<PAGE> 38
SCHEDULE C
SUBSIDIARIES ( )
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Steel Heddle International, Inc. South Carolina
Steel Heddle International, Ltd. Virgin Islands
Steel Heddle (Canada) Ltee/Ltd. Canada
Steel Heddle Mexico Mexico
Steel Heddle Weaving
Machine Accessories, Inc. China
Steel Heddle International Japan
</TABLE>
-3-
<PAGE> 39
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
A-1
<PAGE> 40
EXHIBIT B
FORM OF KIRKLAND & ELLIS OPINION
<PAGE> 1
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
Dated as of May 26, 1998
by and among
STEEL HEDDLE MFG. CO.
as Issuer
HEDDLE CAPITAL CORP.
STEEL HEDDLE INTERNATIONAL, INC.
as Guarantors
and
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
as Initial Purchasers
<PAGE> 2
This Registration Rights Agreement (this "AGREEMENT") is made
and entered into as of May 26, 1998, by and among Steel Heddle Mfg. Co., a
Pennsylvania corporation (the "COMPANY"), Heddle Capital Corp. and Steel Heddle
International, Inc.,as Guarantors (the "Guarantors") and Donaldson, Lufkin &
Jenrette Securities Corporation and NationsBanc Montgomery Securities LLC (the
"INITIAL PURCHASERS") who have agreed to purchase the Company's 10.625% Senior
Subordinated Notes due 2008 (the "SERIES A NOTES") pursuant to the Purchase
Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement,
dated May 21, 1998 (the "PURCHASE AGREEMENT"), by and among SH-AIP Acquisition
Corporation, in connection with the Company, and the Initial Purchasers. In
order to induce the Initial Purchasers to purchase the Series A Notes, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Initial Purchasers set forth in Section 9 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them in the Indenture, dated May 26, 1998, between the
Company, the Guarantors (as defined below) and United States Trust Company of
New York, as Trustee, relating to the Series A Notes and the Series B Notes
(the "INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms
shall have the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
BROKER-DEALER: Any broker or dealer registered under the
Exchange Act.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the
Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously
1
<PAGE> 3
effective and the keeping of the Exchange Offer open for a period not less than
the period required pursuant to Section 3(b) hereof, (c) the delivery by the
Company to the Trustee under the Indenture of Series B Notes in the same
aggregate principal amount as the aggregate principal amount of Series A Notes
tendered by Holders thereof pursuant to the Exchange Offer, and (d) the
authentication and delivery by the Trustee of such Series B Notes to such
tendering Holders pursuant to the Exchange Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b)
hereof.
EFFECTIVENESS DEADLINE: As defined in Section 3(a) and 4(a)
hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as
amended.
EXCHANGE OFFER: The exchange and issuance by the Company of a
principal amount of the Series B Notes (which shall be registered pursuant to
the Exchange Offer Registration Statement) equal to the outstanding principal
amount of Series A Notes that are tendered by such Holders in connection with
such exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration
Statement relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial
Purchasers proposes to sell the Series A Notes to certain "qualified
institutional buyers," as such term is defined in Rule 144A under the Act and
pursuant to Regulation S under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
GUARANTORS: Heddle Capital Corp. and Steel Heddle
International, Inc.
HOLDERS: As defined in Section 2 hereof.
INDENTURE: The Indenture, dated as of the date hereof, by and
among the Company, the Guarantors and United States Trust Company of New York,
as trustee, pursuant to which the Notes are being issued, as amended or
supplemented from time to time in accordance with the terms thereof.
PROSPECTUS: The prospectus included in a Registration
Statement at the time such Registration Statement is declared effective, as
amended or supplemented by any prospectus supplement and by all other
amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
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REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the
Company and the Guarantors relating to (a) an offering of Series B Notes
pursuant to the Exchange Offer or (b) the registration for resale of Transfer
Restricted Securities pursuant to the Shelf Registration Statement, in each
case, (i) that is filed pursuant to the provisions of this Agreement and (ii)
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
REGULATION S: Regulation S promulgated under the Act.
RESTRICTED BROKER-DEALER: Any Broker-Dealer that holds Series
B Notes that were acquired in the Exchange Offer in exchange for Series A Notes
that such Broker-Dealer acquired for its own account as a result of market
making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any of its affiliates).
RULE 144: Rule 144 promulgated under the Act.
SERIES B NOTES: The Company's 10.625% Series B Senior
Subordinated Notes due 2008 to be issued pursuant to the Indenture: (i) in the
Exchange Offer or (ii) as contemplated by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Series A Note, until the
earliest of the date on which (i) such Series A Note is exchanged in the
Exchange Offer for a Series B Note that is entitled to be resold to the public
by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (ii) such Series A Note has been disposed of in
accordance with the Shelf Registration Statement, (iii) such Series A Note is
disposed of by a Broker-Dealer pursuant to the "Plan of Distribution"
contemplated by the Exchange Offer Registration Statement (including delivery
of the Prospectus contained therein) or (iv) such Series A Note is distributed
to the public pursuant to Rule 144 under the Act.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted
Securities (each, a "HOLDER") whenever such Person owns Transfer Restricted
Securities.
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SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by
applicable federal law or policy of the Commission (after the procedures set
forth in Section 6(a)(i) below have been complied with), the Company and the
Guarantors shall (i) cause the Exchange Offer Registration Statement to be
filed with the Commission as soon as practicable after the Closing Date (the
"EXCHANGE OFFER FILING DATE"), but in no event later than 75 days after the
Closing Date (such 75th day being the "FILING DEADLINE"), (ii) use its best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 150 days after the
Closing Date (such 150th day being the "EFFECTIVENESS DEADLINE"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to
such Exchange Offer Registration Statement pursuant to Rule 430A under the Act
and (C) cause all necessary filings, if any, in connection with the
registration and qualification of the Series B Notes to be made under the Blue
Sky laws of such jurisdictions as are necessary to permit Consummation of the
Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, commence and Consummate the Exchange Offer. The
Exchange Offer shall be on the appropriate form permitting registration of the
Series B Notes to be offered in exchange for Series A Notes that are Transfer
Restricted Securities and to permit resales of Series B Notes by Broker-Dealers
that tendered into the Exchange Offer Series A Notes that such Broker-Dealer
acquired for its own account as a result of market making activities or other
trading activities (other than Series A Notes acquired directly from the
Company or any of its Affiliates) as contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their
respective best efforts to cause the Exchange Offer Registration Statement to
be effective continuously, and shall keep the Exchange Offer open for a period
of not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 Business Days. The Company and the
Guarantors shall cause the Exchange Offer to comply with all applicable federal
and state securities laws. No securities other than the Series B Notes shall
be included in the Exchange Offer Registration Statement. The Company and the
Guarantors shall use their respective best efforts to cause the Exchange Offer
to be Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
Business Days thereafter (such 30th day being the "CONSUMMATION DEADLINE").
(c) The Company shall include a "Plan of Distribution"
section in the Prospectus contained in the Exchange Offer Registration
Statement and indicate therein that any Broker-Dealer who holds Transfer
Restricted Securities that were acquired for the account of such Broker-Dealer
as a result of market-making activities or other trading activities (other than
Transfer Restricted Securities acquired directly from the Company or any
Affiliate of the Company), may exchange such Transfer Restricted Securities
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the
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<PAGE> 6
Act and must, therefore, deliver a prospectus to be provided by the Company,
meeting the requirements of the Act in connection with its initial sale of any
Series B Notes received by such Broker-Dealer in the Exchange Offer and that
the Prospectus contained in the Exchange Offer Registration Statement may be
used by such Broker-Dealer to satisfy such prospectus delivery requirement.
Such "Plan of Distribution" section shall also contain all other information
with respect to such sales by such Broker-Dealers that the Commission may
require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Transfer Restricted Securities held by any such Broker-Dealer, except to the
extent required by the Commission as a result of a change in policy, rules or
regulations after the date of this Agreement. See the Shearman & Sterling
no-action letter (available July 2, 1993).
To the extent necessary to ensure that the Prospectus
contained in the Exchange Offer Registration Statement is continuously
available for sales of Series B Notes by Broker-Dealers, the Company and the
Guarantors agree to use their respective best efforts to keep the Exchange
Offer Registration Statement continuously effective, supplemented and amended
as required by the provisions of Section 6(c) hereof and in conformity with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time, for a period of one year from
the Consummation Deadline, or such shorter period as will terminate when all
Transfer Restricted Securities covered by such Registration Statement have been
sold pursuant thereto. The Company shall promptly provide sufficient copies of
the latest version of such Prospectus to such Broker-Dealer promptly upon
request, and in no event later than one day after such request, at any time
during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) (A) the Exchange Offer is
not permitted by applicable law or Commission policy (after the Company and the
Guarantors have complied with the procedures set forth in Section 6(a)(i)
below) or (B) for any other reason the Exchange Offer is not Consummated within
180 days after the Closing Date or (ii) if any Holder of Transfer Restricted
Securities notifies the Company prior to the 20th business day following the
Consummation Deadline that (A) such Holder was prohibited by law or Commission
policy from participating in the Exchange Offer, or (B) such Holder may not
resell the Series B Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the Prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales
by such Holder, or (C) such Holder is a Broker-Dealer and holds Series A Notes
acquired directly from the Company or any of its Affiliates, then the Company
and the Guarantors shall as promptly as practicable deliver to the Holders and
the Trustee written notice thereof (the "Shelf Notice"), and the Company shall:
(x) cause to be filed, on or prior to 30 days
after the earlier of (i) the date on which the Company determines that
the Exchange Offer Registration Statement
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<PAGE> 7
cannot be filed as a result of clause (a)(i) above, and (ii) the date
on which the Company receives the notice specified in clause (a) (ii)
above, (such earlier date, the "FILING DEADLINE"), a shelf
registration statement pursuant to Rule 415 under the Act (which may
be an amendment to the Exchange Offer Registration Statement (the
"SHELF REGISTRATION STATEMENT")), relating to all Transfer Restricted
Securities, and
(y) shall use their respective best efforts to
cause such Shelf Registration Statement to become effective on or
prior to 60 days after the Filing Deadline (such 60th day the
"EFFECTIVENESS DEADLINE").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law or
Commission policy (i.e. clause (a)(i)(A) above), then the filing of the
Exchange Offer Registration Statement shall be deemed to satisfy the
requirements of clause (x) above; provided that, in such event, the Company
shall remain obligated to meet the Effectiveness Deadline set forth in clause
(y).
The Company and the Guarantors shall use their respective best
efforts to keep any Shelf Registration Statement required by this Section 4(a)
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(b) and (c) hereof to the extent necessary to
ensure that it is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a), and to ensure
that it conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of at least two years (as extended pursuant to Section
6(c)(i)) following the Closing Date or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Shelf Registration
Statement have been sold pursuant thereto (the "Effectiveness Period"). No
securities other than Transfer Restricted Securities shall be included in any
Shelf Registration Statement.
(b) Provision by Holders of Certain Information in
Connection with the Shelf Registration Statement. No Holder of Transfer
Restricted Securities may include any of its Transfer Restricted Securities in
any Shelf Registration Statement pursuant to this Agreement unless and until
such Holder furnishes to the Company in writing, within 20 days after receipt
of a request therefor, the information specified in Item 507 or 508 of
Regulation S-K, as applicable, of the Act for use in connection with any Shelf
Registration Statement or Prospectus or preliminary Prospectus included
therein. No Holder of Transfer Restricted Securities shall be entitled to
Liquidated Damages pursuant to Section 5 hereof unless and until such Holder
shall have provided all such information. Each selling Holder agrees to
promptly furnish additional information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading.
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<PAGE> 8
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement
is not filed with the Commission on or prior to the applicable Filing Deadline,
(ii) any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation
Deadline or (iv) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective immediately (each such event referred to
in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the Company and
the Guarantors hereby jointly and severally agree to pay to each Holder of
Transfer Restricted Securities affected thereby liquidated damages in an amount
equal to $.05 per week per $1,000 in principal amount of Transfer Restricted
Securities held by such Holder for each week or portion thereof that the
Registration Default continues for the first 90-day period immediately
following the occurrence of such Registration Default. The amount of the
liquidated damages shall increase by an additional $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of liquidated damages of $.50 per week per $1,000 in principal
amount of Transfer Restricted Securities; provided that the Company and the
Guarantors shall in no event be required to pay liquidated damages for more
than one Registration Default at any given time. Notwithstanding anything to
the contrary set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness of the
Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of
the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a
post-effective amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to again be declared
effective or made usable in the case of (iv) above, the accrual of liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders
entitled thereto, in the manner provided for the payment of interest in the
Indenture, on each Interest Payment Date, as more fully set forth in the
Indenture and the Notes. All obligations of the Company and the Guarantors set
forth in the preceding paragraph that are outstanding with respect to any
Transfer Restricted Security at the time such security ceases to be a Transfer
Restricted Security shall survive until such time as all such obligations with
respect to such security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
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<PAGE> 9
(a) Exchange Offer Registration Statement. In connection
with the Exchange Offer, the Company and the Guarantors shall (x) comply with
all applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Series B Notes by
Broker-Dealers that tendered Notes in the Exchange Offer Series A Notes that
such Broker-Dealer acquired for its own account as a result of its market
making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any of its Affiliates) being sold in
accordance with the intended method or methods of distribution thereof, and (z)
comply with all of the following provisions:
(i) If, following the date hereof there has been
announced a change in Commission policy with respect to exchange
offers such as the Exchange Offer, that in the reasonable opinion of
counsel to the Company raises a substantial question as to whether the
Exchange Offer is permitted by applicable federal law, the Company and
the Guarantors hereby agree to seek a no-action letter or other
favorable decision from the Commission allowing the Company and the
Guarantors to Consummate an Exchange Offer for such Transfer
Restricted Securities. The Company and the Guarantors hereby agree to
pursue the issuance of such a decision to the Commission staff level.
In connection with the foregoing, the Company and the Guarantors
hereby agree to take all such other actions as may be requested by the
Commission or otherwise required in connection with the issuance of
such decision, including without limitation (A) participating in
telephonic conferences with the Commission, (B) delivering to the
Commission staff an analysis prepared by counsel to the Company
setting forth the legal bases, if any, upon which such counsel has
concluded that such an Exchange Offer should be permitted and (C)
diligently pursuing a resolution (which need not be favorable) by the
Commission staff.
(ii) As a condition to its participation in the
Exchange Offer, each Holder of Transfer Restricted Securities
(including, without limitation, any Holder who is a Broker Dealer)
shall furnish, upon the request of the Company, prior to the
Consummation of the Exchange Offer, a written representation to the
Company and the Guarantors (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement)
to the effect that (A) it is not an Affiliate of the Company, (B) it
is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Series B Notes to be issued in the Exchange Offer
and (C) it is acquiring the Series B Notes in its ordinary course of
business. Each Holder using the Exchange Offer to participate in a
distribution of the Series B Notes hereby acknowledges and agrees
that, if the resales are of Series B Notes obtained by such Holder in
exchange for Series A Notes acquired directly from the Company or an
Affiliate thereof, it (1) could not, under Commission policy as in
effect on the date of this Agreement, rely on the position of the
Commission enunciated in Morgan Stanley and Co., Inc. (available June
5, 1991) and Exxon Capital Holdings Corporation (available May 13,
1988), as interpreted in the Commission's letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters (including,
if
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<PAGE> 10
applicable, any no-action letter obtained pursuant to clause (i)
above), and (2) must comply with the registration and prospectus
delivery requirements of the Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as
applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantors shall provide a
supplemental letter to the Commission (A) stating that the Company and
the Guarantors are registering the Exchange Offer in reliance on the
position of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and, if applicable, any
no-action letter obtained pursuant to clause (i) above, (B) including
a representation that neither the Company nor any Guarantor has
entered into any arrangement or understanding with any Person to
distribute the Series B Notes to be received in the Exchange Offer and
that, to the best of the Company's and the Guarantors information and
belief, each Holder participating in the Exchange Offer is acquiring
the Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer and
(C) any other undertaking or representation required by the Commission
as set forth in any no-action letter obtained pursuant to clause (i)
above, if applicable.
(b) Shelf Registration Statement. In connection with the
Shelf Registration Statement, the Company and the Guarantors shall (x) comply
with all the provisions of Section 6(c) below and (y) use their respective best
efforts to effect such registration to permit the sale of the Transfer
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof (as indicated in the information furnished to
the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company
and the Guarantors will prepare and file with the Commission a Registration
Statement relating to the registration on any appropriate form under the Act,
which form shall be available for the sale of the Transfer Restricted
Securities in accordance with the intended method or methods of distribution
thereof within the time periods and otherwise in accordance with the provisions
hereof.
(c) General Provisions. In connection with any
Registration Statement and any related Prospectus required by this Agreement,
the Company and the Guarantors shall:
(i) use their respective best efforts to keep
such Registration Statement continuously effective and provide all
requisite financial statements for the period specified in Section 3
or 4 of this Agreement, as applicable. Upon the occurrence of any
event that would cause any such Registration Statement or the
Prospectus contained therein (A) to contain a material misstatement or
omission or (B) not to be effective and usable for resale of Transfer
Restricted Securities during the period required by this
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<PAGE> 11
Agreement, the Company and the Guarantors shall file promptly an
appropriate amendment to such Registration Statement curing such
defect, and, if Commission review is required, use their best efforts
to cause such amendment to be declared effective as soon as
practicable.
(ii) prepare and file with the Commission such
amendments and post-effective amendments to the applicable
Registration Statement as may be necessary to keep such Registration
Statement effective for the applicable period set forth in Section 3
or 4 hereof, as the case may be; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with Rules 424, 430A and 462, as applicable, under the
Act in a timely manner; and comply with the provisions of the Act with
respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with
the intended method or methods of distribution by the sellers thereof
set forth in such Registration Statement or supplement to the
Prospectus;
(iii) advise the selling Holders promptly and, if
requested by such Persons, confirm such advice in writing, (A) when
the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to any applicable
Registration Statement or any post-effective amendment thereto, when
the same has become effective, (B) of any request by the Commission
for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the
Act or of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or
sale in any jurisdiction, or the initiation of any proceeding for any
of the preceding purposes, (D) of the existence of any fact or the
happening of any event that makes any statement of a material fact
made in the Registration Statement, the Prospectus, any amendment or
supplement thereto or any document incorporated by reference therein
untrue, or that requires the making of any additions to or changes in
the Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes
in the Prospectus in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption from qualification of
the Transfer Restricted Securities under state securities or Blue Sky
laws, the Company and the Guarantors shall use their respective best
efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or
event contemplated by Section 6(c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-
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effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
(v) furnish to the Initial Purchasers and each
selling Holder named in any Registration Statement or Prospectus in
connection with such exchange or sale, if any, before filing with the
Commission, copies of any Registration Statement or any Prospectus
included therein or any amendments or supplements to any such
Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review
and comment of such selling Holders in connection with such sale, if
any, for a period of at least five Business Days, and the Company will
not file any such Registration Statement or Prospectus or any
amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to
which such selling Holders shall reasonably object within five
Business Days after the receipt thereof. A selling Holder shall be
deemed to have reasonably objected to such filing if such Registration
Statement, amendment, Prospectus or supplement, as applicable, as
proposed to be filed, contains a material misstatement or omission or
fails to comply with the applicable requirements of the Act;
(vi) promptly prior to the filing of any document
that is to be incorporated by reference into a Registration Statement
or Prospectus, provide copies of such document to the selling Holders
in connection with such exchange or sale, if any, make the Company's
and the Guarantors representatives available for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such
selling Holders may reasonably request;
(vii) make available at reasonable times for
inspection by the selling Holders participating in any disposition
pursuant to such Registration Statement and any attorney or accountant
retained by such selling Holders, all financial and other records,
pertinent corporate documents of the Company and the Guarantors and
cause the Company's and the Guarantors' officers, directors and
employees to supply all information reasonably requested by any such
selling Holder, attorney or accountant in connection with such
Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness;
(viii) if requested by any selling Holders in
connection with such exchange or sale, promptly include in any
Registration Statement or Prospectus, pursuant to a supplement or
post-effective amendment if necessary, such information as such
selling Holders may reasonably request to have included therein,
including, without
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limitation, information relating to the "Plan of Distribution" of the
Transfer Restricted Securities, and make all required filings of such
Prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to be
included in such Prospectus supplement or post-effective amendment;
(ix) furnish to each selling Holder in connection
with such exchange or sale, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of
each amendment thereto, including all documents incorporated by
reference therein and all exhibits (including exhibits incorporated
therein by reference);
(x) deliver to each selling Holder, without
charge, as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company and the Guarantors hereby consent
to the use (in accordance with law) of the Prospectus and any
amendment or supplement thereto by each of the selling Holders in
connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement
thereto;
(xi) in the case of a Shelf Registration Statement
only, upon the request of any selling Holder, enter into such
agreements (including underwriting agreements) and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to such
Registration Statement contemplated by this Agreement as may be
reasonably requested by any Holder of Transfer Restricted Securities
in connection with any sale or resale pursuant to such Registration
Statement. In such connection, the Company and the Guarantors shall:
(A) upon request of any selling Holder,
furnish (or in the case of paragraphs (2) and (3), use its
best efforts to cause to be furnished) to each selling Holder,
upon Consummation of the Exchange Offer or upon the
effectiveness of the Shelf Registration Statement, as the case
may be:
(1) a certificate, dated such date,
signed on behalf of the Company and the Guarantors by
(x) the President or any Vice President and (y) a
principal financial or accounting officer of the
Company and such Guarantor, confirming, as of the
date thereof, the matters set forth in paragraphs (a)
and (ee) of Section 6 and (a) and (b) of Section 9 of
the Purchase Agreement and such other similar matters
as the selling Holders may reasonably request;
(2) an opinion, dated the date of
Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration Statement, as
the case may be, of counsel for the Company and the
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Guarantors covering matters similar to those set
forth in paragraph (j) of Section 9 of the Purchase
Agreement and such other matter as the selling
Holders may reasonably request, and in any event
including a statement to the effect that such counsel
has participated in conferences with officers and
other representatives of the Company and the
Guarantors, representatives of the independent public
accountants for the Company and the Guarantors and
have considered the matters required to be stated
therein and the statements contained therein,
although such counsel has not independently verified
the accuracy, completeness or fairness of such
statements; and that such counsel advises that, on
the basis of the foregoing (relying as to materiality
to the extent such counsel deems appropriate upon the
statements of officers and other representatives of
the Company and the Guarantors and without
independent check or verification), no facts came to
such counsel's attention that caused such counsel to
believe that the applicable Registration Statement,
at the time such Registration Statement or any
post-effective amendment thereto became effective
and, in the case of the Exchange Offer Registration
Statement, as of the date of Consummation of the
Exchange Offer, contained an untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make
the statements therein not misleading, or that the
Prospectus contained in such Registration Statement
as of its date and, in the case of the opinion dated
the date of Consummation of the Exchange Offer, as of
the date of Consummation, contained an untrue
statement of a material fact or omitted to state a
material fact necessary in order to make the
statements therein, in the light of the circumstances
under which they were made, not misleading. Without
limiting the foregoing, such counsel may state
further that such counsel assumes no responsibility
for, and has not independently verified, the
accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial
data included in any Registration Statement
contemplated by this Agreement or the related
Prospectus; and
(3) a customary comfort letter,
dated the date of Consummation of the Exchange Offer,
or as of the date of effectiveness of the Shelf
Registration Statement, as the case may be, from the
Company's independent accountants, in the customary
form and covering matters of the type customarily
covered in comfort letters to underwriters in
connection with underwritten offerings, and affirming
the matters set forth in the comfort letters
delivered pursuant to Section 9(1) of the Purchase
Agreement; and
(B) deliver such other documents and
certificates as may be reasonably requested by the selling
Holders to evidence compliance with clause
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<PAGE> 15
(A) above and with any customary conditions contained in the any
agreement entered into by the Company and the Guarantors pursuant to
this clause (xi);
(xii) prior to any public offering of Transfer
Restricted Securities, cooperate with the selling Holders and their
counsel in connection with the registration and qualification of the
Transfer Restricted Securities under the securities or Blue Sky laws
of such jurisdictions as the selling Holders may request and do any
and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted
Securities covered by the applicable Registration Statement; provided,
however, that neither the Company nor any Guarantor shall be required
to register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service
of process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(xiii) issue, upon the request of any Holder of
Series A Notes covered by any Shelf Registration Statement
contemplated by this Agreement, Series B Notes having an aggregate
principal amount equal to the aggregate principal amount of Series A
Notes surrendered to the Company by such Holder in exchange therefor
or being sold by such Holder; such Series B Notes to be registered in
the name of such Holder or in the name of the purchaser(s) of such
Series B Notes, as the case may be; in return, the Series A Notes held
by such Holder shall be surrendered to the Company for cancellation;
(xiv) in connection with any sale of Transfer
Restricted Securities that will result in such securities no longer
being Transfer Restricted Securities, cooperate with the selling
Holders to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold
and not bearing any restrictive legends; and to register such Transfer
Restricted Securities in such denominations and such names as the
selling Holders may request at least two Business Days prior to such
sale of Transfer Restricted Securities;
(xv) use their respective best efforts to cause
the disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such
Transfer Restricted Securities, subject to the proviso contained in
clause (xii) above;
(xvi) provide a CUSIP number for all Transfer
Restricted Securities not later than the effective date of a
Registration Statement covering such Transfer Restricted Securities
and provide the Trustee under the Indenture with printed certificates
for the Transfer Restricted Securities which are in a form eligible
for deposit with the Depository Trust Company;
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<PAGE> 16
(xvii) otherwise use their respective best efforts
to comply with all applicable rules and regulations of the Commission,
and make generally available to its security holders with regard to
any applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term
is defined in paragraph (c) of Rule 158 under the Act);
(xix) cause the Indenture to be qualified under the
TIA not later than the effective date of the first Registration
Statement required by this Agreement and, in connection therewith,
cooperate with the Trustee and the Holders to effect such changes to
the Indenture as may be required for such Indenture to be so qualified
in accordance with the terms of the TIA; and execute and use its best
efforts to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to
be so qualified in a timely manner; and
(xx) use their respective best efforts to cause
the Transfer Restricted Securities or the Series B Notes, as
applicable, covered by an effective registration statement required by
Section 3 or Section 4 hereof to be rated by one or two rating
agencies, if and as so requested by the Holders of a majority in
aggregate principal amount of Transfer Restricted Securities relating
to such registration statement or the managing underwriters in
connection therewith, if any;
(xxi) provide promptly to each Holder upon request
each document filed with the Commission pursuant to the requirements
of Section 13 or Section 15(d) of the Exchange Act.
(xxii) use their respective best efforts to take all
other steps necessary to effect the registration of the Transfer
Restricted Securities covered by a Registration Statement contemplated
hereby.
(d) Restrictions on Holders. Each Holder agrees by
acquisition of a Transfer Restricted Security that, upon receipt of the notice
referred to in Section 6(c)(iii)(C) or any notice from the Company of the
existence of any fact of the kind described in Section 6(c)(iii)(D) hereof (in
each case, a "SUSPENSION NOTICE"), such Holder will forthwith discontinue
disposition of Transfer Restricted Securities pursuant to the applicable
Registration Statement until (i) such Holder has received copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof, or
(ii) such Holder is advised in writing by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus (in
each case, the "RECOMMENCEMENT DATE"). Each Holder receiving a Suspension
Notice hereby agrees that it will either (i) destroy any Prospectuses, other
than permanent file copies, then in such Holder's possession which have been
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<PAGE> 17
replaced by the Company with more recently dated Prospectuses or (ii) deliver
to the Company (at the Company's expense) all copies, other than permanent file
copies, then in such Holder's possession of the Prospectus covering such
Transfer Restricted Securities that was current at the time of receipt of the
Suspension Notice. The time period regarding the effectiveness of such
Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall
be extended by a number of days equal to the number of days in the period from
and including the date of delivery of the Suspension Notice to the date of
delivery of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the
Guarantors' performance of or compliance with this Agreement will be borne by
the Company, regardless of whether a Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and
expenses; (ii) all fees and expenses of compliance with federal securities and
state Blue Sky or securities laws (including, without limitation, reasonable
fees and disbursements of counsel in connection with Blue Sky qualifications of
the Transfer Restricted Securities or Series B Notes); (iii) all expenses of
printing (including printing certificates for the Series B Notes to be issued
in the Exchange Offer and printing of Prospectuses, messenger and delivery
services and telephone expenses; (iv) all fees and disbursements of counsel for
the Company, the Guarantors and the Holders of Transfer Restricted Securities;
(v) all application and filing fees in connection with listing the Series B
Notes on a national securities exchange or automated quotation system pursuant
to the requirements hereof (vi) the fees and expenses of any "qualified
independent underwriter" or other independent appraiser participating in an
offering pursuant to the NASD's Rules of Fair Practice; (vii) any rating agency
fees; and (viii) all fees and disbursements of independent certified public
accountants of the Company and the Guarantors (including the expenses of any
special audit and comfort letters required by or incident to such performance).
The Company will, in any event, bear its and the Guarantors'
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expenses
of any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company and the Guarantors.
(b) In connection with any Registration Statement
required by this Agreement (including, without limitation, the Exchange Offer
Registration Statement and the Shelf Registration Statement), the Company and
the Guarantors will reimburse the Initial Purchasers and the Holders of
Transfer Restricted Securities being tendered in the Exchange Offer and/or
resold pursuant to the "Plan of Distribution" contained in the Exchange Offer
Registration Statement or the Shelf Registration Statement, as applicable, for
the reasonable fees and disbursements of not more than one counsel, who shall
be Milbank, Tweed, Hadley & McCloy unless another firm shall be chosen by the
Holders of a majority in principal amount of the Transfer Restricted Securities
for whose benefit such Registration Statement is being prepared.
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<PAGE> 18
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors, jointly and
severally, agree to indemnify and hold harmless each Holder, its directors, its
officers and each Person, if any, who controls such Holder (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act), from and against
any and all losses, claims, damages, liabilities, judgments, (including without
limitation, any legal or other expenses incurred in connection with
investigating or defending any matter, including any action that could give
rise to any such losses, claims, damages, liabilities or judgments) caused by
any untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement, preliminary prospectus or Prospectus (or any
amendment or supplement thereto) provided by the Company to any holder or any
prospective purchaser of Series B Notes, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that is based
upon information relating to any of the Holders furnished in writing to the
Company by any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees,
severally and not jointly, to indemnify and hold harmless the Company and the
Guarantors and their respective directors and officers, and each person, if
any, who controls (within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act) the Company, or the Guarantors to the same extent as the
foregoing indemnity from the Company and the Guarantors to each of the
Indemnified Holders, but only with reference to information relating to such
Indemnified Holder furnished in writing to the Company by such Indemnified
Holder expressly for use in any Registration Statement. In no event shall any
Indemnified Holder be liable or responsible for any amount in excess of the
amount by which the total amount received by such Indemnified Holder with
respect to its sale of Transfer Restricted Securities pursuant to a
Registration Statement exceeds (i) the amount paid by such Indemnified Holder
for such Transfer Restricted Securities and (ii) the amount of any damages that
such Indemnified Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any
person in respect of which indemnity may be sought pursuant to Section 8(a) or
8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing (provided that the failure to give such notice shall not relieve the
indemnifying party of its obligations under Section 8 (a) or (b) unless and
only to the extent that the indemnifying party is materially prejudiced by the
failure to notify) and the indemnifying party shall assume the defense of such
action, including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all fees and expenses of such counsel, as
incurred (except that in the case of any action in respect of which indemnity
may be sought pursuant to both Sections 8(a) and 8(b), an Indemnified Holder
shall not be required to assume the defense of such action pursuant to this
Section 8(c), but may employ separate counsel and participate in the defense
thereof, but the fees and expenses of such counsel, except as
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<PAGE> 19
provided below, shall be at the expense of the Indemnified Holder). Any
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing
by the indemnifying party, (ii) the indemnifying party shall have failed to
promptly assume the defense of such action or employ counsel reasonably
satisfactory to the indemnified party or (iii) the named parties to any such
action (including any impleaded parties) include both the indemnified party and
the indemnifying party, and the indemnified party shall have been advised by
such separate counsel that there may be one or more legal defenses available to
it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all indemnified parties and all such
fees and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by a majority of the Indemnified Holders, in the case of
the parties indemnified pursuant to Section 8(a), and by the Company, in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall indemnify and hold harmless the indemnified party from and against any
and all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel
(in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for
in this Section 8 is unavailable to an indemnified party in respect of any
losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantors, on the one hand, and the Holders, on the other
hand, from their sale of Transfer Restricted Securities or (ii) if the
allocation provided by clause 8(d)(i) is not permitted by applicable law, in
such
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<PAGE> 20
proportion as is appropriate to reflect not only the relative benefits referred
to in clause 8(d)(i) above but also the relative fault of the Company and the
Guarantors, on the one hand, and of the Indemnified Holder, on the other hand,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company and the
Guarantors, on the one hand, and of the Indemnified Holder, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and the
Guarantors, on the one hand, or by the Indemnified Holder, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and judgments referred to above shall be deemed to include, subject to the
limitations set forth in the second paragraph of Section 8(a), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company, the Guarantors and each Holder agree that it
would not be just and equitable if contribution pursuant to this Section 8(d)
were determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any
matter, including any action that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, no Holder or its related Indemnified Holders shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of its Transfer
Restricted Securities pursuant to a Registration Statement exceeds the sum of
(A) the amount paid by such Holder for such Transfer Restricted Securities plus
(B) the amount of any damages which such Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Transfer Restricted Securities
held by each of the Holders hereunder and not joint.
SECTION 9. RULE 144 AND RULE 144A
The Company agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding and during any period in
which the Company (i) is not subject to Section 13 or 15(d) of the Exchange
Act, to make available, upon request of any Holder of
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<PAGE> 21
Transfer Restricted Securities, to any Holder or beneficial owner of Transfer
Restricted Securities in connection with any sale thereof and any prospective
purchaser of such Transfer Restricted Securities designated by such Holder or
beneficial owner, the information required by Rule 144A(d)(4) under the Act in
order to permit resales of such Transfer Restricted Securities pursuant to Rule
144A, and (ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make
all filings required thereby in a timely manner in order to permit resales of
such Transfer Restricted Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge
and agree that any failure by the Company and/or the Guarantors to comply with
their respective obligations under Sections 3 and 4 hereof may result in
material irreparable injury to the Initial Purchasers or the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Initial Purchasers or any Holder may obtain such relief as may be required
to specifically enforce the Company's and the Guarantor's obligations under
Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive
the defense in any action for specific performance that a remedy at law would
be adequate.
(b) No Inconsistent Agreements. Neither the Company nor
any Guarantor will, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor the Guarantor has previously
entered into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not
in any way conflict with and are not inconsistent with the rights granted to
the holders of the Company's and the Guarantors securities under any agreement
in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to or departures from the provisions hereof may not be given unless (i) in the
case of Section 5 hereof and this Section 10(c)(i), the Company has obtained
the written consent of Holders of all outstanding Transfer Restricted
Securities and (ii) in the case of all other provisions hereof, the Company has
obtained the written consent of Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities (excluding Transfer
Restricted Securities held by the Company of its Affiliates). Notwithstanding
the foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders whose securities are being
tendered pursuant to the Exchange Offer and that does not affect directly or
indirectly the rights of other Holders whose securities are not being tendered
pursuant to such Exchange Offer may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
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<PAGE> 22
(d) Third Party Beneficiary. The Holders shall be third
party beneficiaries to the agreements made hereunder between the Company and
the Guarantors, on the one hand, and the Initial Purchasers, on the other hand,
and shall have the right to enforce such agreements directly to the extent they
may deem such enforcement necessary or advisable to protect its rights or the
rights of Holders hereunder.
(e) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail (registered or certified, return receipt requested), telex,
telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on
the records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company or the Guarantors:
Steel Heddle Mfg. Co.
1801 Rutherford Road
Greensville, SC 29607
Telecopier No.:
Attention:
With a copy to:
Kirkland & Ellis
655 15 Street, N.W.
Washington, D.C. 20005
Telecopier No.: (202) 879-5200
Attention: Jack M. Feder
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
Upon the date of filing of the Exchange Offer or a Shelf
Registration Statement, as the case may be, notice shall be delivered to
Donaldson, Lufkin & Jenrette Securities Corporation, on behalf of the Initial
Purchasers (in the form attached hereto as Exhibit A) and shall be addressed
to: Attention: Compliance Department, 277 Park Avenue, New York, New York,
10172.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address specified in the Indenture.
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<PAGE> 23
(f) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
that nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Transfer Restricted Securities in violation of the terms hereof
or of the Purchase Agreement or the Indenture. If any transferee of any Holder
shall acquire Transfer Restricted Securities in any manner, whether by
operation of law or otherwise, such Transfer Restricted Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Transfer Restricted Securities such Person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement, including the restrictions on resale set forth in this
Agreement and, if applicable, the Purchase Agreement, and such Person shall be
entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
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<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
STEEL HEDDLE MFG. CO.,
By:/s/ Jerry B. Miller
-----------------------------------------
Jerry B. Miller
Vice President of Finance
HEDDLE CAPITAL CORP.
By:/s/ Jerry B. Miller
-----------------------------------------
Jerry B. Miller
President
STEEL HEDDLE INTERNATIONAL, INC.
By:/s/ Benjamin G. Team
-----------------------------------------
Benjamin G. Team
President
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<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:/s/ William Baumgart
---------------------------------------
William Baumgart
Vice President
NATIONSBANC MONTGOMERY
SECURITIES LLC
By:/s/ Gary Wolfe
---------------------------------------
Gary Wolfe
Managing Director
24
<PAGE> 26
EXHIBIT A
NOTICE OF FILING OF
EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: Steel Heddle Mfg. Co.
10.625% Senior Subordinated Notes due 2008
Date: , 199
------------ --
For your information only (NO ACTION REQUIRED):
Today, ______________, 199__, we filed [an Exchange Registration
Statement/a Shelf Registration Statement] with the Securities and Exchange
Commission. We currently expect this registration statement to be declared
effective within __ business days of the date hereof.
25
<PAGE> 1
Exhibit 5.1
[LETTERHEAD OF KIRKLAND & ELLIS]
[DATE]
Steel Heddle Mfg. Co.
1801 Rutherford Road
Greenville, SC 29607
Re: Offer by Steel Heddle Mfg. Co. to Exchange its 10 5/8% Series
B Senior Subordinated Notes Due 2008 for any and all
of its 10 5/8% Series A Senior Subordinated Notes Due 2008
Ladies and Gentlemen:
We are acting as special counsel to Steel Heddle Mfg. Co., a
Pennsylvania corporation (the "Company"), in connection with the proposed
registration by the Company of up to $100,000,000 in aggregate principal amount
of the Company's 10 5/8% Series B Senior Subordinated Notes due 2008 (the "New
Notes"), pursuant to a Registration Statement) on Form S-4 filed with the
Securities and Exchange Commission (the "Commission") on _________________,
1998 (such Registration Statement, as amended or supplemented, is hereinafter
referred to as the "Registration Statement" under the Securities Act of 1933,
as amended (the "Securities Act"), for the purpose of effecting an exchange
offer (the "Exchange Offer") for the Company's 10 5/8% Series A Senior
Subordinated Notes due 2008 (the "Notes"). The New Notes are to be issued
pursuant to the Indenture (the "Indenture"), dated as of May 26, 1998 between
the Company, as issuer, the guarantors named therein (the "Guarantors") and
United States Trust Company of New York, as Trustee, in exchange for and in
replacement of the Company's outstanding Notes, of which $100,000,000 in
aggregate principal amount is outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the corporate and organizational documents of the
Company, (ii) minutes and records of the corporate proceedings of the Company
with respect to the issuance of the New Notes, (iii) the Registration Statement
and exhibits thereto and (iv) the Registration Rights Agreement, dated as of
May 26, 1998, between the Company, the Guarantors, Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBanc Montgomery Securities LLC. The New
Notes will be guaranteed on a senior subordinated basis by the Guarantors (the
"Guarantees").
<PAGE> 2
Steel Heddle Mfg. Co.
[DATE]
Page 2
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of
all documents submitted to us as copies. We have also assumed the genuineness
of the signatures of persons signing all documents in connection with which
this opinion is rendered, the authority of such persons signing on behalf of
the parties thereto other than the Company, and the due authorization,
execution and delivery of all documents by the parties thereto other than the
Company. As to any facts material to the opinions expressed herein which we
have not independently established or verified, we have relied upon statements
and representations of officers and other representatives of the Company and
others.
Based upon and subject to the foregoing qualifications, assumptions
and limitations and the further limitations set forth below, we are of the
opinion that:
(1) The Company is a corporation existing and in good standing under
the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania.
(2) The issuance of the New Notes has been validly authorized by the
Company.
(3) Each Guarantee has been duly authorized by the respective
Guarantor.
(4) When, as and if (i) the Registration Statement shall have become
effective pursuant to the provisions of the Securities Act, (ii) the Indenture
shall have been qualified pursuant to the provisions of the Trust Indenture Act
of 1939, as amended, (iii) the Notes shall have been validly tendered to the
Company, (iv) the New Notes shall have been duly executed and authenticated in
accordance with the provisions of the Indenture and duly delivered to the
purchasers thereof in exchange for the Notes, (v) the Board of Directors and
the appropriate officers of the Company have taken all necessary action to fix
and approve the terms of the New Notes and (vi) any legally required consents,
approvals, authorizations or other order of the Commission or any other
regulatory authorities have been obtained, the New Notes when issued pursuant
to the Exchange Offer will be legally issued, fully paid and nonassessable and
will constitute valid and binding obligations of the Company, and the
Guarantees will constitute valid and binding obligations of the Guarantors
under the terms and conditions described in the Registration Statement, the
Indenture, the resolutions of each Guarantor's Board of Directors (or
authorized committee thereof) authorizing the foregoing and any legally
required consents, approvals, authorizations and other order of the Commission
and any other regulatory authorities to be obtained.
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of
(i) any bankruptcy, insolvency,
<PAGE> 3
Steel Heddle Mfg. Co.
[DATE]
Page 3
reorganization, fraudulent transfer, fraudulent conveyance, moratorium or other
similar law affecting the enforcement of creditors' rights generally, (ii)
general principles of equity (regardless of whether enforcement is considered
in a proceeding in equity or at law), (iii) public policy considerations which
may limit the rights of parties to obtain certain remedies and (iv) any laws
except the laws of the State of New York. We advise you that issues addressed
by this letter may be governed in whole or in part by other laws, but we
express no opinion as to whether any relevant difference exists between the
laws upon which our opinions are based and any other laws which may actually
govern. We assume, with your permission, for purposes of the opinions
expressed in this letter that the laws of the Commonwealth of Pennsylvania are
identical to the laws of the State of New York with respect to all matters that
are the subject of the opinions set forth herein. For purposes of the opinion
in paragraph 1, we have relied exclusively upon recent certificates issued by
the Department of State of the Commonwealth of Pennsylvania, and such opinion
is not intended to provide any conclusion or assurance beyond that conveyed by
such certificates. We have assumed without investigation that there has been
no relevant change or development between the respective dates of such
certificates and the date of this letter.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the
securities or "Blue Sky" laws of the various states to the issuance of the New
Notes.
This opinion is limited to the specific issues addressed herein, and
no opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of New York be changed by legislative action, judicial
decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes.
Yours very truly,
KIRKLAND & ELLIS
<PAGE> 1
Exhibit 10.1
CREDIT AGREEMENT
among
STEEL HEDDLE MFG. CO.,
as Borrower
and
THE OTHER CREDIT PARTIES FROM TIME TO TIME PARTIES HERETO,
THE LENDERS IDENTIFIED HEREIN,
and
NATIONSBANK, N.A.,
as Administrative Agent and Documentation Agent
and
DLJ CAPITAL FUNDING, INC.,
as Syndication Agent
DATED AS OF MAY 26, 1998
<PAGE> 2
TABLE OF CONTENTS
PAGE
<PAGE> 3
SCHEDULES
Schedule 1.1(a)
EXHIBITS
Exhibit 1.1A
<PAGE> 4
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Credit Agreement"), is entered into as of
May 26, 1998 among STEEL HEDDLE MFG. CO., a Pennsylvania corporation (the
"Borrower"), the Guarantors (as defined herein), the Lenders (as defined
herein), NATIONSBANK, N.A., as Agent for the Lenders (in such capacity, the
"Agent"), and DLJ CAPITAL FUNDING, INC., as Syndication Agent for the Lenders
(in such capacity, the "Syndication Agent").
RECITALS
WHEREAS, the Borrower has requested that the Lenders provide a
$50,000,000 credit facility to the Borrower; and
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS.
As used herein, the following terms shall have the meanings herein
specified unless the context otherwise requires. Defined terms herein shall
include in the singular number the plural and in the plural the singular:
"Acquired Companies" means Steel Heddle Mfg. Co., a
Pennsylvania corporation, and its Subsidiaries as of the Closing Date.
"Acquired Indebtedness" of any Person means, without
duplication, (i) Indebtedness of any other Person existing at the time
such other Person is merged with or into or becomes a Subsidiary of
such Person and (ii) Indebtedness assumed in connection with the
acquisition by such Person of any Property or any other Person.
-1-
<PAGE> 5
"Acquisition," by any Person, means the acquisition by such
Person of the Capital Stock or all or substantially all of the
Property of another Person, whether or not involving a merger or
consolidation with such Person.
"Additional Credit Party" means each Person that becomes a
Guarantor after the Closing Date, as provided in Section 7.13.
"Adjusted Base Rate" means the Base Rate plus the Applicable
Percentage.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
Applicable Percentage.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited
to all directors and officers of such Person), controlled by or under
direct or indirect common control with such Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power (i) to vote 10% or more of the securities having
ordinary voting power for the election of directors of such
corporation or (ii) to direct or cause direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Agency Services Address" means NationsBank, N.A.,
NC-001-15-04, Independence Center, 15th Floor, 101 North Tryon Street,
Charlotte 28255, Attn: Agency Services, or such other address as may
be identified by written notice from the Agent to the Borrower.
"Agent" shall have the meaning assigned to such term in the
heading hereof, together with any successors or assigns.
"Applicable Percentage" means for the Revolving Loans, Term
Loans, Standby Letter of Credit Fee, Trade Letter of Credit Fee and
Commitment Fees, the appropriate applicable percentages corresponding
to the Total Leverage Ratio in effect as of the most recent
Calculation Date as shown below:
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<PAGE> 6
<TABLE>
<CAPTION>
Applicable Applicable Applicable Applicable Applicable
Percentage Percentage Percentage For Percentage for Percentage For
Total For For Standby Letter Trade Letter Commitment Fees
Pricing Leverage Eurodollar Base Rate of Credit Fee of Credit Fee
Level Ratio Loans Loans
<S> <C> <C> <C> <C> <C> <C> <C>
I greater than or 5.00 to 2.25% 1.00% 2.25% 1.125% 0.50%
equal to 1.00
II less than 5.00 to 2.00% .75% 2.00% 1.00% 0.50%
1.00 but
greater than or 4.50 to
equal to 1.00
III less than 4.50 to 1.75% 0.50% 1.75% 0.875% 0.50%
1.00 but
greater than or 4.00 to
equal to 1.00
IV less than 4.00 to 1.50% 0.25% 1.50% 0.75% 0.50%
1.00 but
greater than or 3.50 to
equal to 1.00
V less than 3.50 to 1.25% 0.00% 1.25% 0.625% 0.50%
1.00
</TABLE>
The Applicable Percentages shall be determined and adjusted quarterly
on the date (each a "Calculation Date") five Business Days after the
date by which the Borrower is required to provide an officer's
certificate in accordance with the provisions of Section 7.1(c) after
each fiscal quarter of the Consolidated Parties; provided, however
that (i) the initial Applicable Percentages shall be based on Pricing
Level I (as shown above) and shall remain at Pricing Level I until the
Calculation Date for the fiscal quarter of the Consolidated Parties
ending on December 31, 1998, on and after which time the Pricing
Level shall be determined by the Total Leverage Ratio as of the most
recent fiscal quarter end with respect to which the Agent shall have
received the financial statements of the
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<PAGE> 7
Consolidated Parties required to be delivered pursuant to Section
7.1(a) or (b) and the officer's certificate as required to be
delivered pursuant Section 7.1(c), and (ii) if the Borrower fails to
provide such financial statements and officer's certificate as
required by Section 7.1(a) or (b) and Section 7.1(c) on or before the
most recent Calculation Date, the Applicable Percentages from such
Calculation Date shall be based on Pricing Level I until such time as
an appropriate officer's certificate is provided, whereupon the
Pricing Level shall be determined by the then current Total Leverage
Ratio. Except as set forth above, each Applicable Percentage shall be
effective from one Calculation Date until the next Calculation Date.
Any adjustment in the Applicable Percentages shall be applicable to
all existing Loans and Letters of Credit as well as any new Loans made
or Letters of Credit issued.
"Application Period" shall have the meaning assigned to such
term in Section 8.5.
"Asset Disposition" means the disposition of any or all of the
assets (including without limitation the Capital Stock of a
Subsidiary) of any Consolidated Party whether by sale, lease, transfer
or otherwise (including pursuant to any casualty or condemnation
event); provided that the term "Asset Disposition" (a) shall include
any "Asset Sale" as defined in Section 1.01 of the Indenture for the
Senior Subordinated Debt and (b) shall not include (i) the sale,
leasing or licensing of inventory or equipment in the ordinary course
of business, (ii) the sale or disposition of machinery and equipment
no longer used or useful in the conduct of such Person's business,
(iii) the replacement of machinery and equipment or (iv) any Equity
Issuance.
"Asset Disposition Prepayment Event" means, with respect to
any Asset Disposition other than an Excluded Asset Disposition, the
failure of the Borrower to apply (or cause to be applied) the Net Cash
Proceeds of such Asset Disposition to the purchase, acquisition or
construction of Eligible Assets during the Application Period for such
Asset Disposition.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from
time to time.
"Bankruptcy Event" means, with respect to any Person, the
occurrence of any of the following with respect to such Person: (i) a
court or governmental agency having jurisdiction in the premises shall
enter a decree or order for relief in respect of such Person in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property
or ordering the winding up or liquidation of its affairs; or (ii)
there shall be commenced against such Person an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or
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<PAGE> 8
hereafter in effect, or any case, proceeding or other action for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of such Person or for any
substantial part of its Property or for the winding up or liquidation
of its affairs, and such involuntary case or other case, proceeding or
other action shall remain undismissed, undischarged or unbonded for a
period of sixty (60) consecutive days; or (iii) such Person shall
commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or consent to the
entry of an order for relief in an involuntary case under any such
law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property
or make any general assignment for the benefit of creditors; or (iv)
such Person shall be unable to, or shall admit in writing its
inability to, pay its debts generally as they become due.
"Base Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%)
equal to the greater of (a) the Federal Funds Rate in effect on such
day plus 1/2 of 1% or (b) the Prime Rate in effect on such day. If
for any reason the Agent shall have determined (which determination
shall be conclusive absent manifest error) that it is unable after due
inquiry to ascertain the Federal Funds Rate for any reason, including
the inability or failure of the Agent to obtain sufficient quotations
in accordance with the terms hereof, the Base Rate shall be determined
without regard to clause (a) of the first sentence of this definition
until the circumstances giving rise to such inability no longer exist.
Any change in the Base Rate due to a change in the Prime Rate or the
Federal Funds Rate shall be effective on the effective date of such
change in the Prime Rate or the Federal Funds Rate, respectively.
"Base Rate Loan" means any Loan bearing interest at a rate
determined by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading
hereof, together with any successor and permitted assigns.
"Borrower Intercompany Notes" means (i) the promissory note
dated as of February 21, 1997 of Steel Heddle Mfg. Co., a Pennsylvania
corporation, in favor of Heddle Capital Corp. in the original
principal amount of $55,000,000 and (ii) the promissory note of Steel
Heddle Mfg. Co., a Pennsylvania corporation (as successor in interest
pursuant to the merger of SH Intermediate Corp. with and into Steel
Heddle Mfg. Co.) dated as of February 21, 1997 in favor of Heddle
Capital Corp. in the original principal amount of $40,000,000, as both
may be amended or modified from time to time.
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<PAGE> 9
"Business Day" means any day other than a Saturday, a Sunday,
a legal holiday or a day on which banking institutions are authorized
or required by law or other governmental action to close in Charlotte,
North Carolina or New York, New York; provided that in the case of
Eurodollar Loans, such day is also a day on which dealings between
banks are carried on in U.S. dollar deposits in the London interbank
market.
"Calculation Date" has the meaning set forth in the definition
of Applicable Percentage.
"Capital Lease" means, as applied to any Person, any lease of
any property (whether real, personal or mixed) by that Person as
lessee which, in accordance with GAAP, is or should be accounted for
as a capital lease on the balance sheet of that Person.
"Capital Lease Obligations" means, with respect to any Person
as of any date, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a
balance sheet of such Person as of such date in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
capital stock, (ii) in the case of an association or business entity,
any and all shares, interests, participations, rights or other
equivalents (however designated) of capital stock, (iii) in the case
of a partnership, partnership interests (whether general or limited)
and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and
credit of the United States of America is pledged in support thereof)
having maturities of not more than twelve months from the date of
acquisition, (b) U.S. dollar denominated time deposits and
certificates of deposit of (i) any Lender, (ii) any domestic
commercial bank of recognized standing having capital and surplus in
excess of $500,000,000 or (iii) any bank whose short-term commercial
paper rating from S&P is at least A-1 or the equivalent thereof or
from Moody's is at least P-1 or the equivalent thereof (any such bank
being an "Approved Bank"), in each case with maturities of not more
than 270 days from the date of acquisition, (c) commercial paper and
variable or fixed rate notes issued by any Approved Bank (or by the
parent company thereof) or any variable rate notes issued by, or
guaranteed by, any domestic corporation rated A-1 (or the equivalent
thereof) or better by S&P or P-1 (or the equivalent thereof) or better
by Moody's and maturing within six months of the date of acquisition,
(d) repurchase agreements with a bank or trust company (including any
of the Lenders) or recognized securities dealer having capital and
surplus in excess of $500,000,000 for direct obligations issued by or
fully guaranteed by the United States of America in which any Credit
Party shall have a perfected first priority security interest (subject
-6-
<PAGE> 10
to no other Liens) and having, on the date of purchase thereof, a fair
market value of at least 100% of the amount of the repurchase
obligations and (e) Investments, classified in accordance with GAAP as
current assets, in money market investment programs registered under
the Investment Company Act of 1940, as amended, which are administered
by reputable financial institutions having capital of at least
$500,000,000 and the portfolios of which are limited to Investments of
the character described in the foregoing subdivisions (a) through (d).
"Change of Control" means any of the following events: (a)
the sale, lease, transfer or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions,
of all or substantially all of the assets of the Borrower and its
subsidiaries taken as a whole to any Person other than the Sponsor,
(b) the failure of the Parent to own directly all of the Capital Stock
of the Borrower, (c) prior to the occurrence of a Qualifying IPO, (i)
the failure of the Sponsor to own at least 51% of the Voting Stock of
the Parent or (ii) any Schedule 13D, Form 13F or Schedule 13G under
the Exchange Act, or any amendment to such Schedule or Form, is
received by the Parent which indicates that, or the Parent otherwise
becomes aware that, a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act) other than the Parent
shall have acquired beneficial ownership, directly or indirectly, of,
or shall have acquired by contract or otherwise, or shall have entered
into a contract or arrangement that, upon consummation, will result in
its or their acquisition of, control over, 30% or more of the Voting
Stock of the Parent, (d) after the occurrence of a Qualifying IPO, (i)
any Schedule 13D, Form 13F or Schedule 13G under the Exchange Act, or
any amendment to such Schedule or Form, is received by the Parent
which indicates that, or the Parent otherwise becomes aware that, a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Exchange Act) other than the Parent has become, directly or
indirectly, the "beneficial owner", by way of merger, consolidation or
otherwise, of 35% or more of the Voting Stock of the Company and (ii)
any such "person" or "group" has become, directly or indirectly, the
beneficial owner of a greater percentage of the Voting Stock of the
Parent than is beneficially owned by the Sponsor, (e) during any
period of up to 24 consecutive months, commencing after the Closing
Date, individuals who at the beginning of such 24 month period were
directors of the Parent (together with any new director whose election
by the Parent's Board of Directors or whose nomination for election by
the Parent's shareholders was approved by a vote of at least
two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the directors of the Parent then in
office or (f) the occurrence of a "Change of Control" under and as
defined in the documents evidencing or governing the Senior
Subordinated Debt. As used herein, "beneficial ownership" shall have
the meaning provided in Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act.
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<PAGE> 11
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute thereto, as interpreted by the rules and
regulations issued thereunder, in each case as in effect from time to
time. References to sections of the Code shall be construed also to
refer to any successor sections.
"Collateral" means all collateral referred to in and covered
by the Collateral Documents.
"Collateral Documents" means the Security Agreements, the
Pledge Agreements, the Mortgages and such other documents executed and
delivered in connection with the attachment and perfection of the
Lenders' security interests in the assets of the Credit Parties,
including without limitation, UCC financing statements and patent and
trademark filings.
"Commitment Fees" means the fees payable to the Lenders
pursuant to Section 3.4(a).
"Commitments" means the Revolving Committed Amount and the
Term Loan Committed Amount.
"Consolidated Capital Expenditures" means all expenditures of
the Consolidated Parties which, in accordance with GAAP, would be
classified as capital expenditures.
"Consolidated Cash Taxes" means, with respect to any Person
for any period of determination, the aggregate of all taxes of such
Person, as determined in accordance with GAAP, to the extent the same
are paid in cash during such period.
"Consolidated EBIT" means, for any period of determination
with respect to the Consolidated Parties on a consolidated basis, the
sum of (a) Consolidated Net Income for such period plus (b) an amount
which, in the determination of Consolidated Net Income for such
period, has been deducted for (i) Consolidated Interest Expense, (ii)
total Federal, state, foreign or other income taxes and (iii) expenses
incurred in connection with the Transaction, all as determined in
accordance with GAAP plus (c) as of the end of any fiscal quarter of
the Consolidated Parties occurring on or before April 1, 2000, the
Consolidated EBIT Special Adjustment for such fiscal quarter.
"Consolidated EBIT Special Adjustment" means (i) for the
fiscal quarter ending September 30, 1997, $356,000, (ii) for the
fiscal quarter ending January 3, 1998, $331,000, (iii) for the fiscal
quarter ending March 31, 1998, $137,000 and (iv) for the fiscal
quarter ending June 30, 1998, $68,000, in each case as set forth in
more complete detail on Schedule 1.1(a).
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<PAGE> 12
"Consolidated EBITDA" means, for any period of determination
with respect to the Consolidated Parties on a consolidated basis, the
sum of (a) Consolidated EBIT for such period plus (b) an amount which,
in the determination of Consolidated Net Income for such period, has
been deducted for depreciation and amortization expense plus (c) the
amounts of the annual management and Chairman of the Board fees
expensed during such period in accordance with the terms of Section
8.8 plus (d) retroactive expenses, if any, required to be recognized
by the Securities and Exchange Commission during such period, all as
determined in accordance with GAAP.
"Consolidated Interest Expense" means, for any period of
determination with respect to the Consolidated Parties on a
consolidated basis, all net interest expense, including the interest
component under Capital Leases and, to the extent payable pursuant to
Section 8.7, cash interest expense on the Discount Notes, as
determined in accordance with GAAP.
"Consolidated Net Income" means, for any period of
determination the net income (excluding extraordinary income and
expense items) after taxes for such period of the Consolidated Parties
on a consolidated basis, as determined in accordance with GAAP.
"Consolidated Parties" means a collective reference to the
Borrower and its Subsidiaries, and "Consolidated Party" means any one
of them.
"Consolidated Total Assets" means, at any time, all items
which, in accordance with GAAP, would be classified as assets on a
consolidated balance sheet of the Borrower as of such time.
"Credit Documents" means this Credit Agreement, the Notes, any
Joinder Agreement, the Collateral Documents, the LOC Documents, the
Fee Letter and all other related agreements and documents issued or
delivered hereunder or thereunder or pursuant hereto or thereto, and
"Credit Document" means any one of them.
"Credit Parties" means a collective reference to the Borrower,
the Parent and the Guarantors, and "Credit Party" means any one of
them.
"Credit Party Obligations" means, without duplication, (a) all
of the obligations of the Credit Parties to the Lenders (including the
Issuing Lender) and the Agent, whenever arising, under this Credit
Agreement, the Notes, the Collateral Documents or any of the other
Credit Documents to which the Borrower or any other Credit Party is a
party and (b) all Hedging Obligations owing from the Borrower to any
Lender, or any Affiliate of a Lender.
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<PAGE> 13
"Default" means any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that (a)
has failed to make a Loan or purchase a Participation Interest
required pursuant to the term of this Credit Agreement within one
Business Day of when due, (b) other than as set forth in (a) above,
has failed to pay to the Agent or any Lender an amount owed by such
Lender pursuant to the terms of this Credit Agreement within one
Business Day of when due, unless such amount is subject to a good
faith dispute or (c) has been deemed insolvent or has become subject
to a bankruptcy or insolvency proceeding or with respect to which (or
with respect to any of assets of which) a receiver, trustee or similar
official has been appointed.
"Discount Notes" shall have the meaning assigned to such term
in Section 5.1(j).
"Dollars" and "$" means dollars in lawful currency of the
United States of America.
"Domestic Subsidiary" means, with respect to any Person, any
Subsidiary of such Person which is incorporated or organized under the
laws of any State of the United States or the District of Columbia.
"Eligible Assets" means another business or any substantial
part of another business or other long-term assets, in each case, in,
or used or useful in, the same or a similar line of business as the
Borrower or any of its Subsidiaries was engaged in on the Closing Date
or any reasonable extensions or expansions thereof. The term
"Eligible Assets" shall not include any item which is not a permitted
application of proceeds of an "Asset Sale" under the documents
evidencing or governing the Senior Subordinated Debt.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; and (iii) any other Person approved by the Agent (such
approval not to be unreasonably withheld or delayed) and, unless an
Event of Default has occurred and is continuing at the time any
assignment is effected in accordance with Section 11.3, the Borrower
(such approval not to be unreasonably withheld or delayed by the
Borrower and such approval to be deemed given by the Borrower if no
objection is received by the assigning Lender and the Agent from the
Borrower within two Business Days after notice of such proposed
assignment has been provided by the assigning Lender to the Borrower);
provided, however, that neither the Borrower nor an Affiliate of the
Borrower shall qualify as an Eligible Assignee.
"Environmental Claim" means any written notice, notice of
violation, written demand, written allegation, action, suit,
injunction, judgment, order, consent decree, penalty, fine, lien,
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<PAGE> 14
proceeding, or written claim (whether administrative, judicial, or
private in nature) arising (a) pursuant to, or in connection with, an
actual or alleged violation of, any Environmental Law, (b) in
connection with any Hazardous Material, (c) from any assessment,
abatement, removal, remedial, corrective, or other response action in
connection with an Environmental Law or (d) from any actual or alleged
damage, injury, threat, or harm to occupational health or safety,
natural resources, or the environment.
"Environmental Laws" means any current or future legal
requirement of any Governmental Authority pertaining to (a) the
protection of occupational health or safety, and the environment, (b)
the protection of natural resources and wildlife, (c) the protection
or use of surface water and groundwater, (d) the management,
manufacture, possession, presence, use, generation, transportation,
treatment, storage, disposal, release, threatened release, abatement,
removal, remediation or handling of, or exposure to, any hazardous or
toxic substance or material or (e) pollution (including any release to
the air, land, surface water, and groundwater) and includes, without
limitation, the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 USC 9601 et seq., Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act of 1976
and Hazardous and Solid Waste Amendment of 1984, 42 USC 6901 et seq.,
Federal Water Pollution Control Act, as amended by the Clean Water Act
of 1977, 33 USC 1251 et seq., Clean Air Act of 1966, as amended, 42
USC 7401 et seq., Toxic Substances Control Act of 1976, 15 USC 2601 et
seq., Hazardous Materials Transportation Act, 49 USC App. 1801 et
seq., Occupational Safety and Health Act of 1970, as amended, 29 USC
651 et seq., Oil Pollution Act of 1990, 33 USC 2701 et seq., Emergency
Planning and Community Right-to-Know Act of 1986, 42 USC 11001 et
seq., National Environmental Policy Act of 1969, 42 USC 4321 et seq.,
Safe Drinking Water Act of 1974, as amended, 42 USC 300(f) et seq.,
any analogous implementing or successor law, and any amendment, rule,
regulation, order, or directive issued thereunder.
"Equity Interest" means Capital Stock and all warrants,
options or rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital
Stock), whether outstanding prior to, on or after the Closing Date.
"Equity Issuance" means any issuance of (a) shares of Capital
Stock, (b) any shares of Capital Stock pursuant to the exercise of
options or warrants or (c) any shares of Capital Stock pursuant to the
conversion of any debt securities to equity by (i) any Consolidated
Party to any Person other than the Sponsor, any Affiliate of the
Sponsor or the Parent or (ii) to the extent that the proceeds thereof
are ultimately contributed to or otherwise applied for the benefit of
any Consolidated Party, the Parent to any Person other than the
Sponsor, any
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<PAGE> 15
Affiliate of the Sponsor or any managerial employee of a Consolidated
Party. The term "Equity Issuance" shall not include any Asset
Disposition.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, as interpreted by
the rules and regulations thereunder, all as the same may be in effect
from time to time. References to sections of ERISA shall be construed
also to refer to any successor sections.
"ERISA Affiliate" means an entity which is under common
control with any Consolidated Party within the meaning of Section
4001(a)(14) of ERISA, or is a member of a group which includes any
Consolidated Party and which is treated as a single employer under
Sections 414(b) or (c) of the Code.
"ERISA Event" means (i) with respect to any Plan, the
occurrence of a Reportable Event or the substantial cessation of
operations (within the meaning of Section 4062(e) of ERISA); (ii) the
withdrawal by any Consolidated Party from a Multiple Employer Plan
during a plan year in which it was a substantial employer (as such
term is defined in Section 4001(a)(2) of ERISA), or the termination of
a Multiple Employer Plan; (iii) the distribution of a notice of intent
to terminate or the actual termination of a Plan pursuant to Section
4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to
terminate or the actual termination of a Plan by the PBGC under
Section 4042 of ERISA; (v) any event or condition which could
reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan; (vi) the complete or partial withdrawal of any
Consolidated Party from a Multiemployer Plan; (vii) the conditions for
imposition of a lien under Section 302(f) of ERISA exist with respect
to any Plan; or (vii) the adoption of an amendment to any Plan
requiring the provision of security to such Plan pursuant to Section
307 of ERISA.
"Eurodollar Loan" means a Loan bearing interest based at a
rate determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each
Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate
determined pursuant to the following formula:
Eurodollar Rate = London Interbank Offered Rate
------------------------------------
1 - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as such regulation may be amended
from
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<PAGE> 16
time to time or any successor regulation, as the maximum reserve
requirement (including, without limitation, any basic, supplemental,
emergency, special, or marginal reserves) applicable with respect to
Eurocurrency liabilities as that term is defined in Regulation D (or
against any other category of liabilities that includes deposits by
reference to which the interest rate of Eurodollar Loans is
determined), whether or not Lender has any Eurocurrency liabilities
subject to such reserve requirement at that time. Eurodollar Loans
shall be deemed to constitute Eurocurrency liabilities and as such
shall be deemed subject to reserve requirements without benefits of
credits for proration, exceptions or offsets that may be available
from time to time to a Lender. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Event of Default" has the meaning specified in Section 9.1.
"Excess Cash Flow" means, with respect to any twelve-month
period of the Consolidated Parties on a consolidated basis, an amount
equal to (a) Consolidated EBITDA for such period minus (b)
Consolidated Capital Expenditures for such period minus (c)
Consolidated Interest Expense for such period minus (d) Federal, state
and other income taxes actually paid by the Consolidated Parties on a
consolidated basis during such period minus (e) Scheduled Funded
Indebtedness Payments made during such period minus (f) prepayments
applied during such period to the permanent reduction of Funded
Indebtedness of any Consolidated Party; provided that in the case of
any revolving Funded Indebtedness, such prepayment shall
correspondingly permanently reduce commitments with respect thereto
minus (g) without duplication of any reduction pursuant to clause (f)
above, the amount of any proceeds received by any of the Consolidated
Parties from any Asset Disposition or any casualty or condemnation
event to the extent any such proceeds are included in Consolidated
EBITDA minus (h) Consolidated EBIT Special Adjustments to the extent
actually paid during such period minus (i) the amounts of the annual
management and Chairman of the Board fees expensed by the Consolidated
Parties during such period in accordance with the terms of Section 8.8
minus (j) to the extent not otherwise deducted in the calculation of
Consolidated EBITDA for such period, Restricted Payments made by any
Consolidated Party to the Parent pursuant to clause (v) or (vi) of
Section 8.7.
"Exchange Act of 1934" means the Securities Exchange Act of
1934.
"Excluded Asset Disposition" means (a) any Asset Disposition
by a Consolidated Party to any Credit Party other than the Parent, (b)
any casualty or condemnation event with respect to which the net
proceeds received by the Parent or the Consolidated Parties are less
than $250,000 and (c) any Asset Disposition by a Consolidated Party
which is not a Credit Party
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<PAGE> 17
to any other Consolidated Party which is not a Credit Party, in each
case so long as, after giving effect to such Asset Disposition, no
Default or Event of Default exists.
"Executive Officer" of any Person means any of the chief
executive officer, chief operating officer, president, executive vice
president, chief financial officer or treasurer of such Person.
"Exempt Affiliate Transactions" means (a) transactions between
or among the Consolidated Parties, (b) advances to officers of any
Consolidated Party in the ordinary course of business to provide for
the payment of reasonable expenses incurred by such persons in the
performance of their responsibilities to the relevant Consolidated
Party or in connection with any relocation, (c) fees and compensation
paid to and indemnity provided on behalf of directors, officers or
employees of any Consolidated Party in the ordinary course of
business, (d) any employment agreement that is in effect on the
Closing Date and any such agreement entered into by any Consolidated
Party after the Closing Date in the ordinary course of business of
such Consolidated Party and (e) any Restricted Payment that is not
prohibited by Section 8.7.
"Existing Letters of Credit" means the letters of credit
described by date of issuance, letter of credit number, undrawn
amount, name of beneficiary and date of expiry on Schedule 1.1(d).
"Extension of Credit" means, as to any Lender, the making of a
Loan or the purchase of a Participation Interest by such Lender.
"Federal Funds Rate" means, for any day, the rate of interest
per annum (rounded upwards, if necessary, to the nearest whole
multiple of 1/100 of 1%) equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (A) if such day is not a
Business Day, the Federal Funds Rate for such day shall be such rate
on such transactions on the next preceding Business Day and (B) if no
such rate is so published on such next preceding Business Day, the
Federal Funds Rate for such day shall be the average rate quoted to
the Agent on such day on such transactions as determined by the Agent.
"Fee Letter" means that certain letter agreement, dated as of
the Closing Date, between the Agent and the Borrower, as amended,
modified, supplemented or replaced from time to time.
"Foreign Subsidiary" means, with respect to any Person, any
Subsidiary of such Person which is not a Domestic Subsidiary of such
Person.
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<PAGE> 18
"Funded Indebtedness" means, without duplication, the sum of
(a) all outstanding Indebtedness of the Consolidated Parties other
than Indebtedness of the types referred to in clause (e), (f), (i),
(k), (l) and (m) of the definition of "Indebtedness" set forth in
Section 1.1, (b) all Guaranty Obligations of the Consolidated Parties
with respect to Funded Indebtedness of another Person, (c) all Funded
Indebtedness of any Person secured by a Lien on any property of a
Consolidated Party whether or not such Funded Indebtedness has been
assumed by a Consolidated Party and (d) all Funded Indebtedness of any
partnership or unincorporated joint venture to the extent a
Consolidated Party is legally obligated or has a reasonable
expectation of being liable with respect thereto, net of any assets of
such partnership or joint venture.
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis and subject to Section
1.3.
"Governmental Authority" means any Federal, state, local,
provincial or foreign court or governmental agency, authority,
instrumentality or regulatory body.
"Guarantor" means each of those Persons identified as a
"Guarantor" on the signature pages hereto, and each Additional Credit
Party which may hereafter execute a Joinder Agreement, together with
their successors and permitted assigns.
"Guaranty Obligations" means, with respect to any Person,
without duplication, any obligations (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or
collection) guaranteeing or intended to guarantee any Indebtedness,
leases, dividends or other obligations of any other Person in any
manner, whether direct or indirect, and including without limitation
any obligation, whether or not contingent, (a) to purchase any such
Indebtedness or other obligation or any property constituting security
therefor, (b) to advance or provide funds or other support for the
payment or purchase of such indebtedness or obligation or to maintain
working capital, solvency or other balance sheet condition of such
other Person (including, without limitation, maintenance agreements,
comfort letters, take or pay arrangements, put agreements or similar
agreements or arrangements) for the benefit of the holder of
Indebtedness of such other Person, (c) to lease or purchase property,
securities or services primarily for the purpose of assuring the owner
of such Indebtedness or obligation, or (d) to otherwise assure or hold
harmless the owner of such Indebtedness or obligation against loss in
respect thereof. The amount of any Guaranty Obligation hereunder
shall (subject to any limitations set forth therein) be deemed to be
an amount equal to the outstanding principal amount (or maximum
principal amount, if larger) of the Indebtedness in respect of which
such Guaranty Obligation is made.
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<PAGE> 19
"Hazardous Materials" means any substance, material or waste
defined as toxic or hazardous (or words of similar meaning) or
regulated because of its harmful or deleterious properties in or under
any Environmental Laws.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and
other similar financial agreements or arrangements entered into such
Person with any Lender, or any Affiliate of a Lender, in the ordinary
course of such Person's business to protect such Person against, or
manage the exposure of such Person to, fluctuations in interest rates,
and not for speculative purposes.
"Indebtedness" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money, (b) all obligations
of such Person evidenced by bonds, debentures, notes or similar
instruments, or upon which interest payments are customarily made, (c)
all obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person to
the extent of the value of such property (other than customary
reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business), (d) all obligations,
other than intercompany items, of such Person issued or assumed as the
deferred purchase price of property or services purchased by such
Person (other than trade debt incurred in the ordinary course of
business and due within six months of the incurrence thereof) which
would appear as liabilities on a balance sheet of such Person, (e) all
Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on, or payable out of the proceeds of production
from, property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (f) all Guaranty
Obligations of such Person, (g) the amount of all Capital Lease
Obligations of such Person, (h) the principal portion of all
obligations of such Person under Synthetic Leases, (i) all Hedging
Obligations of such Person, (j) the maximum amount of all performance
and standby letters of credit issued or bankers' acceptances
facilities created for the account of such Person and, without
duplication, all drafts drawn thereunder (to the extent unreimbursed),
(k) all preferred Capital Stock issued by such Person which by the
terms thereof could be (at the request of the holders thereof or
otherwise) subject to mandatory sinking fund payments, redemption or
other acceleration, (l) the aggregate amount of uncollected accounts
receivable of such Person subject at such time to a sale of
receivables (or similar transaction) regardless of whether such
transaction is effected without recourse to such Person or in a manner
that would not be reflected on the balance sheet of such Person in
accordance with GAAP and (m) the Indebtedness of any partnership or
unincorporated joint venture in which such Person is legally obligated
or has a reasonable expectation of being liable with respect thereto.
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<PAGE> 20
"Interest Coverage Ratio" means, with respect to the
Consolidated Parties on a consolidated basis, the ratio of (a)
Consolidated EBITDA to (b) Consolidated Interest Expense.
"Interest Payment Date" means (a) as to Base Rate Loans, the
last Business Day of each fiscal quarter of the Borrower and on the
Maturity Date and (b) as to Eurodollar Loans, on the last day of each
applicable Interest Period and on the Maturity Date and in addition
where the applicable Interest Period for a Eurodollar Loan is greater
than three months, then also on the date three months from the
beginning of the Interest Period and each three months thereafter.
"Interest Period" means, as to Eurodollar Loans, a period of
one, two, three or six months' duration, as the Borrower may elect,
commencing, in each case, on the date of the borrowing (including
continuations and conversions thereof); provided, however, (a) if any
Interest Period would end on a day which is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
(except that where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day),
(b) no Interest Period shall extend beyond the Maturity Date, (c) with
regard to the Term Loans, no Interest Period shall extend beyond any
Principal Amortization Payment Date unless the portion of Term Loans
comprised of Base Rate Loans together with the portion of Term Loans
comprised of Eurodollar Loans with Interest Periods expiring prior to
the date such Principal Amortization Payment is due, is at least equal
to the amount of such Principal Amortization Payment due on such date
and (d) where an Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month in which the
Interest Period is to end, such Interest Period shall end on the last
Business Day of such calendar month.
"Investment" in any Person means (a) the acquisition (whether
for cash, property, services, assumption of Indebtedness, securities
or otherwise) of assets, shares of Capital Stock, bonds, notes,
debentures, partnership, joint ventures or other ownership interests
or other securities of such other Person or (b) any deposit with, or
advance, loan or other extension of credit to, such Person (other than
deposits made in connection with the purchase of equipment or other
assets in the ordinary course of business) or (c) any other capital
contribution to or investment in such Person, including, without
limitation, any Guaranty Obligation (including any support for a
Letter of Credit issued on behalf of such Person) incurred for the
benefit of such Person.
"Issuing Lender" means NationsBank, N.A.
"Issuing Lender Fees" has the meaning set forth in Section
3.4(b)(iii).
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<PAGE> 21
"Joinder Agreement" means a Joinder Agreement substantially in
the form of Exhibit 7.13.
"Lender" means any of the Persons identified as a "Lender" on
the signature pages hereto, and any Person which may become a Lender
by way of assignment in accordance with the terms hereof, together
with their successors and permitted assigns.
"Letter of Credit" means (i) a Letter of Credit issued for the
account of the Borrower or one of its Subsidiaries by the Issuing
Lender pursuant to Section 2.2 and (ii) any Existing Letter of Credit,
as such Letter of Credit or Existing Letter of Credit may be amended,
modified, extended, renewed or replaced.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory
or otherwise), preference, priority or charge of any kind, including,
without limitation, any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any financing or
similar statement or notice filed under the Uniform Commercial Code as
adopted and in effect in the relevant jurisdiction or other similar
recording or notice statute, and any lease in the nature thereof.
"Loan" or "Loans" means the Revolving Loans and/or the Term
Loans (or a portion of any Revolving Loan or Term Loan bearing
interest at the Adjusted Base Rate or the Adjusted Eurodollar Rate),
individually or collectively, as appropriate.
"LOC Documents" means, with respect to any Letter of Credit,
such Letter of Credit, any amendments thereto, any documents delivered
in connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or
providing for (a) the rights and obligations of the parties concerned
or at risk or (b) any collateral security for such obligations.
"LOC Obligations" means, at any time, the sum of (a) the
maximum amount which is, or at any time thereafter may become,
available to be drawn under Letters of Credit then outstanding,
assuming compliance with all requirements for drawings referred to in
such Letters of Credit plus (b) the aggregate amount of all drawings
under Letters of Credit honored by the Issuing Lender but not
theretofore reimbursed.
"LOC Participants" means all Lenders whose Revolving Loan
Commitment Percentage is greater than zero.
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<PAGE> 22
"London Interbank Offered Rate" means, for the Interest Period
for each Eurodollar Loan comprising part of the same borrowing
(including conversions, extensions and renewals), a per annum interest
rate (rounded upwards, if necessary, to the nearest whole multiple of
1/100 of 1%) equal to the rate of interest, determined by the Agent on
the basis of the offered rates for deposits in dollars for a period of
time corresponding to such Interest Period (and commencing on the
first day of such Interest Period), appearing on Telerate Page 3750
(or, if, for any reason, Telerate Page 3750 is not available, the
Reuters Screen LIBO Page) as of approximately 11:00 A.M. (London time)
two (2) Business Days before the first day of such Interest Period.
As used herein, "Telerate Page 3750" means the display designated as
page 3750 by Dow Jones Telerate, Inc. (or such other page as may
replace such page on that service for the purpose of displaying the
British Bankers Association London interbank offered rates) and
"Reuters Screen LIBO Page" means the display designated as page "LIBO"
on the Reuters Monitor Money Rates Service (or such other page as may
replace the LIBO page on that service for the purpose of displaying
London interbank offered rates of major banks).
"Mandatory Borrowing" has the meaning set forth in Section
2.2(e).
"Material Adverse Effect" means a material adverse effect on
(a) the operations, financial condition, business or prospects of any
Consolidated Party, (b) the ability of a Credit Party to perform its
respective obligations under this Credit Agreement or any of the other
Credit Documents, or (c) the validity or enforceability of this Credit
Agreement, any of the other Credit Documents, or the rights and
remedies of the Lenders hereunder or thereunder taken as a whole.
"Maturity Date" means April 3, 2004.
"Moody's" means Moody's Investors Service, Inc., or any
successor or assignee of the business of such company in the business
of rating securities.
"Mortgage Policies" has the meaning set forth in Section
5.1(d).
"Mortgage" and "Mortgages" have the meanings set forth in
Section 5.1(d).
"Mortgaged Properties" has the meaning set forth in Section
5.1(d).
"Multiemployer Plan" means a Plan which is a multiemployer
plan as defined in Sections 3(37) or 4001(a)(3) of ERISA.
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<PAGE> 23
"Multiple Employer Plan" means a Plan which any Consolidated
Party and at least one employer other than the Consolidated Parties
are contributing sponsors.
"Net Cash Proceeds" means the aggregate cash proceeds received
by any Consolidated Party in respect of any Asset Disposition or
Equity Issuance, net of (a) direct costs (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions), (b) taxes paid or payable as a result thereof and (c)
any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP; it being understood
that "Net Cash Proceeds" shall include, without limitation, any cash
received upon the sale or other disposition of any non-cash
consideration received by a Consolidated Party in any Asset
Disposition or Equity Issuance. In addition, the "Net Cash Proceeds"
of any Asset Disposition shall include any other amounts defined as
"Net Cash Proceeds" of such transaction under Section 1.01 of the
Indenture for the Senior Subordinated Debt.
"Non-Excluded Taxes" has the meaning set forth in Section
3.14.
"Note" or "Notes" means the Revolving Loan Notes and/or the
Term Loan Notes, individually or collectively, as appropriate.
"Notice of Borrowing" means a request by the Borrower for a
Revolving Loan, in the form of Exhibit 2.1.
"Notice of Continuation/Conversion" means a request by the
Borrower to continue an existing Eurodollar Loan to a new Interest
Period or to convert a Eurodollar Loan to a Base Rate Loan or a Base
Rate Loan to a Eurodollar Loan, in the form of Exhibit 2.4.
"Offering Memorandum" means that certain Preliminary Offering
Memorandum dated May __, 1998 describing the Senior Subordinated Debt.
"Parent" means Steel Heddle Group, Inc., a Delaware
corporation, together with any successor and permitted assigns.
"Participation Interest" means a purchase by a Lender of a
participation in Letters of Credit or LOC Obligations as provided in
Section 2.2 or in any Loans as provided in Section 3.9.
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any
successor thereto.
"Permitted Acquisition" means an Acquisition by the Borrower
or any Subsidiary of the Borrower for not more than the fair market
value of the Capital Stock or Property
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<PAGE> 24
acquired, provided that (i) the Capital Stock or Property acquired in
such Acquisition relates to a line of business similar to the business
of any Consolidated Party engaged in on the Closing Date, (ii) the
Agent shall have received all items in respect of the Capital Stock or
Property acquired in such Acquisition (and/or the seller thereof)
required to be delivered by the terms of Section 7.9 and/or Section
7.13, (iii) in the case of an Acquisition of the Capital Stock of
another Person, the board of directors (or other comparable governing
body) of such other Person shall have duly approved such Acquisition,
(iv) the Borrower shall have delivered to the Agent a certificate
demonstrating that, upon giving pro forma effect to such Acquisition
(assuming, for purposes hereof, that such Acquisition was consummated
as of the first day of the four fiscal-quarter period ending as of
such fiscal quarter end), no violation of Section 7.12 would have
occurred as of the most recent fiscal quarter end preceding the date
of such Acquisition with respect to which the Agent has received the
financial statements and officer's certificate as required by Section
7.1(a) or (b) and Section 7.1(c), (v) the representations and
warranties made by the Credit Parties in any Credit Document shall be
true and correct in all material respects at and as if made as of the
date of such Acquisition (after giving effect thereto) except to the
extent such representations and warranties expressly relate to an
earlier date, (vi) after giving effect to such Acquisition, the
Revolving Committed Amount shall be at least $5,000,000 greater than
the sum of the Revolving Loans outstanding plus LOC Obligations
outstanding and (vii) the aggregate consideration (including cash
consideration and non-cash consideration (including Capital Stock of
the Parent) and any assumption of liabilities (other than current
working capital liabilities not constituting Indebtedness)) for all
such Acquisitions occurring after the Closing Date shall not exceed
$10,000,000.
"Permitted Investments" means Investments which are (a) cash
or Cash Equivalents, (b) accounts receivable created, acquired or made
in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms or otherwise in the prudent
judgment of a Consolidated Party, (c) inventory, raw materials and
general intangibles (to the extent such general intangible is not a
capital expenditure under GAAP) acquired in the ordinary course of
business, (d) Investments existing as of the Closing Date and set
forth in Schedule 1.1(b), (e) additional Investments in any Credit
Party, (f) subject to the terms of Section 7.9, additional Investments
in Subsidiaries of the Borrower which are not Credit Parties, not to
exceed $750,000 in the aggregate at any one time outstanding, (g)
Guaranty Obligations permitted by Section 8.1, (h) loans and advances
to directors, officers, employees, agents, customers or suppliers in
the ordinary course of business for reasonable business expenses, not
to exceed $500,000 in the aggregate at any one time outstanding, (i)
loans by the Borrower to any of its employees to finance the
acquisition of Capital Stock in the Parent, not to exceed $750,000 in
the aggregate at any one time outstanding, (j) Investments in dealers
and customers received in connection with any bankruptcy or
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<PAGE> 25
reorganization of such dealer or customer, (k) Permitted Acquisitions
and (l) Investments not otherwise permitted by the other clauses of
this definition not to exceed $250,000 in the aggregate at any one
time outstanding.
"Permitted Liens" means (a) Liens in favor of the Agent on
behalf of the Lenders, (b) Liens for taxes not yet due or Liens for
taxes being contested in good faith by appropriate proceedings for
which adequate reserves determined in accordance with GAAP have been
established (and as to which the property subject to any such Lien is
not yet subject to foreclosure, sale or loss on account thereof), (c)
Liens in respect of property imposed by law arising in the ordinary
course of business such as materialmen's, mechanics', warehousemen's,
carrier's, landlords' and other nonconsensual statutory Liens which
are not yet due and payable, which have been in existence less than 90
days or which are being contested in good faith by appropriate
proceedings for which adequate reserves determined in accordance with
GAAP have been established (and as to which the property subject to
any such Lien is not yet subject to foreclosure, sale or loss on
account thereof), (d) pledges or deposits made in the ordinary course
of business to secure payment of worker's compensation insurance,
unemployment insurance, pensions or social security programs, (e)
Liens arising from good faith deposits in connection with or to secure
performance of tenders, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
incurred in the ordinary course of business (other than obligations in
respect of the payment of borrowed money), (f) Liens arising from good
faith deposits in connection with or to secure performance of
statutory obligations and surety and appeal bonds, (g) easements,
rights-of-way, restrictions (including zoning restrictions), minor
defects or irregularities in title and other similar charges or
encumbrances not, in any material respect, impairing the use of the
encumbered property for its intended purposes, (h) judgment Liens that
would not constitute an Event of Default, (i) Liens in connection with
Indebtedness allowed under Section 8.1(d) (including without
limitation Sale and Leaseback Transactions permitted thereunder and
under Section 8.13), (j) Liens arising by virtue of any statutory or
common law provision relating to banker's liens, rights of setoff or
similar rights as to deposit accounts or other funds maintained with a
creditor depository institution, (k) Permitted Encumbrances (as
defined in any Mortgage or Mortgage Policy), (l) any interest of a
lessor under, and Liens arising from UCC financing statements relating
to, leases not prohibited by this Credit Agreement, (m) Liens in favor
of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of
goods, (n) Liens of a collection bank arising under Section 4-210 of
the Uniform Commercial Code on items in the course of collection and
(o) Liens on assets of Subsidiaries of the Borrower in connection with
Indebtedness allowed under Section 8.1(j), provided that such Liens
are only on assets acquired with such Indebtedness and that such Liens
were not created in contemplation of or in connection with the
acquisition of such assets.
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"Person" means any individual, partnership, joint venture,
firm, corporation, limited liability company, association, trust or
other enterprise (whether or not incorporated), or any Governmental
Authority.
"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA) which is covered by ERISA and with respect to which any
Consolidated Party is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer"
within the meaning of Section 3(5) of ERISA.
"Pledge Agreement" means the Pledge Agreement in the form of
Exhibit 1.1A executed and delivered by the Credit Parties in favor of
the Agent, for the benefit of the Lenders, to secure the Credit Party
Obligations, as the same may be amended, modified, extended, renewed
or replaced from time to time.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by the Agent as its prime rate in effect
at its principal office in Charlotte, North Carolina, with each change
in the Prime Rate being effective on the date such change is publicly
announced as effective (it being understood and agreed that the Prime
Rate is a reference rate used by the Agent in determining interest
rates on certain loans and is not intended to be the lowest rate of
interest charged on any extension of credit by the Agent to any
debtor).
"Principal Amortization Payment" means a principal payment on
the Term Loans as set forth in Section 2.3(d).
"Principal Amortization Payment Date" means the date a
Principal Amortization Payment is due.
"Purchase Agreement" means the Stock Purchase Agreement by and
among SH Holdings Corp. and the other Persons identified on Schedule 1
thereto, as sellers, and the Parent, as buyer, dated as of May 1,
1998, as it may be amended on or prior to the Closing Date.
"Qualifying IPO" means an underwritten primary public offering
(other than a public offering pursuant to a registration statement on
Form S-8) of the common Capital Stock of the Parent (or, subject to
the definition of the term "Change of Control" set forth in Section
1.1, of the common Capital Stock the Borrower) (i) pursuant to an
effective registration statement filed with the Securities and
Exchange Commission in accordance with the Securities Act of 1933
(whether alone or in connection with a secondary public offering) and
(ii) resulting in gross proceeds to the Parent (or the Borrower, as
applicable) of at least $15,000,000.
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"Real Properties" means each of facilities and properties
owned, leased or operated by any Credit Party.
"Regulation T, U, or X" means Regulation T, U or X,
respectively, of the Board of Governors of the Federal Reserve System
as from time to time in effect and any successor to all or a portion
thereof.
"Reportable Event" means a "reportable event" as defined in
Section 4043(c) of ERISA, other than those events as to which the
notice requirements or penalties for failure to provide notice have
been waived by regulation or administrative action of the PBGC.
"Required Lenders" means Lenders whose aggregate Credit
Exposure (as hereinafter defined) constitutes at least 51% of the
Credit Exposure of all Lenders at such time; provided, however, that
if any Lender shall be a Defaulting Lender at such time then there
shall be excluded from the determination of Required Lenders the
aggregate principal amount of Credit Exposure of such Lender at such
time. For purposes of the preceding sentence, the term "Credit
Exposure" as applied to each Lender shall mean (a) at any time prior
to the termination of the Commitments, the sum of (i) the Revolving
Commitment Percentage of such Lender multiplied by the Revolving
Committed Amount, plus (ii) the Term Loan Commitment Percentage of
such Lender multiplied by the aggregate principal amount of Term Loans
outstanding at such time and (b) at any time after the termination of
any of the Commitments pursuant to Section 9.2, the sum of (i) the
principal balance of the outstanding Loans of such Lender plus (ii)
such Lender's Participation Interests in the face amount of the
outstanding Letters of Credit.
"Requirement of Law" means, as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule or
regulation or final, non-appealable determination of an arbitrator or
a court or other Governmental Authority, in each case applicable to or
binding upon such Person or to which any of its material property is
subject.
"Restricted Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any
class of Capital Stock of any Consolidated Party, now or hereafter
outstanding, (ii) any redemption, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect,
of any shares of any class of Capital Stock of any Consolidated Party,
now or hereafter outstanding, (iii) any payment made to retire, or to
obtain the surrender of, any outstanding warrants, options or other
rights to acquire shares of any class of Capital Stock of any
Consolidated Party, now or hereafter outstanding, (iv) any payment or
prepayment of principal of, premium, if any, or interest on,
redemption,
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purchase, retirement, defeasance, sinking fund or similar payment with
respect to, the Senior Subordinated Debt and (v) any loan or advance
to the Parent.
"Revolving Committed Amount" means TWENTY MILLION DOLLARS
($20,000,000) or such lesser amount as the Revolving Committed Amount
may be reduced pursuant to Section 2.1(d) or Section 3.3(b)(v).
"Revolving Loan Commitment Percentage" means, for each Lender,
the percentage identified as its Revolving Loan Commitment Percentage
on Schedule 1.1(c), as such percentage may be modified in connection
with any assignment made in accordance with the provisions of Section
11.3.
"Revolving Loans" means the Revolving Loans made to the
Borrower pursuant to Section 2.1.
"Revolving Note" or "Revolving Notes" means the promissory
notes of the Borrower in favor of each of the Lenders evidencing the
Revolving Loans provided pursuant to Section 2.1, individually or
collectively, as appropriate, as such promissory notes may be amended,
modified, supplemented, extended, renewed or replaced from time to
time and as evidenced in the form of Exhibit 2.6(a).
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc., or any successor or assignee of the business of
such division in the business of rating securities.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party,
providing for the leasing to any Consolidated Party of any property,
whether owned by such Consolidated Party as of the Closing Date or
later acquired, which has been or is to be sold or transferred by such
Consolidated Party to such Person or to any other Person from whom
funds have been or are to be advanced by such Person on the security
of such property.
"Scheduled Funded Indebtedness Payments" means, as of the end
of each fiscal quarter of the Consolidated Parties, for the
Consolidated Parties on a consolidated basis, the sum of all scheduled
payments of principal on Funded Indebtedness for the applicable period
ending on such date (including the principal component of payments due
on Capital Leases during the applicable period ending on such date);
it being understood that Scheduled Funded Indebtedness Payments shall
not include voluntary prepayments or the mandatory prepayments
required pursuant to Section 3.3.
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"Security Agreement" means the Security Agreement in the form
of Exhibit 1.1A executed and delivered by the Borrower and the
Guarantors in favor of the Agent, for the benefit of the Lenders, to
secure the Credit Party Obligations, as the same may be amended,
modified, extended, renewed, restated or replaced from time to time.
"Senior Funded Indebtedness" means Funded Indebtedness of the
Consolidated Parties which is not Subordinated Indebtedness determined
on a consolidated basis in accordance with GAAP applied on consistent
basis.
"Senior Leverage Ratio" means, with respect to the
Consolidated Parties on a consolidated basis for the four fiscal
quarter period ending on the last day of any fiscal quarter, the ratio
of (a) Senior Funded Indebtedness of the Consolidated Parties on a
consolidated basis on the last day of such period to (b) Consolidated
EBITDA for such period.
"Senior Subordinated Debt" shall have the meaning assigned to
such term in Section 5.1(l).
"Single Employer Plan" means any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple
Employer Plan.
"Solvent" means, with respect to any Person as of a particular
date, that on such date (a) such Person is able to pay its debts and
other liabilities, contingent obligations and other commitments as
they mature in the normal course of business, (b) such Person does not
intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and
liabilities mature in their ordinary course, (c) such Person is not
engaged in a business or a transaction, and is not about to engage in
a business or a transaction, for which such Person's assets would
constitute unreasonably small capital after giving due consideration
to the prevailing practice in the industry in which such Person is
engaged or is to engage, (d) the fair value of the assets of such
Person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person and (e) the
present fair salable value of the assets of such Person is not less
than the amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured. In
computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount which,
in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an
actual or matured liability.
"Sponsor" means American Industrial Partners Capital Fund II,
L.P., a Delaware limited partnership.
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"Standby Letter of Credit Fee" shall have the meaning assigned
to such term in Section 3.4(b)(i).
"Subordinated Indebtedness" means Indebtedness of the Borrower
in respect of the Senior Subordinated Debt, together with Guaranty
Obligations, if any, of the Guarantors in respect thereof.
"Subsidiary" means, as to any Person, (a) any corporation more
than 50% of whose Capital Stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the
directors of such corporation (irrespective of whether or not at the
time, any class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at
the time owned by such Person directly or indirectly through
Subsidiaries, and (b) any partnership, association, joint venture or
other entity in which such Person directly or indirectly through
Subsidiaries has more than a 50% equity interest at any time.
"Synthetic Lease" means any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet
financing product where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an operating lease
in accordance with GAAP.
"Term Loans" means the Term Loans made to the Borrower
pursuant to Section 2.3(a).
"Term Loan Commitment Percentage" means, for each Lender, the
percentage identified as its Term Loan Commitment Percentage on
Schedule 1.1(c), as such percentage may be modified in connection with
any assignment made in accordance with the provisions of Section 11.3.
"Term Loan Committed Amount" means THIRTY MILLION DOLLARS
($30,000,000).
"Term Loan Note" or "Term Loan Notes" means the promissory
notes of the Borrower in favor of each of the Lenders evidencing the
Term Loans provided pursuant to Section 2.3(a), individually or
collectively, as appropriate, as such promissory notes may be amended,
modified, supplemented, extended, renewed or replaced from time to
time and as evidenced in the form of Exhibit 2.6(b).
"Total Leverage Ratio" means, with respect to the Consolidated
Parties on a consolidated basis for the four fiscal quarter period
ending on the last day of any fiscal
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quarter, the ratio of (a) all Funded Indebtedness (including
Subordinated Indebtedness) of the Consolidated Parties on a
consolidated basis on the last day of such period to (b) Consolidated
EBITDA for such period.
"Trade Letter of Credit Fee" shall have the meaning assigned
to such term in Section 3.4(b)(ii).
"Transaction" means the acquisition of the Acquired Companies
pursuant to the terms of the Purchase Agreement.
"Unused Revolving Commitment" means, for any period, the
amount by which (a) the then applicable aggregate Revolving Committed
Amount exceeds (b) the daily average sum for such period of the
outstanding aggregate principal amount of all Revolving Loans plus the
aggregate amount of LOC Obligations outstanding.
"Voting Stock" means, with respect to any Person, Capital
Stock issued by such Person the holders of which are ordinarily, in
the absence of contingencies, entitled to vote for the election of
directors (or persons performing similar functions) of such Person,
even though the right so to vote has been suspended by the happening
of such a contingency.
1.2 COMPUTATION OF TIME PERIODS AND OTHER DEFINITIONAL PROVISIONS.
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding." References in this Credit Agreement to "Articles", "Sections",
"Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits
of or to this Credit Agreement unless otherwise specifically provided.
1.3 ACCOUNTING TERMS.
Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All financial statements delivered to the Lenders hereunder shall be
accompanied by a statement from the Borrower that GAAP has not changed since
the most recent financial statements delivered by the Credit Parties to the
Lenders or if GAAP has changed describing such changes in detail and explaining
how such changes affect the financial statements. All calculations made for
the purposes of determining compliance with this Credit Agreement shall (except
as otherwise expressly provided herein) be made by application of GAAP applied
on a basis consistent with the most recent annual or monthly financial
statements delivered pursuant to Section 7.1 (or, prior to the delivery of the
first financial statements pursuant to Section 7.1, consistent with the January
3, 1998 financial statements of the Consolidated Parties); provided, however,
if (a) the Credit Parties shall object to
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determining such compliance on such basis at the time of delivery of such
financial statements due to any change in GAAP or the rules promulgated with
respect thereto or (b) the Agent or the Required Lenders shall so object in
writing within 60 days after delivery of such financial statements (or after
the Lenders have been informed of the change in GAAP affecting such financial
statements, if later), then such calculations shall be made on a basis
consistent with the most recent financial statements delivered by the Credit
Parties to the Lenders as to which no such objection shall have been made.
Notwithstanding the above or the terms of any definition set forth in Section
1.1, the parties hereto acknowledge and agree that, for purposes of all
calculations made under the financial covenants set forth in Section 7.12
(including without limitation for purposes of the definition of "Applicable
Percentage" set forth in Section 1.1), (i)(A) income statement items (whether
positive or negative) attributable to the Property disposed of in any Asset
Disposition as contemplated by Section 8.5, as applicable, shall be excluded to
the extent relating to any period occurring prior to the date of such
transaction and (B) Indebtedness which is retired in connection with any such
Asset Disposition shall be excluded and deemed to have been retired as of the
first day of the applicable period and (ii) income statement items (whether
positive or negative) attributable to any Property acquired in any Investment
transaction contemplated by Section 8.6 and clause (k) of the definition of
"Permitted Investment" set forth in Section 1.1 shall, to the extent not
otherwise included in such income statement items for the Consolidated Parties
in accordance with GAAP or in accordance with any defined terms set forth in
Section 1.1, be included on a pro forma basis as if the Capital Stock or
Property acquired in the related Permitted Acquisition had been owned by the
Consolidated Parties on the first day of the relevant period to the extent
relating to any period applicable in such calculations.
SECTION 2
CREDIT FACILITIES
2.1 REVOLVING LOANS.
(a) Revolving Loan Commitment. Subject to the terms and
conditions set forth herein, each Lender severally agrees to make
revolving loans (each a "Revolving Loan" and collectively the
"Revolving Loans") to the Borrower, in Dollars, at any time and from
time to time, during the period from and including the Closing Date to
but not including the Maturity Date (or such earlier date if the
Revolving Committed Amount has been terminated as provided herein);
provided, however, that (i) the sum of the aggregate amount of
Revolving Loans outstanding plus the aggregate amount of LOC
Obligations outstanding shall not exceed the Revolving Committed
Amount and (ii) with respect to each individual Lender, the
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Lender's pro rata share of outstanding Revolving Loans plus such
Lender's pro rata share of outstanding LOC Obligations shall not
exceed such Lender's Revolving Loan Commitment Percentage of the
Revolving Committed Amount. Subject to the terms of this Credit
Agreement (including Section 3.3), the Borrower may borrow, repay and
reborrow Revolving Loans.
(b) Method of Borrowing for Revolving Loans. Except for
the initial Revolving Loans to be made on the Closing Date, by no
later than 11:00 a.m. (i) on the date of the requested borrowing of
Revolving Loans that will be Base Rate Loans or (ii) three Business
Days prior to the date of the requested borrowing of Revolving Loans
that will be Eurodollar Loans, the Borrower shall submit a written
Notice of Borrowing in the form of Exhibit 2.1 to the Agent setting
forth (A) the amount requested, (B) whether such Revolving Loans shall
accrue interest at the Adjusted Base Rate or the Adjusted Eurodollar
Rate, (C) with respect to Revolving Loans that will be Eurodollar
Loans, the Interest Period applicable thereto and (D) certification
that the Borrower has complied in all respects with Section 5.2;
(c) Funding of Revolving Loans. Except for the initial
Revolving Loans to be made on the Closing Date which will be funded
initially by the Agent, upon receipt of a Notice of Borrowing, the
Agent shall promptly inform the applicable Lenders as to the terms
thereof. Each such Lender shall make its Revolving Loan Commitment
Percentage of the requested Revolving Loans available to the Agent by
1:00 p.m. on the date specified in the Notice of Borrowing by deposit,
in Dollars, of immediately available funds at the offices of the Agent
at its principal office in Charlotte, North Carolina or at such other
address as the Agent may designate in writing. The amount of the
requested Revolving Loans will then be made available to the Borrower
by the Agent by crediting the account of the Borrower on the books of
such office of the Agent, to the extent the amount of such Revolving
Loans are made available to the Agent.
No Lender shall be responsible for the failure or delay by any
other Lender in its obligation to make Revolving Loans hereunder;
provided, however, that the failure of any Lender to fulfill its
obligations hereunder shall not relieve any other Lender of its
obligations hereunder. Unless the Agent shall have been notified by
any Lender prior to the time of any such Revolving Loan that such
Lender does not intend to make available to the Agent its portion of
the Revolving Loans to be made on such date, the Agent may assume that
such Lender has made such amount available to the Agent on the date of
such Revolving Loans, and the Agent in reliance upon such assumption,
may (in its sole discretion but without any obligation to do so) make
available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Agent, the
Agent shall be able to recover such corresponding amount from such
Lender. If such Lender does not pay such corresponding amount
forthwith upon the Agent's demand therefor, the Agent will promptly
notify the Borrower, and the Borrower shall immediately pay such
corresponding amount to
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the Agent. The Agent shall also be entitled to recover from the
Lender or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such
corresponding amount was made available by the Agent to the Borrower
to the date such corresponding amount is recovered by the Agent at a
per annum rate equal to (i) from the Borrower at the applicable rate
for such Revolving Loan pursuant to the Notice of Borrowing and (ii)
from a Lender at the Federal Funds Rate.
(d) Reductions of Revolving Committed Amount. Upon at
least three Business Days' notice, the Borrower shall have the right
to permanently terminate or reduce the aggregate unused amount of the
Revolving Committed Amount at any time or from time to time; provided
that (i) each partial reduction shall be in an aggregate amount at
least equal to $1,000,000 and in integral multiples of $100,000 above
such amount and (ii) no reduction shall be made which would reduce the
Revolving Committed Amount to an amount less than the aggregate amount
of outstanding Revolving Loans plus the aggregate amount of
outstanding LOC Obligations. Any reduction in (or termination of) the
Revolving Committed Amount shall be permanent and may not be
reinstated.
2.2 LETTER OF CREDIT SUBFACILITY.
(a) Issuance. Subject to the terms and conditions hereof
and of the LOC Documents, if any, and any other terms and conditions
which the Issuing Lender may reasonably require, the Issuing Lender
shall from time to time upon request issue, in Dollars, and the LOC
Participants shall participate in, letters of credit (the "Letters of
Credit") for the account of the Borrower or any of its Subsidiaries,
from the Closing Date until the date five (5) days prior to the
Maturity Date, in a form reasonably acceptable to the Issuing Lender;
provided, however, that (i) the aggregate amount of LOC Obligations
shall not at any time exceed TWO MILLION DOLLARS ($2,000,000), (ii)
the sum of the aggregate amount of LOC Obligations outstanding plus
Revolving Loans outstanding shall not exceed the Revolving Committed
Amount and (iii) with respect to each individual LOC Participant, the
LOC Participant's pro rata share of outstanding Revolving Loans plus
its pro rata share of outstanding LOC Obligations shall not exceed
such LOC Participant's Revolving Loan Commitment Percentage of the
Revolving Committed Amount. The issuance and expiry date of each
Letter of Credit shall be a Business Day. Except as otherwise
expressly agreed upon by all the LOC Participants, no Letter of Credit
shall have an original expiry date more than one year from the date of
issuance, or as extended, shall have an expiry date extending beyond
the date five (5) days prior to the Maturity Date. Each Letter of
Credit shall be either (x) a standby letter of credit issued to
support the obligations (including pension or insurance obligations),
contingent or otherwise, of the Borrower or any of its Subsidiaries,
or (y) a commercial letter of credit in respect of the purchase of
goods or services by the Borrower or
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any of its Subsidiaries in the ordinary course of business. Each
Letter of Credit shall comply with the related LOC Documents.
(b) Notice and Reports. The request for the issuance of
a Letter of Credit shall be submitted to the Issuing Lender at least
three Business Days prior to the requested date of issuance. The
Issuing Lender will, at least quarterly and more frequently upon
request, provide to the Agent for dissemination to the Lenders a
detailed report specifying the Letters of Credit which are then issued
and outstanding and any activity with respect thereto which may have
occurred since the date of the prior report, and including therein,
among other things, the account party, the beneficiary, the face
amount, and the expiry date as well as any payments or expirations
which may have occurred. The Issuing Lender will further provide to
the Agent, promptly upon request, copies of the Letters of Credit.
(c) Participations. Each LOC Participant, upon issuance
of a Letter of Credit (or, in the case of each Existing Letter of
Credit, on the Closing Date), shall be deemed to have purchased
without recourse a risk participation from the Issuing Lender in such
Letter of Credit and the obligations arising thereunder and any
collateral relating thereto, in each case in an amount equal to its
Revolving Loan Commitment Percentage of the obligations under such
Letter of Credit, and shall absolutely, unconditionally and
irrevocably assume, as primary obligor and not as surety, and be
obligated to pay to the Issuing Lender therefor and discharge when
due, its Revolving Loan Commitment Percentage of the obligations
arising under such Letter of Credit. Without limiting the scope and
nature of each LOC Participant's participation in any Letter of
Credit, to the extent that the Issuing Lender has not been reimbursed
as required hereunder or under any such Letter of Credit, each such
LOC Participant shall pay to the Issuing Lender its Revolving Loan
Commitment Percentage of such unreimbursed drawing in same day funds
on the day of notification by the Issuing Lender of an unreimbursed
drawing pursuant to the provisions of subsection (d) hereof. The
obligation of each LOC Participant to so reimburse the Issuing Lender
shall be absolute and unconditional and shall not be affected by the
occurrence of a Default, an Event of Default or any other occurrence
or event. Any such reimbursement shall not relieve or otherwise
impair the obligation of the Borrower or any other Credit Party to
reimburse the Issuing Lender under any Letter of Credit, together with
interest as hereinafter provided.
(d) Reimbursement. In the event of any drawing under any
Letter of Credit, the Issuing Lender will promptly notify the
Borrower. Unless the Borrower shall immediately notify the Issuing
Lender of its intent to otherwise reimburse the Issuing Lender, the
Borrower shall be deemed to have requested a Revolving Loan at the
Adjusted Base Rate in the amount of the drawing as provided in
subsection (e) hereof, the proceeds of which will be used to satisfy
the reimbursement obligations. The Borrower shall reimburse the
Issuing Lender on the day of drawing under any Letter of Credit either
with the proceeds of a Revolving Loan obtained hereunder or otherwise
in same day funds as provided herein or in the LOC
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Documents. If the Borrower shall fail to reimburse the Issuing Lender
as provided hereinabove, the unreimbursed amount of such drawing shall
bear interest at a per annum rate equal to the Base Rate plus the
Applicable Percentage for the Base Rate Loans that are Revolving Loans
plus two percent (2%). The Borrower's reimbursement obligations
hereunder shall be absolute and unconditional under all circumstances
irrespective of (but without waiver of) any rights of set-off,
counterclaim or defense to payment the applicable account party or the
Borrower may claim or have against the Issuing Lender, the Agent, the
Lenders, the beneficiary of the Letter of Credit drawn upon or any
other Person, including without limitation, any defense based on any
failure of the applicable account party, the Borrower or any other
Credit Party to receive consideration or the legality, validity,
regularity or unenforceability of the Letter of Credit. The Issuing
Lender will promptly notify the LOC Participants of the amount of any
unreimbursed drawing and each LOC Participant shall promptly pay to
the Agent for the account of the Issuing Lender, in Dollars and in
immediately available funds, the amount of such LOC Participant's
Revolving Loan Commitment Percentage of such unreimbursed drawing.
Such payment shall be made on the day such notice is received by such
Lender from the Issuing Lender if such notice is received at or before
2:00 p.m., otherwise such payment shall be made at or before 12:00
Noon on the Business Day next succeeding the day such notice is
received. If such LOC Participant does not pay such amount to the
Issuing Lender in full upon such request, such LOC Participant shall,
on demand, pay to the Agent for the account of the Issuing Lender
interest on the unpaid amount during the period from the date the LOC
Participant received the notice regarding the unreimbursed drawing
until such LOC Participant pays such amount to the Issuing Lender in
full at a rate per annum equal to, if paid within two Business Days of
the date of drawing, the Federal Funds Rate and thereafter at a rate
equal to the Base Rate. Each LOC Participant's obligation to make
such payment to the Issuing Lender, and the right of the Issuing
Lender to receive the same, shall be absolute and unconditional, shall
not be affected by any circumstance whatsoever and without regard to
the termination of this Credit Agreement or the Commitments hereunder,
the existence of a Default or Event of Default or the acceleration of
the obligations hereunder and shall be made without any offset,
abatement, withholding or reduction whatsoever. Simultaneously with
the making of each such payment by a LOC Participant to the Issuing
Lender, such LOC Participant shall, automatically and without any
further action on the part of the Issuing Lender or such LOC
Participant, acquire a participation in an amount equal to such
payment (excluding the portion of such payment constituting interest
owing to the Issuing Lender) in the related unreimbursed drawing
portion of the LOC Obligation and in the interest thereon and in the
related LOC Documents, and shall have a claim against the Borrower and
the other Credit Parties with respect thereto.
(e) Repayment with Revolving Loans. On any day on which
the Borrower shall have requested, or been deemed to have requested, a
Revolving Loan borrowing to reimburse
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a drawing under a Letter of Credit, the Agent shall give notice to the
applicable Lenders that a Revolving Loan has been requested or deemed
requested in connection with a drawing under a Letter of Credit, in
which case a Revolving Loan borrowing comprised solely of Base Rate
Loans (each such borrowing, a "Mandatory Borrowing") shall be
immediately made from all applicable Lenders (without giving effect to
any termination of the Commitments pursuant to Section 9.2) pro rata
based on each Lender's respective Revolving Loan Commitment Percentage
and the proceeds thereof shall be paid directly to the Issuing Lender
for application to the respective LOC Obligations. Each such Lender
hereby irrevocably agrees to make such Revolving Loans immediately
upon any such request or deemed request on account of each such
Mandatory Borrowing in the amount and in the manner specified in the
preceding sentence and on the same such date notwithstanding (i) the
amount of Mandatory Borrowing may not comply with the minimum amount
for borrowings of Revolving Loans otherwise required hereunder, (ii)
whether any conditions specified in Section 5 are then satisfied,
(iii) whether a Default or Event of Default then exists, (iv) failure
of any such request or deemed request for Revolving Loans to be made
by the time otherwise required hereunder, (v) the date of such
Mandatory Borrowing, or (vi) any reduction in the Revolving Committed
Amount or any termination of the Commitments. In the event that any
Mandatory Borrowing cannot for any reason be made on the date
otherwise required above (including, without limitation, as a result
of the commencement of a proceeding under the Bankruptcy Code with
respect to the Borrower or any other Credit Party), then each such
Lender hereby agrees that it shall forthwith fund (as of the date the
Mandatory Borrowing would otherwise have occurred, but adjusted for
any payments received from the Borrower on or after such date and
prior to such purchase) its Participation Interest in the outstanding
LOC Obligations; provided further, that in the event any Lender shall
fail to fund its Participation Interest on the day the Mandatory
Borrowing would otherwise have occurred, then the amount of such
Lender's unfunded Participation Interest therein shall bear interest
payable to the Issuing Lender upon demand, at the rate equal to, if
paid within two Business Days of such date, the Federal Funds Rate,
and thereafter at a rate equal to the Base Rate.
(f) Designation of Subsidiaries as Account Parties;
Existing Letters of Credit. Notwithstanding anything to the contrary
set forth in this Credit Agreement, a Letter of Credit issued
hereunder may contain a statement to the effect that such Letter of
Credit is issued for the account of a Subsidiary of the Borrower;
provided that notwithstanding such statement, the Borrower shall be
the actual account party for all purposes of this Credit Agreement for
such Letter of Credit and such statement shall not affect the
Borrower's reimbursement obligations hereunder with respect to such
Letter of Credit.
(g) Modification and Extension. The issuance of any
supplement, modification, amendment, renewal, or extensions to any
Letter of Credit shall, for purposes hereof, be treated in all
respects the same as the issuance of a new Letter of Credit hereunder.
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(h) Uniform Customs and Practices. The Issuing Lender
may have the Letters of Credit be subject to The Uniform Customs and
Practice for Documentary Credits, as published as of the date of issue
by the International Chamber of Commerce (Publication No. 500 or the
most recent publication, the "UCP"), in which case the UCP may be
incorporated therein and deemed in all respects to be a part thereof.
(i) Responsibility of Issuing Lender. It is expressly
understood and agreed that the obligations of the Issuing Lender
hereunder to the LOC Participants are only those expressly set forth
in this Credit Agreement and that the Issuing Lender shall be entitled
to assume that the conditions precedent set forth in Section 5 have
been satisfied unless it shall have acquired actual knowledge that any
such condition precedent has not been satisfied; provided, however,
that nothing set forth in this Section 2.2 shall be deemed to
prejudice the right of any LOC Participant to recover from the Issuing
Lender any amounts made available by such LOC Participant to the
Issuing Lender pursuant to this Section 2.2 in the event that it is
determined by a court of competent jurisdiction that the payment with
respect to a Letter of Credit constituted gross negligence or willful
misconduct on the part of the Issuing Lender.
(j) Conflict with LOC Documents. In the event of any
conflict between this Credit Agreement and any LOC Document, this
Credit Agreement shall govern.
(k) Indemnification of Issuing Lender.
(i) In addition to its other obligations under
this Credit Agreement, the Borrower hereby agrees to protect,
indemnify, pay and save the Issuing Lender harmless from and
against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable
attorneys' fees) that the Issuing Lender may incur or be
subject to as a consequence, direct or indirect, of (A) the
issuance of any Letter of Credit or (B) the failure of the
Issuing Lender to honor a drawing under a Letter of Credit as
a result of any act or omission, whether rightful or wrongful,
of any present or future de jure or de facto government or
governmental authority (all such acts or omissions, herein
called "Government Acts").
(ii) As between the Borrower and the Issuing
Lender, the Borrower shall assume all risks of the acts,
omissions or misuse of any Letter of Credit by the beneficiary
thereof. The Issuing Lender shall not be responsible for:
(A) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any party in
connection with the application for and issuance of any Letter
of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or
forged; (B) the validity or sufficiency of any instrument
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<PAGE> 39
transferring or assigning or purporting to transfer or assign
any Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, that may prove to be
invalid or ineffective for any reason; (C) failure of the
beneficiary of a Letter of Credit to comply fully with
conditions required in order to draw upon a Letter of Credit;
(D) errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable, telegraph, telex
or otherwise, whether or not they be in cipher; (E) errors in
interpretation of technical terms; (F) any loss or delay in
the transmission or otherwise of any document required in
order to make a drawing under a Letter of Credit or of the
proceeds thereof; and (G) any consequences arising from causes
beyond the control of the Issuing Lender, including, without
limitation, any Government Acts. None of the above shall
affect, impair, or prevent the vesting of the Issuing Lender's
rights or powers hereunder.
(iii) In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth,
any action taken or omitted by the Issuing Lender, under or in
connection with any Letter of Credit or the related
certificates, if taken or omitted in good faith, shall not put
the Issuing Lender under any resulting liability to the
Borrower or any other Credit Party. It is the intention of
the parties that this Credit Agreement shall be construed and
applied to protect and indemnify the Issuing Lender against
any and all risks involved in the issuance of the Letters of
Credit, all of which risks are hereby assumed by the Borrower,
including, without limitation, any and all risks of the acts
or omissions, whether rightful or wrongful, of any present or
future Government Acts. The Issuing Lender shall not, in any
way, be liable for any failure by the Issuing Lender or anyone
else to pay any drawing under any Letter of Credit as a result
of any Government Acts or any other cause beyond the control
of the Issuing Lender.
(iv) Nothing in this subsection (k) is intended to
limit the reimbursement obligation of the Borrower contained
in this Section 2.2. The obligations of the Borrower under
this subsection (k) shall survive the termination of this
Credit Agreement. No act or omission of any current or prior
beneficiary of a Letter of Credit shall in any way affect or
impair the rights of the Issuing Lender to enforce any right,
power or benefit under this Credit Agreement.
(v) Notwithstanding anything to the contrary
contained in this subsection (k), the Borrower shall have no
obligation to indemnify the Issuing Lender in respect of any
liability incurred by the Issuing Lender arising solely out of
the gross negligence or willful misconduct of the Issuing
Lender, as determined by a court of competent jurisdiction.
2.3 TERM LOANS.
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(a) Term Loans. Subject to the terms and conditions set
forth herein, each Lender severally agrees, on the Closing Date, to
make a term loan (collectively, the "Term Loans") to the Borrower, in
Dollars, in an amount equal to such Lender's Term Loan Commitment
Percentage, if any, of the Term Loan Committed Amount; provided that
the aggregate amount of such Term Loans made on the Closing Date shall
not exceed the Term Loan Committed Amount. Once repaid, Term Loans
cannot be reborrowed.
(b) Funding of Term Loans. On the Closing Date, each
applicable Lender will make its Term Loan Commitment Percentage of the
Term Loan Committed Amount available to the Agent by deposit, in
Dollars and in immediately available funds, at the offices of the
Agent at its principal office in Charlotte, North Carolina or at such
other address as the Agent may designate in writing. The amount of
the Term Loans will then be made available to the Borrower by the
Agent by crediting the account of the Borrower on the books of such
office of the Agent, to the extent the amount of such Term Loans are
made available to the Agent. All Term Loans on the Closing Date shall
be Base Rate Loans. Thereafter, all or any portion of the Term Loans
may be converted into Eurodollar Loans in accordance with the terms of
Section 2.4.
No Lender shall be responsible for the failure or delay by any
other Lender in its obligation to make a Term Loan hereunder;
provided, however, that the failure of any Lender to fulfill its
obligations hereunder shall not relieve any other Lender of its
obligations hereunder. If the Agent shall have received (and shall
have been authorized to release from escrow) an executed signature
page to this Credit Agreement (whether an original or via telecopy)
from a Lender, the Agent may assume that such Lender has or will make
the amount of its Term Loans available to the Agent on the Closing
Date, and the Agent in reliance upon such assumption, shall make
available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Agent, the
Agent shall be able to recover such corresponding amount from such
Lender. If such Lender does not pay such corresponding amount
forthwith upon the Agent's demand therefor, the Agent will promptly
notify the Borrower, and the Borrower shall immediately pay such
corresponding amount to the Agent. The Agent shall also be entitled
to recover from the Lender or the Borrower, as the case may be,
interest on such corresponding amount in respect of each day from the
date such corresponding amount was made available by the Agent to the
Borrower to the date such corresponding amount is recovered by the
Agent at a per annum rate equal to (i) from the Borrower at the
applicable rate for such Term Loan and (ii) from a Lender at the
Federal Funds Rate.
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(c) Amortization. The principal amount of the Term Loans
shall be repaid in quarterly payments on the dates set forth below:
<TABLE>
<CAPTION>
=====================================================================
PRINCIPAL AMORTIZATION PAYMENT FOR
PRINCIPAL AMORTIZATION EACH APPLICABLE PRINCIPAL
PAYMENT DATE AMORTIZATION PAYMENT DATE
- ---------------------------------------------------------------------
<S> <C>
July 3, 1999, October $1,000,000
2, 1999, January 1,
2000
and
April 1, 2000
- ---------------------------------------------------------------------
July 1, 2000, September $1,250,000
30, 2000, December 30,
2000 and
March 31, 2001
- ---------------------------------------------------------------------
June 30, 2001, $1,500,000
September 29, 2001,
December 29, 2001 and
March 30, 2002
- ---------------------------------------------------------------------
June 29, 2002, $1,750,000
September 28, 2002,
December 28, 2002
and
March 29, 2003
- ---------------------------------------------------------------------
June 28, 2003, $2,000,000
September 27, 2003,
January 3, 2004
and
April 3, 2004
=====================================================================
</TABLE>
2.4 CONTINUATIONS AND CONVERSIONS.
Subject to the terms of Section 5.2, the Borrower shall have the
option, on any Business Day, to continue existing Eurodollar Loans for a
subsequent Interest Period, to convert Base Rate Loans
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into Eurodollar Loans or to convert Eurodollar Loans into Base Rate Loans;
provided, however, that (a) each such continuation or conversion must be
requested by the Borrower pursuant to a written Notice of
Continuation/Conversion, in the form of Exhibit 2.4, in compliance with the
terms set forth below, (b) except as provided in Section 3.12, Eurodollar Loans
may only be continued or converted into Base Rate Loans on the last day of the
Interest Period applicable hereto, (c) Eurodollar Loans may not be continued
nor may Base Rate Loans be converted into Eurodollar Loans during the existence
and continuation of a Default or Event of Default and (d) any request to extend
a Eurodollar Loan that fails to comply with the terms hereof or any failure to
request an extension of a Eurodollar Loan at the end of an Interest Period
shall constitute a conversion to a Base Rate Loan on the last day of the
applicable Interest Period. Each continuation or conversion must be requested
by the Borrower no later than 11:00 a.m. (i) on the date for a requested
conversion of a Eurodollar Loan to a Base Rate Loan or (ii) three Business Days
prior to the date for a requested continuation of a Eurodollar Loan or
conversion of a Base Rate Loan to a Eurodollar Loan, in each case pursuant to a
written Notice of Continuation/Conversion submitted to the Agent which shall
set forth (A) whether the Loans to be continued or converted are Revolving
Loans or Term Loans, (B) whether the Borrower wishes to continue or convert
such Loans and (C) if the request is to continue a Eurodollar Loan or convert a
Base Rate Loan to a Eurodollar Loan, the Interest Period applicable thereto.
2.5 MINIMUM AMOUNTS, ETC.
Each request for a borrowing, conversion or continuation shall be
subject to the requirements that (a) each Eurodollar Loan shall be in a minimum
amount of $1,000,000 and in integral multiples of $100,000 in excess thereof,
(b) each Base Rate Loan shall, subject to the terms of Section 2.2(e), be in a
minimum amount of the lesser of $1,000,000 (and integral multiples of $100,000
in excess thereof) or the remaining amount available under the Revolving
Committed Amount or the Term Committed Amount, as applicable and (c) no more
than 5 Eurodollar Loans (in the aggregate for Revolving Loans and Term Loans)
shall be outstanding hereunder at any one time. For the purposes of this
Section, all Eurodollar Loans with the same Interest Periods shall be
considered as one Eurodollar Loan, but Eurodollar Loans with different Interest
Periods, even if they begin on the same date, shall be considered as separate
Eurodollar Loans.
2.6 NOTES.
(a) Revolving Loan Notes. The Revolving Loans made by
each Lender shall be evidenced by a duly executed promissory note of
the Borrower to each applicable Lender in the face amount of its
Revolving Loan Commitment Percentage of the Revolving Committed Amount
in substantially the form of Exhibit 2.6(a).
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(b) Term Loan Notes. The Term Loan made by each Lender
shall be evidenced by a duly executed promissory note of the Borrower
to each applicable Lender in the face amount of its Term Loan
Commitment Percentage of the Term Loan Committed Amount in
substantially the form of Exhibit 2.6(b).
SECTION 3
GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT
3.1 INTEREST.
(a) Interest Rate. All Base Rate Loans shall accrue
interest at the Adjusted Base Rate and all Eurodollar Loans shall
accrue interest at the Adjusted Eurodollar Rate.
(b) Default Rate of Interest. Upon the occurrence, and
during the continuance, of an Event of Default under Section 7.1(a),
(b) (to the extent involving a misrepresentation which, in the
reasonable determination of the Agent, could be reasonably expected to
constitute a Material Adverse Effect), (c)(ii), (e), (f), (g), (h),
(i) or (j), the principal of and, to the extent permitted by law,
interest on the Loans and any other amounts owing (but not timely
paid) hereunder or under the other Credit Documents (including without
limitation fees and expenses) shall bear interest, payable on demand,
at a per annum rate equal to 2% plus the rate which would otherwise be
applicable (or if no rate is applicable, then the Adjusted Base Rate
plus two percent (2%) per annum).
(c) Interest Payments. Interest on Loans shall be due
and payable in arrears on each Interest Payment Date. If an Interest
Payment Date falls on a date which is not a Business Day, such
Interest Payment Date shall be deemed to be the next succeeding
Business Day, except that in the case of Eurodollar Loans where the
next succeeding Business Day falls in the next succeeding calendar
month, then on the next preceding Business Day.
3.2 PLACE AND MANNER OF PAYMENTS.
All payments of principal, interest, fees, expenses and other amounts
to be made by a Credit Party under this Credit Agreement shall be received not
later than 2:00 p.m. on the date when due, in Dollars and in immediately
available funds, by the Agent at its offices at 101 North Tryon Street,
Charlotte, North Carolina 28202. Payments received after such time shall be
deemed to have been received on the next Business Day. The Borrower shall, at
the time it makes any payment under this Credit Agreement, specify to the
Agent, the Loans, Letters of Credit, fees or other amounts payable by the
Borrower hereunder to which such payment is to be applied (and in the event
that it fails to specify, or if such application would be inconsistent with the
terms hereof, the Agent shall, subject
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to Section 3.7, distribute such payment to the Lenders in such manner as the
Agent may deem appropriate). The Agent will distribute on the same day of
receipt, such payments to the applicable Lenders if any such payment is
received prior to 2:00 p.m.; otherwise the Agent will distribute such payment
to the applicable Lenders on the next succeeding Business Day. Whenever any
payment hereunder shall be stated to be due on a day which is not a Business
Day, the due date thereof shall be extended to the next succeeding Business Day
(subject to accrual of interest and fees for the period of such extension),
except that in the case of Eurodollar Loans, if the extension would cause the
payment to be made in the next following calendar month, then such payment
shall instead be made on the next preceding Business Day.
3.3 PREPAYMENTS.
(a) Voluntary Prepayments. The Borrower shall have the
right to prepay Loans in whole or in part from time to time without
premium or penalty; provided, however, that (i) Eurodollar Loans may
only be prepaid if the Agent has received written notice of such
prepayment by no later than 11:00 a.m. on the date three Business
Days' prior to such prepayment and any prepayment of Eurodollar Loans
will be subject to Section 3.15; (ii) each such partial prepayment of
Loans shall be in the minimum principal amount of $500,000 and
integral multiples of $100,000 in excess thereof and (iii) any
voluntary prepayment of the Term Loans shall be applied first to the
next Principal Amortization Payment with any remainder applied pro
rata among the remaining Principal Amortization Payments. Subject to
the foregoing terms, amounts prepaid under this Section 3.3(a) shall
be applied as the Borrower elects; provided that if Borrower shall
fail to specify, such prepayment shall be applied first to Term Loans
and then to Revolving Loans and, in each case first to Base Rate Loans
and then to Eurodollar Loans in direct order of Interest Period
maturities.
(b) Mandatory Prepayments.
(i) Revolving Committed Amount. If at any time
the sum of the aggregate amount of Revolving Loans outstanding
plus LOC Obligations outstanding exceeds the Revolving
Committed Amount, the Borrower shall immediately make a
principal payment to the Agent in the manner and in an amount
necessary to be in compliance with Section 2.1.
(ii) Excess Cash Flow. If the Total Leverage
Ratio as of June 30, 1999 is greater than 3.50 to 1.00, then
within 90 days after such date the Borrower shall prepay the
Loans in an amount equal to (x) 50% of the Excess Cash Flow
for the twelve-month period ended on such June 30 less (y) the
amount of any voluntary prepayments of the Term Loans or (to
the extent accompanied by a reduction in the
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<PAGE> 45
Revolving Committed Amount) of the Revolving Loans during the
twelve-month period ended on such June 30. Thereafter, if the
Total Leverage Ratio as of the end of any fiscal year of the
Borrower is greater than 3.50 to 1.00, then within ninety (90)
days after such fiscal year end the Borrower shall prepay the
Loans in an amount equal to fifty (50%) percent of the Excess
Cash Flow for such fiscal year (provided that for the fiscal
year ending January 1, 2000, the calculation of the amount of
the prepayment required by this Section 3.3(b)(ii) shall be
based on the 2 fiscal quarter period then ended). Any
prepayments pursuant to this clause (ii) shall be applied as
set forth in clause (v) below.
(iii) Asset Dispositions. Immediately upon the
occurrence of any Asset Disposition Prepayment Event, the
Borrower shall prepay the Loans in an aggregate amount equal
to the Net Cash Proceeds of the related Asset Disposition not
applied (or caused to be applied) by the Borrower during the
related Application Period to the purchase, acquisition or
construction of Eligible Assets as contemplated by the terms
of Section 8.5(v) (such prepayment to be applied as set forth
in clause (v) below). For purposes or this clause (iii),
acquisitions of Eligible Assets during the 180-day period
preceding such Asset Disposition shall be deemed to satisfy
the application of Net Cash Proceeds required in the preceding
sentence.
(iv) Issuances of Equity. Immediately upon
receipt by a Consolidated Party of proceeds from any Equity
Issuance, the Borrower shall prepay the Loans in an aggregate
amount equal to 50% of the Net Cash Proceeds of such Equity
Issuance (such prepayment to be applied as set forth in clause
(v) below).
(v) Application of Mandatory Prepayments. All
amounts required to be paid pursuant to this Section 3.3(b)
shall be applied as follows: (A) with respect to all amounts
prepaid pursuant to Section 3.3(b)(i), to Revolving Loans and
(after all Revolving Loans have been repaid) to a cash
collateral account in respect of LOC Obligations and (B) with
respect to all amounts prepaid pursuant to Section 3.3(b)(ii),
(iii) and (iv), (1) first to the outstanding Term Loans (first
to the next Principal Amortization Payment with any remainder
applied pro rata among the remaining Principal Amortization
Payments) and (2) second to the Revolving Loans and (after all
Revolving Loans have been repaid) to a cash collateral account
in respect of LOC Obligations (with a corresponding reduction
in the Revolving Committed Amount in an amount equal to all
amounts applied pursuant to this clause (2)). Within the
parameters of the applications set forth above, prepayments
shall be applied first to Base Rate Loans and then to
Eurodollar Loans in direct order of Interest Period
maturities. All prepayments hereunder shall be subject to
Section 3.15.
3.4 FEES.
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<PAGE> 46
(a) Commitment Fees. In consideration of the Revolving
Committed Amount being made available by the Lenders hereunder, the
Borrower agrees to pay to the Agent, for the pro rata benefit of each
applicable Lender (based on each Lender's Revolving Loan Commitment
Percentage of the Revolving Committed Amount), a per annum fee equal
to the Applicable Percentage of the Unused Revolving Commitment (the
"Commitment Fees"). The accrued Commitment Fees shall commence to
accrue on the Closing Date and shall be due and payable in arrears on
the last Business Day of each fiscal quarter of the Borrower (as well
as on the Maturity Date and on any date that the Revolving Committed
Amount is reduced) for the immediately preceding fiscal quarter (or
portion thereof), beginning with the first of such dates to occur
after the Closing Date.
(b) Letter of Credit Fees.
(i) Standby Letter of Credit Issuance Fee. In
consideration of the issuance of standby Letters of Credit
hereunder, the Borrower promises to pay to the Agent for the
account of each Lender a fee (the "Standby Letter of Credit
Fee") on such Lender's Commitment Percentage of the average
daily maximum amount available to be drawn under each such
standby Letter of Credit computed at a per annum rate for each
day from the date of issuance to the date of expiration equal
to the Applicable Percentage. The Standby Letter of Credit
Fee be payable quarterly in arrears 15 days after the end of
each fiscal quarter of the Borrower and on the Maturity Date.
(ii) Trade Letter of Credit Drawing Fee. In
consideration of the issuance of trade Letters of Credit
hereunder, the Borrower promises to pay to the Agent for the
account of each Lender a fee (the "Trade Letter of Credit
Fee") equal to the Applicable Percentage on such Lender's
Commitment Percentage of the amount of each drawing under any
such trade Letter of Credit. The Trade Letter of Credit Fee
will be payable on each date of drawing under a trade Letter
of Credit.
(iii) Issuing Lender Fees. In addition to the
Standby Letter of Credit Fee and the Trade Letter of Credit
Fee payable pursuant to subsections (i) and (ii) above, the
Borrower shall pay to the Issuing Lender for its own account,
without sharing by the other Lenders, (i) a the letter of
credit fronting fee of 25 basis points on the face amount of
each Letter of Credit and (ii) the customary charges from time
to time to the Issuing Lender for its services in connection
with the issuance, amendment, payment, transfer,
administration, cancellation and conversion of, and drawings
under, such Letters of Credit (collectively, the "Issuing
Lender Fees").
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<PAGE> 47
(c) Administrative Fees. The Borrower agrees to pay to
the Agent, for its own account, an annual fee as agreed to between the
Borrower and the Agent in the Fee Letter.
3.5 PAYMENT IN FULL AT MATURITY.
On the Maturity Date, the entire outstanding principal balance
of all Loans, together with accrued but unpaid interest and all other
sums owing with respect thereto, shall be due and payable in full,
unless accelerated sooner pursuant to Section 9.
3.6 COMPUTATIONS OF INTEREST AND FEES.
(a) Except for Base Rate Loans, in which case interest
shall be computed on the basis of a 365 or 366 day year as the case
may be (unless the Base Rate is determined by reference to the Federal
Funds Rate), all computations of interest and fees hereunder shall be
made on the basis of the actual number of days elapsed over a year of
360 days. Interest shall accrue from and include the date of
borrowing (or continuation or conversion) but exclude the date of
payment.
(b) It is the intent of the Lenders and the Credit
Parties to conform to and contract in strict compliance with
applicable usury law from time to time in effect. All agreements
between the Lenders and the Borrower are hereby limited by the
provisions of this paragraph which shall override and control all such
agreements, whether now existing or hereafter arising and whether
written or oral. In no way, nor in any event or contingency
(including but not limited to prepayment or acceleration of the
maturity of any obligation), shall the interest taken, reserved,
contracted for, charged, or received under this Credit Agreement,
under the Notes or otherwise, exceed the maximum non-usurious amount
permissible under applicable law. If, from any possible construction
of any of the Credit Documents or any other document, interest would
otherwise be payable in excess of the maximum non-usurious amount, any
such construction shall be subject to the provisions of this paragraph
and such documents shall be automatically reduced to the maximum
non-usurious amount permitted under applicable law, without the
necessity of execution of any amendment or new document. If any
Lender shall ever receive anything of value which is characterized as
interest on the Loans under applicable law and which would, apart from
this provision, be in excess of the maximum lawful amount, an amount
equal to the amount which would have been excessive interest shall,
without penalty, be applied to the reduction of the principal amount
owing on the Loans and not to the payment of interest, or refunded to
the Borrower or the other payor thereof if and to the extent such
amount which would have been excessive exceeds such unpaid principal
amount of the Loans. The right to demand payment of the Loans or any
other indebtedness evidenced by any of the Credit Documents does not
include the right to receive any interest which has not otherwise
accrued on the date of such demand, and the Lenders do not intend to
charge or receive any unearned interest in the event of such demand.
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All interest paid or agreed to be paid to the Lenders with respect to
the Loans shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full stated
term (including any renewal or extension) of the Loans so that the
amount of interest on account of such indebtedness does not exceed the
maximum non-usurious amount permitted by applicable law.
3.7 PRO RATA TREATMENT.
Except to the extent otherwise provided herein:
(a) Loans. Each Revolving Loan borrowing (including,
without limitation, each Mandatory Borrowing), each payment or
prepayment of principal of any Loan, each payment of fees (other than
the Issuing Lender Fees retained by the Issuing Lender for its own
account and the Administrative Fees retained by the Agent for its own
account), each reduction of the Revolving Committed Amount, and each
conversion or continuation of any Loan, shall (except as otherwise
provided in Section 3.3(c)) be allocated pro rata among the relevant
Lenders in accordance with the respective Revolving Loan Commitment
Percentages and Term Loan Commitment Percentages, as applicable, of
such Lenders (or, if the Commitments of such Lenders have expired or
been terminated, in accordance with the respective principal amounts
of the outstanding Revolving Loans and Participation Interests and
outstanding Term Loans, as applicable, of such Lenders); provided
that, if any Lender shall have failed to pay its applicable pro rata
share of any Loan, then any amount to which such Lender would
otherwise be entitled pursuant to this subsection (a) shall instead be
payable to the Agent; provided further, that in the event any amount
paid to any Lender pursuant to this subsection (a) is rescinded or
must otherwise be returned by the Agent, each Lender shall, upon the
request of the Agent, repay to the Agent the amount so paid to such
Lender, with interest for the period commencing on the date such
payment is returned by the Agent until the date the Agent receives
such repayment at a rate per annum equal to, during the period to but
excluding the date two Business Days after such request, the Federal
Funds Rate, and thereafter, the Base Rate plus two percent (2%) per
annum; and
(b) Letters of Credit. Each payment of unreimbursed
drawings in respect of LOC Obligations shall be allocated to each LOC
Participant pro rata in accordance with its Revolving Loan Commitment
Percentage; provided that, if any LOC Participant shall have failed to
pay its applicable pro rata share of any drawing under any Letter of
Credit, then any amount to which such LOC Participant would otherwise
be entitled pursuant to this subsection (b) shall instead be payable
to the Issuing Lender; provided further, that in the event any amount
paid to any LOC Participant pursuant to this subsection (b) is
rescinded or must otherwise be returned by the Issuing Lender, each
LOC Participant shall, upon the request of
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the Issuing Lender, repay to the Agent for the account of the Issuing
Lender the amount so paid to such LOC Participant, with interest for
the period commencing on the date such payment is returned by the
Issuing Lender until the date the Issuing Lender receives such
repayment at a rate per annum equal to, during the period to but
excluding the date two Business Days after such request, the Federal
Funds Rate, and thereafter, the Base Rate plus two percent (2%) per
annum.
3.8 ALLOCATION OF PAYMENTS AFTER EVENT OF DEFAULT.
Notwithstanding any other provisions of this Credit Agreement, after
the occurrence and during the continuance of an Event of Default, all amounts
collected or received by the Agent or any Lender on account of amounts
outstanding under any of the Credit Documents or in respect of the Collateral
shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs
and expenses (including without limitation reasonable attorneys' fees)
of the Agent in connection with enforcing the rights of the Lenders
under the Credit Documents and any protective advances made by the
Agent with respect to the Collateral under or pursuant to the terms of
the Collateral Documents;
SECOND, to payment of any fees owed to the Agent or the
Issuing Lender;
THIRD, to the payment of all reasonable out-of-pocket costs
and expenses, (including, without limitation, reasonable attorneys'
fees) of each of the Lenders in connection with enforcing its rights
under the Credit Documents;
FOURTH, to the payment of all accrued fees and interest
payable to the Lenders hereunder;
FIFTH, to the payment of the outstanding principal amount of
the Loans, to the payment or cash collateralization of the outstanding
LOC Obligations, and, in the case of any proceeds of Collateral, to
the outstanding principal portion of any Hedging Obligations, pro
rata, as set forth below;
SIXTH, to all other obligations which shall have become due
and payable under the Credit Documents and not repaid pursuant to
clauses "FIRST" through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may
be lawfully entitled to receive such surplus.
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In carrying out the foregoing, (a) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (b) each of the Lenders shall receive an amount equal to
its pro rata share (based on the proportion that the then outstanding Loans,
LOC Obligations and Hedging Obligations held by such Lender bears to the
aggregate then outstanding Loans, LOC Obligations and Hedging Obligations held
by all of the Lenders) of amounts available to be applied pursuant to clauses
"THIRD", "FOURTH," "FIFTH," and "SIXTH" above; and (c) to the extent that any
amounts available for distribution pursuant to clause "FIFTH" above are
attributable to the issued but undrawn amount of an outstanding Letter of
Credit, such amounts shall be held by the Agent in a cash collateral account
and applied (x) first, to reimburse the Issuing Lender from time to time for
any drawings under such Letter of Credit and (y) then, following the expiration
of such Letter of Credit, to all other obligations of the types described in
clauses "FIFTH" and "SIXTH" above in the manner provided in this Section 3.8.
3.9 SHARING OF PAYMENTS.
The Lenders agree among themselves that, except to the extent
otherwise provided herein, in the event that any Lender shall obtain payment in
respect of any Loan, unreimbursed drawing with respect to any LOC Obligations
or any other obligation owing to such Lender under this Credit Agreement
through the exercise of a right of setoff, banker's lien or counterclaim, or
pursuant to a secured claim under Section 506 of the Bankruptcy Code or other
security or interest arising from, or in lieu of, such secured claim, received
by such Lender under any applicable bankruptcy, insolvency or other similar law
or otherwise, or by any other means, in excess of its pro rata share of such
payment as provided for in this Credit Agreement, such Lender shall promptly
pay in cash or purchase from the other Lenders a participation in such Loans,
LOC Obligations, and other obligations in such amounts, and make such other
adjustments from time to time, as shall be equitable to the end that all
Lenders share such payment in accordance with their respective ratable shares
as provided for in this Credit Agreement. The Lenders further agree among
themselves that if payment to a Lender obtained by such Lender through the
exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by payment in cash or a
repurchase of a participation theretofore sold, return its share of that
benefit (together with its share of any accrued interest payable with respect
thereto) to each Lender whose payment shall have been rescinded or otherwise
restored. The Borrower agrees that any Lender so purchasing such a
participation may, to the fullest extent permitted by law, exercise all rights
of payment, including setoff, banker's lien or counterclaim, with respect to
such participation as fully as if such Lender were a holder of such Loan, LOC
Obligation or other obligation in the amount of such participation. Except as
otherwise expressly provided in this Credit Agreement, if any Lender or the
Agent shall fail to remit to the Agent or any other Lender an amount payable by
such Lender or the Agent to the Agent or such other Lender pursuant to this
Credit Agreement on the date when such amount is due, such payments shall be
made together with interest
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thereon for each date from the date such amount is due until the date such
amount is paid to the Agent or such other Lender at a rate per annum equal to
the Federal Funds Rate. If under any applicable bankruptcy, insolvency or
other similar law, any Lender receives a secured claim in lieu of a setoff to
which this Section 3.9 applies, such Lender shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent
with the rights of the Lenders under this Section 3.9 to share in the benefits
of any recovery on such secured claim.
3.10 CAPITAL ADEQUACY.
If, after the date hereof, any Lender has determined that the adoption
or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or
administration of, any applicable law, rule or regulation regarding capital
adequacy, or compliance by such Lender, or its parent corporation, with any
request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Lender's (or
parent corporation's) capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which such Lender, or its parent
corporation, could have achieved but for such adoption, effectiveness, change
or compliance (taking into consideration such Lender's (or parent
corporation's) policies with respect to capital adequacy), then, upon prompt
notice from such Lender to the Borrower, the Borrower shall be obligated to pay
to such Lender such additional amount or amounts as will compensate such Lender
for such reduction. This covenant shall survive the termination of this Credit
Agreement and the payment of the Loans and all other amounts payable hereunder.
3.11 INABILITY TO DETERMINE INTEREST RATE.
If prior to the first day of any Interest Period, the Agent shall have
determined (which determination shall be conclusive and binding upon the
Borrower) that, by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate
for such Interest Period, the Agent shall give telecopy or telephonic notice
thereof to the Borrower and the Lenders as soon as practicable thereafter. If
such notice is given (a) any Eurodollar Loans requested to be made on the first
day of such Interest Period shall be made as Base Rate Loans, (b) any Loans
that were to have been converted on the first day of such Interest Period to or
continued as Eurodollar Loans shall be converted to or continued as Base Rate
Loans and (c) any outstanding Eurodollar Loans shall be converted, on the first
day of such Interest Period, to Base Rate Loans. Until such notice has been
withdrawn by the Agent, no further Eurodollar Loans shall be made or continued
as such, nor shall the Borrower have the right to convert Base Rate Loans to
Eurodollar Loans.
3.12 ILLEGALITY.
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Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application
thereof occurring after the Closing Date shall make it unlawful for any Lender
to make or maintain Eurodollar Loans as contemplated by this Credit Agreement,
(a) such Lender shall promptly give written notice of such circumstances to the
Borrower and the Agent (which notice shall be withdrawn whenever such
circumstances no longer exist), (b) the commitment of such Lender hereunder to
make Eurodollar Loans, continue Eurodollar Loans as such and convert a Base
Rate Loan to Eurodollar Loans shall forthwith be canceled and, until such time
as it shall no longer be unlawful for such Lender to make or maintain
Eurodollar Loans, such Lender shall then have a commitment only to make a Base
Rate Loan when a Eurodollar Loan is requested and (c) such Lender's Loans then
outstanding as Eurodollar Loans, if any, shall be converted automatically to
Base Rate Loans on the respective last days or the then current Interest
Periods with respect to such Loans or within such earlier period as required by
law. If any such conversion of a Eurodollar Loan occurs on a day which is not
the last day of the then current Interest Period with respect thereto, the
Borrower shall pay to such Lender such amounts, if any, as may be required
pursuant to Section 3.15.
3.13 REQUIREMENTS OF LAW.
If the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof applicable to any Lender, or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority, in each case made
subsequent to the Closing Date (or, if later, the date on which such Lender
becomes a Lender):
(a) shall subject such Lender to any tax of any kind
whatsoever with respect to any Letter of Credit, any Eurodollar Loans
made by it or its obligation to make Eurodollar Loans, or change the
basis of taxation of payments to such Lender in respect thereof
(except for Non-Excluded Taxes covered by Section 3.14 (including
Non-Excluded Taxes imposed solely by reason of any failure of such
Lender to comply with its obligations under Section 3.14(b)) and
changes in taxes measured by or imposed upon the overall net income,
or franchise tax (imposed in lieu of such net income tax), of such
Lender or its applicable lending office, branch, or any affiliate
thereof);
(b) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
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(c) shall impose on such Lender any other condition
(excluding any tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting
into, continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, upon prompt notice to the Borrower from such
Lender, through the Agent, in accordance herewith, the Borrower shall be
obligated to promptly pay such Lender, upon its demand, any additional amounts
necessary to compensate such Lender for such increased cost or reduced amount
receivable, provided that, in any such case, the Borrower may elect to convert
the Eurodollar Loans made by such Lender hereunder to Base Rate Loans by giving
the Agent at least one Business Day's notice of such election, in which case
the Borrower shall promptly pay to such Lender, upon demand, without
duplication, such amounts, if any, as may be required pursuant to Section 3.15.
If any Lender becomes entitled to claim any additional amounts pursuant to this
Section 3.13, it shall provide prompt notice thereof to the Borrower, through
the Agent, certifying (x) that one of the events described in this Section 3.13
has occurred and describing in reasonable detail the nature of such event, (y)
as to the increased cost or reduced amount resulting from such event and (z) as
to the additional amount demanded by such Lender and a reasonably detailed
explanation of the calculation thereof. Such a certificate as to any
additional amounts payable pursuant to this Section 3.13 submitted by such
Lender, through the Agent, to the Borrower shall be conclusive and binding on
the parties hereto in the absence of manifest error. This covenant shall
survive the termination of this Credit Agreement and the payment of the Loans
and all other amounts payable hereunder.
3.14 TAXES.
(a) Except as provided below in this Section 3.14, all
payments made by the Borrower under this Credit Agreement and any
Notes shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp
or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any court, or governmental body, agency or other official,
excluding taxes measured by or imposed upon the overall net income of
any Lender or its applicable lending office, or any branch or
affiliate thereof, and all franchise taxes, branch taxes, taxes on
doing business or taxes on the overall capital or net worth of any
Lender or its applicable lending office, or any branch or affiliate
thereof, in each case imposed in lieu of net income taxes, imposed:
(i) by the jurisdiction under the laws of which such Lender,
applicable lending office, branch or affiliate is organized or is
located, or in which its principal executive office is located, or any
nation within which such jurisdiction is located or any political
subdivision thereof; or (ii) by reason of any connection between the
jurisdiction imposing such tax and such Lender, applicable lending
office, branch or affiliate other than a connection arising solely
from such Lender having executed, delivered or performed its
obligations, or received payment under or enforced, this Credit
Agreement or
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any Notes. If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ("Non-Excluded Taxes") are
required to be withheld from any amounts payable to the Agent or any
Lender hereunder or under any Notes, (A) the amounts so payable to the
Agent or such Lender shall be increased to the extent necessary to
yield to the Agent or such Lender (after payment of all Non-Excluded
Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Credit Agreement and any
Notes, provided, however, that the Borrower shall be entitled to
deduct and withhold any Non-Excluded Taxes and shall not be required
to increase any such amounts payable to any Lender that is not
organized under the laws of the United States of America or a state
thereof if such Lender fails to comply with the requirements of
paragraph (b) of this Section 3.14 whenever any Non-Excluded Taxes are
payable by the Borrower, and (B) as promptly as possible thereafter
the Borrower shall send to the Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an
original official receipt received by the Borrower, if any, showing
payment thereof. If the Borrower fails to pay any Non-Excluded Taxes
when due to the appropriate taxing authority or fails to remit to the
Agent the required receipts or other required documentary evidence,
the Borrower shall indemnify the Agent and any Lender for any
incremental taxes, interest or penalties that may become payable by
the Agent or any Lender as a result of any such failure. The
agreements in this subsection shall survive the termination of this
Credit Agreement and the payment of the Loans and all other amounts
payable hereunder.
(b) Each Lender that is not incorporated under the laws
of the United States of America or a state thereof shall:
(i) (A) on or before the date of any payment
by the Borrower under this Credit Agreement or Notes to such
Lender, deliver to the Borrower and the Agent (x) two duly
completed copies of United States Internal Revenue Service
Form 1001 or 4224, or successor applicable form, as the case
may be, certifying that it is entitled to receive payments
under this Credit Agreement and any Notes without deduction or
withholding of any United States federal income taxes and (y)
an Internal Revenue Service Form W-8 or W-9, or successor
applicable form, as the case may be, certifying that it is
entitled to an exemption from United States backup withholding
tax;
(B) deliver to the Borrower and the Agent two
further copies of any such form or certification on or before
the date that any such form or certification expires or
becomes obsolete and after the occurrence of any event
requiring a change in the most recent form previously
delivered by it to the Borrower; and
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(C) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be
requested by the Borrower or the Agent; or
(ii) in the case of any such Lender that is not a
"bank" within the meaning of Section 881(c)(3)(A) of the
Internal Revenue Code, (A) represent to the Borrower (for the
benefit of the Borrower and the Agent) that it is not a bank
within the meaning of Section 881(c)(3)(A) of the Internal
Revenue Code, (B) agree to furnish to the Borrower, on or
before the date of any payment by the Borrower, with a copy to
the Agent, two accurate and complete original signed copies of
Internal Revenue Service Form W-8, or successor applicable
form certifying to such Lender's legal entitlement at the date
of such certificate to an exemption from U.S. withholding tax
under the provisions of Section 881(c) of the Internal Revenue
Code with respect to payments to be made under this Credit
Agreement and any Notes (and to deliver to the Borrower and
the Agent two further copies of such form on or before the
date it expires or becomes obsolete and after the occurrence
of any event requiring a change in the most recently provided
form and, if necessary, obtain any extensions of time
reasonably requested by the Borrower or the Agent for filing
and completing such forms), and (C) agree, to the extent
legally entitled to do so, upon reasonable request by the
Borrower, to provide to the Borrower (for the benefit of the
Borrower and the Agent) such other forms as may be reasonably
required in order to establish the legal entitlement of such
Lender to an exemption from withholding with respect to
payments under this Credit Agreement and any Notes.
Notwithstanding the above, if any change in treaty, law or regulation
has occurred after the date such Person becomes a Lender hereunder
which renders all such forms (including successor forms) inapplicable
or which would prevent such Lender from duly completing and delivering
any such form with respect to it and such Lender so advises the
Borrower and the Agent then such Lender shall be exempt from such
requirements. Each Person that shall become a Lender or a participant
of a Lender pursuant to Section 11.3 shall, upon the effectiveness of
the related transfer, be required to provide all of the forms,
certifications and statements required pursuant to this subsection
(b); provided that in the case of a participant of a Lender, the
obligations of such participant of a Lender pursuant to this
subsection (b) shall be determined as if the participant of a Lender
were a Lender except that such participant of a Lender shall furnish
all such required forms, certifications and statements to the Lender
from which the related participation shall have been purchased.
3.15 INDEMNITY.
The Borrower promises to indemnify each Lender and to hold each Lender
harmless from any loss or expense which such Lender may sustain or incur (other
than to the extent a consequence of such Lender's gross negligence or willful
misconduct) as a consequence of (a) default by the Borrower
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in making a borrowing of, conversion into or continuation of Eurodollar Loans
after the Borrower has given a written notice requesting the same in accordance
with the provisions of this Credit Agreement, (b) default by the Borrower in
making any prepayment of a Eurodollar Loan after the Borrower has given a
written notice thereof in accordance with the provisions of this Credit
Agreement and (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto, provided,
however, that the Lenders hereby agree to exercise reasonable efforts, so long
as no Default or Event of Default shall exist, to mitigate the payment
obligations of the Borrower under this Section 3.15 in respect of the timing of
application of proceeds of any prepayment pursuant to Section 3.3(b). Such
indemnification may include an amount equal to (i) the amount of interest which
would have accrued on the amount so prepaid, or not so borrowed, converted or
continued, for the period from the date of such prepayment or of such failure
to borrow, convert or continue to the last day of the applicable Interest
Period (or, in the case of a failure to borrow, convert or continue, the
Interest Period that would have commenced on the date of such failure) in each
case at the applicable rate of interest for such Eurodollar Loans provided for
herein (excluding, however, the Applicable Percentage included therein, if any)
minus (ii) the amount of interest (as reasonably determined by such Lender)
which would have accrued to such Lender on such amount by placing such amount
on deposit for a comparable period with leading banks in the interbank
Eurodollar market. The agreements in this Section shall survive the
termination of this Credit Agreement and the payment of the Loans and all other
amounts payable hereunder.
3.16 MANDATORY ASSIGNMENT.
In the event that any Lender delivers to the Borrower a demand for
payment in accordance with Section 3.10, 3.13 or 3.14 or a notification in
accordance with Section 3.12 that such Lender is suspending its obligation or
obligations to make or continue Eurodollar Loans and to convert Base Rate Loans
into Eurodollar Loans, then, provided that no Default or Event of Default has
occurred and is continuing at such time, the Borrower may, at its own expense
(such expense to include the administrative fee payable to the Agent under
Section 11.3(b)), require such Lender to transfer and assign in whole, without
recourse (in accordance with and subject to the terms and conditions of Section
11.3), all of its interests, rights and obligations under this Credit Agreement
to an Eligible Assignee which shall assume such assigned obligations; provided
that (i) such assignment shall not conflict with any law, rule or regulation or
order of any court or any Governmental Authority and (ii) the Borrower or such
assignee shall have paid to the assigning Lender in immediately available funds
the principal of and interest accrued to the date of such payment on the Loans
made by it hereunder and all other amounts owed to it hereunder (including
Section 3.12).
SECTION 4
GUARANTY
4.1 GUARANTY OF PAYMENT.
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Subject to Section 4.7 below, each of the Guarantors hereby, jointly
and severally, unconditionally guarantees to each Lender, each Affiliate of
Lender that enters into any agreement with a Credit Party giving rise to
Hedging Obligations of such Credit Party and the Agent the prompt payment of
the Credit Party Obligations in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration or otherwise). The Guarantors
additionally, jointly and severally, unconditionally guarantee to each Lender
the timely performance of all other obligations under the Credit Documents and
any agreements giving rise to Hedging Obligations of any Credit Party. This
guaranty is a guaranty of payment and not of collection and is a continuing
guaranty and shall apply to all Credit Party Obligations whenever arising.
4.2 OBLIGATIONS UNCONDITIONAL.
The obligations of the Guarantors hereunder are absolute and
unconditional, irrespective of the value, genuineness, validity, regularity or
enforceability of any of the Credit Documents or any agreements giving rise to
Hedging Obligations on the part of any Credit Party, or any other agreement or
instrument referred to therein, to the fullest extent permitted by applicable
law, irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor.
Each Guarantor agrees that this guaranty may be enforced by the Lenders without
the necessity at any time of resorting to or exhausting any other security or
collateral and without the necessity at any time of having recourse to the
Notes or any other of the Credit Documents or any collateral, if any, hereafter
securing the Credit Party Obligations or otherwise and each Guarantor hereby
waives the right to require the Lenders to proceed against the Borrower or any
other Person (including a co-guarantor) or to require the Lenders to pursue any
other remedy or enforce any other right. Each Guarantor further agrees that it
shall have no right of subrogation, indemnity, reimbursement or contribution
against the Borrower or any other Guarantor of the Credit Party Obligations for
amounts paid under this guaranty until such time as the Lenders (and any
Affiliates of Lenders entering into any agreement with any Credit Party giving
rise to Hedging Obligations of such Credit Party) have been paid in full, all
Commitments under the Credit Agreement have been terminated and no Person or
Governmental Authority shall have any right to request any return or
reimbursement of funds from the Lenders in connection with monies received
under the Credit Documents. Each Guarantor further agrees that nothing
contained herein shall prevent the Lenders from suing on the Notes or any of
the other Credit Documents or any agreements giving rise to Hedging Obligations
on the part of any Credit Party or foreclosing its security interest in or Lien
on any collateral, if any, securing the Credit Party Obligations or from
exercising any other rights available to it under this Credit Agreement, the
Notes, any other of the Credit Documents, or any other instrument of security,
if any, and the exercise of any of the aforesaid rights and the completion of
any foreclosure proceedings shall not constitute a discharge of any of any
Guarantor's obligations hereunder; it being the purpose and intent of each
Guarantor that its obligations hereunder shall be absolute, independent and
unconditional under any and all circumstances. Neither any Guarantor's
obligations under this guaranty nor any remedy for the enforcement thereof
shall be impaired,
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modified, changed or released in any manner whatsoever by an impairment,
modification, change, release or limitation of the liability of the Borrower or
by reason of the bankruptcy or insolvency of the Borrower. Each Guarantor
waives any and all notice of the creation, renewal, extension or accrual of any
of the Credit Party Obligations and notice of or proof of reliance of by the
Agent or any Lender upon this Guarantee or acceptance of this Guarantee. The
Credit Party Obligations, and any of them, shall conclusively be deemed to have
been created, contracted or incurred, or renewed, extended, amended or waived,
in reliance upon this Guarantee. All dealings between the Borrower and any of
the Guarantors, on the one hand, and the Agent and the Lenders, on the other
hand, likewise shall be conclusively presumed to have been had or consummated
in reliance upon this Guarantee.
4.3 MODIFICATIONS.
Each Guarantor agrees that (a) all or any part of the security now or
hereafter held for the Credit Party Obligations, if any, may be exchanged,
compromised or surrendered from time to time; (b) the Lenders shall not have
any obligation to protect, perfect, secure or insure any such security
interests, liens or encumbrances now or hereafter held, if any, for the Credit
Party Obligations or the properties subject thereto; (c) the time or place of
payment of the Credit Party Obligations may be changed or extended, in whole or
in part, to a time certain or otherwise, and may be renewed or accelerated, in
whole or in part; (d) the Borrower and any other party liable for payment under
the Credit Documents may be granted indulgences generally; (e) any of the
provisions of the Notes or any of the other Credit Documents may be modified,
amended or waived; (f) any party (including any co-guarantor) liable for the
payment thereof may be granted indulgences or be released; and (g) any deposit
balance for the credit of the Borrower or any other party liable for the
payment of the Credit Party Obligations or liable upon any security therefor
may be released, in whole or in part, at, before or after the stated, extended
or accelerated maturity of the Credit Party Obligations, all without notice to
or further assent by such Guarantor, which shall remain bound thereon,
notwithstanding any such exchange, compromise, surrender, extension, renewal,
acceleration, modification, indulgence or release.
4.4 WAIVER OF RIGHTS.
Each Guarantor expressly waives to the fullest extent permitted by
applicable law: (a) notice of acceptance of this guaranty by the Lenders and
of all extensions of credit to the Borrower by the Lenders; (b) presentment and
demand for payment or performance of any of the Credit Party Obligations; (c)
protest and notice of dishonor or of default (except as specifically required
in the Credit Agreement) with respect to the Credit Party Obligations or with
respect to any security therefor; (d) notice of the Lenders obtaining,
amending, substituting for, releasing, waiving or modifying any security
interest, lien or encumbrance, if any, hereafter securing the Credit Party
Obligations, or the
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Lenders' subordinating, compromising, discharging or releasing such security
interests, liens or encumbrances, if any; (e) all other notices to which such
Guarantor might otherwise be entitled; and (f) demand for payment under this
guaranty. Without limiting the generality of any other provision of this
Section 4, each Guarantor hereby specifically waives the benefits of N.C. Gen.
Stat. Sections 26-7 through 26-9, inclusive. Each Guarantor further agrees
that such Guarantor shall have no right of recourse to security for the Credit
Parties' Obligations, except through the exercise of the rights of subrogation
pursuant to Section 4.2.
4.5 REINSTATEMENT.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment
by or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit
Party Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agent and each Lender on demand for all reasonable costs and expenses
(including, without limitation, reasonable fees of counsel) incurred by the
Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
4.6 REMEDIES.
The Guarantors agree that, as between the Guarantors, on the one hand,
and the Agent and the Lenders, on the other hand, the Credit Party Obligations
may be declared to be forthwith due and payable as provided in Section 9 (and
shall be deemed to have become automatically due and payable in the
circumstances provided in Section 9) notwithstanding any stay, injunction or
other prohibition preventing such declaration (or preventing such Credit Party
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of such declaration (or such Credit Party
Obligations being deemed to have become automatically due and payable), such
Credit Party Obligations (whether or not due and payable by any other Person)
shall forthwith become due and payable by the Guarantors. The Guarantors
acknowledge and agree that their obligations hereunder are secured in
accordance with the terms of the Security Agreements and the other Collateral
Documents and that the Lenders may exercise their remedies thereunder in
accordance with the terms thereof.
4.7 LIMITATION OF GUARANTY.
Notwithstanding any provision to the contrary contained herein or in
any of the other Credit Documents, to the extent the obligations of any
Guarantor shall be adjudicated to be invalid or unenforceable for any reason
(including, without limitation, because of any applicable state or federal law
relating to fraudulent conveyances or transfers) then the obligations of such
Guarantor hereunder
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shall be limited to the maximum amount that is permissible under applicable law
(whether federal or state and including, without limitation, the Bankruptcy
Code).
4.8 RIGHTS OF CONTRIBUTION.
The Guarantors hereby agree, as among themselves, that if any
Guarantor shall become an Excess Funding Guarantor (as defined below), each
other Guarantor shall, on demand of such Excess Funding Guarantor (but subject
to the next sentence hereof), pay to such Excess Funding Guarantor an amount
equal to such Guarantor's Pro Rata Share (as defined below and determined, for
this purpose, without reference to the properties, assets, liabilities and
debts of such Excess Funding Guarantor) of such Excess Payment (as defined
below). The payment obligation of any Guarantor to any Excess Funding
Guarantor under this Section 4.8 shall be subordinate and subject in right of
payment to the prior payment in full of the obligations of such Guarantor under
the other provisions of this Section 4, and such Excess Funding Guarantor shall
not exercise any right or remedy with respect to such excess until payment and
satisfaction in full of all of such obligations. For purposes hereof, (i)
"Excess Funding Guarantor" shall mean, in respect of any obligations arising
under the other provisions of this Section 4 (hereafter, the "Guaranteed
Obligations"), a Guarantor that has paid an amount in excess of its Pro Rata
Share of the Guaranteed Obligations; (ii) "Excess Payment" shall mean, in
respect of any Guaranteed Obligations, the amount paid by an Excess Funding
Guarantor in excess of its Pro Rata Share of such Guaranteed Obligations; and
(iii) "Pro Rata Share", for the purposes of this Section 4.8, shall mean, for
any Guarantor, the ratio (expressed as a percentage) of (a) the amount by which
the aggregate present fair salable value of all of its assets and properties
exceeds the amount of all debts and liabilities of such Guarantor (including
contingent, subordinated, unmatured, and unliquidated liabilities, but
excluding the obligations of such Guarantor hereunder) to (b) the amount by
which the aggregate present fair salable value of all assets and other
properties of the Borrower and all of the Guarantors exceeds the amount of all
of the debts and liabilities (including contingent, subordinated, unmatured,
and unliquidated liabilities, but excluding the obligations of the Borrower and
the Guarantors hereunder) of the Borrower and all of the Guarantors, all as of
the Closing Date (if any Guarantor becomes a party hereto subsequent to the
Closing Date, then for the purposes of this Section 4.8 such subsequent
Guarantor shall be deemed to have been a Guarantor as of the Closing Date and
the information pertaining to, and only pertaining to, such Guarantor as of the
date such Guarantor became a Guarantor shall be deemed true as of the Closing
Date). Notwithstanding the foregoing, all rights of contribution against any
Guarantor shall terminate from and after the date such Guarantor shall be
relieved of its obligations pursuant to Section 8.4.
SECTION 5
CONDITIONS PRECEDENT
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5.1 CLOSING CONDITIONS.
The obligation of the Lenders to enter into this Credit Agreement and
make the initial Extension of Credit is subject to satisfaction of the
following conditions:
(a) Executed Credit Documents. Receipt by the Agent of
duly executed copies of (i) this Credit Agreement, (ii) the Notes,
(iii) the Collateral Documents and (iv) all other Credit Documents,
each in form and substance acceptable to the Lenders in their sole
discretion.
(b) Corporate Documents. Receipt by the Agent of the
following:
(i) Charter Documents. Copies of the articles or
certificates of incorporation or other charter documents of
each Credit Party certified to be true and complete as of a
recent date by the appropriate Governmental Authority of the
state or other jurisdiction of its incorporation and certified
by a secretary or assistant secretary of such Credit Party to
be true and correct as of the Closing Date.
(ii) Bylaws. A copy of the bylaws of each Credit
Party certified by a secretary or assistant secretary of such
Credit Party to be true and correct as of the Closing Date.
(iii) Resolutions. Copies of resolutions of the
Board of Directors of each Credit Party approving and adopting
the Credit Documents to which it is a party, the transactions
contemplated therein and authorizing execution and delivery
thereof, certified by a secretary or assistant secretary of
such Credit Party to be true and correct and in force and
effect as of the Closing Date.
(iv) Good Standing. Copies of (A) certificates of
good standing, existence or its equivalent with respect to
each Credit Party certified as of a recent date by the
appropriate Governmental Authorities of the state or other
jurisdiction of incorporation and each other jurisdiction in
which the failure to so qualify and be in good standing could
reasonably be expected to have a Material Adverse Effect on
the business or operations of a Credit Party in such
jurisdiction and (B) to the extent available, a certificate
indicating payment of all corporate franchise taxes certified
as of a recent date by the appropriate governmental taxing
authorities.
(v) Incumbency. An incumbency certificate of
each Credit Party certified by a secretary or assistant
secretary to be true and correct as of the Closing Date.
(c) Personal Property Collateral. The Agent shall have
received:
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(i) searches of Uniform Commercial Code ("UCC")
filings in the jurisdiction of the chief executive office of
each Credit Party and such other jurisdictions where
Collateral is located (as reasonably determined by the Agent),
copies of the financing statements on file in such
jurisdictions and evidence that no Liens exist other than
Permitted Liens;
(ii) duly executed UCC financing statements for
each appropriate jurisdiction as is necessary, in the Agent's
sole discretion, to perfect the Lenders' security interest in
the Collateral;
(iii) searches of ownership of intellectual
property in the appropriate governmental offices and such
patent/trademark/copyright filings as requested by the Agent
in order to perfect the Agent's security interest in the
Collateral;
(iv) all stock certificates evidencing the Capital
Stock pledged to the Agent pursuant to the Pledge Agreements,
together with duly executed in blank undated stock powers
attached thereto;
(v) all instruments and chattel paper in the
possession of a Credit Party, as required by the Security
Agreements, together with allonges or assignments as may be
necessary or appropriate to perfect the Lenders' security
interest in the Collateral; and
(vi) all duly executed consents as are necessary,
in the Agent's sole discretion, to perfect the Lenders'
security interest in the Collateral.
(d) Real Property Collateral. The Agent shall have
received:
(i) fully executed and notarized mortgages, deeds
of trust or deeds to secure debt (each a "Mortgage" and
collectively the "Mortgages") encumbering the fee interest of
the Credit Parties in each real property asset owned by a
Credit Party set forth on Schedule 5.1(d) (each a "Mortgaged
Property" and collectively the "Mortgaged Properties"),
together with such UCC-1 financing statements as the Agent
shall deem appropriate with respect to each such Mortgaged
Property;
(ii) an opinion of counsel (which counsel shall be
reasonably satisfactory to the Agent) in the state in which
each Mortgaged Property is located (other than North Carolina)
with respect to the enforceability of the form of Mortgage and
sufficiency of the form of UCC-1 financing statements to be
recorded or filed in such
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state and such other matters as the Agent may request, in form
and substance satisfactory to the Agent; and
(iii) ALTA or other appropriate form mortgagee
title insurance policies (the "Mortgage Policies") issued by
Chicago Title Insurance Company or other title insurers
satisfactory to the Agent (the "Title Insurance Company"), in
an amount satisfactory to the Agent with respect to each
Mortgaged Property assuring the Agent that the applicable
Mortgages, as applicable, create valid and enforceable first
priority mortgage liens on the respective Mortgaged
Properties, free and clear of all defects and encumbrances
except Permitted Liens, which Mortgage Policies shall be in
form and substance satisfactory to the Agent and containing
such endorsements as shall be satisfactory to the Agent and
for any other matters that the Agent may request, and
providing affirmative insurance and such reinsurance as the
Agent may request, all of the foregoing in form and substance
satisfactory to the Agent.
(e) Legal Opinions. The Agent shall have received:
(i) a legal opinion of Kirkland & Ellis, dated as
of the Closing Date and substantially in the form of Schedule
5.1(e)(i);
(ii) a legal opinion of special local counsel for
each Credit Party not incorporated in the State of Delaware,
dated as of the Closing Date and substantially in the form of
Schedule 5.1(e)(ii); and
(iii) a legal opinion of special local counsel for
the Credit Parties for each State other than North Carolina in
which any Collateral is located, dated as of the Closing Date
and substantially in the form of Schedule 5.1(e)(iii).
(f) Evidence of Insurance. Receipt by the Agent of
copies of insurance policies or certificates of insurance of the
Consolidated Parties evidencing liability and casualty insurance
meeting the requirements set forth in the Credit Documents, including,
but not limited to, naming the Agent as additional insured (in the
case of liability insurance) or sole loss payee (in the case of hazard
insurance) on behalf of the Lenders.
(g) Officer's Certificate. The Agent shall have received
a certificate or certificates executed by an Executive Officer of the
Borrower as of the Closing Date stating that (i) each Consolidated
Party is in compliance with all existing financial obligations, (ii)
all governmental, shareholder and third party consents and approvals,
if any, with respect to the Credit Documents and the transactions
contemplated thereby have been obtained, (iii) no action, suit,
investigation or proceeding is pending or threatened in any court or
before any arbitrator or governmental instrumentality that purports to
affect any Credit Party or
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Consolidated Party or any transaction contemplated by the Credit
Documents, if such action, suit, investigation or proceeding could
have or could be reasonably expected to have a Material Adverse Effect
and (iv) immediately after giving effect to this Credit Agreement, the
other Credit Documents, the Transaction and all the transactions
contemplated herein and therein to occur on such date, (A) each of the
Credit Parties is Solvent, (B) no Default or Event of Default exists,
(C) all representations and warranties contained herein and in the
other Credit Documents are true and correct in all material respects,
(D) the Credit Parties are in compliance with each of the financial
covenants set forth in Section 7.12 and all existing financial
obligations of any such Persons, (E) upon giving pro forma effect to
the Acquisition on the Closing Date, the ratio of Funded Indebtedness
of the Consolidated Parties as of such date to Consolidated EBITDA of
the Consolidated Parties for the twelve-month period ended as of April
30, 1998 does not exceed 6.00 to 1.00.
(h) Government Consent. Receipt by the Agent of evidence
that all governmental, shareholder and material third party consents
(including Hart-Scott-Rodino clearance) and approvals necessary or, in
the reasonable opinion of the Agent desirable in connection with the
acquisition, financings and other transactions contemplated hereby and
the absence of any action being taken by any authority that could
reasonably be likely to restrain, prevent or impose any material
adverse conditions on such financings and other transactions or that
could reasonably be likely to seek or threaten any of the foregoing,
and no law or regulation shall be applicable which in the judgment of
the Agent could reasonably be likely to have such effect.
(i) Financial Information. Receipt by the Agent and the
Lenders of (i) a satisfactory pro forma consolidated balance sheet of
the Consolidated Parties as of April 4, 1998 giving effect to this
Credit Agreement, the other Credit Documents, the Transaction and all
the transactions contemplated herein and therein to occur on such
date, and reflecting estimated purchase price accounting adjustments,
reviewed by independent public accountants of recognized national
standing and (ii) such other information relating to the Acquisition
as the Agent may reasonably require in connection with the structuring
and syndication of credit facilities of the type described herein.
(j) Equity Investment. Receipt by the Agent of evidence
that an equity investment of at least $40,000,000 (to include the
proceeds of $25,000,000 of common equity issued by the Parent
(consisting of a cash equity investment by the Sponsor of
approximately $23,200,000 and the rollover of $1,800,000 of equity of
management of Acquired Companies) and the proceeds of $15,000,000 of
discount notes issued by the Parent (the "Discount Notes") shall have
been received by the Parent on the terms described in the Offering
Memorandum.
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(k) Purchase Agreement. There shall not have been any
material modification, amendment, supplement or waiver to the Purchase
Agreement without the prior written consent of the Agent, and the
Acquisition shall have been consummated in accordance with the terms
of the Purchase Agreement (without waiver of any conditions precedent
to the obligations of the buyer thereunder) and the expenses related
to such acquisition shall not exceed $9 million. The Agent shall have
received a final Purchase Agreement, together with all exhibits and
schedules thereto certified by an officer of the Borrower.
(l) Consummation of other Senior Subordinated Debt
Financing. The Borrower shall have received gross proceeds of at
least $100,000,000 from the issuance by the Borrower of senior
subordinated notes (the "Senior Subordinated Debt") on terms that are
satisfactory to the Agent.
(m) Solvency Opinion. Receipt by the Agent of an opinion
from an independent auditor or appraiser acceptable to the Agent as to
the solvency of each of the Borrower and the Guarantors, in each case
after giving effect to this Credit Agreement, the other Credit
Documents, the Transaction to the and all the transactions
contemplated herein and therein to occur on such date.
(n) Litigation. There shall not exist any pending or
threatened action, suit, investigation or proceeding against a Credit
Party or a Consolidated Party that could reasonably be expected to
have a Material Adverse Effect.
(o) Fees and Expenses. Payment by the Borrower of all
fees and reasonable expenses owed by it to the Lenders and the Agent,
including, without limitation, payment to the Agent of the fees set
forth in the Fee Letter.
(p) Syndication Side Letter. Receipt by the Agent of a
letter agreement executed by the Borrower and reasonably satisfactory
to the Agent regarding amendment of this Credit Agreement in
connection with the primary syndication of the credit facilities
hereunder.
(q) Borrower Intercompany Notes. Receipt by the Agent of
satisfactory evidence that (i) the obligor under the Borrower
Intercompany Notes is the Borrower and (ii) that the payee under the
Borrower Intercompany Notes is Heddle Capital Corp.
(r) Other. Receipt by the Lenders of such other
documents, instruments, agreements or information as reasonably
requested by any Lender.
5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT.
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In addition to the conditions precedent stated elsewhere herein, the
Lenders shall not be obligated to make, continue or convert Loans nor shall an
Issuing Lender be required to issue or extend a Letter of Credit unless:
(a) Notice. The Borrower shall have delivered (i) in the
case of any new Revolving Loan, a Notice of Borrowing, duly executed
and completed, by the time specified in Section 2.1, (ii) in the case
of any Letter of Credit, the Issuing Lender shall have received an
appropriate request for issuance in accordance with the provisions of
Section 2.2 and (iii) in the case of any continuation or conversion of
a Loan, a duly executed and completed Notice of
Continuation/Conversion by the time specified in Section 2.4;
(b) Representations and Warranties. The representations
and warranties made by any Credit Party or any Consolidated Party in
any Credit Document are true and correct in all material respects at
and as if made as of such date except to the extent they expressly
relate to an earlier date;
(c) No Default. No Default or Event of Default shall
exist or be continuing either prior to or after giving effect thereto;
(d) No Bankruptcy Event. There shall not have been
commenced against the Parent or any Consolidated Party an involuntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or any case, proceeding or other action
for the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of such Person or for any
substantial part of its Property or for the winding up or liquidation
of its affairs, and such involuntary case or other case, proceeding or
other action shall remain undismissed, undischarged or unbonded;
(e) No Material Adverse Effect. No Material Adverse
Effect shall have occurred since January 3, 1998; and
(f) Availability. Immediately after giving effect to the
making of a Revolving Loan (and the application of the proceeds
thereof) or to the issuance of a Letter of Credit, as the case may be,
the sum of the Revolving Loans outstanding plus LOC Obligations
outstanding shall not exceed the Revolving Commitment Amount.
The delivery of each Notice of Borrowing, each Notice of Extension/Conversion
and each request for a Letter of Credit shall constitute a representation and
warranty by the Borrower of the correctness of the matters specified in
subsections (b), (c), (d), (e) and (f) above.
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SECTION 6
REPRESENTATIONS AND WARRANTIES
The Consolidated Parties hereby represent to the Agent and each Lender
that:
6.1 FINANCIAL CONDITION.
(a) The audited consolidated balance sheets and income
statements of the Consolidated Parties for the fiscal years ended
January 3, 1998 and December 28, 1996 have heretofore been furnished
to the Agent. Such financial statements (including the notes thereto)
(i) have been audited by Ernst & Young, LLP (ii) have been prepared in
accordance with GAAP consistently, applied throughout the periods
covered thereby and (iii) present fairly (on the basis disclosed in
the footnotes to such financial statements) the consolidated financial
condition, results of operations and cash flows of the Consolidated
Parties as of such date and for such periods. The unaudited
consolidated interim balance sheet of the Consolidated Parties as at
the end of, and the related unaudited consolidated interim statements
of earnings and of cash flows for, each fiscal month ended after
January 3, 1998 and prior to the Closing Date, have heretofore been
furnished to the Agent. Such interim financial statements for each
such monthly period, (i) have been prepared in accordance with GAAP
(except for the absence of footnotes) consistently applied throughout
the periods covered thereby and (ii) present fairly the consolidated
financial condition, results of operations and cash flows of the
Consolidated Parties as of such date and for such periods. During the
period from January 3, 1998 to and including the Closing Date there
has been no sale, transfer or other disposition by any Consolidated
Party of any material part of the business or property of the
Consolidated Parties, taken as a whole, and no purchase or other
acquisition by any of them of any business or property (including any
capital stock of any other person) material in relation to the
consolidated financial condition of the Consolidated Parties, taken as
a whole, in each case, which, is not reflected in the foregoing
financial statements or in the notes thereto and has not otherwise
been disclosed in writing to the Lenders on or prior to the Closing
Date.
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(b) The financial statements delivered to the Lenders
pursuant to Section 7.1(a) and (b), (a) have been prepared in
accordance with GAAP (except as may otherwise be permitted under
Section 7.1(a) and (b)) and (b) present fairly (on the basis disclosed
in the footnotes to such financial statements) the consolidated
financial condition, results of operations and cash flows of the
Consolidated Parties as of such date and for such periods. Since
January 3, 1998, there has been no sale, transfer or other disposition
by any Consolidated Party of any material part of the business or
property of the Consolidated Parties, taken as a whole, and no
purchase or other acquisition by any of them of any business or
property (including any Capital Stock of any other Person) material in
relation to the consolidated financial condition of the Consolidated
Parties, taken as a whole, in each case, which, is not (x) reflected
in the most recent financial statements delivered to the Lenders
pursuant to Section 7.1 or in the notes thereto or (y) otherwise
permitted by the terms of this Credit Agreement and communicated to
the Agent.
6.2 NO MATERIAL CHANGE.
Except with respect to the Transaction, since January 3, 1998 (a)
there has been no development or event relating to or affecting a Consolidated
Party which has had or would be reasonably expected to have a Material Adverse
Effect or (b) there has been no development or event relating to or affecting
the Parent which has had or would be reasonably expected to have a material
adverse effect on (i) the ability of the Parent to perform its obligations
under the Pledge Agreement or (ii) the validity or enforceability of the Pledge
Agreement or the rights and remedies of the Agent or the Lenders thereunder and
(b) except as otherwise permitted under this Credit Agreement, no dividends or
other distributions have been declared, paid or made upon the Capital Stock in
a Consolidated Party nor has any of the Capital Stock in a Consolidated Party
been redeemed, retired, purchased or otherwise acquired for value.
6.3 ORGANIZATION AND GOOD STANDING.
(a) Each of the Consolidated Parties and the Parent is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State (or other jurisdiction) of its incorporation, (b) each Consolidated Party
is duly qualified and in good standing as a foreign corporation and authorized
to do business in every jurisdiction unless the failure to be so qualified, in
good standing or authorized would not have a Material Adverse Effect and (c) of
the Consolidated Parties and the Parent has the requisite corporate power and
authority to own its properties and to carry on its business as now conducted
and as proposed to be conducted.
6.4 DUE AUTHORIZATION.
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Each Credit Party (a) has the requisite corporate power and authority
to execute, deliver and perform this Credit Agreement and the other Credit
Documents to which it is a party and to incur the obligations herein and
therein provided for and (b) is duly authorized to, and has been authorized by
all necessary corporate action, to execute, deliver and perform this Credit
Agreement and the other Credit Documents to which it is a party.
6.5 NO CONFLICTS.
Neither the execution and delivery of the Credit Documents, nor the
consummation of the transactions contemplated therein, nor performance of and
compliance with the terms and provisions thereof by such Credit Party will (a)
violate or conflict with any provision of its articles or certificate of
incorporation or bylaws or other organizational or governing documents of such
Person, (b) violate, contravene or materially conflict with any Requirement of
Law or any other law, regulation (including, without limitation, Regulation U
or Regulation X), order, writ, judgment, injunction, decree or permit
applicable to it, (c) violate, contravene or conflict with contractual
provisions of, or cause an event of default under, any indenture, loan
agreement, mortgage, deed of trust, contract or other agreement or instrument
to which it is a party or by which it may be bound, the violation of which
could reasonably be expected to have a Material Adverse Effect, or (d) result
in or require the creation of any Lien (other than those contemplated in or
created in connection with the Credit Documents) upon or with respect to its
properties.
6.6 CONSENTS.
Except for consents, approvals and authorizations (a) which have been
obtained or (b) which are listed on Schedule 6.6, no consent, approval,
authorization or order of, or filing, registration or qualification with, any
court or Governmental Authority or third party in respect of any Credit Party
is required in connection with the execution, delivery or performance of this
Credit Agreement or any of the other Credit Documents by such Credit Party.
6.7 ENFORCEABLE OBLIGATIONS.
This Credit Agreement and the other Credit Documents have been duly
executed and delivered and constitute legal, valid and binding obligations of
each Credit Party enforceable against such Credit Party in accordance with
their respective terms, except as may be limited by bankruptcy or insolvency
laws or similar laws affecting creditors' rights generally or by general
equitable principles.
6.8 NO DEFAULT.
No Consolidated Party is in default in any respect under any contract,
lease, loan agreement, indenture, mortgage, security agreement or other
agreement or obligation to which it is a party or by
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which any of its properties is bound which default could reasonably be expected
to have a Material Adverse Effect. No Default or Event of Default has occurred
or exists except as previously disclosed in writing to the Lenders.
6.9 OWNERSHIP.
Each Consolidated Party (i) is the owner of, and has good and
marketable title to, all of its respective assets which such Person purports to
own and none of such assets is subject to any Lien other than Permitted Liens
and (ii) has a valid license, leasehold interest or other right to use all of
the respective assets which such Person purports to hold under license, lease
or other usage right and none of such assets is subject to any Lien other than
Permitted Liens(i).
6.10 INDEBTEDNESS.
The Consolidated Parties have no Indebtedness except (a) as disclosed
in the financial statements referenced in Section 6.1, (b) as set forth on
Schedule 6.10 and (c) as otherwise permitted by this Credit Agreement.
6.11 LITIGATION.
Except as disclosed in Schedule 6.11, there are no actions, suits or
legal, equitable, arbitration or administrative proceedings, pending or, to the
knowledge of any Consolidated Party, threatened (i) against any Consolidated
Party which would reasonably be expected to have a Material Adverse Effect or
(ii) against the Parent which would reasonably be expected to have a material
adverse effect on (A) the ability of the Parent to perform its obligations
under the Pledge Agreement or (B) the validity or enforceability of the Pledge
Agreement or the rights and remedies of the Agent or the Lenders thereunder.
6.12 TAXES.
Each Consolidated Party has filed, or caused to be filed, all tax
returns (federal, state, local and foreign) required to be filed and paid (a)
all amounts of taxes shown thereon to be due (including interest and penalties)
and (b) all other taxes, fees, assessments and other governmental charges
(including mortgage recording taxes, documentary stamp taxes and intangibles
taxes) owing by it, except for such taxes (i) which are not yet delinquent or
(ii) that are being contested in good faith and by proper proceedings, and
against which adequate reserves are being maintained in accordance with GAAP.
No Consolidated Party is aware as of the Closing Date of any proposed tax
assessments against it or any other Consolidated Party.
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6.13 COMPLIANCE WITH LAW.
Each Credit Party and each Consolidated Party is in compliance with
all Requirements of Law and all other laws, rules, regulations, orders and
decrees (including without limitation Environmental Laws) applicable to it, or
to its properties, unless such failure to comply would not be reasonably
expected to have a Material Adverse Effect. No Requirement of Law would be
reasonably expected to cause a Material Adverse Effect.
6.14 ERISA.
Except as disclosed in the Financial Statements or in Schedule 6.14
or except as would not result or be reasonably expected to result in a Material
Adverse Effect:
(a) During the five-year period prior to the date on
which this representation is made or deemed made: (i) no ERISA Event
has occurred, and, to the best knowledge of the Consolidated Parties,
no event or condition has occurred or exists as a result of which any
ERISA Event could reasonably be expected to occur, with respect to any
Plan; (ii) no "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA and Section 412 of the Code, whether
or not waived, has occurred with respect to any Plan; (iii) each Plan
has been maintained, operated, and funded in compliance with its own
terms and in material compliance with the provisions of ERISA, the
Code, and any other applicable federal or state laws; and (iv) no lien
in favor of the PBGC or a Plan has arisen or is reasonably likely to
arise on account of any Plan.
(b) The actuarial present value of all "benefit
liabilities" (as defined in Section 4001(a)(16) of ERISA), whether or
not vested, under each Single Employer Plan, as of the last annual
valuation date prior to the date on which this representation is made
or deemed made (determined, in each case, utilizing the actuarial
assumptions used in such Plan's most recent actuarial valuation
report), did not exceed as of such valuation date the fair market
value of the assets of such Plan, or by more than $250,000 in the
aggregate as to all such Plans.
(c) Neither any Consolidated Party nor any ERISA
Affiliate has incurred, or, to the best knowledge of the Consolidated
Parties, could be reasonably expected to incur, any withdrawal
liability under ERISA to any Multiemployer Plan or Multiple Employer
Plan. No Consolidated Party would become subject to any withdrawal
liability under ERISA if any Consolidated Party or any ERISA Affiliate
were to withdraw completely from all Multiemployer Plans and Multiple
Employer Plans as of the valuation date most closely preceding the
date on which this representation is made or deemed made. Neither any
Consolidated Party nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization (within
the
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meaning of Section 4241 of ERISA), is insolvent (within the meaning of
Section 4245 of ERISA), or has been terminated (within the meaning of
Title IV of ERISA), and no Multiemployer Plan is, to the best
knowledge of the Consolidated Parties, reasonably expected to be in
reorganization, insolvent, or terminated.
(d) No prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) or breach of
fiduciary responsibility has occurred with respect to a Plan which has
subjected or may subject any Consolidated Party nor any ERISA
Affiliate to any liability under Sections 406, 409, 502(i), or 502(l)
of ERISA or Section 4975 of the Code, or under any agreement or other
instrument pursuant to which any Consolidated Party or any ERISA
Affiliate has agreed or is required to indemnify any Person against
any such liability.
(e) Neither any Consolidated Party nor any ERISA
Affiliate has any material liability with respect to "expected
post-retirement benefit obligations" within the meaning of the
Financial Accounting Standards Board Statement 106.
6.15 SUBSIDIARIES.
Set forth on Schedule 6.15 is a complete and accurate list of all
Subsidiaries of each Consolidated Party as of the Closing Date. Information on
Schedule 6.15 includes jurisdiction of incorporation, the number of shares of
each class of Capital Stock outstanding, the number and percentage of
outstanding shares of each class owned (directly or indirectly) by such
Consolidated Party; and the number and effect, if exercised, of all outstanding
options, warrants, rights of conversion or purchase and all other similar
rights with respect thereto. The outstanding Capital Stock of all such
Subsidiaries is validly issued, fully paid and non-assessable and is owned by
each such Consolidated Party, directly or indirectly, free and clear of all
Liens (other than those arising under or contemplated in connection with the
Credit Documents). Other than as set forth in Schedule 6.15, as of the Closing
Date no Consolidated Party has outstanding any securities convertible into or
exchangeable for its Capital Stock nor does any such Person have outstanding
any rights to subscribe for or to purchase or any options for the purchase of,
or any agreements providing for the issuance (contingent or otherwise) of, or
any calls, commitments or claims of any character relating to its Capital
Stock.
6.16 USE OF PROCEEDS; MARGIN STOCK.
The proceeds of the Loans hereunder will be used solely for the
purposes specified in Section 7.10. None of the proceeds of the Loans will be
used for the purpose of purchasing or carrying any "margin stock" as defined in
Regulation U or Regulation X, or for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry "margin stock"
or any "margin
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security" or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of Regulation T, U, or X. No Consolidated
Party owns any "margin stock".
6.17 GOVERNMENT REGULATION.
No Credit Party or Consolidated Party is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940 or the Interstate Commerce Act, each as amended.
In addition, no Credit Party or Consolidated Party is an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, or controlled by such a company, or a "holding company," or
a "Subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "Subsidiary" or a "holding company," within the meaning of the
Public Utility Holding Company Act of 1935, as amended. As of the Closing
Date, no director, executive officer or principal shareholder of any Credit
Party or Consolidated Party is a director, executive officer or principal
shareholder of any Lender. For the purposes hereof the terms "director",
"executive officer" and "principal shareholder" (when used with reference to
any Lender) have the respective meanings assigned thereto in Regulation O
issued by the Board of Governors of the Federal Reserve System.
6.18 ENVIRONMENTAL MATTERS.
Except as set forth on Schedule 6.18 or in the Purchase Agreement or
except as would not reasonably expected to have a Material Adverse Effect:
(i) Each of the Real Properties and all
operations of any Consolidated Party at the Real Properties
are in compliance with all applicable Environmental Laws, and
there is no violation of any applicable Environmental Law with
respect to the Real Properties or the businesses operated by
any Consolidated Party (the "Businesses"), and there are no
conditions relating to the Businesses or the Real Properties
that would be reasonably expected to give rise to liability
under any applicable Environmental Laws.
(ii) No Hazardous Materials have been released in
amounts or concentrations that constitute or constituted a
violation by any Consolidated Party of, or could reasonably be
expected to give rise to liability on the part of any
Consolidated Party under, Environmental Laws.
(iii) No Consolidated Party has received any
written notice of, or inquiry from any Governmental Authority
regarding, any violation, alleged violation, non-compliance,
liability or potential liability regarding Hazardous Materials
or compliance with Environmental Laws with regard to any of
the Real Properties or the Businesses, nor does any
Consolidated Party have knowledge or reason to believe that
any such notice is being threatened
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(iv) Hazardous Materials have not been transported
or disposed of from the Real Properties, or generated,
treated, stored or disposed of at, on or under any of the Real
Properties or any other location, in each case by, or on
behalf or with the permission of, any Consolidated Party in a
manner that would reasonably be expected to give rise to
liability on the part of any Consolidated Party under any
applicable Environmental Law.
(v) No judicial proceeding or governmental or
administrative action is pending or, to the knowledge of any
Consolidated Party, threatened, under any applicable
Environmental Law to which any Consolidated Party is or will
be named as a party, nor are there any consent decrees or
other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to any
Consolidated Party, the Real Properties or the Businesses.
(vi) There has been no release or threatened
release of Hazardous Materials at or from the Real Properties,
or arising from or related to the operations (including,
without limitation, disposal) of any Consolidated Party in
connection with the Real Properties or otherwise in connection
with the Businesses where such release or threatened release
could reasonably be expected to give rise to liability on the
part of any Consolidated Party under Environmental Laws.
(vii) No Consolidated Party has assumed any
liability of any Person under any applicable Environmental
Law.
6.19 INTELLECTUAL PROPERTY.
Each Consolidated Party owns, or has the legal right to use, all
trademarks, tradenames, copyrights, technology, know-how and processes (the
"Intellectual Property") necessary for each of them to conduct its business as
currently conducted except for those the failure to own or have such legal
right to use would not have or be reasonably expected to have a Material
Adverse Effect. Set forth on Schedule 6.19 is a list of all Intellectual
Property owned by each Consolidated Party as of the Closing Date or that any
Consolidated Party has the right to use as of the Closing Date. Except as
provided on Schedule 6.19, no claim has been asserted and is pending by any
Person challenging or questioning the use of any such Intellectual Property or
the validity or effectiveness of any such Intellectual Property, nor does any
Consolidated Party know of any such claim, and to the Consolidated Parties'
knowledge the use of such Intellectual Property by any Consolidated Party does
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not infringe on the rights of any Person, except for such claims and
infringements that in the aggregate, would not have or be reasonably expected
to have a Material Adverse Effect.
6.20 SOLVENCY.
As of the Closing Date, after giving effect to this Credit Agreement,
the other Credit Documents, the Transaction and all the transactions
contemplated herein and therein to occur on such date, each Consolidated Party
is Solvent.
6.21 INVESTMENTS.
All Investments of each Consolidated Party are Permitted Investments.
6.22 LOCATION OF COLLATERAL.
Set forth on Schedule 6.22(a) is a list as of the Closing Date of all
Real Properties with street address, county and state where located. Set forth
on Schedule 6.22(b) is a list as of the Closing Date of all locations where any
tangible personal property of a Consolidated Party is located as of the Closing
Date, including county and state where located. Set forth on Schedule 6.22(c)
is the chief executive office and principal place of business of each
Consolidated Party.
6.23 DISCLOSURE.
(a) Neither this Credit Agreement nor any financial
statements delivered to the Lenders nor any other document,
certificate or statement furnished to the Lenders by or on behalf of
any Consolidated Party in connection with the transactions
contemplated hereby contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the
statements contained therein or herein not misleading.
(b) The financial projections and other pro forma
financial information contained in the information referred to in
subsection (a) above were based on good faith estimates and
assumptions believed by the applicable Consolidated Parties to be
reasonable at the time made and at the time furnished to the Agent
and/or any Lender, it being recognized by the Lenders that such
projections and other pro forma financial information as to future
events such projections and other pro forma financial information may
differ from the projected results for such period or periods.
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6.24 LICENSES, ETC.
The Consolidated Parties have obtained and hold in full force and
effect, all franchises, licenses, permits, certificates, authorizations,
qualifications, accreditations, easements, rights of way and other rights,
consents and approvals which are necessary for the operation of their
respective businesses as presently conducted.
6.25 BROKERS' FEES.
Other than fees and expenses payable in connection with the
Transaction and described in the Offering Memorandum, no Consolidated Party has
any obligation to any Person in respect of any finder's, broker's, investment
banking or other similar fee in connection with any of the transactions
contemplated under the Credit Documents.
6.26 LABOR MATTERS.
Except as set forth on Schedule 6.26, there are no collective
bargaining agreements or Multiemployer Plans covering the employees of a
Consolidated Party as of the Closing Date and none of the Consolidated Parties
has suffered any strikes, walkouts, work stoppages or other material labor
difficulty within the last five years.
6.27 NATURE OF BUSINESS.
As of the Closing Date, the Borrower and its Subsidiaries are engaged
in the business of manufacturing and selling precision textile loom accessories
and, with respect to its wire rolling facility, metal products.
6.28 REAL PROPERTY MATTERS.
Each of the Mortgaged Properties, and the uses of the Mortgaged Properties, are
in compliance with all applicable laws, regulations and ordinances including
without limitation health and environmental protection laws, erosion control
ordinances, storm drainage control laws, doing business and/or licensing laws
and laws regarding access and facilities for disabled persons including, but
not limited to, the federal Architectural Barriers Act, the Fair Housing
Amendments Act of 1988 and the Rehabilitation Act of 1973, except where the
failure to be in compliance could not reasonably be expected to have a Material
Adverse Effect.
6.29 YEAR 2000 COMPLIANCE.
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Each of the Consolidated Parties has conducted a review and assessment
of its computer applications with respect to the "year 2000 problem" (that is,
the risk that computer applications may not be able to properly perform
date-sensitive functions after December 31, 1999) and, based on that review and
inquiry, the Consolidated Parties believe that the year 2000 problem will not
result in a material adverse change in the operations, financial condition,
business or prospects of the Consolidated Parties taken as a whole, or on the
ability of any Credit Parties taken as a whole to perform any material
obligations under the Credit Documents.
SECTION 7
AFFIRMATIVE COVENANTS
Each Consolidated Party hereby covenants and agrees that so long as
this Credit Agreement is in effect and until the Loans and LOC Obligations,
together with interest, fees and other obligations hereunder, have been paid in
full and the Commitments and Letters of Credit hereunder shall have terminated:
7.1 INFORMATION COVENANTS.
The Consolidated Parties will furnish, or cause to be furnished, to
the Agent and each of the Lenders:
(a) Annual Financial Statements. As soon as available,
and in any event within 90 days after the close of each fiscal year of
the Borrower, a consolidated balance sheet and income statement of the
Consolidated Parties, as of the end of such fiscal year, together with
related consolidated statements of operations and retained earnings
and of cash flows for such fiscal year, setting forth in comparative
form consolidated figures for the preceding fiscal year, all such
financial information described above to be in reasonable form and
detail and audited (with respect to consolidated financial statements
only) by independent certified public accountants of recognized
national standing reasonably acceptable to the Agent and whose opinion
shall be to the effect that such financial statements have been
prepared in accordance with GAAP (except for changes with which such
accountants concur) and shall not be limited as to the scope of the
audit or qualified in any manner.
(b) Monthly Financial Statements. As soon as available,
and in any event within 30 days after the close of each fiscal month
of the Borrower (other than the twelfth fiscal month) a consolidated
balance sheet and income statement of the Consolidated Parties as of
the end of such fiscal month, together with related consolidated
statements of operations and retained earnings and of cash flows for
such fiscal month and for the then current fiscal year to date in each
case setting forth in comparative form consolidated figures for the
corresponding period of the preceding fiscal year, all such financial
information described
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above to be in reasonable form and detail and reasonably acceptable to
the Agent, and accompanied by a certificate of an Executive Officer of
the Borrower to the effect that such financial statements fairly
present in all material respects the financial condition of the
Consolidated Parties and have been prepared in accordance with GAAP
(except for the absence of footnotes), subject to changes resulting
from audit and normal year-end audit adjustments.
(c) Officer's Certificate. At the time of delivery of
the financial statements as of the end of each fiscal year of the
Consolidated Parties provided for in Sections 7.1(a) and the financial
statements as of the end of each fiscal quarter of the Consolidated
Parties provided for in 7.1(b) above, a certificate of an Executive
Officer of the Borrower substantially in the form of Exhibit 7.1(c),
(i) demonstrating compliance with the financial covenants contained in
Section 7.12 by calculation thereof as of the end of each such fiscal
period and (ii) stating that no Default or Event of Default exists, or
if any Default or Event of Default does exist, specifying the nature
and extent thereof and what action the Borrower proposes to take with
respect thereto.
(d) Annual Business Plan and Budgets. Within 45 days
after the end of each fiscal year of the Borrower, an annual business
plan and budget of the Consolidated Parties on a consolidated basis
containing, among other things, pro forma financial statements for the
next fiscal year.
(e) Compliance With Certain Provisions of the Credit
Agreement. Within 90 days after the end of each fiscal year of the
Borrower, the Borrower shall deliver a certificate of an Executive
Officer of the Borrower containing information regarding the amount of
all Asset Dispositions and Equity Issuances that were made during the
prior fiscal year.
(f) Accountant's Certificate. Within the period for
delivery of the annual financial statements provided in Section
7.1(a), a certificate of the accountants conducting the annual audit
stating that they have reviewed this Credit Agreement and stating
further whether, in the course of their audit, they have become aware
of any Default or Event of Default and, if any such Default or Event
of Default exists, specifying the nature and extent thereof.
(g) Reports. Promptly upon transmission or receipt
thereof, (i) copies of any filings and registrations with, and reports
to or from, the Securities and Exchange Commission, or any successor
agency, and copies of all financial statements, proxy statements,
notices and reports as any Consolidated Party shall send to its
shareholders generally or to a holder of any Indebtedness owed by any
Consolidated Party in its capacity as such a holder and (ii) upon the
written request of the Agent, all reports and written information to
and from the United
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States Environmental Protection Agency, or any state or local agency
responsible for environmental matters, the United States Occupational
Health and Safety Administration, or any state or local agency
responsible for health and safety matters, or any successor agencies
or authorities concerning environmental, health or safety matters.
(h) Notices. Upon any Executive Officer of a Credit
Party obtaining knowledge thereof, such Credit Party will give
reasonably prompt written notice to the Agent of (i) the occurrence of
an event or condition consisting of a Default or Event of Default,
specifying the nature and existence thereof and what action the
Borrower proposes to take with respect thereto, and (ii) the
occurrence of any of the following: (A) the pendency or commencement
of any litigation, arbitral or governmental proceeding against any
Credit Party or Consolidated Party which if adversely determined could
reasonably be expected to have a Material Adverse Effect, (B) the
institution of any proceedings against any Consolidated Party with
respect to, or the receipt of written notice by such Person of
potential liability or responsibility for violation, or alleged
violation of any federal, state or local law, rule or regulation,
including but not limited to, Environmental Laws, which violation
could reasonably be expected to have a Material Adverse Effect or (C)
any notice or determination concerning the imposition of any
withdrawal liability by a Multiemployer Plan against such Person or
any ERISA Affiliate, the determination that a Multiemployer Plan is,
or is expected to be, in reorganization within the meaning of Title IV
of ERISA or the termination of any Plan. Upon its receipt of any
notice pursuant to this Section 7.1(i), the Agent will promptly notify
each of the Lenders.
(i) ERISA. Upon any Executive Officer of a Credit Party
obtaining knowledge thereof, the Borrower will give prompt written
notice to the Agent (and in any event within five Business Days) of:
(i) of any event or condition, including, but not limited to, any
Reportable Event, that constitutes, or might reasonably lead to, an
ERISA Event, (ii) with respect to any Multiemployer Plan, the receipt
of notice as prescribed in ERISA or otherwise of any withdrawal
liability assessed against any Consolidated Party or any ERISA
Affiliate, or of a determination that any Multiemployer Plan is in
reorganization or insolvent (both within the meaning of Title IV of
ERISA); (iii) the failure to make full payment on or before the due
date (including extensions) thereof of all amounts which any
Consolidated Party or any ERISA Affiliate is required to contribute to
each Plan pursuant to its terms and as required to meet the minimum
funding standard set forth in ERISA and the Code with respect thereto;
(iv) any event has occurred or failed to occur with respect to a
Single Employer Plan, Multiemployer Plan or Multiple Employer Plan
sponsored, maintained or contributed to by an ERISA Affiliate of any
Consolidated Party which could reasonably be expected to have a
Material Adverse Effect or (v) any change in the funding status of any
Plan that could have a Material Adverse Effect, together with a
description of any such event or condition or a copy of any such
notice and a statement by an Executive Officer of the Borrower briefly
setting forth the details regarding such event, condition, or notice,
and the action, if any, which has been or is being taken or is
proposed to be taken by the Credit Parties with respect thereto.
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Promptly upon request, the Borrower shall furnish the Agent and the
Lenders with such additional information concerning any Plan as may be
reasonably requested, including, but not limited to, copies of each
annual report/return (Form 5500 series), as well as all schedules and
attachments thereto required to be filed with the Department of Labor
and/or the Internal Revenue Service pursuant to ERISA and the Code,
respectively, for each "plan year" (within the meaning of Section
3(39) of ERISA).
(j) Environmental.
(i) Within 45 days after written request of the
Agent at any time (but not more than one time) after the first
anniversary date of the Closing Date, the Borrower will
furnish or cause to be furnished to the Agent, at the
Borrower's expense, an assessment prepared by ENVIRON
Corporation (or such other environmental consultant reasonably
acceptable to the Agent) with respect to compliance by the
Consolidated Parties with the recommendations set forth in the
environmental report referred to in Schedule 6.18.
(ii) In addition to the assessment required to be
delivered pursuant to clause (i) above, in the event that the
Agent reasonably believes that the Consolidated Parties have
breached any of the representations and warranties contained
in Section 6.18 or any of the affirmative covenants contained
in Section 7.4 (to the extent relating to compliance with
Environmental Laws), upon the written request of the Agent,
which shall not occur more than once annually, the Borrower
will furnish or cause to be furnished to the Agent, at the
Borrower's expense, an environmental report addressing the
subject matter of such breach of reasonable scope, form and
depth, (including, where appropriate, as recommended by an
environmental consultant reasonably acceptable to the Agent,
where reasonable and appropriate, invasive soil or groundwater
sampling) by a consultant reasonably acceptable to the Agent.
If the Borrower fails to deliver such an environmental report
within seventy-five (75) days after receipt of such written
request then the Agent may arrange for same, and the
Consolidated Parties hereby grant to the Agent and its
representatives reasonable access to the Real Properties to
reasonably undertake such an assessment (including, where
appropriate, invasive soil or groundwater sampling). The
reasonable cost of any assessment arranged for by the Agent
pursuant to this provision will be payable by the Borrower on
demand and added to the obligations secured by the Collateral
Documents.
(iii) Each Consolidated Party will conduct and
complete all investigations, studies, sampling, and testing
and all remedial, removal, and other actions necessary
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to address all Hazardous Materials on , from or affecting any
of the Real Properties to the extent necessary to be in
compliance with all Environmental Laws and with the validly
issued orders and directives of all Governmental Authorities
with jurisdiction over such Real Properties to the extent any
failure could reasonably be expected to have a Material
Adverse Effect.
(k) Other Information. With reasonable promptness upon
any such request, such other information regarding the business,
properties or financial condition of the Consolidated Parties as the
Agent or the Required Lenders may reasonably request.
7.2 PRESERVATION OF EXISTENCE AND FRANCHISES.
Each of the Consolidated Parties will, and will cause each of its
Subsidiaries to, do all things necessary to preserve and keep in full force and
effect its existence, rights, franchises and authority, except where the
failure to do so would not have a Material Adverse Effect or except as
otherwise permitted by Section 8.4 or Section 8.5.
7.3 BOOKS AND RECORDS.
Each of the Consolidated Parties will, and will cause each of its
Subsidiaries to, keep complete and accurate books and records of its
transactions in accordance with good accounting practices on the basis of GAAP
(including the establishment and maintenance of appropriate reserves).
7.4 COMPLIANCE WITH LAW.
Each of the Credit Parties will, and will cause each of its
Subsidiaries to, comply with all material laws, rules, regulations and orders,
and all applicable material restrictions imposed by all Governmental
Authorities, applicable to it and its Property (including, without limitation,
Environmental Laws), where such failure to so comply could reasonably be
expected to have a Material Adverse Effect.
7.5 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
Each of the Consolidated Parties will, and will cause each of its
Subsidiaries to, pay, settle or discharge all taxes, assessments and
governmental charges or levies imposed upon it, or upon its income or profits,
or upon any of its properties, before they shall become delinquent, all lawful
claims (including claims for labor, materials and supplies) which, if unpaid,
might give rise to a Lien upon any of its properties, and except as prohibited
hereunder, all of its other Indebtedness as it shall become due; provided,
however, that no Consolidated Party shall be required to pay any such tax,
assessment, charge, levy, claim or Indebtedness which is being contested in
good faith by appropriate proceedings and as to which adequate reserves
therefor have been established in accordance with
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GAAP, unless the failure to make any such payment (i) would give rise to an
immediate right to foreclose on a Lien securing such amounts or (ii) could
reasonably be expected to have a Material Adverse Effect.
7.6 INSURANCE.
Each of the Consolidated Parties will, and will cause each of its
Subsidiaries to, at all times maintain in full force and effect insurance
(including worker's compensation insurance, liability insurance, casualty
insurance and business interruption insurance) in such amounts, covering such
risks and liabilities and with such deductibles or self-insurance retentions as
are in accordance with normal industry practice. All liability policies shall
have the Agent, on behalf of the Lenders, as an additional insured and all
casualty policies shall have the Agent, on behalf of the Lenders, as loss
payee.
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In the event there occurs any material loss, damage to or destruction
of the Collateral of any Consolidated Party or any part thereof, such
Consolidated Party shall promptly give written notice thereof to the Agent
generally describing the nature and extent of such damage or destruction.
Subsequent to any loss, damage to or destruction of the Collateral of any
Consolidated Party or any part thereof, such Consolidated Party, whether or not
the insurance proceeds, if any, received on account of such damage or
destruction shall be sufficient for that purpose, at such Consolidated Party's
cost and expense, will promptly repair or replace the Collateral of such
Consolidated Party so lost, damaged or destroyed; provided, however, that such
Consolidated Party need not repair or replace the Collateral of such
Consolidated Party so lost, damaged or destroyed to the extent the failure to
make such repair or replacement is desirable to the proper conduct of the
business of such Consolidated Party in the ordinary course and otherwise is in
the best interest of such Consolidated Party and would not materially impair
the rights and benefits of the Agent or the Lenders under the Collateral
Documents, any other Credit Document or any Hedging Agreement. Notwithstanding
any provision to the contrary contained in this Credit Agreement (including
without limitation Section 3.3(b)(v) and Section 8.5), none of the Consolidated
Parties shall undertake replacement or restoration of any lost, damaged or
destroyed Collateral of such Consolidated Party with insurance proceeds in
respect thereof unless (A) the Agent has received evidence reasonably
satisfactory to it that the Collateral lost, damaged or destroyed has been or
will be replaced or restored to its condition immediately prior to the loss,
destruction or other event giving rise to the payment of such insurance
proceeds and (B) no violation of Section 7.12 would have occurred as of the
most recent fiscal quarter end preceding the date of determination with respect
to which the Agent has received the financial statements and officer's
certificate required to be delivered pursuant to Section 7.1(a) or (b), as
applicable, and Section 7.1(c) upon giving pro forma effect to any Indebtedness
to be incurred in connection with such replacement or restoration (assuming,
for purposes hereof, that such Indebtedness was incurred as of the first day of
the four fiscal-quarter period ending as of such fiscal quarter end). All
insurance proceeds shall be subject to the security interest of the Lenders
under the Collateral Documents.
The present insurance coverage of the Consolidated Parties is outlined
as to carrier, policy number, expiration date, type and amount on Schedule 7.6.
7.7 MAINTENANCE OF PROPERTY.
Each of the Consolidated Parties will maintain and preserve its
properties and equipment in good repair, working order and condition, normal
wear and tear excepted, and will make, or cause to be made, in such properties
and equipment from time to time all repairs, renewals, replacements,
extensions, additions, betterments and improvements thereto as may be needed or
proper, to the extent and in the manner customary for companies in similar
businesses.
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7.8 PERFORMANCE OF OBLIGATIONS.
Each Credit Party and each Consolidated Party will, and will cause
each of its Subsidiaries to, perform in all respects all of its obligations
under the terms of all agreements, indentures, mortgages, security agreements
or other debt instruments to which it is a party or by which it is bound unless
the failure to do so will not have or be reasonably expected to have a Material
Adverse Effect.
7.9 COLLATERAL.
Each Consolidated Party will, and will cause each of its Subsidiaries
to, cause (i) all of its owned Real Properties and personal property located in
the United States, (ii) to the extent deemed to be material by the Agent or the
Required Lenders in its or their sole reasonable discretion, all of its other
owned Real Properties and personal property and (iii) all of its leased Real
Properties located in the United States to be subject at all times to first
priority, perfected and, in the case of Real Property (whether leased or
owned), title insured Liens in favor of the Agent pursuant to the terms and
conditions of the Collateral Documents or, with respect to any such property
acquired subsequent to the Closing Date, such other additional security
documents as the Agent shall reasonably request. With respect to any real
property (whether leased or owned) located in the United States of America
acquired by any direct or indirect Subsidiary of the Borrower subsequent to the
Closing Date, such Person will cause to be delivered to the Agent with respect
to such Real Property documents, instruments and other items of the types
required to be delivered pursuant to Section 5.1(d) in form acceptable to the
Agent. In furtherance of the foregoing terms of this Section 7.9 and without
limiting the terms of Section 8.4, the Borrower agrees to promptly provide the
Agent with written notice of the acquisition by, or the entering into a leasing
by, the Borrower or any of its direct or indirect Subsidiaries of any asset(s)
having a market value greater than $1,000,000, setting forth in reasonable
detail the location and a description of the asset(s) so acquired. Without
limiting the generality of the above, the Consolidated Parties will cause 100%
of the Capital Stock or other equity interest in each of their direct or
indirect Domestic Subsidiaries and 65% of the Capital Stock or other equity
interest in each of their direct Foreign Subsidiaries to be subject at all
times to a first priority, perfected Lien in favor of the Agent pursuant to the
terms and conditions of the Collateral Documents or such other security
documents as the Agent shall reasonably request.
If, subsequent to the Closing Date, a Consolidated Party shall (a) acquire
any intellectual property, securities, instruments, chattel paper or other
personal property required to be delivered to the Agent as Collateral hereunder
or under any of the Collateral Documents or (b) acquire or lease any real
property, the Borrower shall promptly (and in any event within three (3)
Business Days) after any Executive Officer of a Consolidated Party acquires
knowledge of same notify the Agent of same. Each Consolidated Party shall, and
shall cause
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each of its Subsidiaries to, take such action (including but not limited to the
actions set forth in Sections 5.1(c)) at its own expense as requested by the
Agent to ensure that the Lenders have a first priority perfected Lien in (i)
all owned Real Properties and personal property of the Consolidated Parties
located in the United States, (ii) to the extent deemed to be material by the
Agent or the Required Lenders in its or their sole reasonable discretion, all
other owned Real Properties and personal property of the Consolidated Parties
and (iii) all leased Real Properties located in the United States, subject in
each case only to Permitted Liens. Each Consolidated Party shall, and shall
cause each of its Subsidiaries to, adhere to the covenants regarding the
location of personal property as set forth in the Security Agreements.
7.10 USE OF PROCEEDS.
The proceeds of the Loans will be used solely to pay a portion of the
following: (i) to refinance on the Closing Date approximately $53,000,000 of
existing Indebtedness of the Acquired Companies, (ii) to pay on the Closing
Date a portion of the purchase price, including fees and expenses, for the
Acquisition and (iii) to provide from time to time for the working capital, and
general corporate needs of the Borrower and its Subsidiaries. Letters of
Credit shall be used solely for the purposes set forth in Section 2.2(a).
7.11 AUDITS/INSPECTIONS.
Upon reasonable notice and during normal business hours, but not more
than once annually so long as an Event of Default shall not have occurred and
is continuing, each Consolidated Party will, and will cause each of its
Subsidiaries to, permit representatives appointed by the Agent (or, so long as
an Event of Default shall have occurred and be continuing, any Lender),
including, without limitation, independent accountants, agents, attorneys and
appraisers to visit and inspect such Person's property, including its books and
records, its accounts receivable and inventory, its facilities and its other
business assets, and to make photocopies or photographs thereof and to write
down and record any information such representative obtains and shall permit
the Agent (or, so long as an Event of Default shall have occurred and be
continuing, any Lender) or its representatives to investigate and verify the
accuracy of information provided to the Lenders and to discuss all such matters
with the officers, employees and representatives of the Consolidated Parties.
The Consolidated Parties agree that the Agent, and its representatives, may
conduct an annual audit of the Collateral, at the expense of the Borrower.
7.12 FINANCIAL COVENANTS.
(a) Interest Coverage Ratio. The Interest Coverage
Ratio, as of the last day of each fiscal quarter, to be greater than
or equal to:
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(i) for the fiscal quarter ending October 3, 1998,
1.55 to 1.00, based on (A) Consolidated EBITDA for the four
fiscal quarter period then ended to (b) Consolidated Interest
Expense for the one fiscal quarter period then ended
multiplied by 4;
(ii) for the fiscal quarter ending January 2, 1999,
1.55 to 1.00, based on (A) Consolidated EBITDA for the four
fiscal quarter period then ended to (b) Consolidated Interest
Expense for the two fiscal quarter period then ended
multiplied by 2;
(iii) for the fiscal quarter ending April 3, 1999,
1.55 to 1.00, based on (A) Consolidated EBITDA for the four
fiscal quarter period then ended to (b) Consolidated Interest
Expense for the three fiscal quarter period then ended
multiplied by 1.33;
(iv) for the period from April 4, 1999 to and
including July 3, 1999, 1.55 to 1.00, based on (A)
Consolidated EBITDA for the four fiscal quarter period then
ended to (b) Consolidated Interest Expense for the four fiscal
quarter period then ended;
(v) for the period from July 4, 1999 to and including
January 1, 2000, 1.60 to 1.00, based on (A) Consolidated
EBITDA for the four fiscal quarter period then ended to (b)
Consolidated Interest Expense for the four fiscal quarter
period then ended;
(vi) for the period from January 2, 2000 to and
including July 1, 2000, 1.65 to 1.00, based on (A)
Consolidated EBITDA for the four fiscal quarter period then
ended to (b) Consolidated Interest Expense for the four fiscal
quarter period then ended;
(vii) for the period from July 2, 2000 to and
including December 30, 2000, 1.70 to 1.00, based on (A)
Consolidated EBITDA for the four fiscal quarter period then
ended to (b) Consolidated Interest Expense for the four fiscal
quarter period;
(viii) for the period from December 31, 2000 to and
including December 29, 2001, 1.75 to 1.00, based on (A)
Consolidated EBITDA for the four fiscal quarter period then
ended to (b) Consolidated Interest Expense for the four fiscal
quarter period then ended;
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(ix) for the period from December 30, 2001 to and
including December 28, 2002, 1.85 to 1.00, based on (A)
Consolidated EBITDA for the four fiscal quarter period then
ended to (b) Consolidated Interest Expense for the four fiscal
quarter period then ended; and
(x) for the period from December 29, 2002 and at all
times thereafter, 1.60 to 1.00, based on (A) Consolidated
EBITDA for the four fiscal quarter period then ended to (b)
Consolidated Interest Expense for the four fiscal quarter
period then ended.
(b) Senior Leverage Ratio. The Senior Leverage Ratio, as
of the last day of each fiscal quarter, to be less than or equal to:
(i) for the period from the Closing Date to and
including January 2, 1999, 2.15 to 1.00;
(ii) for the period from January 3, 1999 to and
including January 1, 2000, 1.90 to 1.00;
(iii) for the period from January 2, 2000 to and
including December 30, 2000, 1.60 to 1.00;
(iv) for the period from December 31, 2000 to and
including December 29, 2001, 1.40 to 1.00; and
(v) for the period from December 30, 2001 and at all
times thereafter, 1.10 to 1.00.
(c) Total Leverage Ratio. The Total Leverage Ratio, as
of the last day of each fiscal quarter, to be less than or equal to:
(i) for the period from the Closing Date to and
including January 2, 1999, 6.30 to 1.00;
(ii) for the period from January 3, 1999 to and
including January 1, 2000, 6.20 to 1.00;
(iii) for the period from January 2, 2000 to and
including December 30, 2000, 5.85 to 1.00;
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(iv) for the period from December 31, 2000 to and
including December 29, 2001, 5.40 to 1.00; and
(v) for the period from December 30, 2001 and at all
times thereafter, 4.90 to 1.00.
(d) Minimum EBITDA. EBITDA, as of the last day of each
fiscal quarter for the four fiscal quarter period then ended, to be
greater than or equal to:
(i) for the period from the Closing Date to and
including January 2, 1999, $19,380,000;
(ii) for the period from January 3, 1999 to and
including January 1, 2000, $19,890,000;
(iii) for the period from January 2, 2000 to and
including December 30, 2000, $20,660,000;
(iv) for the period from December 31, 2000 to and
including December 29, 2001, $21,680,000;
(v) for the period from December 30, 2001 to and
including December 28, 2002, $22,610,000; and
(vi) for the period from December 29, 2002 and at all
times thereafter, $23,000,000.
7.13 ADDITIONAL CREDIT PARTIES.
As soon as practicable and in any event within 30 days after any
Person becomes a direct or indirect Subsidiary of the Borrower, the Borrower
shall provide the Agent with written notice thereof setting forth information
in reasonable detail describing all of the assets of such Person and shall (a)
if such Person is a direct or indirect Domestic Subsidiary of the Borrower,
cause such Person to execute a Joinder Agreement in substantially the same form
as Exhibit 7.13, (b) cause 100% (if such Person is a Domestic Subsidiary of the
Borrower) or 65% (if such Person is a direct Foreign Subsidiary of the
Borrower) of the Capital Stock of such Person to be delivered to the Agent
(together with undated stock powers signed in blank (unless, with respect to a
Foreign Subsidiary, such stock powers are deemed unnecessary by the Agent in
its reasonable discretion under the law of the jurisdiction of incorporation of
such Person)) and
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pledged to the Agent pursuant to an appropriate pledge agreement(s) in
substantially the form of the Pledge Agreement and otherwise in form acceptable
to the Agent and (c) cause such Person to (i) if such Person owns or leases any
Real Property located in the United States of America or deemed to be material
by the Agent or the Required Lenders in its or their sole reasonable
discretion, such Person will cause to be delivered to the Agent with respect to
such Real Property documents, instruments and other items of the types required
to be delivered pursuant to Section 5.1(d) all in form, content and scope
reasonably satisfactory to the Agent and (ii) deliver such other documentation
as the Agent may reasonably request in connection with the foregoing,
including, without limitation, appropriate UCC-1 financing statements, real
estate title insurance policies, environmental reports, landlord's waivers,
certified resolutions and other organizational and authorizing documents of
such Person, favorable opinions of counsel to such Person (which shall cover,
among other things, the legality, validity, binding effect and enforceability
of the documentation referred to above and the perfection of the Agent's liens
thereunder) and other items of the types required to be delivered pursuant to
Section 5.1(c), all in form, content and scope reasonably satisfactory to the
Agent.
7.14 FURTHER ASSURANCES.
(a) Within 30 days after the Closing Date, the Borrower
shall deliver to the Agent (i) maps or plats of an as-built survey of
each of the Mortgaged Properties certified to the Agent and the Title
Insurance Company in a manner reasonably satisfactory to each of the
Agent and the Title Insurance Company, dated a date reasonably
satisfactory to the Agent and the Title Insurance Company by an
independent professional land surveyor licensed by the state in which
the applicable Mortgaged Property is located, which maps or plats and
the surveys on which they are based shall be made in accordance with
standards that enable the Title Insurance Company to issue an
endorsement to the applicable Mortgage Policies removing any exception
for "survey matters", except for matters as are reasonably acceptable
to the Agent, (ii) certification from a registered engineer or land
surveyor in a form reasonably satisfactory to the Agent or other
evidence acceptable to the Agent that none of the improvements on the
Mortgaged Properties are located within any area designated by the
Director of the Federal Emergency Management Agency as a "special
flood hazard" area or if any improvements on the Mortgaged Properties
are located within a "special flood hazard" area, evidence of a flood
insurance policy from a company and in an amount satisfactory to the
Agent for the applicable portion of the premises, naming the Agent,
for the benefit of the Lenders, as mortgagee and (iii) such amendments
or modifications to the Mortgage Instruments delivered pursuant to
Section 5.1(d) as shall be required by the Title Insurance Company in
order for the applicable Mortgage Policy to be endorsed by the Title
Insurance Company in order to insure the legal description of the
related Mortgaged Property determined from the survey of such
Mortgaged Property
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described in clause (i) above (together with corresponding amendments
to any related Uniform Commercial Code fixture filings).
(b) The Borrower shall use reasonable best efforts to
cause to be delivered to the Agent within 30 days after the Closing
Date (or as soon thereafter as is practicable, if at all) (i) evidence
satisfactory to the Agent that each of the Mortgaged Properties, and
the uses of the Mortgaged Properties, are in compliance with all
applicable zoning laws (the evidence submitted as to zoning should
include the zoning designation made for each of the Mortgaged
Properties, the permitted uses of each such Mortgaged Properties under
such zoning designation and zoning requirements as to parking, lot
size, ingress, egress and building setbacks) and the Americans with
Disabilities Act of 1990 and (ii) such endorsements (including but not
limited to zoning endorsements evidencing the permitted uses of each
of the Mortgaged Properties and that the uses of such Mortgaged
Properties are in compliance with applicable zoning laws) to the
Mortgage Policies as the Agent may reasonably request, all in form and
substance reasonably satisfactory to the Agent.
(c) Within 90 days after the Closing Date, the Borrower
shall deliver to the Agent a satisfactory pro forma consolidated
balance sheet of the Consolidated Parties as of the Closing Date
(updated from the pro forma balance sheet delivered pursuant to
Section 5.1(i)) giving effect to this Credit Agreement, the other
Credit Documents, the Transaction and all the transactions
contemplated herein and therein to occur on such date, and reflecting
estimated purchase price accounting adjustments, reviewed by
independent public accountants of recognized national standing.
SECTION 8
NEGATIVE COVENANTS
Each Consolidated Party hereby covenants and agrees that so long as
this Credit Agreement is in effect and until the Loans and LOC Obligations,
together with interest and fees hereunder, have been paid in full and the
Commitments and Letters of Credit hereunder shall have terminated:
8.1 INDEBTEDNESS.
No Consolidated Party will, nor will it permit any of its Subsidiaries
to, contract, create, incur, assume or permit to exist any Indebtedness,
except:
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(a) Indebtedness arising under this Credit Agreement and
the other Credit Documents;
(b) Subject to the terms of Section 8.6:
(i) Indebtedness owing by a Consolidated Party to
any Credit Party other than the Parent; and
(ii) Indebtedness owing by a Consolidated Party
which is not a Credit Party to (A) any Credit Party other than
the Parent or (B) any other Consolidated Party which is not a
Credit Party;
(c) Hedging Obligations of the Borrower;
(d) purchase money Indebtedness (including obligations in
respect of Capital Leases or Synthetic Leases) of any Consolidated
Party to finance the purchase or lease of capital assets, whether
tangible or intangible, provided that (i) the total of all such
Indebtedness for all such Persons taken together shall not exceed an
aggregate principal amount of $5,000,000 at any one time outstanding
and (ii) such Indebtedness when incurred shall not exceed the purchase
price of the asset(s) financed;
(e) obligations of the Borrower in respect of deferred
compensation arrangements with employees of the Borrower, to the
extent such obligations constitute Indebtedness;
(f) the Senior Subordinated Debt (and any notes with
identical terms registered pursuant to the registration rights
agreement set forth in the Indenture for the Senior Subordinated Debt
issued in exchange therefor) including Guaranty Obligations of any
Guarantor in respect of the Senior Subordinated Debt;
(g) obligations of the Borrower evidenced by the Borrower
Intercompany Notes;
(h) subject to the terms of Section 8.6, Guaranty
Obligations of any Consolidated Party in respect of any Indebtedness
otherwise permitted under this Section 8.1;
(i) to the extent not otherwise permitted under this
Section 8.1, obligations constituting Indebtedness of a Consolidated
Party secured by Permitted Liens;
(j) Acquired Indebtedness of any Consolidated Party,
provided the total of all such Indebtedness for all such Persons taken
together shall not exceed an aggregate principal amount of $2,500,000
at any one time outstanding; and
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(k) other unsecured Indebtedness of any Consolidated
Party (in addition to Indebtedness otherwise permitted by any other
clause of this Section 8.1), provided the total of all such
Indebtedness for all such Persons taken together shall not exceed an
aggregate principal amount of $2,500,000 at any one time outstanding.
8.2 LIENS.
No Consolidated Party will, nor will it permit any of its Subsidiaries
to, contract, create, incur, assume or permit to exist any Lien with respect to
any of its property or assets of any kind (whether real or personal, tangible
or intangible), whether now owned or after acquired, except for Permitted
Liens.
8.3 NATURE OF BUSINESS.
No Consolidated Party will, nor will it permit any of its Subsidiaries
to, substantively alter its business from the same general type of business
conducted as of the Closing Date or engage in any business other than the same
general type of business conducted as of the Closing Date.
8.4 CONSOLIDATION AND MERGER.
No Consolidated Party will, nor will it permit any of its Subsidiaries
to, enter into any transaction of merger or consolidation or liquidate, wind up
or dissolve itself (or suffer any liquidation or dissolution); provided that,
notwithstanding the foregoing provisions of this Section 8.4, (a) the Borrower
may merge or consolidate with any of its Subsidiaries provided that (i) the
Agent shall be given prior written notice of such transaction, (ii) the
Borrower shall be the continuing or surviving corporation, (iii) the
Consolidated Parties shall cause to be executed and delivered such documents,
instruments and certificates as the Agent may reasonably request so as to cause
the Consolidated Parties to be in compliance with the terms of Section 7.9
after giving effect to such transaction and (iv) after giving effect thereto,
no Default or Event of Default shall exist, (b) any Credit Party other than the
Parent or the Borrower may merge or consolidate with or into any other Credit
Party other than the Parent or the Borrower, provided that (i) the Agent shall
be given prior written notice of such transaction, (ii) the Consolidated
Parties shall execute and deliver such documents, instruments and certificates
as the Agent may reasonably request so as to cause the Consolidated Parties to
be in compliance with the terms of Section 7.9 after giving effect to such
transaction and (iii) after giving effect thereto, no Default or Event of
Default shall exist, (c) any Consolidated Party which is not a Credit Party may
be merged or consolidated with or into any other Consolidated Party which is
not a Credit Party, (d) any Consolidated Party which is not a Credit Party may
be merged or consolidated with or into any Credit Party other than the Parent
or the Borrower, provided that (i) the Agent shall be given prior written
notice of such transaction, (ii) such Credit Party shall be the continuing or
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surviving corporation, (iii) the Consolidated Parties shall execute and deliver
such documents, instruments and certificates as the Agent may reasonably
request so as to cause the Consolidated Parties to be in compliance with the
terms of Section 7.9 after giving effect to such transaction and (iii) after
giving effect thereto, no Default or Event of Default shall exist and (e) any
Credit Party may merge with or consolidate with any other Person which is not a
Credit Party or a Consolidated Party, provided that (i) the Agent shall be
given prior written notice of such transaction, (ii) such Credit Party shall be
the continuing or surviving corporation, (iii) the Consolidated Parties shall
cause to be executed and delivered such documents, instruments and certificates
as the Agent may reasonably request so as to cause the Consolidated Parties to
be in compliance with the terms of Section 7.9 after giving effect to such
transaction and (iv) after giving effect thereto, no Default or Event of
Default shall exist.
8.5 ASSET DISPOSITIONS.
No Consolidated Party will, nor will it permit any of its Subsidiaries
to, make any Asset Disposition (including, without limitation, any Sale and
Leaseback Transaction) other than Excluded Asset Dispositions, unless (i) the
consideration paid in connection therewith is cash or Cash Equivalents, (ii) if
such Asset Disposition is a Sale and Leaseback Transaction, such transaction is
permitted by the terms of Section 8.13, (iii) such Asset Disposition does not
involve the sale or other disposition of a minority equity interest in any
Consolidated Party, (iv) the aggregate net book value of all of the assets sold
or otherwise disposed of by the Consolidated Parties in all such Asset
Dispositions after the Closing Date (other than pursuant to any casualty or
condemnation event) shall not exceed $5,000,000 and (v) no later than 14 days
prior to such Asset Disposition, the Agent and the Lenders shall have received
a certificate of an Executive Officer of the Borrower specifying the
anticipated or actual date of such Asset Disposition, briefly describing the
assets to be sold or otherwise disposed of and setting forth the net book value
of such assets, the aggregate consideration and the Net Cash Proceeds to be
received for such assets in connection with such Asset Disposition, and
thereafter the Borrower shall, within the period of 180 days (or such earlier
date as is provided for reinvestment of such proceeds under the documents
evidencing or governing the Senior Subordinated Debt) following the
consummation of such Asset Disposition (with respect to any such Asset
Disposition, the "Application Period"), apply (or cause to be applied) an
amount equal to the Net Cash Proceeds of such Asset Disposition to (A) the
purchase, acquisition or, in the case of improvements to real property,
construction of Eligible Assets or (B) to the prepayment of the Loans in
accordance with the terms of Section 3.3(b)(iii).
Upon a sale of assets or the sale of Capital Stock of a Subsidiary of
the Borrower permitted by this Section 8.5, the Agent shall (to the extent
applicable) deliver to the Borrower, upon the Borrower's request and at the
Borrower's expense, such documentation as is reasonably necessary to evidence
the release of the Lenders' security interest in such assets or Capital Stock,
including, without limitation, amendments or terminations of UCC financing
statements, the return of stock certificates and the release of such Subsidiary
from its obligations as a Guarantor under the Credit Documents.
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8.6 INVESTMENTS.
No Consolidated Party will, nor will it permit any of its Subsidiaries
to, make any Investments except for Permitted Investments.
8.7 RESTRICTED PAYMENTS.
No Consolidated Party will, nor will it permit any of its Subsidiaries
to, directly or indirectly, declare, order, make or set apart any sum for or
pay any Restricted Payment, except (i) in connection with the Transaction as
contemplated by Section 7.10 and the Offering Memorandum, (ii) subject to the
terms of Section 8.9(b), to make dividends payable solely in the same class of
Capital Stock of such Person, (iii) to make dividends or other distributions
payable to any Consolidated Party, (iv) as permitted by Section 8.8 or Section
8.11, (v) payments by any Consolidated Parties to the Parent pursuant to a tax
sharing agreement under which each such Consolidated Party is allocated its
proportionate share of the tax liability of the affiliated group of
corporations that file consolidated Federal income tax returns (or that file
state or local income tax returns on a consolidated basis) and (vi) provided
that no Default or Event of Default exists either before or after giving effect
thereto, (A) loans, advances, dividends or distributions by any Consolidated
Party to the Parent not to exceed an amount necessary to permit the Parent to
pay (1) its costs (including all professional fees and expenses) incurred to
comply with its reporting or other obligations under federal or state laws or
in connection with reporting or other obligations under this Credit Agreement
and the Credit Documents, (2) its expenses incurred in connection with
registration of the Discount Notes, (3) its expenses (including liquidated
damages payable under any registration rights agreement) incurred in connection
with any public offering of equity securities which has been terminated by the
board of directors of the Parent, the net proceeds of which were specifically
intended to be received by or contributed or loaned to the Borrower and (4)
loans or advances by any Consolidated Party to the Parent not to exceed an
amount necessary to permit the Parent to pay its interim expenses incurred in
connection with any public offering of equity securities the net proceeds of
which are specifically intended to be received by or contributed or loaned to
the Borrower, which, unless such offering shall have been terminated by the
board of directors of the Parent, shall be repaid to the Borrower promptly out
of the proceeds of such offering, (B) to make interest payments in respect of
the Senior Subordinated Debt, including payment of accrued interest and
premium, if any, payable in connection with a redemption of the Subordinated
Notes permitted under Section 8.11, (C) at any time after May 26, 2003, to make
interest payments (or payments by any Consolidated Party to the Parent to
enable the Parent to make interest payments) in respect of the Discount Notes
and (D) the repurchase, redemption or retirement of any shares of Capital Stock
of the Parent following the death, disability or termination of employment of
an executive officer of the Parent, not to exceed $750,000 in an aggregate
amount for any fiscal year. Notwithstanding anything to the contrary set forth
in this Section 8.7 or in any other provision of this Credit Agreement, an
amount equal to the amount of any Restricted Payment referred
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to in clause (v) or (vi) above shall be promptly returned to the Consolidated
Party which made such Restricted Payment to the extent that such Restricted
Payment can not be or is not applied by the Parent to payment of the taxes,
costs or expenses in respect of which such Restricted Payment was permitted to
be made pursuant to this Section 8.7.
8.8 TRANSACTIONS WITH AFFILIATES.
No Consolidated Party will, nor will it permit any of its Subsidiaries
to, enter into or permit to exist any transaction or series of transactions
with any officer, director, shareholder, Subsidiary or Affiliate of such Person
other than (a) advances of working capital to any Credit Party other than the
Parent, (b) transfers of cash and assets to any Credit Party other than the
Parent, including without limitation Excluded Asset Dispositions, (c)
transactions permitted by Section 8.1(b), Section 8.4, Section 8.5, Section 8.6
or Section 8.7, (d) normal compensation and reimbursement of expenses of
officers and directors, including an annual Chairman of the Board fee of up to
$150,000, (e) provided that no Default or Event of Default has occurred and is
continuing or would be directly or indirectly caused as a result thereof,
payments to the Sponsor of annual management fees of up to $895,000 plus the
unused amount available for payments of such management fees under this Section
8.8 for the immediately preceding fiscal year (excluding any carryover amount
from any prior fiscal year), and (f) except as otherwise specifically limited
in this Credit Agreement, other transactions which are entered into in the
ordinary course of such Person's business on terms and conditions substantially
as favorable to such Person as would be obtainable by it in a comparable
arms-length transaction with a Person other than an officer, director,
shareholder, Subsidiary or Affiliate.
8.9 RESTRICTIONS ON ACTIVITIES; OWNERSHIP OF SUBSIDIARIES.
Notwithstanding any other provisions of this Credit Agreement or any
of the other Credit Documents to the contrary, the Borrower shall (i) not
permit any Person (other than the Borrower or any wholly-owned Subsidiary of
the Borrower) to own any Capital Stock of any Subsidiary of the Borrower, (ii)
not permit any Subsidiary of the Borrower to issue Capital Stock (except to the
Borrower or to a wholly-owned Subsidiary of the Borrower), (iii) not permit,
create, incur, assume or suffer to exist any Lien thereon, in each case except
(a) to qualify directors where required by applicable law or to satisfy other
requirements of applicable law with respect to the ownership of Capital Stock
of Foreign Subsidiaries, (b) if such Subsidiary merges with another Subsidiary
of the Borrower, (c) if such Subsidiary ceases to be a Subsidiary of the
Borrower (as a result of the sale of 100% of the Equity Interests in such
Subsidiary) or (d) Permitted Liens and (iv) notwithstanding anything to the
contrary contained in clause (ii) above, not permit any Subsidiary of the
Borrower to issue any shares of preferred Capital Stock.
8.10 FISCAL YEAR; ORGANIZATIONAL DOCUMENTS.
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No Consolidated Party will, nor will it permit any of its Subsidiaries
to, change its fiscal year without providing prior written notice to the Agent.
Without the prior written consent of the Required Lenders, no Credit Party
will, nor will it permit any of its Subsidiaries to, materially change its
articles or certificate of incorporation in a manner which would have an
adverse effect on the Lenders.
8.11 PREPAYMENT OR MODIFICATION OF INDEBTEDNESS.
No Consolidated Party will, nor will it permit any of its Subsidiaries
to, (i) if any Default or Event of Default has occurred and is continuing or
would be directly or indirectly caused as a result thereof, (a) after the
issuance thereof, amend or modify (or permit the amendment or modification of)
any of the terms of any Indebtedness if such amendment or modification would
add or change any terms in a manner adverse to the Lenders, including, but not
limited to, shortening the final maturity or average life to maturity or
requiring any payment to be made sooner than originally scheduled or increasing
the interest rate applicable thereto or changing any subordination provision
thereof or (b) except for the exchange of the notes evidencing the Senior
Subordinated Debt for notes with identical terms registered pursuant to the
registration rights agreement set forth in the Indenture for the Senior
Subordinated Debt, make (or give any notice with respect thereto) any voluntary
or optional payment or any prepayment or any redemption or any acquisition for
value of (including without limitation, by way of depositing money or
securities with the trustee with respect thereto before due for the purpose of
paying when due), refund, refinance or exchange of any other Indebtedness
(including without limitation the Senior Subordinated Debt) or (ii) except for
the exchange of the notes evidencing the Senior Subordinated Debt for notes
with identical terms registered pursuant to the registration rights agreement
set forth in the Indenture for the Senior Subordinated Debt, at any time make
(or give any notice with respect thereto) any voluntary or optional payment or
prepayment, redemption, acquisition for value or defeasance of (including
without limitation, by way of depositing money or securities with the trustee
with respect thereto before due for the purpose of paying when due), refund,
refinance or exchange of the Senior Subordinated Debt.
8.12 LIMITATIONS ON RESTRICTED ACTIONS.
No Consolidated Party will, nor will it permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any such
Person to (i) pay dividends or make any other distributions to any Credit Party
on its Capital Stock or with respect to any other interest or participation in,
or measured by, its profits, (ii) pay any Indebtedness or other obligation owed
to any Credit Party, (iii) make loans or advances to any Credit Party, (iv)
sell, lease or transfer any of its properties or assets to any Credit Party, or
(v) guarantee the obligations of the Borrower arising under the Credit
Agreement and the other Credit Documents or any renewals, refinancings,
exchanges, refundings or extension thereof, except for such encumbrances or
restrictions existing under or by reason of
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(A) this Credit Agreement, (B) the documents evidencing or governing the Senior
Subordinated Debt, as in effect as of the Closing Date, (C) applicable law, (D)
any document or instrument governing Indebtedness incurred pursuant to Section
8.1(d), provided that any such restriction contained therein relates only to
the asset or assets constructed or acquired in connection therewith and (E)
custormary provisions of any foreign law or lease, license or similar
agreement, provided that any such restriction contained therein relates only to
the asset or assets subject to such agreement.
8.13 SALE LEASEBACKS.
No Credit Party will other than the Parent, nor will it permit any of
its Subsidiaries to, directly or indirectly, become or remain liable as lessee
or as guarantor or other surety with respect to any Sale and Leaseback
Transaction in respect of any property (whether real or personal or mixed), now
owned or hereafter acquired, (a) which such Person has sold or transferred or
is to sell or transfer to the Parent or any other Person other than a Credit
Party or (b) which such Person intends to use for substantially the same
purpose as any other property which has been sold or is to be sold or
transferred by such Person to any Person in connection with such lease.
8.14 CAPITAL EXPENDITURES.
Except in respect of any Consolidated Capital Expenditures made in
connection with proceeds of an Asset Disposition or as part of a Permitted
Acquisition, the Consolidated Parties will not permit Consolidated Capital
Expenditures for any fiscal year to exceed $4,000,000, plus the unused amount
available for Consolidated Capital Expenditures under this Section 8.14 for the
immediately preceding fiscal year (excluding any carry forward available from
any prior fiscal year).
8.15 NEGATIVE PLEDGES.
Except (i) pursuant to this Credit Agreement and the other Credit
Documents, (ii) pursuant to the documents evidencing or governing the Senior
Subordinated Debt, as in effect as of the Closing Date, and (iii) pursuant to
any document or instrument governing Indebtedness incurred pursuant to Section
8.1(d), provided that any such restriction contained therein relates only to
the asset or assets constructed or acquired in connection therewith, no
Consolidated Party will, nor will it permit any of its Subsidiaries to, enter
into, assume or become subject to any agreement prohibiting or otherwise
restricting the creation or assumption of any Lien upon its properties or
assets, whether now owned or hereafter acquired, or requiring the grant of any
security for such obligation if security is given for some other obligation.
8.16 FOREIGN OPERATIONS.
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(i) The Consolidated Parties will not permit (i) the Borrower and its Domestic
Subsidiaries to own at any time less than 75% of Consolidated Total Assets or
(ii) as of as of the last day of each fiscal quarter, the portion attributable
to the Borrower and its Domestic Subsidiaries of Consolidated Net Income for
the four quarter then ended to be less than 75% of Consolidated Net Income for
such period.
SECTION 9
EVENTS OF DEFAULT
9.1 EVENTS OF DEFAULT.
An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default") which is not waived by
the Agent or Lenders as provided herein:
(a) Payment. Any Consolidated Party shall:
(i) default in the payment when due of any
principal of any of the Loans or of any principal of any
reimbursement obligation arising from drawings under Letters
of Credit; or
(ii) default, and such default shall continue for
three or more Business Days, in the payment when due of any
interest on the Loans, or of any interest on any reimbursement
obligations arising from drawings under Letters of Credit or
of any fees or other amounts owing hereunder, under any of the
other Credit Documents or in connection herewith.
(b) Representations. Any representation, warranty or
statement made or deemed to be made by any Credit Party herein, in any
of the other Credit Documents, or in any statement or certificate
delivered or required to be delivered pursuant hereto or thereto shall
prove untrue in any material respect on the date as of which it was
made or deemed to have been made.
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(c) Covenants. Any Consolidated Party shall:
(i) default in the due performance or observance
of any term, covenant or agreement contained in Sections 7.6,
7.9, 7.10, 7.12, 7.13 or 8.1 through 8.16, inclusive; or
(ii) default in the due performance or observance
by it of any term, covenant or agreement (other than those
referred to in subsections (a), (b) or (c)(i) of this Section
9.1) contained in this Credit Agreement and such default shall
continue unremedied for a period of at least 30 days after the
earlier of an Executive Officer of a Credit Party becoming
aware of such default or notice thereof given by the Agent.
(d) Other Credit Documents. (i) Any Credit Party shall
default in the due performance or observance of any term, covenant or
agreement in any of the other Credit Documents and such default shall
continue unremedied for a period of at least 30 days after the earlier
of an Executive Officer of a Credit Party becoming aware of such
default or notice thereof given by the Agent, (ii) except pursuant to
the terms thereof, any Credit Document shall fail to be in full force
and effect or any Credit Party shall so assert or (iii) except
pursuant to the terms thereof, any Credit Document shall fail to give
the Agent and/or the Lenders the security interests, liens, rights,
powers and privileges purported to be created thereby.
(e) Guaranties. The guaranty hereunder given by any
Guarantor or any provision thereof shall, except pursuant to the terms
thereof, cease to be in full force and effect, or any guarantor
thereunder or any Person acting by or on behalf of such Guarantor
shall deny or disaffirm such Guarantor's obligations under such
guaranty.
(f) Bankruptcy Events. Any Bankruptcy Event shall occur
with respect to any Credit Party or Consolidated Party.
(g) Defaults under Other Agreements. With respect to any
Indebtedness (other than Indebtedness outstanding under this Credit
Agreement) of one or more of the Consolidated Parties in an aggregate
principal amount in excess of $500,000 (i) a Consolidated Party shall
(A) default in any payment (beyond the applicable grace period with
respect thereto, if any) with respect to any such Indebtedness, or (B)
default (after giving effect to any applicable grace period) in the
observance or performance relating to such Indebtedness or contained
in any instrument or agreement evidencing, securing or relating
thereto, or any other event or condition shall occur or condition
exist, the effect of which default or other event or condition is to
cause, or permit, the holder or holders of such Indebtedness (or
trustee or agent on behalf of such holders) to cause (determined
without regard to whether any notice or lapse of time is required) any
such Indebtedness to become due prior to its stated maturity; or (ii)
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any such Indebtedness shall be declared due and payable prior to the
stated maturity thereof; provided, however, that a default waived with
respect to such Indebtedness shall not constitute a default hereunder.
(h) Judgments. One or more judgments, orders, or decrees
shall be entered against any one or more of the Consolidated Parties
involving a liability of $500,000 or more, in the aggregate, (to the
extent not paid or covered by insurance provided by a carrier who has
acknowledged coverage) and such judgments, orders or decrees (i) are
the subject of any enforcement proceeding commenced by any creditor or
(ii) shall continue unsatisfied, undischarged and unstayed for a
period ending on the first to occur of (A) the last day on which such
judgment, order or decree becomes final and unappealable or (B) 30
days.
(i) ERISA. Any of the following events or conditions, if
such event or condition would cause or be reasonably expected to cause
a Material Adverse Effect: (1) any "accumulated funding deficiency,"
as such term is defined in Section 302 of ERISA and Section 412 of the
Code, whether or not waived, shall exist with respect to any Plan, or
any lien shall arise on the assets of any Consolidated Party or any
ERISA Affiliate in favor of the PBGC or a Plan; (2) an ERISA Event
shall occur with respect to a Single Employer Plan, which is, in the
reasonable opinion of the Agent, likely to result in the termination
of such Plan for purposes of Title IV of ERISA; (3) an ERISA Event
shall occur with respect to a Multiemployer Plan or Multiple Employer
Plan, which is, in the reasonable opinion of the Agent, likely to
result in (i) the termination of such Plan for purposes of Title IV of
ERISA, or (ii) any Consolidated Party or any ERISA Affiliate incurring
any liability in connection with a withdrawal from, reorganization of
(within the meaning of Section 4241 of ERISA), or insolvency or
(within the meaning of Section 4245 of ERISA) such Plan; (4) any event
occurring or failing to occur with respect to a Single Employer Plan,
Multiemployer or Multiple Employer Plan sponsored, maintained or
contributed to by an ERISA Affiliate of any Consolidated Party; or (5)
any prohibited transaction (within the meaning of Section 406 of ERISA
or Section 4975 of the Code) or breach of fiduciary responsibility
shall occur which may any Consolidated Party or any ERISA Affiliate to
any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or
Section 4975 of the Code, or under any agreement or other instrument
pursuant to which any Consolidated Party or any ERISA Affiliate has
agreed or is required to indemnify any Person against any such
liability.
(j) Senior Subordinated Debt. (i) There shall occur and
be continuing any Event of Default under and as defined in the
documents evidencing or governing the Senior Subordinated Debt or (ii)
any of the Credit Party Obligations for any reason shall cease to be
"Designated Senior Indebtedness" under and as defined in such
documents.
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(j) Ownership. There shall occur a Change of Control.
(k) Capital Stock of Parent. Any Capital Stock of the
Parent owned by the Sponsor or any of its Affiliates shall become
subject to any consensual Lien other than the pledge to the Borrower
of any such Capital Stock held by management to secure loans to buy
such Capital Stock.
9.2 ACCELERATION; REMEDIES.
Upon the occurrence of an Event of Default, and at any time thereafter
unless and until such Event of Default has been waived in writing by the
Required Lenders (or the Lenders as may be required hereunder), the Agent
shall, upon the request and direction of the Required Lenders, by written
notice to the Borrower, take any of the following actions without prejudice to
the rights of the Agent or any Lender to enforce its claims against the Credit
Parties, except as otherwise specifically provided for herein:
(a) Termination of Commitments. Declare the Commitments
terminated whereupon the Commitments shall be immediately terminated.
(b) Acceleration of Loans. Declare the unpaid principal
of and any accrued interest in respect of all Loans, any reimbursement
obligations arising from drawings under Letters of Credit and any and
all other indebtedness or obligations of any and every kind owing by a
Credit Party to any of the Lenders hereunder to be due whereupon the
same shall be immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by
the Credit Parties.
(c) Cash Collateral. Direct the Borrower to pay (and the
Borrower agrees that upon receipt of such notice, or upon the
occurrence of an Event of Default under Section 9.1(f), it will
immediately pay) to the Agent additional cash, to be held by the
Agent, for the benefit of the Lenders, in a cash collateral account as
additional security for the LOC Obligations in respect of subsequent
drawings under all then outstanding Letters of Credit in an amount
equal to the maximum aggregate amount which may be drawn under all
Letters of Credits then outstanding.
(d) Enforcement of Rights. Enforce any and all rights
and interests created and existing under the Credit Documents,
including, without limitation, all rights and remedies existing under
the Collateral Documents, all rights and remedies against a Guarantor
and all rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(f) shall occur, then the Commitments shall automatically terminate and all
Loans, all reimbursement obligations under Letters
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of Credit, all accrued interest in respect thereof, all accrued and unpaid fees
and other indebtedness or obligations owing to the Lenders hereunder shall
immediately become due and payable without the giving of any notice or other
action by the Agent or the Lenders, which notice or other action is expressly
waived by the Credit Parties.
Notwithstanding the fact that enforcement powers reside primarily with the
Agent, each Lender has, to the extent permitted by law, a separate right of
payment and shall be considered a separate "creditor" holding a separate
"claim" within the meaning of Section 101(5) of the Bankruptcy Code or any
other insolvency statute.
SECTION 10
AGENCY PROVISIONS
10.1 APPOINTMENT.
Each Lender hereby designates and appoints NationsBank, N.A. as Agent
of such Lender to act as specified herein and the other Credit Documents, and
each such Lender hereby authorizes the Agent, as the agent for such Lender, to
take such action on its behalf under the provisions of this Credit Agreement
and the other Credit Documents and to exercise such powers and perform such
duties as are expressly delegated by the terms hereof and of the other Credit
Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere herein and in
the other Credit Documents, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein and therein, or any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Credit Agreement or any of the other Credit Documents, or shall otherwise
exist against the Agent. The provisions of this Section are solely for the
benefit of the Agent and the Lenders and no Credit Party shall have any rights
as a third party beneficiary of the provisions hereof. In performing its
functions and duties under this Credit Agreement and the other Credit
Documents, the Agent shall act solely as an agent of the Lenders and does not
assume and shall not be deemed to have assumed any obligation or relationship
of agency or trust with or for any Credit Party.
10.2 DELEGATION OF DUTIES.
The Agent may execute any of its duties hereunder or under the other
Credit Documents by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
The Agent shall not be responsible for the negligence or misconduct of any
agents or attorneys-in-fact selected by it with reasonable care.
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10.3 EXCULPATORY PROVISIONS.
Neither the Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates shall be liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection
herewith or in connection with any of the other Credit Documents (except for
its or such Person's own gross negligence or willful misconduct) or
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any of the Credit Parties contained
herein or in any of the other Credit Documents or in any certificate, report,
document, financial statement or other written or oral statement referred to or
provided for in, or received by the Agent under or in connection herewith or in
connection with the other Credit Documents, or enforceability or sufficiency
therefor of any of the other Credit Documents, or for any failure of the
Borrower to perform its obligations hereunder or thereunder. The Agent shall
not be responsible to any Lender for the effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Credit Agreement, or any
of the other Credit Documents or for any representations, warranties, recitals
or statements made herein or therein or made by any Credit Party in any written
or oral statement or in any financial or other statements, instruments,
reports, certificates or any other documents in connection herewith or
therewith furnished or made by the Agent to the Lenders or by or on behalf of
the Credit Parties to the Agent or any Lender or be required to ascertain or
inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained herein or therein or as to the
use of the proceeds of the Loans or the use of the Letters of Credit or of the
existence or possible existence of any Default or Event of Default or to
inspect the properties, books or records of the Credit Parties and Consolidated
Parties. The Agent is not trustee for the Lenders and owes no fiduciary duty
to the Lenders.
10.4 RELIANCE ON COMMUNICATIONS.
The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to any of the Credit Parties, independent accountants and
other experts selected by the Agent with reasonable care). The Agent may deem
and treat the Lenders as the owner of its interests hereunder for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Agent in accordance with Section 11.3(b). The Agent
shall be fully justified in failing or refusing to take any action under this
Credit Agreement or under any of the other Credit Documents unless it shall
first receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder or under
any of the other Credit Documents in accordance with a request of the Required
Lenders (or to the extent specifically
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provided in Section 11.6(a), all the Lenders) and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lenders
(including their successors and assigns).
10.5 NOTICE OF DEFAULT.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless the Agent has
received notice from a Lender or a Credit Party referring to the Credit
Document, describing such Default or Event of Default and stating that such
notice is a "notice of default." In the event that the Agent receives such a
notice, the Agent shall give prompt notice thereof to the Lenders. The Agent
shall take such action with respect to such Default or Event of Default as
shall be reasonably directed by the Required Lenders.
10.6 NON-RELIANCE ON AGENT AND OTHER LENDERS.
Each Lender expressly acknowledges that neither the Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or affiliates has
made any representations or warranties to it and that no act by the Agent or
any affiliate thereof hereinafter taken, including any review of the affairs of
any Credit Party or Consolidated Party, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents
to the Agent that it has, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Credit Parties and made its own decision to make its
Loans hereunder and enter into this Credit Agreement. Each Lender also
represents that it will, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Credit Agreement, and
to make such investigation as it deems necessary to inform itself as to the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of the Credit Parties. Except for notices,
reports and other documents expressly required to be furnished to the Lenders
by the Agent hereunder and any other documents reasonably requested by a
Lender, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business,
operations, assets, property, financial or other conditions, prospects or
creditworthiness of the Credit Parties which may come into the possession of
the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
10.7 INDEMNIFICATION.
The Lenders agree to indemnify the Agent in its capacity as such (to
the extent not reimbursed by the Borrower and without limiting the obligation
of the Borrower to do so), ratably according to
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their respective Commitments (or if the Commitments have expired or been
terminated, in accordance with the respective principal amounts of outstanding
Loans and Participation Interest of the Lenders), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including without limitation at any time following payment in full of the
Credit Party Obligations) be imposed on, incurred by or asserted against the
Agent in its capacity as such in any way relating to or arising out of this
Credit Agreement or the other Credit Documents or any documents contemplated by
or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Agent under or in connection with
any of the foregoing; provided that no Lender shall be liable for the payment
of any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
gross negligence or willful misconduct of the Agent. If any indemnity
furnished to the Agent for any purpose shall, in the opinion of the Agent, be
insufficient or become impaired, the Agent may call for additional indemnity
and cease, or not commence, to do the acts indemnified against until such
additional indemnity is furnished; provided that the Agent shall not be
indemnified for any event caused by its gross negligence or willful misconduct.
The agreements in this Section shall survive the payment of the Credit Party
Obligations and all other amounts payable hereunder and under the other Credit
Documents.
10.8 AGENT IN ITS INDIVIDUAL CAPACITY.
The Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower or any other
Credit Party as though the Agent were not the Agent hereunder. With respect to
the Loans made and Letters of Credit issued and all obligations owing to it,
the Agent shall have the same rights and powers under this Credit Agreement as
any Lender and may exercise the same as though it were not the Agent, and the
terms "Lender" and "Lenders" shall include the Agent in its individual
capacity.
10.9 SUCCESSOR AGENT.
The Agent may, at any time, resign upon 20 days written notice to the
Lenders. Upon any such resignation, the Required Lenders shall have the right
to appoint a successor Agent reasonably satisfactory to Borrower. If no
successor Agent shall have been so appointed by the Required Lenders, and shall
have accepted such appointment, within 45 days after the notice of resignation
or the Borrower shall unreasonably fail to consent to such appointment, then
the retiring Agent shall select a successor Agent provided such successor is a
Lender hereunder or a commercial bank organized under the laws of the United
States of America or of any State thereof and has a combined capital and
surplus of at least $400,000,000. Upon the acceptance of any appointment as
the Agent hereunder by a successor, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations as the Agent, as appropriate, under this Credit
Agreement
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and the other Credit Documents and the provisions of this Section 10.9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was the Agent under this Credit Agreement.
10.10 SYNDICATION AGENT.
The Syndication Agent, in its capacity as such, shall have no rights,
powers, duties or obligations under this Credit Agreement or any of the other
Credit Documents.
SECTION 11
MISCELLANEOUS
11.1 NOTICES.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set out below, (c) the Business Day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (d) the third Business Day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address or telecopy numbers set forth on Schedule
11.1, or at such other address as such party may specify by written notice to
the other parties hereto.
11.2 RIGHT OF SET-OFF.
In addition to any rights now or hereafter granted under applicable
law or otherwise, and not by way of limitation of any such rights, upon the
occurrence of an Event of Default and the commencement of remedies described in
Section 9.2, each Lender is authorized at any time and from time to time,
without presentment, demand, protest or other notice of any kind (all of which
rights being hereby expressly waived), to set-off and to appropriate and apply
any and all deposits (general or special) and any other indebtedness at any
time held or owing by such Lender (including, without limitation, branches,
agencies or Affiliates of such Lender wherever located) to or for the credit or
the account of any Credit Party against obligations and liabilities of such
Credit Party to the Lenders hereunder, under the Notes, the other Credit
Documents or otherwise, irrespective of whether the Agent or the Lenders shall
have made any demand hereunder and although such obligations, liabilities or
claims, or any of them, may be contingent or unmatured, and any such set-off
shall be deemed to have been made immediately upon the occurrence of an Event
of Default even though such charge is made or entered on the books of such
Lender subsequent thereto. The Credit Parties hereby agree
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that to the extent permitted by law any Person purchasing a participation in
the Loans and Commitments hereunder pursuant to Section 11.3(c) or 3.9 may
exercise all rights of set-off with respect to its participation interest as
fully as if such Person were a Lender hereunder.
11.3 BENEFIT OF AGREEMENT.
(a) Generally. This Credit Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided that no Credit
Party may assign and transfer any of its interests without the prior
written consent of the Lenders; and provided further that the rights
of each Lender to transfer, assign or grant participations in its
rights and/or obligations hereunder shall be limited as set forth
below in subsections (b) and (c) of this Section 11.3.
Notwithstanding the above (including anything set forth in subsections
(b) and (c) of this Section 11.3), nothing herein shall restrict,
prevent or prohibit any Lender from (A) pledging its Loans hereunder
to a Federal Reserve Bank in support of borrowings made by such Lender
from such Federal Reserve Bank, or (B) granting assignments or
participations in such Lender's Loans and/or Commitments hereunder to
its parent company and/or to any Affiliate of such Lender or to any
existing Lender or Affiliate thereof.
(b) Assignments. Each Lender may assign all or a portion
of its rights and obligations hereunder pursuant to an assignment
agreement substantially in the form of Exhibit 11.3 to one or more
Eligible Assignees; provided that any such assignment shall (i) unless
to a Lender or an Affiliate of a Lender, be in a minimum aggregate
amount of $5,000,000 of the Commitments and in integral multiples of
$1,000,000 above such amount (or the remaining amount of Commitments
held by such Lender) and (ii) be of a constant, not varying,
percentage of all of the assigning Lender's rights and obligations
under the Commitment being assigned. Any assignment hereunder shall
be effective upon satisfaction of the conditions set forth above and
delivery to the Agent of a duly executed assignment agreement together
with a transfer fee of $3,500 payable to the Agent for its own
account. Upon the effectiveness of any such assignment, the assignee
shall become a "Lender" for all purposes of this Credit Agreement and
the other Credit Documents and, to the extent of such assignment, the
assigning Lender shall be relieved of its obligations hereunder to the
extent of the Loans and Commitment components being assigned. Along
such lines the Borrower agrees that upon notice of any such assignment
and surrender of the appropriate Note or Notes, it will promptly
provide to the assigning Lender and to the assignee separate
promissory notes in the amount of their respective interests
substantially in the form of the original Note or Notes (but with
notation thereon that it is given in substitution for and replacement
of the original Note or Notes or any replacement notes thereof).
Notwithstanding the above, a Lender may assign all or a portion of its
Commitments to another Lender without the consent of the Borrower and
without regard to any minimum amount of such assignment.
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By executing and delivering an assignment agreement in accordance with
this Section 11.3(b), the assigning Lender thereunder and the assignee
thereunder shall be deemed to confirm to and agree with each other and
the other parties hereto as follows: (i) such assigning Lender
warrants that it is the legal and beneficial owner of the interest
being assigned thereby free and clear of any adverse claim and the
assignee warrants that it is an Eligible Assignee; (ii) except as set
forth in clause (i) above, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in
connection with this Credit Agreement, any of the other Credit
Documents or any other instrument or document furnished pursuant
hereto or thereto, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Credit
Agreement, any of the other Credit Documents or any other instrument
or document furnished pursuant hereto or thereto or the financial
condition of any Credit Party or the performance or observance by any
Credit Party of any of its obligations under this Credit Agreement,
any of the other Credit Documents or any other instrument or document
furnished pursuant hereto or thereto; (iii) such assignee represents
and warrants that it is legally authorized to enter into such
assignment agreement; (iv) such assignee confirms that it has received
a copy of this Credit Agreement, the other Credit Documents and such
other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such assignment
agreement; (v) such assignee will independently and without reliance
upon the Agent, such assigning Lender or any other Lender, and based
on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not
taking action under this Credit Agreement and the other Credit
Documents; (vi) such assignee appoints and authorizes the Agent to
take such action on its behalf and to exercise such powers under this
Credit Agreement or any other Credit Document as are delegated to the
Agent by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it
will perform in accordance with their terms all the obligations which
by the terms of this Credit Agreement and the other Credit Documents
are required to be performed by it as a Lender.
(c) Participations. Each Lender may sell, transfer,
grant or assign participations in all or any part of such Lender's
rights, obligations or rights and obligations hereunder; provided that
(i) such selling Lender shall remain a "Lender" for all purposes under
this Credit Agreement (such selling Lender's obligations under the
Credit Documents remaining unchanged) and the participant shall not
constitute a Lender hereunder, (ii) no such participant shall have, or
be granted, rights to approve any amendment or waiver relating to this
Credit Agreement or the other Credit Documents except to the extent
any such amendment or waiver would (A) reduce the principal of or rate
of interest on or fees in respect of any Loans in which the
participant is participating or increase any Commitments with respect
thereto, (B) postpone the date fixed for any payment of principal
(including the extension of the final
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maturity of any Loan or the date of any mandatory prepayment pursuant
to Section 2.3(d)), interest or fees in which the participant is
participating, or (C) release all or substantially all of the
collateral or guaranties (except as expressly provided in the Credit
Documents) supporting any of the Loans or Commitments in which the
participant is participating and (iii) sub-participations by the
participant (except to an Affiliate, parent company or Affiliate of a
parent company of the participant) shall be prohibited. In the case
of any such participation, the participant shall not have any rights
under this Credit Agreement or the other Credit Documents (the
participant's rights against the selling Lender in respect of such
participation to be those set forth in the participation agreement
with such Lender creating such participation) and all amounts payable
by the Borrower hereunder shall be determined as if such Lender had
not sold such participation; provided, however, that such participant
shall be entitled to receive additional amounts under Section 3.15 to
the same extent that the Lender from which such participant acquired
its participation would be entitled to the benefit of such cost
protection provisions.
(d) Registration. The Agent, acting for this purpose
solely on behalf of the Borrower, shall maintain a register (the
"Register") for the recordation of the names and addresses of the
Lenders and the principal amount of the Loans owing to each Lender
from time to time. The entries in the Register shall be conclusive,
in the absence of manifest error, and the Borrower, the Agent and the
Lenders shall treat each Person whose name is recorded in the Register
as the owner of a Loan or other obligation hereunder for all purposes
of this Credit Agreement and the other Credit Documents,
notwithstanding notice to the contrary. Any assignment of any Loan or
other obligation hereunder shall be effective only upon appropriate
entries with respect thereto being made in the Register. The Register
shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
11.4 NO WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of the Agent or any Lender in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between any Credit Party or Consolidated
Party and the Agent or any Lender shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege hereunder or
under any other Credit Document preclude any other or further exercise thereof
or the exercise of any other right, power or privilege hereunder or thereunder.
The rights and remedies provided herein are cumulative and not exclusive of any
rights or remedies which the Agent or any Lender would otherwise have. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Agent or the Lenders
to any other or further action in any circumstances without notice or demand.
11.5 PAYMENT OF EXPENSES; INDEMNIFICATION.
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The Credit Parties agree to: (a) pay all reasonable out-of-pocket
costs and reasonable expenses of (i) the Agent in connection with (A) the
negotiation, preparation, execution and delivery and administration of this
Credit Agreement and the other Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees and expenses of Moore & Van Allen, PLLC, special counsel to the Agent and
the fees and expenses of counsel for the Agent in connection with collateral
issues), and (B) any amendment, waiver or consent relating hereto and thereto
including, but not limited to, any such amendments, waivers or consents
resulting from or related to any work-out, renegotiation or restructure
relating to the performance by the Credit Parties under this Credit Agreement
and (ii) the Agent and the Lenders in connection with (A) enforcement of the
Credit Documents and the documents and instruments referred to therein,
including, without limitation, in connection with any such enforcement, the
reasonable fees and disbursements of counsel for the Agent and each of the
Lenders, and (B) any bankruptcy or insolvency proceeding of a Credit Party and
(b) indemnify the Agent and each Lender, their respective officers, directors,
employees, representatives and agents from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses incurred
by any of them as a result of, or arising out of, or in any way related to, or
by reason of, any investigation, litigation or other proceeding (whether or not
the Agent or any Lender is a party thereto) related to (i) the entering into
and/or performance of any Credit Document or the use of proceeds of any Loans
(including other extensions of credit) hereunder or the consummation of any
other transactions contemplated in any Credit Document, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses to the
extent incurred by reason of gross negligence or willful misconduct on the part
of the Person to be indemnified), (ii) any Environmental Claim and (iii) any
claims for Non-Excluded Taxes.
11.6 AMENDMENTS, WAIVERS AND CONSENTS.
(a) Neither this Credit Agreement nor any other Credit
Document nor any of the terms hereof or thereof may be amended,
changed, waived, discharged or terminated unless such amendment,
change, waiver, discharge or termination is in writing and signed by
the Required Lenders and the then Credit Parties; provided that no
such amendment, change, waiver, discharge or termination shall
(i) without the consent of each Lender affected
thereby,
(A) extend the final maturity of any
Loan or extend or waive any Principal Amortization
Payment of any Loan, or any portion thereof,
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<PAGE> 111
(B) reduce the rate or extend the time
of payment of interest (other than as a result of
waiving the applicability of any post-default
increase in interest rates) thereon or fees
hereunder,
(C) reduce or waive the principal amount
of any Loan,
(D) increase the Commitment of a Lender
over the amount thereof in effect (it being
understood and agreed that a waiver of any Default or
Event of Default or a mandatory reduction in the
Commitments shall not constitute a change in the
terms of any Commitment of any Lender),
(E) release all or any material portion
of the Collateral securing the Credit Party
Obligations hereunder (provided that the Agent may,
without consent from any other Lender, release any
Collateral that is sold or transferred by a Credit
Party in conformance with Section 8.5),
(F) release the Borrower or any other
material Credit Party from its obligations under the
Credit Documents (provided that the Agent may,
without consent from any other Lender, release any
Guarantor that is sold or transferred in conformance
with Section 8.5),
(G) amend, modify or waive any provision
of this Section or Section 3.4(b)(i), 3.7, 3.8, 3.9,
3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 9.1(a), 11.2,
11.3 or 11.5,
(H) reduce any percentage specified in,
or otherwise modify, the definition of Required
Lenders or
(I) consent to the assignment or
transfer by the Borrower (or substantially all of the
other Credit Parties) of any of its rights and
obligations under (or in respect of) the Credit
Documents except as permitted thereby; and
(ii) without the consent of Lenders holding in the
aggregate more than 50% of the outstanding Term Loans, extend
the time for or the amount or the manner of application of
proceeds of any mandatory prepayment required by Section
3.3(b)(ii), (iii) or (iv). No provision of Section 10 may be
amended without the consent of the Agent.
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<PAGE> 112
Notwithstanding the fact that the consent of all the Lenders is
required in certain circumstances as set forth above, (x) each Lender
is entitled to vote as such Lender sees fit on any bankruptcy
reorganization plan that affects the Loans or the Letters of Credit,
and each Lender acknowledges that the provisions of Section 1126(c) of
the Bankruptcy Code supersedes the unanimous consent provisions set
forth herein and (y) the Required Lenders may consent to allow a
Credit Party to use cash collateral in the context of a bankruptcy or
insolvency proceeding.
(b) A Default or Event of Default shall not be deemed to
have occurred or to be in existence for any purpose of this Credit
Agreement if the Required Lenders (or all of the Lenders, if required
hereunder) shall have expressly waived such Default or Event of
Default in writing pursuant to Section 11.6(a) hereof or stated in
writing that the same has been cured to the reasonable satisfaction of
the Required Lenders (or the Lenders as may be required hereunder).
No waiver pursuant to Section 11.6(a) shall extend to or affect any
subsequent Default or Event of Default or impair the rights of the
Lenders upon the occurrence thereof.
11.7 COUNTERPARTS.
This Credit Agreement may be executed in any number of counterparts,
each of which where so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument. It shall not be necessary
in making proof of this Credit Agreement to produce or account for more than
one such counterpart.
11.8 PLEADINGS.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 DEFAULTING LENDER.
Each Lender understands and agrees that if such Lender is a Defaulting
Lender then notwithstanding the provisions of Section 11.6(a) it shall not be
entitled to vote on any matter requiring the consent of the Required Lenders or
to object to any matter requiring the consent of all the Lenders adversely
affected thereby; provided, however, that all other benefits and obligations
under the Credit Documents shall apply to such Defaulting Lender.
11.10 SURVIVAL OF INDEMNIFICATION AND REPRESENTATIONS AND
WARRANTIES.
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<PAGE> 113
All indemnities set forth herein and all representations and
warranties made herein shall survive the execution and delivery of this Credit
Agreement, the making of the Loans, the issuance of the Letters of Credit and
the repayment of the Loans, LOC Obligations and other obligations and the
termination of the Commitments hereunder.
11.11 GOVERNING LAW; VENUE.
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK. Any legal action or proceeding
with respect to this Credit Agreement or any other Credit Document may
be brought in the courts of the State of New York, or of the United
States for the Southern District of New York, and, by execution and
delivery of this Credit Agreement, each Credit Party hereby
irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of such courts. Each
Credit Party further irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to it at the address for notices pursuant to
Section 11.1, such service to become effective 3 days after such
mailing. Nothing herein shall affect the right of a Lender to serve
process in any other manner permitted by law or to commence legal
proceedings or to otherwise proceed against a Credit Party in any
other jurisdiction.
(b) Each Credit Party hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of
any of the aforesaid actions or proceedings arising out of or in
connection with this Credit Agreement or any other Credit Document
brought in the courts referred to in subsection (a) hereof and hereby
further irrevocably waives and agrees not to plead or claim in any
such court that any such action or proceeding brought in any such
court has been brought in an inconvenient forum.
11.12 WAIVER OF JURY TRIAL.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES TO THIS
CREDIT AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT
AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
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<PAGE> 114
11.13 TIME.
All references to time herein shall be references to Eastern Standard
Time or Eastern Daylight time, as the case may be, unless specified otherwise.
11.14 SEVERABILITY.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.15 ENTIRETY.
This Credit Agreement together with the other Credit Documents
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
11.16 BINDING EFFECT.
This Credit Agreement shall become effective at such time when all of
the conditions set forth in Section 5.1 have been satisfied or waived by the
Lenders and it shall have been executed by the Borrower, the Guarantors and the
Agent, and the Agent shall have received copies hereof (telefaxed or otherwise)
which, when taken together, bear the signatures of each Lender, and thereafter
this Credit Agreement shall be binding upon and inure to the benefit of the
Borrower, the Guarantors, the Agent and each Lender and their respective
successors and assigns.
11.17 CONFIDENTIALITY.
Each Lender agrees that it will use its reasonable best efforts to
keep confidential and to cause any representative designated under Section 7.11
to keep confidential any non-public information from time to time supplied to
it under any Credit Document; provided, however, that nothing herein shall
affect the disclosure of any such information to (i) the extent such Lender in
good faith believes is required by statute, rule, regulation or judicial
process, (ii) counsel for such Lender or to its accountants, (iii) bank
examiners or auditors or comparable Persons, (iv) any affiliate of such Lender,
(v) any other Lender, or any assignee, transferee or participant, or any
potential assignee, transferee or participant, of all or any portion of any
Lender's rights under this Credit Agreement who is notified of the confidential
nature of the information and agrees to be bound by this provision or
provisions
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<PAGE> 115
reasonably comparable hereto, or (vi) any other Person in connection with any
litigation to which any one or more of the Lenders is a party; and provided
further that no Lender shall have any obligation under this Section 11.17 to
the extent any such information becomes available on a non-confidential basis
from a source other than a Credit Party or that any information becomes
publicly available other than by a breach of this Section 11.17. Each Lender
agrees it will use all confidential information exclusively for the purpose of
evaluating, monitoring, selling, protecting or enforcing its Loans and other
rights under the Credit Documents. Without affecting any other rights of the
Borrower and the Credit Parties, each Lender acknowledges that the Borrower
shall be entitled to seek the remedies of injunction, specific performance and
other equitable relief for any breach of the provisions of this Section 11.17.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 116
Each of the parties hereto has caused a counterpart of this Credit
Agreement to be duly executed and delivered as of the date first above written.
BORROWER: STEEL HEDDLE MFG. CO.
By: /s/ Benjamin G. Team
-------------------------------
Name: Benjamin G. Team
-------------------------------
Title: President
-------------------------------
GUARANTORS: STEEL HEDDLE INTERNATIONAL, INC.
By: /s/ Benjamin G. Team
-------------------------------
Name: Benjamin G. Team
-------------------------------
Title: President
-------------------------------
HEDDLE CAPITAL CORP.
By: /s/ Jerry B. Miller
-------------------------------
Name: Jerry B. Miller
-------------------------------
Title: President
-------------------------------
[Signatures continued]
<PAGE> 117
Each of the parties hereto has caused a counterpart of this Credit
Agreement to be duly executed and delivered as of the date first above written.
AGENT: NATIONSBANK, N.A.
By: /s/ Diana H. Inman
-------------------------------
Name: Diana H. Inman
-------------------------------
Title: Vice President
-------------------------------
SYNDICATION
AGENT: DLJ CAPITAL FUNDING, INC.
By: /s/ Eric Swanson
-------------------------------
Name: Eric Swanson
-------------------------------
Title: Managing Director
-------------------------------
LENDERS: NATIONSBANK, N.A.
By: /s/ Diana H. Inman
-------------------------------
Name: Diana H. Inman
-------------------------------
Title: Vice President
-------------------------------
DONALDSON, LUFKIN & JENRETTE
By: /s/ Eric Swanson
-------------------------------
Name: Eric Swanson
-------------------------------
Title: Managing Director
-------------------------------
<PAGE> 118
SCHEDULE 1.1(a)
CONSOLIDATED EBIT SPECIAL ADJUSTMENTS
STEELE HEDDLE MFG. CO.
EBIT SPECIAL ADJUSTMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 3, MARCH 31, JUNE 30, TOTAL
1997 1998 1998 1998 -----
<S> <C> <C> <C> <C> <C>
MANAGEMENT FEES 69,000 69,000 68,000 68,000 274,000
SUPPLEMENTAL BONUS COMPENSATION 222,000 197,000 0 0 419,000
COMPENSATION EXPENSE FOR ELIMINATED 65,000 65,000 69,000 0 199,000
POSITIONS
TOTAL 356,000 331,000 137,000 68,000 892,000
</TABLE>
<PAGE> 119
4
SCHEDULE 1.1(b)
EXISTING INVESTMENTS
<PAGE> 120
Schedule 1.1(c)
LENDER ADDRESSES AND COMMITMENTS
<TABLE>
<CAPTION>
=====================================================================================================================
REVOLVING REVOLVING TERMLOAN TERM LOAN
COMMITMENT COMMITMENT COMMITMENT COMMITMENT
OPERATIONS CONTACT CREDIT CONTACT $20MM PERCENTAGE $30MM PERCENTAGE
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
NationsBank, N.A. NationsBank, N.A. $16,000,000.00 80 % $24,000,000.00 80%
Corporate Credit Services NationsBank Plaza
Independence Center, 901 Main Street, 66th Floor
15th Floor Dallas, TX 75202
Charlotte, NC 28255 Attn: Philip Cope
Attn: David Smith Telephone: (214) 508-2475
Telephone: (704) 386-7637. Telefax: (214) 508-2881
Telefax: (704) 388-9436
- ---------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette Donaldson, Lufkin & Jenrette $4,000,000.00 20% $6,000,000.00 20%
2121 Avenue of the Stars, 277 Park Avenue
Fox Plaza New York, NY 10172
Los Angeles, CA 90067 Attn: Tonya Holman
Attn: David Miler Telephone: (212) 892-2970
Telephone: (310) 282-7443 Telefax: (212) 892-6031
Telefax: (310)282-6178
=====================================================================================================================
$20,000,000.00 100% $30,000,000.00 100%
=====================================================================================================================
</TABLE>
<PAGE> 121
SCHEDULE 1.1(d)
EXISTING LETTERS OF CREDIT
<TABLE>
<CAPTION>
Date of Issuance LOC# Undrawn amount Name of Beneficiary Date of Expiry
- ---------------- ---- -------------- ------------------- --------------
<S> <C> <C> <C> <C>
12/31/1997 919987 $671,000.00 Bureau of Solid and 02/21/1999
Hazardous Waste
Management
</TABLE>
<PAGE> 122
8
SCHEDULE 5.1(d)
MORTGAGED PROPERTIES
<PAGE> 123
9
SCHEDULE 5.1(e)(i)
FORM OF OPINION OF KIRKLAND & ELLIS
May 26, 1998
To the Lenders party to the Credit
Agreement referred to below and
NationsBank, N.A., as Agent thereunder
Re: Steel Heddle Mfg. Co.
Ladies and Gentlemen:
We have acted as counsel to Steel Heddle Mfg. Co., a Pennsylvania
corporation ("Borrower"), Steel Heddle Group, Inc., a _____________ corporation
(the "Parent"), and certain subsidiaries of the Borrower (each a "Guarantor",
and together, with the Borrower and the Parent, individually a "Credit Party
and collectively the "Credit Parties") in connection with the Credit Agreement
dated as of May 26, 1998 (the "Credit Agreement") among the Borrower, the
Guarantors, the several Lenders from time to time party thereto, NationsBank,
N.A., as Agent ("NationsBank"), and DLJ Capital Funding, Inc., as Syndication
Agent ("DLJ"), the other Credit Documents referred to and defined therein and
the transactions contemplated by the Credit Agreement and the other Credit
Documents.
This opinion is being delivered at the request of the Credit Parties
pursuant to Section 5.1(e)(i) of the Credit Agreement. Capitalized terms used
herein but not otherwise defined herein shall have the respective meanings
accorded such terms in the Credit Agreement.
In rendering this opinion, we have reviewed the following documents
(the documents referenced in subsection (1) through (9) below hereinafter may
be referred to collectively as the "Documents"):
(1) The Credit Agreement;
(2) Each of the Notes;
(4) The Security Agreement;
(5) The Pledge Agreement;
<PAGE> 124
10
(6) The UCC-1 Financing Statement(s) executed by Borrower in
connection with the Mortgages (the "Fixture Financing
Statements"), the UCC-1 Financing Statement(s) executed by the
Borrower and the Guarantors (the "Code Collateral Financing
Statements" and together with the Fixture Filing Statements,
the "UCC Financing Statements") in connection with the
Security Agreement, to be filed in the respective locations
described on Schedule A hereto (the "UCC Financing
Statements");
(7) The Mortgage Instruments and the Notices of Grant of Security
Interest in Patents and Trademarks to be filed pursuant to the
terms of the Security Agreement in the United States Patent
and Trademark Office (the "PTO Filings");
(8) The Purchase Agreement and all documents, approvals and
certificates executed in connection with the Purchase
Agreement (collectively, the "Acquisition Documents"); and
(9) (a) The Agreement and Plan of Merger, dated as of ___________,
1998 (the "Merger I Agreement") between Steel Heddle Group,
Inc., a Delaware corporation ("SH Group"), and SH Holdings
Corp., a Pennsylvania corporation ("Old Holdings"), (b) the
Agreement and Plan of Merger dated as of ___________, 1998
(the "Merger II Agreement") between ______________ and
____________ (collectively, the mergers consummated pursuant
to the Merger I Agreement and the Merger II Agreement referred
to herein as the "Mergers") and (c) all other documents,
approvals and certificates required in order to consummate the
Mergers (collectively, the "Merger Documents");
In rendering the opinions expressed below, we have examined the
Documents and originals or copies, certified or otherwise identified to our
satisfaction, of such corporate records, agreements, documents and other
instruments, and such certificates or comparable documents of public officials
and of officers and representatives of the Credit Parties, and have made such
inquiries of such officers and representatives, as we have deemed relevant and
necessary as a basis for the opinions hereinafter set forth.
In making the examinations described above, we have assumed the
genuineness of all signatures (other than the signatures of the Credit
Parties), the capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents. We have also assumed the due
authorization, execution and delivery of the Documents by all parties thereto
(other than the Credit Parties) and the binding effect of such documents on
such parties.
<PAGE> 125
11
We have also examined originals or copies of the Certificate of
Incorporation and Bylaws of each Credit Party, resolutions of the Board of
Directors of each Credit Party, and certificates of public officials concerning
the legal existence, qualifications to do business as a foreign corporation or
good standing of each Credit Party.
Based upon the foregoing and subject to the qualifications stated
herein, we are of the opinion that:
1. Each of the Credit Parties is a validly existing
corporation under the laws of the jurisdiction of its incorporation
and has the corporate power to own its properties and to transact the
business in which it is currently engaged, and is qualified to do
business in and is in good standing in the jurisdiction of its
incorporation and each other jurisdiction where it is required to be
qualified and in good standing given the nature of its business.
2. Each of the Credit Parties has the corporate power to
execute, deliver and carry out the terms and provisions of each of the
Documents to which it is a party and each Credit Party has duly taken
or caused to be taken all necessary corporate action to authorize the
execution, delivery and performance by it of each of such Documents.
3. Each of the Credit Parties has duly executed and
delivered each of the Documents to which it is a party.
4. Each of the Documents to which such Person is a party
constitutes a legal, valid and binding obligation of each Credit
Party, enforceable against such Person in accordance with its terms.
5. The execution and delivery of the Security Agreement
by the Credit Parties creates in favor of the Agent a valid lien on
and a security interest in the "Collateral" (as such term is defined
in the Security Agreement), to the extent the validity of a lien or
security interest in the Collateral is covered by Article 9 of the
Applicable UCC (as defined below) or applicable Federal law, as
security for the Secured Obligations referred to therein. Assuming
the filing of the financing statements on Form UCC-1 in the offices in
the jurisdictions indicated on Schedule A, such lien and security
interest is duly perfected to the extent a lien or security interest
in the Collateral owned (now or hereafter) by the Credit Parties may
be perfected by the filing of a financing statement under the Uniform
Commercial Code as in effect in the respective states in which such
filing offices are located (the "Applicable UCC") or applicable
Federal law.
6. The authorized capital stock and the issued and
outstanding shares of stock in each Credit Party, as set forth in
attached hereto, constitute all of the authorized, issued and
outstanding shares of stock in each Credit Party and all of such
issued and outstanding stock is owned in the manner provided in
Schedule B. All of the Pledged
<PAGE> 126
12
Shares (as defined in the Pledge Agreement) have been duly authorized,
and validly issued and are fully paid and non-assessable.
7. The Pledge Agreement creates a legal, valid and
enforceable security interest in favor of the Agent in the Pledged
Collateral (as defined in the Pledge Agreement).
8. Assuming continued possession by the Agent of the
stock certificates representing the Pledged Shares, the Agent's
security interests in the Pledged Shares constitute first priority,
perfected security interests.
9. Neither the execution and delivery of the Documents
by any of the Credit Parties which is party thereto, nor the
consummation by a Credit Party of the transactions contemplated
therein, will (a) violate or conflict with any provision of the
articles or certificate of incorporation or bylaws of any Credit
Party, (b) violate, contravene or materially conflict with any law,
regulation (including, without limitation, Regulation U or Regulation
X), order, writ, judgment, injunction, decree or permit applicable to
any Credit Party, (c) violate, contravene or materially conflict with
contractual provisions of, or cause an event of default under, any
indenture, loan agreement, mortgage, deed of trust, contract or other
agreement or instrument to which any of the Credit Parties is a party
or by which any Credit Party may be bound, or (d) result in or require
the creation of any Lien (other than those contemplated in or created
in connection with the Documents) upon or with respect to the
properties of any Credit Party.
10. No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or Governmental
Authority or third party in respect of any Credit Party is required in
connection with the execution, delivery or performance of the
Documents by a Credit Party, or if required, such consent, approval
and authorization has been obtained.
11. To the best of our knowledge, there are no actions,
suits or legal, equitable, arbitration or administrative proceedings,
pending or threatened against any Credit Party which will have or
might be reasonably expected to have a Material Adverse Effect.
12. None of the Credit Parties is an "investment company"
registered or required to be registered under the Investment Company
Act of 1940, as amended, or controlled by such a company, or a
"holding company," or a "Subsidiary company" of a "holding company,"
or an "affiliate" of a "holding company" or of a "Subsidiary" or a
"holding company," within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
<PAGE> 127
13
13. Each Mortgage Instrument identified on Schedule C
attached hereto is in proper form for recording and upon recordation
of each Mortgage Instrument, as appropriate, such Mortgage Instrument
will provide the Agent, for the benefit of the Lenders, with a valid
lien on the property described therein.
14. The Acquisition Documents have been duly executed and
delivered by SH Group and SH Group has acquired all of the issued and
outstanding stock of Old Holdings in accordance with the terms of the
Acquisition Documents.
15. (a) The Merger Documents have been duly authorized by
all necessary corporate action on the part of the parties thereto, (b)
the Mergers have been consummated in accordance with all requirements
of the laws of the States of Delaware and Pennsylvania (including,
without limitation, the filing of certificates of merger with the
Secretary of State of the States of Delaware and Pennsylvania) and the
Certificate of Incorporation and Bylaws of each party thereto and (c)
the Mergers have become effective under the laws of the States of
Delaware and Pennsylvania.
16. As a result of the Mergers, all of the issued and
outstanding stock of Borrower is owned by SH Group.
17. [Opinions from Seller's counsel relating to the
Purchase Agreement]
The opinions herein are limited to the laws of the State of New York, the
General Corporation Law of the State of Delaware and the federal laws of the
United States, except to the extent the opinions set forth in paragraph 5 above
with respect to the perfection of certain security interests involve
conclusions under the laws of various states other than the State of New York,
in which case such opinion is based solely on our review of Article 9 of the
Uniform Commercial Code as in effect in such states as reported in the Secured
Transaction Guide published by Commerce Clearinghouse, Inc., updated through
______________, 1998, and have otherwise assumed that the laws of each such
state are in all relevant respects identical to the laws of the State of New
York.
This letter is rendered solely for your benefit in connection with the
transactions described above. This opinion may not be used or relied upon by
any other person, and may not be disclosed, quoted, filed with a governmental
agency or otherwise referred to without our prior written consent except to
your bank examiners, auditors and counsel and to prospective transferees of
your interests under the Credit Documents and their professional advisers, or
as required by law or pursuant to legal process.
<PAGE> 128
14
Schedule A
Locations for UCC-1 Filings
<PAGE> 129
15
Schedule B
[Ownership of Credit Parties]
<PAGE> 130
16
Schedule C
Mortgage Instruments
<PAGE> 131
May __, 1998
Page 1
SCHEDULE 5.1(e)(ii)
FORM OF LOCAL COUNSEL CORPORATE OPINION
May 26, 1998
To the Lenders party to the Credit
Agreement referred to below and
NationsBank, N.A., as Agent thereunder
Re: Steel Heddle Mfg. Co.
Ladies and Gentlemen:
We have acted as special <<STATE>> counsel to ________________, a
______________ corporation (the "Company"), in connection with the Credit
Agreement dated as of May 26, 1998 (the "Credit Agreement") among Steel Heddle
Mfg. Co., a Pennsylvania corporation ("Borrower"), certain subsidiaries of the
Borrower (each a "Guarantor"), the several Lenders from time to time party
thereto, NationsBank, N.A., as Agent ("NationsBank") and DLJ Capital Funding,
Inc., as Syndication Agent ("DLJ"), the other Credit Documents referred to and
defined therein and the transactions contemplated by the Credit Agreement and
the other Credit Documents.
This opinion is being delivered at the request of the Credit Parties
pursuant to Section 5.1(e)(ii) of the Credit Agreement. Capitalized terms used
herein but not otherwise defined herein shall have the respective meanings
accorded such terms in the Credit Agreement.
In rendering the opinions expressed below, we have examined executed
copies of the Credit Agreement and the other Credit Documents and originals or
copies, certified or otherwise identified to our satisfaction, of such
corporate records, agreements, documents and other instruments, and such
certificates or comparable documents of public officials and of officers and/or
representatives of the Company, and have made such inquiries of such officers
and/or representatives as we have deemed relevant and necessary as a basis for
the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents.
<PAGE> 132
May __, 1998
Page 2
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the <<STATE>>, has the corporate power and
authority, and legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged, and is qualified to do business and in good standing in the
<<STATE>>.
2. The Company has the corporate power and authority to execute,
deliver and perform each of the Credit Documents to which it is a party, and
the Company has taken all proper and necessary corporate action to authorize
the execution, delivery and performance of each of the Credit Documents to
which it is a party.
3. Each of the Credit Documents to which it is a party has been
duly executed and delivered by the Company.
The opinions herein are limited to the laws of <<STATE>>, and we
express no opinion as to the effect on the matters covered by this opinion of
the laws of any other jurisdiction.
This opinion is rendered solely for your benefit in connection with the
transactions described above. This opinion may not be used or relied upon by
any other person, and may not be disclosed, quoted, filed with a governmental
agency or otherwise referred to without our prior written consent except to
your bank examiners, auditors and counsel and to prospective transferees of
your interests under the Credit Agreement and their professional advisers, or
as required by law or pursuant to legal process.
Very truly yours,
<PAGE> 133
May __, 1998
3
Page
SCHEDULE 1
Name of Corporation Filing Office
<PAGE> 134
May __, 1998
1
Page
SCHEDULE 5.1(e)(iii)
FORM OF LOCAL COUNSEL COLLATERAL OPINION
May 26, 1998
To the Lenders party to the Credit
Agreement referred to below and
NationsBank, N.A., as Agent thereunder
Re: Steel Heddle Mfg. Co.
Ladies and Gentlemen:
We have acted as special <<STATE>> counsel to ______________, a
________ corporation (the "Company"), in connection with the Credit Agreement
dated as of May 26, 1998 (the "Credit Agreement"), among Steel Heddle Mfg. Co.,
a Pennsylvania corporation ("Borrower"), certain subsidiaries of the Borrower
(each a "Guarantor"), the several Lenders from time to time party thereto,
NationsBank, N.A., as Agent ("NationsBank") and DLJ Capital Funding, Inc., as
Syndication Agent ("DLJ"), the other Credit Documents referred to and defined
therein and the transactions contemplated by the Credit Agreement and the other
Credit Documents.
This opinion is being delivered at the request of the Credit Parties
pursuant to Section 5.1(e)(iii) of the Credit Agreement. Capitalized terms
used herein but not otherwise defined herein shall have the respective meanings
accorded such terms in the Credit Agreement.
In rendering the opinions expressed below, we have examined executed
copies of the Credit Agreement, the Security Agreement referred to and defined
therein (the "Security Agreement") and the Mortgage Instruments referred to and
defined therein for the locations identified on Schedule 2 attached hereto (the
"<<STATE>> Mortgage Instruments") and originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records,
agreements, documents and other instruments, and such certificates or
comparable documents of public officials and of officers and/or representatives
of the Company, and have made such inquiries of such officers and/or
representatives as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
<PAGE> 135
May __, 1998
2
Page
In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents (other than the Credit Agreement, the
Security Agreement and the <<STATE>> Mortgage Instruments) submitted to us as
originals, the conformity to original documents of documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
latter documents.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
1. The execution and delivery of the Security Agreement by the
Company creates in favor of the Agent a valid lien on and a security interest
in the "Collateral" (as such term is defined in the Security Agreement), to the
extent the validity of a lien or security interest in the Collateral is covered
by Article 9 of the Uniform Commercial Code in effect in <<STATE>> (the
"<<STATE>> UCC"), as security for the Secured Obligations referred to therein.
Assuming the filing of the financing statements on Form UCC-1 in the offices in
the jurisdictions indicated on Schedule 1, such lien and security interest is
duly perfected to the extent a lien or security interest in the Collateral
owned (now or hereafter) by the Company may be perfected by the filing of a
financing statement under the <<STATE>> UCC.
2. Each <<STATE>> Mortgage is in proper form for recording in the
State of <<STATE>> and upon recordation of each Mortgage Instrument, as
appropriate, such Mortgage Instrument will provide the Agent, for the benefit
of the Lenders, with a valid lien on the property described therein.
3. Assuming that the matter would be governed by the laws of the
State of <<STATE>>, each of the Security Agreement and the <<STATE>> Mortgage
Instruments constitutes a legal, valid and binding obligation of each Credit
Party which is a party thereto, enforceable against such Person in accordance
with its terms.
The opinions herein are limited to the laws of <<STATE>>, and we
express no opinion as to the effect on the matters covered by this opinion of
the laws of any other jurisdiction.
This opinion is rendered solely for your benefit in connection with the
transactions described above. This opinion may not be used or relied upon by
any other person, and may not be disclosed, quoted, filed with a governmental
agency or otherwise referred to without our prior written consent except to
your bank examiners, auditors and counsel and to prospective transferees of
your interests under the Credit Agreement and their professional advisers, or
as required by law or pursuant to legal process.
Very truly yours,
<PAGE> 136
May __, 1998
3
Page
<PAGE> 137
May __, 1998
4
Page
SCHEDULE 1
Name of Corporation Filing Office
4
<PAGE> 138
May __, 1998
5
Page
SCHEDULE 2
5
<PAGE> 139
May __, 1998
6
Page
SCHEDULE 6.6
CONSENTS, APPROVALS AND AUTHORIZATIONS
6
<PAGE> 140
May __, 1998
7
Page
SCHEDULE 6.10
EXISTING INDEBTEDNESS
7
<PAGE> 141
May __, 1998
8
Page
SCHEDULE 6.11
LITIGATION
8
<PAGE> 142
May __, 1998
9
Page
SCHEDULE 6.15
SUBSIDIARIES
9
<PAGE> 143
May __, 1998
10
Page
SCHEDULE 6.18
ENVIRONMENTAL MATTERS
The report titled "Environmental Assessment of Certain Facilities of the Steel
Heddle Manufacturing Company" prepared by ENVIRON Corporation, and dated May
1998 is incorporated herein by reference and all matters set forth in such
report are deemed set forth on this Schedule 6.18.
10
<PAGE> 144
May __, 1998
11
Page
SCHEDULE 6.19
INTELLECTUAL PROPERTY
11
<PAGE> 145
May __, 1998
12
Page
SCHEDULE 6.22(a)
REAL PROPERTY LOCATIONS
12
<PAGE> 146
May __, 1998
13
Page
SCHEDULE 6.22(b)
PERSONAL PROPERTY LOCATIONS
13
<PAGE> 147
May __, 1998
14
Page
SCHEDULE 6.22(c)
CHIEF EXECUTIVE OFFICES
14
<PAGE> 148
May __, 1998
15
Page
SCHEDULE 6.26
LABOR MATTERS
15
<PAGE> 149
May __, 1998
16
Page
SCHEDULE 7.6
INSURANCE
16
<PAGE> 150
May __, 1998
17
Page
SCHEDULE 11.1
ADDRESSES FOR NOTICE
NAME AND ADDRESS
ALL CREDIT PARTIES:
Steel Heddle Mfg. Co.
1801 Rutherford Road
Greenville, SC 29609
Attn: Jerry Miller
Telephone: (864) 244-4110
Facsimile: (864) 268-3823
AGENT:
NationsBank, N.A.
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-04-15
Charlotte, NC 28255
Attn: David Smith
Telephone: (704) 386-8958
Facsimile: (704) 386-9923
LENDERS:
See Schedule 1.1(a)
17
<PAGE> 151
May __, 1998
18
Page
EXHIBIT 2.1
FORM OF NOTICE OF BORROWING
NationsBank, N.A.,
as Agent for the Lenders
NC-001-15-04
Independence Center, 15th Floor
101 North Tryon Street
Charlotte 28255
Attention: Agency Services
Ladies and Gentlemen:
The undersigned, STEEL HEDDLE MFG. CO. (the "Borrower"), refers to the
Credit Agreement dated as of May 26, 1998 (as amended, modified, extended or
restated from time to time, the "Credit Agreement"), among the Borrower, the
Guarantors party thereto, the Lenders party thereto, NationsBank, N.A., as
Agent and DLJ Capital Funding, Inc. as Syndication Agent. Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned
to such terms in the Credit Agreement. The Borrower hereby gives notice
pursuant to Section 2.1(b) of the Credit Agreement that it requests a Revolving
Loan advance under the Credit Agreement, and in connection therewith sets forth
below the terms on which such Loan advance is requested to be made:
(A) Date of Borrowing
(which is a Business Day)
(B) Principal Amount of
Borrowing
(C) Interest rate basis
(D) Interest Period and the
last day thereof
In accordance with the requirements of Section 5.2, the Borrower
hereby reaffirms the representations and warranties set forth in the Credit
Agreement as provided in subsection (b) of such Section, and confirms that the
matters referenced in subsections (c), (d), (e) and (f) of such Section, are
true and correct.
Very truly yours,
STEEL HEDDLE MFG. CO.
18
<PAGE> 152
May __, 1998
19
Page
By:
Name:
Title:
<PAGE> 153
May __, 1998
20
Page
EXHIBIT 2.4
FORM OF NOTICE OF CONTINUATION/CONVERSION
NationsBank, N.A.,
as Agent for the Lenders
NC-001-15-04
Independence Center, 15th Floor
101 North Tryon Street
Charlotte 28255
Attention: Agency Services
Ladies and Gentlemen:
The undersigned, STEEL HEDDLE MFG. CO. (the "Borrower"), refers to the
Credit Agreement dated as of May 26, 1998 (as amended, modified, extended or
restated from time to time, the "Credit Agreement"), among the Borrower, the
Guarantors party thereto, the Lenders party thereto, NationsBank, N.A., as
Agent and DLJ Capital Funding, Inc. as Syndication Agent. Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned
to such terms in the Credit Agreement. The Borrower hereby gives notice
pursuant to Section 2.4 of the Credit Agreement that it requests a continuation
or conversion of a Revolving Loan outstanding under the Credit Agreement, and
in connection therewith sets forth below the terms on which such continuation
or conversion is requested to be made:
(A) Date of Continuation or Conversion
(which is the last day of the
the applicable Interest Period)
(B) Principal Amount of
Continuation or Conversion
(C) Interest rate basis
(D) Interest Period and the
last day thereof
In accordance with the requirements of Section 5.2, the Borrower hereby
reaffirms the representations and warranties set forth in the Credit Agreement
as provided in subsection (b) of such Section, and confirms that the matters
referenced in subsections (c), (d), (e) and (f) of such Section, are true and
correct.
20
<PAGE> 154
May __, 1998
21
Page
Very truly yours,
STEEL HEDDLE MFG. CO.
By:
Name:
Title:
<PAGE> 155
May __, 1998
1
Page
EXHIBIT 2.6(a)
FORM OF REVOLVING NOTE
$_________________ May 26, 1998
FOR VALUE RECEIVED, STEEL HEDDLE MFG. CO., a Pennsylvania corporation (the
"Borrower"), hereby promises to pay to the order of __________________________,
its successors and permitted assigns (the "Lender"), at the office of
NationsBank, N.A., as Agent (the "Agent"), at Independence Center, 15th Floor,
101 North Tryon Street (or at such other place or places as the holder hereof
may designate in writing to the Borrower pursuant to the terms of the Credit
Agreement), at the times set forth in the Credit Agreement dated as of the date
hereof among the Borrower, the Guarantors party thereto, the Lenders party
thereto and the Agent (as it may be amended, modified, extended or restated
from time to time, the "Credit Agreement"; all capitalized terms not otherwise
defined herein shall have the meanings set forth in the Credit Agreement), but
in no event later than the Revolving Loan Maturity Date, in Dollars and in
immediately available funds, the principal amount of ________________________
DOLLARS ($____________) or, if less than such principal amount, the aggregate
unpaid principal amount of all Revolving Loans made by the Lender to the
Borrower pursuant to the Credit Agreement, and to pay interest from the date
hereof on the unpaid principal amount hereof, in like money, at said office, on
the dates and at the rates provided in the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default, the
balance outstanding hereunder shall bear interest as provided in Section 3.1(b)
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note,
and all other indebtedness of the Borrower to the Lender shall become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or accelerated
maturity, the Borrower agrees to pay, in addition to the principal and
interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or in
part only by registration of such transfer on the Register maintained by or on
behalf of the Borrower as provided in Section 11.3(d) of the Credit Agreement.
<PAGE> 156
May __, 1998
2
Page
2
<PAGE> 157
May __, 1998
3
Page
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed
by its duly authorized officer as of the day and year first above written.
STEEL HEDDLE MFG. CO.
By:
Name:
Title:
3
<PAGE> 158
May __, 1998
1
Page
EXHIBIT 2.6(b)
FORM OF TERM NOTE
$_________________ May 26, 1998
FOR VALUE RECEIVED, STEEL HEDDLE MFG. CO., a Pennsylvania corporation (the
"Borrower"), hereby promises to pay to the order of __________________________,
its successors and permitted assigns (the "Lender"), at the office of
NationsBank, N.A., as Agent (the "Agent"), at Independence Center, 15th Floor,
101 North Tryon Street (or at such other place or places as the holder hereof
may designate in writing to the Borrower pursuant to the terms of the Credit
Agreement), at the times set forth in the Credit Agreement dated as of the date
hereof among the Borrower, the Guarantors party thereto, the Lenders party
thereto and the Agent (as it may be amended, modified, extended or restated
from time to time, the "Credit Agreement"; all capitalized terms not otherwise
defined herein shall have the meanings set forth in the Credit Agreement), but
in no event later than the Term Loan Maturity Date, in Dollars and in
immediately available funds, the principal amount of ________________________
DOLLARS ($____________), and to pay interest from the date hereof on the unpaid
principal amount hereof, in like money, at said office, on the dates and at the
rates provided in the Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default, the
balance outstanding hereunder shall bear interest as provided in Section 3.1(b)
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note,
and all other indebtedness of the Borrower to the Lender shall become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or accelerated
maturity, the Borrower agrees to pay, in addition to the principal and
interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans evidenced hereby may be transferred in whole or in
part only by registration of such transfer on the Register maintained by or on
behalf of the Borrower as provided in Section 11.3(d) of the Credit Agreement.
<PAGE> 159
May __, 1998
2
Page
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed
by its duly authorized officer as of the day and year first above written.
STEEL HEDDLE MFG. CO.
By:
Name:
Title:
2
<PAGE> 160
May __, 1998
3
Page
EXHIBIT 7.1(c)
FORM OF OFFICER'S COMPLIANCE CERTIFICATE
For the fiscal quarter ended _________________, ____.
I, ______________________, [Title] of STEEL HEDDLE MFG. CO. (the
"Borrower") hereby certify that, to the best of my knowledge and belief, with
respect to that certain Credit Agreement dated as of May 26, 1998 (as amended,
modified, extended or restated from time to time, the "Credit Agreement"; all
of the defined terms in the Credit Agreement are incorporated herein by
reference) among the Borrower, the Guarantors party thereto, the Lenders party
thereto and NationsBank, N.A., as Agent:
a. The company-prepared financial statements which accompany this
certificate are true and correct in all material respects and have been
prepared in accordance with GAAP applied on a consistent basis, subject to
changes resulting from normal year-end audit adjustments.
b. Since ___________ (the date of the last similar certification,
or, if none, the Closing Date) no Default or Event of Default has occurred and
is continuing under the Credit Agreement; and
Delivered herewith are detailed calculations demonstrating compliance by the
Credit Parties with the financial covenants contained in Section 7.12 of the
Credit Agreement as of the end of the fiscal period referred to above.
This ______ day of ___________, ____.
STEEL HEDDLE MFG. CO.
By:
Name:
Title:
3
<PAGE> 161
May __, 1998
4
Page
Attachment to Officer's Certificate
COMPUTATION OF FINANCIAL COVENANTS
4
<PAGE> 162
May __, 1998
5
Page
EXHIBIT 7.13
FORM OF JOINDER AGREEMENT
THIS JOINDER AGREEMENT (the "Agreement"), dated as of _____________,
____, is by and between _____________________, a ___________________ (the
"Subsidiary"), and NATIONSBANK, N.A., in its capacity as Agent under that
certain Credit Agreement (as it may be amended, modified, extended or restated
from time to time, the "Credit Agreement"), dated as of May 26, 1998, by and
among STEEL HEDDLE MFG. CO., a Pennsylvania corporation (the "Borrower"),
the Guarantors party thereto, the Lenders party thereto and NationsBank, N.A.,
as Agent. All of the defined terms in the Credit Agreement are incorporated
herein by reference.
The Subsidiary is an Additional Credit Party, and, consequently, the
Credit Parties are required by Section 7.13 of the Credit Agreement to cause
the Subsidiary to become a "Guarantor".
Accordingly, the Subsidiary hereby agrees as follows with the Agent, for
the benefit of the Lenders:
1. The Subsidiary hereby acknowledges, agrees and confirms that, by
its execution of this Agreement, the Subsidiary will be deemed to be a party to
the Credit Agreement and a "Guarantor" for all purposes of the Credit
Agreement, and shall have all of the obligations of a Guarantor thereunder as
if it had executed the Credit Agreement. The Subsidiary hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions applicable to the Guarantors contained in the Credit Agreement.
Without limiting the generality of the foregoing terms of this paragraph 1, the
Subsidiary hereby, jointly and severally together with the other Guarantors,
guarantees to each Lender and the Agent, as provided in Section 4 of the Credit
Agreement, the prompt payment and performance of the Borrower's Obligations in
full when due (whether at stated maturity, as a mandatory prepayment, by
acceleration or otherwise) strictly in accordance with the terms thereof.
2. The Subsidiary hereby acknowledges, agrees and confirms that, by
its execution of this Agreement, the Subsidiary will be deemed to be a party to
the Security Agreement and an "Obligor" for all purposes of the Security
Agreement, and shall have all of the obligations of an Obligor thereunder as if
it had executed the Security Agreement. The Subsidiary hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions applicable to the Obligors contained in the Security Agreement.
Without limiting the generality of the foregoing terms of this paragraph 2, the
Subsidiary hereby grants to the Agent, for the benefit of the Lenders, a
<PAGE> 163
May __, 1998
6
Page
continuing security interest in, and a right of set off against, any and all
right, title and interest of the Subsidiary in and to the Collateral (as such
term is defined in Section 2 of the Security Agreement) of the Subsidiary. The
Subsidiary hereby represents and warrants to the Agent that:
(i) The Subsidiary's chief executive office and chief place of
business are (and for the prior four months have been) located at the
locations set forth in Schedule 1 attached hereto and the Subsidiary
keeps its books and records at such locations.
(ii) The type of Collateral owned by the Subsidiary and the
location of all Collateral owned by the Subsidiary is as shown on
Schedule 2 attached hereto.
(iii) The Subsidiary's legal name is as shown in this Agreement
and the Subsidiary has not changed its name, been party to a merger,
consolidation or other change in structure or used any tradenames
except as set forth in Schedule 3 attached hereto.
(iv) The patents, trademarks and copyrights listed on Schedule
4 attached hereto constitute all of the registrations and applications
for the patents, trademarks and copyrights owned by the Subsidiary.
3. The Subsidiary hereby acknowledges, agrees and confirms that, by
its execution of this Agreement, the Subsidiary will be deemed to be a party to
the Pledge Agreement and a "Pledgor" for all purposes of the Pledge Agreement,
and shall have all of the obligations of a Pledgor thereunder as if it had
executed the Pledge Agreement. The Subsidiary hereby ratifies, as of the date
hereof, and agrees to be bound by, all of the terms, provisions and conditions
applicable to the Pledgors contained in the Pledge Agreement. Without limiting
the generality of the foregoing terms of this paragraph 3, the Subsidiary
hereby pledges and assigns to the Agent, for the benefit of the Lenders, and
grants to the Agent, for the benefit of the Lenders, a continuing security
interest in any and all right, title and interest of the Subsidiary in and to
the Pledged Shares (as such term is defined in Section 2 of the Pledge
Agreement) listed on Schedule 5 attached hereto and the other Pledged
Collateral (as such term is defined in Section 2 of the Pledge Agreement).
4. The address of the Subsidiary for purposes of all notices and
other communications is ____________________, ____________________________,
Attention of ______________ (Facsimile No. ____________).
5. The Subsidiary hereby waives acceptance by the Agent and the
Lenders of the guaranty by the Subsidiary under Section 4 of the Credit
Agreement upon the execution of this Agreement by the Subsidiary.
6
<PAGE> 164
May __, 1998
7
Page
6. This Agreement may be executed in two or more counterparts, each
of which shall constitute an original but all of which when taken together
shall constitute one contract.
7. This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the State of New York.
<PAGE> 165
May __, 1998
8
Page
IN WITNESS WHEREOF, the Subsidiary has caused this Joinder Agreement to
be duly executed by its authorized officers, and the Agent, for the benefit of
the Lenders, has caused the same to be accepted by its authorized officer, as
of the day and year first above written.
[SUBSIDIARY]
By:
Name:
Title:
Acknowledged and accepted:
NATIONSBANK, N.A., as Agent
By:
Name:
Title:
8
<PAGE> 166
May __, 1998
9
Page
EXHIBIT 11.3
FORM OF ASSIGNMENT AND ACCEPTANCE
THIS ASSIGNMENT AND ACCEPTANCE dated as of _______________, ____ is
entered into between ________________ ("Assignor") and ____________________
("Assignee").
Reference is made to the Credit Agreement dated as of May 26, 1998, as
amended and modified from time to time thereafter (the "Credit Agreement")
among STEEL HEDDLE MFG. CO., the Guarantors party thereto, the Lenders party
thereto, NationsBank, N.A., as Agent and DLJ Capital Funding, Inc., as
Syndication Agent. Terms defined in the Credit Agreement are used herein with
the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor,
effective as of the Effective Date set forth below, the interests set forth
below (the "Assigned Interest") in the Assignor's rights and obligations under
the Credit Agreement, including, without limitation, the interests set forth
below in the Commitments and outstanding Loans of the Assignor on the effective
date of the assignment designated below (the "Effective Date"), together with
unpaid fees accrued on the assigned Commitments to the Effective Date and
unpaid interest accrued on the assigned Loans to the Effective Date. Each of
the Assignor and the Assignee hereby makes and agrees to be bound by all the
representations, warranties and agreements set forth in Section 11.3(b) of the
Credit Agreement, a copy of which has been received by the Assignee. From and
after the Effective Date (i) the Assignee, if it is not already a Lender under
the Credit Agreement, shall be a party to and be bound by the provisions of the
Credit Agreement and, to the extent of the interests purchased and assumed by
the Assignee under this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent
of the interests sold and assigned by the Assignor under this Assignment and
Acceptance, relinquish its rights and be released from its obligations under
the Credit Agreement.
2. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of New York.
3. Terms of Assignment
(a) Date of Assignment:
(b) Legal Name of Assignor:
(c) Legal Name of Assignee:
(d) Effective Date of Assignment:
9
<PAGE> 167
May __, 1998
10
Page
(e) Revolving Loan Commitment
Percentage Assigned (expressed
as a percentage set forth to at
least 8 decimals) %
10
<PAGE> 168
May __, 1998
11
Page
<TABLE>
<S> <C>
(f) Revolving Loan Commitment
Percentage of Assignee after
giving effect to this Assignment
and Acceptance as of the Effective
Date (set forth to at least 8 decimals) %
(g) Revolving Loan Commitment
Percentage of Assignor after
giving effect to this Assignment
and Acceptance as of the Effective
Date (set forth to at least 8 decimals) %
(h) Revolving Committed Amount
as of Effective Date $_____________
(i) Dollar Amount of Assignor's
Revolving Loan Commitment
Percentage as of the Effective
Date (the amount set forth in
(h) multiplied by the percentage
set forth in (g)) $_____________
(j) Dollar Amount of Assignee's
Revolving Loan Commitment
Percentage as of the Effective
Date (the amount set forth in
(h) multiplied by the percentage
set forth in (f)) $_____________
(k) Term Loan Commitment Percentage
Assigned (expressed as a
percentage set forth to at
least 8 decimals) %
(l) Term Loan Commitment Percentage
of Assignee after giving effect
to this Assignment and Acceptance
on the Effective Date (set forth
to at least 8 decimals) %
(m) Term Loan Commitment Percentage
of Assignor after giving effect
to this Assignment and Acceptance
</TABLE>
11
<PAGE> 169
May __, 1998
12
Page
<TABLE>
<S> <C>
on the Effective Date (set forth
to at least 8 decimals) %
(n) Outstanding Balance of Term Loan
as of Effective Date $_____________
(o) Principal Amount of Assignor's
portion of the Term Loan after
giving effect to this Assignment
and Acceptance on Effective
Date (the amount set forth
in (n) multiplied by the
percentage set forth in (m)) $_____________
(p) Principal Amount of Assignee's
portion of the Term Loan after
giving effect to this Assignment
and Acceptance on Effective
Date (the amount set forth
in (n) multiplied by the
percentage set forth in (l)) $_____________
</TABLE>
4. This Assignment and Acceptance shall be effective only upon consent of
the Borrower and the Agent, if applicable, delivery to the Agent of this
Assignment and Acceptance together with the transfer fee payable pursuant to
Section 11.3(b) in connection herewith and recordation in the Register pursuant
to Section 11.3(d) of the terms hereof.
5. This Assignment and Acceptance may be executed in any number of
counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Assignment and Acceptance to
produce or account for more than one such counterpart.
The terms set forth above
are hereby agreed to:
____________________, as Assignor
By:
Name:
Title:
_____________________, as Assignee
By:
Name:
12
<PAGE> 170
May __, 1998
13
Page
Title:
Notice address of Assignee:
<<Assignee>>
-----------------------------
Attn:
------------------------
Telephone: ( )
--- -----------
Telecopy: ( )
--- -----------
13
<PAGE> 171
May __, 1998
14
Page
CONSENTED TO:
NATIONSBANK, N.A.,
as Agent
By:
Name:
Title:
STEEL HEDDLE MFG. CO.
By:
Name:
Title:
14
<PAGE> 1
Exhibit 10.2
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is entered into as
of May 26, 1998 among STEEL HEDDLE MFG. CO., a Pennsylvania corporation (the
"Borrower"), certain Subsidiaries of the Borrower (individually a "Guarantor"
and collectively the "Guarantors"; together with the Borrower, individually an
"Obligor", and collectively the "Obligors"), and NATIONSBANK, N.A., in its
capacity as agent (in such capacity, the "Agent") for the lenders from time to
time party to the Credit Agreement described below (the "Lenders").
RECITALS
WHEREAS, pursuant to that certain Credit Agreement, dated as of the
date hereof (as amended, modified, extended, renewed or replaced from time to
time, the "Credit Agreement"), among the Borrower, the Guarantors, the Lenders,
the Agent and DLJ Capital Funding, Inc. as Syndication Agent, the Lenders have
agreed to make Loans and issue Letters of Credit upon the terms and subject to
the conditions set forth therein; and
WHEREAS, it is a condition precedent to the effectiveness of the
Credit Agreement and the obligations of the Lenders to make their respective
Loans and to issue Letters of Credit under the Credit Agreement that the
Obligors shall have executed and delivered this Security Agreement to the Agent
for the ratable benefit of the Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
(a) Unless otherwise defined herein, capitalized terms
used herein shall have the meanings ascribed to such terms in the
Credit Agreement, and the following terms which are defined in the
Uniform Commercial Code in effect in the State of New York on the date
hereof are used herein as so defined: Accounts, Chattel Paper,
Deposit Accounts, Documents, Equipment, Farm Products, Fixtures,
General Intangibles, Instruments, Inventory, Investment Property and
Proceeds. For purposes of this Security Agreement, the term "Lender"
shall include any Affiliate of any Lender to which Hedging Obligations
are owed by an Obligor.
(b) In addition, the following terms shall have the
following meanings:
"Copyright Licenses": any written agreement, naming any
Obligor as licensor, granting any right under any Copyright including,
without limitation, any thereof referred to in Schedule 1(b) hereto.
"Copyrights": (a) all registered United States copyrights in
all Works, now existing or hereafter created or acquired, all
registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, registrations,
recordings and
<PAGE> 2
applications in the United States Copyright office including, without
limitation, any thereof referred to in Schedule 1(b) hereto, and (b)
all renewals thereof including, without limitation, any thereof
referred to in Schedule 1(b) hereto.
"Patent License": all agreements, whether written or oral,
providing for the grant by or to an Obligor of any right to
manufacture, use or sell any invention covered by a Patent, including,
without limitation, any thereof referred to in Schedule 1(b) hereto.
"Patents": (a) all letters patent of the United States or any
other country and all reissues and extensions thereof, including,
without limitation, any thereof referred to in Schedule 1(b) hereto,
and (b) all applications for letters patent of the United States or
any other country and all divisions, continuations and continuations
in-part thereof, including, without limitation, any thereof referred
to in Schedule 1(b) hereto.
"Secured Obligations": the collective reference to all of the
Credit Party Obligations, now existing or hereafter arising pursuant
to the Credit Documents, owing from the Borrower or any other Credit
Party to any Lender or the Agent, howsoever evidenced, created,
incurred or acquired, whether primary, secondary, direct, contingent,
or joint and several, including, without limitation, all liabilities
arising under Hedging Agreements and all obligations and liabilities
incurred in connection with collecting and enforcing the foregoing.
"Trademark License": means any agreement, written or oral,
providing for the grant by or to an Obligor of any right to use any
Trademark, including, without limitation, any thereof referred to in
Schedule 1(b) hereto.
"Trademarks": (a) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade
styles, service marks, logos and other source or business identifiers,
and the goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States
Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, any
thereof referred to in Schedule 1(b) hereto, and (b) all renewals
thereof.
"Work": any work which is subject to copyright protection
pursuant to Title 17 of the United States Code.
2. Grant of Security Interest in the Collateral. To secure the
prompt payment and performance in full when due, whether by lapse of time,
acceleration or otherwise, of the Secured Obligations, each Obligor hereby
grants to the Agent, for the benefit of the Lenders, a continuing security
interest in, and a right to set off against, any and all right, title and
interest of such Obligor in and to the following, whether now owned or existing
or owned, acquired, or arising hereafter (collectively, the "Collateral"):
<PAGE> 3
(a) all Accounts;
(b) all Chattel Paper;
(c) all Copyrights;
(d) all Copyright Licenses;
(e) all Deposit Accounts;
(f) all Documents;
(g) all Equipment;
(h) all Fixtures;
(i) all General Intangibles;
(j) all Instruments, including, without
limitation, the Intercompany Notes;
(k) all Inventory;
(l) all Investment Property (other than
in respect of Foreign Subidiaries);
(m) all Patents;
(n) all Patent Licenses;
(o) all Trademarks;
(p) all Trademark Licenses;
(q) all books, records, ledger cards, files,
correspondence, computer programs, tapes, disks, and related data
processing software (owned by such Obligor or in which it has an
interest) that at any time evidence or contain information relating to
any Collateral or are otherwise necessary or helpful in the collection
thereof or realization thereupon; and
(r) to the extent not otherwise included, all Proceeds
and products of any and all of the foregoing.
<PAGE> 4
The Obligors and the Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest created hereby in the
Collateral (i) constitutes continuing collateral security for all of the
Secured Obligations, whether now existing or hereafter arising and (ii) is not
to be construed as an assignment of any Copyrights, Copyright Licenses,
Patents, Patent Licenses, Trademarks or Trademark Licenses. Moreover, the
Collateral shall not include any licenses or leases to the extent (but only to
the extent and only for so long as) such licenses and leases contain legally
enforceable restrictions on the granting of a security interest therein.
3. Provisions Relating to Accounts.
(a) Anything herein to the contrary notwithstanding, each
of the Obligors shall remain liable under each of the Accounts to
observe and perform all the conditions and obligations to be observed
and performed by it thereunder, all in accordance with the terms of
any agreement giving rise to each such Account. Neither the Agent nor
any Lender shall have any obligation or liability under any Account
(or any agreement giving rise thereto) by reason of or arising out of
this Security Agreement or the receipt by the Agent or any Lender of
any payment relating to such Account pursuant hereto, nor shall the
Agent or any Lender be obligated in any manner to perform any of the
obligations of an Obligor under or pursuant to any Account (or any
agreement giving rise thereto), to make any payment, to make any
inquiry as to the nature or the sufficiency of any payment received by
it or as to the sufficiency of any performance by any party under any
Account (or any agreement giving rise thereto), to present or file any
claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which
it may be entitled at any time or times.
(b) Once during each calendar year or at any time after
the occurrence and during the continuation of an Event of Default, the
Agent shall have the right, but not the obligation, to make test
verifications of the Accounts in any manner and through any medium
that it reasonably considers advisable, and the Obligors shall furnish
all such assistance and information as the Agent may require in
connection with such test verifications. At any time and from time to
time, upon the Agent's request and at the expense of the Obligors, the
Obligors shall cause independent public accountants or others
satisfactory to the Agent to furnish to the Agent reports showing
reconciliations, aging and test verifications of, and trial balances
for, the Accounts. The Agent in its own name or in the name of others
may communicate with account debtors on the Accounts to verify with
them to the Agent's satisfaction the existence, amount and terms of
any Accounts.
4. Representations and Warranties. Each Obligor hereby represents
and warrants to the Agent, for the benefit of the Lenders, that so long as any
of the Secured Obligations remain outstanding (other than any such obligations
which by the terms thereof are stated to survive termination of the Credit
Documents) or any Credit Document is in effect or any Letter of Credit shall
remain outstanding, and until all of the Commitments shall have been
terminated:
<PAGE> 5
(a) Chief Executive Office; Books & Records. Each
Obligor's chief executive office and chief place of business is (and
for the prior four months have been) located at the locations set
forth on Schedule 4(a) hereto, and each Obligor keeps its books and
records at such locations.
(b) Location of Collateral. The location of all
Collateral owned by each Obligor is as shown on Schedule 4(b) hereto.
(c) Ownership. Each Obligor is the legal and beneficial
owner of the Collateral which it purports to own and has a valid right
to use all of its other Collateral. Each Obligor has the right to
pledge, sell, assign or transfer its Collateral. Each Obligor's legal
name is as shown in this Security Agreement and no Obligor has in the
past four months changed its name, been party to a merger,
consolidation or other change in structure or used any tradename
except as set forth in Schedule 4(c) attached hereto.
(d) Security Interest/Priority. This Security Agreement
creates a valid security interest in favor of the Agent, for the
benefit of the Lenders, in the Collateral of such Obligor and, when
properly perfected by filing, shall constitute a valid perfected
security interest in such Collateral, to the extent such security can
be perfected by filing under the UCC, free and clear of all Liens
except for Permitted Liens.
(e) Farm Products. None of the Collateral constitutes,
or is the Proceeds of, Farm Products.
(f) Accounts. (i) Each Account of the Obligors and the
papers and documents relating thereto are genuine and in all material
respects what they purport to be, (ii) each Account arises out of (A)
a bona fide sale of goods sold and delivered by such Obligor (or is in
the process of being delivered) or (B) services theretofore actually
rendered by such Obligor to, the account debtor named therein, (iii)
no Account of an Obligor is evidenced by any Instrument or Chattel
Paper unless such Instrument or Chattel Paper has been theretofore
endorsed over and delivered to the Agent and (iv) no surety bond was
required or given in connection with any Account of an Obligor or the
contracts or purchase orders out of which they arose.
(g) Inventory. No Inventory is held by an Obligor
pursuant to consignment, sale or return, sale on approval or similar
arrangement.
(h) Copyrights, Patents and Trademarks.
(i) Schedule 1(b) hereto includes all
Copyrights, Copyright Licenses, Patents, Patent Licenses,
Trademarks and Trademark Licenses owned by the Obligors in
their own names as of the date hereof.
<PAGE> 6
(ii) To the best of each Obligor's
knowledge, each Copyright, Patent and Trademark of such
Obligor is valid, subsisting, unexpired, enforceable and has
not been abandoned.
(iii) Except as set forth in Schedule 1(b)
hereto, none of such Copyrights, Patents and Trademarks is the
subject of any licensing or franchise agreement.
(iv) Except as could not reasonably be
expected to have a Material Adverse Effect, no holding,
decision or judgment has been rendered by any Governmental
Authority which would limit, cancel or question the validity
of any Copyright, Patent or Trademark.
(v) Except as could not reasonably be
expected to have a Material Adverse Effect, no action or
proceeding is pending seeking to limit, cancel or question the
validity of any Copyright, Patent or Trademark, or which, if
adversely determined, would have a Material Adverse Effect on
the value of any Copyright, Patent or Trademark.
(vi) All applications pertaining to the
Copyrights, Patents and Trademarks of each Obligor have been
duly and properly filed, and all registrations or letters
pertaining to such Copyrights, Patents and Trademarks have
been duly and properly filed and issued, and all of such
Copyrights, Patents and Trademarks are valid and enforceable,
except as could not reasonably be expected to have a Material
Adverse Effect.
(vii) Except for licenses to third parties
in the ordinary course of business, no Obligor has made any
assignment or agreement in conflict with the security interest
in the Copyrights, Patents or Trademarks of each Obligor
hereunder.
5. Covenants. Each Obligor covenants that, so long as any of the
Secured Obligations remain outstanding (other than any such obligations which
by the terms thereof are stated to survive termination of the Credit Documents)
or any Credit Document is in effect or any Letter of Credit shall remain
outstanding, and until all of the Commitments shall have been terminated, such
Obligor shall:
(a) Other Liens. Defend the Collateral against the
claims and demands of all other parties claiming an interest therein,
keep the Collateral free from all Liens, except for Permitted Liens,
and not sell, exchange, transfer, assign, lease or otherwise dispose
of the Collateral or any interest therein, except as permitted under
the Credit Agreement.
(b) Preservation of Collateral. Keep the Collateral in
good order, condition and repair and not use the Collateral in
violation of the provisions of this Security Agreement or
<PAGE> 7
any other agreement relating to the Collateral or any policy insuring
the Collateral or any applicable statute, law, bylaw, rule, regulation
or ordinance.
(c) Instruments/Chattel Paper. If any amount payable
under or in connection with any of the Collateral shall be or become
evidenced by any Instrument or Chattel Paper, immediately deliver such
Instrument or Chattel Paper to the Agent, duly indorsed in a manner
satisfactory to the Agent, to be held as Collateral pursuant to this
Security Agreement.
(d) Change in Location. Not, without providing 30 days
prior written notice to the Agent and without filing such amendments
to any previously filed financing statements as the Agent may require,
(a) change the location of its chief executive office and chief place
of business (as well as its books and records) from the locations set
forth on Schedule 4(a) hereto, (b) change the location of its
Collateral from the locations set forth for such Obligor on Schedule
4(b) hereto, or (c) change its name, be party to a merger,
consolidation or other change in structure or use any tradename other
than as set forth on Schedule 4(c) attached hereto.
(e) Inspection. Allow the Agent or its representatives
to visit and inspect the Collateral as set forth in Section 7.11 of
the Credit Agreement.
(f) Perfection of Security Interest. Execute and deliver
to the Agent such agreements, assignments or instruments (including
affidavits, notices, reaffirmations and amendments and restatements of
existing documents, as the Agent may reasonably request) and do all
such other things as the Agent may reasonably deem necessary or
appropriate (i) to assure to the Agent its security interests
hereunder, including (A) such financing statements (including renewal
statements) or amendments thereof or supplements thereto or other
instruments as the Agent may from time to time reasonably request in
order to perfect and maintain the security interests granted hereunder
in accordance with the UCC, (B) with regard to Copyrights, a Notice of
Grant of Security Interest in Copyrights in the form of Schedule
5(f)(i), (C) with regard to Patents, a Notice of Grant of Security
Interest in Patents for filing with the United States Patent and
Trademark Office in the form of Schedule 5(f)(ii) attached hereto and
(D) with regard to Trademarks, a Notice of Grant of Security Interest
in Trademarks for filing with the United States Patent and Trademark
Office in the form of Schedule 5(f)(iii) attached hereto, (ii) to
consummate the transactions contemplated hereby and (iii) to otherwise
protect and assure the Agent of its rights and interests hereunder.
To that end, each Obligor agrees that the Agent may file one or more
financing statements disclosing the Agent's security interest in any
or all of the Collateral of such Obligor without, to the extent
permitted by law, such Obligor's signature thereon, and further each
Obligor also hereby irrevocably makes, constitutes and appoints the
Agent, its nominee or any other person whom the Agent may designate,
as such Obligor's attorney in fact with full power and for the limited
purpose to sign in the name of such Obligor any such financing
statements, or amendments and supplements to financing statements,
renewal financing statements, notices or any similar documents which
in the Agent's reasonable discretion would be necessary,
<PAGE> 8
appropriate or convenient in order to perfect and maintain perfection
of the security interests granted hereunder, such power, being coupled
with an interest, being and remaining irrevocable so long as the
Credit Agreement is in effect or any amounts payable thereunder or
under any other Credit Document, any Letter of Credit shall remain
outstanding, and until all of the Commitments thereunder shall have
terminated. Each Obligor hereby agrees that a carbon, photographic or
other reproduction of this Security Agreement or any such financing
statement is sufficient for filing as a financing statement by the
Agent without notice thereof to such Obligor wherever the Agent may in
its sole discretion desire to file the same. In the event for any
reason the law of any jurisdiction other than New York becomes or is
applicable to the Collateral of any Obligor or any part thereof, or to
any of the Secured Obligations, such Obligor agrees to execute and
deliver all such instruments and to do all such other things as the
Agent in its sole discretion reasonably deems necessary or appropriate
to preserve, protect and enforce the security interests of the Agent
under the law of such other jurisdiction (and, if an Obligor shall
fail to do so promptly upon the request of the Agent, then the Agent
may execute any and all such requested documents on behalf of such
Obligor pursuant to the power of attorney granted hereinabove). If
any Collateral is in the possession or control of an Obligor's agents
and the Agent so requests, such Obligor agrees to notify such agents
in writing of the Agent's security interest therein and, upon the
Agent's request, instruct them to hold all such Collateral for the
Lenders' account and subject to the Agent's instructions. Each
Obligor agrees to mark its books and records to reflect the security
interest of the Agent in the Collateral.
(g) Treatment of Accounts. Not grant or extend the time
for payment of any Account, or compromise or settle any Account for
less than the full amount thereof, or release any person or property,
in whole or in part, from payment thereof, or allow any credit or
discount thereon, other than as normal and customary in the ordinary
course of an Obligor's business.
(h) Covenants Relating to Copyrights.
(i) With respect to each material
Copyright, employ such Copyright for each Work with such
notice of copyright as may be required by law to secure
copyright protection.
(ii) Not do any act or knowingly omit to
do any act whereby any material Copyright may become
invalidated and (A) not do any act, or knowingly omit to do
any act, whereby any material Copyright may become injected
into the public domain; (B) notify the Agent immediately if it
knows, or has reason to know, that any material Copyright may
become injected into the public domain or of any adverse
determination or development (including, without limitation,
the institution of, or any such determination or development
in, any court or tribunal in the United States or any other
country) regarding an Obligor's ownership of any such
Copyright or its validity; (C) take all necessary steps as it
shall deem appropriate under the
<PAGE> 9
circumstances, to maintain and pursue each application (and to
obtain the relevant registration) and to maintain each
registration of each material Copyright owned by an Obligor
including, without limitation, filing of applications for
renewal where necessary; and (D) promptly notify the Agent of
any material infringement of any material Copyright of an
Obligor of which it becomes aware and take such actions as it
shall reasonably deem appropriate under the circumstances to
protect such Copyright, including, where appropriate, the
bringing of suit for infringement, seeking injunctive relief
and seeking to recover any and all damages for such
infringement.
(iii) Not make any assignment or agreement
in conflict with the security interest in the Copyrights of
each Obligor hereunder other than in the ordinary course of
business.
(i) Covenants Relating to Patents and Trademarks.
(i) (A) Continue to use each material
Trademark on each and every trademark class of goods
applicable to its current line as reflected in its current
catalogs, brochures and price lists in order to maintain such
Trademark in full force free from any claim of abandonment for
non-use, (B) maintain as in the past the quality of products
and services offered under such Trademark, (C) employ such
Trademark with the appropriate notice of registration, (D) not
adopt or use any mark which is confusingly similar or a
colorable imitation of such Trademark unless the Agent, for
the ratable benefit of the Lenders, shall obtain a perfected
security interest in such mark pursuant to this Security
Agreement, and (E) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any
act whereby any Trademark may become invalidated.
(ii) Not do any act, or omit to do any
act, whereby any material Patent may become abandoned or
dedicated.
(iii) Notify the Agent and the Lenders
promptly if it knows, or has reason to know, that any
application or registration relating to any material Patent or
material Trademark may become abandoned or dedicated, or of
any adverse determination or development (including, without
limitation, the institution of, or any such determination or
development in, any proceeding in the United States Patent and
Trademark Office or any court or tribunal in any country)
regarding an Obligor's ownership of any such Patent or
Trademark or its right to register the same or to keep and
maintain the same.
(iv) Whenever an Obligor, either by
itself or through an agent, employee, licensee or designee,
shall file an application for the registration of any Patent
or Trademark with the United States Patent and Trademark
Office or any similar office or agency in any other country or
any political subdivision thereof, an
<PAGE> 10
Obligor shall report such filing to the Agent and the Lenders
within five Business Days after the last day of the fiscal
quarter in which such filing occurs. Upon request of the
Agent, an Obligor shall execute and deliver any and all
agreements, instruments, documents and papers as the Agent may
request to evidence the Agent's and the Lenders' security
interest in any Patent or Trademark and the goodwill and
general intangibles of an Obligor relating thereto or
represented thereby.
(v) Take all reasonable and necessary
steps, including, without limitation, in any proceeding before
the United States Patent and Trademark Office, or any similar
office or agency in any other country or any political
subdivision thereof, to maintain and pursue each material
application (and to obtain the relevant registration) and to
maintain each registration of the material Patents and
Trademarks, including, without limitation, filing of
applications for renewal, affidavits of use and affidavits of
incontestability.
(vi) Promptly notify the Agent and the
Lenders after it learns that any material Patent or material
Trademark included in the Collateral is infringed,
misappropriated or diluted by a third party and promptly sue
for infringement, misappropriation or dilution, to seek
injunctive relief where appropriate and to recover any and all
damages for such infringement, misappropriation or dilution,
or take such other actions as it shall reasonably deem
appropriate under the circumstances to protect such Patent or
Trademark.
(vii) Except for licenses to third parties
in the ordinary course of business, not make any assignment or
agreement in conflict with the security interest in the
Patents or Trademarks of each Obligor hereunder.
(j) New Patents, Copyrights and Trademarks. Promptly
provide the Agent with (i) a listing of all applications, if any, for
new Copyrights, Patents or Trademarks (together with a listing of the
issuance of registrations or letters on present applications), which
new applications and issued registrations or letters shall be subject
to the terms and conditions hereunder, and (ii) (A) with respect to
Copyrights, a duly executed Notice of Security Interest in Copyrights,
(B) with respect to Patents, a duly executed Notice of Security
Interest in Patents, (C) with respect to Trademarks, a duly executed
Notice of Security Interest in Trademarks or (D) such other duly
executed documents as the Agent may request in a form acceptable to
counsel for the Agent and suitable for recording to evidence the
security interest in the Copyright, Patent or Trademark which is the
subject of such new application.
(k) Insurance. Insure the Collateral of such Obligor as
set forth in Section 7.6 of the Credit Agreement. All insurance
proceeds shall be subject to the security interest of the Agent
hereunder.
<PAGE> 11
6. Advances by Lenders. On failure of any Obligor to perform any
of the covenants and agreements contained herein, the Agent may, at its sole
option and in its sole discretion, perform the same and in so doing may expend
such sums as the Agent may reasonably deem advisable in the performance
thereof, including, without limitation, the payment of any insurance premiums,
the payment of any taxes, a payment to obtain a release of a Lien or potential
Lien, expenditures made in defending against any adverse claim and all other
expenditures which the Agent or the Lenders may make for the protection of the
security hereof or which may be compelled to make by operation of law. All
such sums and amounts so expended shall be repayable by the Obligors on a joint
and several basis promptly upon timely notice thereof and demand therefor,
shall constitute additional Secured Obligations and shall bear interest from
the date said amounts are expended at the default rate specified in Section
3.1(b) of the Credit Agreement for Revolving Loans that are Base Rate Loans.
No such performance of any covenant or agreement by the Agent or the Lenders on
behalf of any Obligor, and no such advance or expenditure therefor, shall
relieve the Obligors of any default under the terms of this Security Agreement
or the other Credit Documents. The Lenders may make any payment hereby
authorized in accordance with any bill, statement or estimate procured from the
appropriate public office or holder of the claim to be discharged without
inquiry into the accuracy of such bill, statement or estimate or into the
validity of any tax assessment, sale, forfeiture, tax lien, title or claim
except to the extent such payment is being contested in good faith by an
Obligor in appropriate proceedings and against which adequate reserves are
being maintained in accordance with GAAP.
7. Events of Default.
The occurrence of an event (including the expiration of any grace or
cure period applicable thereto) which under the Credit Agreement would
constitute an Event of Default shall be an Event of Default hereunder (an
"Event of Default").
8. Remedies.
(a) General Remedies. Upon the occurrence of an Event of
Default and during continuation thereof, the Lenders shall have, in
addition to the rights and remedies provided herein, in the Credit
Documents or by law (including, but not limited to, the rights and
remedies set forth in the Uniform Commercial Code of the jurisdiction
applicable to the affected Collateral), the rights and remedies of a
secured party under the UCC (regardless of whether the UCC is the law
of the jurisdiction where the rights and remedies are asserted and
regardless of whether the UCC applies to the affected Collateral), and
further, the Agent may, with or without judicial process or the aid
and assistance of others, (i) enter on any premises on which any of
the Collateral may be located and, without resistance or interference
by the Obligors, take possession of the Collateral, (ii) dispose of
any Collateral on any such premises, (iii) require the Obligors to
assemble and make available to the Agent at the expense of the
Obligors any Collateral at any place and time designated by the Agent
which is reasonably convenient to both parties, (iv) remove any
Collateral from any such premises for the purpose of effecting sale OR
other disposition thereof, and/or (v) without demand and
<PAGE> 12
without advertisement, notice, hearing or process of law, all of which
each of the Obligors hereby waives to the fullest extent permitted by
law, at any place and time or times, sell and deliver any or all
Collateral held by or for it at public or private sale, by one or more
contracts, in one or more parcels, for cash, upon credit or otherwise,
at such prices and upon such terms as the Agent deems advisable, in
its sole discretion (subject to any and all mandatory legal
requirements). In addition to all other sums due the Agent and the
Lenders with respect to the Secured Obligations, the Obligors shall
pay the Agent and each of the Lenders all reasonable documented costs
and expenses incurred by the Agent or any such Lender, including, but
not limited to, reasonable attorneys' fees and court costs, in
obtaining or liquidating the Collateral, in enforcing payment of the
Secured Obligations, or in the prosecution or defense of any action or
proceeding by or against the Agent or the Lenders or the Obligors
concerning any matter arising out of or connected with this Security
Agreement, any Collateral or the Secured Obligations, including,
without limitation, any of the foregoing arising in, arising under or
related to a case under the Bankruptcy Code. To the extent the rights
of notice cannot be legally waived hereunder, each Obligor agrees that
any requirement of reasonable notice shall be met if such notice is
personally served on or mailed, postage prepaid, to the Borrower in
accordance with the notice provisions of Section 11.1 of the Credit
Agreement at least 10 days before the time of sale or other event
giving rise to the requirement of such notice. The Agent and the
Lenders shall not be obligated to make any sale or other disposition
of the Collateral regardless of notice having been given. To the
extent permitted by law, any Lender may be a purchaser at any such
sale. To the extent permitted by applicable law, each of the Obligors
hereby waives all of its rights of redemption with respect to any such
sale. Subject to the provisions of applicable law, the Agent and the
Lenders may postpone or cause the postponement of the sale of all or
any portion of the Collateral by announcement at the time and place of
such sale, and such sale may, without further notice, to the extent
permitted by law, be made at the time and place to which the sale was
postponed, or the Agent and the Lenders may further postpone such sale
by announcement made at such time and place.
(b) Remedies relating to Accounts. Upon the occurrence
of an Event of Default and during the continuation thereof, whether or
not the Agent has exercised any or all of its rights and remedies
hereunder, each Obligor will promptly upon request of the Agent
instruct all account debtors to remit all payments in respect of
Accounts to a mailing location selected by the Agent. In addition,
the Agent or its designee may notify any Obligor's customers and
account debtors that the Accounts of such Obligor have been assigned
to the Agent or of the Agent's security interest therein, and may
(either in its own name or in the name of an Obligor or both) demand,
collect (including without limitation by way of a lockbox
arrangement), receive, take receipt for, sell, sue for, compound,
settle, compromise and give acquittance for any and all amounts due or
to become due on any Account, and, in the Agent's discretion, file any
claim or take any other action or proceeding to protect and realize
upon the security interest of the Lenders in the Accounts. Each
Obligor acknowledges and agrees that the Proceeds of its Accounts
remitted to or on behalf of the Agent in accordance with the
provisions hereof shall be solely for the Agent's own convenience and
that such
<PAGE> 13
Obligor shall not have any right, title or interest in such Accounts
or in any such other amounts except as expressly provided herein. The
Agent and the Lenders shall have no liability or responsibility to any
Obligor for acceptance of a check, draft or other order for payment of
money bearing the legend "payment in full" or words of similar import
or any other restrictive legend or endorsement or be responsible for
determining the correctness of any remittance. Each Obligor hereby
agrees to indemnify the Agent and the Lenders from and against all
liabilities, damages, losses, actions, claims, judgments, costs,
expenses, charges and reasonable attorneys' fees suffered or incurred
by the Agent or the Lenders because of the maintenance of the
foregoing arrangements except as relating to or arising out of the
gross negligence or willful misconduct of the Agent or a Lender or its
officers, employees or agents.
(c) Access. In addition to the rights and remedies
hereunder, upon the occurrence of an Event of Default and during the
continuance thereof, the Agent shall have the right to enter and
remain upon the various premises of the Obligors without cost or
charge to the Agent, and use the same, together with materials,
supplies, books and records of the Obligors for the purpose of
collecting and liquidating the Collateral, or for preparing for sale
and conducting the sale of the Collateral, whether by foreclosure,
auction or otherwise. In addition, the Agent may remove Collateral,
or any part thereof, from such premises and/or any records with
respect thereto, in order to effectively collect or liquidate such
Collateral.
(d) Nonexclusive Nature of Remedies. Failure by the
Agent or the Lenders to exercise any right, remedy or option under
this Security Agreement, any other Credit Document or as provided by
law, or any delay by the Agent or the Lenders in exercising the same,
shall not operate as a waiver of any such right, remedy or option. No
waiver hereunder shall be effective unless it is in writing, signed by
the party against whom such waiver is sought to be enforced and then
only to the extent specifically stated, which in the case of the Agent
or the Lenders shall only be granted as provided herein. To the
extent permitted by law, neither the Agent, the Lenders, nor any party
acting as attorney for the Agent or the Lenders, shall be liable
hereunder for any acts or omissions or for any error of judgment or
mistake of fact or law other than their gross negligence or willful
misconduct hereunder. The rights and remedies of the Agents and the
Lenders under this Security Agreement shall be cumulative and not
exclusive of any other right or remedy which the Agent or the Lenders
may have.
(e) Retention of Collateral. The Agent may, after
providing the notices required by Section 9-505(2) of the UCC or
otherwise complying with the requirements of applicable law of the
relevant jurisdiction, to the extent the Agent is in possession of any
of the Collateral, retain the Collateral in satisfaction of the
Secured Obligations. Unless and until the Agent shall have provided
such notices, however, the Agent shall not be deemed to have retained
any Collateral in satisfaction of any Secured Obligations for any
reason.
<PAGE> 14
(f) Deficiency. In the event that the proceeds of any
sale, collection or realization are insufficient to pay all amounts to
which the Agent or the Lenders are legally entitled, the Obligors
shall be jointly and severally liable for the deficiency, together
with interest thereon at the default rate specified in Section 3.1(b)
of the Credit Agreement for Revolving Loans that are Base Rate Loans,
together with the costs of collection and the reasonable fees of any
attorneys employed by the Agent to collect such deficiency. Any
surplus remaining after the full payment and satisfaction of the
Secured Obligations shall be returned to the Obligors or to whomsoever
a court of competent jurisdiction shall determine to be entitled
thereto.
9. Rights of the Agent.
(a) Power of Attorney. In addition to other powers of
attorney contained herein, each Obligor hereby designates and appoints
the Agent, on behalf of the Lenders, and each of its designees or
agents, as attorney-in-fact of such Obligor, irrevocably and with
power of substitution, with authority to take any or all of the
following actions upon the occurrence and during the continuance of an
Event of Default:
(i) to demand, collect, settle, compromise,
adjust, give discharges and releases, all as the Agent may
reasonably determine;
(ii) to commence and prosecute any actions at any
court for the purposes of collecting any Collateral and
enforcing any other right in respect thereof;
(iii) to defend, settle or compromise any action
brought and, in connection therewith, give such discharge or
release as the Agent may deem reasonably appropriate;
(iv) receive, open and dispose of mail addressed
to an Obligor and endorse checks, notes, drafts, acceptances,
money orders, bills of lading, warehouse receipts or other
instruments or documents evidencing payment, shipment or
storage of the goods giving rise to the Collateral of such
Obligor on behalf of and in the name of such Obligor, or
securing, or relating to such Collateral;
(v) sell, assign, transfer, make any agreement in
respect of, or otherwise deal with or exercise rights in
respect of, any Collateral or the goods or services which have
given rise thereto, as fully and completely as though the Bank
were the absolute owner thereof for all purposes;
(vi) adjust and settle claims under any insurance
policy relating thereto;
<PAGE> 15
(vii) execute and deliver all assignments,
conveyances, statements, financing statements, renewal
financing statements, security agreements, affidavits, notices
and other agreements, instruments and documents that the Agent
may determine necessary in order to perfect and maintain the
security interests and liens granted in this Security
Agreement and in order to fully consummate all of the
transactions contemplated therein;
(viii) institute any foreclosure proceedings that
the Agent may deem appropriate; and
(ix) do and perform all such other acts and things
as the Agent may reasonably deem to be necessary, proper or
convenient in connection with the Collateral.
This power of attorney is a power coupled with an interest and shall
be irrevocable (i) for so long as any of the Secured Obligations
remain outstanding, any Credit Document is in effect or any Letter of
Credit shall remain outstanding and (ii) until all of the Commitments
shall have been terminated. The Agent shall be under no duty to
exercise or withhold the exercise of any of the rights, powers,
privileges and options expressly or implicitly granted to the Agent in
this Security Agreement, and shall not be liable for any failure to do
so or any delay in doing so. The Agent shall not be liable for any
act or omission or for any error of judgment or any mistake of fact or
law in its individual capacity or its capacity as attorney-in-fact
except acts or omissions resulting from its gross negligence or
willful misconduct. This power of attorney is conferred on the Agent
solely to protect, preserve and realize upon its security interest in
the Collateral.
(b) Performance by the Agent of Obligations. If any
Obligor fails to perform any agreement or obligation contained herein,
the Agent itself may perform, or cause performance of, such agreement
or obligation, and the expenses of the Agent incurred in connection
therewith shall be payable by the Obligors on a joint and several
basis pursuant to Section 11 hereof.
(c) Assignment by the Agent. The Agent may from time to
time assign the Secured Obligations and any portion thereof and/or the
Collateral and any portion thereof, and the assignee shall be entitled
to all of the rights and remedies of the Agent under this Security
Agreement in relation thereto.
(d) The Agent's Duty of Care. Other than the exercise of
reasonable care to assure the safe custody of the Collateral while
being held by the Agent hereunder, the Agent shall have no duty or
liability to preserve rights pertaining thereto, it being understood
and agreed that the Obligors shall be responsible for preservation of
all rights in the Collateral, and the Agent shall be relieved of all
responsibility for the Collateral upon surrendering it or tendering
the surrender of it to the Obligors. The Agent shall be deemed to
have exercised
<PAGE> 16
reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially
equal to that which the Agent accords its own property, which shall be
no less than the treatment employed by a reasonable and prudent agent
in the industry, it being understood that the Agent shall not have
responsibility for taking any necessary steps to preserve rights
against any parties with respect to any of the Collateral.
10. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Secured
Obligations and any proceeds of the Collateral, when received by the Agent or
any of the Lenders in cash or its equivalent, will be applied in reduction of
the Secured Obligations in the order set forth in Section 3.8 of the Credit
Agreement, and each Obligor irrevocably waives the right to direct the
application of such payments and proceeds and acknowledges and agrees that the
Agent shall have the continuing and exclusive right to apply and reapply any
and all such payments and proceeds in the Agent's sole discretion,
notwithstanding any entry to the contrary upon any of its books and records.
11. Costs of Counsel. If at any time hereafter, whether upon the
occurrence of an Event of Default or not, the Agent employs counsel to prepare
or consider amendments, waivers or consents with respect to this Security
Agreement, or to take action or make a response in or with respect to any legal
or arbitral proceeding relating to this Security Agreement or relating to the
Collateral, or to protect the Collateral or exercise any rights or remedies
under this Security Agreement or with respect to the Collateral, then the
Obligors agree to promptly pay upon demand any and all such reasonable
documented costs and reasonable expenses of the Agent or the Lenders, all of
which costs and expenses shall constitute Secured Obligations hereunder.
12. Continuing Agreement.
(a) This Security Agreement shall be a continuing
agreement in every respect and shall remain in full force and effect
so long as any of the Secured Obligations remain outstanding, any
Credit Document is in effect or any Letter of Credit shall remain
outstanding, and until all of the Commitments thereunder shall have
terminated (other than any obligations with respect to the indemnities
and the representations and warranties set forth in the Credit
Documents). Upon such payment and termination, this Security
Agreement shall be automatically terminated and the Agent and the
Lenders shall, upon the request and at the expense of the Obligors,
forthwith release all of its liens and security interests hereunder
and shall execute and deliver all UCC termination statements and/or
other documents reasonably requested by the Obligors evidencing such
termination. Notwithstanding the foregoing all releases and
indemnities provided hereunder shall survive termination of this
Security Agreement.
(b) This Security Agreement shall continue to be
effective or be automatically reinstated, as the case may be, if at
any time payment, in whole or in part, of any of the Secured
Obligations is rescinded or must otherwise be restored or returned by
the Agent or
<PAGE> 17
any Lender as a preference, fraudulent conveyance or otherwise under
any bankruptcy, insolvency or similar law, all as though such payment
had not been made; provided that in the event payment of all or any
part of the Secured Obligations is rescinded or must be restored or
returned, all reasonable costs and expenses (including without
limitation any reasonable legal fees and disbursements) incurred by
the Agent or any Lender in defending and enforcing such reinstatement
shall be deemed to be included as a part of the Secured Obligations.
13. Amendments; Waivers; Modifications. This Security Agreement
and the provisions hereof may not be amended, waived, modified, changed,
discharged or terminated except as set forth in Section 11.6 of the Credit
Agreement.
14. Successors in Interest. This Security Agreement shall create
a continuing security interest in the Collateral and shall be binding upon each
Obligor, its successors and assigns and shall inure, together with the rights
and remedies of the Agent and the Lenders hereunder, to the benefit of the
Agent and the Lenders and their successors and permitted assigns; provided,
however, that none of the Obligors may assign its rights or delegate its duties
hereunder without the prior written consent of each Lender or the Required
Lenders, as required by the Credit Agreement. To the fullest extent permitted
by law, each Obligor hereby releases the Agent and each Lender, and its
successors and assigns, from any liability for any act or omission relating to
this Security Agreement or the Collateral, except for any liability arising
from the gross negligence or willful misconduct of the Agent, or such Lender,
or its officers, employees or agents.
15. Notices. All notices required or permitted to be given under
this Security Agreement shall be in conformance with Section 11.1 of the Credit
Agreement.
16. Counterparts. This Security Agreement may be executed in any
number of counterparts, each of which where so executed and delivered shall be
an original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Security Agreement to produce or
account for more than one such counterpart.
17. Headings. The headings of the sections and subsections hereof
are provided for convenience only and shall not in any way affect the meaning
or construction of any provision of this Security Agreement.
18. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS SECURITY AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK. Any legal action or proceeding with respect to this
Security Agreement may be brought in the courts of the State of New
York, or of the United States for the Southern District of New York,
and, by
<PAGE> 18
execution and delivery of this Security Agreement, each Obligor hereby
irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of such courts. Each
Obligor further irrevocably consents to the service of process out of
any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by registered or certified mail, postage
prepaid, to it at the address for notices pursuant to Section 11.1 of
the Credit Agreement, such service to become effective 30 days after
such mailing. Nothing herein shall affect the right of the Agent to
serve process in any other manner permitted by law or to commence
legal proceedings or to otherwise proceed against any Obligor in any
other jurisdiction.
(b) Each Obligor hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection
with this Security Agreement brought in the courts referred to in
subsection (a) hereof and hereby further irrevocably waives and agrees
not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an
inconvenient forum.
19. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, EACH OF THE PARTIES TO THIS SECURITY AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
20. Severability. If any provision of any of the Security
Agreement is determined to be illegal, invalid or unenforceable, such provision
shall be fully severable and the remaining provisions shall remain in full
force and effect and shall be construed without giving effect to the illegal,
invalid or unenforceable provisions.
21. Entirety. This Security Agreement and the other Credit
Documents represent the entire agreement of the parties hereto and thereto, and
supersede all prior agreements and understandings, oral or written, if any,
including any commitment letters or correspondence relating to the Credit
Documents or the transactions contemplated herein and therein.
22. Survival. All representations and warranties of the Obligors
hereunder shall survive the execution and delivery of this Security Agreement
and the other Credit Documents, the delivery of the Notes and the making of the
Loans and the issuance of the Letters of Credit under the Credit Agreement.
23. Other Security. To the extent that any of the Secured
Obligations are now or hereafter secured by property other than the Collateral
(including, without limitation, real property and securities owned by an
Obligor), or by a guarantee, endorsement or property of any other Person, then
the Agent and the Lenders shall have the right to proceed against such other
property, guarantee
<PAGE> 19
or endorsement upon the occurrence of any Event of Default, and the Agent and
the Lenders have the right, in their sole discretion, to determine which
rights, security, liens, security interests or remedies the Agent and the
Lenders shall at any time pursue, relinquish, subordinate, modify or take with
respect thereto, without in any way modifying or affecting any of them or any
of the Agent's and the Lenders' rights or the Secured Obligations under this
Security Agreement, under any other of the Credit Documents.
24. Limitation of Liability. Notwithstanding any provision to the
contrary contained herein or in any other of the Credit Documents, to the
extent the obligations of an Obligor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or
transfers) then the obligations of such Obligor hereunder shall be limited to
the maximum amount that is permissible under applicable law (whether federal or
state and including, without limitation, the Bankruptcy Code).
25. Rights of Required Lenders. All rights of the Agent
hereunder, if not exercised by the Agent, may be exercised by the Required
Lenders.
26. Conflicts with Pledge Agreement. To the extent that any
provisions set forth herein shall conflict with any provisions set forth in the
Pledge Agreement defined in and executed in connection with the Credit
Agreement, the provisions of the Pledge Agreement shall control.
[remainder of page intentionally left blank]
<PAGE> 20
Each of the parties hereto has caused a counterpart of this Security
Agreement to be duly executed and delivered as of the date first above written.
BORROWER: STEEL HEDDLE MFG. CO.
By: /s/ Benjamin G. Team
----------------------------
Name: Benjamin G. Team
----------------------------
Title: President
----------------------------
GUARANTORS: STEEL HEDDLE INTERNATIONAL, INC.
By: /s/ Benjamin G. Team
----------------------------
Name: Benjamin G. Team
----------------------------
Title: President
----------------------------
HEDDLE CAPITAL CORP.
By: /s/ Jerry B. Miller
----------------------------
Name: Jerry B. Miller
----------------------------
Title: President
----------------------------
Accepted and agreed to in Charlotte, North Carolina as of the date
first above written.
NATIONSBANK, N.A., as Agent
By: /s/ Diana H. Inman
----------------------------
Name: Diana H. Inman
----------------------------
Title: Vice President
----------------------------
<PAGE> 21
SCHEDULE 1(b)
INTELLECTUAL PROPERTY
U.S. TRADEMARKS OF
STEEL HEDDLE MFG. CO.
Registered Trademarks
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
MARK REGISTRATION NO. REGISTRATION DATE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
JET EYE 2,062,780 5/20/97
- --------------------------------------------------------------------------------------------------------
DRAW-O 1,496,549 7/19/88
- --------------------------------------------------------------------------------------------------------
DURALITE 1,177,859 11/17/81
- --------------------------------------------------------------------------------------------------------
SH 1,168,075 9/8/81
- --------------------------------------------------------------------------------------------------------
</TABLE>
U.S. PATENTS OF
STEEL HEDDLE MFG. CO.
Issued Patents
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PATIENT NO. FILING DATE DESCRIPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
5,630,448 3/25/96 Heddle frame with torque locking block center brace assembly
- -------------------------------------------------------------------------------------------------------------
5,560,399 1/31/95 Heddle frame with locking clamp block center brace assembly
- -------------------------------------------------------------------------------------------------------------
5,477,889 12/16/94 Heddle frame endbrace assembly
- -------------------------------------------------------------------------------------------------------------
5,415,205 2/25/94 Double dent reed with increased separation between front and back
dent rows
- -------------------------------------------------------------------------------------------------------------
5,411,061 12/16/93 Heddle frame assembly with releasable end braces
- -------------------------------------------------------------------------------------------------------------
5,348,055 5/6/93 Heddle eyelet structure
- -------------------------------------------------------------------------------------------------------------
5,275,210 8/11/92 Nose guide for a heddle frame
- -------------------------------------------------------------------------------------------------------------
4,924,916 5/19/89 Harness frame with drop-through bolted centerpiece
- -------------------------------------------------------------------------------------------------------------
4,913,194 11/18/88 Light weight heddle frame assembly slat
- -------------------------------------------------------------------------------------------------------------
4,913,193 2/14/89 Light weight heddle support bar
- -------------------------------------------------------------------------------------------------------------
4,706,717 8/25/86 Heddle frame for a high speed weaving machine
- -------------------------------------------------------------------------------------------------------------
4,687,030 8/14/86 Heddle frame for a high speed weaving machine
- -------------------------------------------------------------------------------------------------------------
4,633,916 6/24/85 Roll-formed shear-resistant frame slat
- -------------------------------------------------------------------------------------------------------------
4,596,275 10/12/84 Reinforced heddle frame slat and method
- -------------------------------------------------------------------------------------------------------------
4,572,241 11/20/84 Leng heddle device
- -------------------------------------------------------------------------------------------------------------
4,331,865 10/9/79 Dent counter for loom reed
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
4,298,032 9/7/78 Shuttle grip
- -------------------------------------------------------------------------------------------------------------
4,254,802 5/17/79 Apparatus for reinforcing a heddle frame slat of a loom
- -------------------------------------------------------------------------------------------------------------
4,252,153 4/23/79 Heddle rod hook device for a loom
- -------------------------------------------------------------------------------------------------------------
4,232,713 4/23/79 Heddle frame nose guide
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
U.S. COPYRIGHTS
OF
STEEL HEDDLE MFG. CO.
NONE
<PAGE> 24
SCHEDULE 4(a)
CHIEF EXECUTIVE OFFICE
1. Steel Heddle Mfg. Co.
1801 Rutherford Road
Greenville, SC 29609
2. Heddle Capital Corp.
900 Market Street
Wilmington, DE 19801
3. Steel Heddle International, Inc.
1801 Rutherford Road
Greenville, SC 29609
4. Steel Huddle International de Mexico, S.A. DE C.V.
Privada de la Soledad No. 503
Colonia Jaguey Barrio
Delegacion Azcapotzalco
5. Steel Heddle International Japan (Branch)
Room 905, 1/Otsubashi
Tensho Building, No. 9
1-12-12, Shinmachi, Nishi-Ku
Osaka 550, Japan
<PAGE> 25
SCHEDULE 4(b)
LOCATIONS OF COLLATERAL
OWNED REAL PROPERTY
<TABLE>
<CAPTION>
Location County
- -------- ------
<S> <C>
1801 Rutherford Road Greenville
Greenville, SC 29609
692 Plant Road Oconee
Westminster, SC 29693
143 Blue Bell Road Guilford
Greensboro, NC 27406
(excluding 0.58 acres sold on
March 12, 1998 for $183,392.93)
Highway 109, Gay Road Meriwether
Greenville, GA 30222
</TABLE>
TANGIBLE PERSONAL PROPERTY LOCATED
1. See Schedule 6.22(a)
2. Privada de la Soledad, No. 503, Colonia Jaguey Barrio, Delegacion
Azcapotzalco, 02519, Mexico, D. F.
3. Room 905, 1/Otsubashi, Tensho Building, No. 9, 1-12-12, Shinmachi,
Nishi-Ku, Osaka 550, Japan
<PAGE> 26
SCHEDULE 4(c)
MERGERS, CONSOLIDATIONS, CHANGE IN STRUCTURE OR USE OF TRADENAMES
NONE
<PAGE> 27
SCHEDULE 5(f)(i)
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
COPYRIGHTS
United States Copyright Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
May 22, 1998 (as the same may be amended, modified, extended or restated from
time to time, the "Security Agreement") by and among the Obligors party thereto
(each an "Obligor" and collectively, the "Obligors") and NationsBank, N.A., as
Agent (the "Agent") for the lenders referenced therein (the "Lenders"), the
undersigned Obligor has granted a continuing security interest in and
continuing lien upon, the copyrights and copyright applications shown below to
the Agent for the ratable benefit of the Lenders:
COPYRIGHTS
<TABLE>
<S> <C> <C>
Date of
Copyright No. Description of Copyright Copyright
------------- ------------------------- ---------
</TABLE>
Copyright Applications
<TABLE>
<S> <C> <C>
Copyright Description of Copyright Date of Copyright
Applications No. Applied For Applications
---------------- ------------------------ -----------------
</TABLE>
<PAGE> 28
The Obligors and the Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest in the foregoing copyrights
and copyright applications (i) may only be terminated in accordance with the
terms of the Security Agreement and (ii) is not to be construed as an
assignment of any copyright or copyright application.
Very truly yours,
--------------------------
[Obligor]
By:
Name:
Title:
Acknowledged and Accepted:
NATIONSBANK, N.A., as Agent
By:
Name:
Title:
<PAGE> 29
SCHEDULE 5(f)(ii)
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
PATENTS
United States Patent and Trademark Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
May 22, 1998 (the "Security Agreement") by and among the Obligors party thereto
(each an "Obligor" and collectively, the "Obligors") and NationsBank, N.A., as
Agent (the "Agent") for the lenders referenced therein (the "Lenders"), the
undersigned Obligor has granted a continuing security interest in and
continuing lien upon, the patents and patent applications shown below to the
Agent for the ratable benefit of the Lenders:
PATENTS
<TABLE>
<S> <C> <C>
Patent Description of Patent Date of
No. Item Patent
---------------- ------------------------ -------
</TABLE>
Patent Applications
<TABLE>
<S> <C> <C>
Patent Description of Patent Date of Patent
Applications No. Applied For Applications
---------------- ------------------------ -----------------
</TABLE>
<PAGE> 30
The Obligors and the Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest in the foregoing patents and
patent applications (i) may only be terminated in accordance with the terms of
the Security Agreement and (ii) is not to be construed as an assignment of any
patent or patent application.
Very truly yours,
------------------------
[Obligor]
By:
Name:
Title:
Acknowledged and Accepted:
NATIONSBANK, N.A., as Agent
By:
Name:
Title:
<PAGE> 31
SCHEDULE 5(f)(iii)
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
TRADEMARKS
United States Patent and Trademark Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
May 22, 1998 (the "Security Agreement") by and among the Obligors party thereto
(each an "Obligor" and collectively, the "Obligors") and NationsBank, N.A., as
Agent (the "Agent") for the lenders referenced therein (the "Lenders"), the
undersigned Obligor has granted a continuing security interest in and
continuing lien upon, the trademarks and trademark applications shown below to
the Agent for the ratable benefit of the Lenders:
TRADEMARKS
<TABLE>
<S> <C> <C>
Description of Trademark Date of
Trademark No. Item Trademark
------------- ------------------------ ---------
</TABLE>
Trademark Applications
<TABLE>
<S> <C> <C>
Trademark Description of Trademark Date of Trademark
Applications No. Applied For Applications
---------------- ------------------------ -----------------
</TABLE>
<PAGE> 32
The Obligors and the Agent, on behalf of the Lenders, hereby
acknowledge and agree that the security interest in the foregoing trademarks
and trademark applications (i) may only be terminated in accordance with the
terms of the Security Agreement and (ii) is not to be construed as an
assignment of any trademark or trademark application.
Very truly yours,
-----------------------------------
[Obligor]
By:
Name:
Title:
Acknowledged and Accepted:
NATIONSBANK, N.A., as Agent
By:
Name:
Title:
<PAGE> 1
Exhibit 10.3
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement") is entered into as of
May 26, 1998 among STEEL HEDDLE MFG. CO., a Pennsylvania corporation (the
"Borrower"), STEEL HEDDLE GROUP, INC., a Delaware corporation (the "Parent"),
the Guarantors identified on the signature pages hereto (individually a
"Guarantor", and collectively the "Guarantors"; together with the Borrower and
the Parent, individually a "Pledgor", and collectively the "Pledgors") and
NATIONSBANK, N.A., in its capacity as agent (in such capacity, the "Agent") for
the lenders from time to time party to the Credit Agreement described below (the
"Lenders").
RECITALS
WHEREAS, pursuant to that certain Credit Agreement dated as of the date
hereof (as amended, modified, extended, renewed or replaced from time to time,
the "Credit Agreement") among the Borrower, the Guarantors, the Lenders, the
Agent and DLJ Capital Funding, Inc. as Syndication Agent, the Lenders have
agreed to make Loans and issue Letters of Credit upon the terms and subject to
the conditions set forth therein; and
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective Loans and
to issue Letters of Credit under the Credit Agreement that the Pledgors shall
have executed and delivered this Pledge Agreement to the Agent for the ratable
benefit of the Lenders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Credit Agreement.
For purposes of this Pledge Agreement, the term "Lender" shall include any
Affiliate of any Lender to which Hedging Obligations are owed by a Pledgor.
2. Pledge and Grant of Security Interest. To secure the prompt payment
and performance in full when due, whether by lapse of time or otherwise, of the
Pledgor Obligations (as defined in Section 3 hereof), each Pledgor hereby
pledges and assigns to the Agent, for the benefit of the Lenders, and grants to
the Agent, for the benefit of the Lenders, a continuing security interest in any
and all right, title and interest of such Pledgor in and to the following,
whether now owned or existing or owned, acquired, or arising hereafter
(collectively, the "Pledged Collateral"):
(a) Pledged Shares. (i) 100% (or, if less, the full amount
owned by such Pledgor) of the issued and outstanding shares of capital
stock owned by such Pledgor of each Domestic Subsidiary set forth on
Schedule 2(a) attached hereto and (ii) 65% (or, if less, the full
amount owned by such Pledgor) of the issued and outstanding shares of
each class of capital stock or other ownership interests entitled to
vote (within the
<PAGE> 2
meaning of Treas. Reg. Section 1.956-2(c)(2)) ("Voting Equity") and
100% (or, if less, the full amount owned by such Pledgor) of the issued
and outstanding shares of each class of capital stock or other
ownership interests not entitled to vote (within the meaning of Treas.
Reg. Section 1.956-2(c)(2)) ("Non-Voting Equity") owned by such Pledgor
of each Foreign Subsidiary set forth on Schedule 2(a) attached hereto,
in each case together with the certificates (or other agreements or
instruments), if any, representing such shares, and all options and
other rights, contractual or otherwise, with respect thereto
(collectively, together with the shares of capital stock described in
Section 2(b) and 2(c) below, the "Pledged Shares"), including, but not
limited to, the following:
(y) all shares or securities representing a dividend
on any of the Pledged Shares, or representing a distribution
or return of capital upon or in respect of the Pledged Shares,
or resulting from a stock split, revision, reclassification or
other exchange therefor, and any subscriptions, warrants,
rights or options issued to the holder of, or otherwise in
respect of, the Pledged Shares; and
(z) without affecting the obligations of such Pledgor
under any provision prohibiting such action hereunder, in the
event of any consolidation or merger in which a Pledgor is not
the surviving corporation, all shares of each class of the
capital stock of the successor corporation formed by or
resulting from such consolidation or merger.
(b) Additional Shares. With respect to any Pledgor other than
the Parent, 100% (or, if less, the full amount owned by such Pledgor)
of the issued and outstanding shares of capital stock owned by such
Pledgor of any Person which hereafter becomes a Domestic Subsidiary and
65% (or, if less, the full amount owned by such Pledgor) of the Voting
Equity and 100% (or, if less, the full amount owned by such Pledgor) of
the Non-Voting Equity owned by such Pledgor of any Person which
hereafter becomes a Foreign Subsidiary, including, without limitation,
the certificates representing such shares (provided, however, that no
Person that is a Foreign Subsidiary shall be required to pledge any
shares hereunder).
(c) Proceeds. All proceeds and products of the
foregoing, however and whenever acquired and in whatever form.
Without limiting the generality of the foregoing, it is hereby
specifically understood and agreed that a Pledgor may from time to time
hereafter deliver additional shares of stock to the Agent as collateral security
for the Pledgor Obligations. Upon delivery to the Agent, such additional shares
of stock shall be deemed to be part of the Pledged Collateral of such Pledgor
and shall be subject to the terms of this Pledge Agreement whether or not
Schedule 2(a) is amended to refer to such additional shares.
<PAGE> 3
3. Security for Pledgor Obligations. The security interest created
hereby in the Pledged Collateral of each Pledgor constitutes continuing
collateral security for all of the Credit Party Obligations, now existing or
hereafter arising pursuant to the Credit Documents, owing from the Borrower or
any other Credit Party to any Lender or the Agent, howsoever evidenced, created,
incurred or acquired, whether primary, secondary, direct, contingent, or joint
and several, including, without limitation, all liabilities arising under
Hedging Agreements and all obligations and liabilities incurred in connection
with collecting and enforcing the foregoing (collectively, the "Pledgor
Obligations").
4. Delivery of the Pledged Collateral. Each Pledgor hereby agrees that:
(a) Each Pledgor shall deliver to the Agent (i)
simultaneously with or prior to the execution and delivery of this
Pledge Agreement, all certificates representing the Pledged Shares of
such Pledgor and (ii) promptly upon the receipt thereof by or on behalf
of a Pledgor, all other certificates and instruments constituting
Pledged Collateral of a Pledgor. Prior to delivery to the Agent, all
such certificates and instruments constituting Pledged Collateral of a
Pledgor shall be held in trust by such Pledgor for the benefit of the
Agent pursuant hereto. All such certificates shall be delivered in
suitable form for transfer by delivery or shall be accompanied by duly
executed instruments of transfer or assignment in blank, substantially
in the form provided in Exhibit 4(a) attached hereto.
(b) Additional Securities. If such Pledgor shall
receive by virtue of its being or having been the owner of any Pledged
Collateral, any (i) stock certificate, including without limitation,
any certificate representing a stock dividend or distribution in
connection with any increase or reduction of capital, reclassification,
merger, consolidation, sale of assets, combination of shares, stock
splits, spin-off or split-off, promissory notes or other instrument;
(ii) option or right, whether as an addition to, substitution for, or
an exchange for, any Pledged Collateral or otherwise; (iii) dividends
payable in securities; or (iv) distributions of securities in
connection with a partial or total liquidation, dissolution or
reduction of capital, capital surplus or paid-in surplus, then such
Pledgor shall receive such stock certificate, instrument, option, right
or distribution in trust for the benefit of the Agent, shall segregate
it from such Pledgor's other property and shall deliver it forthwith to
the Agent in the exact form received together with any necessary
endorsement and/or appropriate stock power duly executed in blank,
substantially in the form provided in Exhibit 4(a), to be held by the
Agent as Pledged Collateral and as further collateral security for the
Pledgor Obligations.
(c) Financing Statements. Each Pledgor shall execute
and deliver to the Agent such UCC or other applicable financing
statements as may be reasonably requested by the Agent in order to
perfect and protect the security interest created hereby in the Pledged
Collateral of such Pledgor.
<PAGE> 4
5. Representations and Warranties. Each Pledgor hereby severally and
not jointly represents and warrants to the Agent, for the benefit of the
Lenders, with respect only to the Pledged Shares and Pledged Collateral owned by
such Pledgor, that so long as any of the Pledgor Obligations remain outstanding
(other than any such obligations which by the terms thereof are stated to
survive termination of the Credit Documents) or any Credit Document is in effect
or any Letter of Credit shall remain outstanding, and until all of the
Commitments shall have been terminated:
(a) Authorization of Pledged Shares. The Pledged
Shares are duly authorized and validly issued, are fully paid and
nonassessable and are not subject to the preemptive rights of any
Person. All other shares of stock constituting Pledged Collateral will
be duly authorized and validly issued, fully paid and nonassessable and
not subject to the preemptive rights of any Person.
(b) Title. Each Pledgor has good and indefeasible
title to the Pledged Collateral of such Pledgor and will at all times
be the legal and beneficial owner of such Pledged Collateral free and
clear of any Lien, other than Permitted Liens. There exists no "adverse
claim" within the meaning of Section 8-102(a)(1) of the Uniform
Commercial Code as in effect in the State of New York (the "UCC") with
respect to the Pledged Shares of such Pledgor.
(c) Exercising of Rights. The exercise by the Agent
of its rights and remedies hereunder will not violate any law or
governmental regulation or any material contractual restriction binding
on or affecting a Pledgor or any of its property.
(d) Pledgor's Authority. No authorization, approval
or action by, and no notice or filing with any Governmental Authority
or with the issuer of any Pledged Stock is required either (i) for the
pledge made by a Pledgor or for the granting of the security interest
by a Pledgor pursuant to this Pledge Agreement or (ii) for the exercise
by the Agent or the Lenders of their rights and remedies hereunder
(except as may be required by laws affecting the offering and sale of
securities).
(e) Security Interest/Priority. This Pledge Agreement
creates a valid security interest in favor of the Agent for the benefit
of the Lenders, in the Pledged Collateral. The taking possession by the
Agent of the certificates representing the Pledged Shares and all other
certificates and instruments constituting Pledged Collateral will
perfect and establish the first priority of the Agent's security
interest in the Pledged Shares and, when properly perfected by filing
or registration, in all other Pledged Collateral represented by such
Pledged Shares and instruments securing the Pledgor Obligations. Except
as set forth in this Section 5(e), no action is necessary to perfect or
otherwise protect such security interest.
<PAGE> 5
(f) No Other Shares. No Pledgor owns any shares of stock
other than as set forth on Schedule 2(a) attached hereto.
6. Covenants. Each Pledgor hereby covenants, that so long as any of the
Pledgor Obligations remain outstanding (other than any such obligations which by
the terms thereof are stated to survive termination of the Credit Documents) or
any Credit Document is in effect or any Letter of Credit shall remain
outstanding, and until all of the Commitments shall have been terminated, such
Pledgor shall:
(a) Books and Records. Mark its books and records
(and shall cause the issuer of the Pledged Shares of such Pledgor to
mark its books and records) to reflect the security interest granted to
the Agent, for the benefit of the Lenders, pursuant to this Pledge
Agreement.
(b) Defense of Title. Warrant and defend title to and
ownership of the Pledged Collateral of such Pledgor at its own expense
against the claims and demands of all other parties claiming an
interest therein, keep the Pledged Collateral free from all Liens,
except for Permitted Liens, and not sell, exchange, transfer, assign,
lease or otherwise dispose of Pledged Collateral of such Pledgor or any
interest therein, except as permitted under the Credit Agreement and
the other Credit Documents.
(c) Further Assurances. Promptly execute and deliver
at its expense all further instruments and documents and take all
further action that may be necessary and desirable or that the Agent
may reasonably request in order to (i) perfect and protect the security
interest created hereby in the Pledged Collateral of such Pledgor
(including without limitation any and all action necessary to satisfy
the Agent that the Agent has obtained a first priority perfected
security interest in any capital stock); (ii) enable the Agent to
exercise and enforce its rights and remedies hereunder in respect of
the Pledged Collateral of such Pledgor; and (iii) otherwise effect the
purposes of this Pledge Agreement, including, without limitation and if
requested by the Agent, delivering to the Agent irrevocable proxies in
respect of the Pledged Collateral of such Pledgor.
(d) Amendments. Not make or consent to any amendment
or other modification or waiver with respect to any of the Pledged
Collateral of such Pledgor or enter into any agreement or allow to
exist any restriction with respect to any of the Pledged Collateral of
such Pledgor other than pursuant hereto or as may be permitted under
the Credit Agreement.
(e) Compliance with Securities Laws. File all reports
and other information now or hereafter required to be filed by such
Pledgor with the United States Securities and Exchange Commission and
any other state, federal or foreign agency in connection with the
ownership of the Pledged Collateral of such Pledgor.
<PAGE> 6
7. Advances by Lenders. On failure of any Pledgor to perform any of the
covenants and agreements contained herein, the Agent may, at its sole option and
in its sole discretion, perform the same and in so doing may expend such sums as
the Agent may reasonably deem advisable in the performance thereof, including,
without limitation, the payment of any insurance premiums, the payment of any
taxes, a payment to obtain a release of a Lien or potential Lien, expenditures
made in defending against any adverse claim and all other expenditures which the
Agent or the Lenders may make for the protection of the security hereof or which
may be compelled to make by operation of law. All such sums and amounts so
expended shall be repayable by the Pledgors promptly upon timely notice thereof
and demand therefor, shall constitute additional Pledgor Obligations and shall
bear interest from the date said amounts are expended at the default rate
specified in Section 3.1(b) of the Credit Agreement for Revolving Loans that are
Base Rate Loans. No such performance of any covenant or agreement by the Agent
or the Lenders on behalf of any Pledgor, and no such advance or expenditure
therefor, shall relieve the Pledgors of any default under the terms of this
Pledge Agreement or the other Credit Documents. The Lenders may make any payment
hereby authorized in accordance with any bill, statement or estimate procured
from the appropriate public office or holder of the claim to be discharged
without inquiry into the accuracy of such bill, statement or estimate or into
the validity of any tax assessment, sale, forfeiture, tax lien, title or claim
except to the extent such payment is being contested in good faith by a Pledgor
in appropriate proceedings and against which adequate reserves are being
maintained in accordance with GAAP.
8. Events of Default. The occurrence of an event (including the
expiration of any grace or cure period applicable thereto) which under the
Credit Agreement would constitute an Event of Default shall be an Event of
Default hereunder (an "Event of Default").
9. Remedies.
(a) General Remedies. Upon the occurrence of an Event
of Default and during the continuation thereof, the Agent and the
Lenders shall have, in respect of the Pledged Collateral of any
Pledgor, in addition to the rights and remedies provided herein, in the
Credit Documents or by law, the rights and remedies of a secured party
under the UCC or any other applicable law.
(b) Sale of Pledged Collateral. Upon the occurrence
of an Event of Default and during the continuation thereof, without
limiting the generality of this Section and without notice, the Agent
may, in its sole discretion, sell or otherwise dispose of or realize
upon the Pledged Collateral, or any part thereof, in one or more
parcels, at public or private sale, at any exchange or broker's board
or elsewhere, at such price or prices and on such other terms as the
Agent may deem commercially reasonable, for cash, credit or for future
delivery or otherwise in accordance with applicable law. To the extent
permitted by law, any Lender may in such event, bid for the purchase of
such securities. Each Pledgor agrees that, to the extent notice of sale
shall be required by law and has not been waived by such Pledgor, any
requirement of reasonable notice shall be
<PAGE> 7
met if notice, specifying the place of any public sale or the time
after which any private sale is to be made, is personally served on or
mailed, postage prepaid, to such Pledgor, in accordance with the notice
provisions of Section 11.1 of the Credit Agreement at least 30 days
before the time of such sale. The Agent shall not be obligated to make
any sale of Pledged Collateral of such Pledgor regardless of notice of
sale having been given. The Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.
(c) Private Sale. Upon the occurrence of an Event of
Default and during the continuation thereof, the Pledgors recognize
that the Agent may deem it impracticable to effect a public sale of all
or any part of the Pledged Shares or any of the securities constituting
Pledged Collateral and that the Agent may, therefore, determine to make
one or more private sales of any such securities to a restricted group
of purchasers who will be obligated to agree, among other things, to
acquire such securities for their own account, for investment and not
with a view to the distribution or resale thereof. Each Pledgor
acknowledges that any such private sale may be at prices and on terms
less favorable to the seller than the prices and other terms which
might have been obtained at a public sale and, notwithstanding the
foregoing, agrees that such private sale shall be deemed to have been
made in a commercially reasonable manner and that the Agent shall have
no obligation to delay sale of any such securities for the period of
time necessary to permit the issuer of such securities to register such
securities for public sale under the Securities Act of 1933. Each
Pledgor further acknowledges and agrees that any offer to sell such
securities which has been (i) publicly advertised on a bona fide basis
in a newspaper or other publication of general circulation in the
financial community of New York, New York (to the extent that such
offer may be advertised without prior registration under the Securities
Act of 1933), or (ii) made privately in the manner described above
shall be deemed to involve a "public sale" under the UCC,
notwithstanding that such sale may not constitute a "public offering"
under the Securities Act of 1933, and the Agent may, in such event, bid
for the purchase of such securities.
(d) Retention of Pledged Collateral. In addition to
the rights and remedies hereunder, upon the occurrence of an Event of
Default, the Agent may, after providing the notices required by Section
9-505(2) of the UCC or otherwise complying with the requirements of
applicable law of the relevant jurisdiction, retain all or any portion
of the Pledged Collateral in satisfaction of the Pledgor Obligations.
Unless and until the Agent shall have provided such notices, however,
the Agent shall not be deemed to have retained any Pledged Collateral
in satisfaction of any Pledgor Obligations for any reason.
(e) Deficiency. In the event that the proceeds of any
sale, collection or realization are insufficient to pay all amounts to
which the Agent or the Lenders are legally entitled, the Pledgors
(other than the Parent) shall be liable for the deficiency,
<PAGE> 8
together with interest thereon at the default rate specified in Section
3.1(b) of the Credit Agreement for Revolving Loans that are Base Rate
Loans, together with the costs of collection and the reasonable fees of
any attorneys employed by the Agent to collect such deficiency. Any
surplus remaining after the full payment and satisfaction of the
Pledgor Obligations shall be returned to the Pledgors or to whomsoever
a court of competent jurisdiction shall determine to be entitled
thereto.
10. Rights of the Agent.
(a) Power of Attorney. In addition to other powers of
attorney contained herein, each Pledgor hereby designates and appoints
the Agent, on behalf of the Lenders, and each of its designees or
agents as attorney-in-fact of such Pledgor, irrevocably and with power
of substitution, with authority to take any or all of the following
actions upon the occurrence and during the continuance of an Event of
Default:
(i) to demand, collect, settle, compromise, adjust
and give discharges and releases concerning the Pledged
Collateral of such Pledgor, all as the Agent may reasonably
determine;
(ii) to commence and prosecute any actions at any
court for the purposes of collecting any of the Pledged
Collateral of such Pledgor and enforcing any other right in
respect thereof;
(iii) to defend, settle or compromise any action
brought and, in connection therewith, give such discharge or
release as the Agent may deem reasonably appropriate;
(iv) to pay or discharge taxes, liens, security
interests, or other encumbrances levied or placed on or
threatened against the Pledged Collateral of such Pledgor;
(v) to direct any parties liable for any payment
under any of the Pledged Collateral to make payment of any and
all monies due and to become due thereunder directly to the
Agent or as the Agent shall direct;
(vi) to receive payment of and receipt for any and
all monies, claims, and other amounts due and to become due at
any time in respect of or arising out of any Pledged
Collateral of such Pledgor;
(vii) to sign and endorse any drafts, assignments,
proxies, stock powers, verifications, notices and other
documents relating to the Pledged Collateral of such Pledgor;
<PAGE> 9
(viii) to settle, compromise or adjust any suit,
action or proceeding described above and, in connection
therewith, to give such discharges or releases as the Agent
may deem reasonably appropriate;
(ix) execute and deliver all assignments,
conveyances, statements, financing statements, renewal
financing statements, pledge agreements, affidavits, notices
and other agreements, instruments and documents that the Agent
may determine necessary in order to perfect and maintain the
security interests and liens granted in this Pledge Agreement
and in order to fully consummate all of the transactions
contemplated therein;
(x) to exchange any of the Pledged Collateral of such
Pledgor or other property upon any merger, consolidation,
reorganization, recapitalization or other readjustment of the
issuer thereof and, in connection therewith, deposit any of
the Pledged Collateral of such Pledgor with any committee,
depository, transfer agent, registrar or other designated
agency upon such terms as the Agent may determine;
(xi) to vote for a shareholder resolution, or to sign
an instrument in writing, sanctioning the transfer of any or
all of the Pledged Shares of such Pledgor into the name of the
Agent or one or more of the Lenders or into the name of any
transferee to whom the Pledged Shares of such Pledgor or any
part thereof may be sold pursuant to Section 10 hereof; and
(xii) to do and perform all such other acts and
things as the Agent may reasonably deem to be necessary,
proper or convenient in connection with the Pledged Collateral
of such Pledgor.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Pledgor Obligations remain
outstanding, any Credit Document is in effect or any Letter of Credit
shall remain outstanding and (ii) until all of the Commitments shall
have been terminated. The Agent shall be under no duty to exercise or
withhold the exercise of any of the rights, powers, privileges and
options expressly or implicitly granted to the Agent in this Pledge
Agreement, and shall not be liable for any failure to do so or any
delay in doing so. The Agent shall not be liable for any act or
omission or for any error of judgment or any mistake of fact or law in
its individual capacity or its capacity as attorney-in-fact except acts
or omissions resulting from its gross negligence or willful misconduct.
This power of attorney is conferred on the Agent solely to protect,
preserve and realize upon its security interest in Pledged Collateral.
<PAGE> 10
(b) Performance by the Agent of Pledgor's Obligations. If any
Pledgor fails to perform any agreement or obligation contained herein,
the Agent itself may perform, or cause performance of, such agreement
or obligation, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgors on pursuant to Section 13
hereof.
(c) Assignment by the Agent. The Agent may from time to time
assign the Pledgor Obligations and any portion thereof and/or the
Pledged Collateral and any portion thereof, and the assignee shall be
entitled to all of the rights and remedies of the Agent under this
Pledge Agreement in relation thereto.
(d) The Agent's Duty of Care. Other than the exercise of
reasonable care to assure the safe custody of the Pledged Collateral
while being held by the Agent hereunder, the Agent shall have no duty
or liability to preserve rights pertaining thereto, it being understood
and agreed that Pledgors shall be responsible for preservation of all
rights in the Pledged Collateral of such Pledgor, and the Agent shall
be relieved of all responsibility for Pledged Collateral upon
surrendering it or tendering the surrender of it to the Pledgors. The
Agent shall be deemed to have exercised reasonable care in the custody
and preservation of the Pledged Collateral in its possession if such
Pledged Collateral is accorded treatment substantially equal to that
which the Agent accords its own property, which shall be no less than
the treatment employed by a reasonable and prudent agent in the
industry, it being understood that the Agent shall not have
responsibility for (i) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters
relating to any Pledged Collateral, whether or not the Agent has or is
deemed to have knowledge of such matters; or (ii) taking any necessary
steps to preserve rights against any parties with respect to any
Pledged Collateral.
(e) Voting Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have
occurred and be continuing, to the extent permitted by law,
each Pledgor may exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral of such
Pledgor or any part thereof for any purpose not inconsistent
with the terms of this Pledge Agreement or the Credit
Agreement; and
(ii) Upon the occurrence and during the continuance
of an Event of Default, all rights of a Pledgor to exercise
the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to paragraph (i) of
this Section shall cease and all such rights shall thereupon
become vested in the Agent which shall then have the sole
right to exercise such voting and other consensual rights.
(f) Dividend Rights in Respect of the Pledged Collateral.
<PAGE> 11
(i) So long as no Event of Default shall have
occurred and be continuing and subject to Section 4(b) hereof,
each Pledgor may receive and retain any and all dividends
(other than stock dividends and other dividends constituting
Pledged Collateral which are addressed hereinabove) or
interest paid in respect of the Pledged Collateral to the
extent they are allowed under the Credit Agreement.
(ii) Upon the occurrence and during the continuance
of an Event of Default:
(A) all rights of a Pledgor to receive the
dividends and interest payments which it would
otherwise be authorized to receive and retain
pursuant to paragraph (i) of this Section shall cease
and all such rights shall thereupon be vested in the
Agent which shall then have the sole right to receive
and hold as Pledged Collateral such dividends and
interest payments; and
(B) all dividends and interest payments
which are received by a Pledgor contrary to the
provisions of paragraph (A) of this Section shall be
received in trust for the benefit of the Agent, shall
be segregated from other property or funds of such
Pledgor, and shall be forthwith paid over to the
Agent as Pledged Collateral in the exact form
received, to be held by the Agent as Pledged
Collateral and as further collateral security for the
Pledgor Obligations.
(g) Release of Pledged Collateral. The Agent may release any
of the Pledged Collateral from this Pledge Agreement or may substitute
any of the Pledged Collateral for other Pledged Collateral without
altering, varying or diminishing in any way the force, effect, lien,
pledge or security interest of this Pledge Agreement as to any Pledged
Collateral not expressly released or substituted, and this Pledge
Agreement shall continue as a first priority lien on all Pledged
Collateral not expressly released or substituted.
11. Rights of Required Lenders. All rights of the Agent hereunder, if
not exercised by the Agent, may be exercised by the Required Lenders.
12. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Pledgor
Obligations and any proceeds of any Pledged Collateral, when received by the
Agent or any of the Lenders in cash or its equivalent, will be applied in
reduction of the Pledgor Obligations in the order set forth in Section 3.8 of
the Credit Agreement, and each Pledgor irrevocably waives the right to direct
the application of such payments and proceeds and acknowledges and agrees that
the Agent shall
<PAGE> 12
have the continuing and exclusive right to apply and reapply any and all such
payments and proceeds in the Agent's sole discretion, notwithstanding any entry
to the contrary upon any of its books and records.
13. Costs of Counsel. At all times hereafter, the Pledgors agree to
promptly pay upon demand any and all reasonable costs and reasonable expenses of
the Agent or the Lenders, (a) as required under Section 11.5 of the Credit
Agreement and (b) as necessary to protect the Pledged Collateral or to exercise
any rights or remedies under this Pledge Agreement or with respect to any
Pledged Collateral. All of the foregoing costs and expenses shall constitute
Pledgor Obligations hereunder.
14. Continuing Agreement.
(a) This Pledge Agreement shall be a continuing agreement in
every respect and shall remain in full force and effect so long as any
of the Pledgor Obligations remain outstanding, any Credit Document is
in effect or any Letter of Credit shall remain outstanding, and until
all of the Commitments thereunder shall have terminated (other than any
obligations with respect to the indemnities and the representations and
warranties set forth in the Credit Documents). Upon such payment and
termination, this Pledge Agreement shall be automatically terminated
and the Agent and the Lenders shall, upon the request and at the
expense of the Pledgors, forthwith release all of its liens and
security interests hereunder and shall executed and deliver all UCC
termination statements and/or other documents reasonably requested by
the Pledgors evidencing such termination. Notwithstanding the foregoing
all releases and indemnities provided hereunder shall survive
termination of this Pledge Agreement.
(b) This Pledge Agreement shall continue to be effective or be
automatically reinstated, as the case may be, if at any time payment,
in whole or in part, of any of the Pledgor Obligations is rescinded or
must otherwise be restored or returned by the Agent or any Lender as a
preference, fraudulent conveyance or otherwise under any bankruptcy,
insolvency or similar law, all as though such payment had not been
made; provided that in the event payment of all or any part of the
Pledgor Obligations is rescinded or must be restored or returned, all
reasonable costs and expenses (including without limitation any
reasonable legal fees and disbursements) incurred by the Agent or any
Lender in defending and enforcing such reinstatement shall be deemed to
be included as a part of the Pledgor Obligations.
15. Amendments; Waivers; Modifications. This Pledge Agreement and the
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except as set forth in Section 11.6 of the Credit Agreement.
16. Successors in Interest. This Pledge Agreement shall create a
continuing security interest in the Collateral and shall be binding upon each
Pledgor, its successors and assigns and
<PAGE> 13
shall inure, together with the rights and remedies of the Agent and the Lenders
hereunder, to the benefit of the Agent and the Lenders and their successors and
permitted assigns; provided, however, that none of the Pledgors may assign its
rights or delegate its duties hereunder without the prior written consent of
each Lender or the Required Lenders, as required by the Credit Agreement. To the
fullest extent permitted by law, each Pledgor hereby releases the Agent and each
Lender, and its successors and assigns, from any liability for any act or
omission relating to this Pledge Agreement or the Collateral, except for any
liability arising from the gross negligence or willful misconduct of the Agent,
or such Lender, or its officers, employees or agents.
17. Notices. All notices required or permitted to be given under this
Pledge Agreement shall be in conformance with Section 11.1 of the Credit
Agreement.
18. Counterparts. This Pledge Agreement may be executed in any number
of counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Pledge Agreement to produce or
account for more than one such counterpart.
19. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Pledge Agreement.
20. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any
legal action or proceeding with respect to this Security Agreement may
be brought in the courts of the State of New York, or of the United
States for the Southern District of New York, and, by execution and
delivery of this Security Agreement, each Pledgor hereby irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of such courts. Each Pledgor further
irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to
it at the address for notices pursuant to Section 11.1 of the Credit
Agreement, such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of the Agent to serve process in
any other manner permitted by law or to commence legal proceedings or
to otherwise proceed against any Pledgor in any other jurisdiction.
(b) Each Pledgor hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings
<PAGE> 14
arising out of or in connection with this Pledge Agreement brought in
the courts referred to in subsection (a) hereof and hereby further
irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
21. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE PARTIES TO THIS PLEDGE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
22. Severability. If any provision of any of the Pledge Agreement is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
23. Entirety. This Pledge Agreement and the other Credit Documents
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
24. Survival. All representations and warranties of the Pledgors
hereunder shall survive the execution and delivery of this Pledge Agreement and
the other Credit Documents, the delivery of the Notes and the making of the
Loans and the issuance of the Letters of Credit under the Credit Agreement.
25. Other Security. To the extent that any of the Pledgor Obligations
are now or hereafter secured by property other than the Pledged Collateral
(including, without limitation, real and other personal property owned by a
Pledgor), or by a guarantee, endorsement or property of any other Person, then
the Agent and the Lenders shall have the right to proceed against such other
property, guarantee or endorsement upon the occurrence of any Event of Default,
and the Agent and the Lenders have the right, in their sole discretion, to
determine which rights, security, liens, security interests or remedies the
Agent and the Lenders shall at any time pursue, relinquish, subordinate, modify
or take with respect thereto, without in any way modifying or affecting any of
them or any of the Agent's and the Lenders' rights or the Pledgor Obligations
under this Pledge Agreement or under any other of the Credit Documents.
26. Limitation of Liability. Notwithstanding any provision to the
contrary contained herein or in any other of the Credit Documents, to the extent
the obligations of an Obligor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or transfers)
then the obligations of such Obligor hereunder shall be limited to the maximum
amount that is
<PAGE> 15
permissible under applicable law (whether federal or state and including,
without limitation, the Bankruptcy Code).
***********
<PAGE> 16
Each of the parties hereto has caused a counterpart of this Pledge
Agreement to be duly executed and delivered as of the date first above written.
BORROWER: STEEL HEDDLE MFG. CO.
By: /s/ Benjamin G. Team
--------------------------
Name: Benjamin G. Team
--------------------------
Title: President
--------------------------
PARENT: STEEL HEDDLE GROUP, INC.
By: /s/ Robert J. Klein
--------------------------
Name: Robert J. Klein
--------------------------
Title: President
--------------------------
GUARANTORS: STEEL HEDDLE INTERNATIONAL, INC.
By: /s/ Benjamin G. Team
--------------------------
Name: Benjamin G. Team
--------------------------
Title: President
--------------------------
HEDDLE CAPITAL CORP.
By: /s/ Jerry B. Miller
--------------------------
Name: Jerry B. Miller
--------------------------
Title: President
--------------------------
Accepted and agreed to in Charlotte, North Carolina as of the date first
above written.
NATIONSBANK, N.A., as Agent
By: /s/ Diana H. Inman
--------------------------
Name: Diana H. Inman
--------------------------
Title: Vice President
--------------------------
<PAGE> 17
Schedule 2(a)
to
Pledge Agreement
dated as of May 22, 1998
in favor of NationsBank, N.A.
as Agent
PLEDGED STOCK
PLEDGOR: STEEL HEDDLE GROUP, INC.
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Owned Number Ownership
- ------------------ ------------ ------ ---------
<S> <C> <C> <C>
Steel Heddle Mfg. Co. 100%
-------- -------
</TABLE>
PLEDGOR: STEEL HEDDLE MFG. CO.
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Owned Number Ownership
- ------------------ ------------ ------ ---------
<S> <C> <C> <C>
Heddle Capital Corp. 1000 100%
Steel Heddle International, Inc. 25 1 100%
Steel Heddle International, Ltd. 100 1 100%
Steel Heddle (Canada) 30,000 1 100%
LTEE/LTD.
</TABLE>
PLEDGOR: STEEL HEDDLE INTERNATIONAL, INC.
<TABLE>
<CAPTION>
Number of Certificate Percentage
Name of Subsidiary Shares Owned Number Ownership
- ------------------ ---------- ----------- ----------
<S> <C> <C> <C>
[Japan Branch]
Steel Heddle Weaving Machine 100%
Accessories Co., Ltd. (China)
Steel Heddle International de
Mexico S.A. de C.V. 19996 1 99.98%
</TABLE>
1
<PAGE> 18
Exhibit 4(a)
to
Pledge Agreement
dated as of May 22, 1998
in favor of NationsBank, N.A.
as Agent
Irrevocable Stock Power
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
the following shares of capital stock of _____________________, a ____________
corporation:
No. of Shares Certificate No.
------------- ---------------
and irrevocably appoints __________________________________ its agent and
attorney-in-fact to transfer all or any part of such capital stock and to take
all necessary and appropriate action to effect any such transfer. The agent and
attorney-in-fact may substitute and appoint one or more persons to act for him.
The effectiveness of a transfer pursuant to this stock power shall be subject to
any and all transfer restrictions referenced on the face of the certificates
evidencing such interest or in the certificate of incorporation or bylaws of the
subject corporation, to the extent they may from time to time exist.
,
---------------
a ______________ corporation
By:
Name:
Title:
<PAGE> 1
Exhibit 10.4
================================================================================
STOCK PURCHASE AGREEMENT
among
SH HOLDINGS CORP.,
THE OTHER PERSONS IDENTIFIED
ON SCHEDULE 1 HERETO,
BUTLER CAPITAL CORPORATION
and
STEEL HEDDLE GROUP, INC.
Dated as of May 1, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Certain Matters of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. ACQUISITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. PAYMENT AND CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.1. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2. Closing Statement and Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3. Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.4. Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1. Organization and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.2. Authorization and Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.3. Non-Contravention, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.4. Title to Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.5. Brokers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5. REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1. Corporate Matters, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2. Financial Statements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3. Change in Condition Since Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4. Environmental Matters, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.5. Real and Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.6. Intellectual Property Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.7. Certain Contractual Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.8. Insurance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.9. Litigation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.10. Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.11. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.12. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.13. Brokers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.14. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.15. Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.1. Corporate Matters, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2. Financial Condition, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.3. Investment Intent, Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.4. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.5. Brokers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7. CERTAIN AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.1. Payment of Transfer Taxes and Other Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.2. Confidentiality Covenant of the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.3. Operation of Business and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.4. Preparation for Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.5. Potential Parachute Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.6. Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.7. No Section 338 Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.8. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.9. Delivery of Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.10. No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.11. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.12. Covenant Not to Compete; Non-Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.13. Litigation Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.14. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.15. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.16. Accountant's Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.17. Discharge of Management Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.18. Exercise of Options, Rights and Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8. CONDITIONS TO THE OBLIGATION TO CLOSE OF THE BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.1. Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2. Legality; Governmental Authorization; Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.3. Third-Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.4. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.5. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.6. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.7. Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.8. Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9. CONDITIONS TO THE OBLIGATION TO CLOSE OF THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.1. Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.2. Legality; Government Authorization; Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.3. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.4. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10. EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.1. Employment of Affected Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
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10.2. Continuation of Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.3. WARN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.4. Third-Party Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.1. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.2. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.3. Monetary Limitations on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.4. Third-Party Claims, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.5. Mineral Spirits Remediation at Westminster, S.C. Facility . . . . . . . . . . . . . . . . . . . . . . . . 42
11.6. Special Hixon Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.7. Certain Other Indemnity Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12. CONSENT TO JURISDICTION; JURY TRIAL WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.1. Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.2. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.1. Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
13.3. Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.1. Entire Agreement; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.2. Amendment or Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.3. Investigation; No Additional Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.4. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.5. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.6. Limited Liability of Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.7. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.8. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.9. Headings, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.10. Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.11. Termination of Stockholder's Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.12. Termination of Consulting Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.14. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.15. Strict Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.16. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
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<PAGE> 5
EXHIBITS
Exhibit 3.2.1 Working Capital
Exhibit 8.4 Opinion of Sellers' and Company Counsel
Exhibit 9.4 Opinion of Buyer's Counsel
Exhibit 11.5.2 Environmental Escrow Agreement
SCHEDULES
Schedule 1 Ownership; Stock Subject to Liens
Schedule 4.3 Sellers' Exceptions to Non-Contravention
Schedule 5.1.2 Company Exceptions to Non-Contravention
Schedule 5.1.4 SH Holdings Corp. Subsidiaries
Schedule 5.1.5 Directors & Officers
Schedule 5.3 Changes in Condition Since Balance Sheet Date
Schedule 5.4 Environmental Matters
Schedule 5.5.1 Liens on Personal Property
Schedule 5.5.2 Owned Real Property
Schedule 5.5.2(a) Liens on Owned Real Property
Schedule 5.5.2(b) Leased Real Property
Schedule 5.6 List of Trademarks, Patents and Licenses
Schedule 5.7 Contractual Obligations
Schedule 5.8 Insurance Policies
Schedule 5.9 Litigation
Schedule 5.10 Compliance with Laws
Schedule 5.11 Tax Matters
Schedule 5.12 Employee Benefit Plans
Schedule 5.14 Absence of Undisclosed Liabilities
Schedule 5.15 Labor
Schedule 7.3 Operation of Business Pre-Closing
Schedule 7.12 Key Management Employees
Schedule 8.3 Third-Party Consents
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<PAGE> 6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the
first day of May, 1998, among SH Holdings Corp., a Pennsylvania corporation
(the "Company"), each stockholder or holder of options, warrants or rights of
the Company listed on Schedule 1 hereto which has executed a counterpart hereof
(each singularly, a "Seller" and, collectively, the "Sellers" of the Company),
Butler Capital Corporation, a Delaware corporation ("Butler") (with respect to
Section 7.12 hereof only) and Steel Heddle Group, Inc., a Delaware corporation
(the "Buyer").
Recitals
1. Each of the Sellers owns (a) the shares of Class A Common Stock of
the Company, par value $.01 per share set forth opposite such Seller's name on
Schedule 1 hereto (the "Class A Common Stock") ; (b) the shares of Class B
Common Stock of the Company, par value $.01 per share set forth opposite such
Seller's name on Schedule 1 hereto (the "Class B Common Stock"); (c) the
options to purchase shares of Class A Common Stock set forth opposite such
Seller's name on Schedule 1 hereto (the "Options"); (d) the warrants to
purchase shares of Class A Common Stock set forth opposite such Seller's name
on Schedule 1 hereto (the "Warrants"); and (e) the rights to purchase Class A
Common Stock set forth opposite such Seller's name on Schedule 1 hereto (the
"Rights"). The shares of Class A Common Stock and Class B Common Stock,
together with any shares of Class A Common Stock issued upon exercise of the
Options, Warrants and Rights prior to Closing, are referred to collectively as
the "Shares," and the Shares, Options, Warrants and Rights are collectively
referred to as the "Securities."
2. The Buyer wishes to afford certain key employees of the Company
who own Shares, Options or Rights the opportunity to exchange such Securities
for Rollover Securities (as defined herein).
3. The Sellers desire to (i) sell and transfer their Shares to Buyer
for cash (other than any Shares designated by such Seller, subject to Buyer's
approval, as Excluded Securities (as defined below) which would be exchanged
for Rollover Securities (as defined below)) and (ii) have their Options,
Warrants and Rights canceled in exchange for the payment in cash of their net
value (other than any Options or Rights designated by such Seller, subject to
Buyer's approval, as Excluded Securities which would be canceled in exchange
for Rollover Securities).
Agreement
Therefore, in consideration of the foregoing and the mutual agreements
and covenants set forth below, the parties hereto hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
<PAGE> 7
1.1. Certain Matters of Construction. In addition to the
definitions referred to or set forth below in this Section 1:
(a) The words "hereof," "herein," "hereunder" and words
of similar import refer to this Agreement as a whole and not to any
particular Section or provision of this Agreement, and reference to a
particular Section of this Agreement includes all subsections thereof.
(b) The words "party" and "parties" refer to the Sellers,
the Company and the Buyer.
(c) Definitions are equally applicable to both the
singular and plural forms of the terms defined, and references to the
masculine, feminine or neuter gender include each other gender.
(d) Accounting terms used herein and not otherwise
defined herein are used herein as defined by Generally Accepted
Accounting Principles (as defined below) in effect as of the date
hereof, consistently applied.
(e) All references in this Agreement to any Exhibit or
Schedule, unless the context otherwise requires, refer to an Exhibit
or Schedule, as the case may be, to this Agreement, all of which are
made a part of this Agreement.
(f) The word "including" means including without
limitation.
1.2. Certain Definitions. The following terms shall have the
following meanings:
1.2.1. "Action" means any judicial or administrative
action, suit or proceeding before any Governmental Authority.
1.2.2. "Active Remediation Phase" is defined in Section
11.5.3.
1.2.3. "Affected Employees" means all current employees of
any of the Steel Heddle Companies as of the Closing Date, including
any such person who is on an approved leave of absence.
1.2.4. "Affiliate" means, as to the Company (or other
specified Person), each Person directly or indirectly controlling,
controlled by or under common control with the Company (or such
specified Person). For purposes of this definition, the term
"control" (including the terms "controlling," "controlled by" and
"under common control with") means the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities
or otherwise.
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<PAGE> 8
1.2.5. "Agreement" is defined in the Preamble.
1.2.6. "Another Transaction" is defined in Section 7.10.
1.2.7. "Balance Sheet" is defined in Section 5.2.1.
1.2.8. "Balance Sheet Date" means January 3, 1998.
1.2.9. "Bank Debt" means all Debt (including all
outstanding principal, prepayment premiums, if any, and accrued
interest, fees, penalties and expenses related thereto, but excluding
the DHEC Letter of Credit) of the Steel Heddle Companies to
NationsBank, N.A. under the Credit Agreement dated as of February 21,
1997 between the Company and NationsBank, N.A.
1.2.10. "BCC Sellers" means, collectively, Mezzanine
Lending Associates II, L.P., a Delaware limited partnership; Mezzanine
Lending Associates III, L.P., a Delaware limited partnership;
Mezzanine Lending Management II, L.P., a Delaware limited partnership;
Mezzanine Lending Management III, L.P.; a Delaware limited
partnership; Senior Lending Associates I, L.P. a Delaware limited
partnership; Senior Lending Associates II, L.P., a Delaware limited
partnership; Senior Lending Management I, L.P., a Delaware limited
partnership; and BCC Industrial Services, Inc., a Delaware
corporation.
1.2.11. "Bonus Liability" means the aggregate amounts
payable pursuant to the Bonus Agreements dated as of April 21, 1998
among the Company, Mfg. Co. and each of Benjamin G. Team, Robert W.
Dillon and Jerry B. Miller as a result of the transactions
contemplated by this Agreement.
1.2.12. "Business" means the business of the Steel Heddle
Companies as such business is currently conducted.
1.2.13. "Business Day" means any day on which banking
institutions in New York, New York are customarily open for the
purpose of transacting business.
1.2.14. "Butler" is defined in the Preamble.
1.2.15. "Buyer" is defined in the Preamble.
1.2.16. "By-laws" means the corporate by-laws of a
corporation, as from time to time in effect.
1.2.17. "Cash Consideration" is defined in Section 3.1.3.
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<PAGE> 9
1.2.18. "Charter" means the certificate or articles of
incorporation or organization or other charter or organizational
documents of any Person (other than an individual), each as from time
to time in effect.
1.2.19. "Class A Common Stock" is defined in the Recitals.
1.2.20. "Class B Common Stock" is defined in the Recitals.
1.2.21. "Closing" is defined in Section 2.
1.2.22. "Closing Balance Sheet" is defined in Section
3.2.1.
1.2.23. "Closing Date" is defined in Section 2.
1.2.24. "Closing Working Capital" is defined in Section
3.2.1.
1.2.25. "COBRA" is defined in Section 5.12.
1.2.26. "Code" means the federal Internal Revenue Code of
1986, as amended.
1.2.27. "Commitment Letters" is defined in Section 6.2.
1.2.28. "Company" is defined in the Preamble.
1.2.29. "Company Plans" is defined in Section 5.12.
1.2.30. "Compensation Tax Benefit" means an amount equal to
the product of (a) 18.65%, multiplied by (b) the sum of (i) the Bonus
Liability, plus (ii) the aggregate amount of the Cash Consideration
before any adjustment to the Purchase Price pursuant to Section 3.2)
actually paid in connection with the cancellation of Options, Warrants
and Rights , plus (iii) the portion of the Escrow Amount attributable
to such Options, Warrants and Rights (determined based on
Proportionate Shares); provided, however, that each Potential
Parachute Payment (as defined in Section 7.5 below) for which a waiver
or stockholder approval is not obtained prior to the Closing in
accordance with Section 7.5 shall be ignored for purposes of this
clause (b). The amount of the Compensation Tax Benefit shall not be
affected by any disallowance of any deduction claimed in respect of
amounts included within the calculation.
1.2.31. "Confidential Information" means, as to any Person,
any proprietary or confidential information concerning any of the
Steel Heddle Companies or this Agreement, excluding information (a)
that is generally known at the Closing Date in the trade or business
in which the Steel Heddle Companies are now engaged or becomes so
generally known after the Closing Date, through no act of such Person
or his, her or its Affiliates; (b) has come into the possession of
such Person or his, her or its Affiliates
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<PAGE> 10
from a third party who is under no obligation to maintain the
confidentiality of such information; (c) was developed by such Person
or his, her of its Affiliates, independently of and without reference
to the Confidential Information; or (d) is disclosed by Buyer or its
Affiliates to third parties without restrictions on disclosure and
use.
1.2.32. "Confidentiality Agreement" is defined in Section
7.2.
1.2.33. "Contracts" is defined in Section 5.7.
1.2.34. "Contractual Obligation" means, with respect to any
Person, any oral or written contract, agreement, deed, mortgage,
lease, license, indenture, note, bond, or other document or instrument
to which or by which such Person is legally bound.
1.2.35. "Debt" means all obligations (other than
obligations owed to any Steel Heddle Company) of the Company or its
Subsidiaries (i) for borrowed money (including accrued interest, fees,
penalties and premiums or payments in addition to principal); (ii)
evidenced by notes, bonds, debentures or similar instruments, but in
no event including operating leases; (iii) in respect of capitalized
leases and purchase money obligations, but in no event including trade
payables incurred in the Ordinary Course of Business and payable in
accordance with customary practices; (iv) in respect of banker's
acceptances issued or created for the account of the Company or its
Subsidiaries or letters of credit; (v) for indebtedness or obligations
of the types referred to in the preceding clauses (i) through (iv) of
any other Person secured by any Lien on any assets of the Company or
its Subsidiaries to the extent attributable to the interest of the
Company or any of its Subsidiaries in such assets, even though neither
the Company nor any of its Subsidiaries has assumed or otherwise
become liable for the payment thereof, but excluding customer deposits
and interest payable thereon in the Ordinary Course of Business; and
(vi) in the nature of guarantees of obligations of the type described
in clauses (i) through (v) above of any other Person.
1.2.36. "Debt Payment" is defined in Section 3.1.3.
1.2.37. "Definitive Financing Agreements" is defined in
Section 7.4.4.
1.2.38. "Early Termination" is defined in Section 11.5.6.
1.2.39. "Enforceable" means, with respect to any
Contractual Obligation, that such Contractual Obligation is the legal,
valid and binding obligation of the Person in question, enforceable
against such Person in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or other laws affecting
creditors' rights generally and general principles of equity (whether
considered in a proceeding at law or in equity).
1.2.40. "Environmental Escrow Agreement" is defined in
Section 11.5.2.
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<PAGE> 11
1.2.41. "Environmental Law" means any Legal Requirement or
common law as in effect as of the date hereof relating to (i)
pollution or protection of the environment, (ii) releases or
threatened releases of Hazardous Substances, or (iii) the manufacture,
handling, transport, use, treatment, storage or disposal of Hazardous
Substances.
1.2.42. "Environmental Permits" is defined in Section 5.4.
1.2.43. "ERISA" means the federal Employee Retirement
Income Security Act of 1974 or any successor statute, as amended and
as in effect as of the date hereof.
1.2.44. "Escrow Agent" is defined in Section 11.5.2.
1.2.45. "Escrow Amount" is defined in Section 11.5.2.
1.2.46. "Excluded Securities" means any Securities which
any Seller has elected, on or prior to the fifth (5th) Business Day
preceding the Closing Date, (with the consent of Buyer) to exchange
for Rollover Securities; provided, however, that no such Securities
shall be Excluded Securities under this Agreement unless, prior to
Closing, the applicable Seller has entered into the Rollover
Documents.
1.2.47. "Financial Statements" is defined in Section 5.2.1.
1.2.48. "Financing" is defined in Section 7.4.4.
1.2.49. "Financing Sources" is defined in Section 6.2.
1.2.50. "Foreign Plans" is defined in Section 5.12.
1.2.51. "Generally Accepted Accounting Principles" means
generally accepted accounting principles in the United States as in
effect from time to time and (i) except in the case of Section 3.2.1,
applied on a basis consistent with the preparation of the Financial
Statements, (ii) and, in the case of Section 3.2.1, applied on a basis
consistent with the Balance Sheet.
1.2.52. "Governmental Authority" means any federal, state
or local government, regulatory or administrative agency or judicial
authority (or any department, bureau or division thereof).
1.2.53. "Governmental Order" means any decree, stipulation,
determination or award entered by any Governmental Authority that is
directly applicable to and binding upon a Seller or one of the Steel
Heddle Companies, as applicable.
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<PAGE> 12
1.2.54. "Hazardous Substances" means (i) substances defined
in or regulated as toxic or hazardous or otherwise regulated under the
following federal statutes and their state counterparts, and similar
foreign statutes, as well as such statutes' implementing regulations,
in each case, as amended and as in effect as of the date hereof: the
Hazardous Materials Transportation Act, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation
and Liability Act, the Clean Water Act, the Safe Drinking Water Act,
the Asbestos Hazard Emergency Response Act, the Atomic Energy Act, the
Toxic Substances Control Act, the Federal Insecticide, Fungicide, and
Rodenticide Act, and the Clean Air Act; (ii) petroleum and petroleum
products, including crude oil and any fractions thereof; (iii) natural
gas, synthetic gas and any mixtures thereof; (iv) PCBs; and (v)
asbestos.
1.2.55. "Hixon Claim" is defined in Section 11.6.
1.2.56. "HSR Act" is defined in Section 6.1.3.
1.2.57. "Indemnifying Party" is defined in Section 11.1.
1.2.58. "Indemnitee" is defined in Section 11.1.
1.2.59. "Intangibles" is defined in Section 5.6.
1.2.60. "Interim Financial Statements" is defined in
Section 7.9.
1.2.61. "IRS" is defined in Section 5.11.
1.2.62. "Knowledge," with respect to a Person, means the
actual awareness or understanding after reasonable inquiry of the
specified Person with respect to the factors or matters on which a
representation is based. In the case of the Knowledge of the Company,
the term shall mean the Knowledge of any of Benjamin G. Team, Robert
W. Dillon or Jerry B. Miller.
1.2.63. "Leased Real Property" is defined in Section 5.5.2.
1.2.64. "Leases" is defined in Section 5.5.2.
1.2.65. "Legal Requirement" means any federal, state, local
or foreign statute, ordinance, code, rule or regulation, or any
Governmental Order, or any license, franchise, consent, approval,
permit or similar right granted under any of the foregoing, in each
case other than an Environmental Law.
1.2.66. "Licenses" is defined in Section 5.6.
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<PAGE> 13
1.2.67. "Lien" means any mortgage, pledge, lien, option,
voting trust, security interest, attachment or other similar
encumbrance, provided, however, that the term "Lien" shall not include
(i) statutory liens for Taxes, to the extent that the payment thereof
is not in arrears or otherwise due; (ii) encumbrances in the nature of
zoning restrictions, easements, rights or restrictions of record on
the use of real property if the same do not materially detract from
the value of the property encumbered thereby or materially impair the
use of such property in the Business; (iii) liens to secure landlords,
lessors or renters under leases or rental agreements confined to the
premises rented, to the extent that the payment thereof is not in
arrears or otherwise due; (iv) deposits or pledges made in connection
with, or to secure payment of, worker's compensation, unemployment
insurance, old age pension programs mandated under applicable Legal
Requirements or other social security regulations; (v) liens in favor
of carriers, warehousemen, mechanics and materialmen, liens to secure
claims for labor, materials or supplies and other similar liens, to
the extent that the payment thereof is not in arrears or otherwise
due; and (vi) restrictions on transfer of securities imposed by
applicable state and federal securities laws.
1.2.68. "Losses" means any and all damages, deficiencies,
awards, assessments, amounts paid in good faith settlement, judgments,
fines, penalties, costs and expenses (including reasonable legal costs
and out-of-pocket expenses); provided, however, that the amount of any
such Losses for the purposes of indemnification hereunder shall be
determined net of the Net Insurance Recovery collected by the
Indemnitee under insurance policies with respect to such Loss;
provided further, however, that nothing contained in this Agreement
shall obligate any party to obtain or maintain insurance or to make
more than commercially reasonable efforts to assert any claim or
otherwise seek to recover in respect of any Losses from any insurer.
Further, in calculating the amount of any Losses, there shall be taken
into account the present value (based on a discount factor equal to
the applicable federal rate as determined under Section 1274(d)(1) of
the Code) of any Tax Benefit or Tax liability reasonably expected to
be realized or incurred by the Indemnitee (or any consolidated,
combined or unitary group of which the Indemnitee is also a member)
arising from the incurrence or payment of such Loss.
1.2.69. "Material Adverse Effect" means any change in or
effect on the business of any of the Steel Heddle Companies which has
a material adverse effect on the business, assets, liabilities,
results of operations or financial condition of the Steel Heddle
Companies taken as a whole.
1.2.70. "Maximum Aggregate Loss" is defined in Section
11.3.
1.2.71. "Mfg. Co." means Steel Heddle Mfg. Co., a
Pennsylvania corporation and wholly-owned subsidiary of the Company.
1.2.72. "Mineral Spirits Losses" is defined in Section
11.5.1.
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<PAGE> 14
1.2.73. "Mineral Spirits Releases" is defined in Section
11.5.1.
1.2.74. "Mineral Spirits Remediation" is defined in Section
11.5.1.
1.2.75. "Net Insurance Recovery" means, with respect to any
Person, any insurance proceeds recovered by such Person (or an
Affiliate thereof) in respect of Losses, but excluding proceeds to the
extent (i) premiums will be adjusted, under the terms of the relevant
insurance policy or policies, to reimburse the insurer for the
material part of such recovery or (ii) such Person incurs additional
costs or expenses because filing the insurance claim with respect to
such Losses results in the discontinuation of insurance coverage.
1.2.76. "Non-Compete Period" is defined in Section 7.12.
1.2.77. "Operation and Maintenance Phase" is defined in
Section 11.5.3.
1.2.78. "Options" is defined in the Recitals.
1.2.79. "Ordinary Course of Business" means the ordinary
course of the Steel Heddle Companies' business consistent with their
respective past customs and practices.
1.2.80. "Owned Real Property" is defined in Section 5.5.2.
1.2.81. "Per Share Amount" means (x) the sum of the
Purchase Price, plus the Compensation Tax Benefit, minus the Debt
Payment, minus the Bonus Liability, minus the Unpaid Expenses, minus
the Escrow Amount, plus the aggregate exercise price of all Options,
Warrants and Rights, divided by (y) the sum of the number of shares of
Common Stock outstanding as of the Closing Date, plus the number of
shares of Common Stock issuable upon the exercise of all Options,
Warrants and Rights as of the Closing Date.
1.2.82. "Permits" is defined in Section 5.10.
1.2.83. "Person" means any individual, partnership, limited
liability company, corporation, association, trust, joint venture,
unincorporated organization or other entity.
1.2.84. "Personalty Leases" is defined in Section 5.5.1.
1.2.85. "Potential Parachute Payments" is defined in
Section 7.5.
1.2.86. "Prime" means the rate of interest per annum
publicly announced from time to time by NationsBank, N.A.
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<PAGE> 15
1.2.87. "Proportionate Share" means for any Seller, the
percentage for such Seller listed in the far right-hand column of
Schedule 1 hereto.
1.2.88. "Purchase Price" is defined in Section 3.1.
1.2.89. "Real Property" is defined in Section 5.5.2.
1.2.90. "Real Property Liens" is defined in Section 5.5.2.
1.2.91. "Remediation Completion Costs" is defined in
Section 11.5.7.
1.2.92. "Rights" is defined in the Recitals.
1.2.93. "Rollover Consideration" means the aggregate value
of the Rollover Securities, valued as follows: (a) each such share of
Common Stock shall be valued at the Per Share Amount, (b) each such
Option shall be valued at the Per Share Amount less the exercise price
for such Option, and (c) each such Right shall be valued at the Per
Share Amount less the exercise price for such Right.
1.2.94. "Rollover Documents" means the definitive documents
pursuant to which the Buyer agrees with any Seller to issue Rollover
Securities.
1.2.95. "Rollover Securities" means any shares of common
stock, options or other equity-related interests of the Buyer which
Buyer shall agree to issue to any Seller upon the surrender or
cancellation of Securities held by such Seller.
1.2.96. "SCDHEC" is defined in Section 11.5.1.
1.2.97. "SCDHEC Letter of Credit" means the irrevocable
standby letter of credit No. 919989 in the amount of $671,000.00
issued on behalf of Mfg. Co. by NationsBank, N.A. for the benefit of
the South Carolina Bureau of Solid and Hazardous Waste Management
pursuant to regulations of the SCDHEC.
1.2.98. "Scheduled Termination" is defined in Section
11.5.6.
1.2.99. "Securities" is defined in the Recitals.
1.2.100. "Seller" is defined in the Preamble.
1.2.101. "Seller Partnership" is defined in Section 14.6.
1.2.102. "Sellers' Representative" shall mean Butler or
its designee, acting pursuant to the Sellers' Representative
Agreement.
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1.2.103. "Sellers' Representative Agreement" shall mean the
agreement dated as of the date hereof among the Sellers'
Representative, the Company, Mfg. Co. and each of the Sellers.
1.2.104. "Shares" is defined in the Recitals.
1.2.105. "Steel Heddle Companies" means, collectively, the
Company and its Subsidiaries.
1.2.106. "Subsidiary" means any Person of which the Company
(or other specified Person) shall own directly or indirectly through a
Subsidiary, a nominee arrangement or otherwise at least a majority of
the outstanding capital stock (or other shares of beneficial interest)
entitled to vote generally.
1.2.107. "Tax" means any (and in the plural "Taxes" means
all) federal, state, local or foreign income, gross receipts,
franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, severance, stamp,
occupation, premium, profit, windfall profit, customs, duties, real
property, personal property, capital stock, social security,
employment, unemployment, disability, payroll, license, employee,
withholding or other tax of every kind and nature arising under or
imposed by any Legal Requirement, including all interest, penalties
and additions with respect to any of the foregoing.
1.2.108. "Tax Benefit" means any reduction in Tax realized
by any Person attributable to the consummation of the transactions
contemplated by this Agreement (or other specified event), which Tax
Benefit shall be determined after first taking all other items of
income, gain, loss, deduction or credit of such Person into account.
1.2.109. "Tax Returns" means all federal, state, local, and
foreign Tax returns, Tax reports, claims for refund of Tax, and
declarations of estimated Tax, or other filings relating to Taxes and
any schedule or attachments to any of the foregoing or amendments
thereto, including (where permitted or required) consolidated,
combined or unitary returns for any group of entities.
1.2.110. "Title Companies" is defined in Section 8.7.
1.2.111. "Unpaid Expenses" means all fees and expenses
payable to Merrill Lynch & Co. and to the legal, accounting and
financial advisors to the Steel Heddle Companies and the Sellers
payable by any Steel Heddle Company as of the Closing in connection
with the solicitations of proposals to acquire the Company and the
negotiation, execution and delivery of this Agreement and related
agreements and the Closing hereunder.
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1.2.112. "WARN" means the Worker Adjustment and Retraining
Notification Act of 1988, as amended.
1.2.113. "Warrants" is defined in the Recitals.
1.2.114. "Working Capital" means, as of a specified date,
the sum of the following amounts reflected on a balance sheet of the
Company as of such date: cash and cash equivalents; plus accounts
receivable; plus inventories (at LIFO); plus prepaid expenses; minus
accounts payable; minus accrued and sundry liabilities (other than
accrued interest); in each case determined on a basis consistent with
the Balance Sheet and Exhibit 3.2.1. Further, without limiting Section
3.2, Working Capital shall not include any accruals made after the
date hereof in respect of the Aqua-Tech "superfund" site or any
existing environmental issues associated with the Company's
Greenville, South Carolina site.
1.2.115. "Work Plan" is defined in Section 11.5.3.
2. ACQUISITION.
Upon the terms, subject to the conditions, and in reliance on the
representations, warranties and covenants set forth herein, on the day on which
the Closing (the "Closing") takes place (such date being referred to herein as
the "Closing Date"), each of the Sellers severally agrees to sell, transfer and
deliver to the Buyer the number of Shares set forth opposite such Seller's name
in Schedule 1 (other than any Excluded Securities) and the Buyer agrees to
purchase and acquire from each of the Sellers such Shares for the consideration
specified in Section 3 hereof, and each of the Sellers severally agrees to
execute appropriate documentation to evidence the cancellation of the Options,
Warrants and Rights set forth opposite such Seller's name in Schedule 1 (other
than any Excluded Securities) and the Buyer agrees to deliver to the Seller's
Representative, for further delivery to the applicable Seller, the
consideration for such cancellation specified in Section 3 hereof.
3. PAYMENT AND CLOSING.
3.1. Purchase Price.
3.1.1. Payment of Purchase Price. In consideration of the
sale and transfer of the Securities by the Sellers to the Buyer and
the discharge of the Debt and other transactions provided for herein,
at the Closing, the Buyer will pay an aggregate amount equal to the
sum of $164,150,000 (the "Purchase Price") (subject to later
adjustment pursuant to Section 3.2 below) plus the Compensation Tax
Benefit pursuant to the payment instructions in Section 3.1.3 below.
The parties agree that none of the Purchase Price and Compensation Tax
Benefit shall be allocable to the covenant not to compete in Section
7.12.
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<PAGE> 18
3.1.2. Allocation of Cash Consideration. The Cash
Consideration (as defined in Section 3.1.3 below) shall be allocated
among the Sellers such that (a) each Seller holding Common Stock shall
receive the Per Share Amount for each Share then held by such Seller
(other than any Excluded Securities), (b) each holder of Options
(other than any Excluded Securities) shall receive the Per Share
Amount for each Option to acquire one share of Common Stock then held
less the exercise price for such Option, (c) each holder of Warrants
shall receive the Per Share Amount for each Warrant to acquire one
share of Common Stock then held less the exercise price for such
Warrant and (d) each holder of Rights (other than any Excluded
Securities) shall receive the Per Share Amount for each Right to
acquire one share of Common Stock then held less the exercise price
for such Right.
3.1.3. Payment Instructions. The Purchase Price and the
Compensation Tax Benefit shall be payable at the Closing (i) by wire
transfer of immediately available funds, to such accounts as the
holders of the Debt may specify, of payment in full of the outstanding
Debt other than the DHEC Letter of Credit (the "Debt Payment); (ii) by
wire transfer of immediately available funds of an amount equal to the
Bonus Liability to such accounts as the Persons owed the Bonus
Liability may specify; (iii) by wire transfer of immediately available
funds of an amount equal to the Unpaid Expenses to such accounts as
the Persons owed the Unpaid Expenses may specify; (iv) by wire
transfer of immediately available funds of an amount equal to the
Escrow Amount to such account as may be specified by the Escrow Agent;
(v) by issuance of Rollover Securities in accordance with the Rollover
Documents (which shall be deemed to have a value for purposes of the
payment of the Purchase Price and the Compensation Tax Benefit equal
to the Rollover Consideration); (vi) subject to Section 7.17, by wire
transfer of immediately available funds, the balance of the Purchase
Price and the Compensation Tax Benefit after taking into account all
payments pursuant to clauses (i) though (v) of this Section (such
remaining balance being referred to herein as the "Cash
Consideration"), in accordance with transfer instructions provided to
the Buyer by the Sellers' Representative. Such transfer instructions
with respect to the allocation of the Cash Consideration and the
accounts to which payments thereof shall be provided within two (2)
Business Days prior to Closing, and shall include directions to pay
(a) $3,000,000 to the settlement account established pursuant to
Section 2(iii) of the Seller's Representative Agreement; (b) an amount
sufficient to satisfy any federal, state or local withholding tax
requirements of the Company in respect of the payment of the Cash
Consideration to the Sellers, to an account established for the
Company; and (c) the remaining Cash Consideration to accounts and in
the amounts specified in such instructions. The Buyer's obligations
with respect to the method of payment to the Sellers shall be limited
to making such payments in accordance with the instructions given to
the Buyer by the Sellers' Representative. Each party hereby
acknowledges that the computation of the Compensation Tax Benefit and
Per Share Amount are interdependent and shall be determined by an
iterative process.
3.2. Closing Statement and Purchase Price Adjustment.
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3.2.1. As promptly as practicable, and in any event within
sixty (60) days after Closing, the Buyer shall prepare, and cause
Deloitte & Touche LLP to review (it being understood that the Buyer
shall bear all costs and expenses associated with such review), a
consolidated balance sheet for the Steel Heddle Companies as of the
Closing, before giving effect to the transactions occurring at the
Closing (as initially prepared, and as subsequently determined in
accordance with this Section 3.2, the "Closing Balance Sheet"). The
Closing Balance Sheet shall be prepared on a basis consistent with the
Balance Sheet, even if consistent treatment as such is not the best
treatment or an appropriate treatment, in whole or in part, under
Generally Accepted Accounting Principles. In addition, the Buyer shall
cause Deloitte & Touche LLP to review a written calculation in the
form of Exhibit 3.2.1 calculating the Working Capital of the Company
as of the Closing (the "Closing Working Capital"), based on the
Closing Balance Sheet and on a basis consistent with such Exhibit.
(By way of example, (a) current assets, (b) current liabilities and
(c) Working Capital for April 4, 1998 were $26,511,579, $6,694,841
and $19,816,738, respectively.)
3.2.2. If within twenty (20) days following delivery of the
Closing Balance Sheet and the computation of Closing Working Capital,
the Sellers' Representative has not raised any objection to such
Closing Balance Sheet or computation of Closing Working Capital, then
such Closing Balance Sheet shall be deemed to have been accepted and
the computation of Closing Working Capital shall be binding for
purposes of Section 3.2.3 below. If the Sellers' Representative
raises any objection to such Closing Balance Sheet or computation of
Closing Working Capital within such 20-day period and the Buyer and
the Sellers' Representative cannot agree on the Closing Balance Sheet
or the calculation of Closing Working Capital within twenty (20) days
of such objection, either party may submit the dispute to Coopers &
Lybrand LLP, or if such firm declines to serve, then to another
nationally recognized accounting firm selected upon mutual agreement
of the parties, for resolution within thirty (30) days or as soon
thereafter as reasonably practicable. Such accounting firm shall
determine, only with respect to the remaining differences so
submitted, whether and to what extent, if any, the Closing Balance
Sheet and the calculation of Closing Working Capital require
adjustment in order to comply with the requirements of Section 3.2.1.
The decision by such accounting firm shall be final and binding on the
parties. The costs and expenses of such accountants shall be paid by
the party whose position is, as ruled by such accounting firm, most
incorrect. The Buyer and the Sellers shall make available to such
accounting firm and each other all relevant books and records and work
papers (including, if available, work papers of their respective
accountants) relating to the Closing Balance Sheet and the computation
of Closing Working Capital and all other information reasonably
requested by such accounting firm.
3.2.3. Upon final determination of the Closing Working
Capital, either by agreement between the Buyer and the Sellers'
Representative or determination in accordance with Section 3.2.2, (a)
if the Closing Working Capital exceeds $19,457,802
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<PAGE> 20
the Purchase Price shall be increased by the amount of such excess,
and (b) if the Closing Working Capital is less than such amount, the
Purchase Price shall be decreased by the amount of such shortfall.
Within ten (10) Business Days after the final determination of the
Closing Working Capital, the Buyer (in the case of any increase in the
Purchase Price) or the Sellers (in the case of a decrease in the
Purchase Price) shall pay in immediately available funds an amount
equal to the amount of such increase or decrease. Any payment made to
the Sellers pursuant to this Section 3.2.3 shall be allocated in
accordance with each Seller's Proportionate Share. The Sellers'
obligations, if any, to the Buyer under this Section 3.2.3 shall be
joint and several. Any payment which is made after the applicable due
date shall bear simple interest at the Prime Rate.
3.3. Time and Place of Closing. The Closing shall take
place at the conference center of Kirkland & Ellis, Citicorp Center, 153 East
53rd Street, New York, New York, at 10:00 a.m. (local time) on May 27, 1998 or
such other date as is jointly specified by the parties, which date shall be not
later than five (5) Business Days after the satisfaction or waiver of all
conditions precedent set forth in Sections 8 and 9 hereof or at such other time
or place upon which the parties may agree.
3.4. Delivery. At the Closing, each of the Sellers shall
deliver to Buyer: (a) the certificate or certificates evidencing all of the
Common Stock held by such Seller; (b) evidence of cancellation of all Options,
Warrants or Rights held by such Seller and the release of all liabilities of
the Company related thereto; (c) certificates executed by the Secretary of
Company certifying as to the resolutions of the Board of Directors and the
stockholders of the Company authorizing the execution and delivery of this
Agreement and consummation of the transactions contemplated by this Agreement;
(d) a certificate of the Secretary of the Company certifying as to the
incumbency of the officers of the Company and as to the signatures of such
officers who have executed documents delivered at the Closing on behalf of the
Company; (e) a certificate, dated within three (3) Business Days of the Closing
Date, of the Secretary of the Commonwealth of Pennsylvania establishing that
the Company is in existence and otherwise is in good standing to transact
business in its state of incorporation; (f) certificates, dated within three
(3) Business Days of the Closing Date, of the Secretaries of State of the
states of incorporation of each of the Subsidiaries establishing that each of
the Subsidiaries is in existence and otherwise is in good standing to transact
business in its state of incorporation; (g) certificates, dated within ten (10)
days of the Closing Date, of the Secretaries of State of the states in which
the Company is qualified to do business, to the effect that the Company is
qualified to do business and is in good standing as a foreign corporation in
each of such states; and (h) certificates, dated within ten (10) days of the
Closing Date, of the Secretaries of State of the states in which each of the
Subsidiaries is qualified to do business, to the effect that each of the
Subsidiaries is qualified to do business and is in good standing as a foreign
corporation in each of such states (it being understood that the deliveries
specified in clauses (c)-(h) of this Section 3.4 shall be made once on behalf
of all Sellers); and the Buyer shall deliver: (w) the Purchase Price and the
Compensation Tax Benefit, as specified in Section 3.1; (x) a certificate
executed by the Secretary of the Buyer, certifying as to the resolutions of the
Board of Directors and stockholders of the Buyer authorizing the execution and
delivery of this Agreement and consummation of the
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<PAGE> 21
transactions contemplated by this Agreement; (y) a certificate of the Secretary
of the Buyer certifying as to the incumbency of the officers of the Buyer, and
as to the signatures of such officers who have executed documents delivered at
the Closing on behalf of the Buyer; and (z) a certificate, dated within three
(3) Business Days of the Closing Date, of the Secretary of State of the State
of Delaware establishing that the Buyer is in existence and otherwise is in
good standing to transact business in its state of incorporation.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the Sellers,
severally and not jointly, represents and warrants, but only with respect to
such Seller and the Securities owned by such Seller, that:
4.1. Organization and Authority. In the case of each Seller that
is not an individual, such Seller is an entity duly formed, legally existing
and in good standing under the laws of the jurisdiction of its organization and
such Seller has full power and authority to enter into this Agreement, to carry
out and perform its obligations hereunder and to consummate the transactions
contemplated hereby. In the case of each Seller that is an individual, such
Seller has the legal capacity to enter into this Agreement, to carry out and
perform its obligations hereunder and to consummate the transactions
contemplated hereby.
4.2. Authorization and Enforceability. This Agreement has been
duly authorized, executed and delivered by, and is Enforceable against, such
Seller.
4.3. Non-Contravention, Etc. Except as set forth in Schedule 4.3,
the execution and delivery of this Agreement by such Seller and the
consummation by such Seller of the Closing hereunder in accordance with the
terms and conditions of this Agreement do not and will not conflict with or
result in the breach of any of the terms or provisions of, or constitute a
default under, or require any consent, waiver, approval or authorization under,
any Contractual Obligation to which such Seller is a party or by which such
Seller is, or the Securities to be sold or canceled by such Seller hereunder
are, bound or any Legal Requirement applicable to such Seller or to the
Securities to be sold or canceled by such Seller. No consent is required to be
obtained by such Seller in connection with the execution, delivery and
performance of this Agreement by such Seller or the sale of the Securities to
be sold or canceled by such Seller as contemplated hereby, except as set forth
in Schedule 4.3, and other than any consent where the failure of such Seller to
obtain such consent would not materially and adversely affect the Seller's
ability to consummate the Closing hereunder in accordance with the terms and
conditions of this Agreement and would not prevent such Seller from performing
in all material respects any of its obligations under this Agreement.
4.4. Title to Securities. Such Seller is the record and beneficial
owner of the Securities set forth opposite such Seller's name on Schedule 1,
and, except as set forth in Schedule 1, such Seller owns the Securities, free
and clear of any Liens. Upon delivery to the Buyer of certificates
representing such Securities, and upon such Seller's receipt of payment
therefor, title to the Securities held by such Seller will pass to the Buyer,
free and clear of any Liens.
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4.5. Brokers, Etc. Except for payments to be made by the Sellers
to Merrill Lynch & Co., no broker, finder, investment bank or similar agent is
entitled to any brokerage or finder's fee in connection with the transactions
contemplated by this Agreement based upon agreements or arrangements made by or
on behalf of such Seller.
5. REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY. The Company
represents and warrants that:
5.1. Corporate Matters, Etc.
5.1.1. Organization, Power and Standing of the Company.
The Company (i) is a corporation duly incorporated, validly existing
and in good standing under the laws of the Commonwealth of
Pennsylvania; (ii) has the corporate power and authority to own,
operate or lease its properties and to carry on its business in all
material respects as currently conducted; and (iii) is in good
standing as a foreign corporation and is duly licensed or qualified to
transact business in each jurisdiction in which the character of its
properties owned or leased or the nature of its activities makes such
qualification necessary, except where failure to be so qualified has
not had, and would not reasonably be expected to have, a Material
Adverse Effect.
5.1.2. Non-Contravention, Etc. Except for items listed on
Schedule 5.1.2, neither the execution, delivery or performance of this
Agreement nor the consummation of the Closing hereunder in accordance
with the terms and conditions of this Agreement does or will
constitute, result in or give rise to (with or without notice or
passage of time) (i) a breach, violation or default under any Legal
Requirement applicable to any of the Steel Heddle Companies; (ii) a
breach of or default under any provision of the Charter or By-Laws of
any of the Steel Heddle Companies; (iii) the imposition of any Lien
upon any asset of any of the Steel Heddle Companies (except for liens
created by or on behalf of the Buyer); or (iv) a material breach of or
default under (or the acceleration of the time for performance of any
material obligation under), or require any consent, waiver, approval
or authorization under, any Contractual Obligation of any of the Steel
Heddle Companies. Except as set forth in Schedule 5.1.2, no approval,
consent, waiver, authorization or other order of, and no declaration,
filing, registration, qualification or recording with, any
Governmental Authority is required to be obtained or made by or on
behalf of any of the Steel Heddle Companies in connection with the
execution, delivery or performance of this Agreement and the
consummation of the Closing hereunder in accordance with the terms and
conditions of this Agreement, except those (x) which shall have been
obtained or made on or prior to, and shall be in full force and effect
at, the Closing Date and (y) where failure to obtain such approval,
consent, waiver, authorization or other order, or to make such
declaration, filing, registration, qualification or recording, in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect or materially impair the ability of the Company to consummate
the transactions contemplated by this Agreement.
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5.1.3. Capital Stock. The entire authorized capital stock
of the Company consists of (i) 2,000,000 shares of Class A Common
Stock, of which as of the date hereof 91,080 shares are issued and
outstanding and 54,596 shares are reserved for issuance upon exercise
of the Options, Warrants and Rights, and (ii) 8,000,000 shares of
Class B Common Stock, of which as of the date hereof 912,250 shares
are issued and outstanding. The Shares constitute all of the issued
and outstanding shares of Common Stock of the Company and are duly
authorized, validly issued and are fully paid and nonassessable. The
Securities are held of record in the number and by the Sellers as set
forth on Schedule 1. Except for this Agreement and the Options,
Warrants and Rights, there is no Contractual Obligation pursuant to
which the Company has granted any option, warrant or other right to
any Person to acquire the shares of Common Stock or any other
securities of, or equity interests in, the Company.
5.1.4. Subsidiaries. Schedule 5.1.4 sets forth a true and
complete list of all Subsidiaries of the Company, including the name
and jurisdiction of organization of each such Subsidiary. Each
Subsidiary listed on Schedule 5.1.4 is a corporation or other entity
duly formed and validly existing under the laws of its jurisdiction of
organization, has the corporate or other requisite power and authority
to own, operate or lease the properties and assets now owned, operated
or leased by such Subsidiary and to carry on its business in all
material respects as currently conducted, and is duly qualified as a
foreign corporation or other entity in each jurisdiction indicated on
Schedule 5.1.4, and there are no other jurisdictions in which any such
Subsidiary is required to be qualified, except where the failure to be
so qualified has not had, and would not reasonably be expected to
have, a Material Adverse Effect. Except as set forth in Schedule
5.1.4, each Subsidiary listed on Schedule 5.1.4 is wholly-owned by the
Company (either directly or indirectly by way of ownership through
another Subsidiary listed on Schedule 5.1.4). Except for the
Subsidiaries, the Company does not own, directly or indirectly, any
interest or investment (whether equity or debt) in any Person.
5.1.5. Corporate Records. The Company has heretofore
delivered or made available to the Buyer true and complete copies of
the Charter and By-laws of each of the Steel Heddle Companies, in each
case as in effect on the date hereof. Schedule 5.1.5 lists the
directors and officers of each of the Steel Heddle Companies. The
Company has delivered or made available to the Buyer the minute books
(containing the records of meetings of the stockholders, the Board of
Directors, and any committees of the Board of Directors), the stock
certificate books, and the stock record books of each of the Steel
Heddle Companies, and such minute books, stock certificate books, and
stock record books are correct and complete in all material respects.
5.2. Financial Statements, Etc.
5.2.1. Financial Information. The Buyer has been furnished
with the consolidated audited balance sheets of the Company and its
consolidated Subsidiaries as of January 3, 1998 (the "Balance Sheet"),
December 28, 1996 and December 30, 1995
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<PAGE> 24
and the related statements of earnings and shareholders equity and
cash flows for the fiscal years ended January 3, 1998, December 28,
1996 and December 30, 1995, accompanied by the notes thereto and by
the reports thereon of Ernst & Young LLP (collectively, the "Financial
Statements").
5.2.2. Character of Financial Information. Unless
otherwise disclosed therein, the Financial Statements were prepared in
accordance with Generally Accepted Accounting Principles consistently
applied throughout the periods specified therein and present fairly,
in all material respects, the consolidated financial position and
results of operations of the Company and its Subsidiaries as of the
dates and for the periods specified therein in accordance with
Generally Accepted Accounting Principles, and to the Knowledge of the
Company are consistent with the books and records of the Steel Heddle
Companies (which books and records are to the Knowledge of the Company
correct and complete in all material respects).
5.3. Change in Condition Since Balance Sheet Date. Except for
matters set forth in Schedule 5.3, since the Balance Sheet Date and until the
date hereof:
(a) the Business has been conducted only in the Ordinary
Course of Business (except as otherwise required or explicitly
permitted by the terms of this Agreement) and other than transactions
between or among the Company and its domestic Subsidiaries, neither
the Company nor any of its Subsidiaries has:
(i) entered into any Contractual Obligation
other than this Agreement relating to
(A) the sale of any capital stock or
equity interest in any of the Steel
Heddle Companies, (B) the purchase of
assets constituting a business or (C)
any merger, consolidation or other
business combination;
(ii) settled or agreed to settle any Action
in excess of $100,000 or any claim of
any other Person in excess of $100,000;
(iii) subjected to any Lien any of their
assets other than (A) conditional sales
or similar security interests granted in
connection with the lease or purchase of
equipment or supplies in the Ordinary
Course of Business; and (B) Liens
disclosed on Schedule 5.5.1;
(iv) sold, leased, transferred or exchanged
any material property for less than the
fair value thereof; or
(v) declared or paid any dividends on any
shares of its capital stock;
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<PAGE> 25
(b) none of the Steel Heddle Companies has entered into
any Contractual Obligation to do any of the actions referred to in
clause (a) above;
(c) there has not been any resignation or threatened
resignation of any key employee of any of the Steel Heddle Companies;
and
(d) there has not been any material adverse change or any
event that would reasonably be expected to cause any material adverse
change in the Business, assets, liabilities, results of operations or
financial condition of the Steel Heddle Companies, taken as a whole,
other than changes resulting from general economic, financial or
market conditions or circumstances generally affecting the Business.
5.4. Environmental Matters, Etc. Except as set forth on Schedule
5.4 or has not had, or would not reasonably be expected to have, a Material
Adverse Effect, each of the Steel Heddle Companies has complied and is in
compliance with all Environmental Laws. Except as set forth on Schedule 5.4,
there is no Action pending or, to the Knowledge of the Company, threatened
against any of the Steel Heddle Companies in respect of (i) noncompliance by
any of the Steel Heddle Companies with any Environmental Laws or (ii) the
release or threatened release into the environment of any Hazardous Substance
at the Real Property or by any of the Steel Heddle Companies; or (iii) the
handling, storage, use, transportation or disposal of any Hazardous Substance
by any of the Steel Heddle Companies; except for Actions filed or threatened
after the date hereof that in the aggregate have not had, or would not be
reasonably expected to have, a Material Adverse Effect (it being understood
that the Company shall promptly notify the Buyer of any such Action before
Closing). Except as set forth on Schedule 5.4. each of the Steel Heddle
Companies has obtained and complied with, and is in compliance with, all
permits, licenses and other authorizations that are required pursuant to
Environmental Laws for the occupation of its facilities and the operation of
the Business (the "Environmental Permits"), except where such noncompliance or
the failure to obtain Environmental Permits has not had, or would not
reasonably be expected to have, a Material Adverse Effect. Except as set forth
on Schedule 5.4, none of the Steel Heddle Companies has received any notice,
report or other written information regarding any actual or alleged violation
of Environmental Laws or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise) thereunder, including
any investigatory, remedial or corrective obligations, relating to any of the
Steel Heddle Companies or their facilities arising under Environmental Laws.
Except as set forth on Schedule 5.4, to the Knowledge of the Company, none of
the Steel Heddle Companies, or their respective predecessors or Affiliates, has
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled or released any Hazardous Substance, or owned or operated
any property or facility in a manner that has given or would give rise to
liabilities, including any liability for response costs, corrective action
costs, personal injury, property damage, natural resources damages or attorneys
fees, pursuant to any Environmental Laws. Except as set forth on Schedule 5.4,
to the Knowledge of the Company, none of the property or facilities (including
the Real Property) owned or operated by any of the Steel Heddle Companies is
contaminated by any Hazardous Substance. To the Knowledge of the Company,
except as set forth on Schedule 5.4, none of the Steel Heddle Companies has,
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either expressly or by operation of law, assumed, undertaken or otherwise
become subject to any liability, including any obligation for corrective or
remedial action, of any other Person relating to Environmental Laws. Except as
set forth on Schedule 5.4, to the Knowledge of the Company, no facts, events or
conditions relating to the past or present facilities, properties or operations
of any of the Steel Heddle Companies or their respective predecessors or
Affiliates are reasonably likely to prevent, hinder or limit continued
compliance with Environmental Laws or give rise to any investigatory, remedial
or corrective obligations pursuant to Environmental Laws.
5.5. Real and Personal Property.
5.5.1. Except as has not had and would not reasonably be
expected to have a Material Adverse Effect, each of the Steel Heddle
Companies has valid title to all of its material personal property,
and such material personal property is not subject to any Lien except
as set forth on Schedule 5.5.1. Except as has not had and would not
reasonably be expected to have a Material Adverse Effect, (i) all
material leases and licensing agreements for personal property
("Personalty Leases") leased or licensed by any of the Steel Heddle
Companies are valid and in full force; (ii) the Steel Heddle Companies
have performed in all material respects all obligations required to be
performed by them under such Personalty Leases; and (iii) no event or
condition exists which constitutes or, with the giving of notice or
the passage of time or both, would constitute a material default by
any of the Steel Heddle Companies as lessee or licensee under such
Personalty Leases.
5.5.2. (a) Attached as Schedule 5.5.2 is the address and
legal description of all real property owned by the Company or any
Subsidiary (the "Owned Real Property"). The Company or its applicable
Subsidiary has good and marketable title in and to all of the Owned
Real Property subject to no Liens, or other licences, material
encroachments, encumbrances or other defects in title (collectively,
the "Real Property Liens") except for those listed on Schedule
5.5.2(a).
(b) Attached as Schedule 5.5.2(b) is a list of all
leases, subleases and other occupancy agreements, including all
amendments, extensions and other modifications (the "Leases") relating
to the lease or sublease of real property to, or the occupancy of any
real property by, any Steel Heddle Company (the "Leased Real
Property"; the Owned Real Property and the Leased Real Property are
collectively referred to herein as the "Real Property") to which the
Company or any Subsidiary is a party. Except as has not had and would
not reasonably be expected to have a Material Adverse Effect, (i) all
Leases to the Steel Heddle Companies are valid and in full force and
effect; (ii) the Steel Heddle Companies have performed in all material
respects all obligations required to be performed by them under such
Leases; and (iii) no event or condition exists which constitutes or,
with the giving of notice or passage of time or both, would constitute
a material default by any of the Steel Heddle Companies as lessee
under such Lease.
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(c) The Real Property constitutes all of the real
property owned or leased in connection with the Business. Except as
set forth on Schedule 5.5.2(b), other than the Company and its
Subsidiaries, there are no parties in possession or parties leasing or
occupying any of the Owned Real Property. The Owned Real Property is
in condition and repair sufficient in all material respects for the
conduct of the Business. The Owned Real Property and all plants,
buildings and improvements located thereon conform to all applicable
building, zoning and other laws, ordinances, rules and regulations
except where such failure or violation has not had, or would not
reasonably be expected to have, a Material Adverse Effect. All
permits, licenses and other approvals necessary for the current
occupancy and use of the Owned Real Property have been obtained, are
in full force and effect and have not been violated, except where such
failure or violation has not had, or would not reasonably be expected
to have, a Material Adverse Effect. All improvements located on the
Real Property have direct or indirect access to a public road, except
where such failure to have access has not had, or would not reasonably
be expected to have, a Material Adverse Effect. The Company has not
received any notice of any condemnation proceeding affecting any
material portion of the Owned Real Property. To the Knowledge of the
Company, there are no outstanding options or rights of first refusal
with respect to the purchase or use of any of the Owned Real Property.
5.6. Intellectual Property Rights. Schedule 5.6 lists all material
patents, trade and product names, trademarks, service marks, logos and
copyrights (including registrations and applications therefor) that are owned
or licensed by any of the Steel Heddle Companies, other than commercially
available software programs (the "Intangibles"). Schedule 5.6 also lists each
license or other Contractual Obligation under which any Intangible is licensed
by any of the Steel Heddle Companies as licensee (the "Licenses"). Except as
disclosed on Schedule 5.6 or Schedule 5.7, there is no license or other
Contractual Obligation under which any of the Steel Heddle Companies is a
licensor with respect to any Intangibles. Except has not had or would
reasonably be expected to have a Material Adverse Effect, use by the Steel
Heddle Companies of the Intangibles does not infringe any rights of any third
party. To the Knowledge of the Company, no activity of any third party
infringes upon the rights of the Steel Heddle Companies with respect to any of
the Intangibles. Except has not had or would reasonably be expected to have a
Material Adverse Effect, the Steel Heddle Companies own and possess all right,
title and interest in and to, or have a valid and enforceable license to use,
the Intangibles, free and clear of all Liens.
5.7. Certain Contractual Obligations. Set forth on Schedule 5.7
is a true and complete list of all of the following Contractual Obligations of
the Steel Heddle Companies (other than (i) the Options, Warrants and Rights,
and (ii) Contractual Obligations incurred solely in connection with the
transactions contemplated hereby):
(a) all collective bargaining agreements;
(b) all written employment or consulting agreements
pursuant to which services are rendered to the Steel Heddle Companies,
in each case which are likely to
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involve payments by or on behalf of any of the Steel Heddle Companies
in excess of $100,000 per year;
(c) all Contractual Obligations under which any of the
Steel Heddle Companies is or will after the Closing be restricted in
any respect from carrying on their respective business or other
activities conducted by them or presently contemplated to be conducted
by them anywhere in the world (other than use restrictions contained
in any of the Leases and Personalty Leases that are of the type and
scope customarily found in such Contractual Obligations);
(d) all Contractual Obligations to sell or otherwise
dispose of any assets (other than products pursuant to purchase orders
or agreements entered into in the Ordinary Course of Business) having
a fair market value in excess of $250,000, individually or $500,000 in
the aggregate;
(e) all Contractual Obligations between any of the
Steel Heddle Companies on the one hand and any Affiliate of any of the
Steel Heddle Companies (other than one of the other Steel Heddle
Companies) on the other hand;
(f) all Contractual Obligations (including partnership
and joint venture agreements) under which (i) any of the Steel Heddle
Companies has any liability or obligation for Debt, (ii) a Lien is
imposed on any of its assets or (iii) any Person has any liability or
obligation constituting or giving rise to a guarantee of any liability
or obligation of any of the Steel Heddle Companies, in either case
involving any Debt or liability in excess of $100,000 individually or
$500,000 in the aggregate;
(g) all Contractual Obligations pursuant to which any
of the Steel Heddle Companies incurred an obligation in respect of
indemnification obligations, purchase price adjustment or otherwise
either (x) not in the Ordinary Course of Business, or (y) in
connection with any (i) acquisition or disposition of assets
constituting a business or securities representing a controlling
interest in any Person; (ii) merger, consolidation or other business
combination, or (iii) series or group of related transactions or
events of a type specified in subclauses (i) through (ii);
(h) all Contractual Obligations pursuant to which any
of the Steel Heddle Companies may be expected to perform services with
a value in excess of $250,000 individually or $500,000 in the
aggregate per year and which cannot be canceled by any of the Steel
Heddle Companies within ninety (90) days, except for customer purchase
orders received in the Ordinary Course of Business;
(i) all Contractual Obligations pursuant to which any
of the Steel Heddle Companies may be obligated to pay for goods and
services to be delivered or performed in excess of $250,000
individually or $500,000 in the aggregate per year, except for
purchase orders issued in the Ordinary Course of Business;
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(j) any non-solicitation, non-competition or material
confidentiality agreement under which any of the Steel Heddle
Companies has any obligation of non-solicitation, non-competition or
confidentiality;
(k) all profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other
material plan or arrangement for the benefit of any current or former
director, officer, or employee of any of the Steel Heddle Companies;
and
(l) any lease, sublease, license or sublicense of
personal property from or to any third parties providing for payments
in excess of $100,000 individually or $250,000 in the aggregate or any
material lease, sublease, license or sublicense of personal property
providing for a term or duration in excess of twelve (12) months from
the date hereof (without considering any option or right thereunder to
terminate the term or duration thereof prior to the expiration
thereof).
Each of the Contractual Obligations listed on Schedule 5.7 shall be referred to
herein collectively as the "Contracts". No breach or default in performance by
any of the Steel Heddle Companies under any of the Contracts has occurred and
is continuing, and no event has occurred which with notice or lapse of time or
both would constitute such a breach or default, other than any breach or
default which has not had, or would not reasonably be expected to have, a
Material Adverse Effect. To the Knowledge of the Company, no material breach
or default by any other Person under any of the Contracts has occurred and is
continuing, and no event has occurred which with notice or lapse of time or
both would constitute such a breach or default. The Company has made each
written Contract available to the Buyer, and has provided a written summary of
each oral Contract to the Buyer. Each of the Contracts is valid, binding and
enforceable in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights, or the applicability of
equitable principles.
5.8. Insurance, Etc. Schedule 5.8 is a true and accurate list as
of the date hereof of all material policies or binders of insurance covering
the operations of the Steel Heddle Companies. The Company has delivered or
made available to the Buyer true and accurate copies of all such policies or
binders as in effect on the date hereof. To the Knowledge of the Company, none
of the Steel Heddle Companies is in any material default with respect to its
obligations under any of such policies.
5.9. Litigation, Etc. Except as set forth on Schedule 5.9 or has
not had, or would not reasonably be expected to have, a Material Adverse
Effect, there is no Action involving any of the Steel Heddle Companies pending
or, to the Knowledge of the Company, threatened. There is no Action pending
or, to the Knowledge of the Company, threatened in writing, which seeks
rescission of or seeks to enjoin the consummation of this Agreement or any of
the transactions contemplated hereby.
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5.10. Compliance with Laws, Etc. Each of the Steel
Heddle Companies has complied and is in compliance with, and the operations of
the Business have been and are in compliance with, applicable Legal
Requirements, except as set forth in Schedule 5.10, or as have not had, and
would not reasonably be expected to have, a Material Adverse Effect. The Steel
Heddle Companies have been granted and have complied with and are in compliance
with all licenses, permits, consents, approvals, franchises and other
authorizations under any Legal Requirement necessary for the conduct of the
Business or the ownership or operation of the Owned Real Property (the
"Permits"), except where the failure to obtain or to comply with such Permits
has not had, and would not reasonably be expected to have, a Material Adverse
Effect. The Company has not received any written notice that any Governmental
Authority or other licensing authority will revoke, cancel, rescind, materially
modify or refuse to renew in the ordinary course any of the Permits.
5.11. Tax Matters.
Except as set forth on Schedule 5.11:
(a) Each of the Steel Heddle Companies has filed or has
had filed on its behalf all Tax Returns that it was required to file
on or before the date hereof (or the Closing Date), and has paid or
accrued in accordance with Generally Accepted Accounting Principles on
the Closing Balance Sheet all Taxes through the Closing Date, except
where the failure to file Tax Returns or to pay Taxes has not had, or
would not reasonably be expected to have, a Material Adverse Effect,
or except to the extent of any Taxes arising as a result of any
disallowance of any deductions (and any corresponding imposition of
any withholding) claimed or expected to be claimed in respect of items
included in the calculation of the Compensation Tax Benefit;
(b) all deficiencies asserted in writing and any
assessments made as a result of any examinations of the Tax Returns
referred to in clause (a) by the Internal Revenue Service ("IRS") or
the appropriate state, local or foreign taxing authority have been
paid in full;
(c) none of the Steel Heddle Companies has received any
written notice of any audit, claim, deficiency or assessment pending
or proposed with respect to Taxes of any of the Steel Heddle
Companies;
(d) none of the Steel Heddle Companies is party to any
written agreements or waivers extending the statutory period of
limitation applicable to any Taxes of the Steel Heddle Companies;
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(e) to the Company's Knowledge, none of the Steel Heddle
Companies (i) files or is required to file any combined, consolidated
or unitary federal, state, local or foreign Tax Returns (other than
Tax Returns filed by a group the common parent of which was the
Company) and (ii) is a party to any Contractual Obligation relating to
the allocation or sharing of Taxes;
(f) there are no Tax liens (other than liens for current
Taxes not yet due and payable) upon any properties or assets of any of
the Steel Heddle Companies;
(g) all of the Steel Heddle Companies have duly withheld
and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, shareholder or other Person that required
withholding (and have otherwise complied with all applicable laws
relating to the payment and withholding of Taxes), except where the
failure to withhold or pay such Taxes has not had, or would not
reasonably be expected to have, a Material Adverse Effect;
(h) none of the Steel Heddle Companies have made any
election under Section 341(f) of the Code (or any corresponding
provision of state, local or foreign income Tax law);
(i) none of the Steel Heddle Companies has any current
obligation to indemnify or otherwise assume or succeed to the
liability of any Person other than any of the Steel Heddle Companies
for the payment of Taxes other than in the ordinary course of its
business; and
(j) none of the Steel Heddle Companies will be required
to include any item of income in, or exclude any item of deduction
from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of (i) any change in method
of accounting made by any of the Steel Heddle Companies prior to the
Closing Date for a taxable period ending on or prior to the Closing
Date, (ii) any closing agreement described in Section 7121 of the Code
(or any corresponding provision of state, local or foreign income tax
law) entered into by any of the Steel Heddle Companies prior to the
Closing Date, or (iii) any installment sale made prior to the Closing
Date.
5.12. Employee Benefit Plans.
(a) Schedule 5.12 lists each employee benefit plan,
program or policy (including each "employee benefit plan" within the
meaning of Section 3(3) of ERISA) that is maintained or otherwise
contributed to by the Company or any of its Subsidiaries or with
respect to which any of the Steel Heddle Companies has any liability
(collectively, the "Company Plans").
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(b) With respect to each of the Company Plans, the
Company has made available to the Buyer a current, accurate and
complete copy (or, to the extent no such copy exists, an accurate
description) thereof and, to the extent applicable, (i) any related
trust agreement, annuity contract or other funding instrument pursuant
to which the Company is obligated; (ii) any summary plan description;
(iii) the two (2) most recent annual Forms 5500 (if applicable) with
respect to such Company Plans; (iv) the two (2) most recent actuarial
valuation reports, if applicable; and (v) if such Company Plan is
intended to be a qualified single employer plan under Section 401(a)
of the Code, the most recent favorable determination letter received
from the Internal Revenue Service.
(c) Except as set forth in Schedule 5.12 (i) each Company
Plan is in compliance as of the date hereof with its terms and the
applicable provisions, if any, of ERISA and the Code, except where
noncompliance does not have, or would not be reasonably expected to
have, a Material Adverse Effect; (ii) each Company Plan that is
intended to be qualified within the meaning of Section 401(a) of the
Code has received a favorable determination letter from the IRS as to
its qualification, and nothing has occurred since the date of such
determination letter that would reasonably be expected to adversely
affect the qualified status of such Company Plan; (iii) to the
Knowledge of the Company as of the date of this Agreement no
"reportable event" (as such term is used in Section 4043 of ERISA),
"prohibited transaction" (as such term is used in Section 4975 of the
Code or Section 406 of ERISA) or "accumulated funding deficiency" (as
such term is used in Section 412 or 4971 of the Code) has heretofore
occurred with respect to any Company Plan; (iv) no material litigation
or administrative or other proceedings involving the Company Plans
have occurred or, to the Knowledge of the Company, are threatened; (v)
each of the Steel Heddle Companies has complied with the health care
continuation requirements of Part 6 of Subtitle B of Title I of ERISA
("COBRA") with respect to employees and their spouses, former spouses
and dependents, except where failure to comply has not had, or would
not reasonably be expected to have, a Material Adverse Effect; and
(vi) none of the Steel Heddle Companies has any obligation under any
Company Plan to provide health or life insurance benefits to former
employees of any of the Steel Heddle Companies except as specifically
required by COBRA or state law; and (vii) no asset of the Steel Heddle
Companies that is to be acquired by the Buyer, directly or indirectly,
pursuant to this Agreement is subject to any Lien under Section 412 of
the Code or ERISA.
(d) None of the Steel Heddle Companies maintains or
contributes to any "multiemployer plan" (as such term is defined in
Section 3(37) of ERISA) or has incurred any withdrawal liability with
respect to any such plan.
(e) None of the Steel Heddle Companies has any liability
with respect to any "employee benefit plan" (as defined in Section
3(3) of ERISA) solely by reason of being treated as a single employer
under Section 414 of the Code with any trade, business or entity other
than the Steel Heddle Companies.
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(f) Except as set forth in Schedule 5.12, none of the
Steel Heddle Companies contributes to, maintains or sponsors or has
any liability with respect to any employee benefit plan, agreement or
arrangement applicable to employees located outside the United States
(the "Foreign Plans"). Each Foreign Plan is in compliance with all
laws applicable thereto and the respective requirements of such
Foreign Plan's governing documents, except where such noncompliance
does not have, or would not reasonably be expected to have, a Material
Adverse Effect.
5.13. Brokers, Etc. Except for payments to be made by the Sellers
to Merrill Lynch & Co., no broker, finder, investment bank or similar agent is
entitled to any brokerage or finder's fee in connection with the transactions
contemplated by this Agreement based upon agreements or arrangements made by or
on behalf of any of the Steel Heddle Companies or the Sellers.
5.14. Absence of Undisclosed Liabilities. Except for liabilities
disclosed in the Balance Sheet or incurred in the Ordinary Course of Business
since the Balance Sheet Date, and except as listed on Schedule 5.14, none of
the Steel Heddle Companies has as of the date hereof, or will have as of the
Closing Date, any liabilities of the type required by Generally Accepted
Accounting Principles to be set forth on the face of a balance sheet (as
opposed to the notes thereto) prepared as of the date hereof or as of the
Closing Date, as the case may be.
5.15. Labor. Except as set forth on Schedule 5.15, to the Knowledge
of the Company, no key executive employee and no group of employees or
independent contractors of any Steel Heddle Company has any plans to terminate
his, her or its employment or relationship as an independent contractor with
the Seller. Except as set forth in Schedule 5.15, to the Knowledge of the
Company, no organizational effort is presently being made or threatened by or
on behalf of any labor union with respect to any employees of any of the Steel
Heddle Companies and none of the employees of any of the Steel Heddle Companies
are represented by labor union. The Company has not engaged in any unfair
labor practice except where any such unfair labor practice has not had, and
would not reasonably be expected to have, a Material Adverse Effect, and to the
Knowledge of the Company, no complaint therefor has been asserted. There is no
labor strike, dispute, slowdown or stoppage pending or, to the Knowledge of the
Company, threatened, against any of the Steel Heddle Companies.
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants as follows:
6.1. Corporate Matters, Etc.
6.1.1. Organization, Power and Standing of the Buyer. The
Buyer is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and
has full power and authority, corporate and otherwise, to enter into
this Agreement, to carry out and perform its obligations hereunder and
to consummate the transactions contemplated hereby.
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6.1.2. Authorization and Enforceability. This Agreement has
been duly authorized, executed and delivered by, and is Enforceable
against, the Buyer.
6.1.3. Non-Contravention, Etc. The execution, delivery and
performance of this Agreement by the Buyer and the consummation by the
Buyer of the Closing hereunder in accordance with the terms and
conditions of this Agreement do not and will not conflict with or
result in the breach of any terms or provisions of, or constitute a
default under, any Contractual Obligation or the Charter or By-Laws of
the Buyer or a breach of any Legal Requirement applicable to the
Buyer. Except for satisfaction of the notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), no consent is required to be obtained or made by or
on behalf of the Buyer in connection with the execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated hereby, except (i) for items which shall have been
obtained or made on or prior to, and shall be in full force and effect
at, the Closing Date and (ii) where failure to obtain such consent
would not materially and adversely affect the Buyer's ability to
consummate the Closing hereunder in accordance with the terms and
conditions of this Agreement and would not prevent the Buyer from
performing in all material respects any of its obligations under this
Agreement.
6.2. Financial Condition, Etc. The Buyer has, as of the date
hereof, received and provided the Company with true and correct copies of
executed commitment letters (the "Commitment Letters") from certain
institutional lenders and investors with respect to secured bank facilities,
unsecured subordinated debt financing and equity financing (such persons being
collectively referred to as the "Financing Sources") and, subject to its
receipt of the financing contemplated by the Commitment Letters, will have as
of the Closing Date funds in an aggregate amount sufficient to (i) pay the
Purchase Price and all contemplated fees and expenses related to the
transactions contemplated by this Agreement and (ii) provide adequate working
capital for the Business.
6.3. Investment Intent, Related Matters. The Buyer is purchasing
the Securities for its own account and has the present intention of holding the
Securities for investment purposes and not with a view to, or for sale in
connection with, any distribution thereof in violation of any federal or state
securities laws.
6.4. Litigation. Except as has not had, or would not reasonably be
expected to have, a material adverse effect on the ability of the Buyer to
perform its obligations under this Agreement, there is no Action pending, or,
to the Knowledge of the Buyer, threatened against the Buyer or any of its
Affiliates. There is no Action pending, or, to the Knowledge of the Buyer,
threatened in writing, which seeks rescission of or seeks to enjoin the
consummation of this Agreement or any of the transactions contemplated hereby.
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6.5. Brokers, Etc. Except for customary transaction fees payable
by the Buyer to certain stockholders of the Buyer, no broker, finder,
investment bank or similar agent is entitled to any brokerage or finder's fee
in connection with the transactions contemplated by this Agreement based upon
agreements or arrangements made by or on behalf of the Buyer or any of its
Affiliates.
7. CERTAIN AGREEMENTS OF THE PARTIES.
7.1. Payment of Transfer Taxes and Other Charges. The Buyer shall
be responsible for and shall pay all real property Taxes, sales Taxes,
documentary stamp Taxes, recording charges and other similar Taxes, and the
Sellers shall pay all stock transfer Taxes, each arising in connection with the
transactions contemplated by this Agreement. Each of the parties hereto shall
prepare and file, and shall fully cooperate with each other party with respect
to the preparation and filing of, any Tax Returns and other filings relating to
any such Taxes or charges as may be required.
7.2. Confidentiality Covenant of the Buyer. The Confidentiality
Agreement dated January 12, 1998 as amended and modified through the date
hereof (the "Confidentiality Agreement") by and between the Buyer and Mfg. Co.
on behalf of the Company and the Sellers is hereby confirmed and acknowledged
as a continuing obligation of the parties; provided, however, that the
disclosure by the Buyer as required in connection with the Financing and any
other related offering to parties involved therewith or their representatives
who have entered appropriate confidentiality arrangements with Buyer shall not
violate such Confidentiality Agreement.
7.3. Operation of Business and Related Matters. From the date
hereof and on and prior to the Closing Date, except as otherwise permitted or
required by this Agreement, the Company will, and will cause the other Steel
Heddle Companies to, conduct the Business in the Ordinary Course of Business
and substantially as presently operated, and use reasonable efforts to maintain
the value of the Business as a going concern and preserve their relationships
with customers, suppliers, lessors, licensors, employees and others with whom
they deal. From the date hereof and on and prior to the Closing Date, no
Seller will sell, pledge or otherwise encumber any of his, her or its
Securities without the prior written consent of the Buyer. Except as set forth
in Schedule 7.3, from the date hereof and prior to the Closing Date, the
Company shall not, and shall cause the other Steel Heddle Companies not to,
without the prior written consent of the Buyer, which will not be unreasonably
withheld or delayed:
(a) enter into any transactions other than on an arms'
length basis with any Seller or any other Affiliate of the Steel
Heddle Companies (other than as contemplated by this Agreement and
transactions in the Ordinary Course of Business among the Steel Heddle
Companies); provided, however, that with the exception of transfers
aggregating no more than $100,000, no domestic Steel Heddle Company
shall transfer cash or any other assets (other than inventory or
products in the Ordinary Course of Business) to a non-domestic Steel
Heddle Company;
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(b) pay any compensation other than in the Ordinary
Course of Business or increase any compensation of any director,
officer or employee other than such increases in compensation to
non-exclusive, non-executive level employees as may be made in the
Ordinary Course of Business;
(c) incur, assume, guarantee or create any Debt
(including any capital lease), make any material loans, advances or
capital contributions to, or investments in, any other Person, or
mortgage or pledge any of their assets, or create any Liens with
respect thereto, except in the Ordinary Course of Business;
(d) amend the Charter or By-laws of any of the Steel
Heddle Companies or sell, lease or otherwise dispose of any material
assets except (i) for sales or other dispositions of inventory or
excess equipment in the Ordinary Course of Business and (ii) as may
otherwise be explicitly permitted by the terms of this Agreement;
provided, however, that the Company may file with the Commonwealth of
Pennsylvania a restated Charter that restates, but does not amend,
such Charter;
(e) make any material change in the Business or
operations of any of the Steel Heddle Companies;
(f) other than as set forth in Steel Heddle Mfg. Co.'s
capital plan for the fiscal year ending January 2, 1999, make any
capital expenditure in excess of $100,000 with respect to the Business
or enter into any contract or commitment therefor;
(g) declare, set aside or pay any dividend or
distribution with respect to its capital stock (except for any payment
to BCC ISI in accordance with the terms of the Warrants held by BCC
ISI) or redeem, purchase or otherwise acquire any of its capital
stock;
(h) split, combine or reclassify any of their
respective capital stock or issue or sell any additional shares of, or
securities convertible into or exchangeable for shares of, or options,
warrants, calls, commitments or rights of any kind to acquire shares
of, their respective capital stock;
(i) file any amended Tax Return, surrender any right to
claim a refund of Taxes, or fail to file any Tax Return or pay any
Tax, if such action would have the effect of materially increasing the
Tax liability or materially decreasing any Tax Benefit of any of the
Steel Heddle Companies, the Buyer or any Affiliate of the Buyer;
(j) change any of the accounting methods used by the
Steel Heddle Companies unless required by Generally Accepted
Accounting Principles; or
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(k) enter into any Contractual Obligation to do any of
the actions referred to in this Section 7.3.
7.4. Preparation for Closing.
7.4.1. Conditions Precedent. The Buyer on the one hand and
the Company and the Sellers on the other hand will each use
commercially reasonable efforts to bring about the fulfillment of each
of the conditions precedent to the obligations of the other set forth
in this Agreement.
7.4.2. HSR Filing. Promptly upon execution and delivery
of this Agreement, each of the Buyer and the Company will prepare and
file, or cause to be prepared and filed, with the appropriate
Governmental Authorities, a notification with respect to the
transactions contemplated by this Agreement pursuant to the HSR Act,
supply all information requested by Governmental Authorities in
connection with the HSR notification and cooperate with each other in
responding to any such request. The Buyer shall be solely responsible
for all filing fees required to be paid in connection therewith.
7.4.3. Consents, Etc. Prior to the Closing Date, the
Company shall use commercially reasonable efforts (but the Company and
the Sellers shall have no obligation to pay any fees or incur any
expenses) to secure required written consents or waivers under or with
respect to the Contracts indicated on Schedule 5.1.1, and reasonably
requested by the Buyer, any consents needed to effectuate any mergers
between the Buyer and any of the Steel Heddle Companies or between any
of the Steel Heddle Companies. If reasonably requested by the Company
in connection with its attempts to obtain such consents, the Buyer
shall execute and deliver an agreement of assignment, assumption and
attornment with respect to and/or guarantee of the obligations under
such Contracts.
7.4.4. Definitive Financing Agreements. The Buyer shall
use commercially reasonable efforts (which shall include the payment
of any financing fees reflected in the Commitment Letters) to
negotiate, prepare and enter into definitive financing agreements (the
"Definitive Financing Agreements") with the Financing Sources to
provide the financing substantially on the terms set forth in the
Commitment Letters (the "Financing") and otherwise to use reasonable
commercial efforts to enforce the financing commitments reflected in
the Commitment Letters; provided, however, that Buyer need not enforce
the commitment of DLJ Bridge Finance, Inc. dated April 28, 1998 to
provide bridge financing until June 26, 1998. The Buyer shall use
commercially reasonable efforts to satisfy on or before the Closing
Date all requirements of the Definitive Financing Agreements which are
conditions to closing the transactions constituting the Financing.
The Buyer shall promptly notify the Sellers of any material change to,
or revocation of, any Commitment Letter.
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7.4.5. Representations and Warranties. Each party hereto
shall use commercially reasonable efforts not to take any action or
omit to take any action that will cause any representation or warranty
of such party to become untrue in any material respect if it were made
on any date from the date hereof until Closing.
7.5. Potential Parachute Payments. Buyer and Sellers acknowledge
that a portion of the payments referred to in clause (b) of Section 1.2.30
above might be deemed to constitute "excess parachute payments" under Code
Section 280G(b). As soon as reasonably practicable, the Company will (i)
identify which, if any, of such payments may reasonably be deemed to constitute
an excess parachute payment (the payments so identified being the "Potential
Parachute Payments") and (ii) request that each Seller that would receive a
Potential Parachute Payment agree in writing to waive such Seller's rights to
receive such payment and to accept in substitution therefor the right to
receive such payment only if approved by stockholders in a manner intended to
comply with Code Section 280G(b)(5)(B) and proposed Treasury Regulation Section
1.280G-1 Q&A 7 (it is being understood that such waiver will not be requested
if the Potential Parachute Payment is already conditional on such approval).
The Company will use commercially reasonable efforts to obtain each such
waiver. The Company will seek, as soon thereafter as reasonably practicable,
stockholder approval in a manner intended to comply with Code Section
280G(b)(5)(B) and proposed Treasury Regulation Section 1.280G-1 Q&A 7 of all
Potential Parachute Payments that have been conditioned on the receipt of such
approval. The determination of which Tax Benefit Payments are Potential
Parachute Payments, the form of each such waiver and the disclosure and other
circumstances of any such stockholder approval shall be subject to the approval
of Buyer, which approval shall not be unreasonably withheld or delayed.
7.6. Letter of Credit. The Company, the Sellers and the Buyer
shall cooperate to permit the substitution, as of the Closing, of a new letter
of credit provided by the Buyer's Financing Sources for the SCDHEC Letter of
Credit.
7.7. No Section 338 Election. The Buyer will not make an election
pursuant to Section 338 of the Code with respect to the Company and its
Subsidiaries.
7.8. Further Assurances. Each party, upon the request from time to
time of any other party hereto after the Closing, and at the expense of the
requesting party but without further consideration, will do each and every act
and thing as may be necessary or reasonably requested to consummate the
transactions contemplated hereby in an orderly fashion.
7.9. Delivery of Interim Financial Statements. Prior to the
Closing, the Company shall use commercially reasonable efforts to promptly
deliver to the Buyer interim financial statements generated in the Ordinary
Course of Business (the "Interim Financial Statements"). All Interim Financial
Statements delivered pursuant to this Section 7.9 shall be prepared in a manner
consistent with past practice.
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7.10. No Solicitation. From and after the date of this Agreement
until the earlier of (a) the Closing or (b) the termination of this Agreement
pursuant to Section 13.1, neither the Steel Heddle Companies nor the Sellers
shall, and shall not permit any officer, director, agent, representative or
Affiliate of the Sellers or the Steel Heddle Companies (including Merrill
Lynch & Co.) to, directly or indirectly: (i) enter into any written or oral
agreement or understanding with any Person (other than the Buyer or its
Affiliates) regarding Another Transaction (as defined below); (ii) enter into
or continue any negotiations or discussions with any Person (other than the
Buyer or its Affiliates) regarding the possibility of Another Transaction;
(iii) submit, solicit, initiate, encourage, participate in, or facilitate any
proposal or offer (other than a proposal or offer of the Buyer of its
Affiliates) regarding Another Transaction; or (iv) except as otherwise required
by law, provide any Confidential Information (including this Agreement and any
other materials containing the Buyer's acquisition proposal and any other
financial information, projections or proposals regarding the Steel Heddle
Companies) to any Person (other than the Buyer or its Affiliates or their
respective representatives) whom the Steel Heddle Companies know, or have
reason to believe, would have any interest in participating in Another
Transaction. As used herein, the term "Another Transaction" means the sale of
any of the material assets of any of the Steel Heddle Companies (other than the
sale of inventory in the Ordinary Course of Business) or any sale, merger,
consolidation, public offering, reorganization, dissolution, recapitalization,
business combination or similar transaction involving any of the Steel Heddle
Companies or any of their respective capital stock (or rights to acquire such
capital stock). The Company shall notify the Buyer immediately if on or after
the date of this Agreement any third party makes any written proposal, offer,
inquiry or contact in respect of Another Transaction.
7.11. Confidentiality. After the Closing, each Seller will use
commercially reasonable efforts to treat and hold as such all Confidential
Information and refrain from using any Confidential Information except in
connection with this Agreement. In the event that such Seller is requested or
required (by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand or similar
process) to disclose any Confidential Information, such Seller will notify the
Buyer promptly of the request or requirement so that the Buyer may seek an
appropriate protective order or waive compliance with the provisions of this
Section 7.11. If, in the absence of a protective order or the receipt of a
waiver hereunder, such Seller is, on the advice of counsel, compelled to
disclose any Confidential Information or else stand liable for contempt, such
Seller may so disclose the Confidential Information; provided, however, that
such Seller shall use its commercially reasonable efforts to obtain, at the
request and expense of the Buyer, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information
required to be disclosed as the Buyer shall designate.
7.12. Covenant Not to Compete; Non-Solicitation.
(a) Butler and each BCC Seller agrees that for a period of three
(3) years from and after the Closing Date (the "Non-Compete Period"), such
party and its successors and Affiliates will not engage directly or indirectly
in the Business in any geographic area in which any Steel
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Heddle Company conducts the Business as of the Closing Date; provided, however,
that nothing herein shall prohibit Butler or such BCC Seller and its successors
and Affiliates from being a passive owner of not more than 5% of the
outstanding stock of any class of any other corporation that engages in the
Business, so long as such party has no active participation in the business of
such corporation.
(b) During the Non-Compete Period, neither Butler nor any BCC
Seller or any successor or Affiliate thereof shall directly or indirectly
through another entity, (i) induce or attempt to induce any employee as of the
date hereof of the Buyer or any Steel Heddle Company to leave the employ of the
Buyer or such Steel Heddle Company, or in any way interfere with the
relationship between the Buyer or such Steel Heddle Company and any employee
thereof as of the date hereof, or (ii) hire any of the employees of any Steel
Heddle Company listed in Schedule 7.12.
(c) If, at the time of enforcement of this Section 7.12, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
period, scope and area permitted by applicable law. Butler and each BCC Seller
agrees that the restrictions contained in this Section 7.12 are reasonable.
(d) In the event of the breach or a threatened breach by Butler, a
BCC Seller or any successor or Affiliate thereof any of the provisions of this
Section 7.12, in addition and supplementary to other rights and remedies
existing in its favor, the Buyer may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof
(without posting a bond or other security). In addition, in the event of an
alleged breach or violation of this Section 7.12 by Butler, a BCC Seller or any
successor or Affiliate thereof, the Non-Compete Period shall be tolled until
such breach or violation has been duly cured.
7.13. Litigation Support. In the event and for so long as any party
hereto actively is contesting or defending against any Action from a third
party in connection with (i) any transaction contemplated under this Agreement
or (ii) any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or
transaction on or prior to the Closing Date involving the Company, the other
party will cooperate with the contesting or defending party and its counsel in
the contest or defense, make available its personnel, and provide such
testimony and access to its books and records as shall be reasonably necessary
in connection with the contest or defense, all at the sole cost and expense of
the contesting or defending party (unless the contesting or defending party is
entitled to indemnification therefor under Section 11 hereof).
7.14. Debt. The Company shall use reasonable commercial efforts to
arrange for the delivery to the Buyer of appropriate payoff letters and
instructions reasonably satisfactory to the
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Buyer for the repayment of all outstanding Debt and the release of all Liens
securing (including appropriate UCC termination statements) and the
cancellation of all notes issued in connection with such Debt.
7.15. Expenses. The Company shall use reasonable commercial efforts
to provide the Buyer at or before Closing with appropriate bills and payment
instructions reasonably satisfactory to the Buyer for all Unpaid Expenses.
7.16. Accountant's Consent. The Company shall use its commercially
reasonable efforts to obtain, at the Buyer's expense, the consent of Ernst &
Young LLP to the inclusion of the Financial Statements, together with its
unqualified audit opinions on each of such statements, in the offering
memorandum used by the Buyer in connection with the Financing, the registration
statement used in connection with the subsequent exchange offer and any other
related registered offering.
7.17. Discharge of Management Loans. The loans by the Company to
William B. Parson and James B. Conner, respectively, evidenced by Notes dated
as of April 29,1994, shall be discharged by the maker thereof on or prior to
the Closing Date. Each of William B. Parson and James B. Conner hereby
authorizes the Buyer to pay to the Company, on his behalf, out of the portion
of the Cash Consideration otherwise payable to him, all amounts required as of
the Closing to discharge such loans.
7.18. Exercise of Options, Rights and Warrants. Each Seller agrees
that such Seller will not exercise any Options, Rights or Warrants held by such
Seller prior to the Closing.
8. CONDITIONS TO THE OBLIGATION TO CLOSE OF THE BUYER. The obligations
of the Buyer to consummate the Closing under this Agreement are subject to the
satisfaction, at or prior to the Closing, of all of the following conditions,
compliance with which, or the occurrence of which, may be waived prior to the
Closing in writing by the Buyer in its sole discretion:
8.1. Representations, Warranties and Covenants.
8.1.1. Continued Accuracy of Representations and
Warranties. The representations and warranties of the Sellers and the
Company contained in this Agreement shall be true and correct in all
material respects on, and as of, the Closing Date with the same effect
as though such representations and warranties had been made on and as
of such date (except for representations and warranties that speak as
of a specific date or time other than the Closing Date which need only
be true and correct as of such date or time).
8.1.2. Performance of Agreements. The Sellers and the
Company shall have performed and satisfied, in all material respects,
all covenants and agreements required by this Agreement to be
performed or satisfied by them at or prior to the Closing.
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8.1.3. Sellers' Closing Certificate. At the Closing, the
Sellers shall furnish a certificate, signed by each of the Sellers,
dated the Closing Date, to the effect that the conditions specified in
Sections 8.1.1 and 8.1.2 hereof (to the extent relating to such
Seller), have been satisfied.
8.1.4. Company's Closing Certificate. At the Closing, the
Company shall furnish a certificate, signed by the President or a Vice
President of the Company, dated the Closing Date, to the effect that
the conditions specified in Sections 8.1.1 and 8.1.2 (to the extent
relating to the Company), have been satisfied.
8.1.5. Outstanding Capital. The Shares shall constitute
all the outstanding stock of the Company and the Options, Warrants and
Rights shall constitute all the Contractual Obligations pursuant to
which the Company has granted any option, warrant or other right to
any Person to acquire the shares of Common Stock or any other
securities of, or equity interest in, the Company.
8.2. Legality; Governmental Authorization; Litigation. The
acquisition of the Securities and the consummation of the other transactions
contemplated hereby shall not be prohibited by any Legal Requirement, and all
necessary filings, if any, pursuant to the HSR Act shall have been made and all
applicable waiting periods thereunder (and any extensions thereof) shall have
expired or been terminated. No Action shall have been instituted at or prior
to the Closing by any Person or Governmental Authority, other than a party
hereto or any Affiliate thereof, relating to this Agreement or any of the
transactions contemplated hereby, which has a reasonable likelihood of success
and the result of which would prevent or make illegal the consummation of any
such transaction or could otherwise reasonably be expected to have a material
adverse effect on the ability of the Buyer to consummate the transactions
contemplated hereby.
8.3. Third-Party Consents. There shall have been obtained by the
Company the consents or waivers listed on Schedule 8.3.
8.4. Opinion of Counsel. The Sellers and the Company shall have
furnished the Buyer with favorable opinions of Haynsworth, Marion, McKay &
Guerard, L.L.P.; Ropes & Gray; and Drinker, Biddle & Reath (or in each case
other counsel satisfactory to the Buyer ), each dated as of the Closing Date,
with respect to the matters set forth in Exhibit 8.4.
8.5. Financing. The Definitive Financing Agreements shall be in
full force and effect and all conditions for the receipt by the Buyer of the
Financing contemplated thereby shall have been satisfied or waived.
8.6. General. All corporate proceedings required to be taken on
the part of the Company in connection with the transactions contemplated by
this Agreement shall have been taken. The Buyer shall have received copies of
such officers' certificates, good standing
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certificates, incumbency certificates and other customary closing documents as
the Buyer may reasonably request in connection with the transactions
contemplated hereby.
8.7. Title Insurance. First American Title Insurance Company,
Chicago Title Insurance Company, and/or another nationally recognized
independent title insurance company or companies mutually agreed upon by the
Buyer and the Sellers' Representative (the "Title Companies"), shall be willing
to insure the Company's or the applicable Subsidiaries' marketable title in and
to the Owned Real Property, and Buyer's lender's mortgage lien on the Owned
Real Property, free and clear of all Liens, other than the matters disclosed on
Schedule 5.5.2(a) and other than Liens that in the aggregate do not materially
diminish the value of the Real Property or materially limit its current or
intended use in the Business. The Company shall provide such usual and
customary affidavits as the Title Companies reasonably shall require in order
to issue such title insurance policy.
8.8. Surveys. Buyer shall have received (after using commercially
reasonable efforts to obtain, at its own expense) a survey of each Owned Real
Property conforming to the Minimum Standard Detail Requirements jointly
established and approved in 1992 by ALTA and ACSM certified to the Company, the
Buyer's lender and the Title Companies showing no defects, encroachments or
encumbrances other than those disclosed on Schedule 5.5.2(a) or which in the
aggregate do not materially diminish the value of the Real Property or
materially limit its current or intended use in the Business.
9. CONDITIONS TO THE OBLIGATION TO CLOSE OF THE SELLERS. The obligations
of the Sellers to consummate the Closing under this Agreement are subject to
the satisfaction, at or prior to the Closing, of all of the following
conditions, compliance with which, or the occurrence of which, may be waived
prior to the Closing in writing by the Sellers' Representative in its sole
discretion:
9.1. Representations, Warranties and Covenants.
9.1.1. Continued Accuracy of Representations and
Warranties. The representations and warranties of Buyer contained in
this Agreement shall be true and correct on and as of the Closing Date
with the same effect as though such representations and warranties had
been made on and as of such date (except for representations and
warranties that speak as of a specific date or time other than the
Closing Date which need only be true and correct as of such date or
time).
9.1.2. Performance of Agreements. The Buyer shall have
performed and satisfied, in all material respects, all covenants and
agreements required by this Agreement to be performed or satisfied by
the Buyer at or prior to the Closing.
9.1.3. Officer's Certificate. At the Closing, the Buyer
shall furnish to the Sellers a certificate signed by the President or
any Vice President of the Buyer, dated the
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Closing Date, to the effect that the conditions specified in Sections
9.1.1 and 9.1.2 have been satisfied.
9.2. Legality; Government Authorization; Litigation. The Sellers'
consummation of the transactions contemplated hereby shall not be prohibited by
any Legal Requirement, and all necessary filings, if any, pursuant to the HSR
Act shall have been made and all applicable waiting periods thereunder shall
have expired or been terminated. No Action shall have been instituted at or
prior to the Closing by any Person or Governmental Authority, other than a
party hereto or any Affiliate thereof, relating to this Agreement or any of the
transactions contemplated hereby, which has a reasonable likelihood of success
and the result of which would prevent or make illegal the consummation any such
transaction or could otherwise reasonably be expected to have a Material
Adverse Effect on the ability of the Sellers to consummate the transactions
contemplated hereby.
9.3. Opinion of Counsel. The Buyer shall have furnished the
Sellers with a favorable opinion of Kirkland & Ellis, dated as of the Closing
Date, with respect to the matters set forth in Exhibit 9.3.
9.4. General. All corporate proceedings required to be taken by
the Buyer in connection with the transactions contemplated by this Agreement
shall have been taken. The Sellers shall have received copies of such
officers' certificates, good standing certificates, incumbency certificates and
other customary closing documents as the Sellers may reasonably request in
connection with the transactions contemplated hereby.
10. EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS.
10.1. Employment of Affected Employees. The Buyer shall cause the
Steel Heddle Companies to employ on the Closing Date, at not less than the same
rate of pay as in effect immediately preceding the Closing Date, all Affected
Employees.
10.2. Continuation of Employee Benefits. Buyer represents and
warrants that it is its present intention to have the employee benefits offered
employees of the Steel Heddle Companies existing immediately preceding the
Closing Date, including those included within the Company Plans listed on
Schedule 5.12, continue without change after the Closing Date.
10.3. WARN. The Buyer shall indemnify the Sellers and their
Affiliates and defend and hold each of them harmless from and against any
Losses which may be incurred by any of them under WARN, or any state plant
closing or notification law or otherwise, arising out of, or relating to, any
actions taken by the Buyer or the Company on or after the Closing Date.
10.4. Third-Party Rights. No provision of this Section 10 shall
confer any rights or remedies upon any Person not a party hereto, including
any employee or former employee (including any beneficiary or dependent
thereof) of the Company or any Subsidiaries of the
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Company including in respect of continued employment (or resumed employment)
for any specified period of any nature or kind whatsoever.
11. INDEMNIFICATION.
11.1. Indemnification. Subject to the terms of this Section 11,
each of the Sellers (each in its capacity as an indemnifying party, an
"Indemnifying Party") agrees after the Closing to indemnify the Buyer and the
Company (in their capacities as indemnified parties, together, the
"Indemnitee") and hold the Buyer harmless, and the Buyer and the Company (in
their capacities as indemnifying parties, an "Indemnifying Party") agree after
the Closing to indemnify each of the Sellers (each in its capacity as
indemnified party, an "Indemnitee") and hold each of the Sellers harmless,
from, against and in respect of any and all Losses arising from or related to
any of the following:
11.1.1. The Sellers. In the case of each Seller as an
Indemnifying Party (i) any breach of any representation or warranty
made by such Seller in this Agreement or in any certificate required
to be delivered under this Agreement; (ii) any breach of any
representation or warranty (except with respect to capitalization in
Section 5.1.3 and the penultimate sentence of Section 5.1.4) made by
the Company in this Agreement or in any certificate required to be
delivered under this Agreement; (iii) any breach or violation of any
covenant or agreement made by such Seller in this Agreement; (iv) any
breach of any representation or warranty with respect to
capitalization in Section 5.1.3 or the penultimate sentence of Section
5.1.4 made by the Company in this Agreement; (v) any breach or
violation of any covenant or agreement made by the Company in this
Agreement to be performed prior to Closing and (vi) any Unpaid
Expenses not subtracted from the calculation of Purchase Price
pursuant to Section 3.1; provided, however, that for purposes of
clauses (i) and (ii), each qualification as to materiality or Material
Adverse Effect in the representations and warranties referred to
therein shall be ignored; and provided, further, that for purposes of
clauses (i) and (ii) only, no representation, warranty, agreement or
covenant referred to therein shall be considered to be breached in
respect of any single item or event, or series of related items or
events, unless the Losses attributable to such single item or event,
or series of related items or events, exceed $250,000 in the
aggregate. For purpose of this Section 11, all notices to the Sellers
as Indemnifying Parties, or otherwise, shall be delivered to the
Sellers' Representative.
11.1.2. The Buyer. In the case of the Buyer or the Company
as Indemnifying Party (i) any breach of any representation or warranty
made by or on behalf of the Buyer in this Agreement or any certificate
required to be delivered under this Agreement; and (ii) any breach or
violation of any covenant or agreement made by or on behalf of the
Buyer in this Agreement.
11.2. Survival. Each representation and warranty contained in this
Agreement or any certificate required to be delivered under this Agreement
(other than representations and
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warranties with respect to ownership of securities in Section 4.4 or
capitalization in Section 5.1.3 and the penultimate sentence of Section 5.1.4,
which shall survive forever, and representations and warranties with respect to
tax matters in Section 5.11, which shall expire upon the expiration of the
applicable statute of limitations) shall survive the Closing until, and shall
expire on, March 15, 1999, without regard to any investigation made by any
party hereto. Notwithstanding the preceding sentence, with respect to any
claim asserted by a party for a breach of any warranty of the other party
before March 15, 1999 in the manner and with the specificity required under
Section 11.4, then the warranty with respect to which the claim is asserted
shall survive beyond the date determined by the preceding sentence, but such
survival shall extend only with respect to such claim and the specific grounds
asserted with respect thereto in such notice.
11.3. Monetary Limitations on Indemnification. The Sellers as
Indemnifying Parties shall not have any obligation to indemnify the Buyer or
the Company as Indemnitee under clauses (i) and (ii) of Section 11.1.1 unless
and until the aggregate cumulative total of all Losses for which
indemnification would be provided under Section 11.1.1 incurred by the Buyer or
the Company as Indemnitee exceeds $1,000,000, whereupon the Indemnitee shall be
entitled to indemnification for such Losses but only to the extent that the
aggregate cumulative total of such Losses exceeds such amount.
Notwithstanding any other provision of this Agreement, (i) the total maximum
aggregate indemnification liability for all claims for all such Losses in
excess of $1,000,000 pursuant to clauses (i), (ii) and (v) of Section 11.1.1.
shall not exceed $5,000,000 (the "Maximum Aggregate Loss") for all Sellers as a
group; and (ii) each Seller's aggregate indemnification obligations under
clauses (ii) and (v) of Section 11.1.1 shall be limited to such Seller's
Proportionate Share of the Maximum Aggregate Loss, (iii) each Seller's
aggregate indemnification obligation under clauses (ii) and (v) of Section
11.1.1 for any specific Loss shall be limited to such Seller's Proportionate
Share of such Loss, and (iv) except for indemnification obligations for claims
for breaches of the representations in Section 5.1.3 or the penultimate
sentence of Section 5.1.4, each Seller's aggregate obligation under this
Section 11 shall in no event exceed the portion of the Cash Consideration
received by such Seller.
11.4. Third-Party Claims, Etc. Promptly after (a) becoming aware of
any fact, occurrence or event which may give rise to a claim for
indemnification under this Section 11 or (b) the receipt by any Indemnitee of
notice of the commencement of any action or other claim against such Indemnitee
by a third party, such Indemnitee shall, if a claim with respect thereto is or
may be made against any Indemnifying Party pursuant to this Section 11, give
such Indemnifying Party written notice of the nature and basis of such claim.
The Indemnifying Parties shall have the right to defend such claim, at the
Indemnifying Parties' expense and with counsel of their choice reasonably
satisfactory to the Indemnitee; provided, however, that (a) the Indemnifying
Parties so notify the Indemnitee within thirty (30) days after receipt of such
notice, (b) the claim seeks only monetary relief, (c) the claim is not made by
a Governmental Authority alleging criminal violations, and (d) the Indemnifying
Party would be responsible (after the effect of Section 11.3) for at least
one-half of the amount of any reasonably likely damages in the event the
plaintiff's claims as to liability were resolved in its favor; and provided,
further, that the Indemnitee may at any time consent to the entry of a judgment
or enter into a settlement with
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respect to any claim if the terms of such judgment or settlement contain an
unconditional release of the Indemnitee from all liability in respect of such
claim and the Indemnitee would be responsible (after the effect of Section
11.3) for at least one-half of the amount of the Losses attributable to such
judgment or settlement. So long as the Indemnifying Parties are conducting the
defense of such claim as provided in the immediately preceding sentence, the
Indemnitee may retain separate co-counsel at its sole cost and expense and may
participate in the defense of such claim, and the Indemnifying Parties will not
consent to the entry of any judgment or enter into any settlement with respect
to such claim unless (a) such judgment or settlement contains an unconditional
term providing for a release to be given by the claimant in question or
plaintiff to the Indemnitee of and from all liability in respect of such claim
and (b) the Indemnifying Party would be responsible (after the effect of
Section 11.3) for at least one-half of the amount of the Losses attributable to
such judgment or settlement. In the event the Indemnifying Parties do not
assume the defense of such claim as so provided, (x) the Indemnitee shall
defend against such claim (provided that the Indemnitee shall not settle or
consent to judgment in respect of such claim without the consent of the
Indemnifying Party (which consent shall not be unreasonably withheld or
delayed) unless (a) the terms of such judgment or settlement contain an
unconditional release of the Indemnitee from all liability in respect of such
claim and (b) the Indemnitee would be responsible (after the effect of Section
11.3) for at least one-half of the amount of the Losses attributable to such
judgment or settlement), and (y) the Indemnifying Parties will remain
responsible for any Losses the Indemnitee may suffer as a result of such claim
to the full extent provided in this Section 11. Regardless of which party
shall assume the defense of such claim, each party shall upon request provide
to the other parties all information and documentation, and reasonable access
to all personnel, in their possession or under their control which are
reasonably required to assist in the defense of such claim.
11.5. Mineral Spirits Remediation at Westminster, S.C. Facility.
11.5.1. Agreement With Respect to Mineral Spirits Releases.
This Section 11.5 sets forth the agreement of the parties with respect
to any releases relating to or arising from the virgin mineral spirits
storage tank and related former underground piping system used to
store and transfer mineral spirits at the Company's Westminster, S.C.
facility, including any offsite migration of contaminants relating to
or arising from such releases (and including any contamination
detected in the analytical results from the sampling conducted at the
Westminster, South Carolina facility on April 28, 1998) (the "Mineral
Spirits Releases"). Subject to the terms and conditions set forth in
this section, the Sellers shall indemnify and hold the Buyer and the
Steel Heddle Companies harmless, from, against and in respect of any
Losses relating to or arising from any Mineral Spirits Releases,
including any fines or penalties, third-party claims, and any
investigation, remediation, and corrective action costs, and any
natural resources damages (the "Mineral Spirits Losses"). Without
limiting the generality of the foregoing, the Sellers shall also
initiate, conduct, and complete any investigations, remediation,
corrective action, or compliance action in order to address the
Mineral Spirits Releases to the satisfaction of the South Carolina
Department of Health and Environmental Control ("SCDHEC") and any
other relevant Governmental Authority
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("Mineral Spirits Remediation"), subject to the terms and conditions
set forth in this Section 11.5.
11.5.2. Environmental Escrow; Limitation of Seller's
Responsibility. On or prior to the Closing Date, the parties shall
enter into the Environmental Escrow Agreement substantially in the
form set forth in Exhibit 11.5.2 (the "Environmental Escrow
Agreement"). In accordance with the Environmental Escrow Agreement,
the Buyer shall deliver to the escrow agent under such agreement (the
"Escrow Agent") $350,000, which shall constitute a portion of the
Purchase Price to pay for any Mineral Spirits Losses, including the
costs of any Mineral Spirits Remediation. The $350,000 delivered
pursuant to the Environmental Escrow Agreement, as increased or
decreased in accordance with the terms of this Section 11.5 and the
Environmental Escrow Agreement, shall be referred to as the "Escrow
Amount". The following shall be paid out of the Escrow Amount, in
accordance with the terms of this Section 11.5 and the Environmental
Escrow Agreement: (i) Mineral Spirits Losses incurred by the Buyer or
any Steel Heddle Company; (ii) reasonable costs incurred by Sellers as
a result of the Sellers' Representative's conduct of the Mineral
Spirits Remediation; (iii) reasonable costs incurred by the Buyer or
any Steel Heddle Company as a result of the Buyer or any Steel Heddle
Company taking reasonable action to respond to an actual or threatened
emergency or imminent endangerment situation arising from the Mineral
Spirits Releases; and (iv) reasonable costs incurred by the Buyer or
any Steel Heddle Company as a result of their assumption of management
and control of the conduct of the Mineral Spirits Remediation, as a
result of Sellers' Representative's failure to manage the Mineral
Spirits Remediation in accordance with the standards and requirements
contained herein. Notwithstanding any other provision of this Section
11.5, the Sellers' responsibility to indemnify the Buyer and the
Company for any Mineral Spirits Losses and the Sellers' responsibility
for any Mineral Spirits Remediation, shall be limited to the Escrow
Amount.
11.5.3. Mineral Spirits Remediation. Prior to the Closing
Date, the Sellers' Representative shall conduct a Phase II
environmental investigation at the Westminster, S.C. facility to
determine the presence of any environmental contamination arising from
or relating to any Mineral Spirits Releases. Should the investigation
detect any environmental contamination in quantities or concentrations
that exceed any applicable action levels or cleanup levels established
or utilized by, or that would require investigation, remediation or
monitoring under the applicable rules or regulations of, SCDHEC and
any other applicable Governmental Authority, the Sellers'
Representative shall initiate, conduct, and complete, in accordance
with a work plan (the "Work Plan") approved by SCDHEC and any other
relevant Governmental Authority (and not conditioned on any material
restriction on the ownership or use of the Westminster, S.C. facility
(such as institutional controls or use controls) other than that the
facility continue to be used for industrial purposes)), the Active
Remediation Phase (as defined below) of the Mineral Spirits
Remediation. For purposes of this Section 11.5, the "Active
Remediation Phase" shall consist of all aspects of the Mineral Spirits
Remediation through and including implementation and completion of all
one-time remediation measures (such as soil removal) contemplated by
the Work Plan and, if ongoing
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remediation measures (such as ground water pumping, treatment or
monitoring) are contemplated by the Work Plan, installation of the
wells or other remediation systems, materials or equipment necessary
for such ongoing remediation, and operation for a period of three
months after installation of any such wells, systems, materials or
equipment. By way of clarification, the following, to the extent
required for or contemplated by the Work Plan, are included in the
Active Remediation Phase: any pre-remedial sampling or other
investigation to determine the nature of or delineate the extent of
contamination, including an investigation work plan; the design of
remedial measures or a remedial system, including a remediation work
plan; any one-time removal actions, including excavation, removal,
treatment or disposal of soil; the one-time construction and
installation of the remedial system; obtaining any environmental
permits required for operation of the such remedial system; and
preparation, installation and operation for a three-month period of
any such remedial system and any groundwater monitoring program. The
"Operation and Maintenance Phase" shall consist of all aspects of the
Mineral Spirits Remediation from and after the Active Remediation
Phase.
11.5.4. Cooperation; Conduct of Mineral Spirits
Remediation. The parties agree to reasonably cooperate with one
another in connection with the Mineral Spirits Remediation. Until
termination of the Environmental Escrow, the Sellers shall manage and
control the conduct of the Mineral Spirits Remediation, provided that
notwithstanding anything to the contrary contained herein, the Buyer
or the Company may take such action as is reasonable under the
circumstances, and without prejudice to its rights hereunder, to
respond to an actual or threatened emergency or imminent endangerment
situation arising from the Mineral Spirits Releases and the reasonable
costs associated with such action shall be paid out of the Escrow
Amount, in accordance with the terms of the Environmental Escrow
Agreement. In order to conduct the Mineral Spirits Remediation,
Sellers' Representative shall retain Rogers & Callcott Engineers,
Inc., or another environmental consulting firm that is reasonably
acceptable to the Buyer. Upon reasonable advance request, the Buyer
and the Company shall afford the Sellers' Representative and its
environmental consultant reasonable access to the Westminster, S.C.
facility for the purpose of allowing them to conduct and complete the
Mineral Spirits Remediation. Sellers' Representative shall conduct
the Mineral Spirits Remediation in a manner that does not unreasonably
interfere with the day-to-day operations at the Westminster, S.C.
facility. The Sellers' Representative shall manage the Mineral
Spirits Remediation in good faith and in a responsible manner, and all
activities in connection therewith shall be undertaken promptly and
completed expeditiously using commercially reasonable efforts, subject
to any schedules and approvals required by SCDHEC or any other
applicable Governmental Authority. Should the Sellers' Representative
fail to conduct the Mineral Spirits Remediation in accordance with the
standards and requirements contained herein, the Buyer or the Company
may assume management and control of the Mineral Spirits Remediation,
and the reasonable costs of the Buyer or the Company, as the case may
be, shall be paid out of the Escrow Amount in accordance with the
terms of the Environmental Escrow Agreement. The Sellers'
Representative shall promptly restore to its prior condition (to the
extent commercially feasible) any property that is disturbed or
disrupted as a result of any activities it conducts
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in connection with the Mineral Spirits Remediation. The Sellers shall
indemnify and hold the Buyer and the Steel Heddle Companies harmless,
from, against and in respect of any Losses relating to or arising from
the negligence or willful misconduct of Sellers, Sellers'
Representative, its environmental consultant, any of their agents,
employees, representatives, or contractors in connection with the
Mineral Spirits Remediation. Such Losses shall be paid directly by
Sellers, and shall not be paid out of the Escrow Amount. The Sellers'
Representative shall keep the Buyer and the Company apprised of
developments relating to the Mineral Spirits Remediation and the Buyer
and the Company shall be entitled, at their sole cost and expense, to
reasonably participate in the Mineral Spirits Remediation. Such
participation shall include, without limitation: (i) the right to
receive and comment on draft copies of reports, workplans and
analytical data submitted to any Governmental Body, and the right to
have such comments reasonably addressed, (ii) the right to receive
final copies of such reports, workplans, and data, (iii) the right to
receive copies of all notices, letters or documents received from any
Governmental Body or third party, (iv) the right to receive advance
notices of any material meetings with any Governmental Body and the
opportunity to attend (but without substantive participation) such
meetings; and (v) the right to receive advance notice of and to
comment on all material actions by the Sellers' Representative and the
right to have such comments addressed.
11.5.5. SCDHEC Oversight and Approval. Sellers'
Representative shall use commercially reasonable efforts to obtain
prior written approval of SCDHEC regarding any work Sellers'
Representative proposes to conduct in connection with the Mineral
Spirits Remediation. Should such written approval be unavailable,
Sellers' Representative shall use commercially reasonable efforts to
obtain prior oral approval from an appropriate SCDHEC representative
regarding any such work. Sellers' Representative shall keep SCDHEC
reasonably apprised of activities and results related to the Mineral
Spirits Remediation and shall submit the results of its field work to
SCDHEC for its review. Sellers' Representative shall communicate and
meet with SCDHEC as necessary or appropriate to help ensure that
SCDHEC approves of work conducted in connection with the Mineral
Spirits Remediation.
11.5.6. Termination of Environmental Escrow. Unless
terminated in an Early Termination (as defined below), the Sellers'
responsibilities to Buyer and the Company under this Section 11.5 with
respect to the Mineral Spirits Releases shall terminate (a "Scheduled
Termination"), subject to any payments to be made pursuant to Section
11.5.7, when: (i) any fines, penalties, damages or claims asserted or
received through such date and relating to or arising from the Mineral
Spirits Releases, if any, have been paid, settled, or resolved; (ii)
the Active Remediation Phase has been completed; and (iii) all costs
and expenses associated with the Active Remediation Phase have been
paid. In addition, the Sellers' Representative may, no sooner than
one year after the Closing Date, submit a petition to Buyer for
termination (an "Early Termination") prior to such date of the
Sellers' responsibilities to Buyer and the Company under this Section
11.5 with respect to the Mineral Spirits Releases. Sellers'
Representative shall be permitted to obtain an Early Termination if:
(iv) any fines, penalties, damages or claims incurred or received
through such date and relating to or arising from the Mineral Spirits
Releases, if any, have been paid, settled, or resolved; (v) the
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Remediation Completion Costs (as defined below) are reasonably certain
and estimable; (vii) Sellers' Representative have delivered to the
Buyer and the Company a good faith estimate of the Remediation
Completion Costs; and (ix) such good faith estimate is reasonably
acceptable to Buyer. Upon a Scheduled Termination or an Early
Termination, the Escrow Agreement shall terminate, subject only to the
payments to be made pursuant to Section 11.5.7.
11.5.7. Payments Upon Termination. Upon the termination of
the Environmental Escrow Agreement as provided in Section 11.5.6, the
Escrow Agent shall pay to the Buyer the amount of the Remediation
Completion Costs, and, after such payment to the Buyer the
Environmental Escrow Agent shall pay any remaining amount to the
Sellers' Representative in accordance with the Escrow Agreement. For
purposes of this Section 11.5, the "Remediation Completion Costs"
shall mean, at any time, the estimated costs from such date to
complete the Active Remediation Phase (if not already completed) and
the Operation and Maintenance Phase. In determining the Remediation
Completion Costs, there shall be included an appropriate contingency
amount for uncertainties, and the amount of future costs shall be
determined on a present value basis using a discount rate of twelve
percent (12.0%). The amount of the Remediation Completion Costs shall
be determined by agreement between the Buyer and the Sellers'
Representative or, failing such agreement by binding arbitration as
provided in Section 11.5.9; provided, however, that for purposes of an
Early Termination the amount of the Remediation Completion Costs shall
be determined by agreement between the Buyer and the Sellers'
Representative.
11.5.8. Reduction in Escrow Amount. Upon the approval by
SCDHEC and any other relevant Governmental Authority of the Work Plan,
if the Escrow Amount exceeds the sum of any unpaid fines, penalties,
damages or claims asserted or received through such date and relating
to or arising from the Mineral Spirits Releases plus 150% of the
Remediation Completion Costs, the Sellers shall be entitled to reduce
the Escrow Amount by such the amount of such excess. Any such excess
shall be paid to the Sellers' Representative in accordance with the
Environmental Escrow Agreement.
11.5.9. Disputes; Arbitration. All claims, controversies,
and other matters related to Mineral Spirits Losses, including the
Mineral Spirits Remediation, and interpretation of the requirements
set forth in this Section 11.5, shall be finally resolved through
binding arbitration in South Carolina under the Commercial Arbitration
Rules of the American Arbitration Association, as modified by this
Section 11.5.9. The arbitral tribunal shall consist of a single
arbitrator, who shall be an environmental consultant, environmental
lawyer, or other environmental professional knowledgeable and
experienced regarding SCDHEC remediation requirements and the
investigation and remediation of contamination in South Carolina.
Judgment on the award of the arbitrator may be entered in any court
having jurisdiction thereof or having jurisdiction over one or more of
the parties or their assets. The arbitrator shall allocate the costs
of the arbitration, including reasonable attorney's fees, to the
parties in an equitable manner, taking into account the relative
merits
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of the parties' respective positions. Unless otherwise agreed by the
Buyer and the Sellers' Representative, such costs shall not be paid
out of the Escrow Amount.
11.6. Special Hixon Indemnity. Subject to the terms of this Section
11.6, each of the Sellers jointly and severally agrees to indemnify the Buyer
and the Company and hold the Buyer and the Company harmless from, against and
in respect of any and all Losses arising from or related to the claim of Wesley
F. Hixon described on Schedule 5.9 (the "Hixon Claim"), including any Loss
resulting from the Sellers' failure to defend the Hixon Claim in accordance
with this Section 11.6. Notwithstanding the provisions of Section 11.4, the
provisions of this Section 11.6 shall apply to the notice, settlement and
defense of the Hixon Claim, including any Action brought in respect thereof.
The Sellers, through the Sellers' Representative, shall assume and control the
defense of the Hixon Claim, at the Sellers expense and with counsel of their
choice reasonably satisfactory to the Buyer, which defense shall include the
power to investigate such claim, conduct all communications with Wesley F.
Hixon or his counsel with respect to the Hixon Claim, conduct settlement
discussions, enter into a settlement, or prosecute or defend, in the name of
the Company, any Action relating to the Hixon Claim; provided, however, that
the Sellers may not enter into a settlement with respect to the Hixon Claim
unless such settlement contains an unconditional release of the Company and the
Buyer from all liability in respect of the Hixon Claim; and provided, further,
that the Buyer and the Company may retain separate co-counsel at their cost and
may participate in the defense of the Hixon Claim. The Company and the Buyer
shall cooperate in the defense of the Hixon Claim, and without limiting the
foregoing shall upon request provide to the Sellers all information and
documentation, and reasonable access to all personnel, in their possession or
under their control which are reasonably required to assist in the defense of
the Hixon Claim.
11.7. Certain Other Indemnity Matters. After the Closing, the
Buyer's sole and exclusive remedy with respect to any and all claims relating
to the subject matter of this Agreement (except for disputes with respect to
the preparation of the Closing Balance Sheet and the calculation of the Closing
Working Capital, which shall be resolved in the manner provided in Section
3.2.2, or claims pursuant to Section 7.12 hereof) shall be pursuant to the
indemnification provisions set forth in this Section 11. In furtherance of the
foregoing, the Buyer hereby, on its own behalf and on behalf of its Affiliates,
waives, to the fullest extent permitted under applicable law, and agrees not to
assert in any action or proceeding of any kind, any and all rights, claims and
causes of action it or such Affiliate may now or hereafter have against the
Sellers other than claims for indemnification asserted as permitted by and in
accordance with the provisions set forth in this Section 11 (including any such
rights, claims or causes of action arising under or based upon common law or
other Legal Requirements).
(b) No party shall be liable under this Section 11, and no claim for
indemnification may in any event be asserted under this Section 11, for any
consequential damages by reason of a breach or violation of any representation,
warranty, covenant or other provision.
(c) Upon making any payment to an Indemnitee for any indemnification
claim pursuant to this Section 11, the Indemnifying Party shall be subrogated,
to the extent of such payment,
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to any rights which the Indemnitee may have against other Persons with respect
to the subject matter underlying such indemnification claim.
(d) All costs and expenses of defense incurred by any party as
Indemnifying Party as contemplated by Section 11.4 shall be deemed to
constitute Losses for purposes of Section 11.3.
(e) Any indemnification payments under this Agreement shall be
considered an adjustment to the Purchase Price.
12. CONSENT TO JURISDICTION; JURY TRIAL WAIVER.
12.1. Consent to Jurisdiction. Each party to this Agreement, by its
execution hereof, (i) hereby irrevocably submits, and agrees to cause each of
its Subsidiaries to submit, to the jurisdiction of the state courts of the
State of New York or the United States District Court located in the Southern
District of New York for the purpose of any action, claim, cause of action or
suit (in contract, tort or otherwise), inquiry, proceeding or investigation
arising out of or based upon this Agreement or relating to the subject matter
hereof; (ii) hereby waives, and agrees to cause each of its Subsidiaries to
waive, to the extent not prohibited by applicable law, and agrees not to
assert, and agrees not to allow any of its Subsidiaries to assert, by way of
motion, as a defense or otherwise, in any such action, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution, that any such
proceeding brought in one of the above-named courts is improper, or that this
Agreement or the subject matter hereof may not be enforced in or by such court;
and (iii) hereby agrees not to commence or to permit any of its Subsidiaries to
commence any action, claim, cause of action or suit (in contract, tort or
otherwise), inquiry proceeding or investigation arising out of or based upon
this Agreement or relating to the subject matter hereof other than before one
of the above-named courts nor to make any motion or take any other action
seeking or intending to cause the transfer or removal of any such action,
claim, cause of action or suit (in contract, tort or otherwise), inquiry,
proceeding or investigation to any court other than one of the above-named
courts whether on the grounds of inconvenient forum or otherwise. Each party
hereby consents to service of process in any such proceeding in any manner
permitted by New York law, and agrees that service of process by registered or
certified mail, return receipt requested, at its address specified pursuant to
Section 14.8 is reasonably calculated to give actual notice.
12.2. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY
WAIVES, AND AGREES TO CAUSE EACH OF ITS SUBSIDIARIES TO WAIVE, AND COVENANTS
THAT NEITHER IT NOR ANY OF ITS SUBSIDIARIES WILL ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF
ANY ISSUE OR ACTION, CLAIM , CAUSE OF ACTION OR SUIT (IN CONTRACT, TORT OR
OTHERWISE), INQUIRY, PROCEEDING OR INVESTIGATION ARISING OUT OF OR BASED UPON
THIS AGREEMENT OR THE
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SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO
THE TRANSACTIONS CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING. THE BUYER ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE
SELLERS THAT THIS SECTION 12.2 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THE
SELLERS ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT AND ANY OTHER
AGREEMENTS RELATING HERETO OR CONTEMPLATED HEREBY. ANY PARTY HERETO MAY FILE
AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 12.2 WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT
TO TRIAL BY JURY.
13. TERMINATION.
13.1. Termination of Agreement. This Agreement may be terminated by
the parties only as provided below:
(a) The Buyer and the Sellers' Representative may
terminate this Agreement by mutual written consent at any time prior
to the Closing.
(b) The Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to the Closing in the
event the Sellers are in material breach of any representation,
warranty, covenant or agreement contained in this Agreement, the Buyer
has notified the Sellers of the breach and such breach has continued
without cure for a period of ten (10) Business Days after the notice
of breach and there is a reasonable likelihood that such breach will
result in an inability of the Sellers to satisfy the conditions set
forth in Section 8.1.
(c) The Sellers' Representative may terminate this
Agreement by giving written notice to the Buyer at any time prior to
the Closing in the event the Buyer is in material breach of any
representation, warranty, covenant or agreement contained in this
Agreement, the Sellers' Representative has notified the Buyer of the
breach and such breach has continued without cure for a period of ten
(10) Business Days after the notice of breach and there is a
reasonable likelihood that such breach will result in an inability of
the Buyer to satisfy the conditions set forth in Section 9.1.
(d) The Sellers' Representative may terminate this
Agreement by giving written notice to the Buyer at any time prior to
the Closing in the event any Commitment Letter terminates, or is
terminated, for any reason and is not replaced, to the Sellers'
Representative's reasonable satisfaction, with an alternative
financing commitment within five (5) Business Days; provided, however,
that the termination is not the result of the breach of any
representation or warranty or covenant hereunder by the Sellers, the
Company or any of their Affiliates.
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(e) The Sellers' Representative or the Buyer may
terminate this Agreement on or after July 31, 1998; provided, however,
that the failure to consummate the transaction by such date is not the
result of the breach of a representation or warranty or a covenant
hereunder by the party (or any of its Affiliates) seeking termination.
13.2. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 13.1, all obligations of the parties
hereunder (other than obligations under Sections 7.2, 12, 14 and this Section
13, which shall survive termination) shall terminate without any liability of
any party to any other party; provided, however, that no termination by a party
pursuant to clause (b), (c), (d) or (e) of Section 13.1 shall relieve any party
from any liability arising from or relating to any breach by such party prior
to termination.
13.3. Time of the Essence. Time is and shall be of the essence in
this Agreement.
14. MISCELLANEOUS.
14.1. Entire Agreement; Waivers. This Agreement (including the
Schedules and Exhibit hereto) constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersedes all prior
and contemporaneous agreements, understandings, negotiations and discussions,
whether oral or written, of the parties with respect to such subject matter,
other than (i) the Confidentiality Agreement (which shall survive execution and
delivery of this Agreement and shall survive any termination of this Agreement
but shall terminate upon consummation of the Closing) and (ii) any agreements
solely among the Sellers or between the Sellers' Representative and any of the
Sellers. Any waiver of any provision of this Agreement shall not be deemed to
constitute a waiver of any other provision hereof (whether or not similar), and
no waiver shall constitute a continuing waiver unless otherwise expressly
provided and no such waiver shall be effective unless in writing and executed
(i) in the case of a waiver by the Buyer, by an authorized signatory thereof;
and (ii) in the case of a waiver by the Sellers, by the Sellers'
Representative.
14.2. Amendment or Modification. The parties hereto may not amend
or modify this Agreement except by a written instrument executed by the Buyer
and the Sellers' Representative.
14.3. Investigation; No Additional Representations. The Sellers and
the Company have not made and are not making any representation, warranty,
covenant or agreement, express or implied, with respect to the matters
contained in this Agreement other than the explicit representations,
warranties, covenants and agreements set forth herein. The Buyer acknowledges
and agrees that it (i) has made its own inquiry and investigation into, and
based thereon has formed an independent judgment concerning, the Business and
the Steel Heddle Companies; (ii) has been furnished with or given adequate
access to such information about the Business and the Steel Heddle Companies as
it has requested, and (iii) will not assert, after the Closing, except pursuant
to Section 3.2.2 or Section 11, any claim against the Sellers or any of their
respective partners, directors, officers, employees, agents, stockholders,
consultants, investment bankers, brokers, representatives or controlling
Persons, or any Affiliate of any of the foregoing, or hold
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the Sellers or any such Persons liable, for any inaccuracies, misstatements or
omissions with respect to information furnished by the Company, the Sellers or
such Persons concerning the Business, the Steel Heddle Companies, this
Agreement or the transactions contemplated hereby.
14.4. Severability. In the event that any provision hereof would,
under applicable law, be invalid or unenforceable in any respect, such
provision shall (to the extent permitted under applicable law) be construed by
modifying or limiting it so as to be valid and enforceable to the maximum
extent compatible with, and possible under, applicable law. The provisions
hereof are severable, and in the event any provision hereof should be held
invalid or unenforceable in any respect, it shall not invalidate, render
unenforceable or otherwise affect any other provision hereof.
14.5. Successors and Assigns. All of the terms and provisions of
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective permitted transferees and assigns (each of
which transferees and assigns shall be deemed to be a party hereto for all
purposes hereof); provided, however, that (i) no transfer or assignment by any
party hereto shall be permitted without the prior written consent of the other
parties hereto and any such attempted transfer or assignment without consent
shall be null and void and (ii) no transfer or assignment by any party shall
relieve such party of any of its obligations hereunder. Notwithstanding the
foregoing, the Buyer may assign its rights and delegate its obligations
hereunder to any Affiliate and after the Closing, to any Person (i) in
connection with a sale of all or substantially all assets of the Buyer, (ii)
who acquires all of the capital stock of the Buyer or (iii) who provides
financing to the Buyer or its Affiliates.
14.6. Limited Liability of Partners. The Buyer agrees that none of
the general, limited partners of any of the BCC Sellers that is a limited
partnership (each, a "Seller Partnership" and collectively, the "Seller
Partnerships") or any general partner of any Seller Partnership shall have any
liability, personal or otherwise, and that neither the Buyer nor any of the
Buyer's Subsidiaries or Affiliates shall seek or be entitled to impose any such
liability on any such general or limited partner, for or by reason of any
obligation of any Seller Partnership or any action or inaction of any Seller
Partnership or any such general or limited partner under, in connection with,
related to or by reason or means of (i) this Agreement, (ii) any of the
transactions contemplated hereby or (iii) the purchase, ownership or
disposition of any Securities; provided, however, that the foregoing shall not
limit the liability of any Seller Partnership to the extent arising from any
obligation of it, or any action or inaction by it, in its capacity as a Seller
or as a direct holder of Securities.
14.7. Public Announcements. At all times no party hereto will issue
or make any reports, statements or releases to the public with respect to this
Agreement or the transactions contemplated hereby without the consent of the
other parties hereto, which consent shall not be unreasonably withheld. If any
party hereto is unable to obtain, after reasonable effort, the approval of its
public report, statement or release from the other parties hereto and such
report, statement or release is, in the opinion of legal counsel to such party,
required by law in order to discharge such party's disclosure obligations, then
such party may make or issue the legally
-51-
<PAGE> 57
required report, statement or release and promptly furnish the other parties
with a copy thereof. Each party hereto will also obtain the prior approval by
the other parties hereto of any press release to be issued announcing the
consummation of the transactions contemplated by this Agreement. Any consent
required of the Sellers under this Section 14.7 may be given by the Sellers'
Representative.
14.8. Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if in writing and delivered
personally or sent by telecopier, Federal Express, or registered or certified
mail, postage prepaid, addressed as follows:
<TABLE>
<S> <C>
If to the BCC Sellers, to: c/o Butler Capital Corporation
767 Fifth Avenue, 6th Floor
New York, New York 10153
Telecopier: (212) 759-0876
Attention: Mr. David Barr
with a copy to: Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopier: 617-951-7050
Attention: Daniel S. Evans, Esq.
If to the Individual Sellers, to: Haynsworth, Marion, McKay & Guerard, L.L.P.
75 Beattie Place, UCB Tower, 11th Floor
Post Office Box 2048
Greenville, South Carolina 29602
Telecopier: (803) 240-3300
Attention: Joseph J. Blake, Jr., Esq.
If to the Buyer , to: c/o American Industrial Partners
551 Fifth Avenue
Suite 3800
New York, NY 10176
Attention: Robert Klein
Facsimile: 212-986-5099
with a copy to: American Industrial Partners
One Maritime Plaza
Suite 2525
San Francisco, CA 94111
Attention: Chief Financial Officer
Facsimile: 415-788-5302
</TABLE>
-52-
<PAGE> 58
and
Kirkland & Ellis
655 Fifteenth Street, N.W.
Suite 1200
Washington, DC 20005
Attention: Jack M. Feder, Esq.
Facsimile: 202-879-5200
Unless otherwise specified herein, such notices or other communications shall
be deemed received (a) on the date delivered, if delivered personally, (b) two
(2) Business Days after being sent by Federal Express, if sent by Federal
Express, (c) one (1) Business Day after being delivered, if delivered by
telecopier and (d) three (3) Business Days after being sent, if sent by
registered or certified mail. Each of the parties hereto shall be entitled to
specify a different address by giving notice as aforesaid to each of the other
parties hereto.
14.9. Headings, Etc. Section and Subsection headings are not to be
considered part of this Agreement, are included solely for convenience, are not
intended to be full or accurate descriptions of the content thereof and shall
not affect the construction hereof.
14.10. Third-Party Beneficiaries. Nothing in this Agreement is
intended or shall be construed to entitle any Person other than the Sellers'
Representative, the parties or their respective transferees and assigns
permitted hereby to any claim, cause of action, remedy or right of any kind.
14.11. Termination of Stockholder's Agreement. Each Seller that is
party to the Stockholder's Agreement dated December 24, 1992 between the
Company and certain stockholders hereby agrees that, effective upon the
Closing, such agreement is hereby terminated and canceled and shall be of no
further force and effect.
14.12. Termination of Consulting Services Agreement. Mfg. Co. and
BCC Industrial Services, Inc., hereby agree that, effective upon the Closing,
the Consulting Services Agreement dated as of January 1, 1996 between the
Company and BCC Industrial Services, Inc. is hereby terminated and canceled and
shall be of no further force or effect.
14.13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
14.14. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic substantive laws of the State of New
York, without giving effect to any choice or conflict of law provision or rule
that would cause the application of the laws of any other jurisdiction.
-53-
<PAGE> 59
14.15. Strict Construction. No rule of strict construction shall
apply to or be used against any party hereto.
14.16. Expenses. All costs and expenses (including any fees paid to
Merrill Lynch & Co., legal fees and expenses) incurred by the Sellers in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the Sellers directly, or indirectly in the manner contemplated by
Section 3.1 and clause (vi) of Section 11.1.1. All such costs and expenses
incurred by the Company shall be paid by the Company, whether or not the
transactions contemplated hereby are consummated (it being understood that if
such transactions are consummated, such expenses will be borne indirectly by
the Sellers pursuant to Sections 3.1 and 3.2), and all such costs and expenses
incurred by the Buyer (including any fees and expenses incurred in connection
with any financing arranged by the Buyer) shall be paid by the Buyer whether or
not the transactions contemplated hereby are consummated.
[THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
-54-
<PAGE> 60
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed, as of the date first above
written by their respective officers thereunto duly authorized.
THE COMPANY: SH HOLDINGS CORP.
By:/s/ Benjamin G. Team
------------------------------------------
Title:
MEZZANINE LENDING ASSOCIATES II, L.P.
By: Mezzanine Lending Management II, L.P.,
its general partner
MEZZANINE LENDING ASSOCIATES III, L.P.
By: Mezzanine Lending Management III, L.P.,
its general partner
MEZZANINE LENDING MANAGEMENT II, L.P.
MEZZANINE LENDING MANAGEMENT III, L.P.
SENIOR LENDING ASSOCIATES I, L.P.
By: Senior Lending Management I, L.P.,
its general partner
SENIOR LENDING ASSOCIATES II, L.P.
By: Senior Lending Management II, L.P.,
its general partner
SENIOR LENDING MANAGEMENT I, L.P.
By:/s/ Gilbert Butler
-----------------------------------------------
their General Partner
BCC INDUSTRIAL SERVICES, INC.
By:
-----------------------------------------------
its authorized signatory
<PAGE> 61
/s/ Jerry B. Miller
--------------------------------------------------
Jerry B. Miller
/s/ Benjamin G. Team
--------------------------------------------------
Benjamin G. Team
/s/ Robert W. Dillon
--------------------------------------------------
Robert W. Dillon
LEEWAY & CO.
By: State Street Bank and Trust Company,
as General Partner
By:/s/ Kimberly A. Moynihan
-------------------------------------------
Title:Assistant Secretary
/s/ Thomas A. Korbutt
--------------------------------------------------
Thomas A. Korbutt
/s/ Edward A. Rostick
--------------------------------------------------
Edward A. Rostick
/s/ Frank L. Rodgers
--------------------------------------------------
Frank L. Rodgers
/s/ James E. Merritt
--------------------------------------------------
James E. Merritt
/s/ Wesley F. Hixon
--------------------------------------------------
Wesley F. Hixon
/s/ Hugh I. Cash
--------------------------------------------------
Hugh I. Cash
<PAGE> 62
/s/ James B. Conner
---------------------------------
James B. Conner
/s/ William B. Parson
---------------------------------
William B. Parson
*
---------------------------------
Stefan Burgess Schwinn
*
---------------------------------
Miller Elizabeth Schwinn
*
---------------------------------
Jacob Logan Schwinn
/s/ Kimberly M. Schwinn
---------------------------------
Kimberly M. Schwinn
/s/ Benjamin G. Team III
---------------------------------
Benjamin G. Team III
/s/ Martha T. Garrison
---------------------------------
Martha T. Garrison
/s/ Francis E. Team
---------------------------------
Frances E. Team
THE BUYER: STEEL HEDDLE GROUP, INC.
By:/s/ Robert J. Klein
------------------------------
Title: President
/s/ Kimberly M. Schwinn
- -----------------------
*By Kimberly M. Schwinn as custodian for Stefan B. Schwinn, Miller E. Schwinn
and Jacob L Schwinn, under South Carolina Uniform Gift for Minors Act.
BUTLER CAPITAL CORPORATION
By: Gilbert Butler
---------------------------------------
Title:
<PAGE> 63
EXHIBIT 3.2.1
STEEL HEDDLE
WORKING CAPITAL
<TABLE>
<CAPTION>
Target April 4, 1998
------ -------------
Actual
------
<S> <C> <C>
Cash and cash equivalents 0 276,011
Accounts receivable 10,577,016 11,114,740
Inventories @LIFO 14,230,156 15,071,208
Prepaid expenses 132,707 49,620
----------- -------------
TOTAL CURRENT ASSETS 24,939,879 26,511,579
Accounts payable 1,844,833 2,193,611
Income taxes payable(1) 200,000 1,485,021
Accrued & sundry liabilities 3,822,019 3,130,420
Accrued Interest (384,775) (114,211)
----------- -----------
Adjusted accrued & sundry liabilities 3,437,244 3,016,209
TOTAL CURRENT LIABILITIES 5,482,077 6,694,841
----------- -----------
WORKING CAPITAL 19,457,802 19,816,738
=========== ==========
</TABLE>
- --------------------
(1) Note: does not include deferred income taxes.
<PAGE> 64
EXHIBIT 8.4
SELLER'S COUNSEL OPINION
Special counsel to Sellers shall opine, in a manner reasonably satisfactory to
Buyer, with respect to the following matters (defined terms used herein shall
have the meanings set forth in the Stock Purchase Agreement dated as of May 1,
1998);
1. The Company is duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania and is duly
qualified as a foreign corporation in each such other jurisdiction where the
nature of its business or the ownership of its properties requires such
qualifications, except where the failure to be so qualified would not have a
Material Adverse Effect on the Company. The Company has the corporate power
and authority to own its property and assets and to conduct its business as
presently owned and conducted. The Company has the corporate power and
authority to enter into and perform its obligations under the Stock Purchase
Agreement. The Stock Purchase Agreement has been duly authorized, executed and
delivered by the Company.
2. Each of the Sellers that is not an individual is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and each of such Sellers has the power to enter
into and perform its obligations under the Stock Purchase Agreement. The Stock
Purchase Agreement has been duly authorized (in the case of non-individual
Sellers), executed and delivered by each Seller.
3. The outstanding capital stock of the Company is duly
authorized, validly issued and fully paid and non-assessable. To the Knowledge
of such counsel, the Shares are the only issued and outstanding capital stock
of the Company. As of the date hereof, the Company, directly or indirectly,
owns of record and, to the Knowledge of such counsel, beneficially, all of the
outstanding capital stock of each of its Subsidiaries, except for Steel Heddle
International de Mexico, S.A. DE C.V.
4. The Company's authorized capital stock consists solely of
2,000,000 shares of Class A Common Stock, 8,000,000 shares of Class B Common
Stock and no shares of preferred stock. The Sellers collectively own of record
and, to the knowledge of such counsel, beneficially all of the outstanding
capital stock of the Company, and, to the knowledge of such counsel free and
clear of all encumbrances with full right, power and authority to transfer,
exchange and sell said shares to Buyer. Assuming that the Buyer is acquiring
the outstanding Common Stock in good faith and without notice of any adverse
claims, upon consummation of the transactions contemplated by the Stock
Purchase Agreement, the Buyer will acquire valid title to such stock, free and
clear of all liens.
<PAGE> 65
5. To the Knowledge of such counsel, other than as identified in
the Stock Purchase Agreement, there are no outstanding subscriptions, calls,
commitments, warrants or options for the purchase of shares of any capital
stock or other securities of the Company or any securities convertible into or
exchangeable for shares of capital stock or other securities issued by the
Company, or any other commitments of any kind for the issuance of additional
shares of capital stock or other securities issued by the Company.
6. To such counsel's Knowledge, no Action is pending against the
Company with respect to the transactions contemplated by the Stock Purchase
Agreement.
7. The Stock Purchase Agreement constitutes a legally valid and
binding obligation of each of the Company and the Sellers and is enforceable
against each of such parties in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights, or the
applicability of equitable principles.
8. Neither execution and delivery of the Stock Purchase Agreement
nor performance thereunder by the Company or any of the Sellers will (i)
conflict with or violate the organizational documents of such Person (in the
case of non-individual Sellers); (ii) to such counsel's knowledge, violate,
conflict with or constitute a material default under, or result in the
imposition of any material encumbrance on any such Person, pursuant to any
material agreement or commitment to which any of such Person is a party and
which is identified to such counsel by the Company or any of the Sellers as a
material agreement or commitment (except as otherwise noted in such counsel's
opinion); (iii) to such counsel's knowledge, violate any court orders which are
binding on any such Person; or (iv) violate any regulation, rule or statute
applicable to such Person, which violation would have a material adverse effect
on such Person.
9. No authorization, consent, order, permit or approval of, or
notice to or filing with, any court or governmental authority or other person
or entity is required for the execution and delivery of the Stock Purchase
Agreement or the consummation of the transactions contemplated thereby in
accordance with the terms of the Stock Purchase Agreement, other than any such
authorization, consent, order or approval which has been obtained.
-2-
<PAGE> 66
EXHIBIT 9.3
BUYER'S COUNSEL OPINION
Special counsel to Buyer shall opine, in a manner reasonably satisfactory to
Seller, with respect to the following matters (defined terms used herein shall
have the meanings set forth in the Stock Purchase Agreement dated as of May 1,
1998):
1. Buyer has been duly organized and is validly existing and in
good standing under the laws of the State of Delaware and has the corporate
power and authority to own its property and assets and to conduct its business
as presently owned and conducted. Buyer has the corporate power and authority
to enter into and perform its obligations under the Stock Purchase Agreement,
and all necessary corporate action has been taken by Buyer to authorize the
execution and delivery of the Stock Purchase Agreement and the performance of
its obligations thereunder.
2. To such counsel's Knowledge, no Action is pending against the
Buyer with respect to the transactions contemplated by the Stock Purchase
Agreement.
3. The Stock Purchase Agreement constitutes a legally valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights, or the applicability of equitable principles.
4. Neither execution and delivery of the Stock Purchase Agreement
nor performance thereunder by Buyer will (i) conflict with the Certificate of
Incorporation or By-laws of Buyer; (ii) to the Knowledge of such counsel,
violate, conflict with or constitute a material default under, or result in the
imposition of any material encumbrance on Buyer pursuant to any material
agreement or commitment to which Buyer is a party and which is identified to
such counsel by Buyer as a material agreement or commitment; (iii) violate any
court orders that are binding on Buyer; or (iv) to such counsel's knowledge,
violate any statute, rule or regulation presently applicable to Buyer, which
violation would have a material adverse effect on Buyer.
5. No authorization, consent, order, permit or approval of, or
notice to or filing with, any court or governmental authority or other person
or entity is required for the execution and delivery of the Stock Purchase
Agreement or the consummation of the transactions contemplated thereby in
accordance with the terms of the Stock Purchase Agreement, other than any such
authorization, consent, order, permit or approval which has been obtained.
<PAGE> 67
EXHIBIT 11.5.2
ENVIRONMENTAL ESCROW AGREEMENT
-2-
<PAGE> 68
SCHEDULE 1
OWNERSHIP
<TABLE>
<CAPTION>
Warrant & Rights to Total
Shares Option Unallocated Fully-Diluted Proportionate
Owned Shares Shares Shares Share
----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
CLASS A
- -------
Thomas A. Korbutt 11,250 2,204 13,454 1.2717
Jerry B. Miller 11,250 2,204 2,060 15,514 1.4665
Edward A. Rostick 11,250 2,204 13,454 1.2717
Frank L. Rodgers 4,500 882 5,382 0.5087
Benjamin G. Team 11,250 2,204 4,140 17,594 1.6631
Robert W. Dillon 11,250 2,204 2,720 16,174 1.5288
James E. Merritt 11,250 2,204 13,454 1.2717
Wesley F. Hixon 6,750 0 6,750 0.6380
Hugh I. Cash 2,250 0 2,250 0.2127
James Brant Conner 4,500 0 4,500 0.4254
William B. Parson 4,500 0 4,500 0.4254
Stefan Burgess Schwinn 100 0 100 0.0095
Miller Elizabeth Schwinn 30 0 30 0.0028
Jacob Logan Schwinn 30 0 30 0.0028
Kimberly M. Schwinn 500 0 500 0.0473
Benjamin G. Team III 140 0 140 0.0132
Martha T. Garrison 140 0 140 0.0132
Frances E. Team 140 0 140 0.0132
BCC Industrial Services, Inc. 0 31,570 31,570 2.9841
- -------------------------------------------------------------------------------------------------------------------
CLASS A TOTALS 91,080 45,676 8,920 145,676 13.7699
- -------------------------------------------------------------------------------------------------------------------
CLASS B
- -------
SLA I B-1 66,110 66,110 6.2490
SLM I B-1 1,113 1,113 0.1052
SLA II B-2 66,110 66,110 6.2490
MLA II B-3 347,158 347,158 32.8150
MLM II B-3 14,700 14,700 1.3895
Leeway B-3 56,906 56,906 5.3790
MLM III B-4 12,653 12,653 1.1960
Leeway B-4 48,960 48,960 4.6279
MLA III B-4 298,540 298,540 28.2194
- -------------------------------------------------------------------------------------------------------------------
CLASS B TOTALS 912,250 0 0 912,250 86.2300
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
TOTALS 1,003,330 45,676 8,920 1,057,926 100.0000
===================================================================================================================
</TABLE>
<PAGE> 69
STOCK SUBJECT TO LIENS
1. Pledge, pursuant to Security Agreement, by William B. Parson to Steel
Heddle Mfg. Co. of 4,500 shares of Common Stock as collateral for a loan
by Steel Heddle Mfg. Co. to Parson in the original principal amount of
$85,041 pursuant to Note dated as of April 29, 1994
2. Pledge, pursuant to Security Agreement, by James B. Conner to Steel
Heddle Mfg. Co. of 4,500 shares of Common Stock as collateral for a loan
by Steel Heddle Mfg. Co. to Conner in the original principal amount of
$85,041 pursuant to Note dated as of April 29, 1994.
-2-
<PAGE> 70
SCHEDULE 4.3
SELLERS' EXCEPTIONS TO NON-CONTRAVENTION
1. Credit Agreement dated February 20, 1997 among SH Intermediate Corp., et
al. and NationsBank, N.A., as agent.
-3-
<PAGE> 71
SCHEDULE 5.1.2
COMPANY EXCEPTIONS TO NON-CONTRAVENTION
1. Credit Agreement dated February 20, 1997 among SH Intermediate Corp., et
al. and NationsBank, N.A., as agent.
2. Any necessary filings pursuant to Hart-Scott-Rodino Act.
3. Chubb Crime Insurance Policy.
-4-
<PAGE> 72
SCHEDULE 5.1.4
SH HOLDINGS CORP. SUBSIDIARIES
<TABLE>
<CAPTION>
Name Jurisdiction % Ownership
- ---- ------------ -----------
<S> <C> <C>
SH Intermediate Corp. S. C. 100.00
Steel Heddle Mfg. Co. PA 100.00
Heddle Capital Corp. Delaware 100.00
Steel Heddle International, Inc. S. C. 100.00
Steel Heddle International, Ltd. VI V.I. 100.00
Steel Heddle (Canada) Ltee/Ltd. Canada 100.00
Steel Heddle International de Mexico, S.A. DE C.V. Mexico 99.98(1)
Privada de la Soledad No. 503
Colonia Jaguey Barrio
Delegacion Azcapotzalco
02519, Mexico, D.F.
Steel Heddle International Japan (Branch) Japan 100.00
Room 905, 1/Otsubashi
Tensho Building, No. 9
1-12-12, Shinmachi, Nishi-Ku
Osaka 550, Japan
Steel Heddle (Tianjin) Weaving Machine China 100.00
Accessories Co. Ltd.
3 Wan Liu Cun Ave.
Hebei District, Tianjin, China
</TABLE>
- --------
(1) Remaining .02 consists of one share held by B. Team, one share held by R.
Dillon, one share held by J. Merritt and one share held by J. Miller.
-5-
<PAGE> 73
SCHEDULE 5.1.5
DIRECTORS & OFFICERS
SH HOLDINGS CORP.
Directors
- ---------
David Barr
Tom Burger
Daniel H. Kahrs
Benjamin G. Team
Robert W. Dillon
Officers
- --------
Benjamin G. Team President
Jerry B. Miller Secretary & Treasurer
SH INTERMEDIATE CORP.
Directors
- ---------
David Barr
Tom Burger
Daniel H. Kahrs
Benjamin G. Team
Robert W. Dillon
Officers
- --------
Benjamin G. Team President
Jerry B. Miller Secretary & Treasurer
STEEL HEDDLE MFG. CO.
Directors
- ---------
David Barr
Tom Burger
Daniel H. Kahrs
Benjamin G. Team
Robert W. Dillon
-6-
<PAGE> 74
<TABLE>
<S> <C>
Officers
- --------
Benjamin G. Team President & Chief Executive Officer
Robert W. Dillon Executive Vice President
Jerry B. Miller Vice President - Finance & Secretary
Thomas A. Korbutt Vice President - Frame Division
John D. Wright Manager - Heddle Division
C. Randy Boggs Manager - Reed Division
Edward J. Treglia Manager - Rolled Products Division
J. Brant Conner General Sales Manager
HEDDLE CAPITAL CORP.
Directors
- ---------
Benjamin G. Team
Jerry B. Miller
Francis B. Jacobs
Officers
- --------
Jerry B. Miller President
Benjamin G. Team Vice President, Treasurer
Joan L. Dobrzynski Secretary, Assistant Treasurer
STEEL HEDDLE INTERNATIONAL, INC.
Directors
- ---------
Benjamin G. Team
Robert W. Dillon
Jerry B. Miller
Officers
- --------
Benjamin G. Team President
Robert W. Dillon Executive Vice President
Jerry B. Miller Vice President - Finance & Secretary
STEEL HEDDLE INTERNATIONAL, LTD. VI
Directors
- ---------
Benjamin G. Team
Robert W. Dillon
Jerry B. Miller
Susan S. Seipel
Lesley Thomas-Dawson
</TABLE>
-7-
<PAGE> 75
Officers
- --------
Benjamin G. Team President
Robert W. Dillon Senior Vice President
Jerry B. Miller Secretary
Jerry B. Miller Treasurer
STEEL HEDDLE (CANADA) LTEE/LTD.
Director
- --------
Don Poure
Officers
- --------
Benjamin G. Team President
Jerry B. Miller Vice President
Don Poure Secretary and Treasurer
STEEL HEDDLE INTERNATIONAL DE MEXICO S.A. DE C.V.
Directors
- ---------
Benjamin G. Team
Robert W. Dillon
Jerry B. Miller
J. Brant Conner
Officers
- --------
Benjamin G. Team President
Robert W. Dillon Executive Vice President
Jerry B. Miller Vice President Finance & Secretary
J. Brant Conner Vice President
-8-
<PAGE> 76
SCHEDULE 5.3
CHANGES IN CONDITION SINCE BALANCE SHEET DATE
None.
-9-
<PAGE> 77
SCHEDULE 5.4
ENVIRONMENTAL MATTERS
Greenville, Georgia
1. A septic tank tile field and lime pit with a drain line were used to
dispose of liquid production wastewaters from 1972, until the plant tied
into the City of Greenville's sewer system between 1981 and 1984. It is
believed the septic tile field was located in front of the building. The
lime pit was located near the northwest corner of the building and
drained toward the east. The Company believes that little manufacturing
wastewater was disposed in the septic tank tile field, based upon the
plant's current flow to the sewer system. The lime pit collected a lime
wash water from the solder reeds. No solvents or oil are believed to have
been on the solder reeds at this point in the manufacturing process. No
physical manifestations such as stressed vegetation or discolored soil
were observed during the inspection of these areas by Rogers and Callcott
Engineers, Inc. in January 1993.
2. In January 1993, Rogers and Callcott Engineers, Inc. observed a small
area of discolored (black) soil/ash/debris around the base of two air
exhaust units located behind the manufacturing building. The Company
believes that the discolored material was from a fire in one of the
exhaust outlets. The discolored material appeared to be superficial in
nature.
Greensboro, North Carolina
3. A lime pit has been used since the time the plant was built, in
approximately 1964. The lime pit is located along the western wall of the
main building and discharges to the city sewer. The lime pit collects a
lime wash water from the solder reeds. No solvents or oils are believed
to be on the solder reeds at this point in the process. No physical
manifestation such as stressed vegetation or discolored soil were
observed around the lime pit during the inspection of the area by Rogers
and Callcott Engineers, Inc. in January 1993.
4. A 275-gallon aboveground varsol storage tank and a solvent product drum
dispensing rack are located along the northern exterior wall of the main
building. The area around the tank and drum area is not paved and has no
spill containment structure.
5. Along the west outside wall of the main manufacturing building, the
baghouses are located. In January 1993, when this area was inspected by
Rogers and Callcott Engineers, Inc., the area immediately around the
baghouses appeared to be surficially stained.
6. In the yard to the north of the main manufacturing building is an area
where tar had been stored for use in the pitch reed manufacturing
process. In January 1993, when this area was inspected by Rogers and
Callcott Engineers, Inc., the drums of tar had been removed, but tar
residue remained on the ground in the area.
Greenville, North Carolina
7. In 1987, three lagoons at the facility were RCRA certified closed as
landfills by the EPA. In 1989, the facility started ground water
remediation and monitoring at the site to comply with the RCRA post-
closure case requirements. In 1996, the facility was issued a revised
RCRA Part B and Post Closure Care Permit. This permit includes a 30-year
period of post-closure care for the 3 lagoons and requires: (1) the
maintenance of the integrity and effectiveness of the landfills' cover;
and (2) continued ground water recovery and ground water monitoring.
-10-
<PAGE> 78
8. There is one external pad-mounted transformer that does not have labels
regarding PCB-content. No evidence of leaks or stains around the
transformer unit have been observed.
9. The facility is a Large Quantity Generator (LQG) of hazardous waste and
is a permitted Treatment Storage and Disposal (TSD) facility for treating
electroplating wastes. At times, the roll-offs containing hazardous waste
have not been appropriately labeled. The facility's Contingency Plus &
Emergency Procedures Plan dated March 29, 1993, is out of date and needs
to be updated to reflect management and operations changes.
The facility is inspected annually by the hazardous waste division of the
South Carolina Department of Health and Environmental Control (DHEC). The
1997 inspection identified deficiencies in the form of open waste
containers, a missing land disposal restriction modification form, and
incomplete hazardous waste determinations, which the facility
subsequently addressed. No penalties were assessed for the 1997
deficiencies.
In 1992, the facility received a Notice of Violation (NOV) resulting from
noncompliance items with respect to hazardous waste determinations,
manifest discrepancies, hazardous waste drum labeling discrepancies,
hazardous waste storage on-site longer than 90 days, the absence of
identification for satellite storage areas, irregular maintenance of
quarterly reports, improper employee training, and inadequate hazardous
waste weekly inspections. The facility was assessed a penalty of $18,250
for these violations.
10. Aqua-Tech Hazardous Waste Treatment Facility, Greer, South Carolina
Steel Heddle was assessed and remitted a sum of $115,513 for response
costs incurred by DHEC at the Aqua-Tech site. Steel Heddle settled with
the Aqua-Tech PRP Group and paid a sum of $42,806 in settlement of all
response costs incurred in connection with the surface clean-up at the
Aqua-Tech site through February 28, 1997. The Aqua-Tech PRP Group did not
settle its claim against Steel Heddle for Steel Heddle's allocated share
of the RI/FS costs (estimated to be $2,500.28). The settlement also did
not include the Aqua-Tech PRP Group's claim against Steel Heddle for
future remediation costs.
11. Beaco Road Site, South Carolina
Steel Heddle was alleged to be a PRP at the Beaco Road site. In an order
dated December 9, 1995, Judge G. Ross Anderson, Jr. dismissed Steel
Heddle from the case. Judge Ross concluded that Steel Heddle did not
deliver or arrange for the delivery of any hazardous substance to the
site.
12. Douglasville Site, Pennsylvania Banks Associates, Inc.
Litigation Steel Heddle was alleged to be a PRP at the Douglasville site.
In an order dated January 31, 1994, Judge S.J. Troutman dismissed Steel
Heddle without prejudice and gave the third-party plaintiffs thirty days
to effect service of another complaint, and that deadline passed without
an additional compliant being served. On April 1, 1994, the court
confirmed that Steel Heddle was out of the case.
13. Jadco-Hughes Site, Belmont, North Carolina
On June 12, 1986, USEPA requested Steel Heddle to submit information in
connection with alleged disposal of waste at the Jadco-Hughes site. In
letters dated June 20, 1986 and June 24, 1986, Ogletree, Deakins, et al.,
counsel for Steel Heddle, responded that Steel Heddle had no records of
sending wastes to the Jadco-Hughes site. No further response has been
received from the USEPA.
14. The facility discharges sanitary wastewater and treated process
wastewater to the Taylors Wastewater Treatment Plant in accordance with
an Industrial Wastewater Discharge Permit (ID-0080C, expires 3/31/2000)
issued by the Western Carolina Regional Sewer Authority (WCRSA). The
facility is currently identified as a categorical wastewater discharger
due to its industrial operations of
-11-
<PAGE> 79
electroplating and metal finishing. This categorical industry
identification designates pretreatment standards for all associated
metal finishing industries. The categorical parameters and limitations
identified in the facility's permit were determined in accordance with
40 CFR 433.15 (Pretreatment standards for existing sources - metal
finishing subcategory). The facility conducts monitoring in accordance
with the requirements of the permit and 40 CFR 433.15.
WCRSA conducts annual inspections of the facility. The 1996 and 1997
inspection reports indicated that the facility had a violation of permit
conditions/limitations or sewer use regulations. However, no details
were provided in the reports and the facility did not receive a NOV and
was not assessed any penalty. The 1995 and 1996 effluent quality data do
not reveal any significant areas of concern except for two exceedances
of the total chromium limitation and an exceedance for total flow.
15. The facility discharges storm water to Mountain Creek under a general
permit (SCR006000) issued by the DHEC that expired on September 30,
1997. DHEC informed the facility that a renewal application was not
necessary. DHEC indicated that it is running behind schedule and a
revised permit will be issued soon. DHEC informed the facility that the
existing permit conditions would not be changed. The facility conducts
semi-annual monitoring for selected parameters. At the request of DHEC,
results of the analysis of the storm water sampling is maintained
on-site by the facility (the permit states that the results should be
submitted to DHBC).
16. In 1993, the facility conducted whole effluent toxicity test. Results of
the test indicated that the storm water discharge was of concern (acute
toxicity to the fish was observed at the 100% effluent concentrations).
Facility personnel are unaware if the results were submitted to DHEC.
17. The facility is currently not subject to Title V permitting process. The
facility is currently operating under Air Quality Permit No. 1200-0006
(issued December 8, 1997; expires November 30, 2002) and is identified
as having 14 emission sources. Among other items, the permit requires
the facility to maintain logs on the three boilers whenever the boilers
are in operation, prepare an operation and maintenance plan for all
scrubbers, monitor and record velocity pressure at the inlet and the
pressure drop across the chrome scrubber, maintain inspection and
maintenance records on the chrome line scrubber and the chrome line
plating tanks, maintain records of trichlomedrylene use in the
degreaser, etc. The facility has not yet implemented all the required
procedures to comply with the monitoring and recordkeeping requirements
of the operating permit.
18. The facility is inspected annually by the Air Quality Division of DHEC.
In 1997, the facility received a NOV for not including control equipment
in the permit, which the facility subsequently addressed. No penalties
were assessed for this violation.
19. The SPCC Plan is out of date. SPCC plans must be reviewed and updated
once every three years. The facility's SPCC plan was prepared in 1993
and has not been updated since.
20. Four phases of ground water quality assessment were conducted that
identified and delineated VOC contamination at SWMU 39-42. In August
1989, ground water remediation was initiated in accordance with RCRA
Corrective Action. The purpose of well network is to monitor and recover
contaminants originating from two closed waste management units (Lagoon
1 and Lagoon 2&3).
The current monitoring and recovery system consists of 4 recovery wells,
29 monitoring wells, and six piezometers. The primary VOCs and the
corresponding 1997 maximum levels are: 1,1-DCA (70 ppb), 1,1-DCE (91
ppb), 1,2-DCE (49 ppb), PCE (20 ppb), and TCE (13 ppb). The combined
recovery flow rate is 14.5 gpm, and the extracted water is used as
process water in the electroplating operation or is discharged directly
to POTW.
-12-
<PAGE> 80
There are also three production wells at the site (PW1-PW3) that are 350
ft, 250 ft and 405 ft deep. In 1989, PW3 contained TVOC's at 39 ppb. PW1
has never been used. PW2 produced 10 gpm, but is currently inactive. PW3
produces 75 gpm and it periodically used to supplement the process
water. No production, public or private water wells are located within
a one mile radius of the site other than SHM's on-site production wells.
Residential potable water is provided by a municipality that obtains
water from a surface water supply.
21. Embankment Fill Area (SWMU 46) This is a 400 ft x "100 ft x 20 fit thick
grassy embankment immediately west of five former ponds and next to
Bldg. 18. The embankment was used for the disposal of various wastes
including foundry sand until 1979, foundry-related wastes, construction
debris, 55-gallon drums, tile, scrap metal, bricks, etc. In 1988, the
debris observed in the embankment was spent foundry sand and half-buried
drums. At that time, Steel Heddle removed exposed drums. In 1994, EPA
collected one surface composite sample that contained elevated nickel,
barium and chromium.
22. Former Waste Disposal Area (SWMU 45) This unit consists of a heavily
vegetated area where deteriorated drums as well as vegetative and
construction debris were periodically dumped from 1961 to 1979. In 1976,
Steel Heddle received a complaint related to excessive smoke due to
burning of construction debris and heavy brush in this area of the
property. During the 1988 RFA, two drums were unearthed that contained
wooden bobbins and a black oily substance. At that time, Steel Heddle
removed visible drums for off-site disposal. During the 1993 Phase I,
deteriorated drums and construction debris were noted in the area. The
1993 RFA indicated that wastes included foundry sand, glue wastes, 55-
gallon drums, wood wastes, creosote poles and construction debris. In
1994, 3 surface soil samples were collected and elevated barium, nickel
and chromium were detected. SCDHEC indicated ground water flow in this
area is not known.
23. Old Surface Impoundments (SWMU 44) This unit consists of five former
unlined ponds that received metal working wastewaters and hazardous
wastewaters from electroplating operations from about 1961 to 1979. The
units are located in any open area each of the Embankment Fill area and
west of Building 35. One of the ponds is located beneath Building 35.
Four of the ponds were taken out of service in 1970 and one of the ponds
was taken out of service 1971 and backfilled in 1979. No documentation
is available concerning the method of closure of the ponds. During the
1988 RFA, this area contained stressed vegetation. Downgradient well W-9
did not contain VOCs; therefore, the EPA stated no further action.
24. Inert Landfill (SWMU 38) This unit operated from at least 1979 to 1989
as a state-permitted solid waste landfill (IWP 171) that received spent
foundry sand consisting of a mixture of clays, Columbia sand, and
graphite. The 1988 RFA noted that salt deposits cleaned from molds used
in coating operations were present in the landfill. In 1989, the
landfill was closed by capping with SCDHEC's review, but no waste
materials were recovered. In 1993, facility personnel indicated that as
old glue ditch may have been incorporated into landfill. The SCDHEC
believed that the landfill is located sidegradient of the closed surface
lagoons and the groundwater flowing beneath the landfill may discharge
to the Mountain Creek tributary upstream of the monitoring well network
and recovery wells. In 1993, a temporary well was installed northeast of
the unit, and no VOCs were detected. In 1994, a groundwater sample
collected from a well near the creek contained several VOCs above MCLs.
25. Hazardous Waste Drum Storage Area (SWMU 10) This is a 40 ft x 40 ft
concrete pad with 6-inch high containment berm on two sides and spill
collection trench on one side. In 1991, TCLP sampling was conducted on
runoff from this unit, which did not indicate an impact. A sump in the
pad was subsequently hand-piped to WWTP. In 1993 RFA noted that the
concrete pad was cracked and two surface soil samples were collected
that contained low levels of xylene and toluene and elevated CaPAHs.
-13-
<PAGE> 81
26. Acid Dump Receiver (SWMU 17) This is an indoor, underground concrete
tank with a capacity of 2,000 gallons. The unit receives acidic
wastewater with high nickel and zinc content from electroplating
operations with a pH of 2. In December 1993, about 170 gallons of
wastewater were released through a deteriorated portion of one concrete
wall and two adjoining corners of the unit. The tank was immediately
removed from service, repaired and returned to service in June 1994. A
soil sample was collected near the unit for TCLP metals, which showed no
high metals, but zinc, nickel and pH were not analyzed. Well W-10 is
located 110 ft downgradient of unit and contained water with pH of 5.28
in 12/93 and a pH of 3.79 in 12/94.
27. Sludge Storage Tanks (SWMU 30) This unit consists of two 15,000 gallon
ASTs that were positioned on unpaved ground. Each tank receives 5,500
gallons of electroplating metal hydroxide sludge (ROO6) from the
clarifier per day. A 1986 analysis of sludge indicated high nickel
(2,670 ppm), zinc (42,310 ppm), and chromium (13,960 pp,). The 1988 RFA
noted sludge spillage on ground in area of ASTs. Both ASTs are now
located on a concrete pad with containment and rain that transports
spillage to a concrete basin (but there may be exposed ground surface).
In 1994, two soil samples contained chromium (5,200 and 4,700 ppm) and
nickel (5,900 and 5,200 ppm).
28. Runoff Ditch SW of Bldg 18 (AOC A) This is a shallow grassy ditch that
runs from an asphalt paved lot adjacent to the former foundry building
to a wooded area known as the former waste disposal area (SWMU 45).
During the 1988 RFA, oil staining was noted in the ditch. In 1989,
surface oil sampling revealed low VOCs and PHCs (90 ppm). The 1993 Phase
I indicated that the soil was black due to nature of foundry sands. In
1994, two soil samples detected petroleum SVOCs and metals.
29. Air Compressor Blowdown Area (AOC D) This area is along a wall of Bldg
29 and covers an area 200 sq. ft of which 80 ft is covered with
concrete. In 1996, 3 soil samples were collected that contained TPHCs at
a maximum level of 6,680 ppm.
30. Fuel Oil Containment Area (AOC C) This area contains two 20,000 gallon
fuel oil ASTs, one 5,000 gallon duel oil AST and one 250 gallon kerosene
AST. The ASTs were installed in 1974. Historically, the tank valves
dripped during hose disconnects after filling operations on unpaved
ground. During the 1993 RFA, this area was unpaved. SHM has since paved
the area with asphalt and has installed drip pans below the tank valves
to catch drippage. No soil sampling or removal of potentially
contaminated soil has been conducted.
31. Oil/Water Separator (SWMU 8) This unit was constructed in 1976 and
effluent discharges to the POTW. During the 1988 RFA, oil foundry sand
and rags were observed under the freshly graded soil in the area around
this unit. In addition, heavy staining was observed on the walls of the
tank and on the soil around the unit. During the 1993 Phase I, very
minor staining was observed along exterior wall with no observed leakage
or stained soil around unit. In 1993, SHM indicated that this unit is
drained annually and inspected and that the unit is intact. No soil
sampling or excavation of potentially contaminated soil has been
conducted.
32. Former Tumbler Waste Receiver Tank (SWMU 33) This unit was installed in
1987 and received wastewater from the tumbling and seed operation sump
(SWMU 6). The unit consists of a 6,300 gallon oil separator tank
associated with the WWTP. The tank has been taken out of service, but
the sludge has not been removed from the tank. Apparently, a pipe
associated with the tank has a tendency to leak or break. During the
1977 RFA, a large stain was observed northwest of the tank. During the
1993 Phase I, soil staining around a valve at base of tank was observed.
Facility personnel indicated it was from a slow leak in underground
piping which was repaired. No soil sampling or removal of potentially
affected soil has been conducted.
-14-
<PAGE> 82
33. Oil Sump at Foundry Compressor Building (SWMU 5) This unit was 3.5 ft x
3.5 ft concrete unit that collected storm water runoff and waste oil
from a compressor, and transported the waste to a storm water drainage
ditch. During 1988 RFA, extensive oil staining was noted around sump
and its discharge point was not known. In 1989, an RFI was conducted in
this area that did not verify a release from this area. During the 1993
Phase I, the oil sump was observed to be abandoned and filled, which
occurred when the foundry building was razed. No soil sampling or
removal of potentially affected soil has been conducted.
34. Unnamed Tributary of Mountain Creek The facility's wastewater discharged
to Mountain Creek from about 1948 to 1976. A 1960 effluent sample
contained chromium (6.1 ppm) and cyanide (1.8 ppm). In 1967, Steel
Heddle obtained a NPDES permit for its discharge of treated sanitary and
process wastewater. SCDHEC files contain several complaints dated
between 1968 to 1975 that indicate high pH, fecal coliform, chromium,
copper and cyanide levels in the outfall, as well as anodizing and
discoloration in Mountain Creek. A 1970 document cites a construction
permit issued to SHM to add cyanide, chromium, alkaline, acid, floor
washings and sludge from clarifier as a large lagoon with discharge to
Mountain Creek.
35. Suspected Septic System The 1993 Phase I indicated that the facility
likely had a septic system when the facility was constructed, but its
location is unknown. A 1967 document cites a permit for the construction
of an aerated oxidation pond for sanitary waste with discharge to
Mountain Creek. This pond is in the area of RCRA Lagoon 3.
Westminster, South Carolina
36. The facility was previously a Large Quantity Generator (LQG) of
hazardous waste (EPA ID #SCD045095454). The facility's LQG stains was
based on generation of waste Naphtha and flux containing acid. In
1994-95 the facility switched to Naphtha-140, a nonhazardous material
and a non-acid flax. Hazardous wastes are no longer generated at the
facility.
As reported in a 1993 Phase 1 environmental assessment report prepared
by Rogers and Callcott Engineers, Inc., the facility has received
several Notices of Violation (NOV) resulting from noncompliance items
with respect to hazardous waste determinations, disposal of special
wastes at a municipal landfill without written authorization, manifest
requirements, waste down labeling discrepancies, irregular maintenance
of quarterly reports, improper employee training, and inadequate
hazardous waste weekly inspections. The facility paid a penalty of
$21,650 for these violations.
37. The facility discharges sanitary wastewater and process wastewater
(cooling water) to the Coneross Creek Wastewater Treatment Plant in
accordance with an Industrial Wastewater Discharge Permit (OC-000022
expires 1/31/1999) issued by the Oconee County Sewer Commission (OCSC).
The facility is currently identified as a non-categorical wastewater
discharger because it does not perform any of the six basic metal
finishing operations listed in the federal regulations (40 CFR 433.15 --
pretreatment standards for existing sources). Pretreatment of wastewater
is not required. The facility conducts monitoring and reporting in
accordance with the requirements of the permit.
OCSC conducts quarterly inspections of the facility's process wastewater
discharge. The Fourth Quarter 1997 inspection report indicated that the
facility had a violation of permit discharge limits for biochemical
oxygen demand (BOD), oil and grease, and total suspended solids (TSS).
The facility received a NOV, but was not assessed any penalty. The 1996
and 1997 effluent quality data do not indicate any significant areas of
concern except for the exceedances of the oil and grease and TSS
limitations noted above.
-15-
<PAGE> 83
38. Several spills/releases from former underground product transfer piping
from the aboveground mineral spirits and ammonia storage tanks occurred
between 1981 and 1988. The releases were not reported to SCDHEC and no
soil or ground water sampling or remediation were conducted. The
underground lines were removed in 1988/89 and replaced with aboveground
transfer lines.
-16-
<PAGE> 84
SCHEDULE 5.5.1
LIENS ON PERSONAL PROPERTY
1. Credit Agreement dated February 20, 1997 among SH Intermediate Corp., et
al. and NationsBank, N.A., as agent.
-17-
<PAGE> 85
SCHEDULE 5.5.2
OWNED REAL PROPERTY
Location
- --------
Greenville, SC
1801 Rutherford Rd.
Greenville, S.C. 29609
Oconee County, SC
692 Plant Rd.
Westminster, S.C. 29693
Greensboro, NC
143 Blue Bell Rd.
Greensboro, N.C. 27406
(excluding 0.58 acres sold on March 12, 1998 for $183,392.93)
Meriwether County, GA
Highway 109, Gay Rd.
Greenville, GA 30222
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<PAGE> 86
SCHEDULE 5.5.2(a)
LIENS ON OWNED REAL PROPERTY
1. Liens held by NationsBank, N.A. pursuant to Credit Agreement dated
February 20, 1997.
2. Title Exceptions: Oconee County, South Carolina
- Title to that portion of the land embraced within the bounds of
SC Highway 183 and SC Highway 37-109.
- Easement granted to State Rural Electrification Authority by
instrument filed September 15, 1937 in the Office of the Clerk of
Court for Oconee County, South Carolina in Book 4-T, Page 231.
3. Title Exceptions: Greenville County, South Carolina
- Title to that portion of the land embraced within the bounds of
Sunnydale Drive.
- Easement granted to Duke Power Company by instrument dated
October 5, 1948, filed October 15, 1948, in the Office of the RMC
for Greenville County, South Carolina in Book 362, Page 197.
- Easement granted to Duke Power Company by instrument dated
November 10, 1948, filed November 17, 1948, in the Office of the
RMC for Greenville County, South Carolina in Book 365, Page 250.
- Easement granted to Western Carolina Regional Sewer Authority by
instrument dated October 14, 1974, filed November 4, 1974 in the
Office of the RMC for Greenville County, South Carolina in Book
1009, Page 597.
- Easement 68 feet in which for the purpose of electrical
transmission lines as shown on plat of survey entitled, "Survey
for Steel Heddle Mfg. Co.", dated February, 1988, revised May,
1989 and recorded in Plat Book 17-A at Pages 45 and 46 in the
Office of the RMC for Greenville County, South Carolina.
- Encroachment of the fence located on the land over and across the
railroad right-of-way along the southern boundary line.
- Riparian rights incident to the premises.
- Notice of Use of Property for Management of Hazardous Waste
executed by Steel Heddle Mfg. Co., dated June 9, 1989 and
recorded June 14, 1989 in the Office of the RMC for Greenville
County, South Carolina in Deed Book 1364 at Page 649.
4. Title Exceptions: Meriwether County, Georgia
- Matters as shown on plat of survey prepared by Tony L. Carr, Str.
and Associates, Surveyors, for First Union National Bank of North
Carolina and Steel Heddle Mfg. Co., dated 2/1/93, revised on
2/10/97, and recorded in Plat Book 17, Page 20, Meriwether County
Records, namely:
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<PAGE> 87
- branch crossing central portion of subject property in an
east-west direction;
- power line, poles and guy wires located in southeasternmost
portion of subject property, said power line running in
northwesterly direction to power poles, guy wires and 18-inch
c.m.p.;
- sanitary sewer service line, power pole, telephone line, gas
meter, water meter and water valve located in southwesterly
portion of subject property; and
- asphalt parking lot encroaches onto adjacent property to the
southeast.
5. Title Exceptions: Guilford County, North Carolina
- Easements, setback lines, and any other facts shown on the plat
recorded in Plat Book 32, Page 9, Guilford County Registry,
including but not limited to the following: ten (10) foot
easement along the rear property line.
- Encroachments, overlaps, boundary line disputes, access,
deficiency in quantity of land, and any other matters which would
be disclosed by a current and accurate survey and inspection of
the land occurring subsequently to January 11, 1993, being the
date of a survey by Michael D. Case, R.S. said survey reveals the
following: a) a portion of a twenty (20) foot easement along the
northerly property line; b) overhead power liens (poles) crossing
insured premises; c) overhead telephone lines (poles) crossing
insured premises; d) gravel area, fence and metal storage
building all encroach into said portion of twenty (20) foot
easement; e) fence from property adjoining to the west encroaches
onto insured premises.
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<PAGE> 88
SCHEDULE 5.5.2(b)
LEASED REAL PROPERTY
Lease for Steel Heddle International de Mexico, S.A. DE C.V. for property
located at Privada de la Soledad No. 503, Colonia Jaguey Barrio, Delegacion
Azcapotzalco, 02519, Mexico, D.F.
Lease for sales office located at Room 905, 1/Otsubashi, Tensho Building, No.
9, 1-12-12, Shinmachi, Nishi-Ku, Osaka 550, Japan.
Lease between Steel Heddle Manufacturing Company, as Lessor, and Duke Power
Company, as Lessee dated September 29, 1981, filed October 7, 1981 in the
Office of the Clerk of Court for Oconee County, South Carolina in Book 14-N,
Page 229.
Lease between Steel Heddle Manufacturing Co., as Lessor, and Duke Power
Company, as Lessee, dated October 24, 1963 filed November 8, 1963, in the
Office of the RMC for Greenville County, South Carolina in Book 735, Page 525.
Lease between The Steel Heddle Manufacturing Company, as Lessor, and Duke Power
Company, Lessee, dated November 27, 1961, filed December 8, 1961, in the Office
of the RMC for Greenville County, South Carolina in Book 688, Page 143.
-21-
<PAGE> 89
SCHEDULE 5.6
LIST OF TRADEMARKS, PATENTS AND LICENSES
TRADEMARKS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Trademark Registration No.
--------- ----------------
- --------------------------------------------------------------------------------
<S> <C>
MVS (Mechanical Variable Speed) 1039122
- --------------------------------------------------------------------------------
SH (Mark) 1168075
- --------------------------------------------------------------------------------
Duralite 1177859
- --------------------------------------------------------------------------------
Draw-O 1496549
- --------------------------------------------------------------------------------
SH (Chinese) 94003088
- --------------------------------------------------------------------------------
Jet Eye 2062780
- --------------------------------------------------------------------------------
</TABLE>
[The rest of this page intentionally has been left blank.]
-22-
<PAGE> 90
PATENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
TITLE PATENT NO. ISSUE DATE FILING DATE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Heddle frame with locking clamp block 5,560,399 10/1/96 7/31/95
center brace assembly
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame endbrace assembly 5,477,889 12/26/95 12/16/94
- -----------------------------------------------------------------------------------------------------------------------------
Double dent reed with increased separation 5,415,205 5/16/95 2/25/94
between front and back dent rows
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame assembly with releasable end 5,411,061 5/2/95 12/16/93
braces
- -----------------------------------------------------------------------------------------------------------------------------
Heddle eyelet structure 5,348,055 9/20/94 5/6/93
- -----------------------------------------------------------------------------------------------------------------------------
Nose guide for a heddle frame 5,275,210 1/4/94 8/11/92
- -----------------------------------------------------------------------------------------------------------------------------
Harness frame with drop-through bolted 4,924,916 5/15/90 5/19/89
centerbrace
- -----------------------------------------------------------------------------------------------------------------------------
Light weight heddle frame assembly slat 4,913,194 4/3/90 11/18/88
- -----------------------------------------------------------------------------------------------------------------------------
Light weight heddle support bar 4,913,193 4/3/90 2/14/89
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame for a high speed weaving 4,706,717 11/17/87 8/25/86
machine
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame for a high speed weaving 4,687,030 8/18/87 8/14/86
machine
- -----------------------------------------------------------------------------------------------------------------------------
Roll-formed shear-resistant frame slat 4,633,916 1/6/87 6/24/85
- -----------------------------------------------------------------------------------------------------------------------------
Reinforced heddle frame slat and method 4,596,275 62/4/86 10/12/84
- -----------------------------------------------------------------------------------------------------------------------------
Land heddle device 4,572,241 2/25/86 11/20/84
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame and composite frame slat 4,508,145 4/2/85 7/6/82
construction
- -----------------------------------------------------------------------------------------------------------------------------
Extruded heddle rod and cap 4,492,256 1/8/85 6/30/82
- -----------------------------------------------------------------------------------------------------------------------------
Dent counter for loom reed 4,331,865 5/25/82 10/9/79
- -----------------------------------------------------------------------------------------------------------------------------
Shuttle grip 4,298,032 11/3/81 9/7/78
- -----------------------------------------------------------------------------------------------------------------------------
Apparatus for reinforcing a heddle frame slat 4,254,802 3/10/81 5/17/79
of a loom
- -----------------------------------------------------------------------------------------------------------------------------
Heddle rod hook device for a loom 4,252,153 2/24/81 4/23/79
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame nose guide 4,232,713 11/11/80 4/23/79
- -----------------------------------------------------------------------------------------------------------------------------
Lease rods for textile apparatus 4,183,380 1/15/80 6/26/78
- -----------------------------------------------------------------------------------------------------------------------------
Bobbin 4,114,828 9/19/78 5/23/77
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE> 91
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
TITLE PATENT NO. ISSUE DATE FILING DATE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Heddle frame with torque locking block 5,630,448 5/20/97 3/25/96
centerbrace assy. Twist in center bar
- -----------------------------------------------------------------------------------------------------------------------------
Dog bone rodslot 2,545,889 4/12/93
- -----------------------------------------------------------------------------------------------------------------------------
Harness frame slat and heddle 4,790,357 12/13/88 8/6/87
- -----------------------------------------------------------------------------------------------------------------------------
Drawing-in of heddles remote from a loom 4,760,628 8/2/88 9/15/86
harness frame
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame for a high speed weaving 4,750,526 6/14/88 8/17/87
machine
- -----------------------------------------------------------------------------------------------------------------------------
M/Roll-formed shear-resistant frame slat 4,633,916 6/1/87 6/24/85
- -----------------------------------------------------------------------------------------------------------------------------
Stabilized nose guide 4,565,223 1/21/86 10/29/84
- -----------------------------------------------------------------------------------------------------------------------------
Loom reed with plastic profiled dents 4,529,014 7/16/85 8/29/83
- -----------------------------------------------------------------------------------------------------------------------------
Releasable heddle rod connector 4,503,890 3/12/85 4/13/83
- -----------------------------------------------------------------------------------------------------------------------------
Reinforced loom shuttle and method 4,487,234 12/11/84 4/5/82
- -----------------------------------------------------------------------------------------------------------------------------
Composite dual-face heddle frame slat 4,484,604 11/27/84 9/6/83
- -----------------------------------------------------------------------------------------------------------------------------
Double dent lightweight reed construction 4,481,980 11/13/84 7/26/82
- -----------------------------------------------------------------------------------------------------------------------------
Composite heddle rod 4,476,900 10/16/84 1/27/82
- -----------------------------------------------------------------------------------------------------------------------------
Stabilized shuttle grip 4,441,529 4/10/84 11/29/82
- -----------------------------------------------------------------------------------------------------------------------------
Wraparound adjustable center brace 4,432,398 2/21/84 6/16/82
attachment
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame assembly construction and 4,404,995 9/20/83 4/10/81
method
- -----------------------------------------------------------------------------------------------------------------------------
Squeeze rod hook 4,404,994 9/20/83 1/27/82
- -----------------------------------------------------------------------------------------------------------------------------
Foldable nose guide device for a heddle 4,364,420 12/21/82 3/23/81
frame
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame 4,106,529 8/15/78 10/22/76
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frames 4,060,102 11/29/77 10/12/76
- -----------------------------------------------------------------------------------------------------------------------------
Loom harness 4,036,264 7/19/77 7/23/76
- -----------------------------------------------------------------------------------------------------------------------------
Heddle frame 4,036,263 7/19/77 6/14/76
- -----------------------------------------------------------------------------------------------------------------------------
Plastic bobbin or quill 3,993,265 11/23/76 3/17/75
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE> 92
LICENSES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
TYPE LICENSOR LICENSEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
License of Duralite process (thermal bonding of wire Steel Heddle Mfg. Co. Takayama Enterprises
reeds by use of plastics), materials and equipment by Corporation (Japan)
Technology License Agreement dated 10/17/95.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE> 93
SCHEDULE 5.7
CONTRACTUAL OBLIGATIONS
- - Computer Consulting Agreement dated February 3, 1998 between AGS and
Steel Heddle.
- - Consulting Agreement dated January 1, 1996 between BCC Industrial
Services, Inc. and Steel Heddle, as amended as of March 31, 1998. (to be
terminated as of Closing)
- - Confidentiality Agreement dated December 15, 1997 between BRANT Beheer
nv. and Steel Heddle in connection with review of the business
operations of Verbrugge.
- - Deferred Compensation Agreement with the following executives with total
obligation of $84,000:
1. Jerry B. Miller dated July 14, 1995.
2. Thomas A. Korbutt dated July 14, 1995.
3. Benjamin G. Team dated July 14, 1995.
4. J. Brant Conner dated July 14, 1995.
5. William R. Rogers dated July 14, 1995.
6. Robert W. Dillon dated July 18, 1995.
- - Severance Agreement dated April 18, 1995 with the following executives,
as amended on December 5, 1997:
1. Jerry B. Miller.
2. Thomas A. Korbutt.
3. Benjamin G. Team.
4. J. Brant Conner.
5. Robert W. Dillon.
- - Employee Stock Option Agreements with the following seven individuals:
(to be terminated as of Closing)
1. Jerry B. Miller dated February 21, 1997.
2. Thomas A. Korbutt dated February 21, 1997.
3. Benjamin G. Team dated February 21, 1997.
4. James E. Merritt dated February 21, 1997.
5. Frank L. Rodgers dated February 21, 1997.
6. Robert W. Dillon dated February 21, 1997.
7. Edward A. Rostick dated February 21, 1997.
- - Exclusive Sales Representative Agreements with approximately 45
individual sales representatives.
- - Miscellaneous post-retirement benefits that in the aggregate do not
exceed $50,000 annually (See Schedule 5.12 -- Schedule of Benefits).
- - Executive Performance Bonus Agreement dated as of January 5, 1998 with
each of Benjamin G. Team, Robert W. Dillon, Jerry B. Miller, J. Brant
Connor, Thomas A. Korbutt, Edward J. Treglia, John D. Wright and C.
Randy Boggs (See Schedule 5.12 -- Schedule of Benefits).
- - Middle Management Profit Sharing Plan (See Schedule 5.12 -- Schedule of
Benefits).
- - Employment Agreement with Richard G. Gentry dated May 1, 1997.
-26-
<PAGE> 94
- - Debt of SH Intermediate Corp. to Heddle Capital Corp. in principal
amount of $40,000,000 dated February 21, 1997. (to be paid at Closing)
- - Debt of Steel Heddle Mfg. Co. to Heddle Capital Corp. in principal
amount of $55,000,000 dated February 21, 1997. (to be paid at Closing)
- - Payment totaling $120,121 to James E. Merritt pursuant to Severance
Agreement dated April 15, 1995.
- - Sale Bonus Agreements dated April 21, 1998 with the following
individuals:
1. Jerry B. Miller.
2. Benjamin G. Team.
3. Robert W. Dillon.
- - Refer to Schedule 1: Stock Subject to Liens.
- - Refer to Schedules 5.12 and 5.5.2(b).
-27-
<PAGE> 95
Schedule 5.8
INSURANCE POLICIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CARRIER POLICY # EXPIRATION DATE TYPE POLICY LIMITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Travelers Indemnity Co. KTJCMB267T527097 4/1/99 Property $5,000,000 (Primary)
- ------------------------------------------------------------------------------------------------------------------------------------
Westchester Fire Insurance Co. 1XL491740 4/1/99 Property $5,000,000 Excess $5,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hartford Fire Insurance Co. 10XLSSD8393 4/1/99 Property $10,000,000 Excess of $10,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hartford Fire Insurance Co. 10XLSQG0985 4/1/99 Property $20,000,000 Excess of $20,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
National Surety Corp. XSP2841660 4/1/99 Property $80,000,000 Excess of $20,000,000
Property $100,000,000 Total Property Coverage
- ------------------------------------------------------------------------------------------------------------------------------------
Travelers Ins. Co. M5JBMG270X2122 4/1/99 Boiler & Machinery $100,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
National Union Fire Ins. Co. RMGL 143-84-09 4/1/99 General Liability $5,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
AIU Ins. Co. BE 932-76-03 4/1/99 Umbrella $25,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
National Union Fire Ins. Co. RMCA 143-93-47 4/1/99 Automobile $1,000,000 Combined Single Limit
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Life Ins. Co. GTA 15675 4/1/2000 Travel Accident $1,000,000 Class I Employees
$100,000 Class II Employees
- ------------------------------------------------------------------------------------------------------------------------------------
Chubb Ins. Group 8133-87-39-A 4/1/99 Crime $1,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
National Union Fire Ins. Co. 485-15-80 4/1/99 Directors and Officers $5,000,000 (D&O)
- ------------------------------------------------------------------------------------------------------------------------------------
National Union Fire Ins. Co. 485-15-62 4/1/99 Pension Trust $1,000,000 (Pension Trust)
- ------------------------------------------------------------------------------------------------------------------------------------
Ins. Co. of State of RMWC 217-84-80 4/1/99 Workers Compensation N/A
Pennsylvania & Employers
Liability $1,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance Company of North 498392-55 4/1/99 Ocean Cargo $5,000,000 (Vessel)
America $2,000,000 (Aircraft)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-28-
<PAGE> 96
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CARRIER POLICY# EXPIRATION DATE TYPE POLICY LIMITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Seuguros LA Territorial, S.A. QB1 19663 4/1/99 Multiline Policy $230,000 Property
Mexico $600,000 General Liability
$7,500 Theft
$2825 Per Occ Cash
$500,000 Auto (New Paso)
- ------------------------------------------------------------------------------------------------------------------------------------
Union Ins. Society of Hong 070/010254/01 12/1/98 Employers Liability $100,000,000 (HKS)
Kong, Ltd. Hong Kong
- ------------------------------------------------------------------------------------------------------------------------------------
Carolina Benefits 59502 5/1/98 Third Party Self-Funded
Administrators Administrator for
Medical Benefits
- ------------------------------------------------------------------------------------------------------------------------------------
Lamar Life Ins. Co. LNL-9023 5/1/98 Stop Loss Reinsurance Medical Only - Individual Stop Loss -
$150,000
Maximum Amount per Covered Person:
$1,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Anthem Life Ins. Co. 39182 5/1/98 Group Team Life Ins. COMPANY PAID
Hourly & Non-Exempt Employees:
$20,000
Exempt: $75,000
Exempt Executive: $150,000
EMPLOYEE CONTRIBUTORY
Exempt: $75,000
Exempt Executive: $150,000
- ------------------------------------------------------------------------------------------------------------------------------------
Reliance Standard Life Ins. LSC-098393 5/1/98 Long Term Disability Exempt Employees Only
Monthly Benefit: $5,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-29-
<PAGE> 97
SCHEDULE 5.9
LITIGATION
1. Margaret COLE and Ernestine MAHONE v. STEEL HEDDLE MFG. CO., United
States District Court for the Northern District of Georgia, Civil Action
Number: 3 96-CV-150-JTC.
2. Wesley F. Hixon asserts a claim against the Company and the majority
shareholders for breach of their fiduciary duty and misrepresentation
with respect to 2204 shares of options which were repurchased from
Wesley F. Hixon in the spring of 1997. It is alleged that the Company
and its majority shareholders restructured the Company so as to devalue
the options and solicited their repurchase without making proper
disclosure of their intentions and such omissions and misrepresentations
have caused Wesley F. Hixon to lose gain on the sale of the 2204
options.
-30-
<PAGE> 98
SCHEDULE 5.10
COMPLIANCE WITH LAWS
None.
-31-
<PAGE> 99
SCHEDULE 5.11
TAX MATTERS
None.
-32-
<PAGE> 100
SCHEDULE 5.12
EMPLOYEE BENEFIT PLANS
I. PAID HOLIDAYS - Employees receive ten (10) paid holidays each calendar
year as follows:
Good Friday
Memorial Day
Labor Day
Thanksgiving Day
Friday after Thanksgiving
Christmas Week - 5 paid holidays in week in which Christmas falls.
II. PAID VACATION - Vacation eligibility is based on length of service.
A. ALL EMPLOYEES EXCEPT SENIOR MANAGEMENT GROUP
One year service - two weeks vacation
Five years service - three weeks vacation
Fifteen years service - four weeks vacation
B. SENIOR MANAGEMENT GROUP
Vacation up to 5 weeks according to the following schedule or
Company vacation policy, whichever offers the greater advantage:
A. First year in Group - 3 weeks
B. Second year in Group - 4 weeks
C. Third year in Group - 5 weeks
A maximum of one week of unused vacation may be carried over to
the next vacation year; however, three weeks may be carried over
in the pre-retirement year.
III. GROUP INSURANCE
A. MEDICAL BENEFITS - Steel Heddle self insures benefits
through a leased agreement with the Blue Cross-Blue Shield
PPC Managed Care Network. Payment of claims is
administered by Carolina Benefit Administrators of S.C., a
third party administrator. The Schedule of Benefits is
listed in the enclosed Summary Plan Description.
Employee coverage is provided at no cost to employees.
Employees contribute $10.00 per week for one dependent or
$12.50 per week for two or more dependents. Employee
premiums are paid through a Section 125 Premium Plan.
B. LIFE INSURANCE - Company paid life insurance for employees
only as follows:
<TABLE>
<S> <C>
Hourly Paid and Weekly Salaried Non-exempt Employees: $20,000
Salaried Exempt Employees: 1 and 1/2 X Base Annual Salary
Maximum Benefit: $75,000
Management Group: 1 and 1/2 Base Annual Salary
</TABLE>
-33-
<PAGE> 101
Maximum Benefit: $150,000
Note: Salaried Exempt Employees are eligible for contributory
life insurance. Maximum Contributory is $75,000 or
$150,000
C. SHORT TERM DISABILITY BENEFITS - $90.00 Per week.
Company self-insures this benefit which covers only hourly
and weekly salaried non-exempt employees. Benefit can be
paid 26 weeks maximum.
D. LONG TERM DISABILITY BENEFIT - for Salaried Exempt
Employees. Company paid insured benefit of $5,000 per
month Maximum.
IV. EMPLOYEE THRIFT PLAN - 401(k)
Company match of employee contributions up to 6%: $.65 per $1.00
of employee contributions. Employees may contribute up to
additional 10% with no company match.
Employee directed investments in seven investment options.
Funds are managed by T. Rowe Price; applying currently for a
determination letter
V. CASH BALANCE PENSION PLAN - Company paid Benefit for all employees.
Eligibility: Age 21 with one year of service.
Steel Heddle makes annual contributions to each eligible
employee's account. Contribution is determined by Base Annual
Salary and Age of participant. All funds are invested as follows:
Lehman Brothers Corporate/Government Bonds: 60%
S&P 500: 40%
VI. ANNUAL LENGTH OF SERVICE BONUS - Employees will receive $10.00 per year
for each year of service to a maximum of $250.00.
VII. YEAR-END BONUSES - Year-end bonuses are determined as a percentage of
salary.
VIII. MIDDLE MANAGEMENT PROFIT SHARING
A performance based profit sharing plan with incentive payments
to middle managers based on divisional and corporate earnings.
IX. EXECUTIVE PERFORMANCE BONUS AGREEMENT
Executive Performance Bonus Agreement dated as of January 5, 1998
with each of Benjamin G. Team, R. Dillon, Jerry B. Miller, J.
Brant Connor, Thomas A. Korbutt, Edward J. Treglia, John D.
Wright and C. Randy Boggs. A performance-based bonus agreement
with incentive payments to executives. Based on consolidated
earnings.
X. TUITION REIMBURSEMENT
Steel Heddle offers its employees tuition reimbursement for
courses of study directly related to an employee's job or which
qualify the employee for another job within the company. All
courses must be pre-approved.
-34-
<PAGE> 102
XI. SUPPLEMENTAL PENSION PLANS (Plans may not qualify for exemptions from
coverage under ERISA.)
A. Cash Drawer Plan. An agreement under which direct payments are
made to certain retired personnel based on years of service and
compensation.
Participants are guaranteed a benefit equal to 50% of average
base monthly salary for best five of last 10 years of service
reduced by: (1) monthly straight life benefit from company paid
pension plan, (2) monthly straight life benefit from company
contributions and earnings on company contributions to employee
thrift plan, (3) and 50% of primary social security benefit.
B. Trust Fund Plan. An Agreement under which employees whose
normal retirement benefit at age 65 from the Steel Heddle Master
Retirement Plan was less than $90.00 per month received direct
monthly payments supplementing the Retirement Plan benefit to
equal $90.00 per month. There are six retirees currently
receiving a benefit from this agreement.
XII. POST RETIREMENT HEALTH CARE BENEFITS FOR RETIREES BORN PRIOR TO JANUARY
1, 1935
For employees who retire before age 65, Company paid health care
coverage continues from date of retirement for a period of 18
months but not beyond the date retiree becomes age 65 or the date
retiree becomes eligible for MEDICARE benefits. These benefits
also apply to spouses of retirees. After 18 months, the retiree
can continue this coverage for himself and spouse by paying a
premium of $40.00 per month per person to the company. Health
care benefits on the retiree and on the spouse are discontinued
on each when the covered person is age 65 or becomes eligible for
MEDICARE.
REIMBURSEMENT OF PART B MEDICARE PREMIUM: The company reimburses
the retiree for his and his spouse's Part B Medicare Premium
capped at $50.00 per month per person. Payments are made annually
and are discontinued upon the death of the retiree.
RETIREES BORN AFTER JANUARY 1, 1935: Company paid health care
coverage is discontinued on date of retirement. The retiree may
continue the coverage under COBRA by paying the fully insured
premiums to the company for a period of time specified by COBRA.
The company does not reimburse these retirees for Part B Medicare
Premium.
POST RETIREMENT SUPPLEMENTARY MEDICARE PLAN
An agreement under which key named executive employees have
medical benefits supplementing MEDICARE benefits to the level of
benefits covered in the medical benefits plan for active
employees. MEDICARE is primary and pays first. Steel Heddle's
Plan is secondary. Retirees eligible for this benefit pay a
premium to Steel Heddle of $40.00 per month for the retiree and
$40.00 per month for spouses of retirees.
PHILADELPHIA EFFECTS AGREEMENT
An agreement made on March 9, 1983 between Steel Heddle Mfg. Co.
and the United Steel Workers of America (AFL-CIO) upon the
closing of the Philadelphia Plant. In this agreement, Steel
Heddle agreed to pay Philadelphia Plant employees and their
spouses $450 per year for life to assist the employees in
purchasing health insurance. The employee and the spouse each
receive separate payments.
XIII. POST RETIREMENT LIFE INSURANCE
Company paid life insurance is continued as follows:
<TABLE>
<S> <C>
A. Hourly Paid and Weekly Paid non-exempt Salaried Employees: $3,000
</TABLE>
-35-
<PAGE> 103
B. Semi-monthly Paid Salaried Exempt Employees: Company paid
coverage existing on date of retirement is reduced 10
percent per year for 5 years after which the retiree has
50 percent of pre-retirement company life insurance
continued in force for life.
XIV. PAYMENT FOR ABSENTEEISM DUE TO NON WORK-RELATED INJURY OR ILLNESS
A. Hourly Paid Employees
Hourly paid employees are not entitled to any payment of
wages by the Company for non work-related illnesses or
injuries.
B. Weekly Salaried Employees
Weekly salaried employees will receive their regular pay,
less the amount of any Weekly Indemnity Insurance to which
they may be entitled, for each extended period of illness,
the length of which will be determined by the
uninterrupted years of service with the Company. During
the first 12 months of employment, five consecutive work
days will constitute the maximum length of an extended
period of illness for which the Company will pay. For each
successive 12 months of employment an additional workday
will be added to the five consecutive work days referred
to above.
C. Semi-monthly Salaried Employees
Semi-monthly salaried employees will receive full pay when
absent from work for injury or illness provided a single
period of continuous absenteeism does not exceed twelve
weeks. Payment for more than on such period of absenteeism
per calendar year will necessitate review by Management on
a case-by-case basis.
XV. PENSION PLAN FOR EMPLOYEES OF STEEL HEDDLE (CANADA) LTEE/LTD. (Plan may
not qualify for exemptions from coverage under ERISA.)
Plan presently covering one employee in Canada to which
contributions are made by Employer to Imperial Life
Assurance Company of Canada.
-36-
<PAGE> 104
SCHEDULE 5.14
ABSENCE OF UNDISCLOSED LIABILITIES
None.
-37-
<PAGE> 105
SCHEDULE 5.15
LABOR
None.
-38-
<PAGE> 106
SCHEDULE 7.3
OPERATION OF BUSINESS PRE-CLOSING
- - Closing of operations of Steel Heddle (Tianjin) Weaving Machine
Accessories Co. Ltd.
- - Payment of interest and dividends among Steel Heddle Companies.
-39-
<PAGE> 107
SCHEDULE 7.12
KEY MANAGEMENT EMPLOYEES
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
Benjamin G. Team President and CEO
Robert W. Dillon Executive Vice President
Jerry B. Miller Vice President - Finance
J. Brant Conner General Sales Manager
Thomas A. Korbutt Vice President - Frame Division
John D. Wright Manager - Heddle Division
Randy Bow Manager - Reed Division
Edward J. Treglia Manager - Rolled Products Division
</TABLE>
-40-
<PAGE> 108
SCHEDULE 8.3
THIRD PARTY CONSENTS
1. Credit Agreement among SH Intermediate Corp., et al. and NationsBank,
N.A., as agent, dated February 20, 1997.
-41-
<PAGE> 1
Exhibit 10.5
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (this "Agreement") is made as of
May 26, 1998 by and among Steel Heddle Group, Inc., a Delaware corporation
("Group"); Steel Heddle Mfg. Co. (the "Corporation"); Heddle Capital Corp.,
Steel Heddle International, Inc., Steel Heddle International, Ltd., Steel
Heddle (Canada) Ltee/Ltd (collectively, the "Subsidiaries"); and American
Industrial Partners Corporation, a Delaware corporation ("AIP").
Background
Subject to the terms and conditions of this Agreement, the Corporation
desires to retain AIP to provide certain management services to the
Corporation.
Terms and Conditions
In consideration of the mutual covenants contained herein and
intending to be legally bound hereby, the parties agree as follows:
1. Management Services: During the term of this Agreement, AIP
shall provide general management, financial and other corporate advisory
services to the Corporation. Such management services shall be performed by
the qualified officers, employees or agents of AIP, and AIP shall at all times
direct, monitor and supervise the performance of such services by such
officers, employees or agents.
2. Fees and Expenses.
(a) The Corporation shall pay to AIP an annual management
fee (the "Management Fee") of Eight Hundred Ninety-five Thousand Dollars
($895,000). The Management Fee shall be payable semi-annually in arrears on
each May 30 and November 29 occurring during the term of this Agreement,
beginning May 30, 1998, or at such other times as the Corporation and AIP shall
otherwise agree; provided that if any date on which payment of the Management
Fee is required hereunder is not a business day, the Corporation shall pay such
Management Fee on the first business day following the date on which payment
was otherwise due.
(b) In addition to the Management Fees, the Company
agrees to promptly reimburse AIP for all out-of-pocket expenses incurred by AIP
in providing the services contemplated by this Agreement, including fees and
expenses paid to consultants, subcontractors and other third parties in
connection with such services.
<PAGE> 2
(c) Group and the Subsidiaries (collectively, the
"Guarantors"), jointly and severally, hereby guarantee the Corporation's
payment of all amounts owing to AIP.
(d) Notwithstanding anything to the contrary contained
herein, (i) the Corporation shall not be required to pay the Management Fee if
and for so long as any such payment would violate, breach or otherwise
constitute a default (or any event which might with the lapse of time or the
giving of notice or both, constitute a default) under any of the Corporation's
financing agreements, and (ii) none of the Guarantors shall be required to make
any payments pursuant to Section 2(c) of this Agreement if any such payment
would violate, breach or otherwise constitute a default (or any event which
might with the lapse of time or the giving of notice or both, constitute a
default) under any of the Guarantors' financing agreements.
(e) Interest will accrue on all due and unpaid Management
Fees at the rate per annum equal to ten percent (10%) until such time as such
Management Fees are paid, and such interest shall compound annually.
(f) Notwithstanding the provisions of Section 2(a)
hereof, the liability of the Corporation for any semi-annual Management Fee
payment hereunder shall not accrue, and AIP shall have no right for payment in
respect thereto, unless AIP continues to perform the management services
described in Section 1 through the end of the applicable semi-annual period
(except for any partial semi-annual period ending on the termination of this
Agreement, whereupon the Management Fee shall be pro rated, and shall be
payable, for such period).
3. Binding Effect; Assignability. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
successors and permitted assigns. This Agreement may not be transferred or
assigned by any party without the written consent of each other party;
provided, however, that AIP may assign its obligations hereunder to any of its
affiliates.
4. Entire Agreement; Amendment. This Agreement constitutes the
entire agreement and understanding between the parties with respect to the
subject matter hereof. This Agreement may be amended or modified, or any
provision hereof may be waived, provided that such amendment or waiver is set
forth in a writing executed by the parties. No courses of dealing between or
among any persons having any interest in this Agreement will be deemed
effective to modify, amend or discharge any part of this Agreement or any
rights or obligations of any person under or by reason of this Agreement.
5. Term. Except as provided for herein, this Agreement shall
commence on the date hereof and shall terminate on the earlier of (i) the tenth
anniversary of the date hereof and (ii) such other date as to which AIP and the
Corporation mutually agree. The provisions of Section 6 shall survive the
termination of this Agreement.
6. Indemnification. The Company and the Guarantors hereby
jointly and severally indemnify and hold harmless AIP and its partners,
employees, agents, representatives and affiliates (each being an "Indemnified
Party") from and against any and all losses, claims, damages
2
<PAGE> 3
and liabilities to which such Indemnified Party may become subject under any
applicable federal or state law, any claim made by any third party or
otherwise, relating to or arising out of the engagement of AIP pursuant to, and
the performance by AIP of the services contemplated by, this Agreement, and the
Company and the Guarantors jointly and severally will reimburse any Indemnified
Party for all costs and expenses (including attorneys' fees and expenses) as
they are incurred in connection with the investigation of, preparation for or
defense of any pending or threatening claim, or any action or proceeding
arising therefrom, whether or not such Indemnified Party is a party hereto.
None of the Company and the Guarantors will be liable under this Section 6, and
an Indemnified Party shall reimburse the Company or Guarantor for any related
payments made by the Company or any Guarantor under this Section 6, to the
extent that any loss, claim, damage, liability, cost or expense is determined
by a court, in a final judgment from which no further appeal may be taken, to
have resulted primarily from the gross negligence or willful misconduct of such
Indemnified Party. No Indemnified Party shall be liable to the Company or any
of the Guarantors for honest mistakes of judgment, or for any action or
inaction, taken in good faith in the performance of management services under
this Agreement to the extent such action would satisfy the standards for
indemnification set forth in this Section 6.
7. Permissible Activities. Subject to all applicable provisions
of Delaware law that impose fiduciary duties upon AIP or its partners or
affiliates, nothing herein shall in any way preclude AIP, its partners or
affiliates from engaging in any business activities or from performing services
for its or their own account or for the account of others.
8. Governing Law. The validity, performance, construction and
effect of this Agreement shall be governed by and construed in accordance with
the internal law of the State of New York.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
3
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto has caused this
Management Services Agreement to be executed as of the day and year first above
written.
STEEL HEDDLE GROUP, INC.
By: /s/ Benjamin G. Team
------------------------------------------
Its: President
------------------------------------------
STEEL HEDDLE MFG. CO.
By: /s/ Benjamin G. Team
------------------------------------------
Its: President
------------------------------------------
HEDDLE CAPITAL CORP.
By: /s/ Jerry B. Miller
------------------------------------------
Its: President
------------------------------------------
STEEL HEDDLE INTERNATIONAL, INC.
By: /s/ Benjamin G. Team
------------------------------------------
Its: President
------------------------------------------
STEEL HEDDLE INTERNATIONAL, LTD.
By: /s/ Benjamin G. Team
------------------------------------------
Its: President
------------------------------------------
4
<PAGE> 5
STEEL HEDDLE (CANADA) LTEE/LTD
By: /s/ Benjamin G. Team
-----------------------------------------------
Its: President
-----------------------------------------------
AMERICAN INDUSTRIAL PARTNERS, a
Delaware general partnership
By: American Industrial Partners
Management Corporation II, a general partner
By: /s/ Theodore Rogers
-----------------------------------------------
Theodore C. Rogers, President
5
<PAGE> 1
Exhibit 10.6
SH HOLDINGS CORP.
1801 RUTHERFORD ROAD
GREENVILLE, SOUTH CAROLINA 29609
April 21, 1998
Bob Dillon
12 Red Fox Court
Greenville, South Carolina 29615
Dear Bob:
As you know, on the date hereof, SH Holdings Corp. (the "Company")
intends to enter into a Stock Purchase Agreement (the "Stock Purchase
Agreement") among the Company, all holders of the Company's shares, options,
warrants and rights (collectively, the "Sellers") and Steel Heddle Group, Inc.
(the "Buyer"). This letter (the "Agreement") is being furnished to you to
provide you with reasonable compensation for prior services rendered to the
Company and Steel Heddle Mfg. Co. ("Steel Heddle") and their subsidiaries in
excess of previous salary and compensation paid to you, subject to the terms
and conditions specified herein. Accordingly, you (the "Key Employee") hereby
agree with the Company and Steel Heddle as follows:
1. Sale Bonus. Subject to Section 6, upon the consummation of the sale
transaction pursuant to the terms of the Stock Purchase Agreement (the "Sale
Transaction") the Key Employee shall be entitled to a bonus (the "Sale Bonus")
of $1,275,000.00, subject to adjustment as provided in Section 2. The Sale
Bonus shall be paid at the closing of the Sale Transaction (the "Closing").
2. Adjustment to Sale Bonus. In the event of any claim for
indemnification by the Buyer under clauses (ii), (iv) and (v) of Section 11.1.1
of the Stock Purchase Agreement, the Key Employee shall be obligated to repay a
portion of the Sale Bonus by paying to the Butler Capital Corporation, as
Sellers' Representative (the "Sellers' Representative"), for deposit to the
"Indemnification Account" under the Sellers' Representative Agreement of even
date herewith (the "Sellers' Representative Agreement"), an amount equal to (i)
5.0% of the aggregate amount requested for deposit to the Indemnification
Account, up to a maximum repayment pursuant to this clause (i) of $737,500.00
(e.g., up to an aggregate of $14,750,000 requested for deposit), plus (ii) 4.0%
of any additional amount requested for deposit to the Indemnification Account,
up to a maximum prepayment pursuant to this clause (ii) of $400,000.00 (e.g.,
up to an aggregate of $24,750,000 requested for deposit).
3. Cooperation. The Key Employee agrees that he shall, in his capacity
as a Seller, officer, manager and otherwise, take or cause to be taken all such
actions as may be
<PAGE> 2
reasonably requested by the Company in order to promptly consummate the Sale
Transaction, including without limitation the tendering of stock, stock options
or stock rights to the Buyer in the Sale Transaction.
4. Proprietary Information. The Key Employee agrees that he shall not,
while employed by the Company and/or Steel Heddle and thereafter, except as
expressly authorized by the Board of Directors of the Company or a person duly
authorized thereby, disclose to any person, other than an employee or adviser
of the Company or Steel Heddle, any trade secrets, proprietary or other
confidential information of the Company or Steel Heddle including without
limitation information in any way relating to the Stock Purchase Agreement or
transactions contemplated thereunder. The Key Employee understands and agrees
that this restriction shall continue to apply after his employment terminates,
regardless of the reason for such termination.
5. Withholding. All payments made or benefits provided by the Company or
Steel Heddle pursuant to this Agreement shall be reduced by the amount of any
tax or other amounts required to be withheld by the Company or Steel Heddle
under applicable law in connection with the Agreement or the transactions
contemplated hereby, and the Key Employee agrees to reimburse the Company or
Steel Heddle for any such withholding tax to the extent not so deducted.
6. Conditions and Vesting. Notwithstanding any other provision of this
Agreement, the Key Employee's right to the Sale Bonus is contingent upon (i)
the prior approval of the Sale Bonus by the stockholders of the Company in
accordance with Section 280G of the Code, (ii) the consummation of the Sale
Transaction pursuant to the Stock Purchase Agreement (the "Closing"), and (iii)
the Key Employee's compliance with the terms and conditions of this Agreement.
In addition, the Key Employee's rights to the Sale Bonus will be forfeited
under the following circumstances: (A) the Key Employee, other than for Good
Reason (as defined below), resigns or otherwise voluntarily terminates his
employment with the Company or Steel Heddle prior to the Closing, or (B) the
Key Employee's employment with the Company or Steel Heddle is terminated for
Cause (as defined below) prior to the Closing. Without limiting the foregoing,
but subject to the first sentence of this Section 6, the Key Employee shall be
100% vested in his Sale Bonus upon the occurrence, prior to the Closing, of
either of the following events: (A) termination of employment by the Key
Employee for Good Reason, or (B) termination of the Key Employee by the Company
other than for Cause.
For purposes of this Agreement "Good Reason" means the material
diminution of any of the Key Employee's positions, authority, duties or
responsibilities with respect to his employment by the Company or Steel Heddle
as in effect on the date of this Agreement, provided, that no change in
position, authority, duties or responsibilities shall be deemed to constitute
Good Reason unless the Key Employee provides written notice of any such Good
Reason to the Company at least thirty (30) days in advance of termination of
employment and gives the Company the opportunity to remedy or cure the asserted
basis for Good Reason termination.
-2-
<PAGE> 3
For purposes of this Agreement, "Cause" means (a) the material failure
or refusal by any Key Employee to perform and discharge, or material breach of,
his duties and responsibilities with respect to his employment by the Company
or Steel Heddle, including any duties or responsibilities hereunder, (b) the
material breach of his fiduciary duties as an officer or member of the Board of
Directors of the Company, Steel Heddle or any of their subsidiaries, or (c)
conviction of a felony or any other crime involving the personal dishonesty or
moral turpitude of the Key Employee which in either case materially and
adversely reflects on the Company, Steel Heddle or any of their subsidiaries;
provided, that in the event a Key Employee is terminated for Cause as described
in (a) or (b) above, the Company shall provide written notice to the Key
Employee at least thirty (30) days in advance of such termination, describing
the Key Employee's failure to perform or misconduct, as the case may be, in
reasonable detail and shall give the Key Employee the opportunity to respond to
such allegations and to remedy or cure such failure to perform or misconduct.
7. Assignment. This Agreement shall continue for the benefit of and be
binding upon (i) the Key Employee and his personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees and (ii) the Company and any successor of the Company by
reorganization, merger, consolidation or liquidation and any assignee
specifically assigned this Agreement in connection with an assignment of all or
substantially all of the business or assets of the Company.
8. Termination of Prior Agreement. The provisions of this Agreement shall
be effective with respect to the Sales Transaction described above and shall
amend and replace in whole the rights and obligations owed under the Sale Bonus
Agreement dated January 12, 1998, between the Company, Steel Heddle Mfg. Co.
and the Key Employees (the "January 12th Agreement"). In the event that the
Sales Transaction shall not be consummated pursuant to the terms of the Stock
Purchase Agreement, then all rights and obligations provided herein shall
terminate and the January 12th Agreement shall continue in full force and
effect.
9. Miscellaneous. This Agreement, together with the Sellers'
Representative Agreement, constitutes the entire agreement of the parties with
respect to the subject matter hereof, and supersedes and replaces all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.
-3-
<PAGE> 4
If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and return a copy to the Company, whereupon it shall
become a binding agreement among the Company, Steel Heddle and you.
Very truly yours,
STEEL HEDDLE MFG. CO.
By: /s/ Benjamin G. Team
------------------------------
Title: President
SH HOLDINGS CORP.
By:/s/ Benjamin G. Team
------------------------------
Title: President
Accepted and agreed to:
/s/ Robert Dillon
- --------------------------------------
Bob Dillon
BUTLER CAPITAL CORPORATION,
in its capacity as Sellers' Representative as
aforesaid
By:/s/ Gilbert Butler
-----------------------------------
Title:
-4-
<PAGE> 5
SH HOLDINGS CORP.
1801 RUTHERFORD ROAD
GREENVILLE, SOUTH CAROLINA 29609
April 21, 1998
Benjamin G. Team
Greenville, South Carolina 29615
Dear Bennie:
As you know, on the date hereof, SH Holdings Corp. (the "Company")
intends to enter into a Stock Purchase Agreement (the "Stock Purchase
Agreement") among the Company, all holders of the Company's shares, options,
warrants and rights (collectively, the "Sellers") and Steel Heddle Group, Inc.
(the "Buyer"). This letter (the "Agreement") is being furnished to you to
provide you with reasonable compensation for prior services rendered to the
Company and Steel Heddle Mfg. Co. ("Steel Heddle") and their subsidiaries in
excess of previous salary and compensation paid to you, subject to the terms
and conditions specified herein. Accordingly, you (the "Key Employee") hereby
agree with the Company and Steel Heddle as follows:
10. Sale Bonus. Subject to Section 6, upon the consummation of the sale
transaction pursuant to the terms of the Stock Purchase Agreement (the "Sale
Transaction") the Key Employee shall be entitled to a bonus (the "Sale Bonus")
of $1,275,000.00, subject to adjustment as provided in Section 2. The Sale
Bonus shall be paid at the closing of the Sale Transaction (the "Closing").
11. Adjustment to Sale Bonus. In the event of any claim for
indemnification by the Buyer under clauses (ii), (iv) and (v) of Section 11.1.1
of the Stock Purchase Agreement, the Key Employee shall be obligated to repay a
portion of the Sale Bonus by paying to the Butler Capital Corporation, as
Sellers' Representative (the "Sellers' Representative"), for deposit to the
"Indemnification Account" under the Sellers' Representative Agreement of even
date herewith (the "Sellers' Representative Agreement"), an amount equal to (i)
5.0% of the aggregate amount requested for deposit to the Indemnification
Account, up to a maximum repayment pursuant to this clause (i) of $737,500.00
(e.g., up to an aggregate of $14,750,000 requested for deposit), plus (ii) 4.0%
of any additional amount requested for deposit to the Indemnification Account,
up to a maximum prepayment pursuant to this clause (ii) of $400,000.00 (e.g.,
up to an aggregate of $24,750,000 requested for deposit).
12. Cooperation. The Key Employee agrees that he shall, in his capacity
as a Seller, officer, manager and otherwise, take or cause to be taken all such
actions as may be
<PAGE> 6
reasonably requested by the Company in order to promptly consummate the Sale
Transaction, including without limitation the tendering of stock, stock options
or stock rights to the Buyer in the Sale Transaction.
13. Proprietary Information. The Key Employee agrees that he shall not,
while employed by the Company and/or Steel Heddle and thereafter, except as
expressly authorized by the Board of Directors of the Company or a person duly
authorized thereby, disclose to any person, other than an employee or adviser
of the Company or Steel Heddle, any trade secrets, proprietary or other
confidential information of the Company or Steel Heddle including without
limitation information in any way relating to the Stock Purchase Agreement or
transactions contemplated thereunder. The Key Employee understands and agrees
that this restriction shall continue to apply after his employment terminates,
regardless of the reason for such termination.
14. Withholding. All payments made or benefits provided by the Company or
Steel Heddle pursuant to this Agreement shall be reduced by the amount of any
tax or other amounts required to be withheld by the Company or Steel Heddle
under applicable law in connection with the Agreement or the transactions
contemplated hereby, and the Key Employee agrees to reimburse the Company or
Steel Heddle for any such withholding tax to the extent not so deducted.
15. Conditions and Vesting. Notwithstanding any other provision of this
Agreement, the Key Employee's right to the Sale Bonus is contingent upon (i)
the prior approval of the Sale Bonus by the stockholders of the Company in
accordance with Section 280G of the Code, (ii) the consummation of the Sale
Transaction pursuant to the Stock Purchase Agreement (the "Closing"), and (iii)
the Key Employee's compliance with the terms and conditions of this Agreement.
In addition, the Key Employee's rights to the Sale Bonus will be forfeited
under the following circumstances: (A) the Key Employee, other than for Good
Reason (as defined below), resigns or otherwise voluntarily terminates his
employment with the Company or Steel Heddle prior to the Closing, or (B) the
Key Employee's employment with the Company or Steel Heddle is terminated for
Cause (as defined below) prior to the Closing. Without limiting the foregoing,
but subject to the first sentence of this Section 6, the Key Employee shall be
100% vested in his Sale Bonus upon the occurrence, prior to the Closing, of
either of the following events: (A) termination of employment by the Key
Employee for Good Reason, or (B) termination of the Key Employee by the Company
other than for Cause.
For purposes of this Agreement "Good Reason" means the material
diminution of any of the Key Employee's positions, authority, duties or
responsibilities with respect to his employment by the Company or Steel Heddle
as in effect on the date of this Agreement, provided, that no change in
position, authority, duties or responsibilities shall be deemed to constitute
Good Reason unless the Key Employee provides written notice of any such Good
Reason to the Company at least thirty (30) days in advance of termination of
employment and gives the Company the opportunity to remedy or cure the asserted
basis for Good Reason termination.
-6-
<PAGE> 7
For purposes of this Agreement, "Cause" means (a) the material failure
or refusal by any Key Employee to perform and discharge, or material breach of,
his duties and responsibilities with respect to his employment by the Company
or Steel Heddle, including any duties or responsibilities hereunder, (b) the
material breach of his fiduciary duties as an officer or member of the Board of
Directors of the Company, Steel Heddle or any of their subsidiaries, or (c)
conviction of a felony or any other crime involving the personal dishonesty or
moral turpitude of the Key Employee which in either case materially and
adversely reflects on the Company, Steel Heddle or any of their subsidiaries;
provided, that in the event a Key Employee is terminated for Cause as described
in (a) or (b) above, the Company shall provide written notice to the Key
Employee at least thirty (30) days in advance of such termination, describing
the Key Employee's failure to perform or misconduct, as the case may be, in
reasonable detail and shall give the Key Employee the opportunity to respond to
such allegations and to remedy or cure such failure to perform or misconduct.
16. Assignment. This Agreement shall continue for the benefit of and be
binding upon (i) the Key Employee and his personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees and (ii) the Company and any successor of the Company by
reorganization, merger, consolidation or liquidation and any assignee
specifically assigned this Agreement in connection with an assignment of all or
substantially all of the business or assets of the Company.
17. Termination of Prior Agreement. The provisions of this Agreement shall
be effective with respect to the Sales Transaction described above and shall
amend and replace in whole the rights and obligations owed under the Sale Bonus
Agreement dated January 12, 1998, between the Company, Steel Heddle Mfg. Co.
and the Key Employees (the "January 12th Agreement"). In the event that the
Sales Transaction shall not be consummated pursuant to the terms of the Stock
Purchase Agreement, then all rights and obligations provided herein shall
terminate and the January 12th Agreement shall continue in full force and
effect.
18. Miscellaneous. This Agreement, together with the Sellers'
Representative Agreement, constitutes the entire agreement of the parties with
respect to the subject matter hereof, and supersedes and replaces all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.
-7-
<PAGE> 8
If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and return a copy to the Company, whereupon it shall
become a binding agreement among the Company, Steel Heddle and you.
Very truly yours,
STEEL HEDDLE MFG. CO.
By: /s/ Jerry B. Miller
--------------------------------
Title: Secretary
SH HOLDINGS CORP.
By:/s/ Benjamin G. Team
------------------------------
Title: President
Accepted and agreed to:
/s/ Benjamin G. Team
- ------------------------------------
Benjamin G. Team
BUTLER CAPITAL CORPORATION,
in its capacity as Sellers' Representative as
aforesaid
By:/s/ Gilbert Butler
---------------------------------
Title:
-8-
<PAGE> 9
SH HOLDINGS CORP.
1801 RUTHERFORD ROAD
GREENVILLE, SOUTH CAROLINA 29609
April 21, 1998
Jerry B. Miller
Greenville, South Carolina 29615
Dear Jerry:
As you know, on the date hereof, SH Holdings Corp. (the "Company")
intends to enter into a Stock Purchase Agreement (the "Stock Purchase
Agreement") among the Company, all holders of the Company's shares, options,
warrants and rights (collectively, the "Sellers") and Steel Heddle Group, Inc.
(the "Buyer"). This letter (the "Agreement") is being furnished to you to
provide you with reasonable compensation for prior services rendered to the
Company and Steel Heddle Mfg. Co. ("Steel Heddle") and their subsidiaries in
excess of previous salary and compensation paid to you, subject to the terms
and conditions specified herein. Accordingly, you (the "Key Employee") hereby
agree with the Company and Steel Heddle as follows:
19. Sale Bonus. Subject to Section 6, upon the consummation of the sale
transaction pursuant to the terms of the Stock Purchase Agreement (the "Sale
Transaction") the Key Employee shall be entitled to a bonus (the "Sale Bonus")
of $1,275,000.00, subject to adjustment as provided in Section 2. The Sale
Bonus shall be paid at the closing of the Sale Transaction (the "Closing").
20. Adjustment to Sale Bonus. In the event of any claim for
indemnification by the Buyer under clauses (ii), (iv) and (v) of Section 11.1.1
of the Stock Purchase Agreement, the Key Employee shall be obligated to repay a
portion of the Sale Bonus by paying to the Butler Capital Corporation, as
Sellers' Representative (the "Sellers' Representative"), for deposit to the
"Indemnification Account" under the Sellers' Representative Agreement of even
date herewith (the "Sellers' Representative Agreement"), an amount equal to (i)
5.0% of the aggregate amount requested for deposit to the Indemnification
Account, up to a maximum repayment pursuant to this clause (i) of $737,500.00
(e.g., up to an aggregate of $14,750,000 requested for deposit), plus (ii) 4.0%
of any additional amount requested for deposit to the Indemnification Account,
up to a maximum prepayment pursuant to this clause (ii) of $400,000.00 (e.g.,
up to an aggregate of $24,750,000 requested for deposit).
21. Cooperation. The Key Employee agrees that he shall, in his capacity
as a Seller, officer, manager and otherwise, take or cause to be taken all
such actions as may be
<PAGE> 10
reasonably requested by the Company in order to promptly consummate the Sale
Transaction, including without limitation the tendering of stock, stock options
or stock rights to the Buyer in the Sale Transaction.
22. Proprietary Information. The Key Employee agrees that he shall not,
while employed by the Company and/or Steel Heddle and thereafter, except as
expressly authorized by the Board of Directors of the Company or a person duly
authorized thereby, disclose to any person, other than an employee or adviser
of the Company or Steel Heddle, any trade secrets, proprietary or other
confidential information of the Company or Steel Heddle including without
limitation information in any way relating to the Stock Purchase Agreement or
transactions contemplated thereunder. The Key Employee understands and agrees
that this restriction shall continue to apply after his employment terminates,
regardless of the reason for such termination.
23. Withholding. All payments made or benefits provided by the Company or
Steel Heddle pursuant to this Agreement shall be reduced by the amount of any
tax or other amounts required to be withheld by the Company or Steel Heddle
under applicable law in connection with the Agreement or the transactions
contemplated hereby, and the Key Employee agrees to reimburse the Company or
Steel Heddle for any such withholding tax to the extent not so deducted.
24. Conditions and Vesting. Notwithstanding any other provision of this
Agreement, the Key Employee's right to the Sale Bonus is contingent upon (i)
the prior approval of the Sale Bonus by the stockholders of the Company in
accordance with Section 280G of the Code, (ii) the consummation of the Sale
Transaction pursuant to the Stock Purchase Agreement (the "Closing"), and (iii)
the Key Employee's compliance with the terms and conditions of this Agreement.
In addition, the Key Employee's rights to the Sale Bonus will be forfeited
under the following circumstances: (A) the Key Employee, other than for Good
Reason (as defined below), resigns or otherwise voluntarily terminates his
employment with the Company or Steel Heddle prior to the Closing, or (B) the
Key Employee's employment with the Company or Steel Heddle is terminated for
Cause (as defined below) prior to the Closing. Without limiting the foregoing,
but subject to the first sentence of this Section 6, the Key Employee shall be
100% vested in his Sale Bonus upon the occurrence, prior to the Closing, of
either of the following events: (A) termination of employment by the Key
Employee for Good Reason, or (B) termination of the Key Employee by the Company
other than for Cause.
For purposes of this Agreement "Good Reason" means the material
diminution of any of the Key Employee's positions, authority, duties or
responsibilities with respect to his employment by the Company or Steel Heddle
as in effect on the date of this Agreement, provided, that no change in
position, authority, duties or responsibilities shall be deemed to constitute
Good Reason unless the Key Employee provides written notice of any such Good
Reason to the Company at least thirty (30) days in advance of termination of
employment and gives the Company the opportunity to remedy or cure the asserted
basis for Good Reason termination.
-10-
<PAGE> 11
For purposes of this Agreement, "Cause" means (a) the material failure
or refusal by any Key Employee to perform and discharge, or material breach of,
his duties and responsibilities with respect to his employment by the Company
or Steel Heddle, including any duties or responsibilities hereunder, (b) the
material breach of his fiduciary duties as an officer or member of the Board of
Directors of the Company, Steel Heddle or any of their subsidiaries, or (c)
conviction of a felony or any other crime involving the personal dishonesty or
moral turpitude of the Key Employee which in either case materially and
adversely reflects on the Company, Steel Heddle or any of their subsidiaries;
provided, that in the event a Key Employee is terminated for Cause as described
in (a) or (b) above, the Company shall provide written notice to the Key
Employee at least thirty (30) days in advance of such termination, describing
the Key Employee's failure to perform or misconduct, as the case may be, in
reasonable detail and shall give the Key Employee the opportunity to respond to
such allegations and to remedy or cure such failure to perform or misconduct.
25. Assignment. This Agreement shall continue for the benefit of and be
binding upon (i) the Key Employee and his personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees and (ii) the Company and any successor of the Company by
reorganization, merger, consolidation or liquidation and any assignee
specifically assigned this Agreement in connection with an assignment of all or
substantially all of the business or assets of the Company.
26. Termination of Prior Agreement. The provisions of this Agreement shall
be effective with respect to the Sales Transaction described above and shall
amend and replace in whole the rights and obligations owed under the Sale Bonus
Agreement dated January 12, 1998, between the Company, Steel Heddle Mfg. Co.
and the Key Employees (the "January 12th Agreement"). In the event that the
Sales Transaction shall not be consummated pursuant to the terms of the Stock
Purchase Agreement, then all rights and obligations provided herein shall
terminate and the January 12th Agreement shall continue in full force and
effect.
27. Miscellaneous. This Agreement, together with the Sellers'
Representative Agreement, constitutes the entire agreement of the parties with
respect to the subject matter hereof, and supersedes and replaces all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.
-11-
<PAGE> 12
If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and return a copy to the Company, whereupon it shall
become a binding agreement among the Company, Steel Heddle and you.
Very truly yours,
STEEL HEDDLE MFG. CO.
By: /s/ Benjamin G. Team
------------------------------
Title: President
SH HOLDINGS CORP.
By:/s/ Benjamin G. Team
------------------------------
Title: President
Accepted and agreed to:
/s/ Jerry B. Miller
- --------------------------------------
Jerry B. Miller
BUTLER CAPITAL CORPORATION,
in its capacity as Sellers' Representative as
aforesaid
By:/s/ Gilbert Butler
-----------------------------------
Title:
-12-
<PAGE> 1
Exhibit 10.7
BONUS AGREEMENT
This BONUS AGREEMENT ("Agreement"), dated as of January 5, 1998, is
among SH Holdings Corp. ("Holdings"), Steel Heddle Mfg. Co. ("Steel Heddle,"
and together with Holdings and any of their subsidiaries, the "Company") and
the employees of the Company signatory hereto (each an "Executive" and
collectively, the "Executives"). Certain capitalized terms used in this
Agreement are defined in paragraph 8 hereof.
1. Target Bonus. For the fiscal year beginning on January 5, 1998 and
ending on January 2, 1999 (the "1998 Fiscal Year"), and each fiscal
year thereafter during the term hereof, each Executive shall be
entitled to an annual bonus ("Target Bonus") in an amount equal to (x)
his Base Salary times (y) the applicable Bonus Percentage set forth on
Attachment 1 to such Executive's copy of this Agreement.
A Target Bonus shall only be payable to the Executives if the Company
meets its performance goal (the "Target") established by the Board of
Directors of EBIT equal to $19,369,000 (before non-recurring or
extraordinary expense add-backs) for the 1998 Fiscal Year.
2. Target Bonus Portion. If the Company's performance level is not at
Target, each Executive shall be entitled to an annual bonus ("Target
Bonus Portion"), if any, in an amount equal to his Target Bonus
adjusted as follows:
(i) if actual EBIT is greater than ninety percent (90%) of Target for
such fiscal year but not greater than one hundred percent (100%) of
Target for such fiscal year, the Target Bonus Portion for such fiscal
year shall equal the sum of (x) sixty percent (60%) of Target Bonus
plus (y) the Target Bonus multiplied by the following fraction:
4 x [ actual EBIT - (90% of Target) ]
-----------------------------
Target
(ii) if actual EBIT is greater than one hundred percent (100%) of
Target for such fiscal year but not greater than one hundred twenty
percent (120%) of Target for
<PAGE> 2
such fiscal year, the Target Bonus Portion for such fiscal year shall
equal the sum of (x) seventy percent (70%) of Target Bonus plus (y)
the Target Bonus multiplied by the following fraction:
3 x [ actual EBIT - (90% of Target) ]
-----------------------------
Target
(iii) if actual EBIT is greater than one hundred twenty percent (120%)
of Target for such fiscal year, then the Target Bonus Portion with
respect to such fiscal year shall equal one hundred sixty percent
(160%) of the Target Bonus.
Determinations of the amount of EBIT and all other matters in connection with
the Target Bonus and the Target Bonus Portion shall be made in good faith by
the Board of Directors, based upon the Company's financial statements (to the
extent possible), and such determination, if made in good faith, shall be
conclusive and binding upon the Company and the Executives. In the event of
any acquisition, merger, recapitalization or other similar event, or any change
in generally accepted accounting principles or the application thereof, the
Board of Directors, in its sole discretion, may make such adjustments to the
Target, to the calculation of the Target Bonus and the Target Bonus Portion, to
the definition of EBIT or to the other provisions hereof as the Board of
Directors may deem necessary or reasonably desirable so that the right of each
Executive to a Target Bonus or Target Bonus Portion hereunder shall
appropriately relate to the results of operations of the consolidated assets of
the Company and its Subsidiaries after giving effect to such event. Each
determination of the Target Bonus or Target Bonus Portion shall use as a
reference point the Company's annual audited financial statements, and, if made
in good faith, shall be conclusive and binding upon the Company and the
Executives, absent manifest error.
3. Termination of Employment.
a. If an Executive's employment ends before the end of a fiscal
year for any of the following reasons:
i. in the event of the Executive's death;
ii. in the event of the Executive's Incapacity;
iii. in the event the Executive terminates his employment
with the Company for Good Reason;
iv. in the event the Company terminates Executive's
employment without Cause; or
v. in the event of retirement which entitles the
Executive to receive benefits under the Company's
retirement plans,
-2-
<PAGE> 3
then the Executive shall be paid his Target Bonus or Target Bonus Portion, as
applicable, prorated for the time of his actual employment during the fiscal
year.
b. If an Executive's employment ends for a reason other than
those enumerated in subparagraph 3.a above, the Executive
shall not receive a bonus based on the Company's performance
for the fiscal year.
Notwithstanding any Target Bonus or Target Bonus Portion to be paid by the
Company to an Executive pursuant to this paragraph 3, this Agreement shall
automatically terminate upon the termination of an Executive's employment with
the Company for any reason.
4. Payment. Payment of all amounts due under this Agreement shall be
made promptly after audited financial statements for the fiscal year
are sent to shareholders.
5. Term. Subject to earlier termination as provided in paragraph 3, this
Agreement shall be effective for the 1998 Fiscal Year and shall renew
annually for one-year terms unless terminated pursuant to the terms
hereof. This Agreement may be terminated or the provisions hereof
modified by the Board of Directors for any subsequent fiscal year if
the Board takes actions, and the written notice thereof is given, at
least ninety (90) days prior to the beginning of such fiscal year.
6. Termination of Prior Bonus Plans and Agreements. Each Executive
hereby agrees that the terms of this Agreement shall determine any and
all rights and obligations relating to performance bonuses or
profit-sharing awards owed to the Executive by the Company. Any plan
or policy of the Company (including its Annual Bonus Plan for 1997)
and any prior agreement, whether written or oral, between the Company
and any Executive relating to the payment of any performance bonus or
profit-sharing award to the Executive by the Company is hereby
terminated and of no effect. Consistent with the understanding of the
Company and the Executives, the terms of this performance
bonus/profit-sharing Agreement may be amended from time to time based
on the Company's attaining certain performance goals established with
regard to changing circumstances of the Company.
7. Definitions.
"Base Salary" means, with respect to an Executive, the annual salary
of the Executive as established by the Company with respect to that Executive.
Each Executive's Base Salary for the 1998 Fiscal Year is set forth on
Attachment 1 to such Executive's copy of this Agreement. For the fiscal year
commencing January 3, 1999, each Executive's Base Salary shall increase by 3%
per annum.
"Bonus Percentage" means, with respect to an Executive, the percentage
set forth in paragraph 1 with respect to that Executive.
-3-
<PAGE> 4
"Board" means the Board of Directors of SH Holdings Corp. or Steel
Heddle Mfg. Co.
"Cause" means (a) a material failure, refusal or neglect to perform
and discharge the duties and responsibilities of the Executive's employment,
(b) a willful action that is materially inconsistent with the Executive's
employment, (c) a material breach of fiduciary duties by the Executive as an
officer or member of the Board or any of its subsidiaries or affiliates, (d)
gross misconduct by the Executive that is injurious to the Company or any of
its subsidiaries or affiliates, or (e) conviction of a felony involving the
personal dishonesty of the Executive.
"Company" means SH Holdings Corp., Steel Heddle Mfg. Co. and any of
their subsidiaries.
"EBIT" shall mean, with respect to any fiscal period, the consolidated
net income of the Company and its subsidiaries for such fiscal period
determined in accordance with generally accepted accounting principles, plus
(1) all amounts deducted in computing such net income in respect of interest
accrued, plus (2) all amounts deducted in computing such net income in respect
of taxes based upon or measured by income, plus, (3) all amounts deducted in
computing such net income in respect of fees paid or accrued to BCC Industrial
Services, Inc., or any successor thereto or affiliate thereof performing
similar services if such successor or affiliate is also an affiliate of the
Company, plus (4) all expenses incurred by the Company in connection with any
transaction resulting in a change of control of the Company or its parent or a
recapitalization or refinancing determined in accordance with generally
accepted accounting principles on a consolidated basis, minus (5) all amounts
added in computing such net income resulting from extraordinary or
non-recurring gains or from the write-up of any assets, and minus (6) any
amounts included in net income in respect of income earned or accrued other
than in the ordinary conduct of the Company's business.
"Executive" means any employee of the Company signatory hereto.
"1998 Fiscal Year" means the fiscal year commencing on January 5, 1998
and ending on January 2, 1999.
"Good Reason" means (a) any removal of the Executive from the position
indicated in paragraph 1 hereof except in connection with termination of the
Executive's employment for Cause or a reduction in the Executive's Base Salary,
or (b) a reduction in benefits payable under this Agreement or under the
Severance Policy of the Company adopted by the Company on December 5, 1997, or
(c) any other willful action by the Company that is materially inconsistent
with the terms of this Agreement.
"Incapacity" means physical disability which renders an Executive
unable to satisfactorily perform his duties.
-4-
<PAGE> 5
"Target" means the performance goals of the Company, measured in terms
of EBIT, as established by Company management and approved by the Board of
Directors as part of its annual operating plan. For the 1998 Fiscal Year,
Target is EBIT equal to $19,369,000 (before non-recurring or extraordinary
expense add-backs).
"Target Bonus" means, with respect to an Executive, the annual bonus
amount to be paid by the Company to such Executive pursuant to paragraph 1.
"Target Bonus Percentage" means the percentage set forth in paragraph
2 with respect to the Company's relevant Target Percentage Level.
"Target Bonus Portion Amount" means, with respect to an Executive, the
annual bonus amount, expressed as a percentage of the applicable Target Bonus
for such Executive, to be paid by the Company to such Executive pursuant to
paragraph 2.
"Target Percentage Level" means the performance level of the Company,
expressed as a percentage of Target.
-5-
<PAGE> 6
If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and return a copy to the undersigned, whereupon it
shall become a binding agreement between the Company and each of you.
Very truly yours,
SH HOLDINGS CORP.
By:/s/ Benjamin G. Team
---------------------------------
Title: President
STEEL HEDDLE MFG. CO.
By: /s/ Benjamin G. Team
--------------------------------
Title: President
Accepted and agreed to by the following Executives:
/s/ Benjamin G. Team
- ------------------------------
Benjamin G. Team
/s/ Robert W. Dillon
- ------------------------------
Robert W. Dillon
/s/ Jerry B. Miller
- ------------------------------
Jerry B. Miller
/s/ J. Brant Connor
- ------------------------------
J. Brant Conner
/s/ Thomas A. Korbutt
- ------------------------------
Thomas A. Korbutt
/s/ Edward J. Treglia
- ------------------------------
Edward J. Treglia
-6-
<PAGE> 7
/s/ John D. Wright
- -----------------------------------------------
John D. Wright
/s/ C. Randall Boggs
- ----------------------------------------------
C. Randall Boggs
-7-
<PAGE> 8
ATTACHMENT 1
------------
<TABLE>
<CAPTION>
1998
Bonus Fiscal Year
Name Title Percentage Base Salary
---- ----- ---------- -----------
<S> <C> <C> <C>
Benjamin G. Team President and Chief 45% $294,000
Executive Officer
</TABLE>
<PAGE> 9
ATTACHMENT 1
------------
<TABLE>
<CAPTION>
1998
Bonus Fiscal Year
Name Title Percentage Base Salary
---- ----- ---------- -----------
<S> <C> <C> <C>
Robert W. Dillon Executive Vice 45% $219,000
President
</TABLE>
<PAGE> 10
ATTACHMENT 1
------------
<TABLE>
<CAPTION>
1998
Bonus Fiscal Year
Name Title Percentage Base Salary
---- ----- ---------- -----------
<S> <C> <C> <C>
Jerry B. Miller Vice President - 45% $187,000
Finance & Secretary
</TABLE>
<PAGE> 11
ATTACHMENT 1
------------
<TABLE>
<CAPTION>
1998
Bonus Fiscal Year
Name Title Percentage Base Salary
---- ----- ---------- -----------
<S> <C> <C> <C>
J. Brant Conner Sales Manager 25% $135,000
</TABLE>
<PAGE> 12
ATTACHMENT 1
------------
<TABLE>
<CAPTION>
1998
Bonus Fiscal Year
Name Title Percentage Base Salary
---- ----- ---------- -----------
<S> <C> <C> <C>
Thomas A. Korbutt Vice President - 25% $125,000
Frame Division
</TABLE>
<PAGE> 13
ATTACHMENT 1
------------
<TABLE>
<CAPTION>
1998
Bonus Fiscal Year
Name Title Percentage Base Salary
---- ----- ---------- -----------
<S> <C> <C> <C>
Edward J. Treglia Manager - Rolled 25% $90,000
Products Division
</TABLE>
<PAGE> 14
ATTACHMENT 1
------------
<TABLE>
<CAPTION>
1998
Bonus Fiscal Year
Name Title Percentage Base Salary
---- ----- ---------- -----------
<S> <C> <C> <C>
John D. Wright Manager - Heddle 25% $110,000
Division
</TABLE>
<PAGE> 15
ATTACHMENT 1
------------
<TABLE>
<CAPTION>
1998
Bonus Fiscal Year
Name Title Percentage Base Salary
---- ----- ---------- -----------
<S> <C> <C> <C>
C. Randall Boggs Manager - Reed 25% $100,000
Division
</TABLE>
<PAGE> 1
Exhibit 21.1
<TABLE>
<CAPTION>
Subsidiaries Jurisdiction
- ------------ ------------
<S> <C>
Steel Heddle International, Inc. South Carolina
Heddle Capital Corp. Delaware
Steel Heddle International, Ltd. Virgin Islands
Steel Heddle (Canada) Ltee/Ltd. Canada
Steel Heddle International de Mexico, S.A. de C.V. Mexico
Steel Heddle Weaving Machine Accessories Co., Ltd. China
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts"
and "Change of Accountants" and to the use of our report dated January 28,
1998, except for Note 11, as to which the date is May 26, 1998, in the
Registration Statement (Form S-4) and related Prospectus of Steel Heddle Mfg.
Co. for the registration of $100 million in Series B 10 5/8% Senior
Subordinated Notes due 2008.
/s/ Ernst & Young LLP
Greenville, S.C.
August 6, 1998
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
10 5/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
STEEL HEDDLE MFG. CO.
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed, and submitted to the Exchange Agent:
<TABLE>
<S> <C> <C>
By Overnight Courier: By Hand: By Registered or Certified
Mail:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway P.O. Box 844
New York, New York 10003 Lower Level Attn: Corporate Trust
Services
Attn: Corporate Trust Attn: Corporate Trust Cooper Station
Services Services
New York, New York 10006 New York, New York
10276-0844
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT
800-548-6565, OR BY FACSIMILE AT 212-780-0592.
The undersigned hereby acknowledges receipt of the Prospectus dated
__________, 1998 (the "Prospectus"), of Steel Heddle Mfg. Co., a Pennsylvania
corporation (the "Issuer"), and this Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Issuer's offer (the "Exchange
Offer") to exchange $1,000 in principal amount of its 10 5/8% Series B Senior
Subordinated Notes due 2008 (the "New Notes"), which have been registered under
the Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "Securities Act"), pursuant to a Registration
Statement, for each $1,000 in principal amount of its outstanding 10 5/8%
Series A Senior Subordinated Notes due 2008 (the "Notes"), of which
$100,000,000 aggregate principal amount is outstanding. Capitalized terms used
but not defined herein have the meanings ascribed to them in the Prospectus.
The undersigned hereby tenders the Notes described in Box 1 below (the
"Tendered Notes") pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Notes and the undersigned represents that it has
received from each beneficial owner of the Tendered Notes ("Beneficial Owners")
a duly completed and executed form of "Instruction to Registered Holder and/or
Book-Entry Transfer Facility Participant from Beneficial Owner" accompanying
this Letter of Transmittal, instructing the undersigned to take the action
described in this Letter of Transmittal.
<PAGE> 2
2
Subject to, and effective upon, the acceptance for exchange of the
Tendered Notes, the undersigned hereby exchanges, assigns, and transfers to, or
upon the order of, the Issuer, all right, title, and interest in, to, and under
the Tendered Notes.
Please issue the New Notes exchanged for Tendered Notes in the name(s) of
the undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions" below (Box 3), please send or cause to be sent the certificates
for the New Notes (and accompanying documents, as appropriate) to the
undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned with
respect to the Tendered Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
(i) deliver the Tendered Notes to the Issuer or cause ownership of the Tendered
Notes to be transferred to, or upon the order of, the Issuer, on the books of
the registrar for the Notes and deliver all accompanying evidences of transfer
and authenticity to, or upon the order of, the Issuer upon receipt by the
Exchange Agent, as the undersigned's agent, of the New Notes to which the
undersigned is entitled upon acceptance by the Issuer of the Tendered Notes
pursuant to the Exchange Offer and (ii) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Tendered Notes, all in
accordance with the terms of the Exchange Offer.
The undersigned understands that tenders of Notes pursuant to the
procedures described under the caption "The Exchange Offer" in the Prospectus
and in the instructions hereto will constitute a binding agreement between the
undersigned and the Issuer upon the terms and subject to the conditions of the
Exchange Offer, subject only to withdrawal of such tenders on the terms set
forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal of
Tenders." All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and any Beneficial Owner(s),
and every obligation of the undersigned or any Beneficial Owners hereunder
shall be binding upon the heirs, representatives, successors, and assigns of
the undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign, and transfer the Tendered
Notes and that the Issuer will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges, encumbrances, and adverse
claims when the Tendered Notes are acquired by the Issuer as contemplated
herein. The undersigned and each Beneficial Owner will, upon request, execute
and deliver any additional documents reasonably requested by the Issuer or the
Exchange Agent as necessary or desirable to complete and give effect to the
transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the New Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired by
the undersigned and any Beneficial Owner(s) in the ordinary course of business
of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each
Beneficial Owner that are not Participating Broker-Dealers, are not engaged in
and do not intend to engage in, and have no arrangement or understanding with
any person to engage in, a distribution of the New Notes, (iii) except as
otherwise disclosed in writing herewith, neither the undersigned nor any
Beneficial Owner is an "affiliate," as defined in Rule 405 under the Securities
Act, of the Issuer and (iv) the undersigned and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer with
the intention or for the purpose of distributing the New Notes must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale of the New Notes acquired by such person and
cannot rely on the position of the Staff of the Securities and Exchange
Commission (the "Commission") set forth in the no-action letters that are
discussed in the section of the Prospectus entitled "The Exchange Offer." In
addition, by accepting the Exchange Offer, the undersigned hereby (i)
represents and warrants that, if the undersigned or any Beneficial Owner of the
Notes is a Participating Broker-Dealer,
<PAGE> 3
2
<PAGE> 4
3
such Participating Broker-Dealer acquired the Notes for its own account as a
result of market-making activities or other trading activities and has not
entered into any arrangement or understanding with the Company or any affiliate
of the Company (within the meaning of Rule 405 under the Securities Act) to
distribute the New Notes to be received in the Exchange Offer and (ii)
acknowledges that, by receiving New Notes for its own account in exchange for
Notes, where such Notes were acquired as a result of market-making activities
or other trading activities, such Participating Broker-Dealer will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE
"Use of Guaranteed Delivery" BELOW (Box 4).
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE "Use of Book-Entry Transfer" BELOW (Box 5).
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
- --------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF NOTES TENDERED
(Attach additional signed pages, if necessary)
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF REGISTERED NOTE AGGREGATE
HOLDER(S), CERTIFICATE PRINCIPAL AMOUNT AGGREGATE
EXACTLY AS NAME(S) APPEAR(S) ON NOTE CERTIFICATE(S) NUMBER(S) OF REPRESENTED BY PRINCIPAL AMOUNT
(PLEASE FILL IN, IF BLANK) NOTES* CERTIFICATE(S) TENDERED**
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by persons tendering by book-entry transfer.
** The minimum permitted tender is $1,000 in principal amount of Notes. All
other tenders must be in integral multiples of $1,000 of principal amount.
Unless otherwise indicated in this column, the principal amount of all Note
Certificates identified in this Box 1 or delivered to the Exchange Agent
herewith shall be deemed tendered. See Instruction
4.
- --------------------------------------------------------------------------------
3
<PAGE> 5
4
- --------------------------------------------------------------------------------
BOX 2
BENEFICIAL OWNER(S)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF TENDERED NOTES
BENEFICIAL OWNER OF TENDERED NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF NEW NOTES EXCHANGED FOR NOTES AND
UNTENDERED NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO
THE UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail New Note(s) and any untendered Notes to:
Name(s):
- --------------------------------------------------------------------------------
(please print)
Address:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(include Zip Code)
Tax Identification or
Social Security No.:
- ------------------------------------------------------------------------------
4
<PAGE> 6
5
BOX 4
USE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 2)
TO BE COMPLETED ONLY IF NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
- --------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution which Guaranteed Delivery:
BOX 5
USE OF BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-ENTRY
TRANSFER.
Name of Tendering Institution:
Account Number:
Transaction Code Number:
5
<PAGE> 7
6
- ------------------------------------------------------------------------------
BOX 6
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
X Signature Guarantee
(If required by Instruction 5)
X
(Signature of Registered Holder(s) or Authorized Authorized Signature
Signatory) X
Note: The above lines must be signed by the Name:
registered holder(s) of Notes as their names(s) (please print)
appear(s) on the Notes or by persons(s) authorized to
become registered holder(s) (evidence of which Title:
authorization must be transmitted with this Letter of
Transmittal). If signature is by a trustee, executor, Name of Firm:
administrator, guardian, attorney-in-fact, officer, or (Must be an Eligible
other person acting in a fiduciary or representative Institution as defined
capacity, such person must set forth his or her full in Instruction 2)
title below. See Instruction 5.
Name(s): Address
Capacity: (include Zip Code)
Street Address: Area Code and Telephone Number:
(include Zip Code)
Area Code and Telephone Number: Dated:
Tax Identification or Social Security Number:
</TABLE>
- --------------------------------------------------------------------------------
BOX 7
BROKER-DEALER STATUS
[ ] Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes for
its own account as a result of market-making activities or other trading
activities.
[ ] Check here if you are a Participating Broker-Dealer and wish to receive
10 additional copies of the prospectus and 10 copies of any amendments or
supplements thereto.
6
<PAGE> 8
7
- --------------------------------------------------------------------------------
PAYOR'S NAME: STEEL HEDDLE MFG. CO.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Name (if joint names, list first and circle the name of the person or entity whose number you
enter in Part 1 below. See instructions if your name has changed.)
----------------------------------------------------------------------------------------------
Address
----------------------------------------------------------------------------------------------
City, State and ZIP Code
----------------------------------------------------------------------------------------------
SUBSTITUTE
FORM W-9 List account number(s) here (optional)
----------------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 1 -- PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION NUMBER Social Security
("TIN") IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING Number or TIN
INTERNAL REVENUE SERVICE BELOW
----------------------------------------------------------------------------------------------
PART 2 -- Check the box if you are NOT subject to backup withholding under the
provisions of section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have
not been notified that you are subject to backup withholding as a result of failure to
report all interest or dividends or (2) the Internal Revenue Service has notified you
that you are no longer subject to backup withholding. [ ]
- --------------------------------------------------------------------------------------------------------------------------
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT Part 3 --
THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND
COMPLETE. Awaiting TIN [ ]
SIGNATURE DATE
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
7
<PAGE> 9
8
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. A properly completed
and duly executed copy of this Letter of Transmittal, including Substitute Form
W-9, and any other documents required by this Letter of Transmittal must be
received by the Exchange Agent at its address set forth herein, and either
certificates for Tendered Notes must be received by the Exchange Agent at its
address set forth herein or such Tendered Notes must be transferred pursuant to
the procedures for book-entry transfer described in the Prospectus under the
caption "Exchange Offer -- Book-Entry Transfer" (and a confirmation of such
transfer received by the Exchange Agent), in each case prior to 5:00 p.m., New
York City time, on the Expiration Date. The method of delivery of certificates
for Tendered Notes, this Letter of Transmittal and all other required documents
to the Exchange Agent is at the election and risk of the tendering holder and
the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. Instead of delivery by mail, it is
recommended that the Holder use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. No Letter
of Transmittal or Notes should be sent to the Issuer. Neither the Issuer nor
the registrar is under any obligation to notify any tendering holder of the
Issuer's acceptance of Tendered Notes prior to the closing of the Exchange
Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes
but whose Notes are not immediately available, and who cannot deliver their
Notes, this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date must tender their Notes according
to the guaranteed delivery procedures set forth below, including completion of
Box 4. Pursuant to such procedures: (i) such tender must be made by or through
a firm which is a member of a recognized Medallion Program approved by the
Securities Transfer Association Inc. (an "Eligible Institution") and the Notice
of Guaranteed Delivery must be signed by the holder; (ii) prior to the
Expiration Date, the Exchange Agent must have received from the holder and the
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of the Tendered Notes and the
principal amount of Tendered Notes, stating that the tender is being made
thereby and guaranteeing that, within five New York Stock Exchange trading days
after the Expiration Date, this Letter of Transmittal together with the
certificate(s) representing the Notes and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed Letter of Transmittal, as well as all other
documents required by this Letter of Transmittal and the certificate(s)
representing all Tendered Notes in proper form for transfer, must be received
by the Exchange Agent within five New York Stock Exchange trading days after
the Expiration Date. Any holder who wishes to tender Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery relating to such Notes prior
to 5:00 p.m., New York City time, on the Expiration Date. Failure to complete
the guaranteed delivery procedures outlined above will not, of itself, affect
the validity or effect a revocation of any Letter of Transmittal form properly
completed and executed by an Eligible Holder who attempted to use the
guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in
whose name Tendered Notes are registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered holder) may execute
and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered Notes
who is not the registered holder must arrange promptly with the registered
holder to execute and deliver this Letter of Transmittal on his or her behalf
through the execution and delivery to the registered holder of the Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner form accompanying this Letter of Transmittal.
4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Notes held
<PAGE> 10
by the holder is tendered, the tendering holder should fill in the principal
amount tendered in the column labeled "Aggregate Principal Amount Tendered" of
8
<PAGE> 11
9
the box entitled "Description of Notes Tendered" (Box 1) above. The entire
principal amount of Notes delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated. If the entire principal amount
of all Notes held by the holder is not tendered, then Notes for the principal
amount of Notes not tendered and New Notes issued in exchange for any Notes
tendered and accepted will be sent to the Holder at his or her registered
address, unless a different address is provided in the appropriate box on this
Letter of Transmittal, as soon as practicable following the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Notes, the signature must correspond with
the name(s) as written on the face of the Tendered Notes without alteration,
enlargement or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Notes, and New Notes issued in exchange therefor are to be issued (and
any untendered principal amount of Notes is to be reissued) in the name of the
registered holder(s), then such registered holder(s) need not and should not
endorse any Tendered Notes, nor provide a separate bond power. In any other
case, such registered holder(s) must either properly endorse the Tendered Notes
or transmit a properly completed separate bond power with this Letter of
Transmittal, with the signature(s) on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Notes, such Tendered Notes must be
endorsed or accompanied by appropriate bond powers, in each case, signed as the
name(s) of the registered holder(s) appear(s) on the Tendered Notes, with the
signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Tendered Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by
the Issuer, evidence satisfactory to the Issuer of their authority to so act
must be submitted with this Letter of Transmittal.
Endorsements on Tendered Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Notes are tendered (i) by a registered holder
who has not completed the box set forth herein entitled "Special Delivery
Instructions" (Box 3) or (ii) by an Eligible Institution.
6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate, in
the applicable box (Box 3), the name and address to which the New Notes and/or
substitute Notes for principal amounts not tendered or not accepted for
exchange are to be sent, if different from the name and address of the person
signing this Letter of Transmittal. In the case of issuance in a different
name, the taxpayer identification or social security number of the person named
must also be indicated.
7. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the exchange of Tendered Notes pursuant to the Exchange Offer.
If, however, a transfer tax is imposed for any reason other than the transfer
and exchange of Tendered Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or on any
other person) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption
<PAGE> 12
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
9
<PAGE> 13
10
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Notes listed in this Letter
of Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the
holder(s) of any Tendered Notes which are accepted for exchange must provide
the Issuer (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual, is his or her social
security number. If the Issuer is not provided with the correct TIN, the Holder
may be subject to backup withholding and a $50 penalty imposed by the Internal
Revenue Service. (If withholding results in an over-payment of taxes, a refund
may be obtained.) Certain holders (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding
and reporting requirements. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional
instructions.
To prevent backup withholding, each holder of Tendered Notes must provide
such holder's correct TIN by completing the Substitute Form W-9 set forth
herein, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN), and that (i) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result
of failure to report all interest or dividends or (ii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the Tendered Notes are registered in more than one name or are
not in the name of the actual owner, consult the "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for information on
which TIN to report.
The Issuer reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Issuer's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of Tendered
Notes will be determined by the Issuer in its sole discretion, which
determination will be final and binding. The Issuer reserves the right to
reject any and all Notes not validly tendered or any Notes the Issuer's
acceptance of which would, in the opinion of the Issuer or their counsel, be
unlawful. The Issuer also reserves the right to waive any conditions of the
Exchange Offer or defects or irregularities in tenders of Notes as to any
ineligibility of any holder who seeks to tender Notes in the Exchange Offer.
The interpretation of the terms and conditions of the Exchange Offer (including
this Letter of Transmittal and the instructions hereto) by the Issuer shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Notes must be cured within such time as the
Issuer shall determine. Neither the Issuer, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Notes will not
be deemed to have been made until such defects or irregularities have been
cured or waived. Any Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date.
10. WAIVER OF CONDITIONS. The Issuer reserves the absolute right to
amend, waive or modify any of the conditions in the New Exchange Offer in the
case of any Tendered Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Notes or transmittal of this Letter of Transmittal will be
accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering Holder
whose Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated herein for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
indicated herein.
<PAGE> 14
Holders may also contact their broker, dealer, commercial bank, trust company
or other nominee for assistance concerning the Exchange Offer.
10
<PAGE> 15
11
14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF NOTES; RETURN OF NOTES.
Subject to the terms and conditions of the Exchange Offer, the Issuer will
accept for exchange all validly tendered Notes as soon as practicable after the
Expiration Date and will issue New Notes therefor as soon as practicable
thereafter. For purposes of the Exchange Offer, the Issuer shall be deemed to
have accepted tendered Notes when, as and if the Issuer has given written or
oral notice (immediately followed in writing) thereof to the Exchange Agent. If
any Tendered Notes are not exchanged pursuant to the Exchange Offer for any
reason, such unexchanged Notes will be returned, without expense, to the
undersigned at the address shown in Box 1 or at a different address as may be
indicated herein under "Special Delivery Instructions" (Box 3).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offer."
11
<PAGE> 1
1
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
10 5/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
STEEL HEDDLE MFG. CO.
PURSUANT TO THE PROSPECTUS DATED ___________________, 1998
This form must be used by a holder of 10 5/8% Senior Subordinated Notes
due 2008 (the "Notes") of Steel Heddle Mfg. Co., a Pennsylvania corporation
(the "Company"), who wishes to tender Notes to the Exchange Agent pursuant to
the guaranteed delivery procedures described in "The Exchange Offer --
Guaranteed Delivery Procedures" of the Company's Prospectus, dated ,
1998 (the "Prospectus"), and in Instruction 2 to the related Letter of
Transmittal. Any holder who wishes to tender Notes pursuant to such guaranteed
delivery procedures must ensure that the Exchange Agent receives this Notice of
Guaranteed Delivery prior to the Expiration Date of the Exchange Offer.
Capitalized terms used but not defined herein have the meanings ascribed to
them in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON ___________, 1998, UNLESS EXTENDED (THE "EXPIRATION
DATE").
United States Trust Company of New York
(the "Exchange Agent")
<TABLE>
<S> <C> <C>
By Overnight Courier: By Hand: By Registered or Certified
United States Trust Company United States Trust Company Mail:
of New York of New York United States Trust Company
770 Broadway, 13th Floor 111 Broadway of New York
New York, New York 10003 Lower Level P.O. Box 844
Attn: Corporate Trust Services Attn: Corporate Trust Services Attn: Corporate Trust Services
New York, New York 10006 Cooper Station
New York, New York 10276-0844
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT
800-548-6565, OR BY FACSIMILE AT 212-780-0592.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 2
2
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Notes listed below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CERTIFICATE NUMBER(S) (IF KNOWN) OF NOTES OR AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
</TABLE>
2
<PAGE> 3
3
PLEASE SIGN AND COMPLETE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Signatures of Registered Holder(s) or
Authorized Signatory: Date: , 1998
Address:
- ------------------------------------------
------------------------------------------
- ------------------------------------------
Name(s) of Registered Holder(s): Area Code and Telephone No.
- ------------------------------------------
- ------------------------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Notes or on a security position
listing as the owner of Notes, or by person(s) authorized to become Holder(s)
by endorsements and documents transmitted with this Notice of Guaranteed
Delivery. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Please print name(s) and address(es)
Name(s):
- --------------------------------------------------------------------------------
Capacity:
Address(es):
- --------------------------------------------------------------------------------
3
<PAGE> 4
4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of
Transmittal (or facsimile thereof), together with the Notes tendered hereby in
proper form for transfer (or confirmation of the book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
described in the Prospectus under the caption "The Exchange Offer -- Guaranteed
Delivery Procedures" and in the Letter of Transmittal) and any other required
documents, all by 5:00 p.m., New York City time, on the fifth New York Stock
Exchange trading day following the Expiration Date.
Name of firm (Authorized Signature)
Address Name
(Please Print)
Title
(Include Zip Code)
Area Code and Tel. No. Dated , 1998
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST
BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
4
<PAGE> 5
5
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at its address set forth herein prior to the Expiration
Date. The method of delivery of this Notice of Guaranteed Delivery and any
other required documents to the Exchange Agent is at the election and sole risk
of the holder, and the delivery will be deemed made only when actually received
by the Exchange Agent. If delivery is by mail, registered mail with return
receipt requested, properly insured, is recommended. As an alternative to
delivery by mail, the holders may wish to consider using an overnight or hand
delivery service. In all cases, sufficient time should be allowed to assure
timely delivery. For a description of the guaranteed delivery procedures, see
Instruction 2 of the Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Notes referred
to herein, the signature must correspond with the name(s) written on the face
of the Notes without alteration, enlargement, or any change whatsoever. If this
Notice of Guaranteed Delivery is signed by a participant of the Book-Entry
Transfer Facility whose name appears on a security position listing such
participant as the owner of the Notes, the signature must correspond with the
name shown on the security position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the Notes or signed as the name of the participant shown on the Book-Entry
Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
5
<PAGE> 1
1
Exhibit 99.3
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
STEEL HEDDLE MFG. CO.
10 5/8% SENIOR SUBORDINATED NOTES DUE 2008
To Registered Holder and/or Participant of the Book-Entry Transfer
Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated
__________, 1998 (the "Prospectus"), of Steel Heddle Mfg. Co., a Pennsylvania
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry
transfer facility participant, as to action to be taken by you relating to the
Exchange Offer with respect to the 10 5/8% Senior Subordinated Notes due 2008
(the "Notes") held by you for the account of the undersigned.
The aggregate face amount of the Notes held by you for the account of
the undersigned is (FILL IN AMOUNT):
$_____________ of the 10 5/8% Senior Subordinated Notes due 2008
With respect to the Exchange Offer, the undersigned hereby instructs
you (CHECK APPROPRIATE BOX):
[ ] TO TENDER the following Notes held by you for the account of
the undersigned (INSERT PRINCIPAL AMOUNT OF NOTES TO BE
TENDERED, IF ANY): $
[ ] NOT TO TENDER any Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Notes held by you for
the account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representation and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (FILL IN STATE), (ii) the
undersigned is acquiring the New Notes in the ordinary course of business of
the undersigned, (iii) the undersigned is not participating, does not
participate, and has no arrangement or understanding with any person to
participate in the distribution of the New Notes, (iv) the undersigned
acknowledges that any person participating in the Exchange Offer for the
purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"Act"), in connection with a secondary resale transaction of the New Notes
acquired by such person and cannot rely on the position of the Staff of the
Securities and Exchange Commission set forth in no-action letters that are
discussed in the section of the Prospectus entitled "The Exchange
Offer--Resales of the New Notes," and (v) the undersigned is not an
"affiliate," as defined in Rule 405 under the Act, of the Company; (b) to
agree, on behalf of the undersigned, as set forth in the Letter of Transmittal;
and (c) to take such other action as necessary under the Prospectus or the
Letter of Transmittal to effect the valid tender of such Notes.
6
<PAGE> 2
2
- --------------------------------------------------------------------------------
SIGN HERE
Name of beneficial owner(s):
Signature(s):
Name (please print):
Address:
Telephone number:
Taxpayer Identification or Social Security Number:
Date:
- --------------------------------------------------------------------------------
7
