<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FAIRFIELD MANUFACTURING
COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3566 35-0300750
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
U.S. ROUTE 52 SOUTH
LAFAYETTE, INDIANA 47905
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICHARD A. BUSH
FAIRFIELD MANUFACTURING COMPANY, INC.
U.S. ROUTE 52 SOUTH
LAFAYETTE, INDIANA 47905
(765) 474-3474
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copy to:
RALPH R. ARDITI
DEBEVOISE & PLIMPTON
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
------------------------
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 to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
11 1/4% Cumulative Exchangeable Preferred
Stock, par value $.01 per share,
liquidation value $1,000.00 per share (the
'New Preferred Stock').................... 125,000 Shares $1,000.00 $125,000,000.00 $37,879.00
11 1/4% Subordinated Exchange Debentures
due 2009.................................. $125,000,000 None(3) None(3) None(3)
</TABLE>
(1) Up to 50,000 shares of the New Preferred Stock will be initially issued to
shareholders tendering shares in connection with the exchange offer
described herein. The remaining 75,000 shares of New Preferred Stock
registered hereby will be available for issuance as dividends on the New
Preferred Stock in accordance with the terms of the Certificate of
Designation governing the New Preferred Stock.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
(3) No separate consideration will be received for the 11 1/4% Subordinated
Exchange Debentures due 2009 issuable upon exchange of the New Preferred
Stock.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION IN PROSPECTUS OF ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM NO. CAPTION IN PROSPECTUS
------------------------------------------------------ ------------------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Facing Page, Outside Front Cover Page; Cross Reference
Sheet; Inside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page; Table of Contents; Available
Information
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................... Prospectus Summary; Risk Factors; Summary Historical
and Pro Forma Combined Financial Data
4. Terms of the Transaction.............................. Prospectus Summary; The Exchange Offer; Description of
New Preferred Stock and Exchange Debentures; Certain
Federal Income Tax Considerations
5. Pro Forma Financial Information....................... Selected Historical and Pro Forma Combined Financial
Data
6. Material Contacts with the Company Being Acquired..... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters....... Inside Front Cover Page; Prospectus Summary; The
Exchange Offer; Plan of Distribution
8. Interests of Named Experts and Counsel................ Not Applicable
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Part II--Indemnification of Directors and Officers
10. Information with Respect to S-3 Registrants........... Not Applicable
11. Incorporation of Certain Information by Reference..... Not Applicable
12. Information with Respect to S-2 or S-3 Registrants.... Not Applicable
13. Incorporation of Certain Information by Reference..... Not Applicable
14. Information with Respect to Registrants Other than S-3
or S-2 Registrants.................................. Summary; Risk Factors; Capitalization; Selected
Historical and Financial Data; Management's
Discussion and Analysis of Financial Conditions and
Results of Operations; Business; Description of
Existing Indebtedness; Index to Consolidated
Financial Statements
15. Information with Respect to S-3 Companies............. Not Applicable
16. Information with Respect to S-2 or S-3 Companies...... Not Applicable
17. Information with Respect to Companies other than S-3
or S-2 Companies.................................... Not Applicable
18. Information if Proxies, Consents or Authorizations are
to be Solicited..................................... Not Applicable
19. Information if Proxies, Consents or Authorizations are
not to be Solicited or in an Exchange Offer......... Not Applicable
20. Indemnification of Directors and Officers............. Part II--Indemnification of Directors and Officers
21. Exhibits and Financial Statement Schedules............ Part II--Exhibits and Financial Statement Schedules
22. Undertakings.......................................... Part II--Undertakings
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 9, 1997
PROSPECTUS
FAIRFIELD
GEARED FOR EXCELLENCE
OFFER TO EXCHANGE SHARES OF
ITS 11 1/4% CUMULATIVE EXCHANGEABLE PREFERRED STOCK
FOR ANY AND ALL OUTSTANDING SHARES OF ITS
EXISTING PREFERRED STOCK (AS DEFINED BELOW)
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED.
Fairfield Manufacturing Company, Inc., a Delaware corporation (the
'Company'), hereby offers (the 'Exchange Offer'), upon the terms and subject to
the conditions set forth in this Prospectus (this 'Prospectus') and the
accompanying Letter of Transmittal (the 'Letter of Transmittal') to exchange one
share of its 11 1/4% Cumulative Exchangeable Preferred Stock, par value $.01 per
share, liquidation preference $1,000.00 per share (the 'New Preferred Stock'),
which have been registered under the Securities Act of 1933, as amended (the
'Securities Act'), for each issued and outstanding share of its 11 1/4%
Cumulative Exchangeable Preferred Stock, par value $.01 per share, liquidation
preference $1,000.00 per share (the 'Existing Preferred Stock'), of which 50,000
shares are outstanding. The Existing Preferred Stock and the New Preferred Stock
are sometimes collectively referred to herein as the 'Preferred Stock'. The
terms of the New Preferred Stock are identical in all material respects to the
terms of the Existing Preferred Stock for which they may be exchanged pursuant
to the Exchange Offer except that (i) the shares of New Preferred Stock will
have been registered under the Securities Act, and thus will not bear
restrictive legends restricting their transfer pursuant to the Securities Act
and (ii) holders of New Preferred Stock will not be entitled to registration
rights that holders of the Existing Preferred Stock have under the Registration
Agreement (as defined) except under limited circumstances.
Dividends on the New Preferred Stock will accumulate from the last dividend
payment date on which dividends were paid on the shares of Existing Preferred
Stock surrendered in exchange therefor or, if no dividends have been paid, from
the original date of issuance of the Existing Preferred Stock, and will be
payable semi-annually commencing September 15, 1997, at a rate per annum of
11 1/4% of the liquidation preference per share. Dividends may be paid, at the
Company's option, on any dividend payment date occurring on or prior to March
15, 2002 either in cash or by the issuance of additional shares of New Preferred
Stock having an aggregate liquidation preference equal to the amount of such
dividends. The liquidation preference of the New Preferred Stock will be $1,000
per share. The New Preferred Stock will be redeemable at the Company's option,
in whole or in part, at any time on or after March 15, 2002, at the redemption
prices set forth herein, plus, without duplication, accumulated and unpaid
dividends to the date of redemption. The Company will be required, subject to
certain conditions, to redeem all of the New Preferred Stock outstanding on
March 15, 2009, at a redemption price equal to 100% of the liquidation
preference thereof, plus, without duplication, accumulated and unpaid dividends
to the redemption date. Upon the occurrence of a Change of Control (as defined)
occurring on or after July 2, 2001, the Company will, only if and only to the
extent permitted by any Indebtedness (as defined) of the Company then
outstanding, offer to redeem the outstanding shares of New Preferred Stock at a
redemption price equal to 101% of the liquidation preference thereof, plus,
without duplication, accumulated and unpaid dividends to the redemption date. In
addition, upon the occurrence of a Change of Control occurring prior to July 2,
2001, the Company will have the option to offer to redeem the New Preferred
Stock, in whole but not in part, at a redemption price equal to 101% of the
liquidation preference thereof, plus, without duplication, accumulated and
unpaid dividends to the redemption date. If the Company does not make a Change
of Control Offer (as defined) upon a Change of Control occurring prior to July
2, 2001, the annual dividend rate on the New Preferred Stock will increase by
4.0% over the then-applicable annual dividend rate.
The New Preferred Stock is exchangeable at the option of the Company, in
whole but not in part, for the Company's Subordinated Exchange Debentures due
2009 (including any such securities paid in lieu of cash interest, as described
herein, the 'Exchange Debentures') on any dividend payment date occurring after
the earlier of (i) July 2, 2001 and (ii) the date on which all of the Existing
Notes (as defined) are redeemed, subject to the satisfaction of certain
conditions and provided that such exchange is permitted pursuant to the terms of
the Company's Indebtedness then outstanding. Interest on the Exchange Debentures
will be payable at a rate of 11 1/4% per annum and will accrue from the date of
issuance thereof. Interest on the Exchange Debentures will be payable
semi-annually in cash or, at the option of the Company, on or prior to March 15,
2002 in additional Exchange Debentures, in arrears on each March 15 and
September 15, commencing on the first such date after the exchange of the
Exchange Debentures for the New Preferred Stock. The Exchange Debentures will
mature on March 15, 2009 and will be redeemable, at the option of the Company,
in whole or in part, on or after March 15, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest to the date of redemption.
The New Preferred Stock will rank junior in right of payment upon
liquidation to all existing and future Indebtedness of the Company, including,
without limitation, Indebtedness under the Credit Agreement (as defined) and
Indebtedness in respect of the Existing Notes (as defined). The New Preferred
Stock will rank senior in right of payment (with respect to dividend rights and
upon liquidation), to the common stock of the Company and will, subject to the
terms described herein, rank senior to, on parity with, or junior to, other
classes of preferred stock issued by the Company from time to time. The Exchange
Debentures will be subordinated to all existing and future Senior Debt (as
defined) of the Company and will rank pari passu with or senior to all future
Indebtedness of the Company that expressly provides that it ranks pari passu
with or junior to the Exchange Debentures, as the case may be. As of December
31, 1996, there would have been $118.0 million of Indebtedness of the Company
ranking senior to the New Preferred Stock and the Exchange Debentures.
The Exchange Offer is not conditioned upon any minimum aggregate liquidation
preference of Existing Preferred Stock being tendered or accepted for exchange.
The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1997, unless extended by the Company (such date as it may be so extended, the
'Expiration Date'). The date of acceptance for exchange of properly tendered
shares of Existing Preferred Stock (the 'Exchange Date') will be the first
business day following the Expiration Date. Shares of Existing Preferred Stock
tendered pursuant to the Exchange Offer may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date; otherwise such tenders
are irrevocable. Shares of New Preferred Stock will be issued in exchange for
properly tendered shares of Existing Preferred Stock will be delivered through
the facilities of The Depository Trust Company by the Exchange Agent (as
defined) promptly after acceptance thereof.
(Continued on next page)
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE NEW PREFERRED STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
CUSTOM GEAR
[In this place appears a picture of the Company's custom gear products.]
Fairfield's custom gear products are used in a variety of applications,
including those pictured below.
[In this place appears a picture of
certain applications of the
Company's custom gear products.]
[In this place appears a picture of
certain applications of the
Company's custom gear products.]
[In this place appears a picture of
certain applications of the
Company's custom gear products.]
<PAGE>
(cover page continued)
The Existing Preferred Stock was originally issued and sold on March 12,
1997 in a transaction exempt from registration under the Securities Act and
resold to certain qualified institutional buyers in reliance on, and subject to
the restrictions imposed pursuant to, Rule 144A under the Securities Act (the
'Initial Offering'). Based on interpretations by the Staff of the Securities and
Exchange Commission (the 'Commission'), the Company believes that New Preferred
Stock issued pursuant to the Exchange Offer in exchange for Existing Preferred
Stock may be offered to resale, resold and otherwise transferred by holders
thereof (other than any such holder that is a broker-dealer or 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 (a) such New Preferred Stock is acquired in the
ordinary course of such holder's business, (b) at the time of the commencement
of the Exchange Offer such holder has no arrangement with any person to
participate in a distribution of the New Preferred Stock and (c) such holder is
not engaged in, and does not intend to engage in, a distribution of the New
Preferred Stock. However, the Commission has not considered the Exchange Offer
in the context of a no-action letter and therefore there can be no assurance
that the Staff of the Commission would make a similar determination with respect
to the Exchange Offer as in such other circumstances. Each holder of Existing
Preferred Stock that desires to participate in the Exchange Offer will be
required to make certain representations described in 'The Exchange Offer--Terms
of the Exchange Offer.'
Each broker-dealer that receives Exchange 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 Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an 'underwriter' within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Preferred Stock received in exchange for Existing Preferred
Stock where such Existing Preferred Stock was acquired by such broker-dealer as
a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the date that the Registration
Statement relating to the Exchange Offer has been declared effective by the
Commission, it will make this Prospectus available to any broker-dealer for use
in connection with any such resale. Any holder that cannot rely upon such
interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. See 'The Exchange Offer' and 'Plan of Distribution.'
The New Preferred Stock will be represented by one or more Global
Securities registered in the name of a nominee of The Depository Trust Company,
as Depositary. Beneficial interest in the Global Securities will be shown on,
and transfers will be effected only through, records maintained by the
Depositary and its participants. See 'Description of New Preferred Stock and
Exchange Debentures--Book-Entry, Delivery and Form.'
There has not previously been any public market for the New Preferred
Stock. The Company does not intend to list the New Preferred Stock 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
Preferred Stock will develop. See 'Risk Factors--Lack of Established Market for
the New Preferred Stock.' Moreover, to the extent that shares of Existing
Preferred Stock are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered, and tendered but unaccepted, shares of Existing
Preferred Stock could be adversely affected. Following consummation of the
Exchange Offer, the holders of the Existing Preferred Stock will continue to be
subject to the existing restrictions or transfer thereof and the Company will
have no further obligation to such holders to provide for the registration under
the Securities Act of the Existing Preferred Stock except under certain limited
circumstances. See 'Exchange Offer--Consequences of Failure to Exchange.'
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses of the Exchange Offer, other than certain
commissions, if any, relating to a holder's disposition of its shares of
Existing Preferred Stock in connection with the Exchange Offer. No dealer
manager is being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE, NOR WILL THE COMPANY ACCEPT SURRENDER
FOR EXCHANGE FROM, HOLDERS OF SHARES OF EXISTING PREFERRED STOCK IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
------------------------
i
<PAGE>
FOR NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B WITH THE STATE OF NEW HAMPSHIRE NOR
THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN
THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT
ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER
ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and, in accordance
therewith, files reports and other information with the Commission. Such reports
and other information can be inspected and copied at the principal office of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices of the Commission: Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511; and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates and such material is contained on the worldwide
web site maintained by the Commission at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement under
the Securities Act, with respect to the New Preferred Stock offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information included or incorporated by reference in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus or in any document incorporated herein or therein
as to the contents of any contract or other document referred to herein or
therein and filed as an exhibit to, or incorporated by reference in, the
Registration Statement are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to, or incorporated by reference in, the Registration Statement, each
such statement being qualified in all respects by such reference. For further
information with respect to the Company and the New Preferred Stock, reference
is hereby made to the Registration Statement and the exhibits and schedules
thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for its fiscal year ended December
31, 1996, which was previously filed with the Commission pursuant to the
Exchange Act (File No.33-62598), is incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Exchange Offer shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (NOT INCLUDING EXHIBITS TO SUCH
DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN
SUCH DOCUMENTS), ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST
DIRECTED TO: VICE PRESIDENT-FINANCE, FAIRFIELD MANUFACTURING COMPANY, INC., U.S.
ROUTE 52 SOUTH, LAFAYETTE, INDIANA 47905 (TELEPHONE: (765) 474-3474).
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
NO.
----
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Available Information...................................................................................... ii
Incorporation of Certain Documents by Reference............................................................ ii
Prospectus Summary......................................................................................... 1
The Company.............................................................................................. 1
Use of Proceeds.......................................................................................... 2
The Exchange Offer....................................................................................... 3
Summary of Terms of New Preferred Stock.................................................................. 6
Risk Factors............................................................................................... 12
Leverage................................................................................................. 12
Limitation on Ability to Pay Dividends................................................................... 12
Ranking of the New Preferred Stock; Subordination of Exchange Debentures................................. 13
Restrictions Imposed by Terms of Indebtedness............................................................ 13
Controlling Stockholders................................................................................. 13
Fraudulent Conveyance.................................................................................... 14
Lack of Established Market for the New Preferred Stock................................................... 14
Proposed Tax Law Changes................................................................................. 14
Susceptibility to General Economic Conditions............................................................ 15
Labor Relations.......................................................................................... 15
Competition.............................................................................................. 15
Environmental Regulation................................................................................. 15
Use of Proceeds............................................................................................ 16
Capitalization............................................................................................. 16
Selected Historical and Pro Forma Combined Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 19
Business................................................................................................... 22
Management................................................................................................. 27
Ownership of Capital Stock................................................................................. 31
Related Transactions....................................................................................... 32
Description of Existing Indebtedness....................................................................... 33
Description of Capital Stock............................................................................... 37
The Exchange Offer......................................................................................... 38
Description of New Preferred Stock and Exchange Debentures................................................. 44
Certain Federal Income Tax Considerations.................................................................. 76
Plan of Distribution....................................................................................... 82
Legal Matters.............................................................................................. 83
Experts.................................................................................................... 83
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the related notes, appearing elsewhere in this Prospectus.
THE COMPANY
The Company believes that it is the leading independent manufacturer (based
on sales) of high precision custom gears and planetary gear systems in North
America, with an estimated market share in each of the custom gear and planetary
gear system markets of more than two times that of its nearest competitors. The
majority of the Company's custom gears and planetary gear systems are used by
original equipment manufacturers ('OEMs') as components in various kinds of
heavy mobile equipment. The Company's customers include such industry leaders as
General Electric, John Deere, Caterpillar and General Motors. For the year ended
December 31, 1996, the Company had net sales and EBITDA of $195.2 million and
$32.0 million, respectively.
Custom gears, which accounted for $112.3 million, or 57.5%, of the
Company's 1996 net sales, are components of larger systems such as axles, drive
differentials and transmission units. The Company's custom gear customers
consist principally of OEMs of rail (such as locomotives), mining, agricultural
(such as tractors and specialty harvesting equipment), industrial, construction
and materials-handling equipment, for many of whom the Company is the sole
independent supplier of selected gear products.
Planetary gear systems, which accounted for $82.9 million, or 42.5%, of the
Company's 1996 net sales, are integrated, self-contained power transmission and
torque conversion systems that provide propulsion, swing and/or rotation to
wheels, axles and other components in applications where the use of axles would
otherwise present design difficulties. The Company markets its planetary gear
systems under its Torque-Hub(Registered) name. The Company believes that, as a
result of the performance history and reputation for quality of the Company's
Torque-Hub(Registered) products, the Torque-Hub(Registered) name has become
closely identified with planetary gear systems. Customers for the Company's
Torque-Hub(Registered) products include OEMs of access platform (such as
aerial-lift), road rehabilitation (such as pavers and road rollers),
construction (such as excavators), forestry and agricultural (such as crop
sprayers) equipment.
The Company has been certified as a 'preferred supplier' (based on systems
compliance and on-site inspections) by all of its major customers that have
certification procedures, including General Motors, General Electric, John
Deere, Caterpillar and Ingersoll-Rand. The Company has also been certified as
meeting 'ISO-9001' standards, which are increasingly being used by OEMs in lieu
of individual certification procedures. In addition, the Company expects to
receive 'QS-9000' certification by the end of 1997, which is the level of
certification expected to be required by automotive OEMs beginning in 1998. The
Company believes that certification provides it with a competitive advantage
because a number of OEMs require certification as a condition to doing business.
The Company believes that its strong market position in the custom gear and
planetary gear systems markets is the result of its (i) breadth and quality of
product offerings, (ii) longstanding relationships (in many cases of 20 years or
more) with its major custom gear and planetary gear system customers, (iii)
state-of-the-art engineering and manufacturing technology, including its
in-house heat treating facilities, computer-aided design and manufacturing
systems and computer numerically-controlled machine tools and gear grinders,
(iv) ability to deliver products within short lead times, (v) cost
competitiveness, (vi) experienced engineering staff, which, together with the
Company's sales force, works closely with customers in designing and developing
products to meet customers' needs and (vii) stable, knowledgeable sales force,
many of whose members have engineering degrees and have worked with the same
customers for many years. In addition, the Company believes that its management
team, which has an average of over 25 years of experience in general
manufacturing, will be instrumental in further strengthening the Company's
market position.
The Company's principal executive office is located at U.S. Route 52 South,
Lafayette, Indiana 47905 (Telephone: (765) 474-3474).
BUSINESS STRATEGY
Management intends to strengthen the Company's position as the leading
independent supplier of custom gears and planetary gear systems by implementing
a business strategy based on the following elements:
o Taking Advantage of Industry Trends. The Company seeks to increase its
revenues and market share by taking advantage of industry trends, including:
(i) the trend among captive gear manufacturers (OEMs who
1
<PAGE>
produce gears in-house for use in their own products) to 'outsource,' or
purchase portions of their gear requirements from independent manufacturers
such as the Company, rather than manufacture such products in-house; (ii) the
trend among OEMs to develop sourcing relationships with their suppliers,
whereby an OEM purchases all of its supply requirements within selected
product lines from a single manufacturer like the Company; and (iii) the
trend among OEMs to purchase complete gear assemblies or systems rather than
individual gear products. The Company believes that these trends are driven
by OEMs' desire to reduce their production and supply costs and focus on
their core competencies.
The Company has taken advantage of these industry trends to date. For
example, the Company receives orders from a number of captive gear
manufacturers, such as those of General Motors, General Electric and John
Deere, with respect to certain gear products that such OEMs previously
produced in-house. In addition, the Company has established sole sourcing
relationships with many of its major customers with respect to selected gear
products. The Company has also experienced growth in its sales of complete
gear assemblies and systems, particularly to manufacturers of agricultural
and heavy-duty equipment. The Company believes that it is well-positioned to
continue to take advantage of these industry trends as a result of its broad
product offerings, large manufacturing capacity, sophisticated manufacturing
and design capabilities and established reputation for producing high quality
custom gear and planetary gear system products.
o Reducing Lead Times. The Company believes that reducing lead times has been,
and will continue to be, a key competitive factor in the gear manufacturing
industry. The Company has reduced average manufacturing cycle times through
the manufacturing process from 50 days in 1995 to 32 days at the end of 1996.
Work-in-process inventory has also been reduced by 26.5% during this same
period. These reductions are the result of manufacturing improvements and
inventory controls implemented by management, including reduction in lot
sizes and the installation of new, more efficient machinery. The Company is
seeking to reduce lead times further by installing an enhanced computer
program designed to improve customer order scheduling and inventory
management.
o Continuing Cost Control Efforts. The Company will continue to be dedicated
to remaining price competitive and minimizing production costs. The Company
believes that it has already significantly lowered its operating costs by
reorganizing the physical layout of its manufacturing work space, installing
new, more efficient machinery and improving its employee training programs.
The Company is seeking to reduce costs further through various purchasing
initiatives (including worldwide sourcing, consolidation of the supplier base
and long-term supply agreements) and by reducing set-up times and scrap.
o Improving Manufacturing Capabilities. The Company believes that its
broad-based, integrated manufacturing capabilities, including its
state-of-the-art heat treating facilities, computer-aided design and
manufacturing systems and computer numerically machine tools and gear
grinders, provide it with a distinct competitive advantage. Over the past
three years, the Company invested $34.2 million in capital equipment, of
which $23.7 million was used to purchase new equipment and maintain and
upgrade existing equipment. The Company believes that its manufacturing
capacity is substantially larger than that of its independent competitors,
enabling it to accommodate large orders. The Company plans to continue to
selectively make capital investments which will improve its manufacturing
processes.
o Introducing New Products and Applications. The Company is currently in the
process of developing, testing and marketing a number of new products and new
applications for existing products in an effort to increase revenues,
operating margins and market share. Historically, the Company's planetary
gear system business has generated most of the Company's new products and new
product applications. New products and new product applications accounted for
22.3% of the Company's planetary gear system business in 1996, as compared to
5.7% in 1992. The Company intends to broaden its new custom gear product
applications and is currently developing a number of such applications
including: differentials for off-highway trucks and on-highway automotive,
industrial and commercial vehicles; transmissions; and aerospace gearing.
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds of the Initial Offering (approximately $47.7 million) were used to fund
a dividend to Lancer Industries Inc. ('Lancer'), the Company's parent and the
owner of 100% of the common stock of the Company. The proceeds received by
Lancer in the form of the dividend were used to redeem approximately $47.7
million aggregate liquidation preference of Lancer's Series C Preferred Stock
(the 'Lancer Preferred Stock'). At December 31, 1996, the aggregate liquidation
preference of the Lancer Preferred Stock was approximately $53 million. See 'Use
of Proceeds' and 'Related Transactions.'
2
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THE EXCHANGE OFFER
<TABLE>
<S> <C>
Registration Agreement.................... The Existing Preferred Stock was issued on March 12, 1997 (the 'Issue
Date') to the initial purchaser (the 'Initial Purchaser') of the
Existing Preferred Stock. The Initial Purchaser resold the Existing
Preferred Stock to certain qualified institutional buyers in reliance
on, and subject to the restrictions imposed pursuant to, Rule 144A of
the Securities Act. In connection therewith, the Company and the
Initial Purchaser entered into the Share Registration Rights
Agreement, dated as of March 12, 1997 (the 'Registration Agreement'),
providing for, among other things, the Exchange Offer. See 'The
Exchange Offer.'
The Exchange Offer........................ New Preferred Stock is being offered in exchange for an equal
liquidation preference of Existing Preferred Stock accepted in the
Exchange Offer. As of the date hereof, $50,000,000 aggregate
liquidation preference of Existing Preferred Stock is outstanding.
Existing Preferred Stock may be tendered only in integral multiples
of $1,000.
Resale of New Preferred Stock............. Based on interpretations by the Staff of the Commission as set forth
in no-action letters issued to third parties, the Company believes
that the New Preferred Stock issued pursuant to the Exchange Offer
may be offered for resale, resold or otherwise transferred by any
holder thereof (other than any such holder that is a broker-dealer or
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
(i) such New Preferred Stock is acquired in the ordinary course of
such holder's business, (ii) at the time of the commencement of the
Exchange Offer such holder has no arrangement with any person to
participate in a distribution of the New Preferred Stock and (iii)
such holder is not engaged in, and does not intend to engage, in a
distribution of the New Preferred Stock. By tendering Existing
Preferred Stock in exchange for New Preferred Stock, each holder will
represent to the Company that: (i) it is not such an affiliate of the
Company, (ii) any New Preferred Stock to be received by it will be
acquired in the ordinary course of such holder's business and (iii)
at the time of the commencement of the Exchange Offer it had no
arrangement with any person to participate in a distribution of the
New Preferred Stock and, if such holder is not a broker-dealer, it is
not engaged in, and does not intend to engage in, a distribution of
New Preferred Stock. If a holder of Existing Preferred Stock is
unable to make the foregoing representations, such holder may not
rely on the applicable interpretations of the Staff of the Commission
and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary
resale transaction.
</TABLE>
3
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<TABLE>
<S> <C>
Each broker-dealer that receives New Preferred Stock 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
Preferred Stock. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an 'underwriter' within the meaning
of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Preferred Stock where such Existing
Preferred Stock was acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has
agreed that, starting on the Expiration Date and ending on the close
of business 180 days after the date the Registration Statement
relating to the Exchange Offer has become effective (the 'Effective
Date'), it will make this Prospectus available to any participating
broker-dealer for use in connection with any such resale. See 'Plan
of Distribution.'
To comply with the securities laws of certain jurisdictions, it may
be necessary to qualify for sale or register the New Preferred Stock
prior to offering or selling such New Preferred Stock. The Company
has agreed, pursuant to the Registration Agreement and subject to
certain specified limitations therein, to register or qualify the New
Preferred Stock for offer or sale under the securities or 'blue sky'
laws of such jurisdictions as may be necessary to permit the holders
of New Preferred Stock to trade the New Preferred Stock without any
material restrictions or limitations under the securities laws of the
several states of the United States.
Consequences of Failure to
Exchange Existing Preferred Stock....... Upon consummation of the Exchange Offer, subject to certain limited
exceptions, holders of Existing Preferred Stock who do not exchange
their Existing Preferred Stock for New Preferred Stock in the
Exchange Offer will no longer be entitled to registration rights under
the Registration Agreement and will not be able to offer or sell their
Existing Preferred Stock, unless such Existing Preferred Stock is
subsequently registered under the Securities Act (which, subject to
certain limited exceptions, the Company will have no obligation to
do), except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws.
See 'The Exchange Offer--Terms of the Exchange Offer' and
'--Consequences of Failure to Exchange.'
Expiration Date........................... 5:00 p.m., New York City time, on , 1997 (30 calendar days
following the commencement of the Exchange Offer), 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.
Dividends on the New Preferred Stock...... The New Preferred Stock will accumulate dividends at a rate of
11 1/4% per annum from the last dividend payment date on which
dividends were paid on the shares of Existing Preferred Stock
surrendered in exchange therefor or, if no dividends have been paid,
from the Issue Date. Dividends on the New Preferred Stock are payable
on March 15 and September 15 of each year, commencing on September
15, 1997.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Conditions to the Exchange Offer The Exchange Offer is not conditioned upon any minimum principal
amount of Existing Preferred Stock being tendered for exchange.
However, the Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See 'The Exchange
Offer--Conditions.' Except for the requirements of applicable federal
and state securities laws, there are no federal or state regulatory
requirements to be complied with or obtained by the Company in
connection with the Exchange Offer.
Procedures for Tendering Existing
Preferred Stock......................... Each holder of Existing Preferred Stock wishing to accept the
Exchange Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with the
instructions contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such facsimile, together with
any other required documentation to the Exchange Agent (as defined
herein) at the address set forth herein and effect a tender of
Existing Preferred Stock pursuant to the procedures for book-entry
transfer as provided for herein. See 'The Exchange Offer--Procedures
for Tendering' and '--Book Entry Transfer.'
Guaranteed Delivery Procedures............ Holders of Existing Preferred Stock who wish to tender their Existing
Preferred Stock and who cannot deliver their Existing Preferred Stock
and a properly completed Letter of Transmittal or any other documents
required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date may tender their Existing Preferred Stock
according to the guaranteed delivery procedures set forth in 'The
Exchange Offer--Guaranteed Delivery Procedures.'
Withdrawal Rights......................... Tenders of Existing Preferred Stock 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 Existing Preferred Stock, a written or facsimile
transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein under 'The Exchange Offer--
Exchange Agent' prior to 5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Existing Preferred Stock
and Delivery of New Preferred
Stock................................... Subject to certain conditions, any and all shares of Existing
Preferred Stock that are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the Expiration Date will
be accepted for exchange. The New Preferred Stock issued pursuant to
the Exchange Offer will be delivered promptly following the
Expiration Date. See 'The Exchange Offer--Terms of the Exchange
Offer.'
Certain U.S. Tax Consequences............. The exchange of Existing Preferred Stock for New Preferred Stock
should not constitute a taxable exchange for U.S. federal income tax
purposes. See 'Certain Federal Income Tax Considerations.'
Exchange Agent............................ United States Trust Company of New York is serving as exchange agent
(the 'Exchange Agent') in connection with the Exchange Offer.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Fees and Expenses......................... All expenses incident to the Company's consummation of the Exchange
Offer and compliance with the Registration Agreement will be borne by
the Company, other than certain commissions, if any, relating to a
holder's disposition of its shares of Existing Preferred Stock in
connection with the Exchange Offer. See 'The Exchange Offer--Fees and
Expenses.'
Use of Proceeds........................... There will be no cash proceeds payable to the Company from the
issuance of the New Preferred Stock pursuant to the Exchange Offer.
The proceeds from the sale of the Existing Preferred Stock were used
to fund a dividend to Lancer, which dividend was in turn used by
Lancer to redeem approximately $47.7 aggregate liquidation preference
of the Lancer Preferred Stock. See 'Use of Proceeds' and 'Related
Transactions.'
</TABLE>
SUMMARY OF TERMS OF NEW PREFERRED STOCK
The Exchange Offer relates to the exchange of up to $50,000,000 aggregate
liquidation preference of Existing Preferred Stock for an equal aggregate
liquidation preference of New Preferred Stock. Shares of New Preferred Stock
will be entitled to the benefits of a Certificate of Designation, the form and
terms of which are identical in all material respects to the form and terms of
the Certificate of Designation governing the Existing Preferred Stock, except
that (i) the shares of New Preferred Stock will have been registered under the
Securities Act, and thus will not bear restrictive legends restricting their
transfer pursuant to the Securities Act and (ii) holders of New Preferred Stock
will not be entitled to registration rights that holders of the Existing
Preferred Stock have under the Registration Agreement except under limited
circumstances. See 'Description of New Preferred Stock and Exchange Debentures.'
<TABLE>
<S> <C>
Liquidation Preference.................... $1,000 per share, plus accumulated and unpaid dividends.
Optional Redemption....................... The New Preferred Stock is redeemable, at the option of the Company,
in whole or in part, at any time on or after March 15, 2002, at the
redemption prices set forth herein, plus, without duplication,
accumulated and unpaid dividends to the date of redemption.
Mandatory Redemption...................... The Company is required, subject to certain conditions, to redeem all
of the New Preferred Stock outstanding on March 15, 2009, at a
redemption price equal to 100% of the liquidation preference thereof,
plus, without duplication, accumulated and unpaid dividends to the
date of redemption.
Dividends................................. The New Preferred Stock will pay dividends at a rate equal to 11 1/4%
per annum of the liquidation preference per share, payable semi-
annually beginning September 15, 1997 and accumulating from the last
dividend payment date on which dividends were paid on the shares of
Existing Preferred Stock surrendered in exchange therefor or, if no
dividends have been paid, from the Issue Date. The Company may, at
its option, pay dividends on any dividend payment date occurring on
or before March 15, 2002 either in cash or by the issuance of
additional shares of New Preferred Stock having an aggregate
liquidation preference equal to the amount of such dividends.
Dividend Payment Dates.................... March 15 and September 15, commencing September 15, 1997.
Voting.................................... The New Preferred Stock will be non-voting, except as otherwise
required by law and except in certain circumstances described herein,
including (i) amending certain rights of the holders of the New
Preferred Stock and (ii) the issuance of any class of equity
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
securities that ranks on a parity with or senior to the New Preferred
Stock. In addition, if the Company fails (i) to pay dividends after
March 15, 2002, in respect of three or more semi-annual dividend
periods (whether or not consecutive), (ii) to make a mandatory
redemption or a Change of Control Offer in the event of a Change of
Control occurring on or after July 2, 2001, or (iii) to comply with
certain covenants or fails to make certain payments on its
Indebtedness, holders of a majority of the outstanding shares of New
Preferred Stock, voting as a class, will be entitled to elect the
lesser of two directors or that number of directors constituting at
least 25% of the Company's board of directors (the 'Board of
Directors'). See 'Description of New Preferred Stock and Exchange
Debentures--The New Preferred Stock--Voting Rights.'
Exchange Provisions....................... The New Preferred Stock will be exchangeable at the option of the
Company, in whole but not in part, for the Exchange Debentures on any
scheduled dividend payment date occurring after the earlier of (i)
July 2, 2001 and (ii) the date on which all of the Existing Notes are
redeemed, subject to the satisfaction of certain conditions and
provided that such exchange is permitted pursuant to the terms of the
Company's Indebtedness then outstanding.
Ranking................................... The New Preferred Stock will rank senior in right of payment (with
respect to dividend rights and upon liquidation) to the common stock
of the Company and will, subject to the terms described herein, rank
senior to, on parity with, or junior to, other classes of preferred
stock issued by the Company from time to time. The New Preferred
Stock will rank junior in right of payment upon liquidation to all
existing and future Indebtedness of the Company, including, without
limitation, Indebtedness under the Credit Agreement and Indebtedness
in respect of the Existing Notes. As of December 31, 1996, there
would have been $118.0 million of Indebtedness of the Company ranking
senior to the New Preferred Stock.
Change of Control......................... In the event of a Change of Control occurring on or after July 2,
2001, only if and only to the extent permitted by any other
Indebtedness of the Company then outstanding, the Company will offer
to redeem the outstanding shares of New Preferred Stock at a
redemption price equal to 101% of the liquidation preference thereof,
plus, without duplication, accumulated and unpaid dividends to the
date of purchase. In addition, upon the occurrence of a Change of
Control occurring prior to July 2, 2001, the Company will have the
option to offer to redeem the New Preferred Stock, in whole but not
in part, at a redemption price equal to 101% of the liquidation
preference thereof, plus, without duplication, accumulated and unpaid
dividends to the date of purchase. If a Change of Control occurs
prior to July 2, 2001 and the Company fails to make an offer to
redeem the New Preferred Stock, the annual dividend rate on the New
Preferred Stock will increase by 4.0% over the then-applicable annual
dividend rate. There can be no assurance that the Company would be
permitted to purchase the New Preferred Stock upon a Change of
Control, that the Company would have sufficient funds for any such
purchase or that the Company would be able to obtain financing for
any such purchase on favorable terms, if at all. See 'Risk
Factors--Change of Control' and
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
'Description of New Preferred Stock and Exchange Debentures--The New
Preferred Stock--Change of Control.'
Certain Restrictive Provisions............ The Certificate of Designation governing the New Preferred Stock will
contain restrictive provisions that, among other things, limit the
ability of the Company and its subsidiaries to incur additional
Indebtedness, pay dividends or make certain other restricted
payments, enter into transactions with affiliates, merge or
consolidate with or sell all or substantially all of their assets to
any other person or issue additional preferred stock that ranks on a
parity with or senior to the New Preferred Stock. See 'Description of
New Preferred Stock and Exchange Debentures--The New Preferred
Stock--Certain Covenants.' These restrictive provisions have a number
of important exceptions, including with respect to the New Equity
Incentive Plan (as defined) for senior management. See
'Management--New Equity Incentive Plan.'
THE EXCHANGE DEBENTURES
Issue..................................... 11 1/4% Subordinated Exchange Debentures due 2009 issuable in
exchange for the New Preferred Stock in an aggregate principal amount
equal to the liquidation preference of the New Preferred Stock, plus,
without duplication, accumulated and unpaid dividends to the date
fixed for the exchange thereof (the 'Exchange Date'), plus any
additional Exchange Debentures issued from time to time in lieu of
cash interest.
Maturity.................................. March 15, 2009.
Interest Rate and Payment Dates........... The Exchange Debentures will bear interest at a rate of 11 1/4% per
annum. Interest will accrue from the most recent interest payment
date to which interest has been paid or provided for or, if no
interest has been paid or provided for, from the Exchange Date.
Interest will be payable semi-annually in cash (or, at the option of
the Company, on or prior to March 15, 2002, in additional Exchange
Debentures) in arrears on each March 15 and September 15, commencing
with the first such date after the Exchange Date.
Optional Redemption....................... The Exchange Debentures are redeemable, at the option of the Company,
in whole or in part, at any time on or after March 15, 2002 at the
redemption prices set forth herein, plus accrued and unpaid interest
to the date of redemption.
Ranking................................... The Exchange Debentures will be unsecured subordinated obligations of
the Company, subordinated to all existing and future Senior Debt of
the Company, including, without limitation, Indebtedness under the
Credit Agreement. In addition, the Exchange Debentures will be
effectively subordinated to all existing and future Indebtedness of
the Company's subsidiaries. The Exchange Debentures will rank pari
passu or senior to any class or series of Indebtedness that expressly
provides that it ranks pari passu or subordinate to the Exchange
Debentures, as the case may be. As of December 31, 1996, there would
have been $118.0 million of Indebtedness of the Company ranking
senior to the Exchange Debentures.
Change of Control......................... In the event of a Change of Control occurring on or after July 2,
2001, only if and to the extent permitted by any Senior Debt of the
Company then outstanding, the Company will offer to redeem all
outstanding
</TABLE>
8
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<TABLE>
<S> <C>
Exchange Debentures at a redemption price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest to the
date of purchase. In addition, upon the occurrence of a Change of
Control occurring prior to July 2, 2001, the Company will have the
option to offer to redeem the Exchange Debentures, in whole but not
in part, at a redemption price equal to 101% of the principal amount
thereof, plus, without duplication, accrued and unpaid interest to
the date of purchase. If a Change of Control occurs prior to July 2,
2001 and the Company fails to make an offer to redeem the Exchange
Debentures in accordance with the terms of the Indenture governing
the Exchange Debentures (the 'Exchange Indenture'), the annual
interest rate on the Exchange Debentures will increase by 4.0% over
the then-applicable interest rate. There can be no assurance that the
Company would be permitted to purchase the Exchange Debentures upon a
Change of Control, that the Company would have sufficient funds for
any such purchase or that the Company would be able to obtain
financing for any such purchase on favorable terms, if at all. See
'Risk Factors--Change of Control' and 'Description of New Preferred
Stock and Exchange Debentures--The Exchange Debentures--Change of
Control.'
Certain Covenants......................... The Exchange Indenture will contain certain covenants that, among
other things, limit the ability of the Company and its subsidiaries
to incur additional Indebtedness, pay dividends or make certain other
restricted payments, sell assets, enter into certain transactions
with affiliates, merge or consolidate with or sell all or
substantially all of their assets to any other person or, in the case
of the Company's subsidiaries, to issue preferred stock or become
guarantors. See 'Description of New Preferred Stock and Exchange
Debentures--The Exchange Debentures--Certain Covenants.' These
covenants have a number of important exceptions, including with
respect to the New Equity Incentive Plan for senior management. See
'Management--New Equity Incentive Plan.'
</TABLE>
RISK FACTORS
Prospective purchasers of the New Preferred Stock should carefully consider
all of the information set forth in this Prospectus and, in particular, should
evaluate the specific factors under 'Risk Factors' for risks involved with an
investment in the New Preferred Stock.
9
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SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following summary historical financial information for the Company for
the five years ended December 31, 1996 has been derived from the audited
consolidated financial information for the Company for such periods. The
following summary financial data should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Consolidated Financial Statements and the notes thereto of
the Company which are contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................................ $ 108,613 $ 124,779 $ 150,689 $ 192,111 $ 195,205
Cost of sales.................................... 90,583 103,603 123,092 151,890 158,668
Selling, general and administrative expenses..... 12,451 12,323 15,924 14,759 16,868
--------- --------- --------- --------- ---------
Operating income................................. 5,579 8,853 11,673 25,462 19,669
Interest expense, net............................ 11,493 11,345 12,377 12,905 11,930
Other expense, net............................... 136 227 199 127 90
--------- --------- --------- --------- ---------
Income (loss) before income taxes, extraordinary
item and cumulative effect
of change in accounting principle.............. (6,050) (2,719) (903) 12,430 7,649
Provision (benefit) for income taxes............. (1,898) (935) (164) 5,520 3,730
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item and
cumulative effect of change in accounting
principle...................................... (4,152) (1,784) (739) 6,910 3,919
Extraordinary loss on early extinguishment
of debt, net of tax(1)......................... -- (4,455) -- -- --
Cumulative effect of change in accounting
principle, net of tax(2)....................... -- (4,625) (1,554) -- --
--------- --------- --------- --------- ---------
Net income (loss)................................ $ (4,152) $ (10,864) $ (2,293) $ 6,910 $ 3,919
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OTHER DATA:
EBITDA(3)........................................ $ 17,774 $ 19,475 $ 22,621 $ 36,971 $ 32,016
Depreciation..................................... 10,724 9,242 9,540 10,027 10,830
Amortization(4).................................. 3,037 2,604 2,310 2,245 2,277
Cash interest expense, net(5).................... 10,063 10,348 11,674 12,269 11,260
Capital expenditures............................. 3,151 4,145 9,164 15,090 9,986
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
1996(6)
---------
<S> <C>
EBITDA....................................... $32,016
Pro forma preferred stock dividends(7)....... 5,625
Ratio of EBITDA to cash interest expense,
net........................................ 2.8x
Ratio of EBITDA to cash interest expense, net
and preferred stock dividends.............. 1.9x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
------------------------------
ACTUAL ADJUSTED(8)
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.............................. $ 12,123 $ 12,080
Total assets................................. 176,370 176,327
Long-term debt (including current
maturities)................................ 118,000 118,000
Redeemable preferred stock................... -- 47,700
Stockholder's equity (deficit)............... (4,570) (52,313)
</TABLE>
(see footnotes on the following page)
10
<PAGE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(1) During 1993, the Company recorded an extraordinary loss of $4.5 million, net
of tax, relating to the early extinguishment, and refinancing of, the
outstanding debt at June 30, 1993.
(2) During 1993, the Company recorded a one-time non-cash charge of $4.6
million, net of tax, relating to the cumulative effect of adopting Statement
of Financial Accounting Standard No. 106, 'Employers Accounting for
Postretirement Benefits Other Than Pensions.' During 1994, the Company
recorded a one-time non-cash charge of $1.6 million, net of tax, relating to
the cumulative effect of adopting Statement of Financial Accounting Standard
No. 112, 'Employers Accounting for Postemployment Benefits.'
(3) EBITDA represents income (loss) before income taxes, extraordinary item and
cumulative effect of a change in accounting principle, interest expense,
net, depreciation and amortization. EBITDA is not a calculation based on
generally accepted accounting principles. EBITDA is not presented herein as
an alternative measure of operating results or cash flow, but rather to
provide additional information related to the Company's debt service
capability.
(4) Includes the amortization of deferred financing costs and the amortization
of the excess of investment over net assets acquired.
(5) Cash interest expense, net includes interest income, but excludes
amortization of deferred financing costs of $1.4 million for fiscal 1992,
$1.0 million for fiscal 1993, $0.7 million for fiscal 1994, $0.6 million for
fiscal 1995 and $0.7 million for fiscal 1996.
(6) Pro forma giving effect to the Initial Offering as if such event had
occurred on January 1, 1996.
(7) Pro forma dividends on the New Preferred Stock based on a dividend rate of
11 1/4% per annum, payable semi-annually.
(8) Adjusted to give effect to the Initial Offering as if such event had
occurred on December 31, 1996.
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Existing Preferred Stock for the New Preferred Stock, holders of
Existing Preferred Stock should consider carefully the following factors, which
are generally applicable to the Existing Preferred Stock and the New Preferred
Stock.
LEVERAGE
The Company currently has a significant amount of outstanding indebtedness.
As of December 31, 1996, the Company had total outstanding indebtedness of
$118.0 million ranking senior to the New Preferred Stock. See 'Capitalization.'
The Company's ability to make scheduled payments of principal or interest on, or
to refinance, its indebtedness depends on its future operating performance,
which is subject to economic, financial, competitive and other factors beyond
its control.
The degree to which the Company is leveraged could have important
consequences to holders of New Preferred Stock, including: (i) the Company's
increased vulnerability to adverse general economic and industry conditions;
(ii) the Company's impaired ability to obtain additional financing for future
working capital, capital expenditures, acquisitions, general corporate purposes
or other purposes; (iii) the dedication of a substantial portion of the
Company's cash flow from operations to the payment of principal and interest on
indebtedness, thereby reducing the funds available for operations and future
business opportunities; (iv) all of the Company's borrowings under the Credit
Agreement are at variable rates of interest, which could cause the Company to be
vulnerable to increases in interest rates (a one percentage point increase in
the interest rate under the Credit Agreement would increase the Company's annual
interest expense thereunder by approximately $0.3 million, based on outstanding
indebtedness of $33.0 million); and (v) all of the indebtedness incurred in
connection with the Credit Agreement and the Company's 11 3/8% Senior
Subordinated Notes due July 1, 2001 (the 'Existing Notes') would become due
prior to the Company's ability to pay cash dividends on, and satisfy its
redemption obligations in respect of, the New Preferred Stock. In addition, the
Credit Agreement and the indenture governing the Existing Notes (the 'Existing
Indenture') contain certain covenants which could limit the Company's operating
and financial flexibility. See 'Description of Existing Indebtedness--GE Credit
Agreement' and 'Description of Existing Indebtedness--Senior Subordinated
Notes.'
The Company's ability to pay cash dividends on, and satisfy its redemption
obligations in respect of, the New Preferred Stock will depend upon its future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, many of which are beyond its control.
The Company expects that its operating cash flow will be sufficient to meet its
operating expenses and to service its debt requirements as they become due. If
the Company is unable to service its indebtedness, whether upon acceleration of
such indebtedness or in the ordinary course of business, it will be forced to
adopt an alternative strategy that may include actions such as reducing or
delaying capital expenditures, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms, if at all,
and the implementation of any of these alternative strategies could have a
negative impact on the value of the New Preferred Stock. In the event of a
liquidation of the Company, the New Preferred Stock would be subordinated in
right of payment to the Company's indebtedness then outstanding and any
preferred stock ranking senior to the New Preferred Stock then outstanding which
was issued in accordance with the terms of the Certificate of Designation. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
LIMITATIONS ON ABILITY TO PAY DIVIDENDS
The Credit Agreement and the Existing Indenture limit the payment of cash
dividends on the New Preferred Stock. For all dividend payment dates through and
including March 15, 2002, the Company may, at its option, pay dividends either
in cash or by the issuance of additional shares of New Preferred Stock having an
aggregate liquidation preference equal to the amount of such dividends. If after
March 15, 2002, the Company is in arrears in the payment of cash dividends for
three or more semi-annual dividend periods, the holders of the New Preferred
Stock will be permitted to elect the lesser of two directors or that number of
directors constituting 25% of the Board of Directors of the Company.
In addition to the limitations imposed on the payment of dividends by the
Credit Agreement and the Existing Indenture, under Delaware law the Company is
permitted to pay dividends on its capital stock, including the New Preferred
Stock, only out of its surplus or, in the event that it has no surplus, out of
its net profits for the year in which a dividend is declared or for the
immediately preceding fiscal year. Surplus is defined as the excess of a
company's total assets over the sum of its total liabilities plus the par value
of its outstanding capital stock. In
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<PAGE>
order to pay dividends in cash, the Company must have surplus or net profits
equal to the full amount of the cash dividend at the time such dividend is
declared.
In determining the Company's ability to pay dividends, Delaware law permits
the Board of Directors of the Company to revalue the Company's assets and
liabilities from time to time to their fair market values in order to create
surplus. The Company cannot predict what the value of its assets or the amount
of its liabilities will be in the future and, accordingly, there can be no
assurance that the Company will be able to pay cash dividends on the New
Preferred Stock.
RANKING OF THE NEW PREFERRED STOCK; SUBORDINATION OF EXCHANGE DEBENTURES
The New Preferred Stock will rank junior in right of payment upon
liquidation to all existing and future Indebtedness of the Company, including,
without limitation, Indebtedness under the Credit Agreement and Indebtedness in
respect of the Existing Notes. The New Preferred Stock will rank senior in right
of payment upon liquidation to the common stock of the Company, the only other
class of equity security of the Company which will be outstanding upon
consummation of the Offering. The payment of principal, premium, if any, and
interest on, and any other amounts owing in respect of, the Exchange Debentures,
if issued, will be subordinated to the prior payment in full of all existing and
future Senior Debt of the Company. In addition, the Exchange Debentures will be
effectively subordinated to all existing and future Indebtedness of the
Company's subsidiaries. As of December 31, 1996, $118.0 million of Senior Debt
was outstanding (represented by Indebtedness under the Credit Agreement and the
Existing Notes) and $20.0 million would have been available for borrowing under
the Credit Agreement. In the event of the bankruptcy, liquidation, dissolution,
reorganization or other winding up of the Company, the assets of the Company
will be available to pay obligations on the Exchange Debentures only after all
Senior Debt has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Exchange Debentures. In
addition, under certain circumstances, the Company may not pay principal of,
premium, if any, or interest on, or any other amounts owing in respect of, the
Exchange Debentures, or purchase, redeem or otherwise retire the Exchange
Debentures, if a payment default or a non-payment default exists with respect to
certain Senior Debt. See 'Description of the New Preferred Stock and Exchange
Debentures--The Exchange Debentures--Subordination.'
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Credit Agreement and the Existing Indenture each contain certain
covenants that restrict, among other things, the Company's ability to incur
additional indebtedness, incur liens, make investments, pay dividends or make
certain other restricted payments, consummate certain asset sales, consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. The Credit
Agreement also requires the Company to maintain certain financial ratios. The
Company's ability to meet these financial ratios may be affected by events
beyond its control, and there can be no assurance that they will be met. A
breach of any of these covenants could result in an event of default under the
Credit Agreement or the Existing Indenture. Upon the occurrence of an event of
default under the Credit Agreement or the Existing Indenture, the lenders or
holders thereunder could elect to declare all amounts outstanding thereunder,
together with accrued interest, to be immediately due and payable. In the case
of the Credit Agreement, if the Company were unable to repay those amounts, the
lenders thereunder could proceed against the collateral granted to them to
secure that indebtedness. If the Credit Agreement indebtedness were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full that indebtedness and the other indebtedness of the
Company. Substantially all of the assets of the Company have been pledged as
security under the Credit Agreement. See 'Description of Existing
Indebtedness--GE Credit Agreement.'
CONTROLLING STOCKHOLDERS
All of the outstanding shares of common stock of the Company are owned by
Lancer. A majority of Lancer's voting stock is owned by the Lancer Employee
Stock Ownership Plan (the 'ESOP'). Two participants in the ESOP, Messrs. Peter
A. Joseph and Paul S. Levy, collectively have the power to direct the voting of
approximately 46.8% of Lancer's common stock. In addition, each of Messrs.
Joseph and Levy have the right to purchase an aggregate of approximately 3.0% of
Lancer's common stock. As a result, these two individuals have the ability to
exercise control over the current and future business and affairs of the
Company, including the ability to cause or prevent a change of control of the
Company, through their ability to elect the Company's Board of Directors and
their voting power with respect to actions requiring stockholder approval. See
'Ownership of Capital Stock.'
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<PAGE>
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Exchange
Debentures, if issued, in favor of other existing or future creditors of the
Company. If a court, in a lawsuit on behalf of any unpaid creditor of the
Company or a representative of the Company's creditors, were to find that, at
the time the Company issued the Exchange Debentures, the Company (x) intended to
hinder, delay or defraud any existing or future creditor or contemplated
insolvency with a design to prefer one or more creditors to the exclusion in
whole or in part of others or (y) did not receive fair consideration or
reasonably equivalent value for issuing such Exchange Debentures and the Company
(i) was insolvent, (ii) was rendered insolvent by reason of such issuance, (iii)
was engaged or about to engage in a business or transaction for which its
remaining assets constituted unreasonably small capital to carry on its business
or (iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, such court could void the Company's
obligations under the Exchange Debentures and void such transactions.
Alternatively, in such event, claims of the holders of such Exchange Debentures
could be subordinated to claims of the other creditors of the Company.
CHANGE OF CONTROL
The Company is not required to make a Change of Control Offer with respect
to the New Preferred Stock to the extent a Change of Control occurs prior to
July 2, 2001. However, in the event that a Change of Control occurs prior to
July 2, 2001, the Company will have the option to offer to redeem the New
Preferred Stock, in whole but not in part, at a redemption price equal to 101%
of the liquidation preference thereof, plus, without duplication, accumulated
and unpaid dividends to the date of purchase. If a Change of Control occurs
prior to July 2, 2001 and the Company fails to make an offer to redeem the New
Preferred Stock, the annual dividend rate on the New Preferred Stock will
increase by 4.0% over the then-applicable annual dividend rate. Any offer to
redeem the New Preferred Stock upon a Change of Control will be subject to the
terms of the Credit Agreement (which prohibits the Company from repurchasing
shares of New Preferred Stock) and the Existing Indenture (which limits the
amount (if any) of New Preferred Stock that may be purchased by the Company).
Future debt instruments of the Company are likely to contain similar
prohibitions or restrictions. Accordingly, there can be no assurance that the
Company would be permitted to make an optional offer to purchase shares of New
Preferred Stock upon a Change of Control.
A 'change of control' (as defined in the Credit Agreement) constitutes an
event of default under the Credit Agreement. Upon the occurrence of a 'change of
control' (as defined in the Existing Indenture), the Company will be required,
subject to certain conditions, to make an offer to purchase all outstanding
Existing Notes at a price equal to 101% of the principal amount thereof plus
accrued and unpaid interest to the date of purchase. See 'Description of
Existing Indebtedness--Senior Subordinated Notes.' An event constituting a
Change of Control will also constitute a 'change of control' for purposes of the
Credit Agreement and the Existing Indenture. There can be no assurance that in
the event of any such change of control, the Company will have sufficient funds
to repay its Indebtedness under the Credit Agreement and pay the required
purchase price for all Existing Notes tendered by holders thereof and, if the
Company were to elect to make an offer to redeem shares of the New Preferred
Stock, all shares of the New Preferred Stock tendered by holders thereof, or
that the Company would be able to obtain financing for such purpose on favorable
terms, if at all.
LACK OF ESTABLISHED MARKET FOR THE NEW PREFERRED STOCK
There has not previously been any public market for the New Preferred
Stock. The Company does not intend to list the New Preferred Stock on any
securities exchange or to seek approval for quotation through any automated
quotation system. Accordingly, no assurance can be given as to (i) the
likelihood that an active market for the New Preferred Stock will develop, (ii)
the liquidity of any such market, (iii) the ability of holders to sell their New
Preferred Stock or (iv) the prices that they may obtain for their New Preferred
Stock upon any sale. Future trading prices for the New Preferred Stock will
depend upon many factors, including, among others, the Company's operating
results, the market for similar securities and fluctuating interest rates.
PROPOSED TAX LAW CHANGES
The Clinton Administration's Budget Proposal for fiscal year 1998, released
February 6, 1997, proposed certain tax law changes that would, among other
things, (i) reduce the dividends received deduction available to corporate U.S.
Holders (as defined) from 70% to 50% of dividends received with respect to
dividends paid or accrued more than 30 days after the date of enactment of
legislation, (ii) require a corporate U.S. Holder to satisfy the holding period
required by section 246(c) of the Internal Revenue Code of 1986, as amended (the
'Code'), immediately before or immediately after the U.S. Holder becomes
entitled to receive any dividend with respect to
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<PAGE>
dividends paid or accrued more than 30 days after the date of enactment of
legislation and (iii) require immediate recognition or gain under section 1059
of the Code to the extent a corporate U.S. Holder's tax basis with respect to
which any extraordinary dividend is received is reduced below zero with respect
to distributions after September 13, 1995. It is not clear whether such
proposals will be enacted or, if enacted, whether they will be enacted in the
form proposed. See 'Certain Federal Income Tax Considerations.'
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS
The Company's revenues and results of operations will be subject to
fluctuations based upon general economic conditions. If there were to be a
general economic downturn or a recession in the United States or certain other
markets, the Company believes that certain of its customers may reduce or delay
their demand for the Company's products which may have a negative effect on the
Company's revenues. Most of the factors that might influence customers and
prospective customers to reduce their capital budgets under these circumstances
are beyond the Company's control. During prior recessionary periods, the
Company's operating performance has been negatively affected, and there can be
no assurance that any future economic downturn would not materially and
adversely affect the Company's business, financial condition and operating
results. In addition, there can be no assurance that growth in the markets for
the Company's products will occur or that such growth will result in increased
demand for the Company's products.
LABOR RELATIONS
Approximately 83% of the Company's employees are unionized. The collective
bargaining agreement between the Company and UAW-Local 2317 was ratified in
October 1995 and will expire in October 1998. Although the Company believes its
relations with its employees are satisfactory, a dispute between the Company and
its employees could have a material adverse effect on the Company's business,
financial condition and operating results.
COMPETITION
The industry in which the Company operates is highly competitive. The
Company's custom gear business competes primarily with major domestic
manufacturers, regional domestic manufacturers, foreign producers and captive
gear manufacturers. The Company's planetary gear business competes primarily
with several large competitors and a large number of relatively small suppliers.
There can be no assurance that the Company's products will compete successfully
with those of its competitors or that the Company would be able to maintain its
operating margins if the competitive environment changes.
ENVIRONMENTAL REGULATION
The operations and properties of the Company are subject to a wide variety
of federal, state and local laws and regulations, including those governing the
use, storage, handling, generation, treatment, emission, release, discharge and
disposal of certain materials, substances and wastes, the remediation of
contaminated soil and groundwater, and the health and safety of employees
(collectively, the 'Environmental Laws'). Because Environmental Laws frequently
are revised and supplemented, with a trend towards greater stringency,
expenditures for compliance responsibilities are difficult to estimate and may
exceed anticipated costs. The Company believes that compliance with existing and
publicly proposed Environmental Laws and the resolution of known environmental
liabilities associated with waste disposal and releases will not have a material
adverse effect on its business, financial condition or operating results.
However, future events, such as changes in existing Environmental Laws or their
interpretation and more rigorous enforcement policies of regulatory agencies,
may give rise to additional expenditures or liabilities that could be material.
See 'Business--Environmental Matters.'
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<PAGE>
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
the New Preferred Stock pursuant to the Exchange Offer. The net proceeds to the
Company from the sale of the Existing Preferred Stock were used to fund a
dividend to Lancer, which dividend was used by Lancer to redeem approximately
$47.7 million of Lancer Preferred Stock.
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1996 and as adjusted to give effect to the Initial Offering as
if such event had occurred on December 31, 1996. The table should be read in
conjunction with the Consolidated Financial Statements and the notes thereto and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' included elsewhere in this Memorandum.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------
ACTUAL ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total long-term debt, including current portion:
Credit Facilities(1).............................................. $ 33,000 $ 33,000
Existing Notes.................................................... 85,000 85,000
-------- -----------
Total long-term debt........................................... 118,000 118,000
New Preferred Stock offered hereby(2)............................... -- 47,700
Stockholder's equity (deficit):
Common stock, par value $.01 per share (10,000,000 shares
authorized, 7,805,000 shares issued and outstanding)........... 78 78
Additional paid-in capital........................................ 36,788 36,788
Accumulated deficit(3)............................................ (41,436) (89,179)
-------- -----------
Total common stockholder's equity (deficit).................... (4,570) (52,313)
-------- -----------
Total capitalization........................................... $113,430 $ 113,387
-------- -----------
-------- -----------
</TABLE>
- ------------------
(1) As of December 31, 1996, the Credit Facilities (as defined) consisted of
$33.0 million in term loans and a $20.0 million revolving credit facility.
Advances under the revolving credit facility are subject to borrowing base
availability. As of December 31, 1996, total borrowings under the Credit
Facilities were $33.0 million, comprising $33.0 million in term loans and no
borrowings under the revolving credit facility. See 'Description of
Indebtedness--GE Credit Agreement.'
(2) Represents net proceeds to the Company from the Initial Offering after
deduction for approximately $2.3 million in estimated costs and expenses
relating to the Initial Offering.
(3) Adjusted to give effect to the Initial Offering.
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<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following selected historical and pro forma financial information for
the Company for the five years ended December 31, 1996 has been derived from the
audited consolidated financial information for the Company for such periods. The
following selected financial data should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Consolidated Financial Statements and the notes thereto of
the Company which are contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................................ $ 108,613 $ 124,779 $ 150,689 $ 192,111 $ 195,205
Cost of sales.................................... 90,583 103,603 123,092 151,890 158,668
Selling, general and administrative expenses..... 12,451 12,323 15,924 14,759 16,868
---------- ---------- ---------- ---------- -----------
Operating income................................. 5,579 8,853 11,673 25,462 19,669
Interest expense, net............................ 11,493 11,345 12,377 12,905 11,930
Other expense, net............................... 136 227 199 127 90
---------- ---------- ---------- ---------- -----------
Income (loss) before income taxes, extraordinary
item and cumulative effect of change in
accounting principle........................... (6,050) (2,719) (903) 12,430 7,649
Provision (benefit) for income taxes............. (1,898) (935) (164) 5,520 3,730
---------- ---------- ---------- ---------- -----------
Income (loss) before extraordinary item and
cumulative effect of change in accounting
principle...................................... (4,152) (1,784) (739) 6,910 3,919
Extraordinary loss on early extinguishment of
debt, net of tax(1)............................ -- (4,455) -- -- --
Cumulative effect of change in accounting
principle, net of tax(2)....................... -- (4,625) (1,554) -- --
---------- ---------- ---------- ---------- -----------
Net income (loss)................................ $ (4,152) $ (10,864) $ (2,293) $ 6,910 $ 3,919
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
Net income (loss) per common share............... $ (2.01) $ (3.65) $ (0.77) $ 1.15 $ 0.51
Dividend declared per common share............... -- 0.67 -- -- 2.19
Weighted average common shares outstanding....... 2,064,303 2,976,471 2,976,471 6,018,072 7,726,557
OTHER DATA:
EBITDA(3)........................................ $ 17,774 $ 19,475 $ 22,621 $ 36,971 $ 32,016
Depreciation..................................... 10,724 9,242 9,540 10,027 10,830
Amortization(4).................................. 3,037 2,604 2,310 2,245 2,277
Cash interest expense, net(5).................... 10,063 10,348 11,674 12,269 11,260
Capital expenditures............................. 3,151 4,145 9,164 15,090 9,986
Ratio of earnings to combined fixed charges(6)... -- -- -- 2.0x 1.6x
<CAPTION>
PRO FORMA
1996(7)
-----------
<S> <C>
EBITDA.................................................................................................. $ 32,016
Pro forma preferred stock dividends(8).................................................................. 5,625
Ratio of EBITDA to cash interest expense, net........................................................... 2.8x
Ratio of EBITDA to cash interest expense, net and preferred stock dividends............................. 1.9x
<CAPTION>
AS OF DECEMBER 31, 1996
-------------------------
ACTUAL ADJUSTED(9)
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................... $ 12,123 $ 12,080
Total assets.............................................................................. 176,370 176,327
Long-term debt (including current maturities)............................................. 118,000 118,000
Redeemable preferred stock................................................................ -- 47,700
Stockholder's equity (deficit)............................................................ (4,570) (52,313)
</TABLE>
(see footnotes on the following page)
17
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(1) During 1993, the Company recorded an extraordinary loss of $4.5 million, net
of tax, relating to the early extinguishment, and refinancing of, the
outstanding debt at June 30, 1993.
(2) During 1993, the Company recorded a one-time non-cash charge of $4.6
million, net of tax, relating to the cumulative effect of adopting Statement
of Financial Accounting Standard No. 106, 'Employers Accounting for
Postretirement Benefits Other Than Pensions.' During 1994, the Company
recorded a one-time non-cash charge of $1.6 million, net of tax, relating to
the cumulative effect of adopting Statement of Financial Accounting Standard
No. 112, 'Employers Accounting for Postemployment Benefits.'
(3) EBITDA represents income (loss) before income taxes, extraordinary item and
cumulative effect of a change in accounting principle, interest expense,
net, depreciation and amortization. EBITDA is not a calculation based on
generally accepted accounting principles. EBITDA is not presented herein as
an alternative measure of operating results or cash flow, but rather to
provide additional information related to the Company's debt service
capability.
(4) Includes the amortization of deferred financing costs and the amortization
of the excess of investment over net assets acquired.
(5) Cash interest expense, net includes interest income, but excludes
amortization of deferred financing costs of $1.4 million for fiscal 1992,
$1.0 million for fiscal 1993, $0.7 million for fiscal 1994, $0.6 million for
fiscal 1995 and $0.7 million for fiscal 1996.
(6) For purposes of this calculation, earnings are defined as income (loss)
before income taxes, extraordinary items, the cumulative effect of a change
in accounting principle and fixed charges. Fixed charges consist of interest
expense and amortization of deferred financing costs. Earnings were
insufficient to cover fixed charges by $6.1 million in 1992, $2.7 million in
1993 and $0.9 million in 1994.
(7) Pro forma giving effect to the Initial Offering as if such event had
occurred on January 1, 1996.
(8) Pro forma dividends on the New Preferred Stock based on a dividend rate of
11 1/4% per annum, payable semi-annually.
(9) Adjusted to give effect to the Initial Offering as if such event had
occurred on December 31, 1996.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company experienced significant growth during the period from 1992 to
1996, as net sales increased from $108.6 million in 1992 to $195.2 million in
1996, representing a compound annual growth rate of 15.8%. This increase in net
sales was primarily as a result of (i) increased demand for the Company's
products, (ii) new product introductions and (iii) the Company's growth in
market share. This sales increase was also accompanied by a substantial shift in
the Company's product mix. Sales of the Company's planetary gear systems
increased as a percentage of net sales from 29.4% in 1992 to 42.5% in 1996.
Conversely, sales of the Company's custom gear products as a percentage of net
sales decreased from 70.6% to 57.5% during the same period.
The Company's operating expenses increased during the period from 1994 to
1996, primarily as a result of the Company's investment in personnel.
Investments in personnel during 1995 were driven by internal factors, primarily
the need to increase manufacturing capacity. For example, in 1995 the Company
(i) added approximately 200 manufacturing personnel in order to meet increased
customer demand for the Company's products, (ii) invested additional amounts to
upgrade the technical skill level of a portion of the Company's manufacturing
employees because of a shortage of trained workers in the available labor market
and (iii) added human resources personnel to oversee the implementation of the
collective bargaining agreement resulting from the unionization of the Company's
manufacturing employees in 1994. Investments in 1996 were made in response to
external factors, namely the changing needs of the marketplace. In 1996, the
Company increased the size of its marketing and sales and design engineering
staffs in an effort to increase the Company's sales by means of continued growth
in market share and new product introductions.
Cost of sales increased from 1994 to 1995 primarily as a result of volume
growth, a change in the Company's product mix and the investments in
manufacturing personnel detailed above. From 1995 to 1996, the increase of cost
of sales was influenced by a number of factors including (i) sales of the
Company's planetary gear systems, which have a higher material cost component
compared to custom gear products, increased by $8.8 million in 1996, while sales
of custom gear products decreased by $5.7 million and (ii) the Company's 1996
investment in new processes to improve manufacturing cycle times which resulted
in a reduction in inventory. The impact from 1995 to 1996 of these activities,
as measured by reduced labor and overhead in inventory, was $4.2 million.
Without the effect of these new processes and the related inventory reduction,
the Company's 1996 EBITDA would have been $36.2 million.
The improvement in manufacturing cycle times from 50 days in 1995 to 32
days at the end of 1996 resulted in the following benefits: (i) improved on-time
delivery (a 65% improvement in 1996 versus 1995); (ii) increased inventory turns
(eight times in 1996 versus five times in 1995); (iii) reduced inventory
investment ($18.9 million in 1996 versus $24.9 million in 1995); and (iv) a
substantial increase in cashflow from operations ($23.2 million in 1996 and
$13.9 million in 1995). The Company believes that its improved manufacturing
cycle times have provided it with a competitive advantage.
RESULTS OF OPERATIONS
Fiscal Year 1996 Compared with Fiscal Year 1995
Net sales for 1996 increased by $3.1 million, or 1.6%, to $195.2 million
compared to $192.1 million in 1995. This increase was primarily due to an
increase in planetary gear sales of $8.8 million, partially offset by a decrease
in custom gear sales of $5.7 million.
Cost of sales for 1996 increased by $6.8 million, or 4.5%, to $158.7
million, or 81.3% of net sales, compared to $151.9 million, or 79.1% of net
sales in 1995. This increase primarily resulted from the increased sales of
planetary gear systems, which have a higher material cost component compared to
custom gear products, as well as increased costs associated with the Company's
investment in new processes that reduced manufacturing cycle times from 50 days
in 1995 to 32 days at the end of 1996 and resulted in a reduction in inventory.
19
<PAGE>
Selling, general and administrative expenses, including goodwill
amortization, increased to $16.9 million in 1996, compared to $14.8 million in
1995. This increase resulted primarily from investments in marketing, sales and
design engineering and the write-off of a $0.5 million receivable due to a
customer's bankruptcy.
Earnings from operations for 1996 decreased $5.8 million to $19.7 million,
compared to $25.5 million in 1995, primarily due to the factors mentioned above.
Interest expense, including amortization of deferred financing costs, was
$11.9 million for 1996, compared to $12.9 million for 1995. The principal reason
for the decrease was lower average outstanding debt levels due to improvements
in working capital management and the reduction in inventory described above.
Income before income taxes, was $7.6 million for 1996, compared to $12.4
million for 1995.
The effective tax rates for 1996 and 1995 were 48.8% and 44.4%,
respectively. See the Notes to the Consolidated Financial Statements for a
further discussion of income taxes.
The Company's net income was $3.9 million for 1996, compared to $6.9
million for 1995.
Fiscal Year 1995 Compared with Fiscal Year 1994
Net sales for 1995 increased by $41.4 million, or 27.5%, to $192.1 million,
compared to $150.7 million in 1994. Increased sales volumes of the Company's
products were the result of a variety of factors including additional
outsourcing by captive gear manufacturers, continued growth in sales of products
and applications developed over the last few years, improvements in
manufacturing capabilities, and improvements in the markets served by the
Company's customers.
Cost of sales for 1995 increased by $28.8 million, or 23.4%, to $151.9
million, or 79.1% of net sales, compared to $123.1 million, or 81.7% of net
sales, in 1994. This increase primarily resulted from volume growth, a change in
the Company's product mix and investments in manufacturing personnel.
Selling, general and administrative expenses, including goodwill
amortization, decreased to $14.8 million, or 7.7% of net sales, in 1995,
compared to $15.9 million, or 10.6% of net sales, in 1994. This decrease
resulted primarily from one-time re-engineering and consulting fees incurred in
1994.
Earnings from operations for 1995 increased $13.8 million, or 118.1%, to
$25.5 million, or 13.3% of net sales, compared to $11.7 million, or 7.7% of net
sales, in 1994.
Interest expense, including amortization of deferred financing costs, for
1995 was $12.9 million, compared to $12.4 million for 1994. Despite declining
interest rates in 1995 and a $2.0 million decrease in outstanding debt from
December 31, 1994, the average outstanding debt during 1995 exceeded 1994,
resulting in higher interest costs for the year.
Income before income taxes, extraordinary item and cumulative effect of
change in accounting principle was $12.4 million for 1995, compared to a loss of
$0.9 million for 1994.
The effective tax rates for 1995 and 1994 were 44.4% and (18.2)%,
respectively. The provision for income taxes for 1995 is primarily the result of
current year income. The benefit for income taxes for 1994 is principally the
result of the reversal of previously recorded deferred tax liabilities. See the
Notes to the Consolidated Financial Statements for a further discussion of
income taxes.
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 112, 'Employers Accounting for Postemployment Benefits' ('SFAS No.
112'). SFAS No. 112 requires employers to account for postemployment benefits
under the accrual, rather than the pay-as-you-go, method of accounting, such
that the expected benefits to be paid in future years are recorded during the
period in which the employee renders the service necessary to qualify for these
benefits. The Company implemented SFAS No. 112 by recognizing the total prior
service obligation immediately. As a result of the adoption of SFAS No. 112, the
Company recorded a one-time non-cash charge of $1.6 million ($1.9 million less a
deferred tax benefit of $0.3 million) for the cumulative effect of the change in
accounting principle.
20
<PAGE>
The Company's net income was $6.9 million for 1995, compared to the $2.3
million net loss for 1994. The increase in the net income is primarily due to
the higher sales volume and productivity improvements in 1995, combined with the
cumulative effect of the change in accounting principle adjustment in 1994.
LIQUIDITY AND CAPITAL RESOURCES
On July 7, 1993, the Company completed the sale of $85.0 million aggregate
principal amount of Existing Notes. The Existing Notes mature on July 1, 2001
and are redeemable at the option of the Company, in whole or in part, on or
after July 1, 1998, at certain specified redemption prices. Concurrent with the
issuance of the Existing Notes, the Company entered into a loan agreement with a
senior lending institution which provides for a revolving credit facility and a
term loan. The loan agreement was amended in December 1996 to, among other
things, increase the term loan to $33.0 million (with quarterly amortization
through December 2000) and, subject to certain conditions, provide for a $5.0
million increase in the revolving credit facility commitment at the option of
the Company (from $20.0 million to $25.0 million). The revolving credit facility
matures on July 2001. See 'Description of Existing Indebtedness--GE Credit
Agreement.'
Net cash provided by operating activities was $23.2 million in 1996
compared to $13.9 million in 1995 and $9.6 million in 1994. The increase in cash
flow from operating activities in 1996 was principally due to the impact of
improved manufacturing cycle times reducing inventory.
Capital expenditures totaled $10.0 million, $15.1 million and $9.1 million
in 1996, 1995 and 1994, respectively. The level of capital spending during 1994
to 1996 was primarily a result of increased manufacturing requirements due to
increased sales volume.
Net cash from financing activities was a net usage of $13.6 million in
1996, a net source of $0.7 million in 1995, and a net usage of $5.4 million in
1994. The 1996 net usage funded a portion of the $17.0 million dividend paid to
Lancer and the $3.0 million advance made to Lancer in December 1996.
Under the Tax Sharing Agreement (as defined), Lancer made capital
contributions to the Company of $1.6 million, $2.5 million, and $1.1 million in
1996, 1995 and 1994, respectively. See Notes to the Consolidated Financial
Statements for a further discussion of capital contributions made pursuant to
the Tax Sharing Agreement.
21
<PAGE>
BUSINESS
The Company believes that it is the leading independent manufacturer (based
on sales) of high precision custom gears and planetary gear systems in North
America, with an estimated market share in each of the custom gear and planetary
gear system markets of more than two times that of its nearest competitors. The
majority of Fairfield's custom gears and planetary gear systems are used by OEMs
as components in various kinds of heavy mobile equipment. The Company's
customers include such industry leaders as General Electric, John Deere,
Caterpillar and General Motors. For the year ended December 31, 1996, the
Company had net sales and EBITDA of $195.2 million and $32.0 million,
respectively.
Custom gears, which accounted for $112.3 million, or 57.5%, of the
Company's 1996 net sales, are components of larger systems such as axles, drive
differentials and transmission units. The Company's custom gear customers
consist principally of OEMs of rail (such as locomotives), mining, agricultural
(such as tractors and specialty harvestry equipment), industrial, construction
and materials-handling equipment, for many of whom the Company is the sole
independent supplier of selected gear products.
Planetary gear systems, which accounted for $82.9 million, or 42.5%, of the
Company's 1996 net sales, are integrated, self-contained power transmission and
torque conversion systems that provide propulsion, swing and/or rotation to
wheels, axles and other components in applications where the use of axles would
otherwise present design difficulties. The Company markets its planetary gear
systems under its Torque-Hub(Registered) name. The Company believes that, as a
result of the performance history and reputation for quality of the Company's
Torque-Hub(Registered) products, the Torque-Hub(Registered) name has become
closely identified with planetary gear systems. Customers for the Company's
Torque-Hub(Registered) products include OEMs of access platform (such as
aerial-lift), road rehabilitation (such as pavers and road rollers),
construction (such as excavators), forestry and agricultural (such as crop
sprayers) equipment.
The Company has been certified as a 'preferred supplier' (based on systems
compliance and on-site inspections) by all of its major customers that have
certification procedures, including General Motors, General Electric, John
Deere, Caterpillar and Ingersoll-Rand. The Company has also been certified as
meeting 'ISO-9001' standards, which is increasingly being used by OEMs in lieu
of individual certification procedures. In addition, the Company expects to
receive 'QS-9000' certification by the end of 1997, which is the level of
certification expected to be required by automotive OEMs beginning in 1998. The
Company believes that certification provides it with a competitive advantage
because a number of OEMs require certification as a condition to doing business.
The Company believes that its strong market position in the custom gear and
planetary gear systems markets is the result of its (i) breadth and quality of
product offerings, (ii) longstanding relationships (in many cases of 20 years or
more) with its major custom gear and planetary gear system customers, (iii)
state-of-the-art engineering and manufacturing technology, including its
in-house heat treating facilities, computer-aided design and manufacturing
systems and computer numerically-controlled machine tools and gear grinders,
(iv) ability to deliver products within short lead times, (v) cost
competitiveness, (vi) experienced engineering staff, which, together with the
Company's sales force, works closely with customers in designing and developing
products to meet customers' needs and (vii) stable, knowledgeable sales force,
many of whose members have engineering degrees and have worked with the same
customers for many years. In addition, the Company believes that its management
team, which has an average of over 25 years of experience in general
manufacturing, will be instrumental in further strengthening the Company's
market position.
The Company was founded in 1919 as a manufacturer of custom gear products
and was family-owned until 1977. At that time, the Company was purchased by
Rexnord Corporation, which subsequently sold the Company in 1987 to Neoax Inc.
Lancer purchased the Company in 1989. The Company's principal executive offices
are located at U.S. 52 South, Lafayette, Indiana 47905. The Company's telephone
number is (765) 474-3474.
22
<PAGE>
BUSINESS STRATEGY
The Company's management team intends to strengthen the Company's position
as the leading independent supplier of custom gears and planetary gear systems
by implementing a business strategy based on the following elements:
o Taking Advantage of Industry Trends. The Company seeks to increase its
revenues and market share by taking advantage of industry trends, including:
(i) the trend among captive gear manufacturers (OEMs who produce gears
in-house for use in their own products) to 'outsource,' or purchase portions
of their gear requirements from independent manufacturers such as the Company,
rather than manufacture such products in-house; (ii) the trend among OEMs to
develop sourcing relationships with their suppliers, whereby an OEM purchases
all of its supply requirements within selected product lines from a single
manufacturer like the Company; and (iii) the trend among OEMs to purchase
complete gear assemblies or systems rather than individual gear products. The
Company believes that these trends are driven by OEMs' desire to reduce their
production and supply costs and focus on their core competencies.
The Company has taken advantage of these industry trends to date. For
example, the Company receives orders from a number of captive gear
manufacturers, such as those of General Motors, General Electric and John
Deere, with respect to certain gear products that they previously produced
in-house. In addition, the Company has established sole sourcing relationships
with many of its major customers with respect to selected gear products. The
Company has also experienced growth in its sales of complete gear assemblies
and systems, particularly to manufacturers of agricultural and heavy-duty
equipment. The Company believes that it is well-positioned to continue to take
advantage of these industry trends as a result of its broad product offerings,
large manufacturing capacity, sophisticated manufacturing and design
capabilities and established reputation for producing high quality custom gear
and planetary gear system products.
o Reducing Lead Times. The Company believes that reducing lead times has been,
and will continue to be, a key competitive factor in the gear manufacturing
industry. The Company has reduced average manufacturing cycle times through
the manufacturing process from 50 days in 1995 to 32 days at the end of 1996.
Work-in-process inventory has also been reduced by 26.5% during this same
period. These reductions are the result of manufacturing and inventory
controls implemented by management, including reduction in lot sizes and the
installation of new, more efficient machinery. The Company is seeking to
reduce lead times further by installing an enhanced computer program designed
to improve inventory management.
o Continuing Cost Control Efforts. The Company will continue to be dedicated to
remaining price competitive and minimizing production costs. The Company
believes that it has already significantly lowered its operating costs by
reorganizing the physical layout of its manufacturing work space, installing
new, more efficient machinery and improving its employee training programs.
The Company is seeking to reduce costs further through various purchasing
initiatives (including worldwide sourcing, consolidation of the supplier base
and long-term supply agreements) and by reducing set-up times and scrap.
o Improving Manufacturing Capabilities. The Company believes that its
broad-based, integrated manufacturing capabilities, including its
state-of-the-art heat treating facilities, computer-aided design and
manufacturing systems and computer numerically machine tools and gear
grinders, provide it with a distinct competitive advantage. Over the past
three years, the Company has invested $34.2 million in capital equipment, of
which $23.7 million was used to purchase new equipment and maintain and
upgrade existing equipment. The Company believes that its manufacturing
capacity is substantially larger than that of its independent competitors,
enabling it to accommodate large orders. The Company plans to continue to
selectively make capital investments which will improve its manufacturing
processes.
o Introducing New Products and Applications. The Company is currently in the
process of developing, testing and marketing a number of new products and new
applications for existing products in an effort to increase revenues,
operating margins and market share. Historically, the Company's planetary gear
system business has generated most of the Company's new products and new
product applications. New products and new product applications accounted for
22.3% of the Company's planetary gear system business in 1996, compared to
approximately 5.7% in 1992. The Company intends to broaden its new product
applications in the custom gear
23
<PAGE>
area and is currently developing a number of such applications including:
differentials for off-highway trucks and on-highway automotive, industrial and
commercial vehicles; transmissions; and aerospace gearing.
PRODUCTS
Custom Gears. Custom gears accounted for $112.3 million, or 57.5%, of the
Company's net sales in 1996. The Company manufactures a wide variety of custom
gears, ranging in type (e.g., helical, spiral bevel, spur and
HYPOID(Registered)) and size (from one inch to five feet), and has manufacturing
capabilities which the Company believes are the broadest in the custom gear
business. The Company's custom gears are manufactured according to customers'
specifications, sometimes developed by or with the assistance of the Company,
for use as component parts in various types of heavy mobile equipment. Custom
gears are engineering-intensive and, although such products represent a
relatively small portion of the cost of the equipment in which they are used,
are critical to the operation of such equipment.
Historically, the Company has focused on high margin custom gears. Such
products, which are design- and engineering-intensive, are used in rail, mining,
agricultural, industrial, construction and materials-handling and other
equipment demanding a high degree of product quality and reliability. Many
customers in these markets do not have the necessary engineering and/or
manufacturing facilities, and/or personnel to design and manufacture their gear
requirements in-house. In addition, there is a trend among OEMs to focus on
their core competencies rather than produce gears in-house.
Torque-Hub(Registered) Products. Torque-Hub(Registered) products accounted
for $82.9 million, or 42.5%, of the Company's net sales in 1996. The Company
believes that the Torque-Hub(Registered) name has become closely identified with
planetary gear systems, which provide drive, swing, and/or rotation to the
equipment in which they are used and are primarily employed in cases where the
use of axles present design difficulties. The Company produces a broad line of
planetary gear systems under its Torque-Hub(Registered) trade name, including
wheel drives (used to propel off-highway equipment), shaft outputs (used to
power remote in-plant machinery like mixers as well as mobile aerial lifts and
cranes) and spindle outputs (used to power the drive wheels of vehicles with
small diameter wheels such as small lift trucks and mowers).
The Company has introduced a number of new Torque-Hub(Registered) products
in recent years, including two-speed drives (Torque II series) and compact
drives (CW and CT series) for wheeled or tracked vehicles. The Company believes
that the two-speed drive is ideal for machinery requiring low- and high-speed
settings, such as road paving equipment. The compact drive incorporates the
brakes and hydraulic drive systems into a single compact unit, which the Company
believes allows for better flexibility and is well-suited for a variety of
applications. These recently-introduced products are used in a wide range of
industrial and construction equipment, including excavators, crawler dozers and
loaders, rubber-tired pavers and multi-speed winches.
MARKETING AND DISTRIBUTION
The Company's customers are OEMs and include such industry leaders as
General Electric, John Deere, Caterpillar and General Motors. The Company has
had relationships of 20 years or more with each of the above-mentioned
customers, as well as with many of its other major customers. No single customer
accounted for more than 10% of the Company's 1996 net sales.
The Company has been certified as a 'preferred supplier' by each of General
Motors, General Electric, John Deere, Caterpillar and Ingersoll-Rand as well as
by all of its other major customers that have certification procedures. The
Company has also been certified as meeting 'ISO-9001' standards, which are
increasingly being used by OEMs in lieu of individual certification procedures.
In addition, the Company expects to receive 'QS-9000' certification by the end
of 1997, which is the level of certification expected to be required by
automotive OEMs beginning in 1998. The Company believes that certification
provides it with a competitive advantage because a number of OEMs require
certification as a condition of doing business.
The Company believes its stable, experienced sales force is a primary
reason for the Company's success in maintaining customer loyalty and building
new customer relationships. The Company's sales department is organized
geographically and consists of 14 sales engineers, who have an average of over
15 years of service and most of whom have worked with the same customers for
many years. In addition, each sales engineer has
24
<PAGE>
substantial expertise concerning the Company's products and product
applications. Application engineers work closely with the Company's sales
department and provide customers with guidance concerning product applications
and specific design problems. By becoming a part of the customer's purchasing
and design decisions, the Company has developed close working relationships with
many of its customers. Customer loyalty to the Company is further enhanced by
the development, tooling and production costs associated with changing gear
sources, as such costs are typically borne by the customer.
All of the Company's custom gear products and approximately 70% of its
Torque-Hub(Registered) products are sold directly to OEMs. Since
Torque-Hub(Registered) products can be sold to more than one customer, the
Company uses distributors to increase its penetration of the planetary gear
systems market. The Company sells approximately 30% of its
Torque-Hub(Registered) line through a network of approximately 40 distributors
located in the United States and abroad. International sales accounted for
approximately $11 million, or approximately 6%, of the Company's 1996 net sales.
DESIGN AND MANUFACTURING
The Company believes that its state-of-the-art technology and experienced
engineering staff provide it with a competitive advantage and are major factors
behind the Company's strong market position.
Technology. The Company has selectively invested in state-of-the-art
manufacturing technology in recent years to improve product quality and price
competitiveness, and to reduce lead time. The Company's manufacturing technology
includes the latest computer-aided design and manufacturing (CAD/CAM) systems,
and over one hundred computer numerically controlled (CNC) machine tools and
gear grinders.
The Company's CAD/CAM systems, which enable hundreds of design solutions to
be visualized quickly and easily, facilitate product design and manufacturing.
The Company's computer systems are capable of finite element analysis and
simulation which allows many aspects of a design to be evaluated prior to
production, resulting in lower tooling costs, reduced testing requirements and
quicker time to market. In addition, the Company's CNC gear cutting machines
allow for many different styles and sizes of gears to be run quickly in small
lot sizes with a high degree of accuracy. The Company is in the process of
installing an enhanced computer program designed to improve customer order
scheduling and inventory management.
The Company has its own comprehensive heat treating facilities. These
in-house facilities allow the Company to control the annealing and carburizing
processes that determine the load-carrying capacity of the final product. The
Company's heat treating operations help ensure proper development and
maintenance of gear tooth characteristics. As a result, the Company believes
that it is able to provide its customers with improved quality and reduced lead
times in filling orders. In-line dual frequency induction hardening equipment
will be added in 1997, continuing the Company's practice of selectively adding
advanced technology in its manufacturing processes.
Engineering Staff. The Company's engineering department consists of
approximately 70 engineers and technicians, including specialists in product,
tool, manufacturing and industrial engineering. In addition, the Company has a
metallurgy laboratory which determines the appropriate metallurgy for a specific
gear application. These engineering groups, with their distinct specialties,
work together as a team to develop solutions to specific customer requirements.
These capabilities enable the Company to service clients who demand high
quality, creative solutions to their product needs.
MATERIALS AND SUPPLY ARRANGEMENTS
The Company generally manufactures its custom gear and
Torque-Hub(Registered) products to its customers' specifications and, as a
result, does not generally contract for or maintain substantial inventory in raw
materials or components. The Company purchases its three principal raw materials
(steel forgings, steel bars and castings) on a spot basis based on specific
customer orders. No single supplier accounted for more than 10% of the Company's
raw material purchases in 1996. In addition, alternative sources are available
to fulfill each of the Company's major raw material requirements. The Company
has never experienced a delay in production as a result of a supply shortage of
a major raw material.
25
<PAGE>
COMPETITION
The North American custom gear business is highly competitive but very
fragmented. Competition can be broken down into four principal groups: major
domestic manufacturers, regional domestic manufacturers, foreign producers and
captive gear manufacturers. Although captive gear manufacturers supply all or a
portion of their internal gear requirements and constitute a significant portion
of the custom gear market, the Company believes there is a trend among such
manufacturers to outsource, or purchase their gears from independent
manufacturers such as the Company. The North American planetary gear system
market is also highly competitive and is concentrated among several large
competitors, with the remaining market divided among a large number of
relatively small suppliers. The Company competes with other manufacturers based
on a number of factors, including delivery capability, quality and price. The
Company believes that its breadth of manufacturing, engineering and
technological capabilities provide it with a competitive advantage.
PROPERTIES
The Company owns and operates a single facility in Lafayette, Indiana
consisting of 39 acres of land, approximately 520,000 square feet of
manufacturing space and approximately 60,000 square feet of office space. The
Lafayette facility is well maintained and is in good condition.
EMPLOYEES
At December 31, 1996, the Company had 1,195 permanent employees, of whom
approximately 83% were employed in manufacturing, approximately 6% were
engineers employed in the engineering department, and the remainder were office
and managerial employees. The Company's production and maintenance employees
became members of the United Auto Workers (UAW) union in October 1994 and the
Company entered into a labor contract with the union in October 1995, which is
scheduled to expire in October 1998. The Company considers its relations with
its employees to be satisfactory.
BACKLOG
As of December 31, 1996 and December 31, 1995, the Company had total order
backlog of approximately $77.0 million and $85.0 million, respectively, for
shipments due to be delivered by the Company for the six-month period following
such dates. This reduction was attributable to the Company's ongoing business
strategy of reducing lead times for its products.
INTELLECTUAL PROPERTY
The trade name Torque-Hub(Registered) is a registered trademark. The
Company's planetary gear systems are sold under the Torque-Hub(Registered) trade
name. The Company, directly and through its wholly owned subsidiary, T-H
Licensing, Inc. ('T-H Licensing') owns numerous patents worldwide. None of such
patents is considered material to the Company's business.
LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to the conduct of
its business, much of which is covered by insurance and none of which is
expected to have a material adverse effect on the Company.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to a wide variety of
increasingly complex and stringent Environmental Laws. As such, the nature of
the Company's operations exposes it to the risk of claims with respect to such
matters and there can be no assurance that material costs or liabilities will
not be incurred in connection with such claims. The Company believes its
operations and properties are in substantial compliance with Environmental Laws.
Based upon its experience to date, the Company believes that the future cost of
compliance with existing Environmental Laws, and liablility for known
environmental claims pursuant to such Environmental Laws, will not have a
material adverse effect on the Company's business, financial condition or
operating results. However, future events, such as changes in existing
Environmental Laws or their interpretation and more vigorous enforcement
policies of regulatory agencies, may give rise to additional expenditures or
liabilities that could be material.
26
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of December 31, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- -----------------------------------------------------
<S> <C> <C>
W.B. Lechman.............................. 64 Director, Chairman of the Board
Kenneth A. Burns.......................... 44 President, and Chief Operating Officer
Peter A. Joseph........................... 44 Director, Vice President and Secretary
Paul S. Levy.............................. 49 Director, Vice President and Assistant Secretary
Richard A. Bush........................... 39 Vice President Finance
James R. Dammon........................... 53 Vice President Engineering
Michael M. Manty.......................... 53 Vice President Human Resources
Frederick G. Sharp........................ 42 Vice President Marketing and Sales
Jess C. Ball.............................. 55 Director
</TABLE>
Mr. Lechman was appointed Chairman of the Board effective October 1994.
Prior to his appointment, Mr. Lechman had been President of the Company from
1983 to October 1994 and was Chief Executive Officer from 1989 to October 1994.
Mr. Lechman has been a Director of the Company since 1989. Mr. Lechman serves on
the Board of Directors of Bank One Lafayette, Lafayette Life Insurance Co.,
Lafayette Community Foundation, Lafayette Junior Achievement, The Salvation Army
and Lafayette Chamber of Commerce and is President Emeritus of the American Gear
Manufacturers Association.
Mr. Burns was named President and Chief Operating Officer of the Company
effective May 1996. Prior to his appointment, Mr. Burns had served as Vice
President Operations since January 1996. From 1987 through July 1995, Mr. Burns
served as an executive officer of Abex/NWL Aerospace and its predecessors,
including Executive Vice President.
Mr. Joseph has been Vice President and Secretary and a Director of the
Company since 1989. Mr. Joseph has been a General Partner of Joseph Littlejohn &
Levy since its inception in 1988. Mr. Joseph has served as President of Lancer
since April 1992 and as Secretary and Director of Lancer since July 1989. Mr.
Joseph is also on the Board of Directors of Freedom Chemical Company, Foodbrands
America, Inc., Hayes Wheels International, Inc., Peregrine, Inc., and Tenet
Healthcare Corporation.
Mr. Levy has been Vice President and Assistant Secretary and a Director of
the Company since 1989. Mr. Levy has been a General Partner of Joseph Littlejohn
& Levy since its inception in 1988. Mr. Levy has served as Chief Executive
Officer and Chairman of the Board of Directors of Lancer since July 1989. Mr.
Levy is also on the Board of Directors of Freedom Chemical Company, Foodbrands
America, Inc., Hayes Wheels International, Inc., Peregrine, Inc., and Tenet
Healthcare Corporation.
Mr. Bush has been Vice President Finance of the Company since November
1994. From 1990 to 1994, Mr. Bush was Controller for two different aerospace
units of Abex Inc. From 1980 to 1990, Mr. Bush was with Arthur Andersen & Co. in
the audit and financial consulting practice.
Mr. Dammon has been Vice President Engineering since 1987. Prior to his
present position, Mr. Dammon was Director of Engineering, Manager of New Product
Development, Manager of Customer Engineering Service and Gear Design Engineer.
Mr. Dammon has been with the Company for over 30 years.
Mr. Manty has been Vice President Human Resources of the Company since
February 1995 and Vice President Total Quality and Human Resources since January
1997. From 1990 to 1995, Mr. Manty was Director of Human Resources for Allied
Signal Aerospace. Prior to 1990, Mr. Manty performed labor relations consulting
work with Modern Management, Inc. and held senior level human resource positions
with Pneumo Corporation and Chrysler Corporation.
Mr. Sharp has been Vice President of Marketing and Sales of the Company
since August, 1996. From 1991 to July 1996, Mr. Sharp served as Director of
Program Management for United Defense L.P. and its predecessor
27
<PAGE>
BMY Combat Systems Division. Prior to 1991, Mr. Sharp held senior level
positions with General Electric and NWL Control Systems.
Mr. Ball was President and Chief Executive Officer of the Company from
October 1994 to May 1996. Mr. Ball has been a Director of the Company since
1991. From February 1991 through November 1991, Mr. Ball served as President and
Chief Executive Officer of Alford Industries (a company which filed for
bankruptcy protection and has been liquidated). From December 1991 through
September 1994, Mr. Ball was President and Chief Executive Officer of Golding
Industries, Inc. From January 1988 through January 1991, Mr. Ball served as
President and Chief Executive Officer of DelCorp.
COMPENSATION OF DIRECTORS
Except for the period October 1994 to December 1996, Mr. Ball receives an
annual fee of $30,000 per year for services as a director. No other director
receives any additional compensation for services as a director or for serving
on committees of the Board of Directors of the Company or for attending
meetings.
EXECUTIVE COMPENSATION
The following table sets forth for each of the fiscal years ending December
31, 1996, 1995 and 1994, the compensation paid to or accrued by (i) Chairman of
the Board (the 'Chairman') of the Company and (ii) each of the four most highly
compensated executive officers other than the Chairman.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2)
- ------------------------------------------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
W.B. Lechman ................................................ 1996 $256,668 $ 50,000 $ 135,720
Chairman of the Board 1995 253,891 -- 131,363
1994 253,860 50,803 130,250
Kenneth A. Burns ............................................ 1996 $185,279 $100,000 $ 3,325
President and Chief Operating Officer
James R. Dammon ............................................. 1996 $114,437 $ 57,000 $ 4,988
Vice President Engineering 1995 110,431 65,467 5,524
1994 104,268 21,992 6,364
Richard A. Bush ............................................. 1996 $103,537 $ 52,000 $ 5,950
Vice President Finance 1995 100,031 59,300 4,399
Michael M. Manty ............................................ 1996 $102,257 $ 52,000 $ 24,981
Vice President Human Resources 1995 93,495 94,154 5,234
</TABLE>
- ------------------
(1) Amounts shown were earned under the Fairfield Manufacturing Company
Management Incentive Compensation Plan.
(2) Amounts shown include contributions by the Company to The Savings Plan For
Employees of Fairfield Manufacturing Company, Inc. for the benefit of the
named executives, imputed income on life insurance provided by the Company,
reimbursement of relocation expenses for Mr. Manty, imputed income on an
automobile for Mr. Lechman, and contributions to an insurance company of
$110,000 for each of the years shown above to fund a supplemental retirement
annuity policy for Mr. Lechman.
28
<PAGE>
FY-END SAR VALUES
<TABLE>
<CAPTION>
NO. OF UNEXERCISED SARS AT VALUE OF UNEXERCISED SARS
FY-END EXERCISABLE/ AT FY-END
NAME UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE
- ------------------------------------------------------------ -------------------------- -------------------------
<S> <C> <C>
W.B. Lechman................................................ 0/63,000 $ 0/0
James R. Dammon............................................. 0/10,800 0/0
</TABLE>
- ------------------
(1) Equity Participation Rights (the 'Rights') issued to participants in the
Fairfield Manufacturing Company, Inc. Equity Participation Plan (the 'Equity
Participation Plan'). Mr. Lechman and Mr. Dammon hold 63,000 and 10,800
Rights, respectively, under the Equity Participation Plan, all of which are
fully vested. Each Right entitles Mr. Lechman and Mr. Dammon to receive,
upon the occurrence of a Trigger Event (as defined in the Equity
Participation Plan), an amount in cash equal to the difference between the
Fair Market Value of a Right (as of the Trigger Event) and $16.67, the
initial value assigned to each Right.
PENSION PLAN TABLE
The Company maintains the Retirement Plan for Employees of Fairfield
Manufacturing Company, Inc., a defined benefit pension plan intended to be
qualified under the Internal Revenue Code (the 'Pension Plan').
<TABLE>
<CAPTION>
YEARS OF SERVICE(2)
-------------------------------------------------------------------------
REMUNERATION(1) 5 10 15 20 25 30 35
- ------------------------------------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000............................. $ 6,796 $13,593 $20,389 $27,186 $33,982 $40,778 $42,028
$125,000............................. 8,609 17,218 25,827 34,436 43,044 51,653 53,216
$150,000 and over.................... 10,421 20,843 31,264 41,686 52,107 62,528 64,403
</TABLE>
- ------------------
(1) The preceding table illustrates the aggregate pension benefits provided by
the Pension Plan calculated on a straight life annuity basis. The amounts
set forth in the table are subject to reduction for any Social Security
offset. Average annual compensation covered under the Pension Plan is the
highest average annual total compensation received from the Company for any
60 month period during the 120 months immediately preceding the
participant's separation from service. Annual total compensation for Pension
Plan purposes includes all compensation disclosed in the Summary
Compensation Table.
(2) At December 31, 1996, Messrs. Lechman, Burns, Dammon, Bush, and Manty had
13, 1, 31, 2 and 2 whole years of credited service, respectively, for
purposes of calculating their benefits under the Pension Plan.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Kenneth A. Burns,
effective June 1, 1996.
Mr. Burns' employment agreement provides that he will serve as President
and Chief Operating Officer of the Company. The agreement is for a term that
expires on June 1, 1998. The agreement provides for Mr. Burns to receive a base
salary of $200,000 or such greater amount as may be determined by the Board of
Directors of the Company. In addition, Mr. Burns is eligible to participate in
any benefit plan that the Company provides to its executives from time to time.
Mr. Burns' employment agreement contains restrictions on disclosure by him
of confidential information and generally restricts his right to compete with
the Company during the term of his employment and for two years thereafter. Mr.
Burns' employment pursuant to the agreement is terminable upon his death or
disability or by the Company or Mr. Burns for cause (as defined therein) or
without cause. Upon Mr. Burns' death or disability prior to June 1, 1998, he or
his estate will receive any salary accrued through the termination date. If,
prior to June 1, 1998, Mr. Burns' employment is terminated by the Company for
cause, or he terminates his employment other than for cause, he will receive his
salary accrued through the termination date. In the event
29
<PAGE>
Mr. Burns terminates his employment for cause or the Company terminates his
employment without cause prior to June 1, 1998, he will be entitled to his base
salary through June 1, 1998.
NEW EQUITY INCENTIVE PLAN
The Company intends to establish a long-term incentive compensation plan
covering the Company's executives and selected other key management employees
(the 'New Equity Incentive Plan'). Pursuant to the proposed New Equity Incentive
Plan, a participant is expected to be granted incentive compensation awards
entitling the participant to a long-term incentive bonus if the Company and the
participant achieve certain performance objectives during the performance period
specified in the New Equity Incentive Plan.
Non-cash accruals and cash expenses made pursuant to the New Equity
Incentive Plan will reduce the Company's Consolidated Net Income in the year
such accruals and expenses are incurred. Pursuant to the terms of the
Certificate of Designation and the Exchange Indenture, non-cash accruals and
cash expenses made pursuant to the New Equity Incentive Plan will be added back
(without duplication and to the extent such accruals or expenses reduce net
income) to the Company's Consolidated Net Income (as defined) and Consolidated
EBITDA (as defined) in the manner described herein, thereby increasing the
Company's capacity to incur Indebtedness and make Restricted Payments (as
defined). See 'Description of New Preferred Stock and Exchange Debentures.'
30
<PAGE>
OWNERSHIP OF CAPITAL STOCK
The following table sets forth information regarding the beneficial
ownership of the common stock of the Company by (i) each director of the
Company, (ii) the executive officers of the Company listed under the caption
'Management' and (iii) each person known by the Company to beneficially own in
excess of 5% of the outstanding shares of the Company's common stock as of
December 31, 1996. The number of authorized shares of the Company's capital
stock as of December 31, 1996 was 10,150,000, consisting of 10,000,000 shares of
common stock and 150,000 shares of preferred stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NUMBER OF PERCENT OF FULLY FULLY
SHARES SHARES DILUTED DILUTED
NAME OWNED OUTSTANDING SHARES SHARES
- ------------------------------------------------------------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Lancer Industries Inc.(1) ................................... 7,805,000 100% 7,805,000 100%
450 Lexington Avenue, Suite 3350
New York, New York 10017
Chase Manhattan Bank, ....................................... --(2) -- -- --
as Trustee of the Lancer Industries Inc. Employee Stock
Ownership Plan
1 Chase Manhattan Plaza
New York, New York 10005
Peter A. Joseph ............................................. --(2) -- -- --
Paul S. Levy ................................................ --(2) -- -- --
W.B. Lechman ................................................ -- -- -- --
Jess C. Ball ................................................ -- -- -- --
Kenneth A. Burns ............................................ -- -- -- --
Richard A. Bush ............................................. -- -- -- --
James R. Dammon ............................................. -- -- -- --
Michael M. Manty ............................................ -- -- -- --
Frederick G. Sharp .......................................... -- -- -- --
All directors and executive officers ........................ -- -- -- --
as a group (9 persons)
</TABLE>
- ------------------
(1) 100% of the common stock of the Company is directly owned by Lancer. Lancer
has pledged such shares to the lender under the GE Credit Agreement (as
defined) as security for the Company's obligations thereunder.
(2) Lancer, which is currently the owner of 100% of the capital stock of the
Company, has one class of common stock, Class B Common Stock, with a par
value of $478.44 per share. 10.05 shares, or approximately 57.1%, of the
Class B Common Stock, are held by the ESOP. Messrs. Joseph and Levy are
participants in the ESOP. Each of Messrs. Joseph and Levy have sole voting
power with respect to approximately 4.12 shares of the Class B Common Stock
held by the ESOP; and other participants in the ESOP have sole voting power
with respect to approximately 1.81 shares of such stock. Messrs. Joseph and
Levy, and in limited circumstances the ESOP trustee, have shared investment
power with respect to 10.05 shares of such stock. Messrs. Joseph and Levy
have been allocated an aggregate of approximately 8.24 shares, or
approximately 46.8%, of the Class B Common Stock held by the ESOP. Each of
Messrs. Joseph and Levy disclaim beneficial ownership of any shares of Class
B Common Stock held by the ESOP that have been allocated to other parties.
In addition, each of Messrs. Joseph and Levy have the right to purchase
approximately 0.26 shares of Class B Common Stock, or approximately 3.0% of
the Class B Common Stock in the aggregate.
31
<PAGE>
RELATED TRANSACTIONS
CONTROLLING STOCKHOLDERS
The Company is a wholly-owned subsidiary of Lancer. A majority of Lancer's
voting stock is owned by the ESOP. Two participants in the ESOP, Messrs. Peter
A. Joseph and Paul S. Levy, collectively have the power to direct the voting of
approximately 46.8% of Lancer's common stock. In addition, each of Messrs.
Joseph and Levy have the right to purchase an aggregate of approximately 3.0% of
Lancer's common stock. As a result, these two participants in the ESOP have the
ability to exercise control over the current and future business and affairs of
the Company, including the ability to cause or prevent a change of control of
the Company, through their ability to elect the Company's Board of Directors and
their voting power with respect to actions requiring stockholder approval.
TAX SHARING AGREEMENT
The Company is included in the affiliated group of which Lancer is the
common parent, and the Company's federal taxable income and loss will be
included in such group's consolidated tax return filed by Lancer. The Company
and Lancer have entered into the Tax Sharing Agreement pursuant to which the
Company has agreed to pay to Lancer amounts equal to the taxes that the Company
would otherwise have to pay if it were to file separate federal, state or local
tax returns (including amounts determined to be due as a result of a
redetermination of the tax liability of Lancer). In addition, pursuant to the
Tax Sharing Agreement, to the extent that the Company's separate return
liability is absorbed by net operating losses or other credits and deductions of
Lancer or its subsidiaries (other than the Company and its subsidiaries), Lancer
will make a capital contribution to the Company in an amount equal to 50% of
such separate return liability. Under certain circumstances, however, such as
the Company ceasing to be a member of the Lancer consolidated group or the
disallowance by the IRS of the use of Lancer's net operating losses, Lancer no
longer would be required to make capital contributions under the Tax Sharing
Agreement.
OTHER ARRANGEMENTS WITH LANCER
From time to time, Lancer incurs legal, accounting and miscellaneous other
expenses on behalf of the Company. In fiscal 1996, 1995 and 1994, the Company
made aggregate payments to Lancer in respect of such expenses incurred by Lancer
on the Company's behalf in the amounts of approximately $0.6 million, $0.6
million and $0.5 million, respectively.
On December 5, 1996, the Company declared and paid a $17.0 million dividend
to Lancer (the '1996 Dividend') and made a $3.0 million advance to Lancer (the
'1996 Advance'). On February 10, 1997, the Company declared and paid a dividend
to Lancer of approximately $3.1 million, the proceeds of which dividend were
used by Lancer to repay in full the principal amount of the 1996 Advance,
together with all interest accrued thereon through the repayment date.
The proceeds of the 1996 Dividend and the 1996 Advance were used by Lancer
to redeem $20.0 million aggregate liquidation preference of the Lancer Preferred
Stock. As of December 31, 1996 (after giving effect to the $20.0 million
redemption made in December 1996), there was approximately $53 million aggregate
liquidation preference of Lancer Preferred Stock outstanding. On March 12, 1997,
Lancer redeemed approximately $47.7 million aggregate liquidation preference of
the Lancer Preferred Stock from the proceeds of the dividend paid by the Company
from the net proceeds of the Initial Offering. Lancer expects that all remaining
shares of Lancer Preferred Stock will be redeemed from Lancer's available cash.
FIRST COLONY FARMS MERGER
On March 27, 1997, First Colony Farms, Inc., a Delaware corporation and
wholly-owned subsidiary of Lancer ('First Colony'), merged with and into the
Company, with the Company being the surviving corporation of the merger.
Immediately prior to the merger, First Colony had (i) no known liabilities
(including contingent liabilities) and (ii) assets consisting of approximately
$10,000 in cash and certain net operating loss carry forwards. The merger
complied with the requirements of the Existing Indenture and the Certificate of
Designation governing the Existing Preferred Stock. In addition, the agent and
lender under the Credit Agreement consented to the merger. Following the merger,
the Company will continue to make payments to Lancer under the Tax Sharing
Agreement in accordance with its past practice.
32
<PAGE>
DESCRIPTION OF EXISTING INDEBTEDNESS
GE CREDIT AGREEMENT
The Company, T-H Licensing and General Electric Capital Corporation ('GE')
are party to the Credit Agreement, dated as of July 7, 1993, as amended (the 'GE
Credit Agreement'). The Credit Agreement provides for (i) $33.0 million in term
loans (the 'Term Loans') and (ii) a $20.0 million revolving credit facility (the
'Revolving Credit Facility' and, together with the Term Loans, the 'Credit
Facilities'), including up to $1.0 million under a letter of credit subfacility,
subject to borrowing base availability. At the Company's option, the Revolving
Credit Facility commitment may be increased by up to $5.0 million, subject to
the satisfaction of certain conditions. As of December 31, 1996, total
borrowings under the Credit Facilities were $33.0 million, comprising $33.0
million in Term Loans and no borrowings under the Revolving Credit Facility. The
following description of the Credit Facilities does not purport to be complete
and is qualified in its entirety by reference to the GE Credit Agreement, a copy
of which is available from the Company upon request.
The Term Loans mature on December 31, 2000 and commitments under the
Revolving Credit Facility terminate on July 1, 2001. The Term Loans are payable
quarterly on February 15, May 15, August 15 and November 15 of each year
beginning in 1997 as follows: $3.0 million in 1997, $4.0 million in 1998, $7.0
million in 1999 and $9.0 million in 2000. The balance of the Term Loans, in the
amount of $10.0 million, is payable on December 31, 2000.
Interest under the Credit Facilities is payable at one of the two specified
rates, as selected by the Company, as follows: (i) 0.75% per annum over the
higher of (x) the highest prime rate announced by any of the five largest member
banks of the New York Clearing Association or (y) the published rate for
ninety-day dealer commercial paper or (ii) 2.25% per annum over a rate
calculated based on the one, two, three or six month eurodollar rate. Overdue
amounts under the Credit Facilities bear interest at the applicable interest
rate plus 2.00%. On or after January 1, 1998, the applicable margin on
eurodollar rate loans will vary from 1.75% per annum to 2.25% per annum (in the
case of the Term Loans) and from 1.50% per annum to 2.00% per annum (in the case
of advances under the Revolving Credit Facility) based on the ratio of the
Company's Consolidated EBITDA to Consolidated Net Interest Expense for the
preceding fiscal quarter.
The Company has agreed to pay certain customary fees and commissions to GE
under the Credit Agreement, including (i) an unused facility fee based on the
average unused daily balance of the Revolving Credit Facility, (ii) an annual
administrative fee and (iii) letter of credit fees based on the outstanding face
amount of letters of credit arranged for under the Credit Agreement, together
with all fees paid by GE to any issuing bank in respect of the letter of credit
subfacility.
The GE Credit Agreement permits the Company to make optional prepayments
under the Credit Facilities upon, in certain cases, payment of certain premiums,
costs and expenses. In addition, the Credit Agreement requires the Company to
make annual prepayments on the Term Loans in an amount equal to 50% of the
Company's Consolidated Excess Cash Flow (as defined in the Credit Agreement)
applied in the inverse order of maturity of the remaining installments due on
the Term Loans. In addition, the Company is required to make prepayments on the
Term Loans in an amount equal to the net proceeds received from (i) permitted
dispositions of assets out of the ordinary course of business by the Company or
its subsidiaries, (ii) 50% of net proceeds from permitted equity offerings by
the Company or its subsidiaries (excluding the net proceeds from this Offering)
and (iii) pension plan reversions, all applied in inverse order of maturity of
the remaining installments due on the Term Loans.
Borrowings under the Credit Facilities are guaranteed by T-H Licensing and
any future subsidiaries of the Company. Indebtedness under the Credit Facilities
is secured by a pledge of the Company's common stock owned by Lancer and a lien
on, and security interest in, substantially all of the Company's assets,
including, without limitation, all capital stock of subsidiaries, real estate,
equipment, inventory, accounts receivable and cash. The guarantee by T-H
Licensing and any other subsidiary guarantor is secured by substantially all
personal property of such guarantor.
The GE Credit Agreement contains certain restrictive covenants that, among
other things, impose limitations (subject to certain exceptions) on the Company
(and in certain cases the Company's subsidiaries) with respect to:
33
<PAGE>
(i) certain dispositions of property; (ii) restrictions on certain fundamental
changes, including, among other things, mergers, consolidations, liquidations,
wind-ups or dissolutions, transfers of all or substantially all of the assets of
the Company or its subsidiaries, and certain acquisitions; (iii) dividend
payments and other distributions with respect to the Company's capital stock,
payments with respect to subordinated indebtedness and purchases or redemptions
of warrants or securities; (iv) restrictions on certain amendments to the
Existing Indenture and, following the Offering, the Certificate of Designation;
(v) the creation or incurrence of certain liens; (vi) the incurrence of
indebtedness; (vii) transactions with affiliates; (viii) sale and leaseback
transactions; (ix) investments, loans, advances or capital contributions by the
Company; (x) the maintenance of bank accounts; (xi) the cancellation of any
material claim; (xii) the taking, or the failure to take, certain actions with
respect to the Tax Sharing Agreement; (xiii) capital expenditures exceeding
certain specified amounts; and (xiv) operating leases. The GE Credit Agreement
also requires that (i) the ratio of consolidated current assets to consolidated
current liabilities, (ii) the ratio of Consolidated Cash Flow to Consolidated
Fixed Charges and (iii) the ratio of Consolidated EBITDA to Consolidated Net
Interest Expense not be less than certain specified amounts.
The GE Credit Agreement also contains (i) certain customary affirmative
covenants (including a covenant requiring the Company to deposit amounts
collected in respect of inventory and accounts receivable on a daily basis into
certain lockbox accounts), (ii) certain customary events of default (including
events of default upon the occurrence of any material breach by the Company
under the Tax Sharing Agreement and any Change of Control (as defined below))
and (iii) certain customary representations and warranties.
In February 1997, the Company and GE entered into an amendment to the GE
Credit Agreement to, among other things, permit the Initial Offering and the
Exchange Offer and the payment of cash dividends on the Preferred Stock.
CERTAIN DEFINITIONS
The following definitions are used in the GE Credit Agreement:
'Change of Control' means (a) the sale, in one or a series of related
transactions, of all or substantially all of the Company's assets as an entirety
to any person or related group of persons, (b) except as permitted under the GE
Credit Agreement, the merger or consolidation of the Company with or into
another person or the consolidation or merger of any other person with or into
the Company, (c) the failure of Lancer at any time (i) to maintain in the
aggregate a direct or indirect beneficial interest in the Company at least equal
to 50% of the entire beneficial equity interest held by all persons in the
Company or (ii) to own beneficially, directly or indirectly, capital stock
representing voting control of the Company or (d) a 'Change of Control' as
defined in the Existing Indenture or any other indenture or governing instrument
with respect to any subordinated indebtedness.
'Consolidated Cash Flow' means, for any period, without duplication, the
sum of: (a) Consolidated EBITDA for such period, plus (b) all payments made by
the Company and its subsidiaries pursuant to operating leases during such
period, less (c) capital expenditures made by the Company and its subsidiaries
during such period, plus (d) all tax capital contributions made to the Company
during such period and all other capital contributions made to the Company
during such period by any of its affiliates, in each case determined on a
consolidated basis in accordance with generally accepted accounting principles.
'Consolidated EBITDA' means, for any period, the sum of (a) Consolidated
Net Income for such period, plus (b) Consolidated Net Interest Expense for such
period, plus (c) all taxes computed on a stand-alone basis for the Company and
its subsidiaries accrued for such period on or measured by income, to the extent
treated as expense in the determination of Consolidated Net Income for such
period, plus (d) all depreciation and amortization of fees or intangibles of any
kind for such period, to the extent treated as expense in the determination of
Consolidated Net Income for such period, in each case determined on a
consolidated basis in accordance with generally accepted accounting principles.
'Consolidated Excess Cash Flow' means, for any period, (a) Consolidated
Cash Flow for such period, plus (b) any decrease in Consolidated Working Capital
of the Company and its subsidiaries during such period, plus (c) the cash
portion of extraordinary gains during such period, less (d) any increase in
Consolidated Working Capital of the Company and its subsidiaries during such
period, less (e) consolidated Fixed Charges (exclusive of Consolidated Net
Interest Expense) for such period, less (f) net cash interest expense for such
periods, less (g) the
34
<PAGE>
Cash portion of extraordinary losses for such period, less (h) Permitted
Dividends (as defined in the GE Credit Agreement) declared and paid during such
period.
'Consolidated Fixed Charges' means, for any period, without duplication,
the sum of (a) Consolidated Net Interest Expense for such period (including,
without limitation, under capital leases), plus (b) scheduled amortization
during such period of the principal balance of the Term Loan, plus (c) all
payments made by the Company and its subsidiaries pursuant to operating leases
during such period, plus (d) all taxes payable by the Company and its
subsidiaries during such period, including all amounts paid or payable to Lancer
under the Tax Sharing Agreement during such period (without giving effect to any
corresponding capital contribution or other reduction therein provided for in
the Tax Sharing Agreement), plus (e) all payments made by the Company in cash
during such period as permitted under the restricted payments provisions of the
GE Credit Agreement (to the extent not added or subtracted in calculating
Consolidated Cash Flow), in each case determined on a consolidated basis in
accordance with generally accepted accounting principles.
'Consolidated Net Income' means, for any period, the net income (or loss)
after taxes of the Company and its subsidiaries for such period, determined on a
consolidated basis in accordance with generally accepted accounting principles,
but without giving effect to extraordinary losses or gains for such period or to
non-operating or non-cash items of income or expense (or expenses relating to
LIFO reserves) during such period, and excluding net income (or loss) of any
person other than the Company and its subsidiaries that is included in the
determination of such net income (or loss) except to the extent of dividends or
distributions paid to the Company or its subsidiaries.
'Consolidated Net Interest Expense' means, for any period, the gross
interest expense of the Company and its subsidiaries for such period, plus (a)
the portion of the upfront costs and expenses for interest rate contracts (to
the extent not included in gross interest expense) fairly allocated to such
interest rate contracts as expenses for such period, less interest income (to
the extent not deducted from gross interest expense), interest rate contracts
payments received and amortized debt discount and deferred financing fees (to
the extent not deducted from gross interest expense) of the Company and its
subsidiaries for such period, in each case determined on a consolidated basis in
accordance with generally accepted accounting principles.
'Consolidated Working Capital' means consolidated current assets minus
consolidated current liabilities.
35
<PAGE>
SENIOR SUBORDINATED NOTES
The following summary of certain terms of the Existing Notes and the
Existing Indenture does not purport to be complete and is subject to, and
qualified in its entirety by, reference to the provisions of the Existing
Indenture, including the definitions of certain terms contained therein and
those terms made part of the Existing Indenture by reference to the Trust
Indenture Act of 1939, as amended. Copies of the Existing Indenture are
available from the Company upon request.
As of December 31, 1996, the aggregate principal amount of Existing Notes
outstanding was $85.0 million. The Existing Notes are general unsecured
obligations of the Company, subordinated in right of payment to all existing and
future 'senior indebtedness' (as defined in the Existing Indenture), including
borrowings under the Credit Agreement. The Existing Notes will mature on July 1,
2001. The Existing Notes bear interest at a rate of 11.375% per annum, payable
semiannually in arrears on January 1 and July 1 of each year.
The Existing Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after July 1, 1998 at a redemption price equal to
104.250% of the principal amount thereof during the twelve-month period
beginning on July 1, 1998, 102.125% of the principal amount thereof during the
twelve-month period beginning on July 1, 1999 and 100% of the principal amount
thereof after July 1, 2000, together with accrued and unpaid interest to the
redemption date.
Under the Existing Indenture, in the event of a 'change of control' (as
defined below) the Company will be required to make an offer to purchase all
outstanding Existing Notes at a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the date of purchase. The Existing
Indenture provides that a 'change of control' will occur in the event that any
one or more of the following events occurs: (a) any 'person' or 'group' (as such
terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the 'Exchange Act'), excluding Permitted Holders, is or
becomes the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have 'beneficial
ownership' of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Stock of the
Company; (b) the Company consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any person, or any person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Redeemable Capital Stock) of
the surviving or transferee corporation or (2) cash, securities and other
property in an amount which could be paid by the Company as a restricted payment
under the Existing Indenture and (ii) immediately after such transaction no
'person' or 'group' (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), excluding Permitted Holders, is the 'beneficial owner' (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have 'beneficial ownership' of all securities that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 50% of
the total Voting Stock of the surviving or transferee corporation; or (c) during
any consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of 66 2/3% of
the directors then still in office who were either directors at the beginning of
such period or persons whose election as directors or nomination for election
was previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office. 'Redeemable Capital Stock'
means any class or series of Capital Stock that, whether by its terms, by the
terms of any security into which it is convertible or exchangeable or by contact
or otherwise, is, or upon the happening of an event or passage of time would be,
required to be redeemed prior to any Stated Maturity (as defined) of the
Existing Notes or is redeemable at the option of the holder thereof at any time
prior to any Stated Maturity of the Existing Notes, or, at the option of the
holder thereof, is convertible into or exchangeable for debt securities at any
time prior to any Stated Maturity of the Existing Notes. 'Stated Maturity'
means, when used with respect to any Existing Note or any installment of
interest thereon, the date specified in such Existing Note as the fixed date on
which any principal of such Existing Note or such installment of interest is due
and payable, and when used with respect to any other Indebtedness or
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<PAGE>
any installments of interest thereon, means any date specified in the instrument
governing such Indebtedness as the fixed date on which the principal of such
Indebtedness, or such installment of interest thereon, is due and payable.
The Existing Indenture contains certain covenants that, among other things
(and subject to certain exceptions), restrict the incurrence of additional
Indebtedness, the payment of dividends on, and redemptions of capital stock and
subordinated indebtedness, the making of investments, transactions with
affiliates, the sale of certain assets, the issue and sale of preferred stock of
Restricted Subsidiaries, the incurrence of liens, the incurrence of restrictions
on the ability of Restricted Subsidiaries to pay dividends or other payments,
the making of certain guarantees by Restricted Subsidiaries, the incurrence of
other senior subordinated indebtedness, the issuance and sale of preferred stock
by Restricted Subsidiaries, and the ability of the Company to engage in certain
mergers or consolidations or to transfer all or substantially all of its assets
to another person.
DESCRIPTION OF CAPITAL STOCK
Immediately prior to the Exchange Offer, the authorized capital stock of
the Company will consist of (i) 10,000,000 shares of common stock, par value
$.01 per share, of which 7,805,000 shares were issued and outstanding and owned
of record and beneficially by Lancer and (ii) 250,000 shares of preferred stock,
consisting of (a) 50,000 shares of Existing Preferred Stock issued and
outstanding, (b) 75,000 shares of Existing Preferred Stock reserved for issuance
pursuant to the terms of the Certificate of Designation governing the Existing
Preferred Stock and (c) 125,000 shares of New Preferred Stock reserved for
issuance in connection with the Exchange Offer and pursuant to the terms of the
Certificate of Designation governing the New Preferred Stock.
100% of the issued and outstanding shares of the Company's common stock are
owned by Lancer. The Company issues common stock to Lancer from time to time in
connection with capital contributions made by Lancer under the Tax Sharing
Agreement. Upon liquidation, dissolution or winding up of the Company, the
holders of the Company's common stock are entitled to ratably share in all
assets available for distribution after payment in full of creditors and holders
of the New Preferred Stock. Lancer has pledged the shares of the Company's
common stock that it owns to GE as security for the Company's obligations under
the GE Credit Agreement. Subject to the terms of the Company's existing debt
agreements and the terms of the Certificate of Designation, the Company may pay
dividends on its common stock if, when and as declared by the Board of Directors
from legally available funds.
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THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Agreement does
not purport to be complete and reference is made to the provisions of the
Registration Agreement, which has been filed as an exhibit to the Registration
Statement and a copy of which is available as set forth under the heading
'Available Information.'
TERMS OF THE EXCHANGE OFFER
General
In connection with the issuance of the Existing Preferred Stock pursuant to
a Securities Purchase Agreement, dated as of March 7, 1997, between the Company
and the Initial Purchaser, the Initial Purchaser and their respective assignees
became entitled to the benefits of the Registration Agreement.
Under the Registration Agreement, the Company has agreed (i) to use its
best efforts to file with the Commission within 30 days of the Issue Date, the
Registration Statement of which this Prospectus is a part with respect to a
registered offer to exchange the Existing Preferred Stock for the New Preferred
Stock, (ii) to use its best efforts to cause the Registration Statement to be
declared effective under the Securities Act within 150 days after the Issue Date
and (iii) to use its best efforts to consummate the Exchange Offer within 180
calendar days after the Issue Date. The Company will keep the Exchange Offer
open for not less than 30 days after the date notice of the Exchange Offer is
mailed to holders of the Existing Preferred Stock. The Exchange Offer being made
hereby, if commenced and consummated within the time periods described in this
paragraph, will satisfy those requirements under the Registration Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, all Existing Preferred Stock validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date
will be accepted for exchange. New Preferred Stock will be issued in exchange
for an equal liquidation preference of outstanding Existing Preferred Stock
accepted in the Exchange Offer. Existing Preferred Stock may be tendered only in
integral multiples of $1,000. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders as of , 1997.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Preferred Stock being tendered for exchange. However, the obligation to
accept Existing Preferred Stock for exchange pursuant to the Exchange Offer is
subject to certain conditions as set forth herein under '--Conditions.'
Existing Preferred Stock shall be deemed to have been accepted as validly
tendered 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 of Existing Preferred Stock for the purposes of receiving the New
Preferred Stock and delivering New Preferred Stock to such holders.
Based on interpretations by the Staff of the Commission as set forth in
no-action letters issued to third parties, the Company believes that the New
Preferred Stock 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 a broker-dealer or 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 (i) such New Preferred Stock is acquired in the ordinary course of such
holder's business, (ii) at the time of the commencement of the Exchange Offer
such holder has no arrangement with any person to participate in a distribution
of such New Preferred Stock and (iii) such holder is not engaged in, and does
not intend to engage in, a distribution of such New Preferred Stock. The Company
has not sought, and does not intend to seek, a no-action letter from the
Commission with respect to the effects of the Exchange Offer, and there can be
no assurance that the Staff would make a similar determination with respect to
the New Preferred Stock as it has in such no-action letters.
By tendering Existing Preferred Stock in exchange for New Preferred Stock
and executing the Letter of Transmittal, each holder will represent to the
Company that: (i) it is not an affiliate of the Company, (ii) any New Preferred
Stock to be received by it will be acquired in the ordinary course of such
holder's business and (iii) at the time of the commencement of the Exchange
Offer it had no arrangement with any person to participate in a distribution of
the New Preferred Stock and, if such holder is not a broker-dealer, it is not
engaged in, and does not intend to engage in, a distribution of New Preferred
Stock. If a holder of Existing Preferred Stock is unable to
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<PAGE>
make the foregoing representations, such holder may not rely on the applicable
interpretations of the Staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction unless such sale is made
pursuant to an exemption from such requirements.
Each broker-dealer that receives New Preferred Stock for its own account in
exchange for Existing Preferred Stock where such Existing Preferred Stock was
acquired by such broker-dealer as a result of market-making or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Preferred Stock. See 'Plan of Distribution.'
Upon consummation of the Exchange Offer, subject to certain limited
exceptions, holders of Existing Preferred Stock who do not exchange their
Existing Preferred Stock for New Preferred Stock in the Exchange Offer will no
longer be entitled to registration rights under the Registration Agreement and
will not be able to offer or sell their Existing Preferred Stock, unless such
Existing Preferred Stock is subsequently registered under the Securities Act
(which, subject to certain limited exceptions, the Company will have no
obligation to do), except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws.
Expiration Date; Extensions; Amendments; Termination
The term 'Expiration Date' shall mean , 1997 (30 calendar days
following the commencement of the Exchange Offer), unless the Company, in its
sole discretion, extends the Exchange Offer, in which case the term 'Expiration
Date' shall mean the latest date to which the Exchange Offer is extended.
Notwithstanding any extension of the Exchange Offer, if the Exchange Offer is
not consummated within 180 days after the Issue Date, the interest rate borne by
the Existing Preferred Stock will increase as provided in the Certificate of
Designation governing the Existing Preferred Stock.
To extend the Expiration Date, the Company will notify the Exchange Agent
of any extension by oral or written notice and will notify the holders of the
Existing Preferred Stock by means of a press release or other public
announcement prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date. Such announcement may state that
the Company is extending the Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Existing
Preferred Stock, to extend the Exchange Offer or to terminate the Exchange Offer
and not permit acceptance of Existing Preferred Stock not previously accepted if
any of the conditions set forth herein under '--Conditions' shall have occurred
and shall not have been waived by the Company, 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 deemed by it to be advantageous to
the holders of the Existing Preferred Stock. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to the Exchange Agent. If the Exchange Offer
is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the Existing Preferred Stock of such
amendment.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligations to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
DIVIDENDS ON THE NEW PREFERRED STOCK
The New Preferred Stock will accumulate dividends at the rate of 11 1/4%
per annum from the last dividend payment date on which dividends were paid on
the shares of Existing Preferred Stock surrendered in exchange therefor or, if
no dividends have been paid, from the Issue Date of the Existing Preferred
Stock. Dividends on the New Preferred Stock are payable on March 15 and
September 15 of each year, commencing September 15, 1997.
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<PAGE>
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) a timely confirmation of a
book-entry transfer (a 'Book-Entry Confirmation') of such Existing Preferred
Stock into the Exchange Agent's account at The Depository Trust Company (the
'Book-Entry Transfer Facility') pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (ii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OTHER REQUIRED
DOCUMENTS SHOULD BE SENT TO THE COMPANY. Delivery of all documents must be made
to the Exchange Agent at its address set forth below. Holders may also request
their respective brokers, dealers, commercial banks, trust companies or nominees
to effect such tender for such holders.
The tender by a holder of Existing Preferred Stock will constitute an
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. Any
beneficial owner whose Existing Preferred Stock is 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 his behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an 'eligible guarantor' institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an 'Eligible Institution') unless the
Existing Preferred Stock tendered pursuant thereto is tendered for the account
of an Eligible Institution.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such person should so indicate
when signing, and unless waived by the Company, evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Existing Preferred Stock 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
Existing Preferred Stock not properly tendered or any Existing Preferred Stock
which, if accepted, would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the absolute right to waive any
irregularities or conditions of tender as to particular Existing Preferred
Stock. 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 Existing Preferred Stock must be cured within such
time as the Company shall determine. Neither the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Existing Preferred Stock, nor shall
any of them incur any liability for failure to give such notification. Tenders
of Existing Preferred Stock will not be deemed to have been made until such
irregularities have been cured or waived. Any Existing Preferred Stock received
by the Exchange Agent that is not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned without cost to
such holder by the Exchange Agent, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the respective Certificates of Designation governing the
Preferred Stock, to (i) purchase or make offers for any Existing Preferred Stock
that remains outstanding subsequent to the Expiration Date or, as set forth
under
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'--Conditions', to terminate the Exchange Offer in accordance with the terms of
the Registration Agreement, (ii) to redeem Existing Preferred Stock as a whole
or in part at any time and from time to time, as set forth under 'Description of
New Preferred Stock and Exchange Debentures--Optional Redemption' and (iii) to
the extent permitted by applicable law, purchase Existing Preferred Stock in the
open market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers could differ from the terms of the Exchange Offer.
ACCEPTANCE OF EXISTING PREFERRED STOCK FOR EXCHANGE; DELIVERY OF NEW PREFERRED
STOCK
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all shares of Existing Preferred Stock properly tendered will be accepted on the
first business day after the Expiration Date, and the New Preferred Stock will
be issued promptly after acceptance of the Existing Preferred Stock. See
'--Conditions.' For purposes of the Exchange Offer, Existing Preferred Stock
shall be deemed to have been accepted as validly tendered for exchange when, as
and if the Company has given oral or written notice thereof to the Exchange
Agent.
In all cases, issuance of shares of New Preferred Stock for shares of
Existing Preferred Stock that is accepted for exchange pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of a
Book-Entry Confirmation of such Existing Preferred Stock into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Existing Preferred Stock is not accepted for any reason set forth in
the terms and conditions of the Exchange Offer, such unaccepted or such
nonexchanged Existing Preferred Stock will be credited to an account maintained
with such Book-Entry Transfer Facility as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Existing Preferred Stock at the Book-Entry Transfer Facility for purposes
of the Exchange Offer within two business days after the date of this
Prospectus. Any financial institution that is a participant in the Book-Entry
Transfer Facility's systems may make book-entry delivery of Existing Preferred
Stock by causing the Book-Entry Transfer Facility to transfer such Existing
Preferred Stock into the Exchange Agent's account at the Book-Entry Transfer
Facility in accordance with such Book-Entry Transfer Facility's procedures for
transfer. However, the Letter of Transmittal or facsimile thereof with any
required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under
'--Exchange Agent' on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if (i) the tender is made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of
Existing Preferred Stock and the amount of Existing Preferred Stock tendered,
stating that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange ('NYSE') trading days after the date of execution of the
Notice of Guaranteed Delivery, a Book-Entry Confirmation and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent and (iii) a Book-Entry Confirmation and all
other documents required by the Letter of Transmittal are received by the
Exchange Agent within three NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
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WITHDRAWAL OF TENDERS
Tenders of Existing Preferred Stock may be withdrawn at any time prior to
5:00 p.m., New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time on the
Expiration Date at one of the addresses set forth below under
'--Exchange Agent.' Any such notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility from which the
Existing Preferred Stock was tendered, identify the principal amount of the
Existing Preferred Stock to be withdrawn, and specify the name and number of the
account at the Book-Entry Transfer Facility to be credited with the withdrawn
Existing Preferred Stock and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including time
of receipt) of such notice will be determined by the Company, whose
determination shall be final and binding on all parties. Any Existing Preferred
Stock so withdrawn will be deemed not be have been validly tendered for exchange
for purposes of the Exchange Offer. Any Existing Preferred Stock which has been
tendered for exchange but which is not exchanged for any reason will be credited
to an account maintained with such Book-Entry Transfer Facility for the Existing
Preferred Stock as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Existing Preferred Stock
may be retendered by following one of the procedures described under
'--Procedures for Tendering' and '--Book-Entry Transfer' above at any time on or
prior to the Expiration Date.
CONDITIONS
The Company has no obligation to consummate the Exchange Offer if the
Company or the holders of a majority in aggregate liquidation preference of the
Existing Preferred Stock reasonably determines in good faith (after conferring
with counsel) that (i) the New Preferred Stock to be received by such holder or
holders of Existing Preferred Stock in the Exchange Offer, upon receipt, will
not be tradable by such holder without restriction under the Securities Act and
the Exchange Act and without material restrictions under the 'blue sky' or
securities laws of the several states of the United States, (ii) the interests
of the holder of the Existing Preferred Stock would be materially adversely
affected by consumation of the Exchange Offer or (iii) the Commission is
unlikely to permit the consumation of the Exchange Offer within 180 days of the
Issue Date. In the event that the Company is not obligated to consumate the
Exchange Offer as a result of the occurence of one of the foregoing events, then
the Company shall be obligated to file a shelf registration statement with
respect to the Existing Preferred Stock and keep such shelf registration
statement continuously effective for three years.
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EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance and requests
for additional copies of this Prospectus or of the Letter of Transmittal should
be directed to the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
By Mail: By Hand to 4:30 p.m.:
<S> <C>
United States Trust Company United States Trust Company
of New York of New York
P.O. Box 843 111 Broadway
Cooper Station New York, New York
New York, New York 10006 10006
Attn: Corporate Trust Services Attn: Lower Level Corporate Trust
Window
By Overnight Courier and By Hand By Facsimile:
after 4:30 p.m.: (212) 420-6152
United States Trust Company (For Eligible Institutions Only)
of New York By Telephone:
770 Broadway, 13th floor (800)548-6565
New York, New York 10003
Attn: Corporate Trust Redemption
Unit
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of the Prospectus and related documents to the beneficial
owners of the Existing Preferred Stock, and in handling or forwarding tenders
for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, including fees and expenses of the Exchange Agent and
accounting, legal, printing and related fees and expenses but excluding certain
commissions, if any, relating to a holder's disposition of its shares of
Existing Preferred Stock in connection with the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Existing Preferred Stock who do not exchange their Existing
Preferred Stock for New Preferred Stock pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer of such Existing
Preferred Stock as set forth in the legend thereon as a consequence of the
issuance of the Existing Preferred Stock pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Existing Preferred Stock
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Existing Preferred Stock under
the Securities Act. To the extent that Existing Preferred Stock is tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Existing Preferred Stock could be adversely affected.
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DESCRIPTION OF NEW PREFERRED STOCK AND EXCHANGE DEBENTURES
THE NEW PREFERRED STOCK
The summary contained herein of certain provisions of the New Preferred
Stock to be issued by the Company in connection with the Exchange Offer does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of the Certificate of Designation relating
thereto. A copy of the form of Certificate of Designation for the New Preferred
Stock is filed as an exhibit to the Registration Statement of which this is
part. The definitions of certain capitalized terms used in the following summary
are set forth under '--Certain Definitions' below. Other capitalized terms used
herein and not otherwise defined under '--Certain Definitions' below are defined
in the Certificate of Designation.
GENERAL
The Company is authorized to issue 250,000 shares of preferred stock, par
value $.01 per share. The Board of Directors has adopted resolutions designating
125,000 of such shares of preferred stock as Existing Preferred Stock and has
filed a Certificate of Designation with respect thereto with the Secretary of
State of the State of Delaware as required by Delaware law. On or prior to the
exchange of the New Preferred Stock for the Existing Preferred Stock, the Board
of Directors will adopt resolutions designating 125,000 of such shares of
preferred stock as New Preferred Stock and will file a Certificate of
Designation with respect thereto with the Secretary of State of Delaware as
required by Delaware law. The shares of New Preferred Stock so designated will
be issued in connection with the Exchange Offer or will be reserved for issuance
as dividends in the event the Company elects (in accordance with the terms of
the Certificate of Designation governing the New Preferred Stock) to pay
dividends on the New Preferred Stock by issuing additional shares of such stock.
See '--Dividends' below. Other than untendered or tendered but unaccepted shares
of Existing Preferred Stock, no other shares of preferred stock of the Company
will be outstanding upon consummation of the Exchange Offer. Subject to certain
conditions, if and only to the extent permitted by any Indebtedness of the
Company then outstanding, the New Preferred Stock is exchangeable for Exchange
Debentures at the option of the Company on any Dividend Payment Date on or after
July 2, 2001. The New Preferred Stock, when issued and paid for by the Initial
Purchaser in accordance with the terms of the purchase agreement, will be fully
paid and non-assessable and holders thereof will not have any subscription or
preemptive rights in connection therewith.
RANKING
The New Preferred Stock will, with respect to dividend rights and rights on
liquidation, winding-up and dissolution, rank (i) senior to all classes of
Common Stock of the Company and to each other class of Capital Stock or series
of Preferred Capital Stock established after the Offering by the Board of
Directors of the Company the terms of which do not expressly provide that it
ranks senior to, or on a parity with, the New Preferred Stock as to dividend
rights and rights on liquidation, winding-up and dissolution of the Company
(collectively referred to, together with all classes of common stock of the
Company, as 'Junior Stock'); (ii) subject to certain conditions, on a parity
with each other class of Capital Stock or series of Preferred Capital Stock
issued by the Company established after the Offering by the Board of Directors
of the Company the terms of which expressly provide that such class or series
will rank on a parity with the New Preferred Stock as to dividend rights and
rights on liquidation, winding-up and dissolution (collectively referred to as
'Parity Stock'); and (iii) subject to certain conditions, junior to each class
of Capital Stock or series of Preferred Capital Stock established after the date
hereof by the Board of Directors of the Company the terms of which expressly
provide that such class or series will rank senior to the New Preferred Stock as
to dividend rights and rights upon liquidation, winding-up and dissolution of
the Company (collectively referred to as the 'Senior Stock'). The New Preferred
Stock will be subject to the issuance of series of Junior Stock, Parity Stock
and Senior Stock; provided, that the Company may not issue any new class of
Parity Stock or Senior Stock (or amend the provisions of any existing class of
capital stock to make such class of stock Parity Stock or Senior Stock) without
the approval of the holders of at least a majority of the shares of New
Preferred Stock then outstanding, voting or consenting, as the case may be,
together as one class.
DIVIDENDS
Holders of New Preferred Stock will be entitled to receive, when, as and if
declared by the Board of Directors of the Company, out of funds legally
available therefor, cash dividends on the New Preferred Stock at a rate per
annum equal to 11 1/4% of the then effective liquidation preference per share of
the New Preferred Stock,
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<PAGE>
payable semi-annually. In the event that dividends on the New Preferred Stock
are in arrears and unpaid for more than three semi-annual dividend periods
occurring after March 15, 2002 (whether or not consecutive), holders of New
Preferred Stock will be entitled to certain voting rights. See '--Voting
Rights.' All dividends will be cumulative, whether or not earned or declared, on
a daily basis from the last dividend payment date on which dividends were paid
on the shares of Existing Preferred Stock surrendered in exchange thereafter or,
if no dividends have been paid, from the Issue Date and will be payable
semi-annually in arrears on March 15 and September 15 of each year, commencing
on September 15, 1997 to holders of record on the March 1 and September 1,
immediately preceding the relevant Dividend Payment Date. The Credit Agreement
and the Existing Indenture limit the Company's ability to pay cash dividends on
its Capital Stock, including the New Preferred Stock. See 'Description of
Existing Indebtedness.' The Company may, at its option, pay dividends on any
Dividend Payment Date occurring on or before March 15, 2002 either in cash or by
the issuance of additional shares of New Preferred Stock having an aggregate
liquidation preference equal to the amount of such dividends. In the event that
on or prior to March 15, 2002 dividends are declared and paid through the
issuance of additional shares of New Preferred Stock, as provided in the
previous sentence, such dividends will be deemed paid in full and will not
accumulate.
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Stock for any period unless full cumulative
dividends shall have been or contemporaneously are declared and paid in full or
declared and, if payable in cash, a sum in cash set apart for such payment on
the New Preferred Stock. If full dividends are not so paid, the New Preferred
Stock will share dividends pro rata with the Parity Stock. No dividends may be
paid or set apart for such payment on Junior Stock (except dividends on Junior
Stock in additional shares of Junior Stock) and no Junior Stock or Parity Stock
may be repurchased, redeemed or otherwise retired nor may funds be set apart for
payment with respect thereto, if full cumulative dividends have not been paid on
the New Preferred Stock. Unpaid dividends accruing after March 15, 2002 on the
New Preferred Stock for any past dividend period and dividends in connection
with any optional redemption may be declared and paid at any time, without
reference to any regular Divided Payment Date, to holders of record on such
date, not more than forty-five (45) days prior to the payment thereof, as may be
fixed by the Board of Directors of the Company. So long as any shares of the New
Preferred Stock are outstanding, the Company shall not make any payment on
account of, or set apart money for a sinking fund or other similar fund for, the
purchase, redemption or other retirement of, any of the Parity Stock or Junior
Stock or any warrants, rights, calls or options exercisable for or convertible
into any of the Parity Stock or Junior Stock, and shall not permit any
corporation or other entity directly or indirectly controlled by the Company to
purchase or redeem any of the Parity Stock or Junior Stock or any such warrants,
rights, calls or options unless full cumulative dividends determined in
accordance herewith on the New Preferred Stock have been paid in full.
OPTIONAL REDEMPTION
The New Preferred Stock may be redeemed (subject to contractual and other
restrictions with respect thereto and to the legal availability of funds
therefor) at any time on or after March 15, 2002, in whole or in part, at the
option of the Company, at the redemption prices (expressed in percentages of the
then effective liquidation preference thereof) set forth below, plus, without
duplication, an amount in cash equal to all accumulated and unpaid dividends
(including an amount in cash equal to a prorated dividend for the period from
the Dividend Payment Date immediately prior to the redemption date to the
redemption date), if redeemed during the 12-month period beginning March 15 of
each of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------- ----------
<S> <C>
2002....................................................... 105.625%
2003....................................................... 104.219%
2004....................................................... 102.813%
2005....................................................... 101.406%
2006 and thereafter........................................ 100.000%
</TABLE>
In the event of partial redemption of the New Preferred Stock, the shares
to be redeemed shall be determined pro rata, except that the Company may redeem
all shares held by holders of fewer than ten shares (or shares held by holders
who would hold less than ten shares as a result of such redemption), as may be
determined by the Company.
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No optional redemption may be authorized or made unless prior thereto full
unpaid cumulative dividends shall have been paid or a sum set apart for such
payment on the New Preferred Stock.
MANDATORY REDEMPTION
The New Preferred Stock will also be subject to mandatory redemption
(subject to contractual and other restrictions with respect thereto and to the
legal availability of funds therefor) in whole on March 15, 2009, at a price
equal to 100% of the liquidation preference thereof, plus, without duplication,
all accumulated and unpaid dividends to the redemption date. Future debt
agreements or certificates of designation with respect to Senior Stock or Parity
Stock may prohibit or restrict the Company's ability to redeem the New Preferred
Stock.
PROCEDURE FOR REDEMPTION
On and after the redemption date, unless the Company defaults in the
payment of the applicable redemption price, dividends will cease to accrue on
shares of New Preferred Stock called for redemption and all rights of holders of
such shares will terminate except for the right to receive the redemption price,
without interest. If a notice of redemption shall have been given as provided in
the succeeding sentence and the funds necessary for redemption (including an
amount in respect of all dividends that will accrue to the redemption date)
shall have been segregated and irrevocably set apart by the Company, in trust
for the benefit of the holders of the shares called for redemption, then
dividends shall cease to accumulate on the redemption date on the shares to be
redeemed and, at the close of business on the day when such funds are segregated
and set apart, the holders of the shares to be redeemed shall cease to be
stockholders of the Company and shall be entitled only to the redemption price
for such shares. The Company will send a written notice of redemption by first
class mail to each holder of record of shares of New Preferred Stock, not fewer
than 30 days nor more than 60 days prior to the date fixed for such redemption
at its registered address. Shares of New Preferred Stock issued and reacquired
will, upon compliance with the applicable requirements of Delaware law, have the
status of authorized but unissued shares of preferred stock of the Company
undesignated as to series and may, with any and all other authorized but
unissued shares of preferred stock of the Company, be designated or redesignated
and issued or reissued, as the case may be, as part of any series of preferred
stock of the Company, except that any issuance or reissuance of shares of New
Preferred Stock must be in compliance with the Certificate of Designation.
EXCHANGE
The New Preferred Stock is exchangeable at the option of the Company, in
whole but not in part, for the Exchange Debentures on any scheduled dividend
payment date occurring after the earlier of (i) July 2, 2001 and (ii) the date
on which all of the Existing Notes are redeemed, only if and only to the extent
such exchange is permitted pursuant to the terms of the Company's Indebtedness
then outstanding; provided that (i) on the date of such exchange there are no
accumulated and unpaid dividends on the New Preferred Stock (including the
dividend payable on such date) or other contractual impediment to such exchange;
(ii) there shall be legally available funds sufficient therefor; and (iii)
immediately after giving effect to such exchange, no Default or Event of Default
(each as defined in the Exchange Indenture) would exist under the Exchange
Indenture and no default or event of default would exist under the Credit
Agreement.
The Company intends to comply with the provisions of Rule 13e-4 promulgated
pursuant to the Exchange Act in connection with the exchange, to the extent
applicable. The exchange of the New Preferred Stock into Exchange Debentures
will be prohibited by covenants contained in the Credit Agreement, relating,
among other things, to the incurrence of indebtedness.
Upon any exchange pursuant to the preceding paragraph, holders of
outstanding shares of New Preferred Stock will be entitled to receive, subject
to the second succeeding sentence, $1.00 principal amount of Exchange Debentures
for each $1.00 liquidation preference of New Preferred Stock held by them. The
Exchange Debentures will be issued in registered form, without coupons. Exchange
Debentures issued in exchange for New Preferred Stock will be issued in
principal amounts of $1,000 and integral multiples thereof to the extent
possible, and will also be issued in principal amounts less than $1,000 so that
each holder of New Preferred Stock will receive certificates representing the
entire amount of Exchange Debentures to which such holder's shares of New
Preferred Stock entitle such holder; provided that the Company may pay cash in
lieu of issuing an Exchange Debenture in a principal amount less than $1,000.
The Company will send a written notice of exchange by mail to each holder of
record of shares of New Preferred Stock no less than 30 days nor more than 60
days before the date fixed for such exchange. On and after date of exchange,
dividends will cease to accrue on the outstanding
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shares of New Preferred Stock, and all rights of the holders of New Preferred
Stock (except the right to receive the Exchange Debentures, an amount in cash,
to the extent applicable, equal to the accumulated and unpaid dividends to the
date of exchange and, if the Company so elects, cash in lieu of any Exchange
Debenture which is in an amount that is not an integral multiple of $1,000) will
terminate. The person entitled to receive the Exchange Debentures issuable upon
such exchange will be treated for all purposes as the registered holder of such
Exchange Debentures. See '--The Exchange Debentures.'
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, holders of New Preferred Stock will be entitled to be paid, out of
the assets of the Company available for distribution, $1,000 per share, plus an
amount in cash equal to accumulated and unpaid dividends thereon to the date
fixed for liquidation, dissolution or winding-up (including an amount equal to a
prorated dividend for the period from the last dividend payment date to the date
fixed for liquidation, dissolution or winding-up), before any distribution is
made on any Junior Stock, including, without limitation, common stock of the
Company. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the amounts payable with respect to the New Preferred
Stock and all other Parity Stock are not paid in full, the holders of the New
Preferred Stock and the Parity Stock will share equally and ratable in any
distribution of assets of the Company in proportion to the full liquidation
preference to which each is entitled. After payment of the full amount of the
liquidation preference and accumulated and unpaid dividends to which they are
entitled, the holders of shares of New Preferred Stock will not be entitled to
any further participation in any distribution of assets of the Company. However,
neither the sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Company nor the consolidation or merger of the Company with one
or more corporations shall be deemed to be a liquidation, dissolution or
winding-up of the Company.
The Certificate of Designation for the New Preferred Stock will not contain
any provision requiring funds to be set aside to protect the liquidation
preference of the New Preferred Stock, although such liquidation preference will
be substantially in excess of the par value of such shares of New Preferred
Stock. In addition, the Company is not aware of any provision of Delaware law or
any controlling decision of the courts of the State of Delaware (the state of
incorporation of the Company) that requires a restriction upon the surplus of
the Company solely because the liquidation preference of the New Preferred Stock
will exceed its par value. Consequently, there will be no restriction upon the
surplus of the Company solely because the liquidation preference of the New
Preferred Stock will exceed its par value and there will be no remedies
available to holders of the New Preferred Stock before or after the payment of
any dividend, other than in connection with the liquidation of the Company,
solely by reason of the fact that such dividend would reduce the surplus of the
Company to an amount less than the difference between the liquidation preference
of the New Preferred Stock and its par value.
VOTING RIGHTS
Holders of the New Preferred Stock will have no voting rights with respect
to general corporate matters except as provided by law or as set forth in the
Certificate of Designation. The Certificate of Designation will provide that if
(i) after March 15, 2002, cash dividends on the New Preferred Stock are in
arrears and unpaid for three semi-annual periods (whether or not consecutive);
(ii) the Company fails to redeem the New Preferred Stock on or before March 15,
2009 or fails to discharge any redemption obligation with respect to the New
Preferred Stock; (iii) the Company fails to make a Change of Control Offer in
the event of a Change of Control occurring on or after July 2, 2001 or fails to
purchase shares of the New Preferred Stock from holders who elect to have such
shares purchased pursuant to the Change of Control Offer; (iv) a breach or
violation of any of the provisions described under the caption '--Certain
Covenants' below occurs and the breach or violation continues for a period of 30
days or more after the Company receives notice thereof specifying the default
from the holders of at least 25% of the shares of the New Preferred Stock then
outstanding; or (v) the failure to pay at the final stated maturity (giving
effect to any extensions thereof and applicable grace periods) the principal
amount of any Indebtedness of the Company or any Subsidiary of the Company, or
the acceleration of the final stated maturity of any such Indebtedness, if the
aggregate principal amount of such Indebtedness, together with the aggregate
principal amount of any other such Indebtedness in default for failure to pay
principal at the final stated maturity (giving effect to any extensions thereof
and applicable grace periods) or which has been accelerated, aggregates $5.0
million or more at any time, in each case, after a 10-day period during which
such default shall not have been cured or such acceleration rescinded, then the
number of directors constituting the
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<PAGE>
Board of Directors will be adjusted to permit the holders of the majority of the
then outstanding New Preferred Stock, voting separately as a class, to elect the
lesser of two directors or that number of directors constituting at least 25% of
the Board of Directors of the Company; provided, that, in the event more than
one of the above defaults occurs, at the same or at different times, the maximum
number of directors that such holders shall be entitled to elect is the lesser
of two directors and that number constituting at least 25% of the Board of
Directors of the Company. Such voting rights will continue until such time as,
in the case of a dividend default, all accumulated and unpaid dividends on the
New Preferred Stock are paid in full in cash and, in all other cases, any
failure, breach or default giving rise to such voting right is remedied, at
which time the term of any directors elected pursuant to the provisions of this
paragraph shall terminate. Each such event described in clauses (i) through (v)
above is referred to herein as a 'Voting Rights Triggering Event.'
The Certificate of Designation will also provide that, except as stated
above under '--Ranking', the Company will not authorize any additional shares of
New Preferred Stock or any class of Senior Stock or Parity Stock (other than the
Exchange Preferred Stock) without the affirmative vote or consent of holders of
at least a majority of the shares of New Preferred Stock then outstanding which
are entitled to vote thereon, voting or consenting, as the case may be, together
as one class. In addition, the Certificate of Designation will provide that the
Company may not amend the Certificate of Designation so as to effect adversely
the specified rights, preferences, privileges or voting rights of holders of
shares of New Preferred Stock or authorize the issuance of any additional shares
of New Preferred Stock (other than shares of New Preferred Stock issued as a
dividend on shares of New Preferred Stock), without the affirmative vote or
consent of the holders of at least a majority of the then outstanding shares of
New Preferred Stock which are entitled to vote thereon, voting or consenting, as
the case may be, together as one class. The Certificate of Designation will also
provide that, except as set forth above, (a) the creation, authorization or
issuance of any shares of Junior Stock, Parity Stock or Senior Stock, including
the designation of a series thereof within the existing class of New Preferred
Stock, or (b) the increase or decrease in the amount of authorized Capital Stock
of any class, including any Preferred Capital Stock, shall not require the
consent of the holders of New Preferred Stock and shall not be deemed to affect
adversely the rights, preferences, privileges or voting rights of shares of New
Preferred Stock. In addition, the Certificate of Designation will provide that,
in the event that shares of either Private Exchange Preferred Stock or Existing
Preferred Stock are outstanding following the consummation of the Exchange
Offer, the holders of such Existing Preferred Stock and Private Exchange
Preferred Stock will vote as one class with the holders of the New Preferred
Stock then outstanding for all purposes (except for purposes of certain
amendments to the Certificate of Designation and the certificate of designation
for the Existing Preferred Stock) under this '--Voting Rights' as if the holders
of such Existing Preferred Stock and Private Exchange Preferred Stock were
holders of New Preferred Stock.
Under Delaware law, holders of the New Preferred Stock will be entitled to
vote as a class upon a proposed amendment to the certificate of incorporation,
whether or not entitled to vote thereon by the certificate of incorporation, if
the amendment would increase or decrease the par value of the shares of such
class, or alter or change the powers, preferences or special rights of the
shares or such class so as to affect them adversely.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control occurring on or after July 2,
2001, the Company will, only if and only to the extent permitted by any
Indebtedness of the Company then outstanding, offer to redeem all or a portion
of the outstanding shares of New Preferred Stock at a redemption price equal to
101% of the liquidation preference thereof, plus, without duplication,
accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for the period from the Dividend Payment Date immediately
prior to the Change of Control Payment Date (as defined) to the Change of
Control Payment Date) to the Change of Control Payment Date. In addition, upon
the occurrence of a Change of Control occurring prior to July 2, 2001, the
Company will have the option to offer to redeem the New Preferred Stock, in
whole but not in part, at a redemption price equal to 101% of the liquidation
preference thereof, plus, without duplication, accumulated and unpaid dividends
to the Change of Control Payment Date. If the Company does not make an offer to
redeem all of the outstanding New Preferred Stock upon a Change of Control
occurring prior to July 2, 2001, the annual dividend rate on the New Preferred
Stock will increase by 4.0% over the then-applicable annual dividend rate. Any
offer to redeem the New Preferred Stock upon a Change of Control as provided
above will be referred to herein as a 'Change of Control Offer.'
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<PAGE>
Prior to the mailing of the notice referred to below, but in any event
within 30 days following the date on which a Change of Control occurs, the
Company covenants that if the redemption of the New Preferred Stock would
violate or constitute a default or be otherwise prohibited under any
Indebtedness of the Company then outstanding, then the Company shall either (i)
repay in full all such Indebtedness (and terminate all commitments thereunder)
or after to repay in full all such Indebtedness (and terminate all such
commitments) or (ii) obtain the requisite consents, if any, under such
Indebtedness required to permit the redemption of the New Preferred Stock as
provided below. The Company will first comply with the covenant in the preceding
sentence before it will be required to redeem, or prior to any optional offer to
redeem, the New Preferred Stock pursuant to the provisions described below.
To effect a Change of Control Offer, within 30 days following the date upon
which a Change of Control occurs, the Company will send, by first class mail, a
notice to each holder of New Preferred Stock, which notice shall govern the
terms of the Change of Control Offer. Such notice shall state, among other
things, the redemption date, which must be no earlier than 30 days nor later
than 60 days from the date such notice is mailed, other than as may be required
by law (the 'Change of Control Payment Date'). Holders electing to have any
shares of New Preferred Stock redeemed pursuant to a Change of Control Offer
will be required to surrender such shares of New Preferred Stock, properly
endorsed for transfer, together with such other customary documents as the
Company may reasonably request, to the transfer agent and registrar for the New
Preferred Stock at the address specified in the notice prior to the close of
business on the business day prior to the Change of Control Payment Date.
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
redemption of shares of New Preferred Stock pursuant to a Change of Control
Offer.
This '--Change of Control' covenant will not apply in the event of (a)
changes in a majority of the Board of Directors of the Company in certain
instances as contemplated by the definition of 'Change of Control' and (b)
certain transactions with, or among Permitted Holders. In addition, this
covenant is not intended to afford holders of shares of New Preferred Stock
protection in the event of certain highly leveraged transactions,
reorganizations, restructurings, mergers and other similar transactions that
might adversely affect the holders of shares of New Preferred Stock, but would
not constitute a Change of Control. The Company could, in the future, enter in
to certain transactions including certain recapitalizations of the Company, that
would not constitute a Change of Control, but would increase the amount of
Indebtedness outstanding at such time. However, the Certificate of Designation
will contain limitations on the ability of the Company to incur additional
Indebtedness and to engage in certain mergers, consolidations and sales of
assets, whether or not a Change of Control is involved. See '--Certain
Covenants--Limitation on Incurrence of Additional Indebtedness' and '--Certain
Covenants--Merger, Consolidation and Sale of Assets.'
If a Change of Control were to occur, there can be no assurance that the
Company would have sufficient funds to pay the redemption price for all shares
of New Preferred Stock or the Existing Notes that the Company might be required
to purchase. Moreover, as of the date hereof, after giving effect to the
Offering and the application of the proceeds therefrom and the Company's
outstanding Senior Debt, the Company would not have sufficient funds available
to redeem all of the outstanding shares of New Preferred Stock pursuant to a
Change of Control Offer. In the event that the Company were to redeem
outstanding shares of New Preferred Stock pursuant to a Change of Control Offer,
the Company expects that it would need to seek third-party financing to the
extent it does not have available funds to meet its redemption obligations.
However, there can be no assurance that the Company would be able to obtain such
financing on favorable terms, if at all.
With respect to the sale of 'all or substantially all' of the assets of the
Company, which would constitute a Change of Control for purposes of the
Certificate of Designation, the meaning of the phrase 'all or substantially all'
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of 'all or substantially all' of the assets of a Person and
therefore it may be unclear whether a Change of Control has occurred and whether
the New Preferred Stock is subject to a Change of Control Offer.
None of the provisions in the Certificate of Designation relating to a
purchase of New Preferred Stock upon a Change of Control are waivable by the
Board of Directors of the Company. Without the consent of each holder of New
Preferred Stock affected thereby, after the mailing of the notice of a Change of
Control Offer, no
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amendment to the Certificate of Designation may, directly or indirectly, affect
the Company's obligation to purchase the outstanding New Preferred Stock or
amend, modify or change the obligation of the Company to consummate a Change of
Control Offer or waive any default in the performance thereof or modify any of
the provisions of the definitions with respect to any such offer.
CERTAIN COVENANTS
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any Restricted Subsidiary of the Company to, directly or
indirectly, incur any Indebtedness (including Acquired Indebtedness) other than
Permitted Indebtedness. Notwithstanding the foregoing limitation, the Company
and its Restricted Subsidiaries may incur Indebtedness if on the date of the
incurrence of such Indebtedness, after giving effect to the incurrence of such
Indebtedness, the Consolidated Fixed Charge Coverage Ratio of the Company and
its Restricted Subsidiaries is at least equal to 2.0 to 1.0.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment if at the time of such Restricted Payment and immediately
after giving effect thereto:
(i) any Voting Rights Triggering Event shall have occurred and be
continuing; or
(ii) the Company could not incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the '--Limitation on
Incurrence of Additional Indebtedness' covenant; or
(iii) the aggregate amount of Restricted Payments made subsequent to
the Issue Date (the amount expended for such purposes, if other than in
cash, being the fair market value of such property as determined by the
Board of Directors of the Company, whose determination shall be conclusive)
exceeds the sum of (a) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis during the period (treated as one
accounting period) beginning on the last day of the fiscal quarter
immediately preceding the Issue Date and ending on the last day of the
fiscal quarter of the Company immediately preceding the date of such
proposed Restricted Payment (or, if such aggregate cumulative Consolidated
Net Income of the Company for such period shall be a deficit, minus 100% of
such deficit) plus (b) the aggregate net proceeds received by the Company
either (1) as capital contributions to the Company after the Issue Date,
excluding any capital contributions pursuant to the Tax Sharing Agreement
or (2) from the issuance or sale of Qualified Capital Stock (including
Qualified Capital Stock issued upon the conversion of convertible
Indebtedness, in exchange for outstanding Indebtedness or from the exercise
of options, warrants or rights to purchase Qualified Capital Stock) of the
Company to any person (other than to a Restricted Subsidiary of the
Company) after the Issue Date plus (c) in the case of the disposition or
repayment of any Investment constituting a Restricted Payment made after
the Issue Date (excluding any Investment made pursuant to clause (4) of the
following paragraph), an amount equal to the lesser of the return of
capital with respect to such Investment and the cost of such Investment, in
either case, less the cost of the disposition of such Investment minus (d)
20% of all cash payments made pursuant to the New Equity Incentive Plan.
For purposes of the preceding clause (iii)(b)(2), the value of the
aggregate net proceeds received by the Company upon the issuance of
Qualified Capital Stock either upon the conversion of convertible
Indebtedness or in exchange for outstanding Indebtedness or upon the
exercise of options, warrants or rights will be the net cash proceeds
received upon the issuance of such Indebtedness, options, warrants or
rights plus the incremental amount received by the Company upon the
conversion, exchange or exercise thereof.
(b) Notwithstanding the foregoing, these provisions will not prohibit: (1)
the payment of any dividend or the making of any distribution within 60 days
after the date of its declaration if such dividend or distribution would have
been permitted on the date of declaration; (2) the purchase, redemption or other
acquisition or retirement of any Capital Stock of the Company or any warrants,
options or other rights to acquire shares of any class of such Capital Stock (x)
solely in exchange for shares of Qualified Capital Stock (including any such
exchange pursuant to a conversion right or privilege in connection with which
cash paid in lieu of fractional shares or scrip), (y) through the application of
the net cash proceeds of a substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of shares of Qualified Capital Stock or
warrants, options or other rights to acquire Qualified Capital Stock or (z) in
the case of Disqualified Capital Stock, solely in exchange for, or through the
application of the net cash proceeds of a substantially concurrent sale (other
than to a Restricted Subsidiary of the Company) of, Disqualified Capital Stock
that has a redemption date no earlier than, is issued by the Company or the same
Person as and requires the payment of current dividends or distributions in cash
no earlier than, in each
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case, the Disqualified Capital Stock being purchased, redeemed or otherwise
acquired or retired and which Disqualified Capital Stock does not prohibit cash
dividends on the New Preferred Stock or the exchange thereof for Exchange
Debentures; (3) payments by the Company to Lancer pursuant to the Tax Sharing
Agreement; (4) Investments constituting Restricted Payments made as a result of
the receipt of non-cash consideration from any Asset Sale; and (5) guarantees in
respect of Indebtedness incurred by officers or employees of the Company or any
Restricted Subsidiary in the ordinary course of business and payments in
discharge thereof in an amount not to exceed $500,000 in any fiscal year.
Limitations on Transactions with Affiliates. The Company will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or suffer to exist any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with any Affiliate or holder of 10% or
more of the Company's Common Stock (an 'Affiliate Transaction') or extend,
renew, waive or otherwise modify the terms of any Affiliate Transaction entered
into prior to the Issue Date unless (i) such Affiliate Transaction is between or
among the Company and its Wholly-Owned Restricted Subsidiaries; or (ii) the
terms of such Affiliate Transaction are fair and reasonable to the Company or
such Restricted Subsidiary, as the case may be, and the terms of such Affiliate
Transaction are at least as favorable as the terms which could be obtained by
the Company or such Restricted Subsidiary, as the case may be, in a comparable
transaction made on an arm's-length basis between unaffiliated parties. Any
Affiliate Transaction involving an amount or having a value in excess of $1.0
million which is not permitted under clause (i) above shall have been approved
by a majority of the Company's Board of Directors. In transactions with a value
in excess of $5.0 million which are not permitted under clause (i) above, the
Company must obtain a written opinion as to the fairness of such a transaction
from an independent investment banking firm.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under '--Limitation on Restricted
Payments' contained herein, (ii) payments to Lancer under the Tax Sharing
Agreement, (iii) payments to participants in the Equity Participation Plan in an
amount not exceeding $1.32 million in any fiscal year and $5.28 million in the
aggregate, (iv) reasonable and customary regular fees to directors of the
Company who are not employees of the Company, (v) loans or advances to officers
of the Company and its Restricted Subsidiaries for bona fide business purposes
of the Company in the ordinary course of business, (vi) royalty payments by the
Company to T-H Licensing pursuant to that certain letter agreement dated as of
December 29, 1989 between the Company and T-H Licensing (as such agreement may
be amended from time to time pursuant to its terms), provided that any such
payment (less any amounts permitted to be retained by T-H Licensing pursuant to
the Credit Agreement) is returned to the Company as a loan within sixty days
after receipt of such payment by T-H Licensing, (vii) payments or distributions
to participants in the New Equity Incentive Plan pursuant to the terms thereof,
(viii) payments of the Company's allocated portion of the Lancer consolidated
group's corporate expenses and fees to Lancer or any Affiliate of Lancer
incurred in connection with Lancer's or any Affiliate of Lancer's performance of
management consulting, monitoring and financial advisory services with respect
to the Company and any Restricted Subsidiary in an amount not to exceed $2.0
million in any fiscal year (excluding amounts paid prior to the date hereof);
provided, however, that notwithstanding anything to the contrary contained in
the Certificate of Designation, the Company shall not be permitted to pay to
Lancer or any Affiliate of Lancer any amount for such services in excess of the
amount set forth in this clause (viii).
Merger, Consolidation and Sale of Assets. Without the affirmative vote of
the holders of a majority of the issued and outstanding shares of New Preferred
Stock, voting or consenting, as the case may be, as a separate class, the
Company will not, in a single transaction or a series of related transactions,
consolidate with or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, another
Person or adopt a plan of liquidation unless (i) either (1) the Company is the
surviving or continuing Person or (2) the Person (if other than the Company)
formed by such consolidation or into which the Company is merged or the Person
that acquires by conveyance, transfer or lease the properties and assets of the
Company substantially as an entirety or, in the case of a plan of liquidation,
the Person to which assets of the Company have been transferred shall be a
corporation, partnership or trust organized and existing under the laws of the
United States or any State thereof or the District of Columbia; (ii) if the
Company is not the surviving or continuing Person, the New Preferred Stock shall
be converted into or exchanged for and shall become shares of such successor,
transferee or resulting Person, having in respect of such successor, transferee
or resulting Person the same powers, preferences and relative participating,
optional or other special rights and the qualifications,
51
<PAGE>
limitations or restrictions thereon, that the New Preferred Stock had
immediately prior to such transaction; (iii) immediately after giving effect to
such transaction and the use of the proceeds therefrom (on a pro forma basis,
including giving effect to any Indebtedness incurred or anticipated to be
incurred in connection with such transaction), the Company (in the case of
clause (1) of the foregoing clause (i)) or such Person (in the case of clause
(2) of the foregoing clause (i)) shall be able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
'--Limitation on Incurrence of Additional Indebtedness' covenant; (iv)
immediately after giving effect to such transactions, no Voting Rights
Triggering Event shall have occurred or be continuing; and (v) such surviving
Person shall have delivered to the transfer agent for the New Preferred Stock
prior to the consummation of the proposed transaction an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger or
transfer complies with the Certificate of Designation and that all conditions
precedent in the Certificate of Designation relating to such transaction have
been satisfied. For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of related
transactions) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties or assets of the Company, will be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
Limitation on Preferred Capital Stock of Restricted Subsidiaries. The
Company will not permit any Restricted Subsidiary to issue any Preferred Capital
Stock (except to the Company or to a Restricted Subsidiary) or permit any Person
(other than the Company or a Restricted Subsidiary) to hold any such Preferred
Capital Stock unless the Company or such Restricted Subsidiary would be entitled
to incur or assume Indebtedness in compliance with the '--Limitation on
Incurrence of Additional Indebtedness' covenant in an aggregate principal amount
equal to the aggregate liquidation value of the Preferred Capital Stock to be
issued.
Reports. The Company will provide to the holders of New Preferred Stock,
within 15 days after it files them with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and regulations
prescribe) which the Company files with the Commission pursuant to Section 13 or
15(d) of the Exchange Act. In the event that the Company is no longer required
to furnish such reports to its securityholders pursuant to the Exchange Act, the
Company will cause its consolidated financial statements, comparable to those
which would have been required to appear in annual or quarterly reports, to be
delivered to the holders of New Preferred Stock.
TRANSFER AGENT AND REGISTRAR
United States Trust Company of New York will be the transfer agent and
registrar (the 'Transfer Agent') for the New Preferred Stock.
THE EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued under the Exchange
Indenture, dated as of March 12, 1997, by and between the Company and United
States Trust Company of New York, as Trustee (the 'Trustee'). The terms of the
Exchange Debentures include those stated in the Exchange Indenture and those
made part of the Exchange Indenture by reference to the Trust Indenture Act of
1939, as amended (the 'Trust Indenture Act') as in effect on the date of the
Exchange Indenture. The Exchange Debentures are subject to all such terms, and
holders of the Exchange Debentures are referred to the Exchange Indenture and
the Trust Indenture Act for a statement of them. The following is a summary of
the material terms and provisions of the Exchange Debentures. This summary does
not purport to be a complete description of the Exchange Debentures and is
subject to the detailed provisions of, and qualified in its entirety by
reference to, the Exchange Debentures and the Exchange Indenture (including the
definitions contained therein). A copy of the Exchange Indenture is filed as an
exhibit to the Registration Statement of which this is part. Definitions
relating to certain capitalized terms are set forth under '--Certain
Definitions' and throughout this description. Capitalized terms that are used
but not otherwise defined herein have the meanings assigned to them in the
Exchange Indenture and such definitions are incorporated herein by reference.
GENERAL
The Exchange Debentures will be general unsecured subordinated obligations
of the Company and will be limited in aggregate principal amount to the
liquidation preference of the New Preferred Stock, plus accrued and unpaid
dividends, on the date of exchange of the New Preferred Stock into Exchange
Debentures (plus any additional Exchange Debentures issued in lieu of cash
interest as described herein). The Exchange Debentures will be issued in fully
registered form only in denominations of $1,000 and integral multiples thereof
(other than
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as described in '--The New Preferred Stock--Exchange' or with respect to
additional Exchange Debentures issued in lieu of cash interest as described
herein). The Exchange Debentures will be subordinated to all existing and future
Senior Debt of the Company.
The Exchange Debentures will mature on March 15, 2009. Each Exchange
Debenture will bear interest at the rate of 11 1/4% per annum from the Exchange
Date or from the most recent interest payment date to which interest has been
paid or provided for or, if no interest has been paid or provided for, from the
Exchange Date. Interest will be payable semi-annually in cash (or, on or prior
to March 15, 2002, in additional Exchange Debentures, at the option of the
Company) in arrears on each March 15 and September 15 commencing with the first
such date after the Exchange Date. Interest on the Exchange Debentures will be
computed on the basis of a 360-day year comprised of twelve 30-day months and
the actual number days elapsed.
MATURITY, INTEREST AND PRINCIPAL
Principal of, and premium, if any, and interest on the Exchange Debentures
will be payable, and the Exchanged Debentures may be presented for registration
of transfer or exchange, at the office of the Paying Agent and Registrar. At the
Company's option, interest, to the extent paid in cash, may be paid by check
mailed to the registered address of holders of the Exchange Debentures as shown
on the register for the Exchange Debentures. The Trustee will initially act as
Paying Agent and Registrar. The Company may change any Paying Agent and
Registrar without prior notice to holders of the Exchange Debentures. Holders of
the Exchange Debentures must surrender Exchange Debentures to the Paying Agent
to collect principal payments.
OPTIONAL REDEMPTION
The Exchange Debentures will be redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after March 15, 2002, at
the redemption prices (expressed as percentages of the principal amount
thereof), together, in each case, with accrued and unpaid interest to the
redemption date set forth below if redeemed during the 12-month period beginning
on March 15 of each of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------------------------------------------- ----------
<S> <C>
2002....................................................... 105.625%
2003....................................................... 104.219%
2004....................................................... 102.813%
2005....................................................... 101.406%
2006 and thereafter........................................ 100.000%
</TABLE>
In the event of redemption of fewer than all of the Exchange Debentures,
the Trustee shall select by lot or in such other manner as it shall deem fair
and equitable the Exchange Debentures to be redeemed. The Exchange Debentures
will be redeemable in whole or in part upon not less than 30 or more than 60
days' prior written notice, mailed by first class mail to a holder's last
address as it shall appear on the register maintained by the Registrar of the
Exchange Debentures. On and after any redemption date, interest will cease to
accrue on the Exchange Debentures or portions thereof called for redemption
unless the Company shall fail to redeem any such Exchange Debentures.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control occurring on or after July 2,
2001, the Company will, only if and to the extent permitted by any Senior Debt
of the Company then outstanding, offer to redeem all outstanding Exchange
Debentures at a redemption price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest to the Change of Control Payment Date (as
defined). In addition, upon the occurrence of a Change of Control occurring
prior to July 2, 2001, the Company will have the option to offer to redeem the
Exchange Debentures, in whole but not in part, at a redemption price equal to
101% of the principal amount thereof, plus, without duplication, accrued and
unpaid interest to the Change of Control Payment Date. If a Change of Control
occurs prior to July 2, 2001 and the Company fails to make an offer to redeem
the Exchange Debentures in accordance with the terms of the Exchange Indenture,
the annual interest rate on the Exchange Debentures will increase by 4.0% over
the then-applicable interest rate. Any offer to redeem the Exchange Debentures
upon a Change of Control as provided above will be referred to herein as a
'Change of Control Offer.'
The Exchange Indenture will provide that, prior to the mailing of the
notice referred to below, but in any event within 30 days following the date on
which a Change of Control occurs, the Company covenants that if the purchase of
the Exchange Debentures would violate or constitute a default under any
outstanding Senior Debt,
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then the Company will, to the extent needed to permit the purchase of Exchange
Debentures, either (i) repay in full all Indebtedness such Senior Debt (and
terminate all commitments thereunder) or offer to repay in full all such Senior
Debt (and terminate all such commitments) or (ii) obtain the requisite consents
under the instrument governing such Senior Debt to permit the repurchase of the
Exchange Debentures as provided below. The Company will first comply with the
covenant in the preceding sentence before it will be required to repurchase
Exchange Debentures pursuant to the provisions described below; provided that
the Company's failure to comply with the covenant described in the preceding
sentence shall constitute an Event of Default described under clause (iii) under
'--Events of Default' below.
To effect a Change of Control, within 30 days following the date upon which
a Change of Control occurs, the Company will send, by first class mail, a notice
to each holder of record of the Exchange Debentures, with a copy to the Trustee,
which notice shall govern the terms of the Change of Control Offer. Such notice
will state, among other things, the purchase date, which must be no earlier than
30 days nor later than 60 days from the date such notice is mailed, other than
as may be required by law (the 'Change of Control Payment Date'). Holders
electing to have an Exchange Debenture purchased pursuant to a Change of Control
Offer will be required to surrender the Exchange Debenture, properly endorsed
for transfer together with such other customary documents as the Company may
reasonably request, to the paying agent at the address specified in the notice
prior to the close of business on the business day prior to the Change of
Control Payment Date.
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 purchase
of Exchange Debentures pursuant to a Change of Control Offer.
This '--Change of Control' covenant will not apply in the event of (a)
certain changes in composition of the Board of Directors of the Company and (b)
certain transactions with, or among, Permitted Holders. In addition, this
covenant is not intended to afford holders of the Exchange Debentures protection
in the event of certain highly leveraged transactions, reorganizations,
restructurings, mergers and other similar transactions that might adversely
affect the holders of Exchange Debentures but would not constitute a Change of
Control. The Company could, in the future, enter into certain transactions,
including certain recapitalizations of the Company, that would not constitute a
Change of Control, but would increase the amount of Indebtedness outstanding at
such time. However, the Exchange Indenture will contain limitations on the
ability of the Company to incur additional Indebtedness and to engage in certain
mergers, consolidations and sales of assets, whether or not a Change of Control
is involved. See '--Limitation on Incurrence of Additional Indebtedness,'
'--Limitation on Asset Sales' and '--Merger, Consolidation and Sale of Assets.'
If a Change of Control were to occur, there can be no assurance that the
Company would have sufficient funds to pay the purchase price for all Exchange
Debentures that the Company might be required to purchase. Moreover, as of the
date hereof, after giving effect to the Offering and the application of the
proceeds and the Change of Control provisions on the Company's outstanding
Senior Debt therefrom, the Company would not have sufficient funds available to
purchase all the outstanding Exchange Debentures, assuming they had been issued,
pursuant to a Change of Control Offer. In the event that the Company were
required to purchase Exchange Debentures pursuant to a Change of Control Offer,
the Company expects that it would need to seek third-party financing to the
extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing on favorable terms, if at all. See 'Description of Existing
Indebtedness.'
With respect to the sale of 'all or substantially all' of the assets of the
Company, which would constitute a Change of Control for purposes of the Exchange
Indenture, the meaning of the phrase 'all or substantially all' as used in the
Exchange Indenture varies according to the facts and circumstances of the
subject transaction, has no clearly established meaning under relevant law and
is subject to judicial interpretation. Accordingly, in certain circumstances
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of 'all or substantially all' of the
assets of a person and therefore it may be unclear whether a Change of Control
has occurred and whether the Exchange Debentures are subject to a Change of
Control Offer.
None of the provisions relating to a purchase of Exchange Debentures upon a
Change of Control are waivable by the Board of Directors of the Company. Without
the consent of each holder of the Exchange Debentures affected thereby, after
the mailing of the notice of the Change of Control Offer, no amendment to the
Exchange Indenture may, directly or indirectly, affect the Company's obligation
to purchase the Exchange Debentures or amend, modify or change the obligation of
the Company to consummate a Change of Control
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<PAGE>
Offer or waive any default in the performance thereof or modify any of the
provisions or definitions with respect to any such offer. In addition, the
Trustee may not waive the right of any holder of the Exchange Debentures to
require the repurchase of its Exchange Debentures upon a Change of Control.
SUBORDINATION
The Obligations represented by the Exchange Debentures are, to the extent
and in the manner provided in the Exchange Indenture, subordinated in right of
payment to the prior indefeasible payment and satisfaction in full in cash of
all existing and future Senior Debt of the Company. As of December 31, 1996, the
principal amount of outstanding Senior Debt of the Company, on a consolidated
basis, would have been $118.0 million.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, whether voluntary or involuntary, or any liquidation,
dissolution or other winding-up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or any general assignment
for the benefit of creditors or other marshaling of assets or liabilities of the
Company (except in connection with the merger or consolidation of the Company or
its liquidation or dissolution following the transfer of substantially all of
its assets, upon the terms and conditions permitted under the circumstances
described under '--Mergers, Consolidation and Sale of Assets') (all of the
foregoing referred to herein individually as a 'Bankruptcy Proceeding' and
collectively as 'Bankruptcy Proceedings'), the holders of Senior Debt of the
Company will be entitled to receive payment and satisfaction in full in cash of
all amounts due on or in respect of all Senior Debt of the Company before the
holders of the Exchange Debentures are entitled to receive or retain any payment
or distribution of any kind on account of the Exchange Debentures. In the event
that, notwithstanding the foregoing, the Trustee or any holder of Exchange
Debentures receives any payment or distribution of assets of the Company of any
kind, whether in cash, property or securities, including, without limitation, by
way of set-off or otherwise, in respect of the Exchange Debentures before all
Senior Debt of the Company is paid and satisfied in full in cash, then such
payment or distribution will be held by the recipient in trust for the benefit
of holders of Senior Debt and will be immediately paid over or delivered to the
holders of Senior Debt or their representative or representatives to the extent
necessary to make payment in full of all Senior Debt remaining unpaid, after
giving effect to any concurrent payment or distribution, or provision therefor,
to or for the holders of Senior Debt. By reason of such subordination, in the
event of liquidation or insolvency, creditors of the Company who are holders of
Senior Debt may recover more, ratably, than other creditors of the Company, and
creditors of the Company who are not holders of Senior Debt or of the Exchange
Debentures may recover more, ratably, than the holders of the Exchange
Debentures.
No payment or distribution of any assets or securities of the Company or
any Restricted Subsidiary of any kind or character (including, without
limitation, cash, property and any payment or distribution which may be payable
or deliverable by reason of the payment of any other Indebtedness of the Company
being subordinated to the payment of the Exchange Debentures by the Company) may
be made by or on behalf of the Company or any Restricted Subsidiary, including,
without limitation, by way of set-off or otherwise, for or on account of the
Exchange Debentures, or for or on account of the purchase, redemption or other
acquisition of the Exchange Debentures, and neither the Trustee nor any holder
or owner of any Exchange Debentures shall take or receive from the Company or
any Restricted Subsidiary, directly or indirectly in any manner, payment in
respect of all or any portion of Exchange Debentures following the delivery by
the representative of the holders of Designated Senior Debt (the
'Representative') to the Trustee of written notice of the occurrence of a
Payment Default, and in any such event, such prohibition shall continue until
such Payment Default is cured, waived in writing or ceases to exist. At such
time as the prohibition set forth in the preceding sentence shall no longer be
in effect, subject to the provisions of the following paragraph, the Company
shall resume making any and all required payments in respect of the Exchange
Debentures, including any missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Debt, no payment or distribution of any assets of the Company of any kind may be
made by the Company, including, without limitation, by way of set-off or
otherwise, on account of the Exchange Debentures, or on account of the purchase
or redemption or other acquisition of Exchange Debentures, for a period (a
'Payment Blockage Period') commencing on the date of receipt by the Trustee of
written notice from the Representative of such Non-Payment Event of Default
unless and until (subject to any blockage of payments that may then be in effect
under the preceding paragraph) the earliest of (x) more than 179 days shall have
elapsed since receipt of such written notice by the Trustee, (y) such
Non-Payment Event of Default shall have been cured or waived in writing or shall
have
55
<PAGE>
ceased to exist or such Designated Senior Debt shall have been paid in full or
(z) such Payment Blockage Period shall have been terminated by written notice to
the Company or the Trustee from such Representative, after which, in the case of
clause (x), (y) or (z), the Company shall resume making any and all required
payments in respect of the Exchange Debentures, including any missed payments.
Notwithstanding any other provision of the Exchange Indenture, in no event shall
a Payment Blockage Period commenced in accordance with the provisions of the
Exchange Indenture described in this paragraph extend beyond 179 days from the
date of the receipt by the Trustee of the notice referred to above (such period,
an 'Initial Blockage Period'). Any number of additional Payment Blockage Periods
may be commenced during the Initial Blockage Period; provided, however, that no
such additional Payment Blockage Period shall extend beyond the Initial Blockage
Period. After the expiration of the Initial Blockage Period, no Payment Blockage
Period may be commenced until at least 180 consecutive days have elapsed from
the last day of the Initial Blockage Period. Notwithstanding any other provision
of the Exchange Indenture, no Non-Payment Event of Default with respect to
Designated Senior Debt which existed or was continuing on the date of the
commencement of any Payment Blockage Period initiated by the Representative
shall be, or be made, the basis for the commencement of a second Payment
Blockage Period initiated by the Representative, whether or not within the
Initial Blockage Period, unless such Non-Payment Event of Default shall have
been waived for a period of not less than 90 consecutive days.
If the Company or any Guarantor fails to make any payment on the Exchange
Debentures or any Guarantee, as the case may be, when due or within any
applicable grace period, whether or not on account of payment blockage
provisions, such failure would constitute an Event of Default under the Exchange
Indenture and would enable the holders of the Exchange Debentures to accelerate
the maturity thereof. See '--Events of Default.'
A holder of Exchange Debentures by his acceptance of Exchange Debentures
agrees to be bound by such provisions and authorizes and expressly directs the
Trustee, on his behalf, to take such action as may be necessary or appropriate
to effectuate the subordination provided for in the Exchange Indenture and
appoints the Trustee his attorney-in-fact for such purpose.
CERTAIN COVENANTS
The Exchange Indenture will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not
and will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly incur (as defined) any Indebtedness (including Acquired Indebtedness)
other than Permitted Indebtedness. Notwithstanding the foregoing limitations,
the Company and its Restricted Subsidiaries may incur Indebtedness if after
giving effect to the incurrence of such Indebtedness, the Consolidated Fixed
Charge Coverage Ratio of the Company and its Restricted Subsidiaries is at least
equal to 2.0 to 1.0.
Limitation on Restricted Payments. (a) The Company will not and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
make any Restricted Payment if at the time of such Restricted Payment and
immediately after giving effect thereto:
(i) any Default or Event of Default shall have occurred and be
continuing; or
(ii) the Company is not able to incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the '--Limitation on
Incurrence of Additional Indebtedness' covenant; or
(iii) the aggregate amount of Restricted Payments made subsequent to
the Issue Date (the amount expended for such purposes, if other than in
cash, being the fair market value of such property as determined by the
Board of Directors of the Company, whose determination shall be conclusive)
exceeds the sum of (a) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis during the period (treated as one
accounting period) beginning on the last day of the fiscal quarter
immediately preceding the Issue Date and ending on the last day of the
fiscal quarter of the Company immediately preceding the date of such
proposed Restricted Payment (or, if such aggregate cumulative Consolidated
Net Income of the Company for such period shall be a deficit, minus 100% of
such deficit) plus (b) the aggregate net proceeds received by the Company
either (1) as capital contributions to the Company after the Issue Date,
excluding any capital contributions pursuant to the Tax Sharing Agreement
or (2) from the issuance or sale of Qualified Capital Stock (including
Qualified Capital Stock issued upon the conversion of convertible
Indebtedness, in exchange for outstanding Indebtedness or from the exercise
of options, warrants or rights to purchase Qualified Capital Stock) of the
Company to any person (other than to a Restricted
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<PAGE>
Subsidiary of the Company) after the Issue Date plus (c) in the case of the
disposition or repayment of any Investment constituting a Restricted
Payment made after the Issue Date (excluding any Investment made pursuant
to clause (4) of the following paragraph), an amount equal to the lesser of
the return of capital with respect to such Investment and the cost of such
Investment, in either case, less the cost of the disposition of such
Investment minus (d) 20% of all cash payments made pursuant to the New
Equity Incentive Plan. For purposes of the preceding clause (iii)(b)(2),
the value of the aggregate net proceeds received by the Company upon the
issuance of Qualified Capital Stock either upon the conversion of
convertible Indebtedness or in exchange for outstanding Indebtedness or
upon the exercise of options, warrants or rights will be the net cash
proceeds received upon the issuance of such Indebtedness, options, warrants
or rights plus the incremental amount received by the Company upon the
conversion, exchange or exercise thereof.
(b) Notwithstanding the foregoing, these provisions will not prohibit: (1)
the payment of any dividend or the making of any distribution within 60 days
after the date of its declaration if such dividend or distribution would have
been permitted on the date of declaration; (2) the purchase, redemption or other
acquisition or retirement of any Capital Stock of the Company or any warrants,
options or other rights to acquire shares of any class of such Capital Stock
either (x) solely in exchange for shares of Qualified Capital Stock (including
any such exchange pursuant to a conversion right or privilege in connection with
which cash paid in lieu of fractional shares or scrip), or (y) through the
application of the net cash proceeds of a substantially concurrent sale (other
than to a Subsidiary of the Company) of shares of Qualified Capital Stock or
warrants, options or other rights to acquire Qualified Capital Stock; (3) the
acquisition of Indebtedness of the Company that is subordinate or junior in
right of payment to the Exchange Debentures either (x) solely in exchange for
shares of Qualified Capital Stock (or warrants, options or other rights to
acquire Qualified Capital Stock) or for Indebtedness of the Company that is
subordinate or junior in right of payment to the Exchange Debentures, at least
to the extent that the Indebtedness being acquired is subordinated to the
Exchange Debentures and has a Weighted Average Life to Maturity no less than
that of the Indebtedness being acquired or (y) through the application of the
net cash proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of shares of Qualified Capital Stock (or warrants,
options or other rights to acquire Qualified Capital Stock) or Indebtedness of
the Company which is subordinate or junior in right of payment to the Exchange
Debentures, at least to the extent that the Indebtedness being acquired is
subordinated to the Exchange Debentures and has a Weighted Average Life to
Maturity no less than that of the Indebtedness being refinanced; (4) payments by
the Company to Lancer pursuant to the Tax Sharing Agreement; (5) Investments
constituting Restricted Payments made as a result of the receipt of non-cash
consideration from any Asset Sale; and (6) guarantees in respect of Indebtedness
incurred by officers or employees of the Company or any Restricted Subsidiary in
the ordinary course of business and payments in discharge thereof in an amount
not to exceed $500,000 in any fiscal year.
Limitations on Transactions with Affiliates. The Company will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or suffer to exist any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with any Affiliate or holder of 10% or
more of the Company's Common Stock (an 'Affiliate Transaction') or extend,
renew, waive or otherwise modify the terms of any Affiliate Transaction entered
into prior to the Issue Date unless (i) such Affiliate Transaction is between or
among the Company and its Wholly-Owned Restricted Subsidiaries; or (ii) the
terms of such Affiliate Transaction is fair and reasonable to the Company or
such Restricted Subsidiaries, as the case may be, and the terms of such
Affiliate Transaction are at least as favorable as the terms which could be
obtained by the Company or such Restricted Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis between unaffiliated
parties. Any Affiliate Transaction involving an amount or having a value in
excess of $1.0 million which is not permitted under clause (i) above shall have
been approved by a majority of the Company's Board of Directors. In transactions
with a value in excess of $5.0 million which are not permitted under clause (i)
above, the Company must obtain a written opinion as to the fairness of such a
transaction from an independent investment banking firm.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under '--Limitation on Restricted
Payments' contained herein, (ii) payments to Lancer under the Tax Sharing
Agreement, (iii) payments to participants in the Equity Participation Plan in an
amount not exceeding $1.32 million in any fiscal year and $5.28 million in the
aggregate, (iv) reasonable and customary regular fees to directors of the
Company who are not employees of the Company, (v) loans or advances to officers
of the Company and its Restricted Subsidiaries for bona fide business purposes
of the Company in the ordinary course
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of business, and (vi) royalty payments by the Company to T-H Licensing pursuant
to that certain letter agreement dated as of December 29, 1989 between the
Company and T-H Licensing (as such agreement may be amended from time to time
pursuant to its terms), provided that any such payment (less any amounts
permitted to be retained by T-H Licensing pursuant to the Credit Agreement) is
returned to the Company as a loan within sixty days after receipt of such
payment by T-H Licensing, (vii) payments or distributions to participants in the
New Equity Incentive Plan pursuant to the terms thereof, and (viii) payments of
the Company's allocated portion of the Lancer consolidated group's corporate
expenses and fees to Lancer or any Affiliate of Lancer incurred in connection
with Lancer's or any Affiliate of Lancer's performance of management consulting,
monitoring and financial advisory services with respect to the Company and any
Restricted Subsidiary in an amount not to exceed $2.0 million in any fiscal year
(excluding amounts paid prior to the Issue Date); provided, however, that
notwithstanding anything to the contrary contained in the Exchange Indenture,
the Company shall not be permitted to pay to Lancer or any Affiliate of Lancer
any amount for such services in excess of the amount set forth in this clause
(viii).
Limitation on Asset Sales. The Company will not, and will not cause or
permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless
(i) the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such sale or other disposition at least equal to
the fair market value thereof (as determined in good faith by the Company's
Board of Directors, and evidenced by a board resolution); (ii) not less than 75%
of the consideration received by the Company or its Subsidiaries, as the case
may be, is in the form of cash or Cash Equivalents; and (iii) the Net Cash
Proceeds received by the Company or such Restricted Subsidiary are applied (a)
first, to the extent the Company elects, or is required, to prepay, repay, make
an offer to redeem or purchase Indebtedness under any then existing Senior Debt
of the Company or any Restricted Subsidiary; provided, that any such repayment
shall result in a permanent reduction of the commitments thereunder in an amount
equal to the principal amount so repaid; (b) second, to the extent of the
balance of Net Cash Proceeds after application as described above, to the extent
the Company elects, to an Investment in assets (including Capital Stock or other
securities purchased in connection with the acquisition of Capital Stock or
property of another Person) used or useful in businesses similar or ancillary to
the business of the Company or Restricted Subsidiary as conducted at the time of
such Asset Sale ('Replacement Assets'), provided that such Investment occurs
within 360 days following the receipt of such Net Cash Proceeds, so long as the
Company or such Restricted Subsidiary has notified the Trustee in writing on or
prior to the 270th day following such Asset Sale (the 'Reinvestment Date') that
it has determined to apply the Net Cash Proceeds from such Asset Sale to an
investment in such Replacement Assets; (c) third, to make an offer to redeem or
purchase the Existing Notes or Indebtedness under any other then existing Senior
Debt of the Company or any Restricted Subsidiary in accordance with the terms of
the Existing Indenture or the document governing such other Senior Debt, as the
case may be; (d) fourth, if any Net Cash Proceeds from any Asset Sale are not
applied as provided in the preceding clauses (a) through (d) within 420 days of
such Asset Sale, the Company shall apply an amount equal to the Net Cash
Proceeds not so applied (the 'Available Net Cash Proceeds') to an offer to
repurchase the Exchange Debentures, at a purchase price in cash equal to 100% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase (an 'Excess Proceeds Offer'). If an Excess Proceeds Offer is
not fully subscribed, the Company may retain the portion of the Available Net
Cash Proceeds not required to repurchase Exchange Debentures.
If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the Reinvestment Date, a notice to the
holders of the Exchange Debentures stating, among other things: (1) that such
holders have the right to require the Company to apply the Available Net Cash
Proceeds to repurchase such Exchange Debentures at a purchase price in cash
equal to 100% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase; (2) the purchase date, which shall be no
earlier than 30 days and not later than 60 days from the date such notice is
mailed; (3) the instructions, determined by the Company, that each such holder
must follow in order to have such Exchange Debentures repurchased; and (4) the
calculations used in determining the amount of Available Net Cash Proceeds to be
applied to the repurchase of such Exchange Debentures.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to (a) pay dividends, in cash or otherwise,
or make any other distributions on or in respect of its Capital
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Stock or any other interest or participation in, or measured by, its profits,
(b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary
of the Company, (c) make loans or advances to the Company or any other
Restricted Subsidiary of the Company, (d) transfer any of its properties or
assets to the Company or any other Restricted Subsidiary of the Company (other
than any customary restriction on transfers of property subject to a Permitted
Lien (other than a Lien on cash not constituting proceeds of non-cash property
subject to a Permitted Lien) which could not materially adversely affect the
Company's ability to satisfy its obligations hereunder), or (e) guarantee any
Indebtedness of the Company or any other Restricted Subsidiary of the Company,
except for such encumbrances or restrictions existing under or by reason of (i)
applicable law, (ii) any agreement or other instrument of a person acquired by
the Company or any Restricted Subsidiary of the Company in existence at the time
of such acquisition (but not created in contemplation thereof), 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, (iii) any encumbrance or restriction in any agreement
existing on the Issue Date to the extent and in the manner such encumbrance or
restriction is in effect on the Issue Date and (iv) any encumbrance or
restriction pursuant to any agreement that extends, refinances, renews or
replaces any agreement described in clause (ii) above, which is not materially
more restrictive or less favorable to the holders of Exchange Debentures than
those existing under the agreement being extended, refinanced, renewed.
Limitation on Preferred Capital Stock of Restricted Subsidiaries. The
Company will not permit any of its Restricted Subsidiaries to issue any
Preferred Capital Stock (other than to the Company or to a Wholly-Owned
Restricted Subsidiary) or permit any Person (other than the Company or a
Wholly-Owned Restricted Subsidiary) to own any Preferred Capital Stock of any
Restricted Subsidiary unless the Company or such Restricted Subsidiary would be
entitled to incur or assume Indebtedness in compliance with the '--Limitation on
Incurrence of Additional Indebtedness' covenant in an aggregate principal amount
equal to the aggregate liquidation value of the Preferred Capital Stock to be
issued.
Limitation on Guarantees by Restricted Subsidiaries. The Company will not
permit any Restricted Subsidiary, directly or indirectly, to assume, guarantee
or in any other manner become liable with respect to any Indebtedness of the
Company or any Guarantor, unless such Restricted Subsidiary is a Guarantor or
simultaneously executes and delivers a supplemental indenture providing for the
guarantee of payment of the Exchange Debentures by such Restricted Subsidiary;
provided, however, that a Restricted Subsidiary may guarantee the Company's
obligations under the Credit Agreement without executing and delivering such
supplemental indenture or guaranteeing the Exchange Debentures; provided,
further, that in the case of any guarantee of any Guarantor with respect to
Senior Debt, the guarantee of the payment of the Exchange Debentures by such
Guarantor to be provided in accordance herewith shall be subordinated to the
guarantee with respect to such Senior Debt in the same manner and to the same
extent as the Exchange Debentures are subordinated to such Senior Debt. Each
guarantee created pursuant to the provisions described above is referred to as a
'Guarantee' and the issuer of each such Guarantee, so long as the Guarantee
remains outstanding, is referred to as a 'Guarantor.'
Notwithstanding the foregoing, in the event that a Guarantor is released
from all obligations which pursuant to the first sentence of the preceding
paragraph obligate it to become a Guarantor, such Guarantor shall be released
from all obligations under its Guarantee (provided that the provisions of the
first sentence of the preceding paragraph shall apply anew in the event that
such Guarantor subsequent to being released incurs any obligations that pursuant
to such sentence obligate it to become a Guarantor). In addition, upon any sale
or disposition (by merger or otherwise) of any Guarantor by the Company or a
Restricted Subsidiary of the Company to any person that is not an Affiliate of
the Company or any of its Restricted Subsidiaries which is otherwise in
compliance with the terms of the Exchange Indenture, such Guarantor will be
deemed to be released from all obligations under its Guarantee; provided,
however, that each such Guarantor is sold or disposed of in accordance with the
'--Limitation on Asset Sales' covenant above; provided, further, that the
foregoing proviso shall not apply to the sale or disposition of a Guarantor in a
foreclosure to the extent that such proviso would be inconsistent with the
requirements of the Uniform Commercial Code.
Merger, Consolidation and Sale of Assets. The Company will not and will
not cause or permit any Guarantor to, in a single transaction or series of
related transactions, consolidate with or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
assets to, another Person or adopt a plan of liquidation unless (i) either (1)
the Company or the Guarantor, as the case may be, is the
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survivor of such merger or consolidation or (2) the surviving or transferee
Person is a corporation, partnership or trust organized and existing under the
laws of the United States, any state thereof or the District of Columbia and
such surviving or transferee Person expressly assumes by supplemental indenture
all the obligations of the Company or the Guarantor, as the case may be, under
the Exchange Debentures and the Exchange Indenture; (ii) immediately after
giving effect to such transaction and the use of proceeds therefrom (on a pro
forma basis, including any Indebtedness incurred or anticipated to be incurred
in connection with such transaction), the Company or the surviving or transferee
Person is able to incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the '--Limitation on Incurrence of Additional
Indebtedness' covenant; (iii) immediately after giving effect to such
transaction (including any Indebtedness incurred or anticipated to be incurred
in connection with the transaction) no Default or Event of Default has occurred
and is continuing; and (iv) the Company has delivered to the Trustee an
officers' certificate and opinion of counsel, each stating that such
consolidation, merger or transfer complies with the Exchange Indenture, that the
surviving Person agrees by supplemental indenture to be bound thereby, and that
all conditions precedent in the Exchange Indenture relating to such transaction
have been satisfied. For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of related
transactions) of all or substantially all of the properties and assets of one or
more Subsidiaries the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company will be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Exchange Debentures for or as
an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Exchange Debentures unless such consideration is offered to be
paid or agreed to be paid to all holders of the Exchange Debentures who so
consent, waive or agree to amend in the time frame set forth in solicitation
documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT
The following events are defined in the Exchange Indenture as 'Events of
Default':
(i) the failure to pay interest on any Exchange Debentures 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 subordination
provisions of the Exchange Indenture);
(ii) the failure to pay the principal, or premium, if any, on any
Exchange Debentures, when such principal becomes due and payable, at
maturity, upon redemption or otherwise (whether or not such payment is
prohibited by the subordination provisions of the Exchange Indenture);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Exchange Debentures or the Exchange Indenture
which default continues for a period of 60 days after the Company receives
written notice thereof specifying the default from the Trustee or holders
of at least 25% in aggregate principal amount of outstanding Exchange
Debentures;
(iv) default in the payment at final maturity of principal in an
aggregate amount of $5.0 million or more with respect to any Indebtedness
of the Company or any Restricted Subsidiary thereof which default shall not
be cured, waived or postponed pursuant to an agreement with the holders of
such Indebtedness within 60 days after written notice, or the acceleration
of any such Indebtedness aggregating $5.0 million or more which
acceleration shall not be rescinded or annulled within 20 days after
written notice as provided in the Exchange Indenture;
(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5.0 million shall be rendered
against the Company or any Restricted Subsidiary thereof, and shall not be
discharged for any period of 60 consecutive days during which a stay of
enforcement shall not be in effect; and
(vi) certain events of bankruptcy, insolvency or reorganization
affecting Company or any of its Restricted Subsidiaries.
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The Exchange Indenture provides that the Trustee may withhold notice to the
holders of the Exchange Debentures of any default (except in payment of
principal or premium, if any, or interest on the Exchange Debentures) if the
Trustee considers it to be in the best interest of the holders of the Exchange
Debentures to do so.
Upon the happening of any Event of Default specified in the Exchange
Indenture, the Trustee may, and the Trustee upon the request of 25% in principal
amount of the Exchange Debentures shall or the holders of at least 25% in
aggregate principal amount of outstanding Exchange Debentures may, declare the
principal of and accrued but unpaid interest, if any, on all the Exchange
Debentures to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a 'notice of
acceleration' (the 'Acceleration Notice'), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Credit Agreement, will become due and payable upon the first to occur of an
acceleration under the Credit Agreement or 5 Business Days after receipt by the
Company and the Representative under the Credit Agreement of such Acceleration
Notice (unless all Events of Default specified in such Acceleration Notice have
been cured or waived). If an Event of Default with respect to bankruptcy
proceedings occurs and is continuing, then such amount will ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder of Exchange Debentures.
The Exchange Indenture will provide that, at any time after a declaration
of acceleration with respect to the Exchange Debentures as described in the
preceding paragraph, the holders of a majority in principal amount of the
Exchange Debentures then outstanding (by notice to the Trustee) may rescind and
cancel such declaration and its consequences if (i) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction, (ii)
all existing Events of Default have been cured or waived except nonpayment of
principal or interest on the Exchange Debentures that has become due solely by
such declaration of acceleration, (iii) to the extent the payment of such
interest is lawful, interest (at the same rate specified in the Exchange
Debentures) on overdue installments of interest and overdue principal which has
become due otherwise than by such declaration of acceleration, has been paid,
(iv) the Company has paid the Trustee its reasonable compensation and reimbursed
the Trustee for its expenses, disbursements and advances and (v) in the event of
the cure or waiver of a Default or Event of Default of the type described in
clause (vi) of the description above of Events of Default, the Trustee has
received an officers' certificate and an opinion of counsel that such Default or
Event of Default has been cured or waived. The holders of a majority in
principal amount of the Exchange Debentures may waive any existing Default or
Event of Default under the Exchange Indenture, and its consequences, except a
default in the payment of the principal of or interest on any Exchange
Debentures.
The Company is required to deliver to the Trustee, on or before 100 days
after the end of the Company's fiscal year and on or before 50 days after the
end of the first, second and third fiscal quarters of such years, a certificate
indicating whether the signing officers know of any Default or Event of Default
that occurred during the previous year or quarter, as the case may be, and
whether the Company has complied with its obligations under the Exchange
Indenture. In addition, the Company will be required to notify the Trustee of
the occurrence and continuation of any Default or Event of Default within five
business days after the Company becomes aware of the same.
Subject to the provisions of the Exchange Indenture relating to the duties
of the Trustee in case an Event of Default thereunder should occur and be
continuing, the Trustee will be under no obligation to exercise any of the
rights or powers under the Exchange Indenture at the request or direction of any
of the holders of the Exchange Debentures unless such holders have offered to
the Trustee reasonable indemnity or security against any loss, liability or
expense. Subject to such provision for security or indemnification and certain
limitations contained in the Exchange Indenture, the holders of a majority in
principal amount of the outstanding Exchange Debentures have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee.
SATISFACTION AND DISCHARGE OF EXCHANGE INDENTURE; DEFEASANCE
The Exchange Indenture provides the Company may elect either (a) to defease
and be discharged from any and all obligations with respect to the Exchange
Debentures (except for the obligations to register the transfer or exchange of
such Exchange Debentures, to replace temporary or mutilated, destroyed, lost or
stolen Exchange Debentures, to maintain an office or agency in respect of the
Exchange Debentures and to hold monies for payment in trust) ('defeasance') or
(b) to be released from their obligations with respect to the Exchange
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Debentures under certain covenants contained in the Exchange Indenture and
described above under '--Certain Covenants' ('covenant defeasance'), upon the
deposit with the Trustee (or other qualifying trustee), in trust for such
purpose, of money and/or U.S. Government Obligations which through the payment
of principal and interest in accordance with their terms will provide money, in
an amount sufficient to pay the principal of, premium, if any, and interest on
the Exchange Debentures on the scheduled due dates therefor or on a selected
date of redemption in accordance with the terms of the Exchange Indenture. Such
a trust may only be established if, among other things, the Company had
delivered to the Trustee an opinion of counsel (as specified in the Exchange
Indenture) (i) to the effect that neither the trust nor the Trustee will be
required to register as an investment company under the Investment Company Act
of 1940, as amended, and (ii) to the effect that holders of the Exchange
Debentures or persons in their positions will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount and in
the same amount and in the same manner and at the same times, as would have been
the case if such deposit, defeasance and discharge had not occurred which, in
the case of a defeasance only, must be based upon a private ruling concerning
the Exchange Debentures, a published ruling of the Internal Revenue Service or a
change in applicable federal income tax law.
REPORTS TO HOLDERS
The Company will file with the Trustee and provide to the holders of
Exchange Debentures, within 15 days after it files them with the Commission,
copies of the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may by
rules and regulations prescribe) which the Company files with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. In the event the Company is
no longer required to furnish such reports to its securityholders pursuant to
Exchange Act, the Company will cause its consolidated financial statements,
comparable to those which would have been required to appear in annual or
quarterly reports, to be delivered to the holders of the Exchange Debentures.
MODIFICATION OF THE EXCHANGE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, together,
without the consent of the holders of the Exchange Debentures, may amend or
supplement the Exchange Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does not,
adversely affect the rights of any of the holders in any material respect. Other
modifications and amendments of the Exchange Indenture may be made with the
consent of the holders of a majority in principal amount of the then outstanding
Exchange Debentures, except that, without the consent of each holder of the
Exchange Debentures affected thereby, no amendment may directly or indirectly
(i) reduce the amount of Exchange Debentures whose holders must consent to an
amendment; (ii) reduce the rate of or change the time for payment of interest,
including defaulted interest, on any Exchange Debentures; (iii) reduce the
principal of or change the fixed maturity of any Exchange Debentures, or change
the date on which any Exchange Debentures may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor; (iv) make any
Exchange Debentures payable in money other than that stated in the Exchange
Debentures; (v) make any change in provisions of the Exchange Indenture
protecting the right of each holder of a Exchange Debenture to receive payment
of principal of and interest on such Exchange Debenture on or after the due date
thereof or to bring suit to enforce such payment or permitting holders of a
majority in principal amount of a class of Exchange Debentures to waive Defaults
or Events of Default, other than ones with respect to the payment of principal
of or interest on the Exchange Debentures, or relating to certain amendments of
the Exchange Indenture; (vi) after the Company's obligation to purchase the
Exchange Debentures arises under the Exchange Indenture, amend, modify or change
the obligation of the Company to make or consummate a Change of Control Offer or
any Excess Proceeds Offer, as the case may be, or waive any default in the
performance thereof or modify any of the provisions or definitions with respect
to any such offer; or (vii) modify the subordination provisions of the Exchange
Indenture to adversely affect the holders of Exchange Debentures.
THE TRUSTEE
United States Trust Company of New York will be the Trustee under the
Exchange Indenture. The Trustee under the Exchange Indenture will be the
Registrar and Paying Agent with regard to the Exchange Debentures. The Exchange
Indenture provides that, except during the continuance of an Event of Default,
the Trustee will perform only such duties as are specifically set forth in the
Exchange Indenture. During the existence of an Event
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of Default, the Trustee will exercise such rights and powers vested in it under
the Exchange Indenture and use the same degree of care and skill in its exercise
as a prudent person would exercise under the circumstances in the conduct of
such person's own affairs.
TRANSFER AND EXCHANGE
Holders of the Exchange Debentures may transfer or Exchange Debentures in
accordance with the Exchange Indenture. The Registrar under such Exchange
Indenture may require a holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Exchange Indenture. The Registrar is not required to
transfer or exchange any Exchange Debenture selected for redemption. Also, the
Registrar is not required to transfer or exchange any Exchange Debenture for a
period of 15 days before selection of the Exchange Debentures to be redeemed.
The Exchange Debentures will be issued in a transaction exempt from
registration under the Securities Act and will be subject to the restrictions on
transfer described in 'Notice to Investors.'
The registered holder of an Exchange Debenture may be treated as the owner
of it for all purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Certificate of Designation and the Exchange Indenture. Reference is made to the
Certificate of Designation and the Exchange Indenture for the full definition of
all such terms, as well as any other terms used herein for which no definition
is provided.
'Acquired Indebtedness' means Indebtedness of a person (a) assumed in
connection with an Asset Acquisition from such person or (b) existing at the
time such person becomes a Subsidiary of any other person.
'Affiliate' means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person.
'Asset Acquisition' means (a) an Investment by the Company or any
Subsidiary of the Company in any other person pursuant to which such person
shall become a Restricted Subsidiary of the Company, or shall be merged with or
into the Company or any Restricted Subsidiary of the Company, or (b) the
acquisition by the Company or any Restricted Subsidiary of the Company of the
assets of any person which constitute all or substantially all of the assets of
such person or any division or line of business of such person.
'Asset Sale' means any sale, issuance, conveyance, transfer, lease or other
disposition to any person other than the Company or a Wholly-Owned Restricted
Subsidiary of the Company, in one or a series of related transactions, of: (a)
any Capital Stock of any Restricted Subsidiary of the Company; (b) all or
substantially all of the properties and assets of any division or line of
business of the Company or any Restricted Subsidiary of the Company; or (c) any
other properties or assets of the Company or a Restricted Subsidiary (including
proprietary brand names, whether registered or otherwise) other than in the
ordinary course of business (it being understood that the sale or lease of any
used or obsolete equipment is in the ordinary course of business). For the
purposes of this definition, the term 'Asset Sale' shall not include (i) any
sale, issuance, conveyance, transfer, lease or other disposition of properties
or assets that is governed by the provisions described under '--Merger,
Consolidation or Sale of Assets' and (ii) any sale, issuance, conveyance,
transfer, lease or other disposition of properties or assets, whether in one
transaction or a series of related transactions, involving assets with a fair
market value determined by the Company to be not in excess of $1,000,000.
'Capital Stock' means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated) of capital stock, including each class of common stock and preferred
stock of such Person and (ii) with respect to any Person that is not a
corporation, any and all partnership or other equity interests.
'Capitalized Lease Obligation' means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP; and, for the purpose of this definition, the amount of
such obligation at any date shall be the capitalized amount thereof at such
date, determined in accordance with GAAP consistently applied.
'Cash Equivalents' means, at any time: (i) any evidence of Indebtedness
with a maturity of 180 days or less 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); (ii) certificates of deposit, time deposits,
Eurodollar time deposits and bankers' acceptances
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with a maturity of 180 days or less of any financial institution that is a
member of the Federal Reserve System having combined capital and surplus and
undivided profits at the time of investment of not less than $500,000,000; (iii)
commercial paper with a maturity of 180 days or less issued by a corporation
that is not an Affiliate of the Company organized under the laws of any state of
the United States or the District of Columbia and rated at the time of
investment at least A-1 by S&P or at least P-1 by Moody's or at least an
equivalent rating category of another nationally recognized securities rating
agency; and (iv) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or unconditionally guaranteed
by the government of the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of America,
in each case maturing within 180 days from the date of acquisition; provided
that the terms of such agreements comply with the guidelines set forth in the
Federal Financial Agreements of Depository Institutions With Securities Dealers
and Others, as adopted by the Comptroller of the Currency on October 31, 1985.
'Change of Control' means the occurrence of any of the following events:
(a) any 'person' or 'group' (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), excluding Permitted Holders, is or becomes the 'beneficial
owner' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a person shall be deemed to have 'beneficial ownership' of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total Voting Stock of the Company; (b) the Company consolidates
with, or merges with or into, another person or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets to any person, or any person consolidates with, or merges with or into,
the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is converted into or exchanged for cash,
securities or other property, other than any such transaction where (i) the
outstanding Voting Stock of the Company is converted into or exchanged for (1)
Voting Stock (other than Disqualified Capital Stock) of the surviving or
transferee corporation or (2) cash, securities and other property in an amount
which could be paid by the Company as a Restricted Payment under the Indenture
and (ii) immediately after such transaction no 'person' or 'group' (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding
Permitted Holders, is the 'beneficial owner' (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
'beneficial ownership' of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Stock of
the surviving or transferee corporation; or (c) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or persons whose
election as directors or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors of the
Company then in office.
'Common Stock' means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
'Consolidated EBITDA' means, with respect to any person for any period, (i)
the sum of, without duplication, the amount for such period, taken as a single
accounting period, of (a) Consolidated Net Income, (b) Consolidated Non-cash
Charges, (c) Consolidated Interest Expense, (d) Consolidated Income Tax Expense
and (e) all non-cash accruals or cash expenses relating to the New Equity
Incentive Plan (to the extent such accruals or expenses reduce net income), less
(ii) non-cash items increasing Consolidated Net Income (other than in the
ordinary course of business); provided, however, that if, during such period,
such person or any of its Restricted Subsidiaries shall have consummated any
Asset Sale or Asset Acquisition, Consolidated EBITDA for such person and its
Restricted Subsidiaries for such period shall be adjusted (in the manner set
forth in the definition of the term 'Consolidated Fixed Charge Coverage Ratio')
to give pro forma effect to the Consolidated EBITDA directly attributable to the
assets which are the subject of such Asset Sales or Asset Acquisitions during
such period.
'Consolidated Fixed Charge Coverage Ratio' means, with respect to any
person, the ratio of the aggregate amount of Consolidated EBITDA of such person
for the four full fiscal quarters for which financial information
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in respect thereof is available immediately preceding the date of the
transaction (the 'Transaction Date') giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period
being referred to herein as the 'Four Quarter Period') to the aggregate amount
of Consolidated Fixed Charges of such person for the Four Quarter Period. In
addition to and without limitation of the foregoing, for purposes of this
definition 'Consolidated EBITDA' and 'Consolidated Fixed Charges' shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to, without duplication, (a) the incurrence of any Indebtedness of
such person or any of its Restricted Subsidiaries, or the repayment of any
Indebtedness of such person or its Restricted Subsidiary (other than the
incurrence and repayment of Indebtedness under a revolving credit facility)
during the period commencing on the first day of the Four Quarter Period to and
including the Transaction Date (the 'Reference Period'), including, without
limitation, the incurrence of the Indebtedness giving rise to the need to make
such calculation, as if such incurrence occurred on the first day of the
Reference Period, and (b) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such person or one of its Restricted Subsidiaries
(including any person who becomes a Subsidiary as a result of the Asset
Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness) occurring during the Reference Period, as if such Asset Sale or
Asset Acquisition occurred on the first day of the Reference Period.
Furthermore, in calculating 'Consolidated Fixed Charges' for purposes of
determining the denominator (but not the numerator) of this 'Consolidated Fixed
Charge Coverage Ratio,' (i) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date, (ii) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Reference Period; (iii) notwithstanding clauses (i)
and (ii) above, interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by Interest Rate Agreements, shall be deemed
to have accrued at the rate per annum resulting after giving effect to the
operation of such agreements and (iv) interest on any Indebtedness incurred
pursuant to a revolving credit facility shall will be based on the average daily
principal amount outstanding under such facility during such Four Quarter
Period. In calculating the Consolidated Fixed Charge Coverage Ratio, and giving
pro forma effect to any incurrence of Indebtedness during a Reference Period,
pro forma effect shall be given to the use of proceeds thereof to permanently
repay or retire Indebtedness. If such person or any of its Restricted
Subsidiaries directly or indirectly guaranteed Indebtedness of a third person,
the above clauses shall give effect to the incurrence of such guaranteed
Indebtedness as if such person or such Restricted Subsidiary had directly
incurred or otherwise assumed such guaranteed Indebtedness.
'Consolidated Fixed Charges' means, with respect to any person for any
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense and (ii) the aggregate amount of cash dividends
and other distributions paid or accrued during such period in respect of
Disqualified Capital Stock of such person and its Restricted Subsidiaries on a
consolidated basis; provided, however, that if, during such period, such person
or any of its Restricted Subsidiaries shall have made any Asset Sales or Asset
Acquisitions, Consolidated Fixed Charges for such person and its Restricted
Subsidiaries for such period shall be adjusted (in the manner set forth in the
definition of the term 'Consolidated Fixed Charge Coverage Ratio') to give pro
forma effect to the Consolidated Fixed Charges directly attributable to the
assets which are the subject of such Asset Sales or Asset Acquisitions during
such period.
'Consolidated Income Tax Expense' means, with respect to any person for any
period, the provision for federal, state, local and foreign income taxes of such
person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP consistently applied.
'Consolidated Interest Expense' means, with respect to any person for any
period, without duplication, the (i) sum of (a) the interest expense of such
person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP consistently applied, including,
without limitation, (1) any amortization of debt discount, (2) the net cost
under Interest Rate Agreements (including any amortization of discounts), (3)
the interest portion of any deferred payment obligation which in accordance with
GAAP is required to be reflected on an income statement, (4) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, and (5) all accrued interest and (b) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by such person
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and its Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP consistently applied, minus, in the case of the Company,
(ii) any non-cash interest expense of the Company in respect of Permitted
Indebtedness incurred in connection with the New Equity Incentive Plan, minus
(iii) any amortization of deferred financing discount costs and expenses.
'Consolidated Net Income' means, with respect to any person, for any
period, the consolidated net income (or loss) of such person and its Restricted
Subsidiaries for such period as determined in accordance with GAAP consistently
applied adjusted, (A) to the extent included in calculating such net income, by
excluding, without duplication, (i) all extraordinary gains or losses (net of
fees and expenses relating to the transaction giving rise thereto) and the
non-recurring cumulative effect of accounting changes, (ii) the portion of net
income (or loss) of such person and its Restricted Subsidiaries allocable to
minority interests in unconsolidated persons to the extent that cash dividends
or distributions have not actually been received by such person or one of its
Restricted Subsidiaries, (iii) net income (or loss) of any person combined with
such person or one of its Restricted Subsidiaries on a 'pooling of interests'
basis attributable to any period prior to the date of combination, (iv) one time
unusual non-cash charges, (v) any gain or loss realized upon the termination of
any employee pension benefit plan, on an after-tax basis, (vi) gains or losses
in respect of any Asset Sales by such person or one of its Restricted
Subsidiaries (net of fees and expenses relating to the transaction giving rise
thereto), on an after-tax basis, (vii) the net income of any Restricted
Subsidiary of such person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is not at the
time permitted, directly or indirectly, by operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Subsidiary or its stockholders and
(viii) the amount of any Consolidated Non-cash Charges of such person
attributable to the purchase method of accounting treatment in accordance with
Accounting Principles Board Opinion No. 16 dated August 1970, entitled 'Business
Combinations' and (B) by adding, in the case of the Company, (i) without
duplication, capital contributions made by Lancer to the Company pursuant to the
Tax Sharing Agreement to the extent such capital contributions represent a
return to the Company of amounts which had been included as income taxes in
computing the Company's Consolidated Net Income and (ii) for purposes of
determining the Company's ability to make Restricted Payments pursuant to the
'--Limitation on Restricted Payments' covenant, 100% (without duplication) of
all non-cash accruals or cash expenses relating to the New Equity Incentive Plan
(to the extent such accruals or expenses reduce net income.)
'Consolidated Non-cash Charges' means, with respect to any person for any
period, the aggregate depreciation, amortization and other non-cash expenses
(including, without limitation, non-cash reserves and non-cash charges) of such
person and its Restricted Subsidiaries reducing Consolidated Net Income of such
person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP consistently applied.
'Credit Agreement' means (a) the GE Credit Agreement, together with all
amendments, documents and instruments from time to time delivered in connection
with the GE Credit Agreement (including, without limitation, any guaranty
agreements and security documents), as in effect on the date hereof and, subject
to the proviso to the next succeeding sentence, as the GE Credit Agreement and
such other agreements, documents and instruments may be amended, amended and
restated, renewed, extended, restructured, supplemented or otherwise modified
from time to time, and (b) any credit agreement, loan agreement, note purchase
agreement, indenture or other agreement, document or instrument refinancing,
refunding or otherwise replacing the GE Credit Agreement or any other agreement
deemed a Credit Agreement under clause (a) or (b) hereof, whether or not with
the same agent, trustee, representative lenders or holders, and, subject to the
proviso to the next succeeding sentence, irrespective of any changes in the
terms and conditions thereof. Without limiting the generality of the foregoing,
the term 'Credit Agreement' shall include any amendment, amendment and
restatement, renewal, extension, restructuring, supplement or modification to
any Credit Agreement and all refundings, refinancings and replacements of any
Credit Agreement, including any agreement (i) extending the maturity of any
Indebtedness incurred thereunder or contemplated thereby, (ii) adding or
deleting borrowers or guarantors thereunder, so long as borrowers and issuers
include one or more of the Company and its Subsidiaries and their respective
successors and assigns, and (iii) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder, provided that on the date
thereof such Indebtedness would not be prohibited under the Exchange Indenture.
'Default' means any event that is, or after notice or passage of time or
both would be, an Event of Default.
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'Designated Senior Debt' means (i) all Senior Debt under the Credit
Agreement, (ii) Indebtedness in respect of the Existing Notes, and (iii) any
other Senior Debt which (a) at the time of determination exceeds $10,000,000 in
aggregate principal amount and (b) is specifically designated by the Company in
the instrument evidencing such Senior Debt as 'Designated Senior Debt' by the
Company.
'Disqualified Capital Stock' means any Capital Stock (other than the
Existing Preferred Stock or the Private Exchange Preferred Stock) which, 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 (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof, in whole or in part, on
or prior to (i) the mandatory redemption date of the New Preferred Stock, in the
case of the New Preferred Stock or (ii) the final maturity date of the Exchange
Debentures, in the case of the Exchange Debentures. Without limitation of the
foregoing, Disqualified Capital Stock shall be deemed to include (i) any
Preferred Capital Stock of a Restricted Subsidiary of the Company, (ii) any
Preferred Capital Stock of the Company, with respect to either of which, under
the terms of such Preferred Capital Stock, by agreement or otherwise, such
Restricted Subsidiary or the Company is obligated to pay current dividends or
distributions in cash during the period prior to the redemption date of the New
Preferred Stock or the maturity date of the Exchange Debentures; and (iii) as
long as the New Preferred Stock remains outstanding, Senior Stock and Parity
Stock. Notwithstanding anything in this definition to the contrary, Preferred
Capital Stock of the Company or any Restricted Subsidiary thereof that is issued
with the benefit of provision requiring a change of control offer to be made for
such Preferred Capital Stock in the event of a change of control of the Company
or Restricted Subsidiary, which provisions have substantially the same effect as
the provisions of the Certificate of Designation and Exchange Indenture
described under '--Change of Control,' shall not be deemed to be Disqualified
Capital Stock solely by virtue of such provisions.
'Exchange Date' means the date of original issuance of the Exchange
Debentures.
'Exchange Debentures' means the Company's 11 1/4% Subordinated Exchange
Debentures due 2009 issuable in exchange for the New Preferred Stock.
'Existing Indenture' means the indenture pursuant to which the Existing
Notes were issued.
'Existing Notes' means the Company's 11 3/8% Senior Subordinated Notes due
2001.
'Existing Preferred Stock' means the Company's unregistered 11 1/4%
Cumulative Exchangeable Preferred Stock issued on or about the Issue Date.
'Event of Default' has the meaning set forth under '--Events of Default'
herein.
'GAAP' means generally accepted accounting principles in the United States
set forth in the Statements of Financial Accounting Standards and
Interpretations, Accounting Principles Board Opinions and AICPA Accounting
Research Bulletins which are applicable as of the Issue Date.
'GE Credit Agreement' means the Credit Agreement, dated as of July 7, 1993,
as amended from time to time, among the Company, T-H Licensing, Inc., as
guarantor, the lenders named therein and General Electric Capital Corporation,
as agent for such lenders.
'Guarantee' has the meaning set forth under '--Limitation on Guarantees by
Restricted Subsidiaries' herein.
'guarantee' means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement. direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
'Guarantor' means the issuer at any time of a Guarantee (so long as such
Guarantee remains outstanding).
'incur' means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording (other than previously recorded), as required
pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on
the balance sheet of such person (and 'incurrence,' 'incurred,' 'incurable,' and
'incurring' shall have meanings correlative to the foregoing);
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provided that a change in GAAP that results in an obligation of such Person that
exists at such time becoming Indebtedness shall not be deemed an incurrence of
such Indebtedness.
'Indebtedness' means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such person in
connection with any letters of credit, banker's acceptance or other similar
credit transaction, (b) all obligations of such person evidenced by bonds,
notes, debentures or other similar instruments, (c) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such person, (e) all Indebtedness referred to in the preceding
clauses of other persons and all dividends of other persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such person, even though such person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligations being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (f) all guarantees of Indebtedness referred to in this
definition by such person, (g) all Disqualified Capital Stock valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued dividends, (h) all obligations under or in respect of currency exchange
contracts and Interest Rate Agreements of such person and (i) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (a) through (h) above. For
purposes hereof, (x) the 'maximum fixed repurchase price' of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined in good faith by the
board of directors of the issuer of such Disqualified Capital Stock, and (y)
Indebtedness is deemed to be incurred pursuant to a revolving credit facility
each time an advance is made thereunder; provided, however, that, with respect
to the Company, Indebtedness referred to in this definition shall exclude all
obligations of the Company to Lancer under the Tax Sharing Agreement and any
liability for federal, state, local or other taxes owed or owing by the Company.
'Interest Rate Agreement' means the obligations of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
'Investment' means, with respect to any person, any direct or indirect loan
or other extension of credit, guarantee or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, any other person. For the purpose of
making any calculations under the Exchange Indenture (i) Investment shall
include the fair market value of the net assets of any Subsidiary at the time
that such Subsidiary is designated an Unrestricted Subsidiary and shall exclude
the fair market value of the net assets of any Unrestricted Subsidiary that is
designated a Restricted Subsidiary and (ii) any property transferred to or from
an Unrestricted Subsidiary shall be valued at fair market value at the time of
such transfer; provided that in each case, the fair market value of an asset or
property shall be as determined by the Board of Directors of the Company in good
faith. For the purpose of the Exchange Indenture, the change in designation of a
Restricted Subsidiary to an Unrestricted Subsidiary shall be an Investment.
'Investments' shall exclude extensions of trade credit on commercially
reasonable terms consistent with the normal course of business of the Company
and the Restricted Subsidiaries.
'Issue Date' means the date of original issuance of the Existing Preferred
Stock.
'Lancer' means Lancer Industries Inc., a Delaware corporation.
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'Lien' means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A person shall be deemed to own subject to a Lien any property which such
person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.
'Moody's' means Moody's Investors Services, Inc. and its successors.
'Net Cash Proceeds' means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary of the Company) net of
(i) brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid and which have been paid, or
amounts required to be pledged and which are pledged to secure Indebtedness owed
to any person (other than the Company or any Restricted Subsidiary of the
Company) owning a beneficial interest in the assets subject to the Asset Sale
(which, in the case of a Lien, is being pledged to permanently reduce
Indebtedness secured by such Lien) and (iv) appropriate amounts to be provided
by the Company or any Restricted Subsidiary of the Company, as the case may be,
as a reserve required in accordance with GAAP consistently applied against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary of the Company, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an officers' certificate delivered to the Trustee.
'New Equity Incentive Plan' means any long-term incentive compensation plan
adopted by the Company covering the Company's executives and selected other key
management employees.
'New Preferred Stock' means the Company's 11 1/4% Cumulative Exchangeable
Preferred Stock, par value $.01 per share, and as described in '--The New
Preferred Stock.'
'Non-Payment Event of Default' means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Debt.
'Obligations' means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing, or otherwise relating to, any
Indebtedness.
'Payment Default' means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in connection
with Designated Senior Debt.
'Permitted Holders' means (i) Lancer and its Affiliates and (ii) any
'group' (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
comprised solely of Lancer and its Affiliates (it being understood that a
'group' that includes any other Person shall not be a Permitted Holder).
'Permitted Indebtedness' means each and all of the following:
(1) Indebtedness of the Company or any Guarantor under the Credit
Agreement in an aggregate principal amount at any time outstanding not to
exceed the greater of (x) $58,000,000, less the amount of any scheduled
principal payments actually made (excluding, without limitation, any
prepayments required to be made based upon the Company's excess cash flow)
or the amount of any other payments which are applied or credited against
scheduled principal payments on the date such scheduled principal payments
would otherwise have been made (except to the extent refinanced under a
replacement Credit Agreement at the time of the respective repayment) by
the Company or any Guarantor in respect of any term loans under the Credit
Agreement and the amount by which the aggregate commitment under any
revolving credit facility under the Credit Agreement at any time has been
permanently reduced to the extent that any repayments required to be made
in connection with effecting such permanent reduction have been made (it
being understood that to the extent a reduction in commitments under any
revolving credit facility under the Credit Agreement arises solely in
connection with a refinancing of outstanding amounts under such revolving
credit facility with borrowings under a replacement Credit Agreement and
the commitments under
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the Credit Agreement are thereby replaced with commitments under such
replacement Credit Agreement such a permanent reduction shall not have
occurred); provided, however, that the Company or any Guarantor shall be
permitted to incur an additional amount of Indebtedness not to exceed
$15,000,000 under its revolving credit facility if the borrowing base
requirement under such facility permits such incurrence and (y) the amount
equal to the sum of 80% of the net book value of accounts receivable and
60% of the net book value of inventory (determined on a first-in-first-out
basis) of the Company and its Restricted Subsidiaries on a consolidated
basis at the time such Indebtedness is incurred, as determined in
accordance with GAAP;
(2) Indebtedness of the Company and its Restricted Subsidiaries
pursuant to the Existing Notes and the Existing Indenture;
(3) Indebtedness of the Company and its Restricted Subsidiaries
pursuant to the Exchange Debentures and the Exchange Indenture;
(4) Indebtedness of the Company outstanding on the date of the
Exchange Indenture;
(5) Interest Rate Agreements of the Company or any Guarantor covering
Indebtedness of the Company or any such Guarantor; provided, however, that
(i) any Indebtedness to which any such Interest Rate Agreement relate bears
interest at fluctuating interest rates and is otherwise permitted to be
incurred under this covenant and (ii) the notional amount of any such
Interest Rate Agreement does not exceed the principal amount of the
Indebtedness to which such Interest Rate Agreement relates;
(6) Indebtedness of a Wholly-Owned Restricted Subsidiary of the
Company (x) to the Company or (y) to another Wholly-Owned Restricted
Subsidiary of the Company; provided, however, that any such Indebtedness of
a Wholly-Owned Restricted Subsidiary of the Company that is not a Guarantor
is not subordinated in right of payment to any other Indebtedness of such
Restricted Subsidiary;
(7) Indebtedness of the Company to a Wholly-Owned Restricted
Subsidiary of the Company which is unsecured and, unless owing to a
Guarantor, subordinated in right of payment from and after such time as the
Exchange Debentures shall become due and payable (whether at a Stated
Maturity, by acceleration or otherwise) to the payment and performance of
the Company's obligations under the Exchange Indenture and the Exchange
Debentures; provided, however, that any subsequent issuance or transfer of
Capital Stock that results in such Wholly-Owned Restricted Subsidiary
ceasing to be such, or any subsequent transfer of such Indebtedness (other
than to the Company or a Wholly-Owned Restricted Subsidiary) will be
deemed, in each case, to constitute the issuance of such Indebtedness by
the Company or of such Indebtedness by such Wholly-Owned Restricted
Subsidiary;
(8) Indebtedness of the Company to T-H Licensing arising in connection
with the loans described in clause (vi) of the '--Limitation on
Transactions With Affiliates' covenant.
(9) Indebtedness of the Company or any Guarantor representing
Capitalized Lease Obligations so long as such Indebtedness does not exceed
6.0% of the amount of the gross property, plant and equipment of the
Company and its Restricted Subsidiaries determined on a consolidated basis,
as shown on the balance sheet of the Company as of the end of the most
recent fiscal quarter, in accordance with GAAP consistently applied;
(10) Indebtedness of the Company or any Restricted Subsidiary arising
from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business; provided, that such Indebtedness is extinguished within 5
business days of incurrence;
(11) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of purchase
price adjustments in connection with the acquisition or disposition of
assets permitted under the Exchange Indenture;
(12) Following the Exchange Date, any Indebtedness or other
obligations of the Company issued to participants in the New Equity
Incentive Plan, provided that such Indebtedness is subordinated in right of
payment to the Exchange Debentures;
(13) Indebtedness of the Company or any Guarantor in addition to that
described in clauses (1) through (12) above not to exceed $20,000,000
outstanding at any time in the aggregate, which Indebtedness may be
incurred under the Credit Agreement; or
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(14) (i) Indebtedness of the Company or any Guarantor, the proceeds of
which are used solely to refinance (whether by amendment, renewal,
extension or refunding) Indebtedness of the Company (including all or a
portion of the Exchange Debentures) or any of its Restricted Subsidiaries
and (ii) Indebtedness of any Restricted Subsidiary of the Company the
proceeds of which are used solely to refinance (whether by amendment,
renewal, extension or refunding) Indebtedness of such Restricted
Subsidiary; provided, however, that (A) the principal amount of
Indebtedness incurred pursuant to this clause (14) (or, if such
Indebtedness provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration of the maturity
thereof, the original issue price of such Indebtedness) shall not exceed
the sum of the principal amount of Indebtedness so refinanced (or, if the
Indebtedness so refinanced provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration of
the maturity thereof, the original issue price of such Indebtedness plus
any accretion value attributable thereto since the original issuance of
such Indebtedness) plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of such Indebtedness
or the amount of any premium reasonably determined by the Company as
necessary to accomplish such refinancing by means of a tender offer or
privately negotiated purchase, plus the amount of expenses in connection
therewith and (B) in the case of any refinancing of Indebtedness that is
not Senior Debt, (1) such new Indebtedness is made subordinated to the
Exchange Debentures in the same manner and at least to the same extent as
the Indebtedness being refinanced and (2) such new Indebtedness has a
Weighted Average Life to Maturity and final Stated Maturity of principal
that exceeds the Weighted Average Life to Maturity and final Stated
Maturity of principal, respectively, of the Indebtedness being refinanced.
'Permitted Investment' means any of the following: (i) Investments by the
Company or any Wholly-Owned Restricted Subsidiary of the Company in another
person, if as a result of such Investment such other person is merged or
consolidated with or into, or transfers or conveys all or substantially all of
its assets to the Company or such Wholly-Owned Restricted Subsidiary; (ii)
Investments in obligations of, or guaranteed by, the United States government or
any agency or political subdivision thereof, maturing within one year of the
date of purchase; (iii) Investments in commercial paper issued by corporations,
each of which shall have a consolidated net worth of at least $100,000,000
maturing within 180 days from the date of the original issue thereof, and rated
'P-1' or better by Moody's or 'A-1' or better by S&P or an equivalent rating or
better by any other nationally recognized securities rating agency; (iv)
Investments in certificates of deposit issued or acceptances accepted by or
guaranteed by any bank or trust company organized under the laws of the United
States of America or any state thereof or the District of Columbia, in each case
having capital, surplus and undivided profits totaling more than $100,000,000
maturing within one year of the date of purchase; (v) Investments representing
Capital Stock or obligations issued to the Company or any of its Restricted
Subsidiaries in settlement claims against any other person by reason of a
composition or readjustment of debt or a reorganization of any debtor of the
Company or of such Restricted Subsidiary; (vi) Investments in Cash Equivalents;
(vii) loans and advances to officers of the Company and its Restricted
Subsidiaries made in compliance with clause (v) of the second paragraph under
the covenant '--Limitation on Transactions with Affiliates' described above;
(viii) Investments by the Company or a Wholly-Owned Restricted Subsidiary in the
Capital Stock of a Wholly-Owned Restricted Subsidiary; (ix) money market funds
organized under the laws of the United States of America or any state thereof
that invest substantially all of their assets in any of the types of investments
described in clause (ii), (iii), (iv) or (vi) above; (x) Investments in any of
the Exchange Debentures; (xi) receivables owing to the Company of any Restricted
Subsidiary created in the ordinary course of business, (xii) Investments
consisting of Indebtedness permitted under clause (5) of the definition of
Permitted Indebtedness; and (xiii) Investments in the aggregate amount of
$10,000,000 at any time outstanding.
'Permitted Liens' means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or any of its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(b) security for the payment of workers' compensation, unemployment
insurance, other social security benefits or other insurance-related
obligations (including, but not limited to, in respect of deductibles,
self-insured retention amounts and premiums and adjustments thereto);
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(c) deposits or pledges in connection with bids, tenders, leases and
contracts (other than contracts for the payment of money);
(d) zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, restrictions on the use of
property or minor irregularities of title (and with respect to leasehold
interests, mortgages, obligations, liens and other encumbrances incurred,
created, assumed or permitted to exist and arising by, through or under a
landlord or owner of the leased property, with or without consent of the
lessee), none of which interferes in any material respect with the ordinary
conduct of the business of the Company or any of its Subsidiaries or
materially impairs the use of any parcel of property;
(e) deposits or pledges to secure public or statutory obligations,
progress payments, surety and appeal bonds or other obligations of like
nature incurred in the ordinary course of business;
(f) certain surveys, exceptions, title defects, encumbrances,
easements, reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph or telephone lines and other similar purposes or
zoning or other restrictions as to the use of real property not materially
interfering with the ordinary conduct of the business of the Company and
its Subsidiaries taken as a whole; or
(g) Liens arising by operation of law in favor of landlords,
mechanics, carriers, warehousemen, materialmen, laborers, employees,
suppliers or the like, incurred in the ordinary course of business for sums
which are not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection
thereof.
'Person' means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
'Preferred Capital Stock' of any Person means any Capital Stock of such
Person that has preferential rights to any other Capital Stock of such Person
with respect to dividends or redemption or upon liquidation.
'Private Exchange Preferred Stock' means a series of the Company's
exchangeable preferred stock having terms identical in all material respects to
the Existing Preferred Stock.
'Qualified Capital Stock' means any Capital Stock that is not Disqualified
Capital Stock.
'Redeemable Dividend' means, for any dividend or distribution with regard
to Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
issuer of such Disqualified Capital Stock.
'Restricted Payment' means the following:
(A) For purposes of the Exchange Indenture, (i) the declaration or
payment of any dividend or the making of any other distribution (other than
dividends or distributions payable in Qualified Capital Stock) on shares of
the Company's Capital Stock, (ii) the purchase, redemption, retirement or
other acquisition for value of any Capital Stock of the Company, or any
warrants, rights or options to acquire shares of Capital Stock of the
Company, other than through the exchange of such Capital Stock or any
warrants, rights or options to acquire shares of any class of such Capital
Stock for Qualified Capital Stock or warrants, rights or options to acquire
Qualified Capital Stock, (iii) the making of any principal payment on, or
the purchase, defeasance, redemption, prepayment, decrease or other
acquisition or retirement for value, prior to any scheduled final maturity,
scheduled repayment or scheduled sinking fund payment, of, any Indebtedness
of the Company or its Subsidiaries that is subordinated or junior in right
of payment to the Exchange Debentures, and (iv) the making of any
Investment (other than a Permitted Investment).
(B) For purposes of the Certificate of Designation, (i) the
declaration or payment of any dividend or the making of any other
distribution (other than dividends or distributions payable in Qualified
Capital Stock) on shares of the Company's Parity Stock or Junior Stock,
(ii) any purchase, redemption, retirement or other acquisition for value of
any Parity Stock or Junior Stock of the Company, or any warrants, rights or
options to acquire shares of Parity Stock or Junior Stock of the Company,
other than through the exchange of such Parity Stock or Junior Stock or any
warrants, rights or options to acquire shares of any class of such Parity
Stock or Junior Stock for Qualified Capital Stock or warrants, rights or
options to acquire Qualified Capital Stock, and (iii) the making of any
Investment (other than a Permitted Investment).
'Restricted Subsidiary' means (i) T-H Licensing, Inc. and (ii) any other
Subsidiary of the Company other than an Unrestricted Subsidiary.
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'S&P' means Standard & Poor's Corporation and its successors.
'Senior Debt' means the principal of, premium, if any, and interest on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness is pari
passu with or subordinated in right of payment to the Exchange Debentures.
Without limiting the generality of the foregoing, 'Senior Debt' shall also
include (i) all obligations of the Company, whether outstanding on the Issue
Date or thereafter created, incurred or assumed, under or in respect of the
Credit Agreement, whether for principal, interest (including, without
limitation, interest accruing after the filing of a petition initiating any
proceeding under any state or federal bankruptcy law whether or not such
interest is an allowable claim), reimbursement of amounts drawn under letters of
credit issued or arranged for pursuant thereto, guarantees in respect thereof,
and all charges, fees, expenses (including reasonable fees and expenses of
counsel) and other amounts in respect of the Credit Agreement incurred by or
owing to the lenders under the Credit Agreement or their representative, agent
or trustee, and all other obligations of the Company incurred under or in
respect of the Credit Agreement (including, without limitation, any Interest
Rate Agreements and in respect of premiums, indemnities or otherwise, and all
indebtedness under the Credit Agreement which is disallowed, avoided or
subordinated pursuant to Section 548 of Title 11, United States Code or any
applicable state fraudulent conveyance law) and (ii) all obligations of the
Company under or in respect of the Existing Notes and the Existing Indenture.
Notwithstanding the foregoing, 'Senior Debt' shall not include (a) Indebtedness
evidenced by the Exchange Debentures, (b) Indebtedness that is expressly
subordinate or junior in right of payment to any Senior Debt of the Company, (c)
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is by its terms without
recourse to the Company, (d) any repurchase, redemption or other obligation in
respect of Disqualified Capital Stock, (e) to the extent it might constitute
Indebtedness, amounts owing for goods, materials or services purchased in the
ordinary course of business or consisting of trade payables or other current
liabilities (other than any current liabilities owing under the Credit Agreement
or the current portion of any long-term Indebtedness which would constitute
Senior Debt but for the operation of this clause (e)), (f) to the extent it
might constitute Indebtedness, amounts owed by the Company for compensation to
employees or for services rendered to the Company, (g) to the extent it might
constitute Indebtedness, any liability for federal, state, local or other taxes
owed or owing by the Company, (h) Indebtedness of the Company to a Subsidiary of
the Company or any other Affiliate of the Company or any of such Affiliate's
Subsidiaries and (i) that portion of any Indebtedness which at the time of
issuance is issued in violation of the Exchange Indenture (but, as to any such
Indebtedness, no such violation of the Exchange Indenture shall be deemed to
exist for purposes of this clause (i) if the holder(s) of such Indebtedness or
their representative or the Company shall have furnished to the Trustee an
opinion of independent counsel, unqualified in all material respects, addressed
to the Trustee (which legal counsel may, as to matters of fact, rely upon an
officer's certificate of the Company) to the effect that the incurrence of such
Indebtedness does not violate the provisions of the Exchange Indenture).
'Significant Subsidiary' shall have the same meaning as in Rule 1.02(v) of
Regulation S-X under the Securities Act, provided that each Guarantor shall in
all events be deemed a Significant Subsidiary.
'Stated Maturity' means, when used with respect to any Exchange Debenture
or any installment of interest thereon, the date specified in such Exchange
Debenture as the fixed date on which any principal of such Exchange Debenture or
such installment of interest is due and payable, and when used with respect to
any other Indebtedness or any installments of interest thereon, means any date
specified in the instrument governing such Indebtedness as the fixed date on
which the principal of such Indebtedness, or such installment of interest
thereon, is due and payable.
'Subsidiary', with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
'Tax Sharing Agreement' means the Tax Sharing Agreement, dated as of July
18, 1990, between the Company and Lancer, as amended from time to time.
'Unrestricted Subsidiary' means a Subsidiary of the Company designated as
such by the Company (a) no portion of the Indebtedness or any other obligation
(contingent or otherwise) of which (i) is guaranteed by the
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Company or any other Subsidiary of the Company, (ii) is recourse to or obligates
the Company or any other Subsidiary of the Company in any way or (iii) subjects
any property or asset of the Company or any other Subsidiary of the Company,
directly or indirectly, contingently or otherwise, to the satisfaction thereof,
(b) which has no Indebtedness or any other obligation that, if in default in any
respect (including a nonpayment default), would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its Stated Maturity,
(c) with which the Company or any other Subsidiary of the Company has no
contract, agreement, arrangement, understanding or is subject to an obligation
of any kind, whether written or oral, other than a transaction on terms no less
favorable to the Company or any other Subsidiary of the Company than those which
might be obtained at the time from persons who are not Affiliates of the
Company, and (d) with which neither the Company nor any other Subsidiary of the
Company has any obligation (other than by the terms of the Exchange Indenture)
(i) to subscribe for additional shares of Capital Stock or other equity interest
therein or (ii) to maintain or preserve such Subsidiary's financial condition or
to cause such Subsidiary to achieve certain levels of operating results;
provided, however, that in no event shall any Guarantor be an Unrestricted
Subsidiary. The Company may designate an Unrestricted Subsidiary as a Restricted
Subsidiary by written notice to the Trustee under the Exchange Indenture;
provided, however, that the Company shall not be permitted to designate any
Unrestricted Subsidiary as a Restricted Subsidiary unless (A) after giving pro
forma effect to such designation, the Company would be permitted to incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) under the
Exchange Indenture and (B) any Indebtedness or Liens of such Unrestricted
Subsidiary would be permitted to be incurred by a Restricted Subsidiary of the
Company under the Exchange Indenture. A designation of an Unrestricted
Subsidiary as a Restricted Subsidiary may not thereafter be rescinded.
'Voting Stock' means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
'Weighted Average Life to Maturity' means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
'Wholly-Owned Restricted Subsidiary' means any Restricted Subsidiary of the
Company of which 100% of the outstanding Capital Stock is owned by the Company
or another Wholly-Owned Restricted Subsidiary of the Company. For purposes of
this definition, any directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Restricted Subsidiary.
BOOK-ENTRY, DELIVERY AND FORM
The New Preferred Stock initially will be represented by a single permanent
global certificate in definitive, fully registered form (the 'Global
Certificate'). The Global Certificate will be deposited with, or on behalf of,
The Depository Trust Company, New York, New York ('DTC') and registered in the
name of a nominee of DTC.
The Global Certificate. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Certificate, DTC or its
custodian will credit, on its internal system, the number of shares of New
Preferred Stock of the individual beneficial interests represented by such
global securities to the respective accounts of persons who have accounts with
such depositary and (ii) ownership of beneficial interests in the Global
Certificate will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of the
shares of New Preferred Stock, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the shares of New Preferred Stock
represented by such Global Certificate for all purposes. No beneficial owner of
an interest in the
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Global Certificate will be able to transfer that interest except in accordance
with DTC's procedures, in addition to those procedures provided for in the
Certificate of Designation.
Payments of the liquidation preference or redemption price and dividends on
(including Additional Dividends) the Global Certificate will be made to DTC or
its nominee, as the case may be, as the registered owner thereof. Neither the
Company nor the Transfer Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Certificate or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
the liquidation preference, redemption price or dividends (including Additional
Dividends) in respect of the Global Certificate, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Certificate as shown on the
records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in the Global Certificate held
through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Security for any reason,
including to sell shares of New Preferred Stock to persons in states that
require physical delivery of the Certificate, or to pledge such securities, such
holder must transfer its interest in the Global Certificate, in accordance with
the normal procedures of DTC and with the procedures set forth in the
Certificate of Designation.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of New Preferred Stock (including the presentation of shares
of New Preferred Stock for exchange as described below) only at the direction of
one or more participants to whose account the DTC interests in the Global
Certificate are credited and only in respect of such shares of New Preferred
Stock as to which such participant or participants has or have given such
direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a 'clearing corporation' within the meaning of the
Uniform Commercial Code and a 'Clearing Agency' registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
('indirect participants').
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificate among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Transfer Agent will have
any obligations under the rules and procedures governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Certificate and a successor depositary
is not appointed by the Company within 90 days, Certificated Securities will be
issued in exchange for the Global Certificate.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain U.S. federal income tax
consequences of the exchange of the Existing Preferred Stock for the New
Preferred Stock and the ownership and disposition of the New Preferred Stock and
the Exchange Debentures by U.S. Holders, as defined below, acquiring the New
Preferred Stock offered hereby on original issue. This summary is based on the
Code, Treasury Regulations, Internal Revenue Service ('IRS') rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time by legislative, judicial or administrative action. Any such
changes may be applied retroactively in a manner that could adversely affect a
U.S. Holder of the New Preferred Stock or the Exchange Debentures. This summary
discusses only New Preferred Stock and Exchange Debentures held as capital
assets within the meaning of section 1221 of the Code. It does not discuss all
of the tax consequences that may be relevant to a U.S. Holder in light of such
holder's particular circumstances or to holders subject to special rules, such
as certain financial institutions, insurance companies, tax-exempt
organizations, dealers in securities, non-U.S. persons and taxpayers subject to
alternative minimum tax.
Although the characterization of an instrument as indebtedness or equity
involves a facts and circumstances determination that cannot be predicted with
certainty, the Company intends to treat the New Preferred Stock as equity and
the Exchange Debentures as indebtedness for U.S. federal income tax purposes and
the balance of this summary is based on the assumption that such treatment will
be respected. This summary is not binding on the IRS or the courts and there can
be no assurance that the IRS will not take a different position concerning the
tax consequences of the purchase, ownership or disposition of the New Preferred
Stock or the Exchange Debentures.
As used herein, the term 'U.S. Holder' means a beneficial owner of the New
Preferred Stock or the Exchange Debentures that is for U.S. federal income tax
purposes (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in or under the laws of the United States or
any political subdivision thereof or (iii) an estate or trust that is not a
foreign estate or trust.
PROSPECTIVE HOLDERS OF THE NEW PREFERRED STOCK ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS WITH REGARD TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE
EXCHANGE OF THE EXISTING PREFERRED STOCK FOR THE NEW PREFERRED STOCK AND THE
OWNERSHIP AND DISPOSITION OF THE NEW PREFERRED STOCK AND THE EXCHANGE
DEBENTURES, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR GIFT TAX LAWS,
THE LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION, ANY CHANGES IN APPLICABLE
TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
EXCHANGE OFFER
The exchange of the Existing Preferred Stock for the New Preferred Stock
should not constitute a taxable exchange of the Existing Preferred Stock. As a
result, the New Preferred Stock should have the same issue price (and adjusted
issue price immediately after the exchange) and the same amount of Preferred
Stock Discount (as defined below), if any, as the Existing Preferred Stock, and
each U.S. Holder should have the same adjusted basis and holding period in the
New Preferred Stock as it had in the Existing Preferred Stock immediately before
the exchange. The following discussion assumes that the exchange of the Existing
Preferred Stock for the New Preferred Stock pursuant to the Exchange Offer will
not be treated as an exchange for U.S. federal income tax purposes, and that the
Existing Preferred Stock and the New Preferred Stock will be treated as the same
security for U.S. federal income tax purposes.
DISTRIBUTIONS ON THE NEW PREFERRED STOCK
Distributions on the New Preferred Stock made out of the Company's current
or accumulated earnings and profits, as determined under U.S. federal income tax
principles, whether paid in cash or in additional shares of New Preferred Stock
('Dividend Shares'), will be taxable to a U.S. Holder as ordinary dividend
income in an amount equal to such cash or the fair market value of such Dividend
Shares on the date of distribution. The amount of the Company's earnings and
profits at any particular time depends on past and future actions and financial
performance of the Company and, therefore, no assurance can be given that any
distributions on the New Preferred Stock will be treated as dividends for U.S.
federal income tax purposes.
To the extent, if any, that the amount of any such distribution is not made
out of the Company's current or accumulated earnings and profits, as determined
under U.S. federal income tax principles, it will first reduce the U.S. Holder's
adjusted tax basis in the New Preferred Stock and, to the extent such
distribution exceeds such
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adjusted tax basis, will be treated as capital gain and will be long-term
capital gain if the U.S. Holder's holding period for such New Preferred Stock
exceeds one year. A U.S. Holder's initial tax basis in any Dividend Shares
distributed by the Company generally will equal the fair market value of such
Dividend Shares on the date of their distribution. The holding period for such
Dividend Shares will commence with their distribution and will not include the
U.S. Holder's holding period for outstanding shares of New Preferred Stock with
respect to which such Dividend Shares were distributed. For purposes of the
remainder of this discussion, the term 'dividend' means a distribution made out
of current or accumulated earnings and profits, unless the context indicates
otherwise.
Under current law, dividends received by corporate U.S. Holders of the
Company generally will be eligible for the 70% dividends received deduction
under section 243 of the Code. There are, however, many exceptions and
restrictions relating to the availability of the dividends received deduction,
including restrictions relating to the holding period of the stock under section
246(c) of the Code and debt-financed portfolio stock under section 246A of the
Code.
In addition, under section 1059 of the Code, the tax basis of any shares of
New Preferred Stock that have been held by a corporate U.S. Holder for two years
or less (ending on the earliest of the date on which the Company declares,
announces or agrees to the payment of an actual or constructive dividend) is
reduced (but not below zero) by the non-taxed portion of an 'extraordinary
dividend' for which a dividends received deduction is allowed. To the extent
that a corporate U.S. Holder's tax basis in its New Preferred Stock would have
been reduced below zero but for the foregoing limitation, such holder must
increase the amount of gain recognized on the ultimate sale or exchange of such
New Preferred Stock. Generally, an 'extraordinary dividend' is a dividend that
(i) equals or exceeds 5% of the U.S. Holder's adjusted basis in the New
Preferred Stock (treating all dividends having ex-dividend dates within an
85-day period as a single dividend) or (ii) exceeds 20% of the U.S. Holder's
adjusted basis in the New Preferred Stock (treating all dividends having
ex-dividend dates within a 365-day period as a single dividend). If an election
is made by the U.S. Holder, under certain circumstances, the fair market value
of the New Preferred Stock as of the day before the ex-dividend date may be
substituted for such U.S. Holder's basis in applying these tests.
Special rules exist with respect to extraordinary dividends for 'qualified
preferred dividends,' which are defined in the Code as any fixed dividends
payable with respect to any share of stock which (i) provides for fixed
preferred dividends payable not less frequently than annually and (ii) is not in
arrears as to dividends at the time the U.S. Holder acquires such stock. A
qualified preferred dividend does not include any dividend payable with respect
to any share of stock if the actual rate of return of such stock for the period
the stock has been held by the U.S. Holder receiving the dividend exceeds 15%.
Corporate U.S. Holders are urged to consult their tax advisors regarding
the extent, if any, to which the exceptions and restrictions and rules under
section 1059 of the Code apply to the purchase, ownership and disposition of the
New Preferred Stock.
The Clinton Administration's Budget Proposal for Fiscal Year 1998, released
February 6, 1997 (the 'Administration's Proposal'), proposed certain tax law
changes that would, among other things, (i) reduce the dividends received
deduction available to corporate U.S. Holders from 70% to 50% of dividends
received with respect to dividends paid or accrued more than 30 days after the
date of enactment of legislation, (ii) require a corporate U.S. Holder to
satisfy the holding period required by section 246(c) of the Code immediately
before or immediately after the U.S. Holder becomes entitled to receive any
dividend with respect to dividends paid or accrued more than 30 days after the
date of enactment of legislation and (iii) require immediate recognition of gain
under section 1059 of the Code to the extent a corporate U.S. Holder's tax basis
with respect to which any extraordinary dividend is received is reduced below
zero with respect to distributions after September 13, 1995. It is not clear
whether such proposals will be enacted or, if enacted, whether they will be
enacted in the form proposed.
In addition, the Administration's Proposal includes a provision that would
eliminate the dividends received deduction for dividends on limited term
preferred stock issued more than 30 days after the date of enactment of
legislation. For this purpose, limited term preferred stock generally includes
any preferred stock if the issuer or a related person is required to redeem or
purchase the stock within 20 years of the issue date. It is not clear whether
such proposal will be enacted or, if enacted, whether it will be enacted in the
form proposed. However, if the proposal to eliminate the dividends received
deduction on limited term preferred stock is enacted in its current form, the
dividends received deduction may be eliminated with respect to Dividend Shares
issued more than
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<PAGE>
30 days after the date of enactment of legislation. If the Administration's
Proposal is enacted in its current form, it is possible that the IRS may assert
that the New Preferred Stock received pursuant to the Exchange Offer would be
considered issued at the time of the exchange for purposes of determining the
applicability of such legislation. Prospective holders of New Preferred Stock
are urged to consult their tax advisors with respect to the effect of proposed
legislation.
PREFERRED STOCK DISCOUNT
Pursuant to section 305(c) of the Code, U.S. Holders of the New Preferred
Stock (including Dividend Shares) may be required to treat a portion of the
difference between the redemption price and issue price of the New Preferred
Stock as constructive distributions that are includible in income on an economic
accrual basis. For purposes of determining whether such constructive
distribution treatment applies, the mandatory and optional redemption features
of the New Preferred Stock are tested separately. Constructive distribution
treatment is required if either (or both) of these tests is satisfied.
Section 305(c) of the Code provides that the entire amount of a redemption
premium with respect to preferred stock that may be redeemed in certain
circumstances is treated as being distributed to the holders of such preferred
stock on an economic accrual basis. Preferred stock is generally considered to
have redemption premium for this purpose if its redemption price exceeds its
issue price by more than a de minimis amount. For this purpose, such excess (the
'Preferred Stock Discount') will be treated as zero if it is less than 1/4 of 1%
of the redemption price of the preferred stock multiplied by the number of
complete years from the date of issuance of the stock until the redemption date.
Preferred Stock Discount is taxable as a constructive distribution to the holder
(treated as a dividend to the extent made out of the Company's current or
accumulated earnings and profits and otherwise subject to the treatment
described above for distributions) over the term of the preferred stock using a
constant interest rate method similar to that described below for accruing
original issue discount ('OID'). See '--Original Issue Discount' below.)
Preferred Stock Discount with respect to preferred stock that is subject to
mandatory redemption generally will arise if the price at which the preferred
stock must be redeemed exceeds its issue price by more than a de minimis amount.
The Company does not expect that its obligation to redeem the New Preferred
Stock acquired in connection with this Offering on March 15, 2009 will result in
Preferred Stock Discount.
Preferred Stock Discount with respect to preferred stock that has an
optional redemption feature generally will arise only if, based on all of the
facts and circumstances as of the date the preferred stock is issued, redemption
pursuant to an issuer's right to redeem is more likely than not to occur. Even
if redemption is more likely than not to occur, however, constructive
distribution treatment would not result if the redemption premium were solely in
the nature of a penalty for premature redemption. For this purpose, a redemption
premium is not a penalty for premature redemption unless it is a premium paid as
a result of changes in economic or market conditions over which neither the
issuer nor the holder has legal or practical control, such as changes in
prevailing dividend rates. In addition, pursuant to a safe harbor contained in
Treasury Regulations, redemption pursuant to an issuer's right to redeem is not
treated as more likely than not to occur if (i) the issuer and the holder are
unrelated, (ii) there are no arrangements that effectively require or are
intended to compel the issuer to redeem the stock and (iii) exercise of the
option to redeem would not reduce the yield of the stock. The Company does not
believe that its right to redeem of the New Preferred Stock acquired in
connection with this Offering on or after March 15, 2002 should be treated as
more likely than not to be exercised under these rules. Accordingly, the
optional redemption features of the New Preferred Stock acquired in connection
with this Offering should not result in Preferred Stock Discount.
Notwithstanding the above, it is not entirely clear how the rules relating
to Preferred Stock Discount apply to the Company's rights and obligations to
redeem the New Preferred Stock in the event of a Change of Control.
Dividend Shares received by U.S. Holders of the New Preferred Stock may
bear Preferred Stock Discount depending upon the issue price of such Dividend
Shares. If shares of New Preferred Stock (including Dividend Shares) bear
Preferred Stock Discount, such shares generally will have different tax
characteristics from other shares of New Preferred Stock and might trade
separately, which might adversely affect the liquidity of such shares.
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<PAGE>
REDEMPTION, SALE OR EXCHANGE OF NEW PREFERRED STOCK
A redemption of shares of New Preferred Stock for cash generally will be
treated as a sale or exchange of such shares if (i) the U.S. Holder does not
own, actually or constructively within the meaning of section 318 of the Code,
any stock of the Company other than the redeemed New Preferred Stock or (ii) the
redemption is 'not essentially equivalent to a dividend' with respect to such
U.S. Holder under section 302(b)(1) of the Code. A distribution to a U.S. Holder
will be 'not essentially equivalent to a dividend' if it results in a
'meaningful reduction' in the U.S. Holder's stock interest in the Company. For
this purpose, a redemption of the New Preferred Stock that results in a
reduction in the proportionate interest in the Company (taking into account any
actual ownership of common stock of the Company and any stock constructively
owned) of a U.S. Holder whose relative stock interest in the Company is minimal
and who exercises no control over corporate affairs should be regarded as a
meaningful reduction in such holder's stock interest in the Company. In other
circumstances, a redemption of the New Preferred Stock may be treated as a
dividend to the extent treated as made out of the Company's current and
accumulated earnings and profits (as determined for U.S. federal income tax
purposes).
If the redemption of the New Preferred Stock for cash is treated as a sale
or exchange, the U.S. Holder would recognize capital gain or loss in an amount
equal to the difference between the amount of cash received on such redemption
(except to the extent the redemption price of the New Preferred Stock is
attributable to dividends declared by the Board of Directors of the Company
prior to the redemption, which generally will be taxable as ordinary income) and
such holder's adjusted tax basis in the New Preferred Stock.
Similarly, gain or loss realized by a U.S. Holder on the sale of the New
Preferred Stock (other than in a redemption or in an exchange for Exchange
Debentures) generally will be subject to U.S. federal income tax as capital gain
or loss in an amount equal to the difference between the sum of the amount of
cash and the fair market value of other property received and the U.S. Holder's
adjusted basis in such New Preferred Stock.
Gain or loss realized by a U.S. Holder on the exchange of the New Preferred
Stock for the Exchange Debentures will be subject to the same general rules as a
redemption for cash, except that such holder will realize capital gain or loss
in an amount equal to the difference between the issue price of the Exchange
Debentures received (as determined for purposes of computing the original issue
discount on such Exchange Debentures) and such holder's adjusted tax basis in
the New Preferred Stock. See the discussion below under 'Original Issue
Discount.' In addition, any such gain may be eligible for deferral under the
installment sale method provided neither the Exchange Debentures nor the New
Preferred Stock are readily tradable on an established securities market.
If a redemption or exchange of New Preferred Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution will
be measured by the amount of cash or the issue price of the Exchange Debentures,
as the case may be, received by the U.S. Holder. The U.S. Holder's adjusted tax
basis in the redeemed New Preferred Stock will be transferred to any remaining
stock holdings in the Company. If the U.S. Holder does not retain any actual
stock ownership in the Company (having only a constructive stock interest), the
U.S. Holder may lose such basis entirely. In addition, a corporate U.S. Holder,
under certain circumstances, may be required to reduce its basis in its
remaining shares of stock of the Company (and possibly recognize gain upon a
disposition of shares) under the 'extraordinary dividend' provisions of section
1059 of the Code. The Administration's Proposal includes a provision, generally
effective for distributions after May 3, 1995, that would require immediate
recognition of gain under section 1059 of the Code with respect to any
redemption treated as a dividend (in whole or in part) when the non-taxed
portion of the dividend exceeds the basis of the shares surrendered, if the
redemption is treated as a dividend due to options being counted as stock
ownership. It is not clear whether such proposal will be enacted or, if enacted,
whether it will be enacted in the form proposed.
ORIGINAL ISSUE DISCOUNT
In the event that the New Preferred Stock is exchanged for Exchange
Debentures and the 'stated redemption price at maturity' of the Exchange
Debentures exceeds their 'issue price' by more than a de minimis amount, the
Exchange Debentures will be treated as having OID equal to the entire amount of
such excess.
If the Exchange Debentures are traded on an established securities market
within the sixty-day period ending thirty days after the exchange date, the
issue price of the Exchange Debentures will be their fair market value as of
their issue date. Subject to certain limitations described in Treasury
Regulations, the Exchange Debentures will be deemed to be traded on an
established securities market if, among other things, price quotations are
readily
79
<PAGE>
available from dealers, brokers or traders. If the New Preferred Stock, but not
the Exchange Debentures exchanged therefor, is traded on an established
securities market within the sixty-day period ending thirty days after the
exchange, the issue price of each Exchange Debenture will be the fair market
value of the New Preferred Stock exchanged therefor at the time of the exchange.
The New Preferred Stock generally will be deemed to be traded on an established
securities market if it appears on a system of general circulation that provides
a reasonable basis to determine fair market value by disseminating either recent
price quotations or actual prices of recent sale transactions. In the event that
neither the New Preferred Stock nor the Exchange Debentures are traded on an
established securities market within the applicable period, the issue price of
the Exchange Debentures will be their stated principal amount unless either (i)
the Exchange Debentures do not bear 'adequate stated interest' within the
meaning of section 1274 of the Code, in which case the issue price of such
Exchange Debentures generally will be the 'imputed principal amount' of the
Exchange Debentures or (ii) the Exchange Debentures are issued in a so-called
'potentially abusive situation' as defined in Treasury Regulations under section
1274 of the Code (including a situation involving a recent sales transaction),
in which case the issue price of such Exchange Debentures generally will be the
fair market value of the New Preferred Stock surrendered in exchange therefor.
The 'stated redemption price at maturity' of the Exchange Debentures should
equal the total of all payments under the Exchange Debentures, other than
payments of 'qualified stated interest.' 'Qualified stated interest' generally
is stated interest that is unconditionally payable in cash or other property
(other than Exchange Debentures) at least annually at a single fixed rate. The
Exchange Debentures that are issued when the Company has the option to pay
interest for certain periods in additional Exchange Debentures should be treated
as having been issued without any qualified stated interest. Accordingly, the
sum of all interest payable pursuant to the stated interest rate on such
Exchange Debentures over the entire term should be included (along with stated
principal) in the stated redemption price at maturity of such Exchange
Debentures. Stated interest on Exchange Debentures issued after the period for
paying interest in additional Exchange Debentures has passed should qualify as
qualified stated interest and none of such stated interest would be included in
the stated redemption price at maturity of the Exchange Debentures.
TAXATION OF STATED INTEREST AND ORIGINAL ISSUE DISCOUNT ON EXCHANGE DEBENTURES
Each U.S. Holder of an Exchange Debenture with OID will be required to
include in gross income an amount equal to the sum of the 'daily portions' of
the OID for all days during the taxable year in which such holder holds the
Exchange Debentures, regardless of the holder's regular method of accounting.
The daily portions of OID required to be included in a U.S. Holder's gross
income in a taxable year will be determined under a constant yield method by
allocating to each day during the taxable year in which the holder holds the
Exchange Debenture a pro rata portion of the OID thereon which is attributable
to the 'accrual period' in which such day is included. The amount of OID
attributable to each accrual period will be the product of the 'adjusted issue
price' of the Exchange Debenture at the beginning of such accrual period
multiplied by the 'yield to maturity' of the Exchange Debenture (properly
adjusted for the length of the accrual period). The adjusted issue price of an
Exchange Debenture at the beginning of an accrual period is the sum of the issue
price of the Exchange Debenture plus the aggregate amount of OID that accrued in
all prior accrual periods, less any cash payments made on the Exchange
Debentures (other than qualified stated interest payments). The 'yield to
maturity' of the Exchange Debenture is the discount rate that, when used in
computing the present value of all principal and interest payments to be made
under the Exchange Debenture, produces an amount equal to the issue price of the
Exchange Debenture. An 'accrual period' may be of any length and may vary in
length over the term of the debt instrument, provided that each accrual period
is no longer than one year and each scheduled payment of principal or interest
occurs either on the final day or the first day of an accrual period. The actual
timing of accrual of OID may vary depending on the issue price of the Exchange
Debentures and whether interest is paid in cash or additional Exchange
Debentures.
An additional Exchange Debenture (a 'Secondary Debenture') issued in
payment of interest with respect to an initially issued Exchange Debenture (an
'Initial Debenture') will not be considered as a payment made on the Initial
Debenture and will be aggregated with the Initial Debenture for purposes of
computing and accruing OID on the Initial Debenture. The adjusted issue price of
the Initial Debenture would be allocated between the Initial Debenture and the
Secondary Debenture in proportion to their respective principal amounts. That
is, upon the issuance of a Secondary Debenture with respect to an Initial
Debenture, the Initial Debenture and the
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<PAGE>
Secondary Debenture derived from the Initial Debenture are treated as initially
having the same adjusted issue price and inherent amount of OID per dollar of
principal amount. The Initial Debenture and the Secondary Debenture derived
therefrom would be treated as having the same yield to maturity. Similar
treatment would be applied when additional Exchange Debentures are issued on
Secondary Debentures.
In the event that the Exchange Debentures are not issued with OID, because
(i) they are issued after March 15, 2002, when the Company does not have the
option to pay interest thereon in additional Exchange Debentures and (ii) the
redemption price of the Exchange Debentures does not exceed their issue price by
more than a de minimis amount, stated interest would be included in income by a
U.S. Holder in accordance with such U.S. Holder's method of accounting. In all
other cases, stated interest will be treated as payments on the Exchange
Debentures under the rules discussed above.
The Company will furnish annually to the IRS and to record holders of the
Exchange Debentures information relating to OID, if any, accruing during the
calendar year. Such information will be based on the amount of OID that would
have accrued to a U.S. Holder who acquired the Exchange Debenture on original
issue.
BOND PREMIUM ON EXCHANGE DEBENTURES
If the New Preferred Stock is exchanged for Exchange Debentures that are
not treated as having OID and the issue price of such Exchange Debentures
exceeds the amount payable at the maturity date (or earlier call date), such
excess will be deductible by the U.S. Holder of the Exchange Debentures as
amortizable bond premium over the term of the Exchange Debentures (taking into
account earlier call dates, as appropriate) under a yield-to-maturity formula,
if an election by the U.S. Holder under section 171 of the Code is made or is
already in effect. This election is revocable only with the consent of the IRS
and applies to all obligations owned or acquired by the U.S. Holder on or after
the first day of the taxable year to which the election applies. To the extent
the excess is deducted as amortizable bond premium, the U.S. Holder's adjusted
tax basis in the Exchange Debentures will be reduced. Except as may otherwise be
provided in future Treasury Regulations, the amortizable bond premium will be
treated as an offset to interest income on the Exchange Debentures rather than
as a separate deduction item.
SALE OR REDEMPTION OF EXCHANGE DEBENTURES
Gain or loss realized by a U.S. Holder on the sale, redemption or other
disposition of Exchange Debentures generally will be subject to U.S. federal
income tax in an amount equal to the difference between the sum of the cash
amount and the fair market value of all other property received on such sale,
redemption or disposition (except to the extent that cash received is
attributable to accrued, but previously untaxed, qualified stated interest,
which would be taxed as ordinary income) and such U.S. Holder's adjusted tax
basis in the Exchange Debentures. The adjusted tax basis of an Exchange
Debenture received in exchange for the New Preferred Stock generally will be
equal to the issue price of the Exchange Debenture increased by any OID with
respect to the Exchange Debenture included in the U.S. Holder's income prior to
sale, redemption or other disposition of the Exchange Debenture, reduced by any
amortizable bond premium applied against the U.S. Holder's income prior to sale,
redemption or other disposition of the Exchange Debenture and by payments other
than payments of qualified stated interest. Except to the extent that an
intention to call the Exchange Debentures prior to their maturity existed at the
time of their original issue as an agreement or understanding between the
Company and the original holders of a substantial amount of the Exchange
Debentures, such gain or loss would be long-term capital gain or loss if the
U.S. Holder's holding period for the Exchange Debentures exceeds one year.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND CORPORATE HOLDERS
In the event the Exchange Debentures are 'applicable high yield discount
obligations' ('AHYDOs'), pursuant to sections 163(e) and 163(i) of the Code, a
portion of the OID (if any) accruing on the Exchange Debentures may be treated
as a dividend generally eligible for the dividends-received deduction (subject
to the exceptions and restrictions described above) in the case of corporate
U.S. Holders and the Company would not be entitled to deduct the 'disqualified
portion' of the OID accruing on the Exchange Debentures and would be allowed to
deduct the remainder of the OID only when paid in cash.
The Exchange Debentures will constitute AHYDOs if they (i) have a term of
more than five years, (ii) have a yield to maturity equal to or greater than the
sum of the applicable federal rate at the time of issuance of the Exchange
Debentures (the 'AFR') plus five percentage points, and (iii) have 'significant'
OID. A debt
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<PAGE>
instrument is treated as having 'significant' OID if the aggregate amount that
would be includible in gross income with respect to such debt instrument for
periods before the close of any accrual period ending after the date five years
after the date of issue exceeds the sum of (i) the aggregate amount of interest
to be paid in cash under the debt instrument before the close of such accrual
period and (ii) the product of the initial issue price of such debt instrument
and its yield to maturity. Because the amount of OID, if any, attributable to
the Exchange Debentures will be determined at the time such Exchange Debentures
are issued and the AFR at that point in time is not predictable, it is
impossible currently to determine whether Exchange Debentures will be treated as
AHYDOs.
If an Exchange Debenture is treated as an AHYDO, a U.S. Holder would be
treated as receiving dividend income to the extent of the lesser of (i) the
Company's current and accumulated earnings and profits, and (ii) the
'disqualified portion' of the OID of such AHYDO. The 'disqualified portion' of
the OID is equal to the lesser of (i) the amount of OID or (ii) the portion of
the 'total return' (i.e., the excess of all payments to be made with respect to
the Exchange Debenture over its issue price) in excess of the AFR plus six
percentage points.
BACKUP WITHHOLDING
A U.S. Holder may be subject to backup withholding at the rate of 31% with
respect to dividends on the New Preferred Stock, interest on the Exchange
Debentures or proceeds of the sale or other disposition of the New Preferred
Stock or the Exchange Debentures, unless such U.S. Holder (i) is a corporation
or comes within certain other exempt categories and, when required, demonstrates
such exemption, or (ii) provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Preferred Stock 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 Preferred Stock. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Preferred Stock received in
exchange for Existing Preferred Stock where such Existing Preferred Stock was
acquired as a result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days following the Effective
Date, it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of New Preferred
Stock by broker-dealers. New Preferred Stock received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Preferred Stock or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Preferred Stock. Any broker-dealer that resells New Preferred Stock that was
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such New Preferred Stock may be
deemed to be an 'underwriter' within the meaning of the Securities Act and any
profit or any such resale of New Preferred Stock and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an 'underwriter' within the
meaning of the Securities Act
For a period of 180 days after the Effective Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer, other than certain commissions, if any, relating
to a holder's depositing its shares of Existing Preferred Stock in connection
with the Exchange Offer and will indemnify the holders of the New Preferred
Stock (including any broker-dealers) against certain liabilities, including
certain liabilities under the Securities Act.
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<PAGE>
LEGAL MATTERS
The validity of the New Preferred Stock will be passed upon for the Company
by Debevoise & Plimpton, New York, New York.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996 and
1995 and the consolidated statements of operations, stockholder's equity
(deficit) and cash flows for each of the three years ended December 31, 1996 ,
included in this Registration Statement, have been included herein in reliance
on the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
83
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets, December 31, 1996 and 1995.................................................... F-3
Consolidated Statements of Operations for the three years ended December 31, 1996.......................... F-4
Consolidated Statements of Stockholder's Equity (Deficit) for the three years ended
December 31, 1996........................................................................................ F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1996.......................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Fairfield Manufacturing Company, Inc.
We have audited the accompanying consolidated balance sheets of Fairfield
Manufacturing Company, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholder's equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1996. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fairfield Manufacturing Company, Inc. as of December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Indianapolis, Indiana
January 31, 1997, except
Note 11, as to which the
date is March 12, 1997
F-2
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 6,185 $ 4,324
Trade receivables, less allowance of $600 in 1996 and in 1995........................... 24,696 24,328
Inventory............................................................................... 18,918 24,912
Prepaid expenses........................................................................ 853 897
-------- --------
Total current assets................................................................. 50,652 54,461
Property, plant and equipment, net........................................................ 70,211 71,056
Other assets:
Excess of investment over net assets acquired, less accumulated amortization
of $11,868 in 1996 and $10,261 in 1995............................................... 52,491 54,098
Deferred financing costs, less accumulated amortization of $2,355 in 1996 and
$1,685 in 1995....................................................................... 3,016 3,540
-------- --------
Total other assets................................................................... 55,507 57,638
-------- --------
Total assets......................................................................... $176,370 $183,155
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt.................................................... $ 3,000 $ 3,000
Accounts payable........................................................................ 13,260 11,150
Due to parent........................................................................... 287 807
Accrued liabilities..................................................................... 18,182 17,524
Deferred income taxes................................................................... 3,800 4,700
-------- --------
Total current liabilities............................................................ 38,529 37,181
Accrued retirement costs.................................................................. 15,423 14,758
Deferred income taxes..................................................................... 11,988 11,258
Long-term debt, net of current maturities................................................. 115,000 110,000
Stockholder's equity (deficit):
Common stock, par value $.01 per share; 10,000,000 shares authorized; 7,805,000
and 7,676,000 issued and outstanding in 1996 and 1995, respectively.................. 78 77
Additional paid-in capital.............................................................. 36,788 35,209
Accumulated deficit..................................................................... (41,436) (25,328)
-------- --------
Total stockholder's equity (deficit)................................................. (4,570) 9,958
-------- --------
Total liabilities and stockholder's equity (deficit)................................. $176,370 $183,155
-------- --------
-------- --------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-3
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales..................................................... $ 195,205 $ 192,111 $ 150,689
Cost of sales................................................. 158,668 151,890 123,092
Selling, general and administrative expenses.................. 16,868 14,759 15,924
---------- ---------- ----------
Operating income............................................ 19,669 25,462 11,673
Interest expense, net......................................... 11,930 12,905 12,377
Other expense, net............................................ 90 127 199
---------- ---------- ----------
Income (loss) before income taxes and cumulative effect of
change in accounting principle........................... 7,649 12,430 (903)
Provision (benefit) for income taxes.......................... 3,730 5,520 (164)
---------- ---------- ----------
Income (loss) before cumulative effect of change in
accounting principle..................................... 3,919 6,910 (739)
Cumulative effect of change in accounting principle, net of
benefit for income taxes of $346 in 1994.................... -- -- (1,554)
---------- ---------- ----------
Net income (loss)........................................... $ 3,919 $ 6,910 $ (2,293)
---------- ---------- ----------
---------- ---------- ----------
Income (loss) per share data:
Before cumulative effect of change in accounting
principle................................................ $ 0.51 $ 1.15 $ (0.25)
Cumulative effect of change in accounting principle......... -- -- $ (0.52)
---------- ---------- ----------
Net income (loss) per common share.......................... $ 0.51 $ 1.15 $ (0.77)
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding.................. 7,726,557 6,018,072 2,976,471
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL STOCKHOLDER'S
COMMON PAID-IN ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT (DEFICIT)
------ ---------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994...................................... $ 30 $ 31,193 $ (29,945) $ 1,278
Contributed capital......................................... -- 1,060 -- 1,060
Net loss.................................................... -- -- (2,293) (2,293)
------ ---------- ----------- --------------
Balance, December 31, 1994.................................... 30 32,253 (32,238) 45
Contributed capital......................................... 47 2,956 -- 3,003
Net income.................................................. -- -- 6,910 6,910
------ ---------- ----------- --------------
Balance, December 31, 1995.................................... 77 35,209 (25,328) 9,958
Contributed capital......................................... 1 1,579 -- 1,580
Dividend.................................................... -- -- (17,000) (17,000)
Advance to Parent........................................... -- -- (3,027) (3,027)
Net income.................................................. -- -- 3,919 3,919
------ ---------- ----------- --------------
Balance, December 31, 1996.................................... $ 78 $ 36,788 $ (41,436) $ (4,570)
------ ---------- ----------- --------------
------ ---------- ----------- --------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Operating activities:
Net income (loss)............................................................ $ 3,919 $ 6,910 $(2,293)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Cumulative effect of change in accounting principle, net.................. -- -- 1,554
Depreciation and amortization............................................. 13,108 12,272 11,850
Loss on disposal of equipment............................................. -- -- 768
Deferred income tax benefit............................................... (170) (1,178) (2,700)
Decrease (increase) in accrued retirement costs........................... 665 2,079 (864)
(Increase) decrease in current assets:
Trade receivables......................................................... (368) (7,886) (1,922)
Receivable from parent.................................................... -- 1,097 155
Inventory................................................................. 5,994 681 (2,714)
Prepaids.................................................................. 44 (434) (42)
Increase (decrease) in current liabilities:
Accounts payable.......................................................... (156) (2,418) 3,316
Due to parent............................................................. (520) 807 --
Accrued liabilities....................................................... 658 1,926 2,482
-------- -------- -------
Net cash provided by operating activities...................................... 23,174 13,856 9,590
-------- -------- -------
Investing activities:
Additions to plant and equipment, net........................................ (7,720) (11,645) (9,164)
-------- -------- -------
Net cash used by investing activities.......................................... (7,720) (11,645) (9,164)
-------- -------- -------
Financing activities:
Proceeds from additional capital contribution................................ 1,580 3,003 1,060
Payment of dividend.......................................................... (17,000) -- --
Advance to parent............................................................ (3,027) -- --
Proceeds of long-term debt................................................... 20,000 11,000 3,000
Payment of long-term debt.................................................... (15,000) (13,000) (9,444)
Payment of debt issuance costs............................................... (146) (340) (50)
-------- -------- -------
Net cash provided (used) by financing activities............................... (13,593) 663 (5,434)
-------- -------- -------
Increase (decrease) in cash and cash equivalents............................... 1,861 2,874 (5,008)
Cash and cash equivalents:
Beginning of year............................................................ 4,324 1,450 6,458
-------- -------- -------
End of year.................................................................. $ 6,185 $ 4,324 $ 1,450
-------- -------- -------
-------- -------- -------
Supplemental Disclosures:
Cash paid for:
Interest.................................................................. $ 11,627 $ 12,387 $11,298
Taxes to parent........................................................... $ 2,450 $ 1,650 $ 904
Non-cash activities:
Additions to plant and equipment included in accounts payable at December 31, 1996 and 1995 are
excluded from operating activities above.
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Fairfield Manufacturing Company, Inc. ('the Company') is wholly-owned by
Lancer Industries Inc. ('Lancer'). The Company, its subsidiary and Lancer are
Delaware corporations. The Company has one subsidiary, T-H Licensing, Inc.,
which owns certain of the Company's intangible assets. These consolidated
financial statements include the accounts of Fairfield Manufacturing Company,
Inc. and its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
The Company manufactures high precision custom gears and planetary gear
systems at its Lafayette, Indiana facility. Customers consist of original
equipment manufacturers serving diverse markets which include rail, industrial,
construction, road rehabilitation, mining, materials-handling, forestry and
agricultural.
Concentration of Credit Risk
During 1996, no single customer accounted for more than 10% of consolidated
net sales. Net sales to one customer representing more than 10% of consolidated
net sales were $21,109 in 1995 and $19,601 in 1994. Foreign sales are not
material.
Revenue Recognition
Sales are recognized at the time of shipment to the customer.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Inventory
Inventory is valued at the lower of last-in, first-out (LIFO) cost or
market.
Property, Plant and Equipment, Net
Property, plant and equipment, net are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets ranging from 3 to 30 years.
Income Taxes
Income taxes are provided based on the liability method of accounting
pursuant to Statement of Financial Accounting Standards No. 109 'Accounting for
Income Taxes' ('SFAS 109'). The liability method measures the expected tax
impact of future taxable income or deductions resulting from differences in the
tax and financial reporting bases of assets and liabilities reflected in the
consolidated balance sheets and the expected tax impact of carryforwards for tax
purposes.
Excess of Investment Over Net Assets Acquired
Excess of investment cost over net assets acquired is amortized using the
straight-line method over 40 years. The Company's criteria for periodically
evaluating the carrying value of the excess of investment over net assets
acquired includes evaluation of products and markets as well as current and
expected levels of undiscounted cash flow from operations. The Company has
concluded the excess of investment over net assets acquired is not impaired and
the products and markets continue to support a 40-year life.
Deferred Financing Costs
Debt issuance costs are being amortized by the use of the effective
interest method over the expected term of the related debt agreement.
Computation of Net Income (Loss) Per Share
Income (loss) per share is based upon the weighted average number of shares
of common stock outstanding.
F-7
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair value of financial assets held by the Company approximate their
carrying value. The fair value of the financial liabilities which consists of
senior and subordinated debt, also approximate their carrying value.
Reclassifications
Certain amounts in the 1995 and 1994 consolidated financial statements and
notes to consolidated financial statements have been reclassified to conform
with the 1996 presentation.
2. INVENTORY
Inventory at December 31, consists of:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Raw materials..................................................................... $ 4,178 $ 4,039
Work in process................................................................... 8,070 10,978
Finished products................................................................. 7,490 10,350
------- -------
19,738 25,367
Less: Excess of FIFO cost over LIFO cost.......................................... (820) (455)
------- -------
$18,918 $24,912
------- -------
------- -------
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net at December 31, includes the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Land and improvements............................................................. $ 1,312 $ 1,211
Buildings and improvements........................................................ 11,869 11,567
Machinery and equipment........................................................... 129,747 121,819
------- -------
142,928 134,597
Less: Accumulated depreciation.................................................... (72,717) (63,541)
------- -------
$70,211 $71,056
------- -------
------- -------
</TABLE>
4. ADVANCE TO PARENT
On December 5, 1996, the Company advanced $3,000 to Lancer and anticipates
repayment during February 1997. This advance has been classified as a component
of stockholders' equity (deficit) at December 31, 1996, at which date the
related accrued interest was $27.
5. ACCRUED LIABILITIES
Accrued liabilities at December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Compensation and employee benefits................................................ $ 5,970 $ 6,602
Accrued retirement and postemployment costs....................................... 3,002 1,750
Interest payable.................................................................. 5,021 5,187
Other............................................................................. 4,189 3,985
------- -------
$18,182 $17,524
------- -------
------- -------
</TABLE>
F-8
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan which covers
substantially all of its employees. The benefits are based on years of service
and the employee's earnings preceding retirement. The Company's funding policy
is to contribute each year an amount at least equal to the minimum required
contribution as defined by the Employee Retirement Income Security Act of 1974.
Assets of the plan are principally deposit administration insurance contracts.
The projected benefit obligation has been determined by using the projected unit
credit method.
Net pension cost for years ended December 31, consists of:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost--benefits earned during the period............................ $1,387 $1,180 $1,427
Interest cost.............................................................. 2,862 2,626 2,440
Actual return on plan assets............................................... (2,043) (3,061) (764)
Net amortization and deferral.............................................. (317) 906 (1,438)
------ ------ ------
Net pension cost........................................................... $1,889 $1,651 $1,665
------ ------ ------
------ ------ ------
</TABLE>
The plan's funded status and amounts included in the December 31 balance
sheets based upon actuarial valuations at October 1, 1996 and 1995 are:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits................................................................. $27,420 $25,115
Nonvested benefits.............................................................. 1,984 1,651
------- -------
Accumulated benefit obligation.................................................... 29,404 26,766
Effect of projected future compensation increases................................. 13,568 12,995
------- -------
Projected benefit obligation...................................................... 42,972 39,761
Plan assets at fair value......................................................... 31,349 30,493
------- -------
Projected benefit obligation in excess of plan assets............................. 11,623 9,268
Unrecognized gain................................................................. 33 1,084
Unrecognized prior service cost................................................... (1,921) (2,111)
------- -------
Accrued liability included in balance sheet....................................... $ 9,735 $ 8,241
------- -------
------- -------
Assumed discount rate............................................................. 7.25% 7.25%
Assumed long-term return on plan assets........................................... 8.5% 8.5%
</TABLE>
The Company has a contributory defined contribution savings plan which
covers all of its eligible employees. Eligibility in the plan is obtained the
month following hire with no minimum age requirement. A participant may make a
basic contribution to the plan ranging from 2% to 6% of the participant's salary
and a supplemental contribution of 2%, 4%, or 6% of the participant's salary.
The Company matches 70% of the participant's basic contribution. Expense
recognized each of the years ended December 31, 1996, 1995 and 1994 was $1,356,
$1,238 and $909, respectively.
In addition to pension and savings plan benefits, the Company provides
limited health care and life insurance benefits for certain retired employees.
Effective January 1, 1994, the Company amended its postretirement medical
plan. The plan amendment changed the eligibility provisions to be age 60 with 15
years of service for all active employees.
F-9
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. EMPLOYEE BENEFIT PLANS--(CONTINUED)
Net periodic postretirement benefit cost for years ended December 31,
includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
Service cost................................................................... $ 332 $257 $251
Interest cost.................................................................. 656 587 534
Unrecognized net loss.......................................................... 214 78 48
Prior service cost............................................................. (63) (63) (63)
------ ---- ----
$1,139 $859 $770
------ ---- ----
------ ---- ----
</TABLE>
The actuarial and recorded liabilities for these postretirement benefits,
none of which have been funded, are as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Actuarial present value of postretirement benefit obligation:
Retirees and dependents............................................................ $5,817 $5,023
Active employees eligible to retire and receive benefits........................... 840 654
Active employees not yet eligible to retire and receive benefits................... 2,939 2,390
------ ------
Total accumulated postretirement benefit obligation.................................. 9,596 8,067
Unrecognized loss.................................................................... (3,118) (1,941)
Unrecognized prior service cost...................................................... 314 376
------ ------
Accrued postretirement benefit liability included in balance sheet................... $6,792 $6,502
------ ------
------ ------
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% for 1996 and 1995. The health care
cost trend rate is not a factor in the calculation of the accumulated
postretirement benefit obligation as the plan limits benefits paid to retirees
to a lifetime maximum amount per retiree. Claims in excess of this amount are
the responsibility of the retiree.
The Company provides postemployment benefits to certain former and inactive
employees. The Company adopted SFAS No. 112, 'Employers' Accounting for
Postemployment Benefits' as of the beginning of fiscal 1994. This accounting
standard requires the accrual of the cost of postemployment benefits over the
employees' years of service rather than accounting for such costs on a cash
basis. A one-time cumulative adjustment of $1,900 ($1,554, net of tax) was
recognized as of the beginning of fiscal 1994.
Net periodic postemployment benefit cost for years ended December 31
included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service Cost.................................................................... $115 $131 $ 75
Interest Cost................................................................... 157 349 98
---- ---- ----
$272 $480 $173
---- ---- ----
---- ---- ----
</TABLE>
The recorded liabilities for these postemployment benefits, none of which
have been funded, are $1,894 and $1,765 at December 31, 1996 and 1995,
respectively.
7. INCOME TAXES
The Company files separate state income tax returns and is included in the
consolidated federal income tax return of its parent company, Lancer. The
Company and Lancer have entered into a Tax Sharing Agreement under which the
Company is required to calculate its federal income tax liability on a separate
return basis. Accordingly, the Company has also calculated its credit/expense
equivalent to benefit/provision for federal income taxes on a separate return
basis.
F-10
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
7. INCOME TAXES--(CONTINUED)
The (credit)/expense equivalent to (benefit)/provision for income taxes
each of the three years in the period ended December 31, consists of:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current, principally federal............................................... $3,900 $6,698 $2,545
Deferred, principally federal.............................................. (170) (1,178) (3,055)
------ ------ ------
$3,730 $5,520 $ (510)
------ ------ ------
------ ------ ------
</TABLE>
The credit equivalent to benefit for income taxes for 1994 results
principally from the reversal of previously provided deferred taxes. The expense
equivalent to provision for income taxes for 1996 and 1995 results principally
from current year operating results.
A reconciliation of the expected (credit)/expense equivalent to
(benefit)/provision for income taxes at the statutory federal income tax rate
and the actual tax benefit/provision each of the three years ended December 31,
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
------ ---- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Expected total tax
benefit/provision at statutory rate..................... $2,677 35.0% $4,351 35.0% $ (953) (34.0)%
State taxes, net of federal............................. 231 3.0 626 5.0 (277) (9.9)
Non-deductible amortization on excess of investment over
net assets acquired................................... 555 7.3 555 4.4 540 19.3
Other, net.............................................. 267 3.5 (12) (0.0) 180 6.4
------ ---- ------ ----- ------ -----
$3,730 48.8% $5,520 44.4% $ (510) (18.2)%
------ ---- ------ ----- ------ -----
------ ---- ------ ----- ------ -----
</TABLE>
Deferred income taxes applicable to temporary differences at December 31,
are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current:
Inventory basis difference..................................................... $ (6,317) $ (5,634)
Employee benefits.............................................................. 1,288 1,456
Other, net..................................................................... 1,229 (522)
-------- --------
Total current deferred tax liability, net...................................... (3,800) (4,700)
Long-term:
Inventory basis difference..................................................... 626 515
Property, plant and equipment basis difference................................. (18,952) (18,547)
Employee benefits.............................................................. 7,381 6,412
Other, net..................................................................... (1,043) 362
-------- --------
Total long-term deferred tax liability, net.................................... (11,988) (11,258)
-------- --------
Total deferred tax liability, net.............................................. $(15,788) $(15,958)
-------- --------
-------- --------
</TABLE>
Under the Tax Sharing Agreement between the Company and Lancer, the Company
is required to pay Lancer an amount equal to the Company's current federal
income tax liability calculated on a separate return basis. To the extent such
tax liability is reduced by the Company's utilization of Lancer's available tax
benefits, Lancer is required to reimburse the Company for 50% of the amount of
such reduction by making a capital contribution to the Company. Lancer made
capital contributions to the Company of $1,580, $2,503, and $1,060 during 1996,
1995 and 1994, respectively.
F-11
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Senior Term Credit.............................................................. $ 33,000 $ 21,000
Senior Revolving Credit......................................................... -- 7,000
Senior Subordinated Notes....................................................... 85,000 85,000
-------- --------
118,000 113,000
Less current maturities......................................................... (3,000) (3,000)
-------- --------
$115,000 $110,000
-------- --------
-------- --------
</TABLE>
The future maturities of long-term debt as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997.................................................................... $ 3,000
1998.................................................................... 4,000
1999.................................................................... 7,000
2000.................................................................... 19,000
2001.................................................................... 85,000
--------
$118,000
--------
--------
</TABLE>
The Company's Senior Subordinated Notes (the 'Notes') bear interest at a
rate of 11 3/8% and mature on July 1, 2001. The Notes are redeemable at the
option of the Company, in whole or in part, on or after July 1998 at certain
specified redemption prices.
Concurrent with the issuance of the Notes, the Company entered into a loan
agreement with a senior lending institution which provides for a Revolving
Credit Facility and a Term Loan (together, the 'Credit Facilities'). The loan
agreement was amended during December, 1996. The amendment increased the Term
Loan to $33,000 and is payable quarterly through December, 2000. The Revolving
Credit Facility permits the Company to borrow up to $20,000 subject to borrowing
base availability (as defined) and, at the option of the Company (subject to
certain conditions) may be increased by an additional $2,000 at December 1996
increasing to $5,000 by December 1997. The Revolving Credit Facility matures on
July 1, 2001. Interest under the Credit Facilities is payable at varying rates
based on prime or Eurodollar rates. At December 31, 1996, the Eurodollar rate
loans ranged from 7.64% to 7.91% resulting in a weighted average rate of 7.83%.
The unused Revolving Credit Facility at December 31, 1996, net of $698 of
outstanding letters of credit, was $19,302.
Borrowings under the Credit Facilities are collateralized by substantially
all the assets of the Company, including the assignment of all leases and rents
and a pledge of the outstanding common stock of the Company. The Credit
Facilities and the Notes contain various restrictive covenants that, among other
restrictions, require the Company to maintain certain financial ratios. The
December 1996 amendment provides for the payment of dividends under the same
provisions as the Notes.
9. STOCKHOLDER'S EQUITY
Merger
On March 31, 1995 the Company and Holdings merged with and into Central
Alabama Grain Company, Inc. ('CAG'), a wholly-owned, non-operating subsidiary of
Lancer, with CAG continuing as the surviving corporation of the mergers. Upon
completion of the mergers, CAG vested in all of the estate, property, rights,
privileges, powers and franchises of the Company including T-H Licensing, Inc.
its wholly-owned subsidiary. CAG assumed all obligations and liabilities of the
Company. All of the Company's officers and directors became officers and
directors of CAG. Concurrent with the merger, CAG changed its name to Fairfield
Manufacturing Company, Inc.
F-12
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. STOCKHOLDER'S EQUITY--(CONTINUED)
Issuance of Common Stock
The Company issued 25,000 additional shares of its common stock on March
31, 1996, 51,000 shares on June 30, 1996, 23,000 shares on September 30, 1996,
and 30,000 shares on December 31, 1996, to Lancer in consideration of certain
capital contributions made by Lancer to the Company pursuant to the Tax Sharing
Agreement and other capital contributions.
Dividend
On December 5, 1996, the Company, with the approval of its senior lender,
declared and paid a dividend of $17,000 to Lancer.
10. OTHER FINANCIAL DATA
Operating Leases
The Company is obligated to make payments under noncancellable operating
leases expiring at various dates through 2000.
Future minimum payments by year, and in the aggregate, under operating
leases consist of the following at December 31, 1996:
<TABLE>
<CAPTION>
YEAR MINIMUM RENTAL
- --------------------------------------------------------- --------------
<S> <C>
1997..................................................... $ 372
1998..................................................... 355
1999..................................................... 321
2000..................................................... 241
-------
$1,289
-------
-------
</TABLE>
Rental expense for the years ended December 31, 1996, 1995 and 1994 was
$446, $698, and $974 respectively.
Equity Participation Plan
The Company maintains an Equity Participation Plan (the 'Plan') which
provides for the award of up to an aggregate of 180,000 Equity Participation
Rights ('Rights') to certain current and past officers and key employees. At
December 31, 1996, all 180,000 rights were granted and have vested.
Under the Plan, each participant is entitled to receive, upon the
occurrence of a Trigger Event, (as defined below) and exercise of a Right, an
amount in cash equal to the difference between the fair market value of a share
of the Company's common stock on the date the Trigger Event occurs and the
initial value assigned to each Right. A Trigger Event means (a) any of the
following transactions which results in a change in control: (i) a merger or
consolidation of the Company with or into another corporation; (ii) the sale or
exchange for cash, securities or other consideration of all or substantially all
of the assets of the corporation; or (iii) the sale or exchange for cash,
securities or any other consideration of all or substantially all of the
outstanding common equity of the Company or (b) the later of the fifth
anniversary of the date the Right was granted or the date the participant
retires from the Company at or after age 60.
Payments under the Plan may not exceed $1,320 in any fiscal year and $5,280
in the aggregate.
During the period that a stock appreciation right (or Right) is
outstanding, the ultimate amount of compensation inherent in the Right is
indeterminate. APB Opinion No. 25 and FASB Interpretation No. 28 require interim
calculations of the amount of compensation inherent in the stock appreciation
right. This amount is generally equal to the increase in the fair market value
since date of grant or award multiplied by the total number of share or rights
outstanding, regardless of the exercisable status of the rights.
At December 31, 1996, 1995 and 1994 the exercise price exceeds estimated
fair market value of the Company's common stock. Accordingly, there has been no
compensation charged to earnings for this plan.
F-13
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. SUBSEQUENT EVENT--SALE OF PREFERRED STOCK
On March 12, 1997, the Company completed a private offering of 50,000
shares of 11 1/4% Cumulative Exchangeable Preferred Stock ('Preferred Stock').
Each share has a liquidation preference of $1,000, plus accumulated and unpaid
dividends. The Company is required, subject to certain conditions, to redeem all
of the Preferred Stock outstanding on March 15, 2009 at a redemption price equal
to 100% of the liquidation preference. Dividends are payable semi-annually at an
annual rate of 11 1/4%, and may be paid, at the Company's option, either in cash
or in additional shares of Preferred Stock.
The net proceeds from this offering ($47.7 million) were used to fund a
dividend to Lancer, and used by Lancer to redeem $47.7 million of its Series C
Preferred Stock. Had this transaction occurred as of December 31, 1996, the
Company's summary balance sheet would have been as follows:
<TABLE>
<CAPTION>
ACTUAL PROFORMA
-------- --------
<S> <C> <C>
Working capital....................................................... $ 12,123 $ 12,080
Total Assets.......................................................... 176,370 176,327
Long-term debt, including current maturities.......................... 118,000 118,000
Redeemable preferred stock............................................ -- 47,700
Stockholder's equity (deficit)........................................ (4,570) (52,313)
</TABLE>
F-14
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
All tendered Existing Preferred Stock, executed Letters of Transmittal and
other related documents should be directed to the Exchange Agent. Requests for
assistance and additional copies of the Prospectus, the Letter of Transmittal
and other related documents should be directed to the Exchange Agent:
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE UNITED STATES TRUST COMPANY OF NEW YORK
By Facsimile:
(212) 420-6152
(For Eligible Institutions Only)
By Telephone:
(800) 548-6565
By Mail:
United States Trust Company of New York
P.O. Box 843
Cooper Station
New York, New York 10276
Attn: Corporate Trust Services
By Hand to 4:30 p.m.:
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust Window
By Overnight Courier and By Hand after 4:30 p.m.:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attn: Corporate Trust Redemption Unit
<PAGE>
TORQUE-HUB(REGISTERED)
[In this place appears a picture of the
Company's Torque-Hub(Registered) products.]
[In this place appears a picture of the
Company's Torque-Hub(Registered) products.]
[In this place appears a picture of the
Company's Torque-Hub(Registered) products.]
[In this place appears a picture of
Company's Torque-Hub(Registered) products.]
[In this place appears a picture of
Company's Torque-Hub(Registered) products.]
Fairfield's Torque-Hub(Registered) products provide propulsion, swing and/or
rotation to equipment primarily in cases where the use of axles presents design
difficulties. Examples of such equipment are pictured below.
[In this place appears a picture
of certain applications for the
Company's Torque-Hub(Registered) products.]
[In this place appears a picture
of certain applications for the
Company's Torque-Hub(Registered) products.]
[In this place appears a picture
of certain applications for the
Company's Torque-Hub(Registered) products.]
Torque-Hub(Registered) is a registered trademark of
Fairfield Manufacturing Company, Inc.
<PAGE>
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THIS PROSPECTUS NOR THE
ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS, NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information........................... ii
Incorporation of Certain Documents by
Reference..................................... ii
Prospectus Summary.............................. 1
Risk Factors.................................... 12
Use of Proceeds................................. 16
Capitalization.................................. 16
Selected Historical and Pro Forma
Combined Financial Data....................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 19
Business........................................ 22
Management...................................... 27
Ownership of Capital Stock...................... 31
Related Transactions............................ 32
Description of Existing Indebtedness............ 33
Description of Capital Stock.................... 37
The Exchange Offer.............................. 38
Description of New Preferred Stock and Exchange
Debentures.................................... 44
Certain Federal Income Tax Considerations....... 76
Plan of Distribution............................ 82
Legal Matters................................... 83
Experts......................................... 83
Index to Consolidated Financial Statements...... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
FAIRFIELD
GEARED FOR EXCELLENCE
FAIRFIELD MANUFACTURING
COMPANY, INC.
OFFER TO EXCHANGE SHARES OF
ITS 11 1/4% CUMULATIVE EXCHANGEABLE PREFERRED STOCK
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
FOR ANY AND ALL OUTSTANDING SHARES OF
ITS 11 1/4% CUMULATIVE EXCHANGEABLE PREFERRED STOCK
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the Delaware Corporation Law, as amended, and paragraph (e) of
Article Fifth of the Company's Restated Certificate of Incorporation, as
amended, provide for the indemnification, except in certain circumstances set
forth below, of officers, directors, employees and agents of the Company for
certain expenses incurred in connection with any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative, and for the purchase and maintenance of insurance by the
Company on behalf of officers, directors, employees and agents of The Company
against any liability asserted against, and incurred by, any such officer,
director, employee or agent in such capacity. Set forth below is the text of
Section 145 and the text of paragraph (e) of Article Fifth of the Company's
Certificate of Incorporation.
Section 145 of the Delaware Corporation Law, as amended, provides as
follows:
'145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--(a) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that
his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2)
if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
II-1
<PAGE>
(e) Expenses incurred by an officer or director in defending a civil
or criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any,
as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
(h) For purposes of this section, references to 'the corporation'
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to 'other enterprises'
shall include employee benefit plans; references to 'fines' shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to 'serving at the request of the corporation' shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner 'not opposed to the best interests of the
corporation' as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, 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.'
Paragraph (e) of Article Fifth of the Restated Certificate of Incorporation
of the Company, as amended, provides as follows:
'(e) No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of his or her fiduciary
duty as a director, provided that nothing contained in this Article shall
eliminate or limit the liability of a director (i) for any breach of the
director's 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 the law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from
which the director derived an improper personal benefit.'
As permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended, the Company has purchased and maintains insurance
providing for reimbursement to elected directors and officers, subject to
certain exceptions, of amounts they may be legally obligated to pay, including
but not limited to damages, judgments, settlements, costs and attorneys' fees
(but not including fines, penalties or matters not insurable under the law), as
a result of claims and legal actions instituted against them to recover for
their acts while serving as directors or officers.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) List of Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
2(a) -- Articles of Merger and related Plan of Merger under the state of Indiana of the Company with and
into Central Alabama Grain Company, Inc. ('CAG') dated March 31, 1995.(1)
2(b) -- Certificate of Ownership and Merger, merging the Company with and into CAG.(1)
*2(c) -- Merger Agreement under the State of Delaware between First Colony and the Company dated as of March
24, 1997.
*2(d) -- Certificate of Merger, merging First Colony with and into the Company
*3(a) -- Restated Certificate of Incorporation of the Company, together with the Certificate of Amendment,
dated March 7, 1997, and filed on March 11, 1997.
3(b) -- By-Laws of the Company.(1)
4(a) -- Indenture, dated as of July 7, 1993, between the Company and First Fidelity Bank, National
Association, as trustee.(2)
4(b) -- Supplemental Indenture No. 1, dated March 31, 1995, between CAG as successor-in-interest to the
Company and First Fidelity Bank, National Association, as trustee.(1)
*4(c) -- Indenture, dated as of March 12, 1997, between the Company and United States Trust Company of New
York as Trustee.
*4(d) -- Certificate of Designation, dated March 12, 1997, for the Existing Preferred Stock.
*4(e) -- Form of Certificate of Designation for the New Preferred Stock.
**5 -- Opinion of Debevoise & Plimpton, as to the legality of the New Preferred Stock being registered.
10(a) -- Loan Agreement, dated as of July 7, 1993, among the Company, the lenders named therein and GE, as
agent.(2)
10(b) -- Amended and Restated Warrant Agreement, dated as of July 7, 1993, among the Company, Mitsui Nevitt
Capital Corporation and Principal Mutual Life Insurance Company.(2)
10(c) -- Security Agreement, dated as of July 7, 1993, between the Company and GE, as agent.(2)
10(d) -- Security Agreement, dated as of July 7, 1993, between T-H Licensing and GE, as agent.(2)
10(e) -- Stock Pledge Agreement, dated as of July 7, 1993, between the Company and GE, as agent.(2)
10(f) -- Stock Pledge Agreement, dated as of July 7, 1993, between Fairfield Holdings and GE, as agent.(2)
10(g) -- Trademark Security Agreement, dated as of July 7, 1993, between the Company and GE, as agent.(2)
10(h) -- Trademark Security Agreement, dated as of July 7, 1993, between T-H Licensing and GE, as agent.(2)
10(i) -- Patent Security Agreement, dated as of July 7, 1993, between the Company and GE, as agent.(2)
10(j) -- Patent Security Agreement, dated as of July 7, 1993, between T-H Licensing and GE, as agent.(2)
10(k) -- Subsidiary Guaranty, dated as of July 7, 1993, between T-H Licensing and GE, as agent.(2)
10(l) -- Mortgage Assignment of Leases, Rents and Profits, Security Agreement and Fixture Filing, dated as of
July 7, 1993, between the Company and GE, as agent.(2)
10(m) -- Collection Account Agreement, dated as of July 7, 1993, among the Company and GE, acknowledged by
Bank One, Lafayette, N.A.(2)
10(n) -- Used Machinery Account Agreement, dated as of July 3, 1993, between the Company and GE, acknowledged
by Bank One, Lafayette, N.A.(2)
10(o) -- Quitclaim Grant of Security Interest, dated as of July 7, 1993, between the Company and GE, as
agent.(2)
10(p) -- Subsequent Quitclaim Grant of Security Interest (Patents only), dated as of July 3, 1993, between
the Company and GE.(2)
10(q) -- First Amendment to the Loan Agreement, dated as of September 30, 1994, among the Company, the
lenders named therein and GE, as agent.(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
10(r) -- Second Amendment to the Loan Agreement, dated March 30, 1995, among the Company, the lenders named
therein and GE, as agent.(1)
10(s) -- Third Amendment to the Loan Agreement, dated as of March 31, 1995, among the Company, the lenders
named therein and GE, as agent.(1)
10(t) -- First Amendment to Mortgage Assignment of Leases, Rents and Profits, Security Agreement and Fixture
Filing, dated as of March 31, 1995, between the Company and GE, as agent.(2)
10(u) -- Stock Pledge Agreement, dated as of March 31, 1995, between Lancer and GE, as agent.(1)
10(v) -- Amended and Restated Security Agreement, dated as of March 31, 1995 between the Company and GE, as
agent.(1)
10(w) -- The Employment and Non-Competition Agreement, dated as of January 1, 1992, between the Company and
W.B. Lechman, as amended on February 22, 1994 and December 19, 1995.(3)
10(x) -- The Fairfield Manufacturing Company, Inc. Equity Participation Plan, dated August 21, 1989.(3)
10(y) -- The Collective Bargaining Agreement, ratified October 28, 1995, between the Company and United Auto
Workers' Local 2317.(3)
10(z) -- The Tax Sharing Agreement, dated as of July 18, 1990, between the Company and Lancer.(3)
10(aa) -- The Fairfield Manufacturing Company, Inc. (1992) Supplemental Executive Retirement Plan.(3)
10(bb) -- Letter Agreement, dated December 29, 1989, granting exclusive license from T-H Licensing to the
Company.(3)
10(cc) -- Fourth Amendment to the Loan Agreement, dated as of December 5, 1996, among the Company, the lenders
named therein and GE, as agent.
10(dd) -- Second Amendment to Mortgage, Assignment of Leases, Rents and Profits, Security Agreement and
Fixture Filing, dated as December 5, 1996, between the Company and GE, as agent.(4)
*10(ee) -- Fifth Amendment to the Loan Agreement, dated as of February 26, 1997, among the Company, the lenders
named therein and GE, as agent.
10(ff) -- The Employment Agreement, dated as of June 1, 1996, between the Company and K.A. Burns.(4)
*10(gg) -- Consent and Amendment, dated as of March 27, 1997, among the Company and GE, as sole lender and
agent.
*10(hh) -- Securities Purchase Agreement, dated March 7, 1997, between the Company and the Initial Purchaser.
*10(ii) -- Share Registration Rights Agreement, dated March 12, 1997, between the Company and the Initial
Purchaser.
*12 -- Computations of Ratio of Earnings to Fixed Charges.
**23-A -- Consent of Debevoise & Plimpton (included in opinion filed as Exhibit 5).
*23-B -- Consent of Coopers & Lybrand L.L.P.
*24 -- Powers of Attorney (included on signature pages to this Registration Statement on Form S-4).
*25 -- Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939 (Form T-1) of
United States Trust Company of New York.
*99.1 -- Form of Letter of Transmittal and related documents to be used in connection with the Exchange
Offer.
*99.2 -- Form of Notice of Guaranteed Delivery.
*99.3 -- Form of Exchange Agent Agreement between the Company and the Exchange Agent.
</TABLE>
- ------------------
* Filed herewith.
** To be filed by amendment.
(1) Incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1994.
(2) Incorporated by reference to the Quarterly Report on Form 10-Q of the
Company for the fiscal quarter ended June 30, 1993.
(3) Incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1995.
(4) Incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1996.
II-4
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES.
Financial statement schedules of the Company for which provision is made in
the applicable accounting regulations of the Commission are not required, are
inapplicable or have been disclosed in the notes to the financial statements and
therefore have been omitted.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act 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; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liabilities 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 that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, 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 of 1933 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 of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 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.
(e) The undersigned registrant hereby undertakes 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Fairfield
Manufacturing Company, Inc. has caused this Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lafayette, State of Indiana, on the 8th day of April, 1997.
FAIRFIELD MANUFACTURING COMPANY, INC.
By: /s/ RICHARD A. BUSH
----------------------------------
Richard A. Bush
Vice President--Finance
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter A. Joseph, Paul S. Levy and Richard A.
Bush, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead in any and all capacities, to sign any or all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents 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 and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------- ----------------------------------------------- --------------
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ KENNETH A. BURNS President and Chief Operating Officer April 8, 1997
- --------------------------------------------
Kenneth A. Burns
PRINCIPAL FINANCIAL OFFICER:
/s/ RICHARD A. BUSH Vice President--Finance April 8, 1997
- --------------------------------------------
Richard A. Bush
PRINCIPAL ACCOUNTING OFFICER:
/s/ RICHARD A. BUSH Vice President--Finance April 8, 1997
- --------------------------------------------
Richard A. Bush
DIRECTORS:
/s/ PETER A. JOSEPH Director April 8, 1997
- --------------------------------------------
Peter A. Joseph
/s/ PAUL S. LEVY Director April 8, 1997
- --------------------------------------------
Paul S. Levy
/s/ W.B. LECHMAN Director and Chairman of the Board April 8, 1997
- --------------------------------------------
W.B. Lechman
/s/ JESS C. BALL Director April 8, 1997
- --------------------------------------------
Jess C. Ball
*By: April 1997
----------------------------------------
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NO.
- ------ --------------------------------------------------------------------------------------------------- -----
<S> <C> <C> <C>
2(a) -- Articles of Merger and related Plan of Merger under the state of Indiana of the Company with
and into Central Alabama Grain Company, Inc. ('CAG') dated March 31, 1995.(1)
2(b) -- Certificate of Ownership and Merger, merging the Company with and into CAG.(1)
*2(c) -- Merger Agreement under the State of Delaware between First Colony and the Company dated as of
March 24, 1997.
*2(d) -- Certificate of Merger, merging First Colony with and into the Company
*3(a) -- Restated Certificate of Incorporation of the Company, together with the Certificate of
Amendment, dated March 7, 1997, and filed on March 11, 1997.
3(b) -- By-Laws of the Company.(1)
4(a) -- Indenture, dated as of July 7, 1993, between the Company and First Fidelity Bank, National
Association, as trustee.(2)
4(b) -- Supplemental Indenture No. 1, dated March 31, 1995, between CAG as successor-in-interest to
the Company and First Fidelity Bank, National Association, as trustee.(1)
*4(c) -- Indenture, dated as of March 12, 1997, between the Company and United States Trust Company of
New York as Trustee.
*4(d) -- Certificate of Designation, dated March 12, 1997, for the Existing Preferred Stock.
*4(e) -- Form of Certificate of Designation for the New Preferred Stock.
**5 -- Opinion of Debevoise & Plimpton, as to the legality of the New Preferred Stock being
registered.
10(a) -- Loan Agreement, dated as of July 7, 1993, among the Company, the lenders named therein and
GE, as agent.(2)
10(b) -- Amended and Restated Warrant Agreement, dated as of July 7, 1993, among the Company, Mitsui
Nevitt Capital Corporation and Principal Mutual Life Insurance Company.(2)
10(c) -- Security Agreement, dated as of July 7, 1993, between the Company and GE, as agent.(2)
10(d) -- Security Agreement, dated as of July 7, 1993, between T-H Licensing and GE, as agent.(2)
10(e) -- Stock Pledge Agreement, dated as of July 7, 1993, between the Company and GE, as agent.(2)
10(f) -- Stock Pledge Agreement, dated as of July 7, 1993, between Fairfield Holdings and GE, as
agent.(2)
10(g) -- Trademark Security Agreement, dated as of July 7, 1993, between the Company and GE, as
agent.(2)
10(h) -- Trademark Security Agreement, dated as of July 7, 1993, between T-H Licensing and GE, as
agent.(2)
10(i) -- Patent Security Agreement, dated as of July 7, 1993, between the Company and GE, as agent.(2)
10(j) -- Patent Security Agreement, dated as of July 7, 1993, between T-H Licensing and GE, as
agent.(2)
10(k) -- Subsidiary Guaranty, dated as of July 7, 1993, between T-H Licensing and GE, as agent.(2)
10(l) -- Mortgage Assignment of Leases, Rents and Profits, Security Agreement and Fixture Filing,
dated as of July 7, 1993, between the Company and GE, as agent.(2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NO.
- ------ --------------------------------------------------------------------------------------------------- -----
<S> <C> <C> <C>
10(m) -- Collection Account Agreement, dated as of July 7, 1993, among the Company and GE,
acknowledged by Bank One, Lafayette, N.A.(2)
10(n) -- Used Machinery Account Agreement, dated as of July 3, 1993, between the Company and GE,
acknowledged by Bank One, Lafayette, N.A.(2)
10(o) -- Quitclaim Grant of Security Interest, dated as of July 7, 1993, between the Company and GE,
as agent.(2)
10(p) -- Subsequent Quitclaim Grant of Security Interest (Patents only), dated as of July 3, 1993,
between the Company and GE.(2)
10(q) -- First Amendment to the Loan Agreement, dated as of September 30, 1994, among the Company, the
lenders named therein and GE, as agent.(1)
10(r) -- Second Amendment to the Loan Agreement, dated March 30, 1995, among the Company, the lenders
named therein and GE, as agent.(1)
10(s) -- Third Amendment to the Loan Agreement, dated as of March 31, 1995, among the Company, the
lenders named therein and GE, as agent.(1)
10(t) -- First Amendment to Mortgage Assignment of Leases, Rents and Profits, Security Agreement and
Fixture Filing, dated as of March 31, 1995, between the Company and GE, as agent.(2)
10(u) -- Stock Pledge Agreement, dated as of March 31, 1995, between Lancer and GE, as agent.(1)
10(v) -- Amended and Restated Security Agreement, dated as of March 31, 1995 between the Company and
GE, as agent.(1)
10(w) -- The Employment and Non-Competition Agreement, dated as of January 1, 1992, between the
Company and W.B. Lechman, as amended on February 22, 1994 and December 19, 1995.(3)
10(x) -- The Fairfield Manufacturing Company, Inc. Equity Participation Plan, dated August 21,
1989.(3)
10(y) -- The Collective Bargaining Agreement, ratified October 28, 1995, between the Company and
United Auto Workers' Local 2317.(3)
10(z) -- The Tax Sharing Agreement, dated as of July 18, 1990, between the Company and Lancer.(3)
10(aa) -- The Fairfield Manufacturing Company, Inc. (1992) Supplemental Executive Retirement Plan.(3)
10(bb) -- Letter Agreement, dated December 29, 1989, granting exclusive license from T-H Licensing to
the Company.(3)
10(cc) -- Fourth Amendment to the Loan Agreement, dated as of December 5, 1996, among the Company, the
lenders named therein and GE, as agent.
10(dd) -- Second Amendment to Mortgage, Assignment of Leases, Rents and Profits, Security Agreement and
Fixture Filing, dated as December 5, 1996, between the Company and GE, as agent.(4)
*10(ee) -- Fifth Amendment to the Loan Agreement, dated as of February 26, 1997, among the Company, the
lenders named therein and GE, as agent.
10(ff) -- The Employment Agreement, dated as of June 1, 1996, between the Company and K.A. Burns.(4)
*10(gg) -- Consent and Amendment, dated as of March 27, 1997, among the Company and GE, as sole lender
and agent.
*10(hh) -- Securities Purchase Agreement, dated March 7, 1997, between the Company and the Initial
Purchaser.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NO.
- ------ --------------------------------------------------------------------------------------------------- -----
<S> <C> <C> <C>
*10(ii) -- Share Registration Rights Agreement, dated March 12, 1997, between the Company and the
Initial Purchaser.
*12 -- Computations of Ratio of Earnings to Fixed Charges.
**23-A -- Consent of Debevoise & Plimpton (included in opinion filed as Exhibit 5).
*23-B -- Consent of Coopers & Lybrand L.L.P.
*24 -- Powers of Attorney (included on signature pages to this Registration Statement on Form S-4).
*25 -- Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939 (Form T-1)
of United States Trust Company of New York.
*99.1 -- Form of Letter of Transmittal and related documents to be used in connection with the
Exchange Offer.
*99.2 -- Form of Notice of Guaranteed Delivery.
*99.3 -- Form of Exchange Agent Agreement between the Company and the Exchange Agent.
</TABLE>
- ------------------
* Filed herewith.
** To be filed by amendment.
(1) Incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1994.
(2) Incorporated by reference to the Quarterly Report on Form 10-Q of the
Company for the fiscal quarter ended June 30, 1993.
(3) Incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1995.
(4) Incorporated by reference to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1996.
<PAGE>
MERGER AGREEMENT
This Merger Agreement (this "Agreement") is made and entered
into as of March 24, 1997, between Fairfield Manufacturing Company, Inc., a
Delaware corporation ("Fairfield") and First Colony Farms, Inc., a Delaware
corporation ("First Colony").
W I T N E S S E T H
WHEREAS, each of Fairfield and First Colony are direct,
wholly-owned subsidiaries of Lancer Industries Inc., a Delaware corporation
("Lancer");
WHEREAS, for (i) purposes of eliminating certain corporate
franchise tax and other expenses associated with maintaining First Colony's
corporate existence and simplifying Lancer's corporate structure and (ii) other
valid business purposes, First Colony and Fairfield wish to merge (the
"Merger"), with Fairfield being the surviving corporation of the Merger;
WHEREAS, as of the date hereof, First Colony has net assets
(the "Net Assets") consisting of approximately $9,816 in cash;
WHEREAS, based on the most recent valuation of the Fairfield
common stock prepared by Chartered Capital Advisors, Inc.(the "Fairfield Stock
Valuation"), the Fairfield common stock, par value $.01 per share (the
"Fairfield Common Stock"), has a value of $8.31 per share; and
WHEREAS, the Merger is intended to be a tax-free
reorganization pursuant to Section 368(a)(1)(A) of the Internal Revenue Code of
1986.
NOW, THEREFORE, in consideration of the promises and mutual
covenants and agreements herein contained, Fairfield and First Colony agree as
follows:
ARTICLE I
<PAGE>
THE MERGER
1.1 The Merger. At the Effective time (as defined in Section
1.3 of this Agreement), and subject to the terms and conditions of this
Agreement and the General Corporation Law of the State of Delaware (the "DGCL"),
First Colony shall be merged with and into Fairfield, the separate corporate
existence of First Colony shall thereupon cease and Fairfield shall be the
surviving corporation of the Merger (sometimes hereinafter referred to as the
"Surviving Corporation"). The name of the Surviving Corporation shall be
"Fairfield Manufacturing Company, Inc.".
1.2 Effects of the Merger. At the Effective Time, the
Surviving Corporation shall continue its corporate existence under the laws of
the State of Delaware. The Merger shall have the effects specified in Section
259 of the DGCL.
1.3 Effective Time. As soon as practicable following the date
hereof, the parties to this Agreement shall effect the Merger by filing with the
Delaware Secretary of State a certificate of merger in such form as is required
by, and executed in accordance with, the relevant provisions of the DGCL (the
time of such filing being herein referred to as the "Effective Time").
1.4 Certificate of Incorporation; By-Laws. The
Certificate of Incorporation and By-Laws of Fairfield as in effect immediately
prior to the Effective Time shall, as of the Effective Time, be the Certificate
of Incorporation and By-Laws of the Surviving Corporation.
1.5 Conversion of Shares. At the Effective Time, by virtue
of the Merger and without any further action on the part of the holders thereof:
(a) (i) each share of Common Stock, par value $.01 per share,
of First Colony (the "First Colony Common Stock") issued and
outstanding immediately prior to the Effective Time shall be canceled
and shall cease to exist at and after the Effective Time, and (ii)
based on the Net Assets of First Colony and the Fairfield Stock
Valuation, Lancer shall receive 1,181 shares of
2
<PAGE>
the Fairfield Common Stock in exchange for its shares of First
Colony Common Stock;
(b) each share of the Fairfield Common Stock issued and
outstanding immediately prior to the Effective Time shall remain
outstanding and shall represent one fully paid and nonassessable share
of Common Stock, par value $.01 per share, of the Surviving
Corporation; and
(c) each share of the 11-1/4% Cumulative Exchangeable
Preferred Stock of Fairfield, par value $.01 per share and a
liquidation value of $1,000 per share, issued and outstanding
immediately prior to the Effective Time shall remain outstanding and
shall represent one fully paid and nonassessable share of 11-1/4%
Cumulative Exchangeable Preferred Stock, par value $.01 per share and a
liquidation value of $1,000 per share, of the Surviving Corporation.
ARTICLE II
MISCELLANEOUS
2.1 Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, notwithstanding approval thereof by the stockholders of Fairfield and
First Colony, by mutual written consent of Fairfield and First Colony.
2.2 Amendment. This Agreement may not be amended except by
action of Fairfield and First Colony set forth in an instrument in writing
signed on behalf of each of Fairfield and First Colony.
2.3. Other Provisions. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to the conflict of rules thereof.
This Agreement shall be binding upon and inure to the benefit of the parties to
this Agreement and their
3
<PAGE>
respective successors ans assigns. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement. This Agreement, including any exhibits
hereto and the documents and instruments referred to herein, embodies the entire
agreement and understanding of the parties to this Agreement in respect of the
subject matter of this Agreement. There are no agreements, restrictions,
promises, representations, warranties, covenants or understandings other than
those expressly set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
4
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have set
their hands on the date first set forth above.
FAIRFIELD MANUFACTURING COMPANY,
INC.
By: /s/ RICHARD A. BUSH
-----------------------------
Name: Richard A. Bush
Title: Vice-President-Finance
FIRST COLONY FARMS, INC.
By: /s/ PETER A. JOSEPH
-----------------------------
Name: Peter A. Joseph
Title: Vice President
5
<PAGE>
CERTIFICATE OF MERGER
of
FIRST COLONY FARMS, INC.
With and Into
FAIRFIELD MANUFACTURING COMPANY, INC.
Pursuant to Section 251 of the
Delaware General Corporation Law
FAIRFIELD MANUFACTURING COMPANY, INC., a corporation organized
and existing under the laws of the State of Delaware, DO HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each
of the constituent corporations (collectively, the "Constituent Corporations")
of the merger is as follows:
State of
Name Incorporation
---- -------------
FAIRFIELD MANUFACTURING COMPANY, INC. Delaware
FIRST COLONY FARMS, INC. Delaware
SECOND: That the Merger Agreement, dated as of March 24,
1997 (the "Merger Agreement"), between the Constituent Corporations has been
approved, adopted, certified, executed and acknowledged by each of the
Constituent Corporations in accordance with Section 251 of the General
Corporation Law of the State of Delaware.
<PAGE>
THIRD: That the name of the surviving corporation of the
merger is FAIRFIELD MANUFACTURING COMPANY, INC. (the "Surviving Corporation").
FOURTH: That the Certificate of Incorporation of
Fairfield Manufacturing Company, Inc. as in effect immediately prior to the
merger shall be the Certificate of Incorporation of the Surviving Corporation.
FIFTH: That the executed Merger Agreement is on file at
the principal place of business of the Surviving Corporation. The address of
the principal place of business of the Surviving Corporation is U.S. Route 52
South, Lafayette, Indiana 47905.
SIXTH: That a copy of the Merger Agreement will be
furnished by the Surviving Corporation, on request and without cost, to any
stockholder of either Constituent Corporation.
IN WITNESS WHEREOF, FAIRFIELD MANUFACTURING COMPANY, INC.
has caused this Certificate or Merger to be signed by its Vice President-Finance
and attested by its Secretary this 27th day of March, 1997.
2
<PAGE>
FAIRFIELD MANUFACTURING COMPANY,
INC.
By: /s/ RICHARD A. BUSH
------------------------------
Name: Richard A. Bush
Title: Vice President-Finance
ATTEST:
By: /s/ PETER A. JOSEPH
-------------------------
Name: Peter A. Joseph
Title: Secretary
<PAGE>
Exhibit 3(a)
RESTATED CERTIFICATE OF INCORPORATION
OF
FAIRFIELD MANUFACTURING COMPANY, INC.
Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware
FAIRFIELD MANUFACTURING COMPANY, INC. (formerly known as
CENTRAL ALABAMA GRAIN COMPANY, INC.), a corporation organized under the
General Corporation Law of the State of Delaware (the "Corporation") hereby
certifies as follows:
1. The date of filing of the Corporation's original
Certificate of Incorporation with the Secretary of State was August 15, 1989.
2. This Restated Certificate of Incorporation restates,
integrates and further amends the provisions of the Certificate of
Incorporation of the Corporation to read in its entirety as follows:
FIRST: The name of the Corporation is FAIRFIELD
MANUFACTURING COMPANY, INC.
SECOND: The Corporation's registered office in the State of
Delaware is at Corporation Trust Company, 1209 Orange Street in the
City of Wilmington, County of New Castle. The name of its registered
agent at such address is Corporation Trust Company.
THIRD: The nature of the business of the Corporation and
its purpose 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.
<PAGE>
FOURTH: The total number of shares of all classes of
capital stock which the Corporation shall have authority to issue is
10,150,000, of which 10,000,000 shall be Common Stock, par value
$0.01 per share (the "Common Stock"), and 150,000 shall be Series A
Preferred Stock, with a liquidation value of $100 per share (the
"Series A Preferred Stock").
Series A Preferred Stock
The Series A Preferred Stock shall have the following powers,
preferences, rights, qualifications, limitations and restrictions:
1. Dividends. (a)(i) The holders of Series A Preferred
Stock shall be entitled to receive, as and when declared by the Board
of Directors out of funds legally available therefor, dividends at a
rate of 15.25% per annum of the Series A Liquidation Value, and no
more, which shall be cumulative, calculated from the date of issuance
of the Series A Preferred Stock, and payable in arrears in equal
semi-annual payments on the last business day of each of January and
July (each of such dates being referred to as a "Dividend Payment Date"
and each such six-month period being referred to as a "Dividend
Payment Period"), commencing with the first such Dividend Payment
Date following the issuance of the Series A Preferred Stock and
payable, in the sole discretion of the Corporation, either in cash or
by issuing additional fully paid and nonassessable shares of Series A
Preferred Stock at the rate of one one-hundredth (1/100th) of a share
for each $1.00 of such dividend not paid in cash, and the issuance of
such additional shares shall constitute full payment of such dividend.
All shares of Series A Preferred Stock which may be issued as a
dividend with respect to the Series A Preferred Stock will thereupon
be duly authorized, validly issued, fully paid and nonassessable.
(ii) All such dividends, whether payable in cash or
securities, shall be cumulative and shall accrue whether or not
declared from the applicable Dividend Payment Date. Dividends paid
on the shares of Series A Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-
2
<PAGE>
share basis among all such shares outstanding at such time.
(iii) Notwithstanding anything contained herein to the
contrary, no cash dividends on shares of Series A Preferred Stock
shall be declared by the Board of Directors or paid or set apart for
payment by the Corporation at such time as the terms and provisions of
any financing or working capital agreement of the Corporation
specifically prohibit such declaration, payment or setting apart for
payment or if such declaration, payment or setting apart for payment
would constitute a breach thereof or a default thereunder or if such
declaration, payment or setting apart for payment would, upon the
giving of notice or passage of time or both, constitute such breach
or default, provided, that subject to applicable law, if any cash
dividends are so prohibited in whole or in part the Corporation may,
to the extent payment in cash of such dividends is not made, pay such
dividends in shares of Series A Preferred Stock in accordance with
Section 1(a)(i) of this Article Fourth, and provided, further,
that nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of
Directors to declare or the Corporation to pay or set apart for
payment any dividends on shares of the Series A Preferred Stock at
any time, whether or not permitted by any of such agreements.
(b) Restrictions on Distributions and Stock Issuances.
Unless the prior consent of the holders of not less than fifty-one
percent (51%) of the shares of Series A Preferred Stock then
outstanding, voting separately as a single class, in person or by
proxy, either in writing without a meeting or at a special or annual
meeting of stockholders shall have been obtained, the Corporation
shall not:
(i) declare, pay or set apart for payment any cash dividend
on or make any payment on account of or set apart for payment money
for a sinking fund or other similar fund for the purchase, redemption
or other retirement of (x) any class or series of capital stock of
the Corporation on a parity with the Series A Preferred Stock as to
dividends or upon Liquidation (as such term is defined in section 2 of
this Article Fourth) (the "Parity Stock") or (y) on any class or
series of capital stock of the Corporation junior to
3
<PAGE>
the Series A Preferred Stock as to dividends or upon Liquidation,
including the Common Stock, par value $.01 per share (the "Junior
Stock"), unless the Corporation has paid or set apart for payment all
accrued but unpaid dividends, on the Series A Preferred Stock, Parity
Stock and on any class or series of capital stock of the Corporation
that is senior to the Series A Preferred Stock as to dividends for
two consecutive Dividend Payment Periods; provided, however, that
notwithstanding the foregoing, the Corporation may declare, pay or
set apart for payment on any class or series of capital stock of the
Corporation any dividends payable solely in shares of Junior Stock.
The Board of Directors may fix a record date for the determination of
holders of Series A Preferred Stock entitled to receive payment of a
dividend declared thereon, which record date shall be not less than 10
days nor more than 60 days prior to the date fixed for the payment
thereof; or
(ii) create or issue any other class or series of preferred
stock having any preference or priority, or amend the existing terms
of any outstanding preferred stock so as to have any preference or
priority, superior to or on a parity with the Series A Preferred Stock
as to dividends or Liquidation or which is (x) scheduled by its terms
to be redeemed by the Corporation or (y) redeemable at the option of
the Corporation prior to the Series A Preferred Stock, without the
prior consent of the holders of fifty-one percent (51%) of the
outstanding shares of Series A Preferred Stock.
Notwithstanding the foregoing, the corporation may purchase
any shares of preferred stock issued to any employee of the
Corporation pursuant to the terms of such employee's employment
agreement with the Corporation without complying with the
requirements of this paragraph (b).
2. Liquidation Rights. Upon any liquidation, dissolution
or winding up of the affairs of the Corporation, whether voluntary or
involuntary (collectively, a "Liquidation"), no distribution shall be
made to the holders of Junior Stock unless, prior to the first such
distribution, the holders of the Series A Preferred Stock shall have
received in cash out of the net assets of the Corporation available for
distribution to its stockholders an amount equal to
4
<PAGE>
$100 per share of Series A Preferred Stock (the "Series A Liquidation
Value") plus an amount in cash out of the net assets of the
Corporation available for distribution to its stockholders equal to
all accrued but unpaid dividends, if any, on the Series A Preferred
Stock. In the event of any Liquidation of the Corporation, after
payment in cash shall have been made to the holders of shares of
Series A Preferred Stock of the full amount to which they shall be
entitled as aforesaid, the holders of any class of Junior Stock shall
be entitled, to the exclusion of the holders of shares of Series A
Preferred Stock, to share according to their respective rights and
preferences in all remaining assets of the Corporation available for
distribution to its stockholders.
If the assets distributable in any such event to the holders
of the Series A Preferred Stock or any class or series of stock on a
parity with the Series A Preferred Stock as to Liquidation (the
"Liquidation Parity Stock") are insufficient to permit the payment to
such holders of the full preferential amounts to which they may be
entitled, such assets shall be distributed ratably among the holders
of the Series A Preferred Stock and such Liquidation Parity Stock in
proportion to the full preferential amount each such holder would
otherwise be entitled to receive. Neither a merger or consolidation
of the Corporation with or into any other corporation nor a sale,
conveyance, exchange or transfer of all or any part of the assets of
or property of the Corporation shall be deemed to be a Liquidation
within the meaning of this section 2.
3. Redemption. (a) Optional Redemption. The Corporation
may, at its option (an "Optional Redemption Date"), redeem at any
time, or from time to time, all or in aggregate amounts of not less
than $5,000,000, any outstanding shares of Series A Preferred Stock
at a cash redemption price per share equal to the Series A Liquidation
Value plus an amount in cash equal to all accrued but unpaid
dividends , if any, on any accumulated dividends as aforesaid on the
shares so redeemed.
(b) Mandatory Redemption. The Corporation shall redeem any
outstanding shares of Series A Preferred Stock at a cash redemption
price equal to the Series A Liquidation Value plus an amount in cash
equal to all accrued but unpaid dividends, if any, upon the earliest
5
<PAGE>
to occur of the following (each date being referred to as a
"Mandatory Redemption Date", together with an Optional Redemption
Date, being referred to as a "Redemption Date"):
(i) August 1, 2000; or
(ii) upon a Liquidation of the Corporation.
(c) Payment of Redemption Price on Any Redemption Date. If
the Corporation shall be prohibited by applicable law or by the terms
and provisions of any financing or working capital agreement of the
Corporation from making payment in full on any Redemption Date of the
applicable redemption price for any outstanding shares of Series A
Preferred Stock required to be redeemed as provided herein, then: (i)
the Corporation shall not redeem any shares of Series A Preferred
Stock, (ii) the Corporation shall pay pro rata to the holders of any
outstanding shares of Series A Preferred Stock required to be
redeemed on the applicable Redemption Date an amount in cash equal to
the maximum amount which the Corporation is not so prohibited from
paying at such time for each such share, (iii) the applicable
redemption price shall be reduced by an amount per share equal to the
amount paid by the Corporation first from accrued but unpaid dividends
and then from the Series A Liquidation Value and (iv) the Corporation
shall redeem all outstanding shares of Series A Preferred Stock
required to be redeemed as soon as practicable after the date on which
the Corporation is no longer so prohibited from paying the applicable
redemption price for such shares.
(d) Status of Series A Preferred Stock. Shares of Series A
Preferred Stock which have been issued and reacquired in any manner,
including shares purchased or redeemed or exchanged shall (upon
compliance with any applicable provisions of the laws of the State of
Delaware) have the status of authorized and unissued shares of the
class of preferred stock undesignated as to series and may be
redesignated and reissued as part of any series of preferred stock,
provided, that no such issued and reacquired shares of Series A
Preferred Stock shall be reissued or sold as Series A Preferred Stock
unless reissued as a dividend on shares of Series A Preferred Stock.
6
<PAGE>
4. Procedures for Redemption. (a) In the event that fewer
than all the outstanding shares of Series A Preferred Stock are to be
redeemed, the number of shares to be redeemed shall be determined by
the Board of Directors and the shares to be redeemed shall be
selected by lot or pro rata as may be determined by the Board of
Directors, except that in any redemption permitted by this section 4
of fewer than all the outstanding shares of Series A Preferred Stock,
the Corporation may redeem all shares held by any holders of a number
of shares not to exceed 100 as may be specified by the Corporation.
(b) In the event the Corporation shall redeem shares of
Series A Preferred Stock, notice of such redemption shall be given by
first class mail, postage prepaid or by personal delivery, mailed or
delivered not less than 90 days prior to the applicable redemption
date, to each holder of record of the shares to be redeemed at such
holder's address as the same appears on the stock register of the
Corporation; provided, however, that neither the failure to give such
notice nor any defect therein shall affect the validity of the
proceeding for the redemption of any share of Series A Preferred
Stock to be redeemed and such notice requirement may be waived or
modified by the holders of the Series A Preferred Stock in writing.
Each such notice shall state: (i) the Redemption Date; (ii) the
number of shares of Series A Preferred Stock to be redeemed and, if
less than all the shares held by such holder are to be redeemed from
such holder, the number of shares to be redeemed from such holder;
(iii) the applicable redemption price; and (iv) that dividends on the
shares to be redeemed will cease to accrue on such Redemption Date.
(c) Notice having been mailed as aforesaid, from and after
the applicable Redemption Date (provided that on or prior to the
applicable Redemption Date the Corporation shall have irrevocably
deposited funds for such redemption in trust for the holders of
Series A Preferred Stock), dividends on the shares of Series A
Preferred Stock so called for redemption shall cease to accrue, and
such shares shall no longer be deemed to be outstanding and shall
have the status of authorized but unissued shares of Preferred Stock,
unclassified as to series, and shall not be reissued as shares of
Series A Preferred Stock unless reissued as a dividend on shares
7
<PAGE>
of Series A Preferred Stock, and all rights of the holders thereof as
stockholders of the Corporation (except the redemption price) shall
cease. Upon surrender in accordance with said notice of the
certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation
shall so require and the notice shall so state), such shares shall be
redeemed by the Corporation at the applicable redemption price
aforesaid. In case fewer than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
5. Voting Rights. Except as otherwise provided by law or
this Certificate of Designation, the holders of Series A Preferred
Stock shall not be entitled to vote on any matters submitted for a
vote of the holders of shares of Common Stock of the Corporation.
In the event the Corporation fails to pay dividends as set forth in
section 1 of this Article Fourth above for an aggregate of ten
consecutive Dividend Payment Periods, then each share of Series A
Preferred Stock then outstanding shall be entitled to 1/10th of one
vote and shall vote with the holders of Common Stock as a single
class on all matters. Such right shall only continue until such time
as an amount equal to all accrued but unpaid dividends has been paid
or declared and set apart for the payment thereof by the Corporation.
None of (i) the creation, authorization or issuance of any
shares of any Junior Stock, or the creation, authorization or
issuance of any obligation or security convertible into or evidencing
the right to purchase any Junior Stock, (ii) the creation of any
indebtedness of any kind of the Corporation, or (iii) the increase or
decrease in the amount of authorized capital stock of any class
(including preferred stock, but excluding the Series A Preferred
Stock) or any increase, decrease or change in the par value of any
such class other than the Series A Preferred Stock, shall require the
consent of the holders of Series A Preferred Stock and any such
action shall not be deemed to affect adversely the rights,
preferences, privileges and voting rights of shares of Series A
Preferred Stock.
8
<PAGE>
FIFTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of the
Corporation and for the purpose of creating, defining, limiting and
regulating the powers of the Corporation and its directors and
stockholders:
(a) The number of directors of the Corporation shall be
fixed and may be altered from time to time in the manner provided in
the By-Laws, and vacancies in the Board of Directors and newly
created directorships resulting from any increase in the authorized
number of directors may be filled, and directors may be removed, as
provided in the By-Laws.
(b) The election of directors may be conducted in any
manner approved by the stockholders at the time when the election is
held and need not be by ballot.
(c) All corporate powers and authority of the Corporation
(except as at the time otherwise provided by law, by this Certificate
of Incorporation or by the By-Laws) shall be vested in and exercised
by the Board of Directors.
(d) The Board of Directors shall have the power without the
assent or vote of the stockholders to adopt, amend, alter or repeal
the By-Laws of the Corporation, except to the extent that the By-Laws
or this Certificate of Incorporation otherwise provide.
(e) No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of his
or her fiduciary duty as a director, provided that nothing contained in
this Article shall eliminate or limit the liability of a director
(i) for any breach of the director's 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 the
law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware or (iv) for any transaction from which the director
derived an improper personal benefit.
SIXTH: The Corporation reserves the right to amend or
repeal any provision contained in this Certificate of Incorporation in
the manner now or hereafter prescribed by the laws of the State of
9
<PAGE>
Delaware, and all rights herein conferred upon stockholders or
directors are granted subject to this reservation.
3. This Restated Certificate of Incorporation was duly
adopted by the Board of Directors in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware.
10
<PAGE>
IN WITNESS WHEREOF, FAIRFIELD MANUFACTURING COMPANY, INC.
has caused this Restated Certificate of Incorporation to be signed by its Vice
President and attested by its Secretary this 20th day of March 1995.
FAIRFIELD MANUFACTURING COMPANY, INC.
/s/ PAUL S. LEVY
-------------------------
Name: Paul S. Levy
Title: Vice President
ATTEST:
/s/ PETER A. JOSEPH
- -----------------------
Name: Peter A. Joseph
Title: Secretary
11
<PAGE>
CERTIFICATE OF AMENDMENT
TO
THE RESTATED CERTIFICATE OF INCORPORATION
OF
FAIRFIELD MANUFACTURING COMPANY, INC.
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
FAIRFIELD MANUFACTURING COMPANY, INC., a corporation
organized under the General Corporation Law of the State of Delaware (the
"Corporation") hereby certifies as follows:
FIRST: That Article FOURTH of the Restated Certificate of
Incorporation of the Corporation is hereby amended by deleting
Article FOURTH in its entirety and inserting in lieu thereof the
following new Article FOURTH:
"FOURTH: The total number of shares of all classes of
capital stock which the Corporation shall have the authority to issue
is 10,250,000, of which 10,000,000 shall be Common Stock, par value
$0.01 per share (the "Common Stock") and 250,000 shall be Preferred
Stock, par value $.01 per share (the "Preferred Stock").
12
<PAGE>
The Preferred Stock may be issued, from time to time, in one
or more series as authorized by the Board of Directors of the
Corporation. Prior to issuance of a series, the Board of Directors of
the Corporation by resolution shall designate that series to
distinguish it from other series and classes of stock of the
Corporation, shall specify the number of shares to be included in the
series, and shall fix the terms, rights, restrictions and
qualifications of the shares of the series, including any preferences,
voting powers, dividend rights and redemption, sinking fund and
conversion rights. Subject to the express terms of any other series of
Preferred Stock outstanding at the time, the Board of Directors of the
Corporation may increase or decrease the number of shares or alter the
designation or classify or reclassify any unissued shares of a
particular series of Preferred Stock by fixing or altering in any one
or more respects from time to time before issuing the shares any terms,
rights, restrictions and qualifications of the shares."
SECOND: That this Amendment to the Restated Certificate of
Incorporation was duly adopted in accordance with Section 242 of the
General Corporation Law of the State of Delaware.
13
<PAGE>
IN WITNESS WHEREOF, this Certificate of Amendment to the
Restated Certificate of Incorporation has been signed on behalf of FAIRFIELD
MANUFACTURING, INC. by Kenneth A. Burns, its President, and attested by Peter A.
Joseph, its Secretary, this 7th day of March, 1997.
/s/ KENNETH A. BURNS
--------------------------
Name: Kenneth A. Burns
Title: President
Attest:
/s/ PETER A. JOSEPH
- -------------------------
Name: Peter A. Joseph
Title: Secretary
14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FAIRFIELD MANUFACTURING COMPANY, INC., as Issuer
and
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee
INDENTURE
Dated as of March 12, 1997
$125,000,000
11-1/4% Subordinated Exchange Debentures due 2009
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA
Indenture
Section 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; 11.02
(b)(1)..............................................................................................7.10
(b)(9)..............................................................................................7.10
(c).................................................................................................N.A.
311(a)................................................................................................ 7.11
(b)................................................................................................ 7.11
(c).................................................................................................N.A.
312(a)................................................................................................ 2.05
(b)................................................................................................11.03
(c)................................................................................................11.03
313(a)................................................................................................ 7.06
(b)(1)..............................................................................................7.06
(b)(2)..............................................................................................7.06
(c)................................................................................................11.02
(d).................................................................................................7.06
314(a)....................................................................................4.02; 4.04; 11.02
(b)................................................................................................11.02
(c)(1)...............................................................................12.02; 11.04; 11.05
(c)(2)...............................................................................12.02; 11.04; 11.05
(c)(3)..............................................................................................N.A.
(d)................................................................................................11.02
(e).........................................................................................11.03; 11.05
(f).................................................................................................N.A.
315(a)...........................................................................................7.01; 7.02
(b)..........................................................................................7.05; 11.02
(c).................................................................................................7.01
(d).....................................................................................6.05; 7.01; 7.02
(e).................................................................................................6.11
316(a)(last sentence).................................................................................11.06
(a)(1)(A)...........................................................................................6.05
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(a)(1)(B)...........................................................................................6.04
(a)(2)..............................................................................................8.02
(b).................................................................................................6.07
(c).................................................................................................8.04
317(a)(1)..............................................................................................6.08
(a)(2)..............................................................................................6.09
(b).................................................................................................7.12
318(a)................................................................................................11.01
</TABLE>
<PAGE>
N.A. means Not Applicable
- --------------------
NOTE: This Cross-Reference Table shall not, for any purpose,
be deemed to be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions................................................................1
Section 1.02. Other Definitions.........................................................26
Section 1.03. Incorporation by Reference of Trust
Indenture Act...........................................................27
Section 1.04. Rules of Construction.....................................................28
ARTICLE 2
THE SECURITIES
Section 2.01. Dating; Incorporation of Form in
Indenture...............................................................28
Section 2.02. Execution and Authentication..............................................29
Section 2.03. Registrar and Paying Agent................................................30
Section 2.04. Paying Agent To Hold Money in Trust.......................................31
Section 2.05. Securityholder Lists......................................................31
Section 2.06. Transfer and Exchange.....................................................31
Section 2.07. Replacement Securities....................................................32
Section 2.08. Outstanding Securities....................................................33
Section 2.09. Temporary Securities......................................................33
Section 2.10. Cancellation..............................................................33
Section 2.11. Defaulted Interest........................................................34
Section 2.12. Deposit of Moneys.........................................................34
Section 2.13. CUSIP Number..............................................................34
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee........................................................35
Section 3.02. Selection by Trustee of Securities
To Be Redeemed..........................................................35
Section 3.03. Notice of Redemption......................................................36
Section 3.04. Effect of Notice of Redemption............................................36
Section 3.05. Deposit of Redemption Price...............................................37
Section 3.06. Securities Redeemed in Part...............................................37
ARTICLE 4
COVENANTS
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Section 4.01. Payment of Securities.....................................................38
Section 4.02. SEC Reports...............................................................38
Section 4.03. Waiver of Stay, Extension or Usury Laws...................................39
Section 4.04. Compliance Certificate....................................................39
Section 4.05. Taxes.....................................................................40
Section 4.06. Limitation on Incurrence of
Additional Indebtedness.................................................40
Section 4.07. Limitation on Preferred Stock Capital of
Restricted Subsidiaries.................................................40
Section 4.08. Limitation on Restricted Payments.........................................41
Section 4.09. Limitation on Asset Sales.................................................43
Section 4.10. Limitation on Transactions
with Affiliates.........................................................45
Section 4.11. Limitations on Dividends and Other
Payment Restrictions Affecting
Subsidiaries............................................................47
Section 4.12. Limitations on Guarantees by Restricted
Subsidiaries............................................................47
Section 4.13. Payments for Consent......................................................48
Section 4.14. Corporate Existence.......................................................49
Section 4.15. Change of Control.........................................................49
Section 4.16. Maintenance of Office or Agency...........................................52
Section 4.17. Maintenance of Properties and Insurance...................................52
ARTICLE 5
SUCCESSOR CORPORATION
Section 5.01. Limitation on Consolidation,
Merger and Sale of Assets...............................................53
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Section 5.02. Successor Person Substituted..............................................54
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.........................................................54
Section 6.02. Acceleration..............................................................56
Section 6.03. Other Remedies............................................................57
Section 6.04. Waiver of Past Defaults and
Events of Default.......................................................58
Section 6.05. Control by Majority.......................................................58
Section 6.06. Limitation on Suits.......................................................58
Section 6.07. Rights of Holders To Receive Payment......................................59
Section 6.08. Collection Suit by Trustee................................................59
Section 6.09. Trustee May File Proofs of Claim..........................................59
Section 6.10. Priorities................................................................60
Section 6.11. Undertaking for Costs.....................................................61
Section 6.12. Restoration of Rights and Remedies........................................61
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.........................................................61
Section 7.02. Rights of Trustee.........................................................63
Section 7.03. Individual Rights of Trustee..............................................63
Section 7.04. Trustee's Disclaimer......................................................64
Section 7.05. Notice of Defaults........................................................64
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Section 7.06. Reports by Trustee to Holders.............................................64
Section 7.07. Compensation and Indemnity................................................64
Section 7.08. Replacement of Trustee....................................................66
Section 7.09. Successor Trustee by Consolidation,
Merger or Conversion....................................................67
Section 7.10. Eligibility; Disqualification.............................................67
Section 7.11. Preferential Collection of Claims
Against Company.........................................................67
Section 7.12. Paying Agents.............................................................67
ARTICLE 8
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.01. Without Consent of Holders................................................68
Section 8.02. With Consent of Holders...................................................69
Section 8.03. Compliance with Trust Indenture Act.......................................70
Section 8.04. Revocation and Effect of Consents.........................................70
Section 8.05. Notation on or Exchange of Securities.....................................71
Section 8.06. Trustee To Sign Amendments, etc...........................................71
ARTICLE 9
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01. Discharge of Indenture....................................................72
Section 9.02. Legal Defeasance..........................................................73
Section 9.03. Covenant Defeasance.......................................................73
Section 9.04. Conditions to Defeasance or Covenant
Defeasance..............................................................73
Section 9.05. Deposited Money and U.S. Government
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Obligations To Be Held in Trust;
Other Miscellaneous Provisions..........................................75
Section 9.06. Reinstatement.............................................................76
Section 9.07. Moneys Held by Paying Agent...............................................76
Section 9.08. Moneys Held by Trustee....................................................76
ARTICLE 10
SUBORDINATION OF SECURITIES
Section 10.01. Securities Subordinate to Senior
Debt....................................................................77
Section 10.02. Payment Over of Proceeds upon
Dissolution, etc........................................................78
Section 10.03. Suspension of Payment When Senior
Debt in Default.........................................................79
Section 10.04. Trustee's Relation to Senior
Debt....................................................................82
Section 10.05. Subrogation to Rights of Holders
of Senior Debt..........................................................82
Section 10.06. Provisions Solely To Define Relative
Rights..................................................................82
Section 10.07. Trustee to Effectuate Subordination.......................................83
Section 10.08. No Waiver of Subordination Provisions.....................................84
Section 10.09. Notice to Trustee.........................................................84
Section 10.10. Reliance on Judicial Order or
Certificate of Liquidating Agent........................................85
Section 10.11. Rights of Trustee as a Holder of
Senior Debt; Preservation of
Trustee's Rights........................................................86
Section 10.12. Article Applicable to Paying Agents.......................................86
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Section 10.13. No Suspension of Remedies.................................................86
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls..............................................86
Section 11.02. Notices...................................................................87
Section 11.03. Communications by Holders with
Other Holders...........................................................88
Section 11.04. Certificate and Opinion as to
Conditions Precedent....................................................88
Section 11.05. Statements Required in Certificate
and Opinion.............................................................88
Section 11.06. When Treasury Securities Disregarded......................................89
Section 11.07. Rules by Trustee and Agents...............................................89
Section 11.08. Business Days; Legal Holidays.............................................89
Section 11.09. Governing Law.............................................................90
Section 11.10. No Adverse Interpretation of
Other Agreements........................................................90
Section 11.11. No Recourse Against Others................................................90
Section 11.12. Successors................................................................91
Section 11.13. Multiple Counterparts.....................................................91
Section 11.14. Table of Contents, Headings, etc..........................................91
Section 11.15. Separability..............................................................91
</TABLE>
EXHIBITS
-vi-
<PAGE>
Exhibit A. Form of Security A-1
Exhibit B. Terms of Guarantee B-1
Exhibit C. Form of Guarantee C-1
-vii-
<PAGE>
INDENTURE, dated as of March 12, 1997, between FAIRFIELD
MANUFACTURING COMPANY, INC., a Delaware corporation, as Issuer (the "Company"),
and UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Company's
11-1/4% Subordinated Exchange Debentures due 2009 and any Secondary Securities
(as hereinafter defined) (collectively, the Securities").
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person (a)
assumed in connection with an Asset Acquisition from such Person or (b) existing
at the time such Person becomes a Subsidiary of any other Person.
"Act" means the Securities Act of 1933, as amended from time
to time, and the rules and regulations promulgated thereunder.
"Adjusted Net Assets" of a Guarantor at any date shall mean
the lesser of the amount by which (x) the fair value of the property of such
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities (including, without limitation, any guarantees of Senior
Debt)), but excluding liabilities under the Guarantee, of such Guarantor at such
date and (y) the present fair salable value of the assets of such Guarantor at
such date exceeds the amount that will be required to pay the probable liability
of such Guarantor on its debts (after giving effect to all other fixed and
contingent liabilities (including, without limitation, any guarantees of Senior
Debt) and after giving effect to any collection from any Subsidiary of such
Guarantor in respect of the obligations of such Subsidiary under the Guarantee),
excluding Indebtedness in respect of the Guarantee, as they become absolute and
matured.
"Affiliate" means, with respect to any specified Person, any
other Person directly or indirectly controlling or
<PAGE>
-2-
controlled by or under direct or indirect common control with such specified
Person.
"Agent" means any Registrar, Paying Agent or agent for
service of notices and demands.
"Asset Acquisition" means (a) an Investment by the Company or
any Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company, or shall be merged with or
into the Company or any Restricted Subsidiary of the Company, or (b) the
acquisition by the Company or any Restricted Subsidiary of the Company of the
assets of any Person which constitute all or substantially all of the assets of
such Person or any division or line of business of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer,
lease or other disposition to any Person other than the Company or a
Wholly-Owned Restricted Subsidiary of the Company, in one or a series of related
transactions, of: (a) any Capital Stock of any Restricted Subsidiary of the
Company; (b) all or substantially all of the properties and assets of any
division or line of business of the Company or any Restricted Subsidiary of the
Company; or (c) any other properties or assets of the Company or a Restricted
Subsidiary (including proprietary brand names, whether registered or otherwise)
other than in the ordinary course of business (it being understood that the sale
or lease of any used or obsolete equipment is in the ordinary course of
business). For the purposes of this definition, the term "Asset Sale" shall not
include (i) any sale, issuance, conveyance, transfer, lease or other disposition
of properties or assets that is governed by the provisions described under
Section 5.01 and (ii) any sale, issuance, conveyance, transfer, lease or other
disposition of properties or assets, whether in one transaction or a series of
related transactions, involving assets with a fair market value determined by
the Company to be not in excess of $1,000,000.
"Board of Directors" means the board of directors of the
Company or any committee authorized to act therefor.
"Board Resolution" means a copy of a resolution certified
pursuant to an Officers' Certificate to have been duly adopted by the Board of
Directors of the Company and to be in full force and effect and delivered to the
Trustee.
<PAGE>
-3-
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated) of capital stock, including each class of common stock and
preferred stock of such Person and (ii) with respect to any Person that is not a
corporation, any and all partnership or other equity interests.
"Capitalized Lease Obligations" means any obligation under a
lease of (or other agreement conveying the right to use) any property (whether
real, personal or mixed) that is required to be classified and accounted for as
a capital lease obligation under GAAP; and, for the purpose of this definition,
the amount of such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP consistently applied.
"Cash Equivalents" means, at any time: (i) any evidence of
Indebtedness with a maturity of 180 days or less 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); (ii) certificates of deposit,
time deposits, Eurodollar time deposits and bankers' acceptances with a maturity
of 180 days or less of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits at the
time of investment of not less than $500,000,000; (iii) commercial paper with a
maturity of 180 days or less issued by a corporation that is not an Affiliate of
the Company organized under the laws of any state of the United States or the
District of Columbia and rated at the time of investment at least A-1 by S&P or
at least P-1 by Moody's or at least an equivalent rating category of another
nationally recognized securities rating agency; and (iv) repurchase agreements
and reverse repurchase agreements relating to marketable direct obligations
issued or unconditionally guaranteed by the government of the United States of
America or issued by any agency thereof and backed by the full faith and credit
of the United States of America, in each case maturing within 180 days from the
date of acquisition; provided that the terms of such agreements comply with the
guidelines set forth in the Federal Financial Agreements of Depository
Institutions With Securities Dealers and Others, as adopted by the Comptroller
of the Currency on October 31, 1985.
<PAGE>
-4-
"Change of Control" means the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Stock of the
Company; (b) the Company consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any person, or any person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Disqualified Capital Stock)
of the surviving or transferee corporation or (2) cash, securities and other
property in an amount which could be paid by the Company as a Restricted Payment
under this Indenture and (ii) immediately after such transaction no "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), excluding Permitted Holders, is the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the total
Voting Stock of the surviving or transferee corporation; or (c) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of 66 2/3% of
the directors then still in office who were either directors at the beginning of
such period or persons whose election as directors or nomination for election
was previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office.
<PAGE>
-5-
"Common Stock" means, with respect to any Person, any and all
shares, interests or other participations in, and other equivalents (however
designated and whether voting or nonvoting) of, such Person's common stock,
whether outstanding at the Issue Date or issued after the Issue Date, and
includes, without limitation, all series and classes of such common stock.
"Company" means the party named as such in the first paragraph
of this Indenture until a successor replaces such party pursuant to Article 5 of
this Indenture and thereafter means the successor.
"Company Request" means any written request signed in the name
of the Company by any two of the following: the Chief Executive Officer; the
Chief Operating Officer; the President; any Vice President; the Chief Financial
Officer; the Treasurer; or the Secretary or any Assistant Secretary (but not
both the Secretary and any Assistant Secretary) of the Company.
"Consolidated EBITDA" means, with respect to any Person for
any period, (i) the sum of, without duplication, the amount for such period,
taken as a single accounting period, of (a) Consolidated Net Income, (b)
Consolidated Non-cash Charges, (c) Consolidated Interest Expense, (d)
Consolidated Income Tax Expense and (e) all non-cash accruals or cash expenses
relating to the New Equity Incentive Plan (to the extent such accruals or
expenses reduce net income), less (ii) non-cash items increasing Consolidated
Net Income (other than in the ordinary course of business); provided, however,
that if, during such period, such person or any of its Restricted Subsidiaries
shall have consummated any Asset Sale or Asset Acquisition, Consolidated EBITDA
for such person and its Restricted Subsidiaries for such period shall be
adjusted (in the manner set forth in the definition of the term "Consolidated
Fixed Charge Coverage Ratio") to give pro forma effect to the Consolidated
EBITDA directly attributable to the assets which are the subject of such Asset
Sales or Asset Acquisitions during such period.
"Consolidated Fixed Charge Coverage Ratio" means, with respect
to any Person, the ratio of the aggregate amount of Consolidated EBITDA of such
Person for the four full fiscal quarters for which financial information in
respect thereof is available immediately preceding the date of the transaction
<PAGE>
-6-
(the "Transaction Date") giving rise to the need to calculate the Consolidated
Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred
to herein as the "Four Quarter Period") to the aggregate amount of Consolidated
Fixed Charges of such person for the Four Quarter Period. In addition to and
without limitation of the foregoing, for purposes of this definition
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to,
without duplication, (a) the incurrence of any Indebtedness of such Person or
any of its Restricted Subsidiaries, or the repayment of any Indebtedness of such
person or its Restricted Subsidiary (other than the incurrence and repayment of
Indebtedness under a revolving credit facility) during the period commencing on
the first day of the Four Quarter Period to and including the Transaction Date
(the "Reference Period"), including, without limitation, the incurrence of the
Indebtedness giving rise to the need to make such calculation, as if such
incurrence occurred on the first day of the Reference Period, and (b) any Asset
Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
person or one of its Restricted Subsidiaries (including any person who becomes a
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness) occurring during the Reference
Period, as if such Asset Sale or Asset Acquisition occurred on the first day of
the Reference Period. Furthermore, in calculating "Consolidated Fixed Charges"
for purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (i) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date, (ii) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Reference Period; (iii) notwithstanding clauses (i) and (ii) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by Interest Rate Agreements, shall be deemed to have accrued at the rate
per annum resulting after
<PAGE>
-7-
giving effect to the operation of such agreements and (iv) interest on any
Indebtedness incurred pursuant to a revolving credit facility shall be based on
the average daily principal amount outstanding under such facility during such
Four Quarter Period. In calculating the Consolidated Fixed Charge Coverage
Ratio, and giving pro forma effect to any incurrence of Indebtedness during a
Reference Period, pro forma effect shall be given to the use of proceeds thereof
to permanently repay or retire Indebtedness. If such person or any of its
Restricted Subsidiaries directly or indirectly guaranteed Indebtedness or a
third person, the above clauses shall give effect to the incurrence of such
guaranteed Indebtedness as if such person or such Restricted Subsidiary had
directly incurred or otherwise assumed such guaranteed Indebtedness.
"Consolidated Fixed Charges" means, with respect to any Person
for any period, the sum of, without duplication, the amounts for such period of
(i) Consolidated Interest Expense and (ii) the aggregate amount of cash
dividends and other distributions paid or accrued during such period in respect
of Disqualified Capital Stock of such Person and its Restricted Subsidiaries on
a consolidated basis; provided, however, that if, during such period, such
Person or any of its Restricted Subsidiaries shall have made any Asset Sales or
Asset Acquisitions, Consolidated Fixed Charges for such Person and its
Restricted Subsidiaries for such period shall be adjusted (in the manner set
forth in the definition of the term "Consolidated Fixed Charge Coverage Ratio")
to give pro forma effect to the Consolidated Fixed Charges directly attributable
to the assets which are the subject of such Asset Sales or Asset Acquisitions
during such period.
"Consolidated Income Tax Expense" means, with respect to any
Person for any period, the provision for federal, state, local and foreign
income taxes of such Person and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, with respect to any
Person for any period, without duplication, the (i) sum of (a) the interest
expense of such person and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP consistently applied,
including, without limitation, (1)
any amortization of debt discount, (2) the net cost under Interest Rate
Agreements (including any
<PAGE>
-8-
amortization of discounts), (3) the interest portion of any deferred payment
obligation which in accordance with GAAP is required to be reflected on an
income statement, (4) all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, and (5) all
accrued interest and (b) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such person and its
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP consistently applied, minus (ii) any non-cash interest
expense of the Company in respect of Permitted Indebtedness incurred in
connection with the New Equity Incentive Plan, minus (iii) any amortization of
deferred financing costs and expenses.
"Consolidated Net Income" means, with respect to any Person,
for any period, the consolidated net income (or loss) of such Person and its
Restricted Subsidiaries for such period as determined in accordance with GAAP
consistently applied adjusted, (A) to the extent included in calculating such
net income, by excluding, without duplication, (i) all extraordinary gains or
losses (net of fees and expenses relating to the transaction giving rise
thereto) and the non-recurring cumulative effect of accounting changes, (ii) the
portion of net income (or loss) of such person and its Restricted Subsidiaries
allocable to minority interests in unconsolidated Persons to the extent that
cash dividends or distributions have not actually been received by such person
or one of its Restricted Subsidiaries, (iii) net income (or loss) of any Person
combined with such Person or one of its Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(iv) one time unusual non-cash charges, (v) any gain or loss realized upon the
termination of any employee pension benefit plan, on an after-tax basis, (vi)
gains or losses in respect of any Asset Sales by such person or one of its
Restricted Subsidiaries (net of fees and expenses relating to the transaction
giving rise thereto), on an after-tax basis, (vii) the net income of any
Restricted Subsidiary of such person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is not at the time permitted, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulations applicable to that Subsidiary or its
stockholders and (viii) the amount of any Consolidated Non-
<PAGE>
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cash Charges of such person attributable to the purchase method of accounting
treatment in accordance with Accounting Principles Board Opinion No. 16 dated
August 1970, entitled "Business Combinations" and (B) by adding, in the case of
the Company, (i) without duplication, capital contributions made by Lancer to
the Company pursuant to the Tax Sharing Agreement to the extent such capital
contributions represent a return to the Company of amounts which had been
included as income taxes in computing the Company's Consolidated Net Income and
(ii) for purposes of determining the Company's ability to make Restricted
Payments pursuant to Section 4.08, 100% (without duplication) of all non-cash
accruals or cash expenses relating to the New Equity Incentive Plan (to the
extent such accruals or expenses reduce net income).
"Consolidated Non-cash Charges" means, with respect to any
Person for any period, the aggregate depreciation, amortization and other
non-cash expenses (including, without limitation, non-cash reserves and non-cash
charges) of such Person and its Restricted Subsidiaries reducing Consolidated
Net Income of such person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP consistently applied.
"Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 114 West 47th Street, New York, New York 10036.
"Credit Agreement" means (a) the GE Credit Agreement, together
with all amendments, documents and instruments from time to time delivered in
connection with the GE Credit Agreement (including, without limitation, any
guaranty agreements and security documents), as in effect on the date hereof
and, subject to the proviso to the next succeeding sentence, as the GE Credit
Agreement and such other agreements, documents and instruments may be amended,
amended and restated, renewed, extended, restructured, supplemented or otherwise
modified from time to time, and (b) any credit agreement, loan agreement, note
purchase agreement, indenture or other agreement, document or instrument
refinancing, refunding or otherwise replacing the GE Credit Agreement or any
other agreement deemed a Credit Agreement under clause (a) or (b) hereof,
whether or not with the same agent, trustee, representative lenders or holders,
and, subject to the proviso
<PAGE>
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to the next succeeding sentence, irrespective of any changes in the terms and
conditions thereof. Without limiting the generality of the foregoing, the term
"Credit Agreement" shall include any amendment, amendment and restatement,
renewal, extension, restructuring, supplement or modification to any Credit
Agreement and all refundings, refinancings and replacements of any Credit
Agreement, including any agreement (i) extending the maturity of any
Indebtedness incurred thereunder or contemplated thereby, (ii) adding or
deleting borrowers or guarantors thereunder, so long as borrowers and issuers
include one or more of the Company and its Subsidiaries and their respective
successors and assigns, and (iii) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder, provided that on the date
thereof such Indebtedness would not be prohibited under this Indenture.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Depository" means, with respect to the Securities issued in
the form of one or more "Global" Securities, The Depository Trust Company or
another Person designated as Depository by the Company, which Person must be a
clearing agency registered under the Exchange Act.
"Designated Senior Debt" means (i) all Senior Debt under the
Credit Agreement, (ii) Indebtedness in respect of the Existing Notes, and (iii)
any other Senior Debt which (a) at the time of determination exceeds $10,000,000
in aggregate principal amount and (b) is specifically designated by the Company
in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the
Company.
"Disqualified Capital Stock" means any Capital Stock which, 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
(excluding any maturity as the result of an optional redemption by the issuer
thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the sole option of the holder thereof, in whole
or in part, on or prior to the final maturity date of the Securities. Without
limitation of the foregoing, Disqualified Capital Stock shall be deemed to
include (i) any Preferred
<PAGE>
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Capital Stock of a Restricted Subsidiary of the Company and (ii) any Preferred
Capital Stock of the Company, with respect to either of which, under the terms
of such Preferred Capital Stock, by agreement or otherwise, such Restricted
Subsidiary or the Company is obligated to pay current dividends or distributions
in cash during the period prior to the redemption date of the Exchangeable
Preferred Stock or the maturity date of the Securities; and (iii) as long as the
Exchangeable Preferred Stock remains outstanding, Senior Stock and Parity Stock.
Notwithstanding anything in this definition to the contrary, that Preferred
Capital Stock of the Company or any Restricted Subsidiary thereof that is issued
with the benefit of provision requiring a change of control offer to be made for
such Preferred Capital Stock in the event of a change of control of the Company
or Restricted Subsidiary, which provisions have substantially the same effect as
the provisions of this Indenture described under Section 4.15 shall not be
deemed to be Disqualified Capital Stock solely by virtue of such provisions.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time and the rules and regulations promulgated thereunder.
"Exchange Date" means the date of original issuance of
the Securities.
"Exchangeable Preferred Stock" means the 11-1/4% Exchangeable
Preferred Stock, par value $.01 per share and a liquidation preference of $1,000
per share, or shares of Preferred Capital Stock issued in exchange therefor.
"Existing Indenture" means the indenture pursuant to which the
Existing Notes were issued.
"Existing Notes" means the Company's 11 3/8% Senior
Subordinated Notes due 2001.
"Event of Default" has the meaning set forth in Section
6.01 of this Indenture.
"Four Quarter Period" has the meaning set forth in the
definition of Consolidated Fixed Charge Coverage Ratio.
"GAAP" means generally accepted accounting principles in the
United States set forth in the Statements of Financial Accounting Standards and
Interpretations, Accounting
<PAGE>
-12-
Principles Board Opinions and AICPA Accounting Research Bulletins which are
applicable as of the Issue Date.
"GE Credit Agreement" means the Credit Agreement, dated as of
July 7, 1993, as amended from time to time, among the Company, T-H Licensing,
Inc., as guarantor, the lenders named therein and General Electric Capital
Corporation, as agent for such lenders.
"Guarantee" has the meaning set forth in Section 4.12 of
this Indenture.
"guarantee" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of such obligation and (ii) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantor" means the issuer at any time of a Guarantee (so
long as such a Guarantee remains outstanding).
"Guarantor Senior Debt" means the principal of, premium, if
any, and interest on any Indebtedness of a Guarantor, whether outstanding on the
Issue Date or thereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness is pari passu with or subordinated in right of payment to the
Securities. Without limiting the generality of the foregoing, "Guarantor Senior
Debt" shall also include (i) all obligations of the Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed, under
or in respect of the Credit Agreement, whether for principal, interest
(including, without limitation, interest accruing after the filing of a petition
initiating any proceeding under any state or federal bankruptcy law whether or
not such interest is an allowable claim), reimbursement of amounts drawn under
letters of credit issued or arranged for pursuant thereto, guarantees in respect
thereof, and all charges, fees, expenses (including reasonable
<PAGE>
-13-
fees and expenses of counsel) and other amounts in respect of the Credit
Agreement incurred by or owing to the lenders under the Credit Agreement or
their representative, agent or trustee, and all other obligations of the
Guarantor incurred under or in respect of the Credit Agreement (including,
without limitation, any Interest Rate Agreements and in respect of premiums,
indemnities or otherwise, and all indebtedness under the Credit Agreement which
is disallowed, avoided or subordinated pursuant to Section 548 of Title 11,
United States Code or any applicable state fraudulent conveyance law) and (ii)
all obligations of the Guarantor under, or in respect of, the Existing Notes and
the Existing Indenture. Notwithstanding the foregoing, "Guarantor Senior Debt"
shall not include (a) Indebtedness evidenced by the Securities, (b) Indebtedness
that is expressly subordinate or junior in right of payment to any Guarantor
Senior Debt of the Guarantor, (c) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11, United States Code,
is by its terms without recourse to the Guarantor, (d) any repurchase,
redemption or other obligation in respect of Disqualified Capital Stock, (e) to
the extent it might constitute Indebtedness, amounts owing for goods, materials
or services purchased in the ordinary course of business or consisting of trade
payables or other current liabilities (other than any current liabilities owing
under the Credit Agreement or the current portion of any long-term Indebtedness
which would constitute Guarantor Senior Debt but for the operation of this
clause (e)), (f) to the extent it might constitute Indebtedness, amounts owed by
the Guarantor for compensation to employees or for services rendered to the
Guarantor, (g) to the extent it might constitute Indebtedness, any liability for
federal, state, local or other taxes owed or owing by the Guarantor, (h)
Indebtedness of the Guarantor to a Subsidiary of such Guarantor or any other
Affiliate of such Guarantor or any of such Affiliate's Subsidiaries and (i) that
portion of any Indebtedness which at the time of issuance is issued in violation
of this Indenture (but, as to any such Indebtedness, no such violation of this
Indenture shall be deemed to exist for purposes of this clause (i) if the
holder(s) of such Indebtedness or their representative or the Company shall have
furnished to the Trustee an Opinion of Counsel, unqualified in all material
respects, addressed to the Trustee (which legal counsel may, as to matters of
fact, rely upon an Officers' Certificate of such Guarantor) to the effect that
the incurrence of such Indebtedness does not violate the provisions of this
Indenture).
<PAGE>
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"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording (other than previously
recorded), as required pursuant to GAAP or otherwise, of any such Indebtedness
or other obligation on the balance sheet of such Person (and "incurrence,"
"incurred," "incurrable," and "incurring" shall have meanings correlative to the
foregoing); provided that a change in GAAP that results in an obligation of such
Person that exists at such time becoming Indebtedness shall not be deemed an
incurrence of such Indebtedness.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all liabilities of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade payables
and other accrued current liabilities incurred in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit, banker's
acceptance or other similar credit transaction, (b) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments, (c)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business, (d)
all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred
to in the preceding clauses of other Persons and all dividends of other Persons,
the payment of which is secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligations being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (f) all guarantees of Indebtedness referred to in this
definition by such Person, (g) all Disqualified Capital Stock valued at the
greater of its
<PAGE>
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voluntary or involuntary maximum fixed repurchase price plus accrued dividends,
(h) all obligations under or in respect of currency exchange contracts and
Interest Rate Agreements of such Person and (i) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (a) through (h) above. For purposes hereof, (x) the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined in good faith by the board of directors of the
issuer of such Disqualified Capital Stock, and (y) Indebtedness is deemed to be
incurred pursuant to a revolving credit facility each time an advance is made
thereunder; provided, however, that, with respect to the Company, Indebtedness
referred to in this definition shall exclude all obligations of the Company to
Lancer under the Tax Sharing Agreement and any liability for federal, state,
local or other taxes owed or owing by the Company.
"Indenture" means this Indenture as amended, restated or
supplemented from time to time.
"Interest Payment Date" means the stated maturity of an
installment of interest on the Securities.
"Interest Rate Agreement" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or
indirect loan or other extension of credit, guarantee or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any
<PAGE>
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purchase or acquisition by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any other
Person. For the purpose of making any calculations under this Indenture (i)
Investment shall include the fair market value of the net assets of any
Subsidiary at the time that such Subsidiary is designated an Unrestricted
Subsidiary and shall exclude the fair market value of the net assets of any
Unrestricted Subsidiary that is designated a Restricted Subsidiary and (ii) any
property, transferred to or from an Unrestricted Subsidiary shall be valued at
fair market value at the time of such transfer; provided that in each case, the
fair market value of an asset or property shall be as determined by the Board of
Directors of the Company in good faith. For the purpose of this Indenture, the
change in designation of a Restricted Subsidiary to an Unrestricted Subsidiary
shall be an Investment. "Investments" shall exclude extensions of trade credit
on commercially reasonable terms consistent with the normal course of business
of the Company and the Restricted Subsidiaries.
"Issue Date" means the date of original issuance of the
Exchangeable Preferred Stock.
"Lancer" means Lancer Industries Inc., a Delaware
corporation.
"Lien" means any mortgage, charge, pledge, lien (statutory or
other), security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind. A Person shall be deemed to own subject to a Lien any property
which such Person has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement.
"Maturity Date" means March 15, 2009.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are
<PAGE>
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financed or sold with recourse to the Company or any Restricted Subsidiary of
the Company) net of (i) brokerage commissions and other fees and expenses
(including, without limitation, fees and expenses of legal counsel and
investment bankers) related to such Asset Sale, (ii) provisions for all taxes
payable as a result of such Asset Sale, (iii) amounts required to be paid and
which have been paid, or amounts required to be pledged and which are pledged to
secure Indebtedness owed to any Person (other than the Company or any Restricted
Subsidiary of the Company) owning a beneficial interest in the assets subject to
the Asset Sale (which, in the case of a Lien, is being pledged to permanently
reduce Indebtedness secured by such Lien) and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company, as the case
may be, as a reserve required in accordance with GAAP consistently applied
against any liabilities associated with such Asset Sale and retained by the
Company or any Restricted Subsidiary of the Company, as the case may be, after
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee.
"New Equity Incentive Plan" means any long-term incentive
compensation plan adopted by the Company covering the Company's executives and
selected other key management employees.
"Non-Payment Event of Default" means any event (other than a
Payment Default) the occurrence of which entitles one or more Persons to
accelerate the maturity of any Designated Senior Debt.
"Obligations" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing, or otherwise relating to,
Indebtedness.
"Officer" means the Chief Executive Officer, the Chief
Operating Officer, the President, any Vice President, the Chief Financial
Officer, the Treasurer, the Controller or the Secretary of the Company or any
other officer designated by the Board of Directors, as the case may be.
<PAGE>
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"Officers' Certificate" means, with respect to any Person
other than the Trustee, a certificate signed by the Chief Executive Officer, the
Chief Operating Officer, the President or any Vice President and the Chief
Financial Officer, the Controller or any Treasurer of such Person that shall
comply with applicable provisions of this Indenture and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion from legal
counsel which counsel and opinion are reasonably acceptable to the Trustee.
"Payment Default" means any Default, whether or not any
requirement for the giving of notice, the lapse of time or both, or any other
condition to such Default becoming an Event of Default has occurred, in the
payment of principal of (or premium, if any) or interest on or any other amount
payable in connection with Designated Senior Debt.
"Permitted Holders" means (i) Lancer and its Affiliates and
(ii) any "group" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) comprised solely of Lancer and its Affiliates (it being understood
that a "group" that includes any other Person shall not be a Permitted Holder).
"Permitted Indebtedness" means each and all of the
following:
(1) Indebtedness of the Company or any Guarantor under the
Credit Agreement in an aggregate principal amount at any time
outstanding not to exceed the greater of (x) $58,000,000, less the
amount of any scheduled principal payments actually made (excluding,
without limitation, any prepayments required to be made based upon the
Company's excess cash flow) or the amount of any other payments which
are applied or credited against scheduled principal payments on the
date such scheduled principal payments would otherwise have been made
(except to the extent refinanced under a replacement Credit Agreement
at the time of the respective repayment) by the Company or any
Guarantor in respect of any term loans under the Credit Agreement and
the amount by which the aggregate commitment under any revolving credit
facility under the Credit Agreement at any time has been permanently
reduced to the extent that any repayments
<PAGE>
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required to be made in connection with effecting such permanent
reduction have been made (it being understood that to the extent a
reduction in commitments under any revolving credit facility under the
Credit Agreement arises solely in connection with a refinancing of
outstanding amounts under such revolving credit facility with
borrowings under a replacement Credit Agreement and the commitments
under the Credit Agreement are thereby replaced with commitments under
such replacement Credit Agreement such a permanent reduction shall not
have occurred); provided, however, that the Company or any Guarantor
shall be permitted to incur an additional amount of Indebtedness not to
exceed $15,000,000 under its revolving credit facility if the borrowing
base requirement under such facility permits such incurrence and (y)
the amount equal to the sum of 80% of the net book value of accounts
receivable and 60% of the net book value of inventory (determined on a
first-in-first-out basis) of the Company and its Restricted
Subsidiaries on a consolidated basis at the time such Indebtedness is
incurred, as determined in accordance with GAAP;
(2) Indebtedness of the Company and its Restricted
Subsidiaries pursuant to the Existing Notes and the Existing
Indenture;
(3) Indebtedness of the Company and its Restricted
Subsidiaries pursuant to the Securities and this Indenture;
(4) Indebtedness of the Company outstanding on the date
of this Indenture;
(5) Interest Rate Agreements of the Company or any Guarantor
covering Indebtedness of the Company or any such Guarantor; provided,
however, that (i) any Indebtedness to which any such Interest Rate
Agreement relates bears interest at fluctuating interest rates and is
otherwise permitted to be incurred under this covenant and (ii) the
notional amount of any such Interest Rate Agreement does not exceed the
principal amount of the Indebtedness to which such Interest Rate
Agreement relates;
(6) Indebtedness of a Wholly-Owned Restricted Subsidiary of
the Company (x) to the Company or (y) to
<PAGE>
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another Wholly-Owned Restricted Subsidiary of the Company; provided,
however, that any such Indebtedness of a Wholly-Owned Restricted
Subsidiary of the Company that is not a Guarantor is not subordinated
in right of payment to any other Indebtedness of such Restricted
Subsidiary;
(7) Indebtedness of the Company to a Wholly-Owned Restricted
Subsidiary of the Company which is unsecured and, unless owing to a
Guarantor, subordinated in right of payment from and after such time as
the Securities shall become due and payable (whether at a Stated
Maturity, by acceleration or otherwise) to the payment and performance
of the Company's obligations under this Indenture and the Securities;
provided, however, that any subsequent issuance or transfer of Capital
Stock that results in such Wholly-Owned Restricted Subsidiary ceasing
to be such, or any subsequent transfer of such Indebtedness (other than
to the Company or a Wholly-Owned Restricted Subsidiary) will be deemed,
in each case, to constitute the issuance of such Indebtedness by the
Company or of such Indebtedness by such Wholly-Owned Restricted
Subsidiary;
(8) Indebtedness of the Company to T-H Licensing arising
in connection with the loans described in clause (vi) of
Section 4.10(b);
(9) Indebtedness of the Company or any Guarantor
representing Capitalized Lease Obligations so long as such Indebtedness
does not exceed 6.0% of the amount of the gross property, plant and
equipment of the Company and its Restricted Subsidiaries determined on
a consolidated basis, as shown on the balance sheet of the Company as
of the end of the most recent fiscal quarter, in accordance with GAAP
consistently applied;
(10) Indebtedness of the Company or any Restricted Subsidiary
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, that such Indebtedness is extinguished
within 5 business days of incurrence;
<PAGE>
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(11) Indebtedness of the Company or any Restricted Subsidiary
consisting of guaranties, indemnities or obligations in respect of
purchase price adjustments in connection with the acquisition or
disposition of assets permitted under this Indenture;
(12) Following the Exchange Date, any Indebtedness or other
obligations of the Company issued to participants in the New Equity
Incentive Plan, provided that such Indebtedness is subordinated in
right of payment to the Securities;
(13) Indebtedness of the Company or any Guarantor in addition
to that described in clauses (1) through (12) above not to exceed
$20,000,000 outstanding at any time in the aggregate, which
Indebtedness may be incurred under the Credit Agreement; or
(14) (i) Indebtedness of the Company or any Guarantor, the
proceeds of which are used solely to refinance (whether by amendment,
renewal, extension or refunding) Indebtedness of the Company (including
all or a portion of the Exchange Debentures) or any of its Restricted
Subsidiaries and (ii) Indebtedness of any Restricted Subsidiary of the
Company the proceeds of which are used solely to refinance (whether by
amendment, renewal, extension or refunding) Indebtedness of such
Restricted Subsidiary; provided, however, that (A) the principal amount
of Indebtedness incurred pursuant to this clause (14) (or, if such
Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the
maturity thereof, the original issue price of such Indebtedness) shall
not exceed the sum of the principal amount of Indebtedness so
refinanced (or, if the Indebtedness so refinanced provides for an
amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the maturity thereof, the
original issue price of such Indebtedness plus any accretion value
attributable thereto since the original issuance of such Indebtedness)
plus the amount of any premium required to be paid in connection with
such refinancing pursuant to the terms of such Indebtedness or the
amount of any premium reasonably determined by the Company as necessary
to accomplish such refinancing by means of a tender offer or privately
<PAGE>
-22-
negotiated purchase, plus the amount of expenses in connection
therewith and (B) in the case of any refinancing of Indebtedness that
is not Senior Debt, (1) such new Indebtedness is made subordinate to
the Securities in the same manner and at least to the same extent as
the Indebtedness being refinanced and (2) such new Indebtedness has a
Weighted Average Life to Maturity and final Stated Maturity of
principal that exceeds the Weighted Average Life to Maturity and final
Stated Maturity of principal, respectively, of the Indebtedness being
refinanced.
"Permitted Investment" means any of the following: (i)
Investments by the Company or any Wholly-Owned Restricted Subsidiary of the
Company in another Person, if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to the Company or such Wholly-Owned Restricted
Subsidiary; (ii) Investments in obligations of, or guaranteed by, the United
States government or any agency or political subdivision thereof, maturing
within one year of the date of purchase; (iii) Investments in commercial paper
issued by corporations, each of which shall have a consolidated net worth of at
least $100,000,000 maturing within 180 days from the date of the original issue
thereof, and rated "P-1" or better by Moody's or "A-1" or better by S&P or an
equivalent rating or better by any other nationally recognized securities rating
agency; (iv) Investments in certificates of deposit issued or acceptances
accepted by or guaranteed by any bank or trust company organized under the laws
of the United States of America or any state thereof or the District of
Columbia, in each case having capital, surplus and undivided profits totaling
more than $100,000,000 maturing within one year of the date of purchase; (v)
Investments representing Capital Stock or obligations issued to the Company or
any of its Restricted Subsidiaries in settlement claims against any other person
by reason of a composition or readjustment of debt or a reorganization of any
debtor of the Company or of such Restricted Subsidiary; (vi) Investments in Cash
Equivalents; (vii) loans and advances to officers of the Company and its
Restricted Subsidiaries made in compliance with clause (v) of Section 4.10(b);
(viii) Investments by the Company or a Wholly-Owned Restricted Subsidiary in the
Capital Stock of a Wholly-Owned Restricted Subsidiary; (ix) money market funds
organized under the laws of the United States of America or any state thereof
that invest substantially all of their
<PAGE>
-23-
assets in any of the types of investments described in clause (ii), (iii), (iv)
or (vi) above; (x) Investments in any of the Securities; (xi) receivables owing
to the Company of any Restricted Subsidiary created in the ordinary course of
business; (xii) Investments consisting of Indebtedness permitted under clause
(5) of the definition of Permitted Indebtedness; and (xiii) Investments in the
aggregate amount of $10,000,000 at any time outstanding.
"Permitted Liens" means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or
claims either (i) not delinquent or (ii) contested in good faith by
appropriate proceedings and as to which the Company or any of its
Restricted Subsidiaries shall have set aside on its books such reserves
as may be required pursuant to GAAP;
(b) security for the payment of workers' compensation,
unemployment insurance, other social security benefits or other
insurance-related obligations (including, but not limited to, in
respect of deductibles, self-insured retention amounts and premiums and
adjustments thereto);
(c) deposits or pledges in connection with bids,
tenders, leases and contracts (other than contracts for the
payment of money);
(d) zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, restrictions on the use of
property or minor irregularities of title (and with respect to
leasehold interests, mortgages, obligations, liens and other
encumbrances incurred, created, assumed or permitted to exist and
arising by, through or under a landlord or owner of the leased
property, with or without consent of the lessee), none of which
interferes in any material respect with the ordinary conduct of the
business of the Company or any of its Subsidiaries or materially
impairs the use of any parcel of property;
(e) deposits or pledges to secure public or statutory
obligations, progress payments, surety and
<PAGE>
-24-
appeal bonds or other obligations of like nature incurred in the
ordinary course of business;
(f) certain surveys, exceptions, title defects, encumbrances,
easements, reservations of, or rights of others for, rights of way,
sewers, electric lines, telegraph or telephone lines and other similar
purposes or zoning or other restrictions as to the use of real property
not materially interfering with the ordinary conduct of the business of
the Company and its Subsidiaries taken as a whole; or
(g) Liens arising by operation of law in favor of landlords,
mechanics, carriers, warehousemen, materialmen, laborers, employees,
suppliers or the like, incurred in the ordinary course of business for
sums which are not yet delinquent or are being contested in good faith
by negotiations or by appropriate proceedings which suspend the
collection thereof.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Capital Stock" of any Person means any Capital
Stock of such Person that has preferential rights to any other Capital Stock of
such Person with respect to dividends or redemption or upon liquidation.
"Property" of any Person means all types of real, Personal,
tangible, intangible or mixed property owned by such Person whether or not
included in the most recent consolidated balance sheet of such Person and its
Subsidiaries under GAAP.
"Qualified Capital Stock" means any Capital Stock that is
not Disqualified Capital Stock.
"Record Date" means March 1 and September 1 of each year
(whether or not a Business Day).
"Redemption Date" when used with respect to any Security to be
redeemed means the date fixed for such redemption pursuant to this Indenture.
<PAGE>
-25-
"Reference Period" shall have the meaning set forth in the
definition of Consolidated Fixed Charge Coverage Ratio.
"Restricted Payment" means any of the following: (i) the
declaration or payment of any dividend or the making of any other distribution
(other than dividends or distributions payable in Qualified Capital Stock) on
shares of the Company's Capital Stock, (ii) the purchase, redemption, retirement
or other acquisition for value of any Capital Stock of the Company, or any
warrants, rights or options to acquire shares of Capital Stock of the Company,
other than through the exchange of such Capital Stock or any warrants, rights or
options to acquire shares of any class of such Capital Stock for Qualified
Capital Stock or warrants, rights or options to acquire Qualified Capital Stock,
(iii) the making of any principal payment on, or the purchase, defeasance,
redemption, prepayment, decrease or other acquisition or retirement for value,
prior to any scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, of, any Indebtedness of the Company or its Subsidiaries that is
subordinated or junior in right of payment to the Securities, and (iv) the
making of any Investment (other than a Permitted Investment).
"Restricted Security" has the meaning set forth in Rule
144(a)(3) promulgated under the Securities Act; provided that the Trustee shall
be entitled to request and conclusively rely upon an Opinion of Counsel with
respect to whether any Security is a Restricted Security.
"Restricted Subsidiary" means (i) T-H Licensing and (ii) any
other subsidiary of the Company other than an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Corporation and its
successors.
"SEC" means the United States Securities and Exchange
Commission as constituted from time to time or any successor performing
substantially the same functions.
"Secondary Securities" shall have the meaning set forth
in the Security.
"Senior Debt" means the principal of, premium, if any, and
interest on any Indebtedness of the Company, whether
<PAGE>
-26-
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness is pari passu with or subordinated in right of
payment to the Securities. Without limiting the generality of the foregoing,
"Senior Debt" shall also include (i) all obligations of the Company, whether
outstanding on the Issue Date or thereafter created, incurred or assumed, under
or in respect of the Credit Agreement, whether for principal, interest
(including, without limitation, interest accruing after the filing of a petition
initiating any proceeding under any state or federal bankruptcy law whether or
not such interest is an allowable claim), reimbursement of amounts drawn under
letters of credit issued or arranged for pursuant thereto, guarantees in respect
thereof, and all charges, fees, expenses (including reasonable fees and expenses
of counsel) and other amounts in respect of the Credit Agreement incurred by or
owing to the lenders under the Credit Agreement or their representative, agent
or trustee, and all other obligations of the Company incurred under or in
respect of (i) the Credit Agreement (including, without limitation, any Interest
Rate Agreements and in respect of premiums, indemnities or otherwise, and all
indebtedness under the Credit Agreement which is disallowed, avoided or
subordinated pursuant to Section 548 of Title 11, United States Code or any
applicable state fraudulent conveyance law) and (ii) all obligations of the
Company under, or in respect of, the Existing Notes and the Existing Indenture.
Notwithstanding the foregoing, "Senior Debt" shall not include (a) Indebtedness
evidenced by the Securities, (b) Indebtedness that is expressly subordinate or
junior in right of payment to any Senior Debt of the Company, (c) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is by its terms without recourse to the
Company, (d) any repurchase, redemption or other obligation in respect of
Disqualified Capital Stock, (e) to the extent it might constitute Indebtedness,
amounts owing for goods, materials or services purchased in the ordinary course
of business or consisting of trade payables or other current liabilities (other
than any current liabilities owing under the Credit Agreement or the current
portion of any long-term Indebtedness which would constitute Senior Debt but for
the operation of this clause (e)), (f) to the extent it might constitute
Indebtedness, amounts owed by the Company for compensation to employees or
<PAGE>
-27-
for services rendered to the Company, (g) to the extent it might constitute
Indebtedness, any liability for federal, state, local or other taxes owed or
owing by the Company, (h) Indebtedness of the Company to a Subsidiary of the
Company or any other Affiliate of the Company or any of such Affiliate's
Subsidiaries and (i) that portion of any Indebtedness which at the time of
issuance is issued in violation of this Indenture (but, as to any such
Indebtedness, no such violation of this Indenture shall be deemed to exist for
purposes of this clause (i) if the holder(s) of such Indebtedness or their
representative or the Company shall have furnished to the Trustee an Opinion of
Counsel, unqualified in all material respects, addressed to the Trustee (which
legal counsel may, as to matters of fact, rely upon an Officer's Certificate of
the Company) to the effect that the incurrence of such Indebtedness does not
violate the provisions of this Indenture).
"Significant Subsidiary" shall have the same meaning as in
Rule 1.02(v) of Regulation S-X under the Securities Act, provided that each
Guarantor shall in all events be deemed a Significant Subsidiary.
"Stated Maturity" means, when used with respect to any
Security or any installment of interest thereon, the date specified in such
Security as the fixed date on which any principal of such Security or such
installment of interest is due and payable, and when used with respect to any
other Indebtedness or any installments of interest thereon, means any date
specified in the instrument governing such Indebtedness as the fixed date on
which the principal of such Indebtedness, or such installment of interest
thereon, is due and payable.
"Subsidiary", with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at least a majority of
the votes entitled to be cast in the election of directors under ordinary
circumstances shall at the time be owned, directly or indirectly, by such Person
or (ii) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned by
such Person.
"Tax Sharing Agreement" means the Tax Sharing Agreement, dated
as of July 18, 1990 between the Company and Lancer, as amended from time to
time.
<PAGE>
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"Temporary Cash Investments" means (i) Investments in
marketable direct obligations issued or guaranteed by the United States of
America, or of any governmental agency or political subdivision thereof,
maturing within 365 days of the date of purchase; (ii) Investments in demand
deposits or certificates of deposit issued by a bank organized under the laws of
the United States of America or any state thereof or the District of Columbia,
in each case having capital, surplus and undivided profits totaling more than
$500,000,000 and rated at least A by S&P and A-2 by Moody's, maturing within 365
days of purchase; (iii) Investments not exceeding 365 days in duration in money
market funds that invest substantially all of such funds' assets in the
Investments described in clauses (i) and (ii) above; (iv) any security maturing
not more than 180 days after the date of acquisition, backed by a stand-by or
direct pay letter of credit issued by a bank meeting the qualifications
described in clause (ii) above; or (v) commercial paper, maturing not more than
one year after the date of acquisition, issued by a corporation (other than an
Affiliate or Subsidiary of the Company) organized and existing under the laws of
the United States of America or any state thereof or the District of Columbia
with a rating, at the time as of which any investment therein is made, of "P-1"
by Moody's or "A-1" by S&P.
"T-H Licensing" means T-H Licensing, Inc., a Delaware
corporation and a wholly owned Subsidiary of the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture (as amended from
time to time).
"Transaction Date" has the meaning set forth in the definition
of Consolidated Fixed Charge Coverage Ratio.
"Trust Officer" when used with respect to the Trustee, means
any officer or assistant officer of the Trustee assigned to the Corporate Trust
Administration department or similar department
performing corporate trust work of the Trustee or any successor to such
department or, in the case of a successor Trustee, any officer of such successor
Trustee performing corporate trust functions similar to those performed by any
of the above designated officers and also means, with respect to a particular
corporate trust matter,
<PAGE>
-29-
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Trustee" means the party named as such in this Indenture
until a successor replaces it pursuant to this Indenture and thereafter means
the successor.
"Unrestricted Subsidiary" means a Subsidiary of the Company
designated as such by the Company (a) no portion of the Indebtedness or any
other obligation (contingent or otherwise) of which (i) is guaranteed by the
Company or any other Subsidiary of the Company, (ii) is recourse to or obligates
the Company or any other Subsidiary of the Company in any way or (iii) subjects
any property or asset of the Company or any other Subsidiary of the Company,
directly or indirectly, contingently or otherwise, to the satisfaction thereof,
(b) which has no Indebtedness or any other obligation that, if in default in any
respect (including a nonpayment default), would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its Stated Maturity,
(c) with which the Company or any other Subsidiary or the Company has no
contract, agreement, arrangement, understanding or is subject to an obligation
of any kind, whether written or oral, other than a transaction on terms no less
favorable to the Company or any other Subsidiary of the Company than those which
might be obtained at the time from Persons who are not Affiliates of the
Company, and (d) with which neither the Company nor any other Subsidiary of the
Company has any obligation (other than by the terms of this Indenture) (i) to
subscribe for additional shares of Capital Stock or other equity interest
therein or (ii) to maintain or preserve such Subsidiary's financial condition or
to cause such Subsidiary to achieve certain levels of operating results;
provided, however, that in no event shall any Guarantor be an Unrestricted
Subsidiary. The Company may designate an Unrestricted Subsidiary as a Restricted
Subsidiary by written notice to the Trustee under this Indenture; provided,
however, that the Company shall not be permitted to designate any Unrestricted
Subsidiary as a Restricted Subsidiary unless (A) after giving pro forma effect
to such designation, the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) and (B) any Indebtedness or
Liens of such Unrestricted Subsidiary would be permitted to be incurred by
<PAGE>
-30-
a Restricted Subsidiary of the Company under this Indenture. A designation of an
Unrestricted Subsidiary as a Restricted Subsidiary may not thereafter be
rescinded.
"U.S. Government Obligations" means (i) securities that are
direct obligations of the United States of America for the payment of which its
full faith and credit are pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or a specific payment of principal or
interest on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt.
"Voting Stock" means any class or classes of Capital Stock
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of any Person (irrespective of whether or not, at the time,
stock of any other class or classes shall have, or might have, voting power by
reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the total
of the product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
<PAGE>
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"Wholly-Owned Restricted Subsidiary" means any Restricted
Subsidiary of the Company of which 100% of the outstanding Capital Stock is
owned by the Company or another Wholly-Owned Restricted Subsidiary of the
Company. For purposes of this definition, any directors' qualifying shares or
investments by foreign nationals mandated by applicable law shall be disregarded
in determining the ownership of a Restricted Subsidiary.
Section 1.02. Other Definitions.
The definitions of the following terms may be found in the
sections indicated as follows:
<TABLE>
<CAPTION>
Term Defined in Section
<S> <C>
"Acceleration Notice" ............................................................. 6.02
"Affiliate Transaction"............................................................ 4.10
"Available Net Cash Proceeds"...................................................... 4.09
"Bankruptcy Law"................................................................... 6.01
"Business Day"..................................................................... 11.08
"Change of Control Date"........................................................... 4.15
"Change of Control Offer".......................................................... 4.15
"Change of Control Payment Date"................................................... 4.15
"Covenant Defeasance".............................................................. 9.03
"Custodian"........................................................................ 6.01
"Event of Default"................................................................. 6.01
"Excess Proceeds Offer"............................................................ 4.09
"Guarantee Payment Blockage Period"................................................ 12.07
"Guarantor Representative"......................................................... 12.07
"Initial Blockage Period".......................................................... 10.03
"Initial Guarantee Blockage Period"................................................ 12.07
"Legal Defeasance"................................................................. 9.02
"Legal Holiday".................................................................... 11.08
"Offer Period"..................................................................... 4.09
"Paying Agent"..................................................................... 2.03
"Payment Blockage Period".......................................................... 10.03
"Purchase Date".................................................................... 4.09
"Purchase Price"................................................................... 4.09
"Registrar"........................................................................ 2.03
"Reinvestment Date"................................................................ 4.09
"Replacement Assets"............................................................... 4.09
"Representative"................................................................... 10.03
</TABLE>
<PAGE>
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Section 1.03. Incorporation by Reference of Trust
Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
portion of such provision required to be incorporated herein in order for this
Indenture to be qualified under the TIA is incorporated by reference in and made
a part of this Indenture. The following TIA terms used in this Indenture have
the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture securityholder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor on the indenture securities" means the Company,
the Guarantors or any other obligor on the Securities.
All other terms used in this Indenture that are defined by the
TIA, defined in the TIA by reference to another statute or defined by SEC rule
have the meanings therein assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein,
whether defined expressly or by reference;
(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;
<PAGE>
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(5) words used herein implying any gender shall apply to
every gender; and
(6) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any
particular Article, Section or Subdivision, unless
expressly stated otherwise.
ARTICLE 2.
THE SECURITIES
Section 2.01. Dating; Incorporation of Form in Indenture.
The Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A which is incorporated in and
made part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Company may use
"CUSIP" numbers in issuing the Securities. The Company shall approve the form of
the Securities by Board Resolution. Each Security shall be dated the date of its
authentication.
The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, 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.
Section 2.02. Execution and Authentication.
The Securities shall be executed on behalf of the Company by
two Officers of the Company or an Officer and an Assistant Secretary of the
Company. Such signatures may be either manual or facsimile. The Company's seal
shall be impressed, affixed, imprinted or reproduced on the Securities and may
be in facsimile form.
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates
<PAGE>
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the Security or at any time thereafter, the Security shall be valid
nevertheless.
A Security shall not be valid until the Trustee manually signs
the certificate of authentication on the Security. Such signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee or an authenticating agent shall authenticate
Securities for original issue in the aggregate principal amount of up to
$50,000,000 and from time to time thereafter authenticate and deliver Secondary
Securities, in each case upon receipt of a written order in the form of an
Officers' Certificate. The aggregate principal amount of Securities outstanding
at any time may not exceed $125,000,000 except as provided in Section 2.07
hereof. Upon the written order of the Company in the form of an Officers'
Certificate, the Trustee shall authenticate Securities in substitution of
Securities originally issued to reflect any name change of the Company.
The Trustee (at the expense of the Company) may appoint an
authenticating agent acceptable to the Company to authenticate Securities.
Unless limited by the terms of such appointment, an authenticating agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. Such authenticating agent shall have the same right as the Trustee in
dealing with the Company or an Affiliate.
The Securities shall be issuable in fully registered form
only, without coupons, in denominations of $1,000 and any integral
multiple thereof; provided, however, that Securities may be issued in
denominations of less than $1,000 (but not less than $1.00) upon the initial
exchange of the Exchangeable Preferred Stock for the Securities such that each
holder of Exchangeable Preferred Stock shall receive Securities in a principal
amount equal to the full liquidation preference of the Exchangeable Preferred
Stock on the Issue Date (as specified to the Trustee in the Officers'
Certificate delivered pursuant to this Section 2.02; provided, further, however,
that Secondary Securities may be issued in denominations of less than $1,000
(but not less than $1.00).
<PAGE>
-35-
No Security shall be authenticated or issued under this
Indenture except for Securities to be issued in exchange for Exchangeable
Preferred Stock pursuant to the certificate of designation governing the
Exchangeable Preferred Stock. In addition, except for the Company's obligations
under Section 7.07 hereof, the Company shall not be required to comply with the
provisions of this Indenture prior to such exchange.
Notwithstanding the foregoing, no Security shall be
authenticated hereunder by the Trustee or the authenticating agent unless such
Security is either (i) registered under the Act or (ii) exempt from registration
under the Act, in each case as specified in an Officers' Certificate delivered
pursuant to this Section 2.02 and, in the case of clause (ii), as provided for
in an Opinion of Counsel delivered to the Trustee.
Section 2.03. Registrar and Paying Agent.
The Company shall appoint a registrar, which shall maintain an
office or agency where Securities may be presented for registration of transfer
or for exchange ("Registrar"), and a paying agent, which shall maintain an
office or agency located in the Borough of Manhattan, City of New York, State of
New York where Securities may be presented for payment ("Paying Agent") and
shall maintain an office or agency where notices and demands to or upon the
Company in respect of the Securities and this Indenture may be served. The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may appoint one or more additional paying agents. Neither
the Company nor any of its Subsidiaries or Affiliates may act as Paying Agent
but may act as Registrar. The Company may change any Paying Agent or Registrar
without notice to any Securityholder.
The Company shall enter into an appropriate agency agreement
with any Registrar or Paying Agent not a party to this Indenture. The agreement
shall implement the provisions of this Indenture that relate to such Agent and
shall incorporate the provisions of the TIA. The Company shall notify the
Trustee of the name and address of any such Agent. If the Company fails to
maintain a Registrar or Paying Agent, or agent for service of notices and
demands, or fails to give the foregoing notice, the Trustee shall act as such
and shall
<PAGE>
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be entitled to appropriate compensation pursuant to Section 7.07. The
Company initially appoints the Trustee as Registrar, Paying Agent and agent for
service of notices and demands in connection with the Securities.
Section 2.04. Paying Agent To Hold Money in Trust.
On or before 10:00 A.M., New York City time, on each due date
of the principal of and interest on any Securities, the Company shall deposit
with the Paying Agent a sum or Secondary Securities, as the case may be,
sufficient to pay such principal and interest so becoming due. Each Paying Agent
shall hold in trust for the benefit of the Securityholders or the Trustee all
money held by the Paying Agent for the payment of principal of or interest on
the Securities (whether such money has been paid to it by the Company or any
other obligor on the Securities), and the Company and the Paying Agent shall
notify the Trustee of any Default by the Company (or any other obligor on the
Securities) in making any such payment. Money held in trust by the Paying Agent
need not be segregated except as required by law and in no event shall the
Paying Agent be liable for any interest on any money received by it hereunder.
The Company at any time may require a Paying Agent to pay all money held by it
to the Trustee and the Trustee, may at any time during the continuance of any
Payment Default, upon written request to a Paying Agent, require such Paying
Agent to forthwith pay to the Trustee all sums so held in trust by such Paying
Agent together with a complete accounting of such sums. Upon doing so, the
Paying Agent shall have no further liability for the money delivered to the
Trustee.
Section 2.05. Securityholder 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 Securityholders. If the Trustee is not the Registrar, the Company
shall furnish to the Trustee at least five 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 Securityholders, including the aggregate principal
amount of Securities held by each such Securityholder.
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Section 2.06. Transfer and Exchange.
When a Security is presented to the Registrar with a request
to register the transfer thereof, the Registrar shall register the transfer as
requested if the requirements set forth herein for such transfer are met, and
when Securities are presented to the Registrar with a request to exchange them
for an equal principal amount of Securities of other authorized denominations,
the Registrar shall make the exchange as requested, provided that every Security
presented or surrendered for registration of transfer or exchange shall be duly
endorsed or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed by the Holder
thereof or his attorney, duly authorized in writing. To permit registration of
transfers and exchanges, upon surrender of any Security for registration of
transfer at the office or agency maintained pursuant to Section 2.03 hereof, the
Company shall issue and execute and the Trustee shall authenticate Securities at
the Registrar's request. Any exchange or transfer shall be without any service
charge to the Securityholder, except that the Company may require payment by the
Holder of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation to a transfer or exchange, but this provision shall
not apply to any exchange pursuant to Section 2.09, 3.06 or 8.05 hereof. The
Trustee shall not be required to register transfers of Securities or to exchange
Securities for a period of 15 days before selection of any Securities to be
redeemed. The Trustee shall not be required to exchange or register transfers of
any Securities called or being called for redemption in whole or in part, except
the unredeemed portion of any Security being redeemed in part.
Each Holder of a Security agrees to indemnify the Company and
the Trustee against any liability that may result from the transfer, exchange or
assignment of such Holder's Security in violation of any provision of this
Indenture and/or applicable U.S. Federal or state securities law.
Except as expressly provided herein, neither the Trustee nor
the Registrar shall have any duty to monitor the Company's compliance with or
have any responsibility with respect to the Company's or any Guarantor's, if
any, compliance with any Federal or state securities laws.
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Section 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Registrar or
Trustee or if the Holder of a Security presents evidence to the satisfaction of
the Company and the Trustee that the Security has been lost, destroyed or
wrongfully taken and of the ownership thereof, the Company shall issue and the
Trustee shall authenticate a replacement Security if the requirements of Section
8-405 of the New York Uniform Commercial Code as in effect on the date of this
Indenture are met. An indemnity bond may be required by the Company or the
Trustee that is sufficient in the judgment of the Company and the Trustee to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Security is replaced. The Company and the Trustee each may
charge for its expenses (including reasonable attorneys' fees and expenses) in
replacing a Security. Every replacement Security is an additional obligation of
the Company.
Section 2.08. Outstanding Securities.
Securities outstanding at any time are all Securities
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, and those described in this Section 2.08 as not
outstanding.
If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding until the Company and the Trustee receive proof satisfactory
to each of them that the replaced Security is held by a bona fide purchaser.
If a Paying Agent holds on a Redemption Date or Maturity Date
money sufficient to pay the principal of, premium, if any, and all accrued
interest on Securities payable on that date and is not prohibited from paying
such money to the Holders thereof pursuant to the terms of this Indenture, then
on and after that date such Securities cease to be outstanding and interest on
them ceases to accrue.
Subject to Section 11.06, a Security does not cease to be
outstanding solely because the Company or an Affiliate holds the Security.
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Section 2.09. Temporary Securities.
Until definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form, and shall carry all
rights, benefits and privileges, of definitive Securities but may have
variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities
presented to it.
Section 2.10. Cancellation.
The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and the Paying Agent shall forward to the
Trustee any Securities surrendered to them for transfer, exchange or payment.
The Trustee shall destroy all Securities so delivered and deliver a certificate
of destruction to the Company. All Securities surrendered for transfer,
exchange, payment or cancellation shall be destroyed by the Trustee and the
Trustee shall deliver a certificate of destruction to the Company. Subject to
Section 2.07 hereof and except for the issuance of Secondary Securities, the
Company may not issue new Securities to replace Securities in respect of which
it has previously paid all principal, premium and interest accrued thereon, or
delivered to the Trustee for cancellation.
Section 2.11. Defaulted Interest.
If the Company defaults in a payment of interest on the
Securities, it shall pay the defaulted amounts, plus (to the extent permitted by
law) any interest payable on defaulted amounts pursuant to Section 4.01 hereof,
to the persons who are Securityholders on a subsequent special record date. The
Company shall fix the special record date and payment date in a manner
satisfactory to the Trustee and provide the Trustee at least 20 days notice of
the proposed amount of default interest to be paid and the special payment date,
and at the same time the Company shall deposit with the Trustee an amount equal
to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date
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of the proposed payment, such payment when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this Section
provided. At least 15 days before the special record date, the Company shall
mail or cause to be mailed to each Securityholder at his address as it appears
on the Securities register maintained by the Registrar a notice that states the
special record date, the payment date (which shall be not less than five nor
more than ten days after the special record date), and the amount to be paid. In
lieu of the foregoing procedures, the Company may pay defaulted interest in any
other lawful manner satisfactory to the Trustee.
Section 2.12. Deposit of Moneys.
Prior to 10:00 A.M., New York City time, on each Interest
Payment Date and Maturity Date, the Company shall have deposited with the Paying
Agent in immediately available funds money or Secondary Securities, as the case
may be, sufficient to make cash payments, if any, due on such Interest Payment
Date or Maturity Date, as the case may be, in a timely manner which permits the
Trustee to remit payment to the Holders on such Interest Payment Date or
Maturity Date, as the case may be.
Section 2.13. CUSIP Number.
The Company in issuing the Securities may use a "CUSIP"
number(s), and if so, the Trustee shall use the CUSIP number(s) in notices of
redemption or exchange as a convenience to Holders, provided that any such
notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number(s) printed in the notice or on the Securities, and
that reliance may be placed only on the other identification numbers printed on
the Securities. The Company will promptly notify in writing the Trustee of any
such CUSIP number used by the Company in connection with the Securities and any
change in such CUSIP number.
ARTICLE 3.
REDEMPTION
Section 3.01. Notices to Trustee.
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If the Company elects to redeem Securities pursuant to Section
3.07 hereof, (i) at least 60 days prior to the Redemption Date in the case of a
partial redemption, (ii) at least 45 days prior to the Redemption Date in the
case of a total redemption or (iii) during such other period as the Trustee may
agree to in writing, the Company shall notify the Trustee in writing of the
Redemption Date, the principal amount of Securities to be redeemed and the
redemption price, and deliver to the Trustee an Officers' Certificate stating
that such redemption will comply with the conditions contained in paragraph 6 of
the Security, as appropriate.
Section 3.02. Selection by Trustee of Securities To Be Redeemed.
In the event that fewer than all of the Securities are to be
redeemed, the Trustee shall select the Securities to be redeemed, if the
Securities are listed on a national securities exchange, in accordance with the
rules of such exchange or, if the Securities are not so listed, on either a pro
rata basis or by lot, or such other method as it shall deem fair and
appropriate. The Trustee shall promptly notify the Company of the Securities
selected for redemption and, in the case of any Securities selected for partial
redemption, the principal amount thereof to be redeemed. Securities in
denominations of $1,000 or less may be redeemed only in whole. The Trustee may
select for redemption portions of the principal of the Securities that have
denominations larger than $1,000, provided such Securities and portions thereof
the Trustee selects shall be redeemed in amounts of $1,000 or whole multiples of
$1,000. For all purposes of this Indenture unless the context otherwise
requires, provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
Section 3.03. Notice of Redemption.
At least 30 days, but no more than 60 days, before a
Redemption Date, the Company shall mail, or cause to be mailed (at its own
expense) a notice of redemption by first-class mail to each Holder of Securities
to be redeemed at his or her last address as the same appears on the registry
books maintained by the Registrar pursuant to Section 2.03 hereof.
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The notice shall identify the Securities to be redeemed
(including the CUSIP numbers thereof) and shall state:
(1) the Redemption Date;
(2) the redemption price;
(3) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the Redemption
Date and upon surrender of such Security, a new Security or Securities in
principal amount equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(6) that unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on and
after the Redemption Date;
(7) the paragraph of the Securities pursuant to which the
Securities called for redemption are being redeemed; and
(8) the aggregate principal amount of Securities that are
being redeemed.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's sole expense.
Section 3.04. Effect of Notice of Redemption.
Once the notice of redemption described in Section 3.03 is
mailed, Securities called for redemption become due and payable on the
Redemption Date and at the redemption price, including any premium, plus
interest accrued to the Redemption Date. Upon surrender to the Paying Agent,
such Securities shall be paid at the redemption price, including any premium,
plus interest accrued to the Redemption Date, provided that if the Redemption
Date is after a regular interest payment record date and on or prior to the
Interest
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Payment Date, the accrued interest shall be payable to the Holder of the
redeemed Securities registered on the relevant record date, and provided,
further, that if a Redemption Date is a Legal Holiday, payment shall be made on
the next succeeding Business Day and no interest shall accrue for the period
from such Redemption Date to such succeeding Business Day.
Section 3.05. Deposit of Redemption Price.
On or prior to 10:00 A.M., New York City time, on each
Redemption Date, the Company shall deposit with the Paying Agent in immediately
available funds money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date other than Securities or
portions thereof called for redemption on that date which have been delivered by
the Company to the Trustee for cancellation.
On and after any Redemption Date, if money sufficient to pay
the redemption price of and accrued interest on Securities called for redemption
shall have been made available in accordance with the preceding paragraph and
payment thereof is not prohibited pursuant to the terms of this Indenture, the
Securities called for redemption will cease to accrue interest and the only
right of the Holders of such Securities will be to receive payment of the
redemption price of and, subject to the first proviso in Section 3.04, accrued
and unpaid interest on such Securities to the Redemption Date. If any Security
called for redemption shall not be so paid, interest will be paid, from the
Redemption Date until such redemption payment is made, on the unpaid principal
of the Security and any interest not paid on such unpaid principal, in each
case, at the rate and in the manner provided in the Securities.
Section 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the
Trustee shall authenticate for a Holder a new Security equal in principal amount
to the unredeemed portion of the Security surrendered.
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ARTICLE 4.
COVENANTS
Section 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities and this
Indenture. An installment of principal of or interest on the Securities shall be
considered paid on the date it is due if the Trustee or Paying Agent holds on
that date money designated for and sufficient to pay the installment or, if the
interest is to be paid in Secondary Securities, if the Trustee or the Paying
Agent holds on that date duly authenticated Secondary Securities in an aggregate
principal amount equal to such installment. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
The Company shall pay interest on overdue principal (including
post-petition interest in a proceeding under any Bankruptcy Law) and overdue
interest, to the extent lawful, at the rate specified in the Securities.
Section 4.02. SEC Reports
The Company shall file with the Trustee and provide to the
Securityholders, within 15 days after it files them with the SEC, copies of the
annual reports and of the information, documents, and other reports (or copies
of such portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company files with the SEC pursuant to Section 13 or 15(d)
of the Exchange Act. In the event that the Company is no longer required to
furnish such reports to its securityholders pursuant to the Exchange Act, the
Company will cause its consolidated financial statements, comparable to those
which would have been required to appear in annual or quarterly reports, to be
delivered to the Holders of the Securities. The Company shall also comply with
the
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other provisions of TIA ss. 314(a). Delivery of such reports, information and
documents to the Trustee is for informational purposes only and the Trustee's
receipt of such shall not constitute constructive or actual notice of any
information contained therein or determinable from information contained
therein, including, without limitation, the Company's compliance with any
covenant hereunder, as to which the Trustee is entitled to rely exclusively and
conclusively on Officers' Certificates.
Section 4.03. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, or plead (as a defense or
otherwise) or in any manner whatsoever claim or take the benefit or advantage
of, any stay or extension law or any usury law or other law which would prohibit
or forgive the Company from paying all or any portion of the principal of,
premium, if any, and/or interest on the Securities as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 100 days
after the end of each fiscal year and on or before 50 days after the end of the
first, second and third quarters of each fiscal year, an Officers' Certificate
(one of the signers of which shall be the principal executive officer, principal
financial officer or principal accounting officer of the Company) stating that a
review of the activities of the Company and its Subsidiaries during such fiscal
year or fiscal quarter, as the case may be, 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
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contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing all or 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
Securities are 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 (and to the extent) not contrary to the then
current recommendations of the American Institute of Certified Public
Accountants, the year-end financial statements delivered pursuant to Section
4.02 above 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 which would lead them
to believe that the Company has violated any provisions of this Article 4 or
Article 5 of this Indenture 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 for any failure to obtain
knowledge of any such violation.
(c) The Company will, so long as any of the Securities 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, and shall cause each of its Subsidiaries
to, pay prior to delinquency all material taxes, assessments, and governmental
levies except as contested in good faith and by appropriate proceedings.
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Section 4.06. Limitation on Incurrence of Additional Indebtedness.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) other than Permitted Indebtedness.
Notwithstanding the foregoing limitations, the Company and its
Restricted Subsidiaries may incur Indebtedness if, after giving effect to the
incurrence of such Indebtedness, the Consolidated Fixed Charge Coverage Ratio of
the Company and its Restricted Subsidiaries is at least equal to 2.0 to 1.0.
Section 4.07. Limitation on Preferred Capital
Stock of Restricted Subsidiaries.
The Company shall not permit any of its Restricted
Subsidiaries to issue any Preferred Capital Stock (other than to the Company or
to a Wholly-Owned Restricted Subsidiary) or permit any Person (other than the
Company or a Wholly-Owned Restricted Subsidiary) to own any Preferred Capital
Stock of any Restricted Subsidiary unless the Company or such Restricted
Subsidiary would be entitled to incur or assume Indebtedness in compliance with
Section 4.06 hereof in an aggregate principal amount equal to the aggregate
liquidation value of the Preferred Capital Stock to be issued.
Section 4.08. Limitation on Restricted Payments.
The Company shall not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment if at the
time of such Restricted Payment and immediately after giving effect thereto:
(a) any Default or Event of Default shall have occurred
and be continuing; or
(b) the Company is not able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under Section
4.06 hereof; or
(c) the aggregate amount of Restricted Payments made
subsequent to the Issue Date (the amount expended for such purposes, if
other than in cash, being the fair
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market value of such property as determined by the Board of Directors
of the Company, whose determination shall be conclusive) exceeds the
sum of (a) 50% of the aggregate Consolidated Net Income of the Company
accrued on a cumulative basis during the period (treated as one
accounting period) beginning on the last day of the fiscal quarter
immediately preceding the Issue Date and ending on the last day of the
fiscal quarter of the Company immediately preceding the date of such
proposed Restricted Payment (or, if such aggregate cumulative
Consolidated Net Income of the Company for such period shall be a
deficit, minus 100% of such deficit) plus (b) the aggregate net
proceeds received by the Company either (1) as capital contributions to
the Company after the Issue Date, excluding any capital contributions
pursuant to the Tax Sharing Agreement or (2) from the issuance or sale
of Qualified Capital Stock (including Qualified Capital Stock issued
upon the conversion of convertible Indebtedness, in exchange for
outstanding Indebtedness or from the exercise of options, warrants or
rights to purchase Qualified Capital Stock) of the Company to any
Person (other than to a Restricted Subsidiary of the Company) after the
Issue Date plus (c) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the Issue Date
(excluding any Investment made pursuant to clause (4) of the following
paragraph), an amount equal to the lesser of the return of capital with
respect to such Investment and the cost of such Investment, in either
case, less the cost of the disposition of such Investment minus (d) 20%
of all cash payments made pursuant to the New Equity Incentive Plan.
For purposes of the preceding clause (iii)(b)(2), the value of the
aggregate net proceeds received by the Company upon the issuance of
Qualified Capital Stock either upon the conversion of convertible
Indebtedness or in exchange for outstanding Indebtedness or upon the
exercise of options, warrants or rights will be the net cash proceeds
received upon the issuance of such Indebtedness, options, warrants or
rights plus the incremental amount received by the Company upon the
conversion, exchange or exercise thereof.
Notwithstanding the foregoing, these provisions will not
prohibit: (1) the payment of any dividend or the making of any distribution
within 60 days after the date of its
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declaration if such dividend or distribution would have been permitted on the
date of declaration; (2) the purchase, redemption or other acquisition or
retirement of any Capital Stock of the Company or any warrants, options or other
rights to acquire shares of any class of such Capital Stock either (x) solely in
exchange for shares of Qualified Capital Stock (including any such exchange
pursuant to a conversion right or privilege in connection with which cash paid
in lieu of fractional shares or scrip), or (y) through the application of the
net cash proceeds of a substantially concurrent sale (other than to a Subsidiary
of the Company) of shares of Qualified Capital Stock or warrants, options or
other rights to acquire Qualified Capital Stock; (3) the acquisition of
Indebtedness of the Company that is subordinate or junior in right of payment to
the Securities either (x) solely in exchange for shares of Qualified Capital
Stock (or warrants, options or other rights to acquire Qualified Capital Stock)
or for Indebtedness of the Company that is subordinate or junior in right of
payment to the Securities, at least to the extent that the Indebtedness being
acquired is subordinated to the Securities and has a Weighted Average Life to
Maturity no less than that of the Indebtedness being acquired or (y) through the
application of the net cash proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of shares of Qualified Capital Stock
(or warrants, options or other rights to acquire Qualified Capital Stock) or
Indebtedness of the Company which is subordinate or junior in right of payment
to the Securities, at least to the extent that the Indebtedness being acquired
is subordinated to the Securities and has a Weighted Average Life to Maturity no
less than that of the Indebtedness being refinanced; (4) payments by the Company
to Lancer pursuant to the Tax Sharing Agreement; (5) Investments constituting
Restricted Payments made as a result of the receipt of non-cash consideration
from any Asset Sale; and (6) guarantees in respect of Indebtedness incurred by
officers or employees of the Company or any Restricted Subsidiary in the
ordinary course of business and payments in discharge thereof in an amount not
to exceed $500,000 in any fiscal year.
Section 4.09. Limitation on Asset Sales.
(a) The Company shall not, and shall not cause or permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the
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time of such sale or other disposition at least equal to the fair market value
thereof (as determined in good faith by the Company's Board of Directors, and
evidenced by a board resolution); (ii) not less than 75% of the consideration
received by the Company or its Subsidiaries, as the case may be, is in the form
of cash or Cash Equivalents; and (iii) the Net Cash Proceeds received by the
Company or such Restricted Subsidiary are applied (a) first, to the extent the
Company elects, or is required, to prepay, repay, make an offer to redeem or
purchase Indebtedness under any then existing Senior Debt of the Company or any
Restricted Subsidiary; provided, that any such repayment shall result in a
permanent reduction of the commitments thereunder in an amount equal to the
principal amount so repaid; (b) second, to the extent of the balance of Net Cash
Proceeds after application as described above, to the extent the Company elects,
to an Investment in assets (including Capital Stock or other securities
purchased in connection with the acquisition of Capital Stock or property of
another Person) used or useful in businesses similar or ancillary to the
business of the Company or Restricted Subsidiary as conducted at the time of
such Asset Sale ("Replacement Assets"), provided that such Investment occurs
within 360 days following the receipt of such Net Cash Proceeds, so long as the
Company or such Restricted Subsidiary has notified the Trustee in writing on or
prior to the 270th day following such Asset Sale (the "Reinvestment Date") that
it has determined to apply the Net Cash Proceeds from such Asset Sale to an
investment in such Replacement Assets; (c) third, to make an offer to redeem or
purchase the Existing Notes or Indebtedness under any other then existing Senior
Debt of the Company or any Restricted Subsidiary in accordance with the terms of
the Existing Indenture or the document governing such other Senior Debt, as the
case may be; (d) fourth, if any Net Cash Proceeds from any Asset Sale are not
applied as provided in the preceding clauses (a) through (d) within 420 days of
such Asset Sale, the Company shall apply an amount equal to the Net Cash
Proceeds not so applied (the "Available Net Cash Proceeds") to an offer to
repurchase the Exchange Debentures, at a purchase price in cash equal to 100% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase (an "Excess Proceeds Offer"). If an Excess Proceeds Offer is
not fully subscribed, the Company may retain the portion of the Available Net
Cash Proceeds not required to repurchase Securities.
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(b) If the Company is required to make an Excess
Proceeds Offer, the Company shall mail, within 30 days following the
Reinvestment Date, a notice to the Holders stating, among other things: (1) that
such Holders have the right to require the Company to apply the Available Net
Cash Proceeds to repurchase such Securities at a purchase price in cash equal to
100% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (the "Purchase Price"); (2) the purchase date (the
"Purchase Date"), which shall be no earlier than 30 days and not later than 60
days from the date such notice is mailed; (3) the instructions, determined by
the Company, that each Holder must follow in order to have such Securities
repurchased; and (4) the calculations used in determining the amount of
Available Net Cash Proceeds to be applied to the repurchase of such Securities.
The Excess Proceeds Offer shall remain open for a period of 20 Business Days
following its commencement (the "Offer Period"). The notice, which shall govern
the terms of the Excess Proceeds Offer, shall state:
(1) that the Excess Proceeds Offer is being made pursuant to
this Section 4.09 and the length of time the Excess Proceeds Offer will
remain open;
(2) the Purchase Price and the Purchase Date;
(3) that any Security not tendered or accepted for
payment will continue to accrue interest;
(4) that any Security accepted for payment pursuant to the
Excess Proceeds Offer shall cease to accrue interest on and after the
Purchase Date so long as payment thereof is not prohibited pursuant to
the terms of the Indenture;
(5) that Holders electing to have a Security purchased
pursuant to any Excess Proceeds Offer will be required to surrender the
Security, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Security completed, to the Company, a depositary,
if appointed by the Company, or a Paying Agent at the address specified
in the notice at least three Business Days before the Purchase Date;
(6) that Holders will be entitled to withdraw their election
if the Company, depositary or Paying Agent, as
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the case may be, receives, not later than the expiration of the Offer
Period, a facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Security the Holder delivered
for purchase and a statement that such Holder is withdrawing his
election to have the Security purchased;
(7) that, if the aggregate principal amount of
Securities surrendered by Holders exceeds the Available Net Cash
Proceeds, the Trustee shall select the Securities to be purchased on a
pro rata basis (with such adjustments as may be deemed appropriate by
the Company so that only Securities in denominations of $1,000, or
integral multiples thereof, shall be purchased) or by such other method
as the Trustee shall deem fair and appropriate; and
(8) that Holders whose Securities were purchased only in part
will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered.
On or before the Purchase Date, the Trustee shall, to the
extent lawful, accept for payment, on a pro rata basis or by such other method
as the Trustee shall deem fair and appropriate to the extent necessary,
Securities or portions thereof tendered pursuant to the Excess Proceeds Offer,
deposit with the Paying Agent U.S. legal tender sufficient to pay the Purchase
Price plus accrued interest, if any, on the Securities to be purchased and
deliver to the Trustee an Officers' Certificate stating that such Securities or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 4.09. The Paying Agent shall promptly (but in any case not
later than 5 days after the Purchase Date) mail or deliver to each tendering
Holder an amount equal to the Purchase Price of the Security tendered by such
Holder and accepted by the Company for purchase, and the Company shall promptly
issue a new Security, and the Trustee shall authenticate and mail or make
available for delivery such new Security to such Holder equal in principal
amount to any unpurchased portion of the Security surrendered. Any Security not
so accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company will publicly announce the results of the Excess Proceeds
Offer on the Purchase Date. If an Excess Proceeds Offer is not fully subscribed,
the Company may retain that portion of the
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Available Net Cash Proceeds not required to repurchase Securities for general
corporate purposes.
Section 4.10. Limitation on Transactions with Affiliates.
(a) The Company shall not, and shall not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer
to exist any transaction or series of related transactions (including, without
limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate or holder of 10% or more of the Company's Common
Stock (an "Affiliate Transaction") or extend, renew, waive or otherwise modify
the terms of any Affiliate Transaction entered into prior to the Issue Date
unless (i) such Affiliate Transaction is between or among the Company and its
Wholly-Owned Restricted Subsidiaries; or (ii) the terms of such Affiliate
Transaction is fair and reasonable to the Company or such Restricted
Subsidiaries, as the case may be, and the terms of such Affiliate Transaction
are at least as favorable as the terms which could be obtained by the Company or
such Restricted Subsidiary, as the case may be, in a comparable transaction made
on an arm's-length basis between unaffiliated parties. Any Affiliate Transaction
involving an amount or having a value in excess of $1.0 million which is not
permitted under clause (i) above shall have been approved by a majority of the
Company's Board of Directors. In transactions with a value in excess of $5.0
million which are not permitted under clause (i) above, the Company must obtain
a written opinion as to the fairness of such a transaction from an independent
investment banking firm.
(b) The foregoing provisions will not apply to (i) any
Restricted Payment that is not prohibited by the provisions described under
Section 4.08 contained herein, (ii) payments to Lancer under the Tax Sharing
Agreement, (iii) payments to participants in the Equity Participation Plan in an
amount not exceeding $1.32 million in any fiscal year and $5.28 million in the
aggregate, (iv) reasonable and customary regular fees to directors of the
Company who are not employees of the Company, (v) loans or advances to officers
of the Company and its Restricted Subsidiaries for bona fide business purposes
of the Company in the ordinary course of business, (vi) royalty payments by the
Company to T-H Licensing pursuant to that certain letter agreement dated as of
December 29, 1989 between the Company and T-H Licensing (as such agreement may
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be amended from time to time pursuant to its terms), provided that any such
payment (less any amounts permitted to be retained by T-H Licensing pursuant to
the Credit Agreement) is returned to the Company as a loan within sixty days
after receipt of such payment by T-H Licensing, (vii) payments or distributions
to participants in the New Equity Incentive Plan pursuant to the terms thereof,
and (viii) payments of the Company's allocated portion of the Lancer
consolidated group's corporate expenses and fees to Lancer or any Affiliate of
Lancer incurred in connection with Lancer's or any Affiliate of Lancer's
performance of management consulting, monitoring and financial advisory services
with respect to the Company and any Restricted Subsidiary in an amount not to
exceed $2.0 million in any fiscal year excluding amounts paid prior to the Issue
Date); provided, however, that notwithstanding anything to the contrary
contained in this Indenture, the Company shall not be permitted to pay to Lancer
or any Affiliate of Lancer any amount for such services in excess of the amount
set forth in this clause (viii).
Section 4.11. Limitations on Dividends and Other
Payment Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock or any other interest or participation in, or measured by, its
profits, (b) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary of the Company, (c) make loans or advances to the Company or any
other Restricted Subsidiary of the Company, (d) transfer any of its properties
or assets to the Company or any other Restricted Subsidiary of the Company
(other than any customary restriction on transfers of property subject to a
Permitted Lien (other than a Lien on cash not constituting proceeds of non-cash
property subject to a Permitted Lien) which could not materially adversely
affect the Company's ability to satisfy its obligations hereunder), or (e)
guarantee any Indebtedness of the Company or any other Restricted Subsidiary of
the Company, except for such encumbrances or restrictions existing under or by
reason of (i) applicable law, (ii) any agreement or other instrument of a person
acquired by the Company or any Restricted Subsidiary of the Company in existence
at the time
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of such acquisition (but not created in contemplation thereof), 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, (iii) any encumbrance or restriction in any agreement
existing on the Issue Date to the extent and in the manner such encumbrance or
restriction is in effect on the Issue Date and (iv) any encumbrance or
restriction pursuant to any agreement that extends, refinances, renews or
replaces any agreement described in clause (ii) above, which is not materially
more restrictive or less favorable to the Holders of Securities than those
existing under the agreement being extended, refinanced, renewed.
Section 4.12. Limitations on Guarantees by Restricted
Subsidiaries.
The Company shall not permit any Restricted Subsidiary,
directly or indirectly, to assume, guarantee or in any other manner become
liable with respect to any Indebtedness of the Company or any Guarantor, unless
such Restricted Subsidiary is a Guarantor or simultaneously executes and
delivers a supplemental indenture providing for the guarantee of payment of the
Securities by such Restricted Subsidiary pursuant to the terms of Exhibit B
hereto; provided, however, that a Restricted Subsidiary may guarantee the
Company's obligations under the Credit Agreement without executing and
delivering such supplemental indenture or guaranteeing the Securities; provided,
further, that in the case of any guarantee of any Guarantor with respect to
Senior Debt, the guarantee of the payment of the Securities by such Guarantor to
be provided in accordance herewith shall be subordinated to the guarantee with
respect to such Senior Debt in the same manner and to the same extent as the
Securities are subordinated to such Senior Debt. The supplemental indenture will
supplement this Indenture by, among other things, creating an additional Article
12 applicable to the Restricted Subsidiary and any other Guarantor in the form
set forth in Exhibit B hereto and, in connection with the execution and delivery
of the Supplemental Indenture, such Restricted Subsidiary shall execute and
deliver to the Trustee a Guarantee substantially in the form of Exhibit C
hereto. Such Article 12 will not become effective until the provisions of
Section 12.04 have been complied with. Each guarantee created pursuant to the
provisions described above is referred to as a "Guarantee" and the issuer of
each such Guarantee, so
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long as the Guarantee remains outstanding, is referred to as a "Guarantor."
Notwithstanding the foregoing, in the event that a Guarantor
is released from all obligations which pursuant to the first sentence of the
preceding paragraph obligate it to become a Guarantor, such Guarantor shall be
released from all obligations under its Guarantee (provided that the provisions
of the first sentence of the preceding paragraph shall apply anew in the event
that such Guarantor subsequent to being released incurs any obligations that
pursuant to such sentence obligate it to become a Guarantor). In addition, upon
any sale or disposition (by merger or otherwise) of any Guarantor by the Company
or a Restricted Subsidiary of the Company to any Person that is not an Affiliate
of the Company or any of its Restricted Subsidiaries which is otherwise in
compliance with the terms of this Indenture, such Guarantor will be deemed to be
released from all obligations under its Guarantee; provided, however, that each
such Guarantor is sold or disposed of in accordance with Section 4.09 above;
provided, further, that the foregoing proviso shall not apply to the sale or
disposition of a Guarantor in a foreclosure to the extent that such proviso
would be inconsistent with the requirements of the Uniform Commercial Code.
Section 4.13 Payments for Consent.
Neither the Company nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of any Securities for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Securities or unless such consideration is offered to be paid or agreed
to be paid to all holders of the Securities who so consent, waive or agree to
amend in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
Section 4.14 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 its
corporate existence, and the corporate, partnership or other existence of each
Restricted Subsidiary, in accordance with the respective organizational
documents (as the same may be amended from time to time) of
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each Restricted Subsidiary and the rights (charter and statutory), licenses
and franchises of the Company and its Restricted 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 Restricted 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 Restricted Subsidiaries, taken as a whole, and that the loss
thereof is not adverse in any material respect to the Holders.
Section 4.15 Change of Control.
(a) In the event of a Change of Control occurring on or after
July 2, 2001 (the date of such occurrence being the "Change of Control Date)",
the Company shall only if and only to the extent permitted by any Senior Debt of
the Company then outstanding, notify the Holders of the Securities in accordance
with this Section 4.15 and make an offer to redeem all outstanding Securities at
a redemption price equal to 101% of the principal amount thereof plus accrued
and unpaid interest, if any, to the Change of Control Payment Date (as defined
below). In addition, upon the occurrence of a Change of Control occurring prior
to July 2, 2001, the Company will have the option to offer to redeem the
Securities, in whole but not in part, at a redemption price equal to 101% of the
principal amount thereof, plus, without duplication, accrued and unpaid interest
to the Change of Control Payment Date. If a Change of Control occurs prior to
July 2, 2001 and the Company fails to make an offer to redeem the Securities in
accordance with the terms of this Section 4.15, the annual interest rate on the
Securities will increase by 4.0% over the then-applicable interest rate. Any
offer to redeem the Securities upon a Change of Control as provided above will
be referred to herein as a "Change of Control Offer." Prior to the mailing of
the notice referred to below, but in any event within 30 days following the date
on which a Change of Control occurs, the Company covenants that if the
redemption of the Securities would violate or constitute a default under any
outstanding Senior Debt, then the Company will, to the extent needed to permit
the purchase of the Securities, either (i) repay in full all such Senior Debt
(and terminate all commitments thereunder) or offer to repay in full all such
Senior Debt (and terminate all such commitments) or (ii) obtain the requisite
consents under the instrument governing
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such Senior Debt to permit the repurchase of the Securities as provided below.
The Company will first comply with the covenant in the preceding sentence before
it will be required to repurchase Securities pursuant to the provisions
described in this Section 4.15, provided that the Company's failure to comply
with the covenant described in the preceding sentence shall constitute an Event
of Default under Section 6.01(3).
(b) To effect a Change of Control, within 30 days following
the Change of Control Date, the Company shall send, by first class mail, a
notice to each Holder of Securities, with a copy to the Trustee, which notice
shall govern the terms of the Change of Control Offer. The notice to the Holders
shall contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Change of Control Offer. Such notice shall
state:
(i) that the Change of Control Offer is being made pursuant
to this Section 4.15 and that all Securities validly tendered and not
withdrawn will be accepted for payment;
(ii) the purchase price (including the amount of accrued
interest if any) and the purchase date (which shall be no earlier than
30 days nor later than 60 days from the date such notice is mailed,
other than as may be required by law) (the "Change of Control Payment
Date");
(iii) that any Security not tendered will continue to
accrue interest;
(iv) that, unless the Company defaults in making payment
therefor, any Security accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(v) that Holders electing to have a Security purchased
pursuant to a Change of Control Offer will be required to surrender the
Security, properly endorsed for transfer together with such customary
documents as the Company reasonably may request, to the Paying Agent at
the address specified in the notice prior to the close of business on
the Business Day prior to the Change of Control Payment Date;
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(vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than three Business Days
prior to the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Securities the Holder delivered for
purchase and a statement that such Holder is withdrawing his election
to have such Security purchased;
(vii) that Holders whose Securities are purchased only in part
will be issued new Securities in a principal amount equal to the
unpurchased portion of the Securities surrendered; and
(viii) the circumstances and relevant facts regarding such
Change of Control.
On the Change of Control Payment Date, the Company shall, to
the extent lawful, (i) accept for payment Securities or portions thereof
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent
money sufficient to pay the purchase price of all Securities or portions thereof
or beneficial interests so tendered and (iii) deliver or cause to be delivered
to the Trustee Securities so accepted together with an Officers' Certificate
stating the Securities or portions thereof tendered to the Company. The Paying
Agent shall promptly mail to each holder of Securities so accepted payment in an
amount equal to the purchase price for such Securities, and the Company shall
execute and issue, and the Trustee shall promptly authenticate and mail to such
holder, a new Security equal in principal amount to any unpurchased portion of
the Securities surrendered.
(c) (i) If the Company or any Subsidiary thereof has issued
any outstanding (A) Indebtedness that is subordinated in right of payment to the
Securities or (B) Preferred Stock, and the Company or such Subsidiary is
required to make a Change of Control Offer or to make a distribution with
respect to such subordinated Indebtedness or Preferred Stock in the event of a
Change of Control, the Company shall not consummate any such offer or
distribution with respect to such subordinated Indebtedness or Preferred Stock
until such time as the Company shall have paid the Change of Control Purchase
Price in full to the holders of Securities that have accepted the Company's
Change of Control Offer and shall otherwise have consummated the Change of
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Control Offer made to holders of the Securities and (ii) the Company will not
issue Indebtedness that is subordinated in right of payment to the Securities or
Preferred Stock with change of control provisions requiring the payment of such
Indebtedness or Preferred Stock prior to the payment of the Securities in the
event of a Change of Control under this Indenture.
In the event that a Change of Control occurs and the Holders
of Securities exercise their right to require the Company to purchase
Securities, if such purchase constitutes a "tender offer" for purposes of Rule
14e-1 under the Exchange Act at that time, the Company will comply with the
requirements of Rule 14e-1 as then in effect with respect to such repurchase.
Section 4.16 Maintenance of Office or Agency.
The Company shall maintain an office or agency where
Securities may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Securities 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 address of the Trustee as set forth in Section
11.02.
The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations. The Company shall give prompt written notice to the Trustee of
such designation or rescission and of any change in the location of any such
other office or agency.
The Company hereby initially designates the Corporate Trust
Office of the Trustee set forth in Section 11.02 as such office of the Company.
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Section 4.17 Maintenance of Properties and Insurance.
(a) The Company shall cause all material properties used or
useful to the conduct of its business or the business of any of its Subsidiaries
to be maintained and kept in good condition, repair and working order
(reasonable wear and tear excepted) and supplied with all equipment deemed
necessary in the good faith judgment of the Officers of the Company and shall
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in their judgment may be necessary, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times unless the failure to so maintain such properties
(together with all other such failures) would not have a material adverse effect
on the financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole; provided, however, that nothing in this Section
4.17 shall prevent the Company or any Subsidiary from discontinuing the
operation or maintenance of any of such properties, or disposing of any of them,
if such discontinuance or disposal is in the good faith judgment of the Board of
Directors of the Company or the Subsidiary concerned, as the case may be,
desirable in the conduct of the business of the Company or such Subsidiary, as
the case may be, and is not adverse in any material respect to the Holders.
(b) The Company shall provide or cause to be provided, for
itself and each of its Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the reasonable,
good faith opinion of the Company are adequate and appropriate for the conduct
of the business of the Company and such Subsidiaries in a prudent manner, with
reputable insurers or with the government of the United States of America or an
agency or instrumentality thereof, in such amounts, with such deductibles, and
by such methods as shall be customary, in the good faith judgment of the
Company, for corporations similarly situated in the industry, unless the failure
to provide such insurance (together with all other such failures) would not have
a material adverse effect on the financial condition or results of operations of
the Company and its Subsidiaries, taken as a whole.
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ARTICLE 5.
SUCCESSOR CORPORATION
Section 5.01. Limitation on Consolidation,
Merger and Sale of Assets.
(a) The Company shall not and shall not cause or permit any
Guarantor to, in a single transaction or series of related transactions,
consolidate with or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, another
Person or adopt a plan of liquidation unless (i) either (1) the Company or the
Guarantor, as the case may be, is the survivor of such merger or consolidation
or (2) the surviving or transferee Person is a corporation, partnership or trust
organized and existing under the laws of the United States, any state thereof or
the District of Columbia and such surviving or transferee Person expressly
assumes by supplemental indenture all the obligations of the Company or the
Guarantor, as the case may be, under the Securities and this Indenture; (ii)
immediately after giving effect to such transaction and the use of proceeds
therefrom (on a pro forma basis, including any Indebtedness incurred or
anticipated to be incurred in connection with such transaction), the Company or
the surviving or transferee Person is able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.06
hereof; (iii) immediately after giving effect to such transaction (including any
Indebtedness incurred or anticipated to be incurred in connection with the
transaction) no Default or Event of Default has occurred and is continuing; and
(iv) the Company has delivered to the Trustee an Officers' Certificate and
Opinion of Counsel, each stating that such consolidation, merger or transfer
complies with this Indenture, that the surviving Person agrees by supplemental
indenture to be bound thereby, and that all conditions precedent in this
Indenture relating to such transaction have been satisfied. For purposes of the
foregoing, the transfer (by lease, assignment, sale or otherwise, in a single
transaction or series of related transactions) of all or substantially all of
the properties and assets of one or more Subsidiaries the Capital
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Stock of which constitutes all or substantially all of the properties and assets
of the Company will be deemed to be the transfer of all or substantially all of
the properties and assets of the Company.
(b) In connection with any consolidation, merger or transfer
of assets contemplated by this Section 5.01, the Company shall deliver or cause
to be delivered, to the Trustee, in form and substance reasonably satisfactory
to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer and the supplemental indenture in
respect thereto comply with this Section 5.01 and that all conditions precedent
herein provided for relating to such transaction or transactions have been
complied with.
Section 5.02. Successor Person Substituted.
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company or any Guarantor in accordance
with Section 5.01 above, the successor corporation formed by such consolidation
or into which the Company is merged or to which such transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company or such Guarantor under this Indenture with the same effect as if
such successor corporation had been named as the Company or such Guarantor
herein, and thereafter the predecessor corporation shall be relieved of all
obligations and covenants under this Indenture and the Securities.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if
(1) there is a default in the payment of any principal of, or
premium, if any, on the Securities when the same becomes due and
payable at maturity, upon acceleration, redemption or otherwise,
whether or not
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such payment is prohibited by the provisions of Article 10 hereof;
(2) there is a default in the payment of any interest on any
Security 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;
(3) the Company or any Guarantors defaults in the observance
or performance of any other covenant in the Securities or this
Indenture for 60 days after written notice from the Trustee to the
Company or written notice from the Holders of not less than 25% in
aggregate principal amount of the Securities then outstanding to the
Company and the Trustee;
(4) there is a default in the payment at final maturity of
principal in an aggregate amount of $5,000,000 or more with respect to
any Indebtedness of the Company or any Restricted Subsidiary thereof
which default shall not be cured, waived or postponed pursuant to an
agreement with the holders of such Indebtedness within 60 days after
written notice, or the acceleration of any such Indebtedness
aggregating $5,000,000 or more which acceleration shall not be
rescinded or annulled within 20 days after written notice to the
Company of such Default by the Trustee or to the Company and the
Trustee by any Holder;
(5) a court of competent jurisdiction enters a final judgment
or judgments which can no longer be appealed for the payment of money
in excess of $5,000,000 (which are not paid or covered by third party
insurance by financially sound insurers that have not disclaimed
coverage) against the Company or any Restricted Subsidiary thereof and
such judgment remains undischarged, for a period of 60 consecutive days
during which a stay of enforcement of such judgment shall not be in
effect;
(6) the Company or any Restricted Subsidiary pursuant to
or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
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(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
(7) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Restricted Subsidiary in an involuntary case,
(B) appoints a Custodian of the Company or any
Restricted Subsidiary or for all or substantially all of
the property of the Company or any Restricted Subsidiary,
or
(C) orders the liquidation of the Company or any
Restricted Subsidiary,
and, in each case, 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.
Subject to the provisions of Sections 7.01 and 7.02, the
Trustee shall not be charged with knowledge of any Default, Event of Default,
Change of Control or Asset Sale unless written notice thereof shall have been
given to a Trust Officer at the Corporate Trust Office by the Company or any
other Person.
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Section 6.02. Acceleration.
If an Event of Default (other than an Event of Default
specified in Section 6.01(6) or (7) with respect to the Company) occurs and is
continuing and has not been waived pursuant to Section 6.04, the Trustee may, by
notice to the Company, or the Holders of at least 25% in aggregate principal
amount of the Securities then outstanding may, by written notice to the Company
and the Trustee, and the Trustee shall, upon the request of such Holders,
declare the aggregate principal amount of the Securities outstanding, together
with accrued but unpaid interest, if any, on all Securities to be due and
payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same (i) shall become immediately due and
payable or (ii) if there are any amounts outstanding under the Credit Agreement,
shall become due and payable upon the first to occur of an acceleration under
the Credit Agreement or 5 Business Days after receipt by the Company and the
Representative under the Credit Agreement of such Acceleration Notice (unless
all Events of Default Specified in such Acceleration Notice have been cured or
waived). If an Event of Default specified in Section 6.01(6) or (7) with respect
to the Company occurs and is continuing with respect to the Company, all unpaid
principal and accrued interest on the Securities then outstanding shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Securityholder. The Holders of a majority
in principal amount of the Securities then outstanding (by notice to the
Trustee) may rescind and cancel a declaration of acceleration and its
consequences if (i) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction, (ii) all existing Events of Default
have been cured or waived, except non-payment of the principal or interest on
the Securities which have become due solely by such declaration of acceleration,
(iii) to the extent the payment of such interest is lawful, interest (at the
same rate as specified in the Securities) on overdue installments of interest
and overdue payments of principal, which has become due otherwise than by such
declaration of acceleration, has been paid, (iv) the Company has paid the
Trustee its reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of a
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Default or Event of Default of the type described in Sections 6.01(6) and (7),
the Trustee shall have received an Officers' Certificate and an Opinion of
Counsel that such Default or Event of Default has been cured or waived and the
Trustee shall be entitled to conclusively rely upon such Officers' Certificate
and Opinion of Counsel. No such rescission shall affect any subsequent Default
or impair any right consequent thereto.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of, or premium, if any, and interest on the Securities or
to enforce the performance of any provision of the Securities or this Indenture
and may take any necessary action requested of it as Trustee to settle,
compromise, adjust or otherwise conclude any proceedings to which it is a party.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder 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. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Section 6.04. Waiver of Past Defaults and Events of Default.
Subject to Sections 6.02, 6.07 and 8.02 hereof, the Holders of
a majority in principal amount of the Securities then outstanding have the right
to waive any existing Default or Event of Default or compliance with any
provision of this Indenture or the Securities. 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 Event of Default or
impair any right consequent thereto.
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Section 6.05. Control by Majority.
The Holders of a majority in principal amount of the
Securities then outstanding may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee by this Indenture. The Trustee, however, may
refuse to follow any direction that conflicts with law or this Indenture or that
the Trustee determines may be unduly prejudicial to the rights of another
Securityholder not taking part in such direction, and the Trustee shall have the
right to decline to follow any such direction if the Trustee, being advised by
counsel, determines that the action so directed may not lawfully be taken or if
the Trustee in good faith shall, by a Trust Officer, determine that the
proceedings so directed may involve it in Personal liability; provided that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
Section 6.06. Limitation on Suits.
Subject to Section 6.07 below, a Securityholder may not
institute any proceeding or pursue any remedy with respect to this Indenture or
the Securities unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal
amount of the Securities then outstanding make a written
request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer, and if requested,
provide to the Trustee indemnity reasonably satisfactory to
the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60 day period by the Holders of a
majority in aggregate principal amount of the Securities then
outstanding.
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A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
Section 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Security to receive payment of principal of, or
premium, if any, and interest of the Security on or after the respective due
dates expressed in the Security, or to bring suit for the enforcement of any
such payment on or after such respective dates, is absolute and unconditional
and shall not be impaired or affected without the consent of the Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal, premium or
interest specified in Section 6.01(1) or (2) hereof occurs and is continuing,
the Trustee may recover judgment in its own name and as trustee of an express
trust against the Company or the Guarantors (or any other obligor on the
Securities) for the whole amount of unpaid principal and accrued interest
remaining unpaid, together with interest on overdue principal and, to the extent
that payment of such interest is lawful, interest on overdue installments of
interest, in each case at the rate then borne by the Securities, and such
further amounts 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, including all sums due and
owing to the Trustee pursuant to Section 7.07.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee may 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
Securityholders allowed in any judicial proceedings relative to the Company or
the Guarantors (or any other obligor upon the Securities), its creditors or its
property and shall be entitled and empowered to collect and receive any monies
or other securities or property payable or deliverable on any such claims and to
distribute the same after deduction of its
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reasonable charges and expenses to the extent that any such charges and expenses
are not paid out of the estate in any such proceedings and any custodian in any
such judicial proceeding is hereby authorized by each Securityholder 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 Securityholders, 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.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan or reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceedings.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article 6,
it shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07
hereof;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal, premium, if any, and interest as to each,
ratably, without preference or priority of any kind, according to
the amounts due and payable on the Securities; and
THIRD: to the Company or, to the extent the Trustee collects
any amount from any Guarantors, to such Guarantors.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section 6.10. The Trustee shall give
the Company prior notice of any such record date and payment date; provided,
however, that the failure to give any such notice shall not affect the
establishment of such record date or payment date or any payment to
Securityholders pursuant to this Section 6.10.
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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 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 6.11 does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.07 hereof or a suit by Holders of more than 10% in
principal amount of the Securities then outstanding.
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
discontinued 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.
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, and
a Trust Officer of the Trustee has received written notice of such Event of
Default 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 their exercise as a
prudent man would exercise or use under the same circumstances in the conduct of
his own affairs.
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(b) Except during the continuance of an Event of
Default:
(1) 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.
(2) 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 but, in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this
Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act, or its
own willful misconduct, except that:
(1) This paragraph does not limit the effect of
paragraph (b) of this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) 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 Sections 6.02, 6.05 or 6.06 hereof.
(4) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or
adequate indemnity satisfactory to it against such risk or liability is
not reasonably assured to it.
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(d) Whether or not therein expressly so provided, paragraphs
(a), (b), (c), (e) and (f) of this Section 7.01 shall govern every provision of
this Indenture that in any way relates to the Trustee.
(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity reasonably satisfactory to it
against any loss, liability, expense or fee.
(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 or
any Guarantors. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by the law.
Section 7.02. Rights of Trustee.
Subject to Section 7.01 hereof:
(1) The Trustee may rely on and shall be protected in acting
or refraining from acting upon any document reasonably 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.
(2) 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 the provisions of Section 13.05 hereof. The
Trustee shall be protected and shall not be liable for any action it
takes or omits to take in good faith in reliance on such certificate or
opinion.
(3) The Trustee may act through attorneys and agents and shall
not be responsible for the misconduct or negligence of any attorney or
agent (other than the negligence or willful misconduct of an attorney
or agent who is an employee of the Trustee) appointed by it with due
care.
(4) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be
authorized or within its rights
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or powers; provided that the Trustee's conduct does not constitute
negligence or bad faith.
(5) The Trustee may consult with counsel of its selection, and
the advice or opinion of such counsel as to matters of law shall be
full and complete authorization and protection from liability in
respect of any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such
counsel.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may make loans to, accept deposits from,
perform services for or otherwise deal with the Company or any Guarantors, or
any Affiliates thereof, with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. The Trustee, however, shall
be 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
Securities, it shall not be accountable for the Company's use of the proceeds
from the sale of Securities or any money paid to the Company pursuant to the
terms of this Indenture and it shall not be responsible for any statement in the
Securities or any document used in connection with the sale of the Securities
other than its certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default occurs and is continuing and if it is known to a
Trust Officer of the Trustee, the Trustee shall mail to each Securityholder
notice of the Default within 90 days after it occurs. Except in the case of a
Default in payment of the principal of, or premium, if any, or interest on any
Security, the Trustee may withhold the notice if and so long as any trust
committee of Trust Officers in good faith determines that withholding the notice
is in the interests of the Securityholders.
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Section 7.06. Reports by Trustee to Holders.
If required by TIA ss. 313(a), within 60 days after March 15
of any year, commencing the March 15 following the date of this Indenture, the
Trustee shall mail to each Securityholder a brief report dated as of such May 15
that complies with TIA ss. 313(a); provided that no such report need be
transmitted if no such events listed in TIA ss. 313(a) have occurred within such
period. The Trustee also shall comply with TIA ss. 313(b)(2). The Trustee shall
also transmit by mail all reports as required by TIA ss. 313(c) and TIA ss.
313(d).
A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange on which the
Securities are listed. The Company shall promptly notify the Trustee in writing
when the Securities are listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
On a joint and several basis, the Company and the Guarantors,
if any, shall pay to the Trustee and Agents from time to time such compensation
as shall be agreed in writing between the Company and the Trustee for its
services hereunder (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust). The Company
shall reimburse the Trustee and Agents upon request for all reasonable
disbursements, expenses and advances incurred or made by it in connection with
its duties under this Indenture, including the reasonable compensation,
disbursements and expenses of the Trustee's and Agent's agents and counsel.
On a joint and several basis, the Company and the Guarantors,
if any, shall indemnify each of the Trustee and Agents and any predecessor
Trustee for, and hold it harmless against, any and all loss, damage, claim,
liability, expense (including but not limited to reasonable attorneys' fees and
expenses) or taxes (other than taxes based on the income of the Trustee)
incurred by it in connection with the acceptance or performance of its duties
under this Indenture including the reasonable costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder (including, without
limitation, settlement costs). The
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Trustee shall notify the Company in writing promptly of any claim asserted
against the Trustee for which it may seek indemnity. However, the failure by the
Trustee to so notify the Company shall not relieve the Company or any Guarantor
of its obligations hereunder.
Notwithstanding the foregoing, the Company and the Guarantors,
if any, need not reimburse the Trustee for any expense or indemnify it against
any loss or liability incurred by the Trustee through its negligence or bad
faith. To secure the payment obligations of the Company in this Section 7.07,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee in its capacity as such, except such money or
property held in trust to pay principal of and interest on particular
Securities. The obligations of the Company and the Guarantors, if any, under
this Section 7.07 to compensate and indemnify the Trustee and Agents and each
predecessor Trustee and to pay or reimburse the Trustee and Agents and each
predecessor Trustee for expenses, disbursements and advances shall be joint and
several liabilities of the Company and the Guarantors, if any, and shall survive
the satisfaction and discharge of this Indenture, including the termination or
rejection hereof in any bankruptcy proceeding to the extent permitted by law and
any resignation or removal of the Trustee.
When the Trustee or any Agent incurs expenses or renders
services after an Event of Default specified in Section 6.01(6) or (7) hereof
occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under any Bankruptcy Law.
For purposes of this Section 7.07, the term "Trustee" shall
include any trustee appointed pursuant to Article 9.
Section 7.08. Replacement of Trustee.
The Trustee may resign by so notifying the Company in writing,
such resignation to become effective upon the appointment of a successor
Trustee. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by notifying the removed Trustee in writing
and may appoint a successor Trustee with the Company's written consent which
consent shall not be unreasonably withheld. The Company may remove the Trustee
at its election if:
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(1) the Trustee fails to comply with Section 7.10
hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of
the Trustee or its property; or
(4) the Trustee otherwise 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.
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 a majority in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any
Securityholder 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. Immediately following
such delivery, the retiring Trustee shall, subject to its rights under Section
7.07 hereof, transfer all property held by it as Trustee to the successor
Trustee, 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. A successor Trustee shall mail
notice of its succession to each Securityholder. 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 Consolidation, Merger
or Conversion.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation or national banking association, subject to Section 7.10 hereof, the
successor corporation or national banking association without any further act
shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1) and (2) in every respect. The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. The Trustee shall comply with
TIA ss. 310(b), including the provision in ss. 310(b)(1); provided that there
shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or
indentures under which other securities, or conflicts of interest or
participation in other securities, of the Company or the Guarantors are
outstanding if the requirements for exclusion set forth in TIA ss. 310(b)(1) are
met.
Section 7.11. Preferential Collection of Claims Against
Company.
The Trustee shall comply with TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
Section 7.12. Paying Agents.
The Company shall cause each Paying Agent other than the
Trustee to execute and deliver to it and the Trustee an instrument in which such
agent shall agree with the Trustee, subject to the provisions of this Section
7.12:
(A) that it will hold all sums held by it as agent for
the payment of principal of, or premium, if any, or interest
on, the Securities (whether such sums have been paid to it by the
Company or by any obligor on the
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Securities) in trust for the benefit of Holders of the Securities or
the Trustee;
(B) that it will at any time during the continuance of any
Event of Default, upon written request from the Trustee, deliver to the
Trustee all sums so held in trust by it together with a full accounting
thereof; and
(C) that it will give the Trustee written notice within three
(3) Business Days of any failure of the Company (or by any obligor on
the Securities) in the payment of any installment of the principal of,
premium, if any, or interest on, the Securities when the same shall be
due and payable.
ARTICLE 8.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.01. Without Consent of Holders.
The Company and the Guarantors, if any, when authorized by a
Board Resolution of each of them, and the Trustee may modify, waive, amend or
supplement this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to comply with Section 5.01 hereof;
(2) to provide for uncertificated Securities in addition
to or in place of certificated Securities;
(3) to comply with any requirements of the SEC under the
TIA;
(4) to cure any ambiguity, defect or inconsistency, or
to make any other change that does not materially and
adversely affect the rights of any Securityholder;
(5) to make any other change that does not adversely
affect in any material respect the rights of any Securityholders
hereunder;
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(6) to add or release any Subsidiary as a Guarantor
pursuant to the terms of Article 12; or
(7) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities.
The Trustee is hereby authorized to join with the Company and
the Guarantors, if any, in the execution of any supplemental indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations which may be therein contained, but the
Trustee shall not be obligated to enter into any such supplemental indenture
which adversely affects its own rights, duties or immunities under this
Indenture.
Section 8.02. With Consent of Holders.
The Company, the Guarantors, if any, each when authorized by a
Board Resolution, and the Trustee may modify, amend, waive or supplement this
Indenture or the Securities with the written consent of the Holders of not less
than a majority in aggregate principal amount of the outstanding Securities
without notice to any Securityholder. The Holders of not less than a majority in
aggregate principal amount of the outstanding Securities may waive compliance in
a particular instance by the Company with any provision of this Indenture or the
Securities without notice to any Securityholder. Subject to Section 8.04,
without the consent of each Securityholder affected, however, an amendment,
supplement or waiver, including a waiver pursuant to Section 6.04, may not:
(1) reduce the amount of Securities whose Holders must
consent to an amendment, modification, supplement or waiver to
this Indenture or the Securities;
(2) reduce the rate of or change the time for payment of
interest on any Security;
(3) reduce the principal of or premium on or change the
stated maturity of any Security;
(4) make any Security payable in money other than that stated
in the Security or change the place of payment from New York, New York;
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(5) change the amount or time of any payment required by the
Securities or reduce the premium payable upon any redemption of the
Securities in accordance with Section 3.07 hereof, or change the time
before which no such redemption may be made;
(6) waive a default in the payment of the principal of, or
interest on, or redemption payment with respect to, any Security
(including any obligation to make a Change of Control Offer or, after
the Company's obligation to purchase Securities arises thereunder,
an Excess Proceeds Offer or modify any of the provisions or
definitions with respect to such offers);
(7) make any changes in Sections 6.04 or 6.07 hereof or
this sentence of Section 8.02; or
(8) affect the ranking of the Securities in a manner
adverse to the Holders.
After a modification, amendment, supplement or waiver under
this Section 8.02 becomes effective, the Company shall mail to the Holders a
notice briefly describing the modification, 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 modification,
amendment, supplement or waiver.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment,
modification, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.
Section 8.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
Section 8.04. Revocation and Effect of Consents.
Until a modification, amendment, supplement, waiver or other
action becomes effective, a consent to it by a Holder of a Security is a
continuing consent conclusive and binding upon such Holder and every subsequent
Holder of the same Security or portion thereof, and of any Security issued upon
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the transfer thereof or in exchange therefor or in place thereof, even if
notation of the consent is not made on any such Security. Any such Holder or
subsequent Holder, however, may revoke the consent as to his Security or portion
of a Security, if the Trustee receives the notice of revocation before the date
the modification, amendment, supplement, waiver or other action becomes
effective.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
modification, amendment, supplement, or waiver. If a record date is fixed, then,
notwithstanding the preceding paragraph, those Persons who were Holders at such
record date (or their duly designated proxies), and only such Persons, shall be
entitled to consent to such modification, amendment, supplement, or waiver or to
revoke any consent previously given, whether or not such Persons continue to be
Holders after such record date. No such consent shall be valid or effective for
more than 90 days after such record date unless the consent of the requisite
number of Holders has been obtained.
After a modification, amendment, supplement, waiver or other
action becomes effective, it shall bind every Securityholder, unless it makes a
change described in any of clauses (1) through (8) of Section 8.02 hereof. In
that case, the modification, amendment, supplement, waiver or other action shall
bind each Holder of a Security who has consented to it and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security.
Section 8.05. Notation on or Exchange of Securities.
If a modification, amendment, supplement or waiver changes the
terms of a Security, the Trustee shall (in accordance with the specific written
direction of the Company) request the Holder of the Security to deliver it to
the Trustee. In such case, the Trustee shall place an appropriate notation on
the Security about the changed terms and return it to the Holder. Alternatively,
if the Company or the Trustee so determines, the Company in exchange for the
Security shall issue and the Trustee shall authenticate a new security that
reflects the changed terms. Failure to make the appropriate notation or issue a
new Security shall not affect the validity
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and effect of such modification, amendment, supplement or waiver.
Section 8.06. Trustee To Sign Amendments, etc.
The Trustee shall sign any modification, amendment, supplement
or waiver authorized pursuant to this Article 8 if the modification, amendment,
supplement or waiver does not adversely affect the rights, duties, liabilities
or immunities of the Trustee. If it does, the Trustee may, but need not, sign
it. In signing or refusing to sign such modification, amendment, supplement or
waiver, the Trustee shall be entitled to receive and, subject to Section 7.01
hereof, shall be fully protected in relying upon an Officers' Certificate and an
Opinion of Counsel stating that such modification, amendment, supplement or
waiver is authorized or permitted by this Indenture and such supplemental
indenture constitutes the legal, valid and binding obligation of the Company and
any Guarantor, if any, enforceable against each of them in accordance with its
terms (subject to customary exceptions). The Company or any Guarantors, if any,
may not sign a modification, amendment or supplement until the Company or such
Guarantors, as appropriate, approve it.
ARTICLE 9.
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01. Discharge of Indenture.
The Company and the Guarantors, if any, may terminate their
obligations under the Securities, the Guarantees, if any, and this Indenture,
except the obligations referred to in the last paragraph of this Section 9.01,
if there shall have been canceled by the Trustee or delivered to the Trustee for
cancellation all Securities theretofore authenticated and delivered (other than
any Securities that are asserted to have been destroyed, lost or stolen and that
shall have been replaced as provided in Section 2.07 hereof) and the Company has
paid all sums payable by it hereunder or deposited all required sums with the
Trustee.
After such delivery the Trustee upon request shall acknowledge
in writing the discharge of the Company's and the
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Guarantors' obligations under the Securities, the Guarantees and this Indenture
except for those surviving obligations specified below.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company in Sections 2.07, 7.07, 9.05, 9.06 and
9.08 hereof shall survive.
Section 9.02. Legal Defeasance.
The Company may at its option, by Board Resolution, be
discharged from its obligations with respect to the Securities and the
Guarantors, if any, discharged from their obligations under the Guarantees, if
any, on the date the conditions set forth in Section 9.04 below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the Securities and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall, subject to
Section 9.06 hereof, execute proper instruments acknowledging the same), except
for the following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of outstanding Securities to receive solely
from the trust funds described in Section 9.04 hereof and as more fully set
forth in such Section, payments in respect of the principal of, premium, if any,
and interest on such Securities when such payments are due, (B) the Company's
obligations with respect to such Securities under Sections 2.03, 2.04, 2.05,
2.06, 2.07, 2.08 and 4.20 hereof, (C) the rights, powers, trusts, duties, and
immunities of the Trustee hereunder (including claims of, or payments to, the
Trustee under or pursuant to Section 7.07 hereof) and (D) this Article 9.
Subject to compliance with this Article 9, the Company may exercise its option
under this Section 9.02 with respect to the Securities notwithstanding the prior
exercise of its option under Section 9.03 below with respect to the Securities.
Section 9.03. Covenant Defeasance.
At the option of the Company, pursuant to a Board Resolution,
the Company and the Guarantors, if any, shall be released from their respective
obligations under Sections 4.02 through 4.19 hereof, inclusive, and clause
(a)(iii) of
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Section 5.01 hereof with respect to the outstanding Securities on and after the
date the conditions set forth in Section 9.04 hereof are satisfied (hereinafter,
"Covenant Defeasance") and the Securities shall thereafter be deemed to not be
outstanding for purposes of any direction, waiver, consent, declaration or act
of the Holders (and the consequences thereof) in connection with such covenants
but shall continue to be outstanding for all other purposes hereunder. For this
purpose, such Covenant Defeasance means that the Company and the Guarantors, if
any, may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such specified Section or portion
thereof, whether directly or indirectly by reason of any reference elsewhere
herein to any such specified Section or portion thereof or by reason of any
reference in any such specified Section or portion thereof to any other
provision herein or in any other document, but the remainder of this Indenture
and the Securities shall be unaffected thereby.
Section 9.04. Conditions to Defeasance or Covenant
Defeasance.
The following shall be the conditions to application of
Section 9.02 or Section 9.03 hereof to the outstanding Securities:
(1) the Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 7.10 hereof who shall agree to comply with the
provisions of this Article 9 applicable to it) as funds in trust for
the purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of
the Securities, (A) money in an amount, or (B) U.S. Government
Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will
provide, not later than the due date of any payment, money in an
amount, or (C) a combination thereof, sufficient, in the opinion of a
nationally-recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee (or other
qualifying trustee) to pay and discharge, the principal of, premium, if
any, and accrued interest on the outstanding
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Securities at the maturity date of such principal, premium, if any, or
interest, or on dates for payment and redemption of such principal,
premium, if any, and interest selected in accordance with the terms of
this Indenture and of the Securities;
(2) no Event of Default or Default with respect to the
Securities shall have occurred and be continuing on the date of such
deposit, or shall have occurred and be continuing at any time during
the period ending on the 91st day after the date of such deposit or, if
longer, ending on the day following the expiration of the longest
preference period under any Bankruptcy Law applicable to the Company in
respect of such deposit (it being understood that this condition shall
not be deemed satisfied until the expiration of such period);
(3) such Legal Defeasance or Covenant Defeasance shall not
cause the Trustee to have a conflicting interest for purposes of the
TIA with respect to any securities of the Company;
(4) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute default under any
other agreement or instrument to which the Company is a party or by
which it is bound;
(5) the Company shall have delivered to the Trustee an Opinion
of Counsel stating that, as a result of such Legal Defeasance or
Covenant Defeasance, neither the trust nor the Trustee will be required
to register as an investment company under the Investment Company Act
of 1940, as amended;
(6) in the case of an election under Section 9.02 above, the
Company shall have delivered to the Trustee an Opinion of Counsel
stating that (i) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling to the effect that
or (ii) there has been a change in any applicable Federal income tax
law with the effect that, and such opinion shall confirm that, the
Holders of the outstanding Securities or Persons in their positions
will not recognize income, gain or loss for Federal income tax purposes
solely as a result of such Legal Defeasance and
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will be subject to Federal income tax on the same amounts, in the same
manner, including as a result of prepayment, and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(7) in the case of an election under Section 9.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders of the outstanding Securities 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;
(8) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the Legal
Defeasance under Section 9.02 above or the Covenant Defeasance under
Section 9.03 hereof (as the case may be) have been complied with;
(9) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit under clause (1) was not
made by the Company with the intent of defeating, hindering, delaying
or defrauding any creditors of the Company or others; and
(10) the Company shall have paid or duly provided for payment
under terms mutually satisfactory to the Company and the Trustee all
amounts due to the Trustee pursuant to Section 7.07 hereof.
Section 9.05. Deposited Money and U.S. Government
Obligations To Be Held in Trust; Other
Miscellaneous Provisions.
All money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee pursuant to Section 9.04 hereof in
respect of the outstanding Securities shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent to the
Holders of such Securities, of all sums due and to become due thereon in respect
of principal,
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premium, if any, and accrued interest, but such money need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no duty to invest such money or U.S. Government Obligations.
On a joint and several basis, the Company and the Guarantors
shall pay and indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against the U.S. Government Obligations deposited pursuant to
Section 9.04 hereof or the principal, premium, if any, 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 Securities.
Anything in this Article 9 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 9.04 hereof which, in the opinion of a nationally-recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 9.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 9.01, 9.02 or 9.03 hereof
by reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the obligations of the Company and any Guarantors under this
Indenture, the Securities and the Guarantees, if any, shall be revived and
reinstated as though no deposit had occurred pursuant to this Article 9 until
such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with Section 9.01 hereof; provided,
however, that if the Company or any Guarantors have made any payment of
principal of, premium, if any, or accrued interest on any Securities because of
the reinstatement of their obligations, the Company or such Guarantors, as the
case may be, shall be subrogated to the rights of the Holders of such Securities
to receive such payment from the money or U.S. Government Obligations held by
the Trustee or Paying Agent.
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Section 9.07. Moneys Held by Paying Agent.
In connection with the satisfaction and discharge of this
Indenture, all moneys then held by any Paying Agent under the provisions of this
Indenture shall, upon a Company Request, be paid to the Trustee, or if
sufficient moneys have been deposited pursuant to Section 9.04 hereof, to the
Company (or, if such moneys had been deposited by any Guarantors, to such
Guarantors), and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys.
Section 9.08. Moneys Held by Trustee.
Any moneys deposited with the Trustee or any Paying Agent or
then held by the Company or any Guarantors in trust for the payment of the
principal of, or premium, if any, or interest on any Security that are not
applied but remain unclaimed by the Holder of such Security for two years after
the date upon which the principal of, or premium, if any, or interest on such
Security shall have respectively become due and payable shall be repaid to the
Company (or, if appropriate, the Guarantors) upon Company Request, or if such
moneys are then held by the Company or any Guarantors in trust, such moneys
shall be released from such trust; and the Holder of such Security entitled to
receive such payment shall thereafter, as an unsecured general creditor, look
only to the Company and the Guarantors, if any, for the payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money
shall thereupon cease; provided, however, that the Trustee or any such Paying
Agent, before being required to make any such repayment, may, at the expense of
the Company and the Guarantors, if any, either mail to each Securityholder
affected, at the address shown in the register of the Securities maintained by
the Registrar pursuant to Section 2.03 hereof, or cause to be published once a
week for two successive weeks, in a newspaper published in the English language,
customarily published each Business Day and of general circulation in The City
of New York, New York, a 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 mailing or publication, any unclaimed balance of such moneys then
remaining will be repaid to the Company. After payment to the Company or the
Guarantors, if any, or the release of any money held in trust by the Company
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or any Guarantors, as the case may be, Securityholders entitled to the money
must look only to the Company and any Guarantors for payment as general
creditors unless applicable abandoned property law designates another Person.
ARTICLE 10.
SUBORDINATION OF SECURITIES
Section 10.01. Securities Subordinate to Senior Debt.
The Company covenants and agrees, and each Holder of
Securities, by its acceptance thereof, likewise covenants and agrees, that, to
the extent and in the manner hereinafter set forth in this Article 10, the
Indebtedness represented by the Securities and the payment of the principal of,
premium, if any, and interest on the Securities are hereby expressly made
subordinate and subject in right of payment as provided in this Article 10 to
the prior indefeasible payment and satisfaction in full in cash or, as
acceptable to the holders of Senior Debt, in any other manner, of all existing
and future Senior Debt.
This Article 10 shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of or continue to
hold Senior Debt; and such provisions are made for the benefit of the holders of
Senior Debt; and such holders are made obligees hereunder and they or each of
them may enforce such provisions.
Section 10.02. Payment Over of Proceeds upon
Dissolution, etc.
In the event of (a) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relative to the Company or to its
creditors, as such, or to its assets, whether voluntary or involuntary or (b)
any liquidation, dissolution or other winding-up of the Company, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy,
or (c) any general assignment for the benefit of creditors or any other
marshalling of assets or liabilities of the Company, then and in any such event:
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(1) the holders of Senior Debt shall be entitled to receive
payment and satisfaction in full in cash or, as acceptable to the
holders of Senior Debt, in any other manner, of all amounts due on or
in respect of all Senior Debt, before the Holders of the Securities are
entitled to receive or retain any payment or distribution of any kind
or character on account of principal of, premium, if any, or interest
on the Securities; and
(2) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, by
set-off or otherwise, to which the Holders or the Trustee would be
entitled but for the provisions of this Article 11 shall be paid by the
liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior
Debt or their representative or representatives or to the trustee or
trustees under any indenture under which any instruments evidencing any
of such Senior Debt may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the Senior Debt held
or represented by each, to the extent necessary to make payment in full
in cash or, as acceptable to the holders of Senior Debt, in any other
manner, of all Senior Debt remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to the
holders of such Senior Debt; and
(3) in the event that, notwithstanding the foregoing
provisions of this Section 10.02, the Trustee or the Holder of any
Security shall have received any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or
securities, including, without limitation, by way of set-off or
otherwise, in respect of principal of, premium, if any, and interest on
the Securities before all Senior Debt is paid and satisfied in full in
cash or such payment and satisfaction thereof in cash is provided for,
then and in such event such payment or distribution upon written notice
to the Trustee or the Holder of such Security, as the case may be,
shall be held by the Trustee or the Holder of such Security, as the
case may be, in trust for the benefit of the holders of such Senior
Debt and shall be immediately paid over or
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delivered forthwith to the liquidating trustee or agent or other Person
making payment or distribution of assets of the Company for application
to the payment of all Senior Debt remaining unpaid, to the extent
necessary to pay all Senior Debt in full in cash or, as acceptable to
the holders of Senior Debt, any other manner, after giving effect to
any concurrent payment or distribution, or provision therefor, to or
for the holders of Senior Debt.
The consolidation of the Company with, or the merger of the
Company with or into, another Person or the liquidation or dissolution of the
Company following the transfer of all its assets (as an entirety or
substantially as an entirety) to another Person upon the terms and conditions
set forth in Article 5 hereof shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of the Company for the purposes of this
Article 11 if the Person formed by such consolidation or the surviving entity of
such merger or the Person which acquires by transfer such assets (as an entirety
or substantially as an entirety) shall, as a part of such consolidation, merger
or transfer, comply with the conditions set forth in such Article 5 hereof.
Section 10.03. Suspension of Payment When Senior
Indebtedness in Default.
(a) Unless Section 10.02 hereof shall be applicable, after the
occurrence of a Payment Default no payment or distribution of any assets or
securities of the Company or any Restricted Subsidiary of any kind or character
(including, without limitation, cash, property and any payment or distribution
which may be payable or deliverable by reason of the payment of any other
Indebtedness of the Company being subordinated to the payment of the Securities
by the Company) may be made by or on behalf of the Company or any Restricted
Subsidiary, including, without limitation, by way of set-off or otherwise, for
or on account of principal of, premium, if any, or interest on the Securities,
or for or on account of the purchase, redemption, defeasance or other
acquisition of the Securities, and neither the Trustee nor any holder or owner
of any Securities shall take or receive from the Company or any Restricted
Subsidiary, directly or indirectly in any manner, payment in respect of all or
any portion of Securities following the delivery by the
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representative of the holders of Designated Senior Debt (the "Representative")
to the Trustee of written notice of (i) the occurrence of a Payment Default on
Designated Senior Debt or (ii) the occurrence of a Non-Payment Event of Default
on Designated Senior Debt and the acceleration of the maturity of Designated
Senior Debt in accordance with its terms, and in any such event, such
prohibition shall continue until such Payment Default is cured, waived in
writing or ceases to exist or such acceleration has been rescinded or otherwise
cured; provided that nothing in this sentence shall be deemed to affect the
right of the Holders to receive solely from the funds deposited in trust
pursuant to clause (1) of Section 9.04 hereof prior to the date of such Payment
Default and as more fully set forth in such Section payments or distributions in
respect of the principal of, premium, if any, and interest on the Securities in
connection with any Legal Defeasance or Covenant Defeasance. At such time as the
prohibition set forth in the preceding sentence shall no longer be in effect,
subject to the provisions of the following paragraph (b), the Company shall
resume making any and all required payments in respect of the Securities,
including any missed payments.
(b) Unless Section 10.02 hereof shall be applicable, upon the
occurrence of a Non-Payment Event of Default on Designated Senior Debt, no
payment or distribution of any assets or securities of the Company of any kind
or character (including, without limitation, cash, property and any payment or
distribution which may be payable or deliverable by reason of the payment of any
other Indebtedness of the Company being subordinated to the payment of the
Securities by the Company) shall be made by or on behalf of the Company,
including, without limitation, by way of set-off or otherwise, for or on account
of any principal of, premium, if any, or interest on the Securities or for or on
account of the purchase, redemption, defeasance or other acquisition of
Securities, and neither the Trustee nor any holder or owner of any Securities
shall take or receive from the Company, directly or indirectly in any manner,
payment in respect of all or any portion of the Securities, for a period (a
"Payment Blockage Period") commencing on the date of receipt by the Trustee of
written notice from the Representative of such Non-Payment Event of Default
unless and until (subject to any blockage of payments that may then be in effect
under the preceding paragraph (a)) the earliest to occur of the following
events: (x) more than 179 days shall have elapsed
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since the date of receipt of such written notice by the Trustee, (y) such
Non-Payment Event of Default shall have been cured or waived in writing or shall
have ceased to exist or such Designated Senior Debt shall have been paid in full
in cash and the Trustee has been so notified by either the Representative or the
Company or (z) such Payment Blockage Period shall have been terminated by
written notice to the Company or the Trustee from the Representative, after
which, in the case of clause (x), (y) or (z), the Company shall resume making
any and all required payments in respect of the Securities, including any missed
payments. Notwithstanding any other provisions of this Indenture, no event of
default with respect to Designated Senior Debt (other than a Payment Default)
which existed or was continuing on the date of the commencement of any Payment
Blockage Period initiated by the Representative shall be, or be made, the basis
for the commencement of a second Payment Blockage Period initiated by the
Representative unless such event of default shall have been cured or waived for
a period of not less than 90 consecutive days. In no event shall a Payment
Blockage Period extend beyond 179 days from the date of the receipt by the
Trustee of the notice referred to in this Section 10.03(b) (the "Initial
Blockage Period"). Any number of additional Payment Blockage periods may be
commenced during the Initial Blockage Period; provided, however, that no such
additional Payment Blockage Period shall extend beyond the Initial Blockage
Period. After the expiration of the Initial Blockage Period, no Payment Blockage
Period may be commenced under this Section 10.03(b) and no Guarantee Payment
Blockage Period may be commenced under Section 12.07(b) hereof until at least
180 consecutive days have elapsed from the last day of the Initial Blockage
Period. Notwithstanding anything in the Indenture to the contrary, no NonPayment
Event of Default with respect to Designated Senior Debt which existed or was
continuing on the date of the commencement of any Payment Blockage Period
initiated by the Representative shall be, or be made, the basis for the
commencement of a Second Payment Blockage Period initiated by the Representative
whether or not within the Initial Blockage Period, unless such Non-Payment Event
of Default shall have been waived for a period of not less than 90 consecutive
days.
(c) In the event that, notwithstanding the foregoing,
the Trustee or the Holder of any Security shall have received any payment
prohibited by the foregoing provisions of this Section 10.03, then and in such
event such
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payment shall be paid over and delivered forthwith to the Representative
initiating the Payment Blockage Period, in trust for distribution to the holders
of Senior Debt or, if no amounts are then due in respect of Senior Debt,
promptly returned to the Company, or otherwise as a court of competent
jurisdiction shall direct.
Section 10.04. Trustee's Relation to Senior Debt
With respect to the holders of Senior Debt, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Debt 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 Debt and the Trustee shall not be liable
to any holder of Senior Debt if it shall mistakenly pay over or deliver to
Holders, the Company or any other Person moneys or assets to which any holder of
Senior Debt shall be entitled by virtue of this Article 10 or otherwise.
Section 10.05. Subrogation to Rights of Holders
of Senior Debt.
Upon the payment in full of all Senior Debt, the Holders of
the Securities shall be subrogated to the rights of the holders of such Senior
Debt to receive payments and distributions of cash, property and securities
applicable to the Senior Debt until the principal of, premium, if any, and
interest on the Securities shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of Senior Debt of any
cash, property or securities to which the Holders of the Securities or the
Trustee would be entitled except for the provisions of this Article 10, and no
payments pursuant to the provisions of this Article 10 to the holders of Senior
Debt by Holders of the Securities or the Trustee, shall, as among the Company,
its creditors other than holders of Senior Debt and the Holders of the
Securities, be deemed to be a payment or distribution by the Company to or on
account of the Senior Debt.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article 10 shall
have been applied, pursuant to the
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provisions of this Article 10, to the payment of all amounts payable under the
Senior Debt of the Company, then and in such case the Holders shall be entitled
to receive from the holders of such Senior Debt at the time outstanding any
payments or distributions received by such holders of such Senior Debt in excess
of the amount sufficient to indefeasibly pay all amounts payable under or in
respect of such Senior Debt in full in cash.
Section 10.06. Provisions Solely to Define Relative
Rights.
The provisions of this Article 10 are and are intended
solely for the purpose of defining the relative rights of the Holders of the
Securities on the one hand and the holders of Senior Debt on the other hand.
Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Debt and the Holders of the Securities,
the obligation of the Company, which is absolute and unconditional, to pay to
the Holders of the Securities the principal of, premium, if any, and interest on
the Securities as and when the same shall become due and payable in accordance
with their terms, or (b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than the holders of
Senior Debt or (c) prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law upon a Default or
an Event of Default under this Indenture, subject to the rights, if any, under
this Article 11 of the holders of Senior Debt (1) in any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, arrangement,
reorganization or other similar case or proceeding in connection therewith, or
any liquidation, dissolution or other winding-up, or any assignment for the
benefit of creditors or other marshaling of assets and liabilities referred to
in Section 10.02 hereof, to receive, pursuant to and in accordance with such
Section, cash, property and securities otherwise payable or deliverable to the
Trustee or such Holder, or (2) under the conditions specified in Section 10.03,
to prevent any payment prohibited by such Section or enforce their rights
pursuant to Section 10.03(c) hereof.
The failure to make a payment on account of principal of,
premium, if any, or interest on the Securities
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by reason of any provision of this Article 10 shall not be construed as
preventing the occurrence of a Default or an Event of Default hereunder.
Section 10.07. Trustee to Effectuate Subordination.
Each Holder of a Security by his acceptance thereof authorizes
and directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article 10 and
appoints the Trustee his attorney-in-fact for any and all such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company whether in bankruptcy, insolvency, receivership
proceedings, or otherwise, the timely filing of a claim for the unpaid balance
of the indebtedness of the Company owing to such Holder in the form required in
such proceedings and the causing of such claim to be approved. If the Trustee
does not file such a claim prior to 30 days before the expiration of the time to
file such a claim, the holders of Senior Debt, or any Representative, may file
such a claim on behalf of Holders of the Securities.
Section 10.08. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior
Debt to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section 10.08, the holders of Senior Debt may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article 11
or the obligations hereunder of the Holders of the Securities to the holders of
Senior Debt, do any one or more of the following: (1) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Debt or any instrument evidencing the same or any agreement under which Senior
Debt
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is outstanding; (2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Debt; (3) release any Person
liable in any manner for the collection or payment of Senior Debt; and (4)
exercise or refrain from exercising any rights against the Company and any other
Person; provided, however, that in no event shall any such actions limit the
right of the Holders of the Securities to take any action to accelerate the
maturity of the Securities pursuant to Article 6 hereof or to pursue any rights
or remedies hereunder or under applicable laws if the taking of such action does
not otherwise violate the terms of this Indenture.
Section 10.09. Notice to Trustee.
(a) The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would prohibit the making of any
payment to or by the Trustee at its Corporate Trust Office in respect of the
Securities. 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 which would prohibit the making of any payment to or
by the Trustee in respect of the Securities, unless and until the Trustee shall
have received written notice thereof from the Company or a holder of Senior Debt
or from any trustee, fiduciary or agent therefor; and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of this Section
10.09, shall be entitled in all respects to assume that no such facts exist;
provided, however, that if the Trustee shall not have received the notice
provided for in this Section 10.09 at least five Business Days prior to the date
upon which by the terms hereof any money may become payable for any purpose
under this Indenture (including, without limitation, the payment of the
principal of, premium, if any, or interest on any Security), then, anything
herein contained to the contrary notwithstanding but without limiting the rights
and remedies of the holders of Senior Indebtedness or any trustee, fiduciary or
agent therefor, the Trustee shall have full power and authority to receive such
money and to apply the same to the purpose for which such money was received and
shall not be affected by any notice to the contrary which may be received by it
within five Business Days prior to such date; nor shall the Trustee be charged
with knowledge of the curing of any such default or the elimination of the act
or condition
<PAGE>
-99-
preventing any such payment unless and until the Trustee shall have received an
Officers' Certificate to such effect.
(b) Subject to the provisions of Section 7.01 hereof, the
Trustee shall be entitled to rely on the delivery to it of a written notice to
the Trustee and the Company by a Person representing itself to be a holder of
Senior Debt (or a trustee, fiduciary or agent therefor) to establish that such
notice has been given by a holder of Senior Debt (or a trustee, fiduciary or
agent therefor); provided, however, that failure to give such notice to the
Company shall not affect in any way the ability of the Trustee to rely on such
notice. In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Senior Debt to participate in any payment or distribution pursuant to this
Article 10, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Debt held by
such Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article 10, and if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
Section 10.10. Reliance on Judicial Order or
Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee, subject to the provisions of
Section 7.01 hereof, and the Holders shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
Senior Debt 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.
<PAGE>
-100-
Section 10.11. Rights of Trustee as a Holder of
Senior Debt; Preservation
of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article 10 with respect to any Senior Debt
which may at any time be held by it, to the same extent as any other holder of
Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article 10 shall apply to claims of,
or payments to, the Trustee under or pursuant to Section 7.07 hereof.
Section 10.12. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article 10 shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article 10 in addition to or in place of the Trustee.
Section 10.13. No Suspension of Remedies.
Nothing contained in this Article 10 shall limit the right of
the Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article 6 or to pursue any rights or
remedies hereunder or under applicable law, subject to the rights, if any, under
this Article 10 of the holders, from time to time, of Senior Debt.
ARTICLE 11.
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control.
<PAGE>
-101-
Section 11.02. Notices.
Any notice or communication shall be given in writing and
delivered in person, sent by facsimile, delivered by commercial courier service
or mailed by first-class mail, postage prepaid, addressed as follows:
If to the Company:
FAIRFIELD MANUFACTURING COMPANY, INC.
U.S. 52 South
Lafayette, Indiana 47903-7940
Telecopier: (317) 474-7248
Attention: Corporate Secretary
Copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Telecopier: (212) 286-8626
Attention: Ralph Arditi
If to the Trustee:
UNITED STATES TRUST COMPANY OF NEW YORK
114 West 47th Street
New York, New York, 10036
Telecopier: (212) 852-1625
Attention: Corporate Trust Department
Copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Telecopier: (212) 715-8000
Attention: Michele D. Ross, Esq.
Such notices or communications shall be effective when
received and shall be sufficiently given if so given within the time prescribed
in this Indenture.
<PAGE>
-102-
The Company, or the Trustee by written notice to the others
may designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Securityholder shall
be mailed to him by first-class mail, postage prepaid, at his address shown on
the register kept by the Registrar. If a notice or communication to a
Securityholder is mailed in the manner provided above, it shall be deemed duly
given on the date so deposited in the mail, whether or not the addressee
receives it.
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders.
In case by reason of the suspension of regular mail service,
or by reason of any other cause, it shall be impossible to mail any notice as
required by this Indenture, then such method of notification as shall be made
with the approval of the Trustee shall constitute a sufficient mailing of such
notice.
Section 11.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b)
with other Securityholders with respect to their rights under this Indenture or
the Securities. The Company, the Trustee, the Registrar and anyone else shall
have the protection of TIA ss. 312(c).
Section 11.04. 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 at the request of the Trustee:
(1) an Officers' Certificate (which shall include the
statements set forth in Section 11.05 below) in form and substance
reasonably satisfactory to the Trustee stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
<PAGE>
-103-
(2) an Opinion of Counsel (which shall include the statements
set forth in Section 11.05 below) in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 11.05. Statements Required in Certificate and Opinion.
Each certificate and opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate
or opinion has read such covenant or condition;
(2) 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;
(3) a statement that, in the opinion of such Person, it or he
has made such examination or investigation as is necessary to enable it
or him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
Person, such covenant or condition has been complied with.
Section 11.06. When Treasury Securities Disregarded.
In determining whether the Holders of the required aggregate
principal amount of Securities have concurred in any direction, waiver or
consent, Securities owned by the Company, any Guarantors or any other obligor on
the Securities or by any Affiliate of any of them shall be disregarded as though
they were not outstanding, except that for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, waiver or
consent, only Securities which the Trustee actually knows are so owned shall be
so disregarded. Securities so owned which have been pledged in good faith shall
not be disregarded if the pledgee establishes to the satisfaction of the Trustee
the pledgee's right so to
<PAGE>
-104-
act with respect to the Securities and that the pledgee is not the Company, a
Guarantors or any other obligor upon the Securities or any Affiliate of any of
them.
Section 11.07. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or
meetings of Securityholders. The Registrar and Paying Agent may make reasonable
rules for their functions.
Section 11.08. Business Days; Legal Holidays.
A "Business Day" is a day that is not a Legal Holiday. A
"Legal Holiday" is a Saturday, a Sunday, a federally-recognized holiday or a day
on which banking institutions are not required to be open in the State of New
York. 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.
Section 11.09. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE SECURITIES.
Section 11.10. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan, security or debt agreement of the Company or any Subsidiary thereof. No
such indenture, loan, security or debt agreement may be used to interpret this
Indenture.
Section 11.11. No Recourse Against Others.
No recourse for the payment of the principal of or premium, if
any, or interest on any of the Securities, or for any claim based thereon or
otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Company in this Indenture or in any
<PAGE>
-105-
supplemental indenture, or in any of the Securities, or because of the creation
of any Indebtedness represented thereby, shall be had against any stockholder,
officer, director, partner, affiliate, beneficiary or employee, as such, past,
present or future, of the Company or of any successor corporation or against the
property or assets of any such stockholder, officer, employee, partner,
affiliate, beneficiary or director, either directly or through the Company or
any successor corporation thereof, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that this Indenture and the Securities
are solely obligations of the Company, and that no such Personal liability
whatever shall attach to, or is or shall be incurred by, any stockholder,
officer, employee, partner, affiliate, beneficiary or director of the Company,
or any successor corporation thereof, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or the Securities or implied
therefrom, and that any and all such Personal liability of, and any and all
claims against every stockholder, officer, employee, partner, affiliate,
beneficiary and director, are hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issuance of the Securities. It is understood that this limitation on
recourse is made expressly for the benefit of any such shareholder, employee,
officer, partner, affiliate, beneficiary or director and may be enforced by any
one or all of them.
Section 11.12. Successors.
All agreements of the Company in this Indenture and the
Securities shall bind their respective successors. All agreements of the
Trustee, any additional trustee and any Paying Agents in this Indenture shall
bind its successor.
Section 11.13. Multiple Counterparts.
The parties may sign multiple counterparts of this Indenture.
Each signed counterpart shall be deemed an original, but all of them together
represent one and the same agreement.
<PAGE>
-106-
Section 11.14. Table of Contents, Headings, etc.
The table of contents, cross-reference sheet 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 hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 11.15 Separability.
Each provision of this Indenture shall be considered separable
and if for any reason any provision which is not essential to the effectuation
of the basic purpose of this Indenture or the Securities 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.
<PAGE>
-107-
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed, and the Company's corporate seal to be hereunto affixed and
attested, all as of the date and year first written above.
FAIRFIELD MANUFACTURING COMPANY, INC.
By: /s/ KENNETH A. BURNS
----------------------------
Name: Kenneth A. Burns
Title: President and
Chief Operating Officer
ATTEST:
/s/ RICHARD A. BUSH
- -------------------------
Name: Richard A. Bush
Title: Vice President Finance
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By: /s/ CYNTHIA CHANEY
----------------------------
Name: Cynthia Chaney
Title: Assistant Vice President
ATTEST:
/s/ PATRICIA STERMER
- -------------------------
Name: Patricia Stermer
Title: Assistant Vice President
<PAGE>
EXHIBIT A
CUSIP______
Number
FAIRFIELD MANUFACTURING COMPANY, INC.
11-1/4% SUBORDINATED EXCHANGE DEBENTURE DUE 2009
Fairfield Manufacturing Company, Inc., a Delaware corporation
(the "Company", which term includes any successor corporation), for value
received promises to pay to ________________________ or registered assigns the
principal sum of ___________________ Dollars, on March 15, 2009.
Interest Payment Dates: March 15 and September 15
Record Dates: March 1 and September 1
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
A-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
FAIRFIELD MANUFACTURING COMPANY, INC.
By:
----------------------------
Title:
By:
----------------------------
Title:
[SEAL]
Certificate of Authentication:
This is one of the 11-1/4% Subordinated
Exchange Debentures due 2009 referred
to in the within-mentioned Indenture
Dated:
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By: ___________________________________
Authorized Signatory
A-2
<PAGE>
(REVERSE SIDE)
FAIRFIELD MANUFACTURING COMPANY, INC.
11-1/4% SUBORDINATED EXCHANGE DEBENTURES DUE 2009
1. INTEREST.
Fairfield Manufacturing Company, Inc., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above. Interest on the Securities will
accrue from the most recent date on which interest has been paid or, if no
interest has been paid, from .(1) The Company will pay interest
semi-annually in arrears on each Interest Payment Date, commencing .(2)
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Notwithstanding anything herewith to the contrary, on each
Interest Payment Date through and including March 15, 2002, the entire amount of
the interest payment on the Securities may be paid, at the option of the
Company, in additional Securities ("Secondary Securities") (valued at 100% of
the principal amount thereof), which Securities shall mature on the Maturity
Date, bear interest from their issue date and be governed by, and subject to the
provisions and conditions of, the Indenture and shall have the same rights and
benefits as Securities previously issued. The Company may, at its option, pay
cash in lieu of issuing any Secondary Security to the extent the principal
amount such Secondary Security is not an integral multiple of $1,000. The
Company shall notify the Trustee by delivery of a Company Request of the
Company's election to pay interest in Secondary Securities not less than 10 days
prior to the Record Date for an Interest Payment Date. On each such Interest
Payment Date, the Trustee shall, upon receipt of an Officers' Certificate,
authenticate Secondary Securities for original issuance to each holder of
Securities on the preceding Record Date, as shown on the Security Register, in
the amount required to pay such interest. For purposes of determining the
principal amount of Secondary Securities to be issued in payment of interest,
the Company shall be entitled to aggregate as to each holder the principal
amount of all Securities and Secondary Securities held of record by such holder.
- ------------
(1) Insert date of original issuance of Security.
(2) Insert First Interest Payment Date following the date of original issuance
of Security.
A-3
<PAGE>
The Company shall pay interest on overdue principal and on
overdue installments of interest from time to time on demand at the rate borne
by the Securities to the extent lawful.
2. METHOD OF PAYMENT.
The Company shall pay interest on this Security provided for
in Paragraph 1 above (except defaulted interest) to the Person who is the
registered Holder of this Security at the close of business on the Record Date
immediately preceding the Interest Payment Date (whether or not such day is a
Business Day). The Holder must surrender this Security to a Paying Agent to
collect principal payments. The Company will pay principal, premium, if any, and
interest payable in cash in money of the United States that at the time of
payment is legal tender for payment of public and private debts; provided,
however, that the Company may pay principal, premium, if any, and interest by
check payable in such money. It may mail an interest check to the Holder's
registered address.
3. PAYING AGENT AND REGISTRAR.
Initially, The United States Trust Company of New York, (the
"Trustee"), will act as Paying Agent and Registrar. The Company may change any
Paying Agent or Registrar without notice to the Holders of the Securities.
Neither the Company nor any of its Subsidiaries or Affiliates may act as Paying
Agent but may act as Registrar.
4. INDENTURE; RESTRICTIVE COVENANTS.
The Company issued this Security under an Indenture dated as
of March 12, 1997 (the "Indenture") by and between the Company and the Trustee.
The terms of this Security include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.
Code ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture. This
Security is subject to all such terms, and the Holder of this Security is
referred to the Indenture and said Trust Indenture Act for a statement of them.
All capitalized terms in this Security, unless otherwise defined, have the
meanings assigned to them by the Indenture.
The Securities are general unsecured obligations of the
Company limited to up to $125,000,000 aggregate principal amount. The Indenture
imposes certain restrictions on, among other things, the incurrence of
indebtedness, the issuance of preferred stock by the Company and its
subsidiaries, mergers
A-4
<PAGE>
and sale of assets, the payments of dividends on, or the repurchase of, capital
stock of the Company and its subsidiaries, certain other restricted payments by
the Company and its subsidiaries, certain transactions with, and investments in,
its affiliates, and a provision regarding change-of-control transactions. The
restrictions are subject to a number of important qualifications and exceptions.
5. SUBORDINATION.
The Indebtedness represented by the Securities is, to the
extent and in the manner provided in the Indenture, subordinated in right of
payment to the prior indefeasible payment and satisfaction in full in cash of
all existing and future Senior Debt as defined in the Indenture, and this
Security is issued subject to such provisions. Each Holder of this Security, by
accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee, on behalf of such Holder, to take such
action as may be necessary or appropriate to effectuate the subordination as
provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such
Holder for such purpose; provided, however, that the Indebtedness evidenced by
this Security shall cease to be so subordinate and subject in right of payment
upon any defeasance of this Security referred to in Paragraph 18 below.
6. OPTIONAL REDEMPTION.
The Company may redeem the Securities, in whole or in part, at
any time on or after March 15, 2002 at the following redemption prices
(expressed as a percentage of principal amount), together, in each case, with
accrued and unpaid interest to the Redemption Date, if redeemed during the
twelve-month period beginning on March 15 of each year listed below:
Year Percentage
2002....................................105.625%
2003....................................104.219%
2004....................................102.813%
2005....................................101.406%
2006 and thereafter................... 100.00%
7. NOTICE OF REDEMPTION.
Notice of redemption will be mailed via first class mail at
least 30 days but not more than 60 days prior to the redemption date to each
Holder of Securities to be redeemed at its registered address as it shall appear
on the register of
A-5
<PAGE>
the Securities maintained by the Registrar. On and after any Redemption Date,
interest will cease to accrue on the Securities or portions thereof called for
redemption unless the Company shall fail to redeem any such Security.
8. LIMITATION ON DISPOSITION OF ASSETS.
The Indenture requires that certain proceeds from Asset Sales
be used, subject to further limitations contained therein, to make an offer to
purchase certain amounts of Securities in accordance with the procedures set
forth in the Indenture.
9. CHANGE OF CONTROL OFFER.
The Indenture requires the Company to make an offer to
purchase Securities upon the occurrence of a Change of Control occurring on or
after July 2, 2001 in accordance with the procedures set forth in the Indenture.
In addition, upon the occurrence of a Change of Control occurring prior to July
2, 2001, the Company will have the option to offer to purchase the Securities,
in whole but not in part, at a purchase price equal to 101% of the principal
amount thereof, plus, without duplication, accrued and unpaid interest to date
of purchase. If a Change of Control occurs prior to July 2, 2001 and the Company
fails to make an offer to purchase the Securities in accordance with the terms
of the Indenture, the annual interest rate on the Securities will increase by
4.0% over the then-applicable interest rate.
10. DENOMINATIONS, TRANSFER, EXCHANGE.
The Securities are in registered form without coupons. A
Holder may register the transfer or exchange of Securities in accordance with
the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The Registrar need not
register the transfer of or exchange any Security selected for redemption or
register the transfer of or exchange any Security for a period of 15 days before
a selection of Securities to be redeemed or any Security after it is called for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
11. PERSONS DEEMED OWNERS.
The registered Holder of this Security may be treated as the
owner of it for all purposes.
12. UNCLAIMED MONEY.
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<PAGE>
If money for the payment of principal, premium or interest on
any Security remains unclaimed for two years, the Trustee or Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to money must look to the Company for payment as general creditors unless an
"abandoned property" law designates another Person.
13. AMENDMENT, SUPPLEMENT AND WAIVER.
Subject to certain exceptions, the Indenture or the
Securities may be modified, amended or supplemented by the Company, the
Guarantors, if any, and the Trustee with the consent of the Holders of at least
a majority in principal amount of the Securities then outstanding and any
existing default or compliance with any provision may be waived in a particular
instance with the consent of the Holders of a majority in principal amount of
the Securities then outstanding. Without the consent of Holders, the Company,
the Guarantors, if any, and the Trustee may amend the Indenture or the
Securities or supplement the Indenture for certain specified purposes including
providing for uncertificated Securities in addition to certificated Securities,
and curing any ambiguity, defect or inconsistency, or making any other change
that does not materially and adversely affect the rights of any Holder.
14. SUCCESSOR ENTITY.
When a successor corporation assumes all the obligations of
its predecessor under the Securities and the Indenture and immediately before
and thereafter no Default exists and certain other conditions are satisfied, the
predecessor corporation will be released from those obligations.
15. DEFAULTS AND REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable in the manner,
at the time and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has been offered indemnity or security reasonably
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of any
continuing Default or Event of Default (except a Default in
A-7
<PAGE>
payment of principal or interest) if it determines in good faith that
withholding notice is in their interest.
16. TRUSTEE DEALINGS WITH THE COMPANY.
The Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company, its Affiliates, and may otherwise deal with the Company or its
Affiliates, as if it were not Trustee.
17. NO RECOURSE AGAINST OTHERS.
As more fully described in the Indenture, a director, officer,
employee, partner, affiliate, beneficiary or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect or by
reason of, such obligations or their creation. The Holder of this Security by
accepting this Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of this Security.
18. DEFEASANCE AND COVENANT DEFEASANCE.
The Indenture contains provisions for defeasance of the entire
indebtedness on this Security and for defeasance of certain covenants in the
Indenture upon compliance by the Company with certain conditions set forth in
the Indenture.
19. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder of
a Security 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).
20. 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 Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Holders of the Securities.
No representation is made as to the accuracy of such numbers either as printed
on the Securities or as contained in any notice of redemption and reliance may
be placed only on the other identification numbers placed thereon.
A-8
<PAGE>
21. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE SECURITIES.
THE COMPANY WILL FURNISH TO ANY HOLDER OF A SECURITY UPON
WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE
TO: FAIRFIELD MANUFACTURING COMPANY, INC., U.S. 52 South, Lafayette, Indiana
47903-7940, Attention: Corporate Secretary.
22. AUTHENTICATION
This Security shall not be valid until the Trustee manually
signs the Certificate of Authentication on the other side of this Security.
A-9
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign to
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
- -----------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing
- --------------------------------------------------------------------------------
attorney to transfer the Security on the books of the Company with full power of
substitution in the premises.
Dated:
------------------ -----------------------------------
NOTICE: The signature on this
assignment must correspond with the
name as it appears upon the face of
the within Security in every
particular without alteration or
enlargement or any change whatsoever
and be guaranteed by the endorser's
bank or broker.
Signature Guarantee:
-----------------------------------
A-10
<PAGE>
EXHIBIT B
ARTICLE 12.
GUARANTEE OF SECURITIES
Section 12.01. Guarantee.
Subject to the provisions of this Article 12, each Guarantor,
by execution of the Guarantee, will jointly and severally unconditionally
guarantee to each Holder and to the Trustee, on behalf of the Holders,
irrespective of the validity and enforceability of this Indenture, the
Securities or the obligations of the Company or any other Guarantors to the
Holders or the Trustee hereunder, that: (i) the due and punctual payment of the
principal of, and premium, if any, and interest on each Security when and as the
same shall become due and payable, whether at maturity, by acceleration or
otherwise, the due and punctual payment of interest on the overdue principal of,
and premium, if any, and interest on the Securities, to the extent lawful, 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 of such Security and
this Indenture, and (ii) in the case of any extension of time of payment or
renewal of any Securities or any of 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, at stated maturity, by acceleration or otherwise. Each
Guarantor, by execution of the Guarantee, will agree that its obligations
thereunder and hereunder shall be absolute and unconditional, irrespective of,
and shall be unaffected by, any invalidity, irregularity or unenforceability of
any such Security or this Indenture, any failure to enforce the provisions of
any such Security or this Indenture, any waiver, modification or indulgence
granted to the Company with respect thereto by the Holder of such Security or
the Trustee, or any other circumstances which may otherwise constitute a legal
or equitable discharge of a surety or such Guarantor.
Each Guarantor, by execution of the Guarantee, will waive
diligence, presentment, filing of claims with a court in the event of merger or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest or notice with respect to any such Security or the Indebtedness
evidenced thereby and all demands whatsoever, and will covenant that the
Guarantee will not be discharged as to any such Security except by payment in
full of the principal thereof, premium if any, and interest thereon and as
provided in Section 9.01 hereof. Each Guarantor, by execution of the
<PAGE>
Guarantee, will further agree that, as between such Guarantor, on the one hand,
and the Holders and the Trustee, on the other hand, (i) the maturity of the
Obligations guaranteed by the Guarantee may be accelerated as provided in
Article 6 hereof for the purposes of the Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
Obligations guaranteed thereby, and (ii) in the event of any declaration of
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 each Guarantor for the purpose of the Guarantee. In addition, without
limiting the foregoing provisions, upon the effectiveness of an acceleration
under Article 6 hereof, the Trustee shall promptly make a demand for payment on
the Securities under the Guarantee provided for in this Article 12 and not
discharged. Failure to make such demand shall not affect the validity or
enforceability of the Guarantee upon any Guarantor.
A Guarantee shall not be valid or become obligatory for any
purpose with respect to a Security unless the certificate of authentication on
such Security shall have been signed by or on behalf of the Trustee.
This Guarantee shall remain in full force and effect and
continue to be effective should any petition be filed by or against the Company
for liquidation or reorganization, should the Company become insolvent or make
an assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Company's assets, and shall, to
the fullest extent permitted by law, continue to be effective or be reinstated,
as the case may be, if at any time payment and performance of the Securities
are, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee on the Securities, whether as a
"voidable preference," "fraudulent transfer" or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Securities shall,
to the fullest extent permitted by law, be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
No stockholder, officer, director, employer or incorporator,
past, present or future, or any Guarantor, as such, shall have any personal
liability under this Guarantee by reason of his, her or its status as such
stockholder, officer, director, employer or incorporator.
The Guarantors shall have the right to seek contribution from
any non-paying Guarantor so long as the
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<PAGE>
exercise of such right does not impair the rights of the Holders under this
Guarantee.
Section 12.02. Execution and Delivery of Guarantees.
A Guarantee, substantially in the form of Exhibit F hereto,
shall be executed on behalf of a Guarantor by the manual or facsimile signature
of an Officer of such Guarantor.
If an Officer of a Guarantor whose signature is on the
Guarantee no longer holds that office, such Guarantee shall be valid
nevertheless.
The validity and enforceability of any Guarantee shall not be
affected by the fact that it is not affixed to any particular Security. Each of
the Guarantors hereby agrees that its Guarantee set forth in Section 12.01
hereof shall remain in full force and effect notwithstanding any failure to
endorse on each Security a notation of such Guarantee.
Any Person may become a Guarantor by executing and delivering
to the Trustee (a) a supplemental indenture in form and substance satisfactory
to the Trustee, which subjects such Person to the provisions of this Indenture
as a Guarantor, and (b) as Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such Person and
constitutes the legal, valid, binding and enforceable obligation of such Person
(subject to such customary exceptions concerning fraudulent conveyance laws,
creditors' rights and equitable principles as may be acceptable to the Trustee
in its discretion).
Section 12.03. Additional Guarantors.
Any person may become a Guarantor by executing and delivering
to the Trustee (a) a supplemental indenture in form and substance satisfactory
to the Trustee, which subjects such person to the provisions of this Indenture
as a Guarantor, and (b) an Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such person and
constitutes the legal, valid, binding and enforceable obligation of such person
(subject to such customary exceptions concerning fraudulent conveyance laws,
creditors' rights and equitable principles as may be acceptable to the Trustee
in its discretion).
Section 12.04. Limitation of Guarantee.
The obligations of each Guarantor will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor (including, without limitation, any guarantees of
Senior Debt) and after
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<PAGE>
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 its
Guarantee or pursuant to its contribution obligations under this Indenture,
result in the obligations of such Guarantor under the Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under Federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in a pro rata amount based
on the Adjusted Net Assets of each Guarantor.
Section 12.05. Release of Guarantors.
A Guarantor shall be released from all of its obligations
under its Guarantee if:
(i) the Guarantor has sold all or substantially all of its
assets or the Company and its Restricted Subsidiaries have sold all of
the Capital Stock of the Guarantor owned by them, in each case in a
transaction in compliance with Sections 4.10 and 5.01 hereof to the
extent applicable; or
(ii) the Guarantor merges with or into or consolidates with,
or transfers all or substantially all of its assets to, the Company or
another Guarantor in a transaction in compliance with Section 5.01
hereof;
and in each such case, the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to such transactions have been complied
with.
Section 12.06. Guarantee Obligations Subordinated
to Guarantor Senior Debt.
Each Guarantor, by execution of the Guarantee, will covenant
and agree, and each Holder of Securities, by its acceptance thereof, likewise
covenants and agrees, that to the extent and in the manner hereinafter set forth
in this Article 12, the Indebtedness represented by the Guarantee and the
payment of any obligations pursuant to the Guarantee by such Guarantor are
hereby expressly made subordinate and subject in right of payment as provided in
this Article 12 to the prior indefeasible payment and satisfaction in full in
cash or, as acceptable to the holders of Guarantor Senior Debt of such
Guarantor, in any other manner, of all existing and future Guarantor Senior Debt
of such Guarantor.
This Section 12.06 and the following Sections 12.07 through
12.11 shall constitute a continuing offer to all Persons who, in reliance upon
such provisions, become holders
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of or continue to hold Guarantor Senior Debt of any Guarantor; and such
provisions are made for the benefit of the holders of Guarantor Senior Debt of
each Guarantor; and such holders are made obligees hereunder and they or each of
them may enforce such provisions.
Section 12.07. Payment Over of Proceeds upon Dissolution,
etc., of a Guarantor.
In the event of (a) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relative to any Guarantor or to its
creditors, as such, or to its assets, whether voluntary or involuntary, or (b)
any liquidation, dissolution or other winding-up of any Guarantor, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
or (c) any general assignment for the benefit of creditors or any other
marshaling of assets or liabilities of any Guarantor, then and in any such
event:
(1) the holders of all Guarantor Senior Debt of such
Guarantors shall be entitled to receive payment and satisfaction in
full in cash or, as acceptable to the holders of such Guarantor Senior
Debt, in any other manner, of all amounts due on or in respect of all
such Guarantor Senior Debt, before the Holders of the Securities are
entitled to receive or retain, pursuant to the Guarantee of such
Guarantor, any payment or distribution of any kind or character by such
Guarantor on account of any of its Obligations on its Guarantee; and
(2) any payment or distribution of assets of such Guarantor of
any kind or character, whether in cash, property or securities, by
set-off or otherwise, to which the Holders or the Trustee would be
entitled but for the subordination provisions of this Article 12 shall
be paid by the liquidating trustee or agent or other Person making such
payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Guarantor
Senior Debt of such Guarantor or their representative or
representatives or to the trustee or trustees under any indenture under
which any instruments evidencing any of such Guarantor Senior Debt may
have been issued, ratably according to the aggregate amounts remaining
unpaid on account of such Guarantor Senior Debt held or represented by
each, to the extent necessary to make payment in full in cash or, as
acceptable to the Holders of such Guarantor Senior Debt of such
Guarantor, in any other manner, of all such Guarantor Senior Debt
remaining
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<PAGE>
unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Guarantor Senior Debt; and
(3) in the event that, notwithstanding the foregoing
provisions of this Section 12.07, the Trustee or the Holder of any
Security shall have received any payment or distribution of assets of
such Guarantor of any kind or character, whether in cash, property or
securities, including, without limitation, by way of set-off or
otherwise, in respect of any of its Obligations on its Guarantee before
all Guarantor Senior Debt of such Guarantor is paid and satisfied in
full in cash or such payment and satisfaction thereof in cash is
provided for, then and in such event such payment or distribution upon
written notice to the Trustee or the Holder of such Security, as the
case may be, shall be held by the Trustee or the Holder of such, as the
case may be, in trust for the benefit of the holders of such Guarantor
Senior Debt and shall be immediately paid over or delivered forthwith
to the liquidating trustee or agent or other Person making payment or
distribution of assets of such Guarantor for application to the payment
of all such Guarantor Senior Debt remaining unpaid, to the extent
necessary to pay all of such Guarantor Senior Debt in full in cash or,
as acceptable to the holders of such Guarantor Senior Debt, any other
manner, after giving effect to any concurrent payment or distribution
to or for the holders of such Guarantor Senior Debt.
The consolidation of a Guarantor with, or the merger of a
Guarantor with or into, another Person or the liquidation or dissolution of a
Guarantor following the transfer of all of its assets (as an entirety or
substantially as an entirety) to another Person upon the terms and conditions
set forth in Article 5 hereof shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of such Guarantor for the purposes of this
Article 12 if the Person formed by such consolidation or the surviving entity of
such merger or the Person which acquires by transfer such assets (as an entirety
or substantially as an entirety) shall, as a part of such consolidation, merger
or transfer comply with the conditions set forth in such Article 5 hereof.
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<PAGE>
Section 12.08. Suspension of Guarantee Obligations When
Guarantor Senior Debt in Default.
(a) Unless Section 10.06 hereof shall be applicable, after the
occurrence of a Payment Default, no payment or distribution of any assets or
securities of a Guarantor (or any Restricted Subsidiary or Subsidiary of such
Guarantor) of any kind or character (including, without limitation, cash,
property and any payment or distribution which may be payable or deliverable by
reason of the payment of any other Indebtedness of such Guarantor being
subordinated to its Obligations on its Guarantee) may be made by or on behalf of
such Guarantor (or any Restricted Subsidiary or Subsidiary of such Guarantor ),
including, without limitation, by way of set-off or otherwise, for or on account
of its Obligations on its Guarantee, and neither the Trustee nor any holder or
owner of any Securities shall take or receive from any Guarantor (or any
Restricted Subsidiary or Subsidiary of such Guarantor), directly or indirectly
in any manner, payment in respect of all or any portion of its Obligations on
its Guarantee following the delivery by the representative of the holders of
Guarantor Senior Debt (the "Guarantors Representative") to the Trustee of
written notice of (i) the occurrence of a Payment Default on Designated Senior
Debt which constitutes Guarantor Senior Debt or (ii) the occurrence of a
Non-Payment Event of Default on Designated Senior Debt which constitutes
Guarantor Senior Debt and the acceleration of the maturity of such Designated
Senior Debt in accordance with its terms, and in any such event, such
prohibition shall continue until such Payment Default is cured, waived in
writing or ceases to exist or such acceleration has been rescinded or otherwise
cured. At such time as the prohibition set forth in the preceding sentence shall
no longer be in effect, subject to the provisions of the following paragraph
(b), such Guarantor shall resume making any and all required payments in respect
of its Obligations under its Guarantee.
(b) Unless Section 12.07 hereof shall be applicable, upon the
occurrence of a Non-Payment Event of Default on Designated Senior Debt which
constitutes Guarantor Senior Debt of any Guarantor, no payment or distribution
of any assets or securities of such Guarantor of any kind or character
(including, without limitation, cash, property and any payment or distribution
which may be payable or deliverable by reason of the payment of any other
Indebtedness of such Guarantor being subordinated to its Obligations on its
Guarantee) shall be made by such Guarantor, including, without limitation, by
way of set-off or otherwise, for or on account of any of its Obligations on its
Guarantee, and neither the Trustee nor any holder or owner of any Securities
shall take or receive from any Guarantor (or any Restricted Subsidiary or
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<PAGE>
Subsidiary of such Guarantor), directly or indirectly in any manner, payment in
respect of all or any portion of its Obligations on its Guarantee for a period
(a "Guarantee Payment Blockage Period") commencing on the date of receipt by the
Trustee of written notice from the Guarantor Representative of such Non-Payment
Event of Default, unless and until (subject to any blockage of payments that may
then be in effect under the preceding paragraph (a)) the earliest to occur of
the following events: (x) more than 179 days shall have elapsed since the date
of receipt of such written notice by the Trustee, (y) such Non-Payment Event of
Default shall have been cured or waived in writing or shall have ceased to exist
or such Designated Senior Debt shall have been paid in full in cash and the
Trustee has been so notified by either the Guarantor Representative or such
Guarantor or (z) such Guarantee Payment Blockage Period shall have been
terminated by written notice to such Guarantor or the Trustee from the Guarantor
Representative, after which, in the case of clause (x), (y) or (z), such
Guarantor shall resume making any and all required payments in respect of its
Obligations on its Guarantee. Notwithstanding any other provisions of this
Indenture, no event of default with respect to Designated Senior Debt which
constitutes Guarantor Senior Debt (other than a Payment Default) which existed
or was continuing on the date of the commencement of any Guarantee Payment
Blockage Period initiated by the Guarantor Representative shall be, or be made,
the basis for the commencement of a second Guarantee Payment Blockage Period
initiated by the Guarantor Representative unless such event of default shall
have been cured or waived for a period of not less than 90 consecutive days. In
no event shall a Guarantee Payment Blockage Period extend beyond 179 days from
the date of the receipt by the Trustee of the notice referred to in this Section
12.08(b) or, in the event of a Non-Payment Event of Default which formed the
basis for a Payment Blockage Period under Section 10.03(b) hereof, 179 days from
the date of the receipt by the Trustee of the notice referred to in Section
12.08(b) (the "Initial Guarantee Blockage Period"). Any number of additional
Guarantee Payment Blockage Periods may be commenced during the Initial Guarantee
Blockage Period; provided, however, that no such additional Guarantee Payment
Blockage Period shall extend beyond the Initial Guarantee Blockage Period. After
the expiration of the Initial Guarantee Blockage Period, no Guarantee Payment
Blockage Period may be commenced under this Section 12.08(b) and no Payment
Blockage Period may be commenced under Section 10.03(b) hereof until at least
180 consecutive days have elapsed from the last day of the Initial Guarantee
Blockage Period. Notwithstanding anything in the Indenture to the contrary, no
Non-Payment Event of Default with respect to Designated Senior Debt which
existed or was continuing on the date of the commencement of any Guarantee
Payment Blockage Period initiated by the Guarantor
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<PAGE>
Representative shall be, or be made, the basis for the commencement of a Second
Guarantee Payment Blockage Period initiated by the Guarantor Representative
whether or not within the Initial Guarantee Blockage Period, unless such
Non-Payment Event of Default shall have been waived for a period of not less
than 90 consecutive days.
(c) In the event that, notwithstanding the foregoing, the
Trustee or the Holder of any Security shall have received any payment from a
Guarantor prohibited by the foregoing provisions of this Section 12.08, then and
in such event such payment shall be paid over and delivered forthwith to the
Guarantor Representative initiating the Guarantee Payment Blockage Period, in
trust for distribution to the holders of Guarantor Senior Debt or, if no amounts
are then due in respect of Guarantor Senior Debt, promptly returned to the
Guarantor, or as a court of competent jurisdiction shall direct.
Section 12.09. Subrogation to Rights of Holders
of Guarantor Senior Debt.
Upon the payment in full of all amounts payable under or in
respect of all Guarantor Senior Debt of a Guarantor, the Holders shall be
subrogated to the rights of the holders of such Guarantor Senior Debt to receive
payments and distributions of cash, property and securities of such Guarantor
made on such Guarantor Senior Debt until all amounts due to be paid under the
Guarantee shall be paid in full. For the purposes of such subrogation, no
payments or distributions to holders of Guarantor Senior Debt of any cash,
property or securities to which Holders of the Securities or the Trustee would
be entitled except for the provisions of this Article 12, and no payments over
pursuant to the provisions of this Article 12 to holders of Guarantor Senior
Debt by Holders of the Securities or the Trustee, shall, as among each
Guarantor, its creditors other than holders of Guarantor Senior Debt and the
Holders of the Securities, be deemed to be a payment or distribution by such
Guarantor to or on account of such Guarantor Senior Debt.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article 12 shall
have been applied, pursuant to the provisions of this Article 12, to the payment
of all amounts payable under Guarantor Senior Debt, then and in such case, the
Holders shall be entitled to receive from the holders of such Guarantor Senior
Debt at the time outstanding any payments or distributions received by such
holders of Guarantor Senior Debt in excess of the amount sufficient to
indefeasibly pay all amounts payable under or in respect of such Guarantor
Senior Debt in full in cash.
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<PAGE>
Section 12.10. Guarantee Subordination Provisions
Solely to Define Relative Rights.
The subordination provisions of this Article 12 are and are
intended solely for the purpose of defining the relative rights of the Holders
of the Securities on the one hand and the holders of Guarantor Senior Debt on
the other hand. Nothing contained in this Article 12 or elsewhere in this
Indenture or in the Securities is intended to or shall (a) impair, as among each
Guarantor, its creditors other than holders of its Guarantor Senior Debt and the
Holders of the Securities, the obligation of such Guarantor, which is absolute
and unconditional, to make payments to the Holders in respect of its Obligations
on its Guarantee in accordance with its terms; or (b) affect the relative rights
against such Guarantor of the Holders of the Securities and creditors of such
Guarantor other than the holders of the Guarantor Senior Debt; or (c) prevent
the Trustee or the Holder of any Security from exercising all remedies otherwise
permitted by applicable law upon a Default or an Event of Default under this
Indenture, subject to the rights, if any, under this Article 12 of the holders
of Guarantor Senior Debt (1) in any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, arrangement, reorganization or other similar
case or proceeding in connection therewith or any liquidation, dissolution or
other winding-up, or any assignment for the benefit of creditors or other
marshaling of assets and liabilities referred to in Section 12.07 hereof, to
receive, pursuant to and in accordance with such Section, cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder, or
(2) under the conditions specified in Section 12.07 hereof, to prevent any
payment prohibited by such Section or enforce their rights pursuant to Section
12.08(c) hereof.
The failure by any Guarantor to make a payment in respect of
its obligations on its Guarantee by reason of any provision of this Article 12
shall not be construed as preventing the occurrence of a Default or an Event of
Default hereunder.
Section 12.11. Application of Certain
Article 10 Provisions.
The provisions of Sections 10.04, 10.05, 10.07, 10.08, 10.09,
10.10, 10.11, 10.12 and 10.13 hereof shall apply, mutatis mutandis, to each
Guarantor and its respective holders of Guarantor Senior Debt and the rights,
duties and obligations set forth therein shall govern the rights, duties and
obligations of each Guarantor, the holders of Guarantor Senior Debt, the Holders
and the Trustee with respect to the
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<PAGE>
Guarantee and all references therein to Article 10 hereof shall mean this
Article 12.
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<PAGE>
EXHIBIT C
FORM OF GUARANTEE
The undersigned (the "Guarantor") hereby unconditionally
guarantees, on a senior subordinated basis, jointly and severally with all other
guarantors under the Indenture dated as of , 1997 by and between
Fairfield Manufacturing Company, Inc., a Delaware corporation, and United States
Trust Company of New York, as trustee (as amended, restated or supplemented from
time to time, the "Indenture"), to the extent set forth in the Indenture and
subject to the provisions of the Indenture, (a) the due and punctual payment of
the principal of and interest on the Securities, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on overdue
principal, and, to the extent permitted by law, interest, and the due and
punctual performance of all other obligations of the Company to the
Securityholders or the Trustee all in accordance with the terms set forth in
Article 12 of the Indenture, and (b) in case of any extension of time of payment
or renewal of any Securities or any of 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.
The obligations of the Guarantors to the Securityholders and
to the Trustee pursuant to this Guarantee and the Indenture are expressly set
forth in Article 12 of the Indenture and reference is hereby made to the
Indenture for the precise terms and limitations of this Guarantee.
Guarantor:
By:
---------------------------
Name:
Title:
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<PAGE>
CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL RIGHTS OF 11-1/4%
CUMULATIVE EXCHANGEABLE PREFERRED STOCK AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
________________________________________________________________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
________________________________________________________________________________
Fairfield Manufacturing Company, Inc. (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware, does hereby certify that, pursuant to authority conferred
upon the board of directors of the Corporation (the "Board of Directors") by its
Certificate of Incorporation, as amended (hereinafter referred to as the
"Certificate of Incorporation"), and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, said Board of
Directors, by unanimous written consent dated as of March 7, 1997, duly approved
and adopted the following resolution (the "Resolution"):
RESOLVED, that, pursuant to the authority vested in the Board
of Directors by its Certificate of Incorporation, the Board of
Directors does hereby create, authorize and provide for the issuance of
11-1/4% Cumulative Exchangeable Preferred Stock, par value $.01 per
share, with a stated value of $1,000.00 per share, consisting of
125,000 shares, having the designations, preferences, relative,
participating, optional and other special rights and the
qualifications, limitations and restrictions thereof that are set
forth in the Certificate of Incorporation and in this Resolution as
follows:
(a) Designation. There is hereby created out of the
authorized and unissued shares of Preferred Stock of the Corporation a class of
Preferred Stock designated as the "11-1/4% Cumulative Exchangeable Preferred
Stock." The number of shares constituting such class shall be 125,000 and are
referred to as the "Exchangeable Preferred Stock." 50,000 shares of Exchangeable
Preferred Stock shall be initially issued with an additional 75,000 shares
reserved for issuance in accordance with paragraph (c)(i) hereof and may not be
issued for any other purpose. The liquidation preference of the Exchangeable
Preferred Stock shall be $1,000.00 per share.
<PAGE>
(b) Rank. The Exchangeable Preferred Stock shall, with
respect to dividends and distributions upon liquidation, winding-up and
dissolution of the Corporation, rank (i) senior to all classes of Common Stock
of the Corporation and to each other class of Capital Stock of the Corporation
or series of Preferred Stock of the Corporation hereafter created the terms of
which do not expressly provide that it ranks senior to, or on a parity with, the
Exchangeable Preferred Stock as to dividends and distributions upon liquidation,
winding-up and dissolution of the Corporation (collectively referred to,
together with all classes of common stock of the Corporation, as "Junior
Stock"); (ii) on a parity with each class of Capital Stock of the Corporation or
series of Preferred Stock of the Corporation hereafter created the terms of
which expressly provide that such class or series will rank on a parity with the
Exchangeable Preferred Stock as to dividends and distributions upon liquidation,
winding-up and dissolution (collectively referred to as "Parity Stock");
provided that any such Parity Stock that was not approved by the Holders in
accordance with paragraph (f)(ii)(A) hereof (to the extent such approval is
required) shall be deemed to be Junior Stock and not Parity Stock; and (iii)
junior to each class of Capital Stock of the Corporation or series of Preferred
Stock of the Corporation hereafter created that has been approved by the Holders
in accordance with paragraph (f)(ii)(B) hereof and the terms of which expressly
provide that such class or series will rank senior to the Exchangeable Preferred
Stock as to dividends and distributions upon liquidation, winding-up and
dissolution of the Corporation (collectively referred to as "Senior Stock");
provided that any such Senior Stock that was not approved by the Holders in
accordance with paragraph (f)(ii)(B) hereof shall be deemed to be Junior Stock
and not Senior Stock.
(c) Dividends.
(i) Beginning on the Issue Date, the Holders of the
outstanding shares of Exchangeable Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, distributions in the form of cash
dividends on each share of Exchangeable Preferred Stock, at a rate per
annum equal to 11-1/4% of the then effective liquidation preference per
share of the Exchangeable Preferred Stock, payable semi-annually;
provided that such rate per annum is subject to increase as provided
for in clause (viii) below and paragraph (h) hereof. All dividends
shall be cumulative, whether or not earned or declared, on a daily
basis from the Issue Date and shall be payable semi-annually in arrears
on each Dividend Payment Date, commencing on the first Dividend
Payment Date after the Issue Date. Dividends (including
2
<PAGE>
Additional Dividends, if any) may be paid, at the Corporation's option,
on any Dividend Payment Date occurring on or prior to March 15, 2002
either in cash or by the issuance of additional shares of Exchangeable
Preferred Stock (including fractional shares) having an aggregate
liquidation preference equal to the amount of such dividends (but not
less than $1.00). In the event that on or prior to March 15, 2002
dividends are declared and paid through the issuance of additional
shares of Exchangeable Preferred Stock as provided in the previous
sentence, such dividends shall be deemed paid in full and shall not
accumulate. Each dividend shall be payable to the Holders of record as
they appear on the stock books of the Corporation on the Dividend
Record Date immediately preceding the related Dividend Payment Date.
Dividends shall cease to accumulate in respect of the Exchangeable
Preferred Stock on the Exchange Date or on the date of their earlier
redemption unless the Corporation shall have failed to issue the
appropriate aggregate principal amount of Exchange Debentures in
respect of the Exchangeable Preferred Stock on such Exchange Date or
shall have failed to pay the relevant redemption price on the date
fixed for redemption.
(ii) All dividends paid with respect to shares of the
Exchangeable Preferred Stock pursuant to paragraph (c)(i) shall be paid
pro rata to the Holders entitled thereto.
(iii) For dividends payable after March 15, 2002, nothing
herein contained shall in any way or under any circumstances be
construed or deemed to require the Board of Directors to declare, or
the Corporation to pay or set apart for payment, any dividends on
shares of the Exchangeable Preferred Stock at any time.
(iv) Dividends accruing after March 15, 2002 on the
Exchangeable Preferred Stock for any past Dividend Period and dividends
in connection with any optional redemption pursuant to paragraph (e)(i)
may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to Holders of record on such date, not more than
forty-five (45) days prior to the payment thereof, as may be fixed by
the Board of Directors of the Corporation.
(v) No full dividends shall be declared by the Board of
Directors or paid or set apart for payment by the Corporation on any
Parity Stock for any period unless full cumulative dividends have been
or contemporaneously are declared and paid (or are deemed declared and
paid) in full, or declared and, if payable in cash, a sum in cash set
apart
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sufficient for such payment, on the Exchangeable Preferred Stock for
all Dividend Periods terminating on or prior to the date of payment of
such full dividends on such Parity Stock. If full dividends are not so
paid, all dividends declared upon shares of the Exchangeable Preferred
Stock and any other Parity Stock shall be declared pro rata so that the
amount of dividends declared per share on the Exchangeable Preferred
Stock and such Parity Stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the Exchangeable
Preferred Stock and such Parity Stock bear to each other.
(vi) (A) Holders of shares of the Exchangeable Preferred
Stock shall be entitled to receive the dividends provided for in
paragraph (c)(i) hereof in preference to and in priority over any
dividends upon any of the Junior Stock.
(B) So long as any share of the Exchangeable Preferred Stock
is outstanding, the Corporation shall not declare, pay or set apart for
payment any dividend on any of the Junior Stock or make any payment on
account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement of, any
of the Junior Stock or any warrants, rights, calls or options
exercisable for or convertible into any of the Junior Stock whether in
cash, obligations or shares of the Corporation or other property (other
than dividends in Junior Stock to the holders of Junior Stock), and
shall not permit any corporation or other entity directly or indirectly
controlled by the Corporation to purchase or redeem any of the Junior
Stock or any such warrants, rights, calls or options unless full
cumulative dividends determined in accordance herewith on the
Exchangeable Preferred Stock have been paid (or are deemed paid) in
full.
(C) So long as any share of the Exchangeable Preferred Stock
is outstanding, the Corporation shall not make any payment on account
of, or set apart for payment money for a sinking or other similar fund
for, the purchase, redemption or other retirement of, any of the Parity
Stock or any warrants, rights, calls or options exercisable for or
convertible into any of the Parity Stock, and shall not permit any
corporation or other entity directly or indirectly controlled by the
Corporation to purchase or redeem any of the Parity Stock or any such
warrants, rights, calls or options unless full cumulative dividends
determined in accordance herewith on the Exchangeable Preferred Stock
have been paid (or are deemed paid) in full.
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(vii) Dividends payable on the Exchangeable Preferred Stock
for any period less than a year shall be computed on the basis of a
360-day year of twelve 30-day months and the actual number of days
elapsed in the period for which payable. The amount of Additional
Dividends will be determined consistent with the preceding sentence and
by multiplying the applicable Additional Dividends by a fraction, the
numerator of which is the number of days such rate was applicable
during any Interest Period and the denominator of which is 360.
(viii) (A) If the Corporation fails to file an Exchange Offer
Registration Statement or a Shelf Registration Statement (in the
circumstances described below) within 30 days of the Issue Date, or
such Exchange Offer Registration Statement or Shelf Registration
Statement fails to become effective within 150 days of the Issue Date
or the Exchange Offer is not consummated within 180 days of the Issue
Date, then, as liquidated damages, additional dividends (the
"Additional Dividends") shall become payable with respect to the
Exchangeable Preferred Stock as set forth in paragraphs (B), (C) and
(D) below, respectively.
(B) If the Exchange Offer Registration Statement is not
filed within 30 days of the Issue Date, or if, following a Shelf
Registration Rights Events, a Shelf Registration Statement is not filed
within 30 days following the delivery of a Shelf Notice, Additional
Dividends shall be payable on the Exchangeable Preferred Stock by
increasing the dividend rate set forth in paragraph (c)(i) hereof by
0.5% per annum on the liquidation preference for the first 90 days
commencing on the 31st day after the Issue Date or the delivery of such
Shelf Notice, as the case may be, such Additional Dividends increasing
by an additional 0.5% per annum on the then effective liquidation
preference at the beginning of each subsequent 90-day period.
(C) If the Exchange Offer Registration Statement is not
effective within 150 days of the Issue Date or, if, following a Shelf
Registration Rights Event, a Shelf Registration Statement is not
declared effective within 150 days following the Issue Date, Additional
Dividends shall be payable on the Exchangeable Preferred Stock by
increasing the dividend rate set forth in paragraph (c)(i) hereof by
0.5% per annum on the then effective liquidation preference for the
first 90 days commencing on the 151st day after the Issue Date, such
Additional Dividends increasing by an additional 0.5% per annum on the
liquidation preference at the beginning of each subsequent 90-day
period.
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(D) If (1) the Corporation has not exchanged all of the
shares of Exchangeable Preferred Stock validly tendered in accordance
with the terms of the Exchange Offer on or prior to 180 days after the
Issue Date or (2) the Exchange Offer Registration Statement ceases to
be effective at any time prior to the time that the Exchange Offer is
consummated or (3) the Shelf Registration Statement has been declared
effective following a Shelf Registration Rights Event, and such Shelf
Registration Statement subsequently ceases to be effective at any time
prior to the third anniversary of the Issue Date (unless all of the
Exchangeable Preferred Stock registered thereunder has been sold
thereunder), then Additional Dividends shall be payable on the
Exchangeable Preferred Stock by increasing the dividend rate set forth
in paragraph (c)(i) hereof by 0.5% per annum on the liquidation
preference for the first 90 days commencing on (I) the 181st day after
the Issue Date with respect to the Exchangeable Preferred Stock validly
tendered and not exchanged by the Corporation, in the case of (1)
above, or (II) the day the Exchange Offer Registra tion Statement
ceases to be effective or usable for its intended purpose in the case
of (2) above, or (III) the day such Shelf Registration Statement ceases
to be effective in the case of (3) above, such Additional Dividends
increasing by an additional 0.5% per annum on the liquidation
preference at the beginning of each subsequent 90-day period.
(E) Notwithstanding paragraphs (A)-(D) of this para graph
(c), the aggregate amount of all Additional Dividends payable hereunder
shall not exceed in the aggregate 1.0% per annum on the then effective
liquidation preference. In addition, (1) upon the filing of the
Exchange Offer Registration Statement or Shelf Registration Statement
(in the case of paragraph (B) above), (2) upon the effectiveness of the
Exchange Offer Registration Statement or Shelf Registration Statement
(in the case of paragraph (C) above), or (3) upon the exchange of
Exchange Senior Preferred for the Exchangeable Preferred Stock tendered
(in the case of paragraph (D)(1) above), or upon the effectiveness of
the Exchange Offer Registration Statement that had ceased to remain
effective (in the case of paragraph (D)(2) above), or upon the
effectiveness of the Shelf Registration Statement that had ceased to
remain effective (in the case of para graph (D)(3) above), the dividend
rate on the Exchangeable Preferred Stock shall immediately revert
(without any further action by the Company) to the dividend rate set
forth in paragraph (c)(i) hereof and Additional Dividends on the
Exchangeable Preferred Stock shall cease to be payable.
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(d) Liquidation Preference.
(i) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation, the Holders of shares of Exchangeable Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders an amount in
cash equal to the liquidation preference for each share outstanding,
plus, without duplication, an amount in cash equal to accumulated and
unpaid dividends thereon to the date fixed for liquidation, dissolution
or winding up (including an amount equal to a prorated dividend for the
period from the last Dividend Payment Date to the date fixed for
liquidation, dissolution or winding up) before any payment shall be
made or any assets distributed to the holders of any of the Junior
Stock including, without limitation, common stock of the Corporation.
Except as provided in the preceding sentence, Holders of Exchangeable
Preferred Stock shall not be entitled to any distribution in the event
of any liquidation, dissolution or winding up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to pay
in full the liquidation payments payable to the Holders of outstanding
shares of the Exchangeable Preferred Stock and all Parity Stock, then
the holders of all such shares shall share equally and ratably in such
distribution of assets in proportion to the full liquidation preference
to which each is entitled until such preferences are paid in full, and
then in proportion to their respective amounts of accumulated but
unpaid dividends.
(ii) For the purposes of this paragraph (d), neither the
sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
property or assets of the Corporation nor the consolidation or merger
of the Corporation with or into one or more entities shall be deemed to
be a liquidation, dissolution or winding up of the affairs of the
Corporation.
(e) Redemption.
(i) Optional Redemption. (A) The Corporation may, at the
option of the Board of Directors, redeem at any time on or after March
15, 2002, subject to contractual and other restrictions with respect
thereto and to the extent of funds legally available therefor, in whole
or in part, in the manner provided for in paragraph (e)(iii) hereof,
any or all of the shares of the Exchangeable Preferred Stock, at the
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redemption prices (expressed as a percentage of the liquidation
preference) set forth below plus, without duplication, an amount in
cash equal to all accumulated and unpaid dividends per share (including
an amount in cash equal to a prorated dividend for the period from the
Dividend Payment Date immediately prior to the Redemption Date to the
Redemption Date) (the "Optional Redemption Price") if redeemed during
the 12-month period beginning March 15 of each of the years set forth
below:
Year Percentage
---- ----------
2002.................................. 105.625%
2003.................................. 104.219%
2004.................................. 102.813%
2005.................................. 101.406%
2006 and thereafter................... 100.000%
provided that no redemption pursuant to this paragraph (e)(i)(A) shall
be authorized or made unless prior thereto full accumulated and unpaid
dividends are declared and paid in full, or declared and a sum in cash
set apart sufficient for such payment, on the Exchangeable Preferred
Stock for all Dividend Periods terminating on or prior to the
Redemption Date.
(B) In the event of a redemption pursuant to para graph
(e)(i)(A) hereof of only a portion of the then outstanding shares of
the Exchangeable Preferred Stock, the Corporation shall effect such
redemption on a pro rata basis according to the number of shares held
by each Holder of the Exchangeable Preferred Stock, except that the
Corporation may redeem such shares held by Holders of fewer than ten
shares (or shares held by Holders who would hold less than ten shares
as a result of such redemption), as may be determined by the
Corporation.
(ii) Mandatory Redemption. On March 15, 2009, the Corporation
shall redeem, subject to contractual and other restrictions with
respect thereto and to the extent of funds legally available therefor,
in the manner provided for in paragraph (e)(iii) hereof, all of the
shares of the Exchangeable Preferred Stock then outstanding at a
redemption price equal to 100% of the liquidation preference per share,
plus, without duplication, an amount in cash equal to all accumulated
and unpaid dividends per share (including an amount equal to a prorated
dividend for the period from the Dividend Payment Date immediately
prior to
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<PAGE>
the Redemption Date to the Redemption Date) (the "Mandatory Redemption
Price").
(iii) Procedures for Redemption. (A) At least thirty (30) days
and not more than sixty (60) days prior to the date fixed for any
redemption of the Exchangeable Preferred Stock, written notice (the
"Redemption Notice") shall be given by first class mail, postage
prepaid, to each Holder of record on the record date fixed for such
redemption of the Exchangeable Preferred Stock at such Holder's address
as it appears on the stock books of the Corporation, provided that no
failure to give such notice nor any deficiency therein shall affect the
validity of the procedure for the redemption of any shares of
Exchangeable Preferred Stock to be redeemed except as to the Holder or
Holders to whom the Corporation has failed to give said notice or
except as to the Holder or Holders whose notice was defective. The
Redemption Notice shall state:
(1) whether the redemption is pursuant to paragraph
(e)(i)(A) or (e)(ii) hereof;
(2) the Optional Redemption Price or the Mandatory
Redemption Price, as the case may be;
(3) whether all or less than all the outstanding shares of
the Exchangeable Preferred Stock are to be redeemed and the
total number of shares of the Exchangeable Preferred Stock
being redeemed;
(4) the date fixed for redemption;
(5) that the Holder is to surrender to the Corporation, in
the manner, at the place or places and at the price
designated, his certificate or certificates representing the
shares of Exchangeable Preferred Stock to be redeemed; and
(6) that dividends on the shares of the Exchangeable
Preferred Stock to be redeemed shall cease to accumulate on
such Redemption Date unless the Corporation defaults in the
payment of the Optional Redemption Price or the Mandatory
Redemption Price, as the case may be.
(B) Each Holder of Exchangeable Preferred Stock shall
surrender the certificate or certificates representing such shares of
Exchangeable Preferred Stock to the Corporation, duly endorsed (or
otherwise in proper form for transfer, as
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<PAGE>
determined by the Corporation), in the manner and at the place
designated in the Redemption Notice, and on the Redemption Date the
full Optional Redemption Price or Mandatory Redemption Price, as the
case may be, for such shares shall be payable in cash to the Person
whose name appears on such certificate or certificates as the owner
thereof, and each surrendered certificate shall be canceled and
retired. In the event that less than all of the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(C) On and after the Redemption Date, unless the Corporation
defaults in the payment in full of the applicable redemption price,
dividends on the Exchangeable Preferred Stock called for redemption
shall cease to accumulate on the Redemption Date, and all rights of the
Holders of redeemed shares shall terminate with respect thereto on the
Redemption Date, other than the right to receive the Optional
Redemption Price or the Mandatory Redemption Price, as the case may be,
without interest; provided, however, that if a notice of redemption
shall have been given as provided in paragraph (iii)(A) above and the
funds necessary for redemption (including an amount in respect of all
dividends that will accrue to the Redemption Date) shall have been
irrevocably deposited in trust for the equal and ratable benefit for
the Holders of the shares to be redeemed, then, at the close of
business on the day on which such funds are segregated and set aside,
the Holders of the shares to be redeemed shall cease to be stockholders
of the Corporation and shall be entitled only to receive the Optional
Redemption Price or the Mandatory Redemption Price, as the case may be,
without interest.
(f) Voting Rights.
(i) The Holders of Exchangeable Preferred Stock, except as
otherwise required under Delaware law or as set forth in paragraphs
(ii), (iii) and (iv) below, shall not be entitled or permitted to vote
on any matter required or permitted to be voted upon by the
stockholders of the Corporation.
(ii) (A) So long as any shares of the Exchangeable Preferred
Stock are outstanding, the Corporation shall not authorize any class of
Parity Stock without the affirmative vote or consent of Holders of at
least a majority of the then outstanding shares of Exchangeable
Preferred Stock, voting or consenting, as the case may be, as one
class,
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<PAGE>
given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting; provided, however, that no
such vote or consent shall be necessary in connection with (i) issuance
of additional shares of Exchangeable Preferred Stock pursuant to the
provisions of paragraph (c) of this Certificate of Designation, or (ii)
the authorization of the Exchange Preferred Stock and/or the Private
Exchange Preferred Stock.
(B) So long as any shares of the Exchangeable Preferred
Stock are outstanding, the Corporation shall not authorize any class of
Senior Stock without the affirmative vote or consent of Holders of at
least a majority of the outstanding shares of Exchangeable Preferred
Stock, voting or consenting, as the case may be, as one class, given in
person or by proxy, either in writing or by resolution adopted at an
annual or special meeting.
(C) So long as any shares of the Exchangeable Preferred
Stock are outstanding, the Corporation shall not amend this Certificate
of Designation so as to affect adversely the specified rights,
preferences, privileges or voting rights of holders of shares of
Exchangeable Preferred Stock without the affirmative vote or consent of
Holders of at least a majority of the issued and outstanding shares of
Exchangeable Preferred Stock, voting or consenting, as the case may be,
as one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting.
(D) Prior to the exchange of Exchangeable Preferred Stock
for Exchange Debentures, the Corporation shall not amend or modify the
Indenture for the Exchange Debentures in the form as executed on the
Issue Date (the "Indenture") (except as expressly provided therein in
respect of amendments without the consent of holders of Exchange
Debentures) without the affirmative vote or consent of Holders of at
least a majority of the shares of Exchangeable Preferred Stock then
outstanding, voting or consenting, as the case may be, as one class,
given in person or by proxy, either in writing or by resolution adopted
at an annual or special meeting.
(E) Except as set forth in paragraphs (f)(ii)(A), (f)(ii)(B)
and (f)(ii)(C) above, (x) the creation, authorization or issuance of
any shares of any Junior Stock, Parity Stock or Senior Stock or (y) the
increase or decrease in the amount of authorized Capital Stock of any
class, including Preferred Stock, shall not require the consent of
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Holders of Exchangeable Preferred Stock and shall not be deemed to
affect adversely the rights, preferences, privileges or voting rights
of Holders of Exchangeable Preferred Stock.
(iii) Without the affirmative vote or consent of Holders of a
majority of the issued and outstanding shares of Exchangeable Preferred
Stock, voting or consenting, as the case may be, as a separate class,
given in person or by proxy, either in writing or by resolution adopted
at an annual or special meeting, the Corporation shall not, in a single
transaction or series of related transactions, consolidate or merge
with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to, another Person or
adopt a plan of liquidation unless: (A) either (1) the Corporation is
the surviving or continuing Person or (2) the Person (if other than the
Corporation) formed by such consolidation or into which the Corporation
is merged or the Person that acquires by conveyance, transfer or lease
the properties and assets of the Corporation substantially as an
entirety or in the case of a plan of liquidation, the Person to which
assets of the Corporation have been transferred, shall be a
corporation, partnership or trust organized and existing under the laws
of the United States or any State thereof or the District of Columbia;
(B) if the Corporation is not the surviving Person, the Exchangeable
Preferred Stock shall be converted into or exchanged for and shall
become shares of such successor, transferee or resulting Person, having
in respect of such successor, transferee or resulting Person the same
powers, preferences and relative, participating, optional or other
special rights and the qualifications, limitations or restrictions
thereon, that the Exchangeable Preferred Stock had immediately prior to
such transaction; (C) immediately after giving effect to such
transaction and the use of the proceeds therefrom (on a pro forma
basis, including giving effect to any Indebtedness incurred or
anticipated to be incurred in connection with such transaction), the
Corporation (in the case of clause (1) of the foregoing clause (A)) or
such Person (in the case of clause (2) of the foregoing clause (A))
shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under paragraph (l)(i) hereof; (D)
immediately after giving effect to such transactions, no Voting Rights
Triggering Event shall have occurred or be continuing; and (E) such
surviving Person shall have delivered to the Transfer Agent prior to
the consummation of the proposed transaction an Officers'
Certificate and an Opinion of Counsel, each stating that
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such consolidation, merger or transfer complies with the terms hereof
and that all conditions precedent herein relating to such transaction
have been satisfied.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
related transactions) of all or substantially all of the properties or
assets of one or more Subsidiaries of the Corporation, the Capital
Stock of which constitutes all or substantially all of the properties
and assets of the Corporation shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Corporation.
(iv) (A) If (1) after March 15, 2002 cash dividends on the
Exchangeable Preferred Stock are in arrears and unpaid for three or
more semi-annual Dividend Periods (whether or not consecutive) (a
"Dividend Default"); (2) the Corporation fails to redeem all of the
then outstanding shares of Exchangeable Preferred Stock on or before
March 15, 2009 or otherwise fails to discharge any redemption
obligation with respect to the Exchangeable Preferred Stock; (3) the
Corporation fails to make a Change of Control Offer (whether pursuant
to the terms of paragraph (h)(v) or otherwise) following a Change of
Control occurring on or after July 2, 2001 if such Change of Control
Offer is required by paragraph (h) hereof or fails to purchase shares
of Exchangeable Preferred Stock from Holders who elect to have such
shares purchased pursuant to the Change of Control Offer; (4) the
Corporation breaches or violates one of the provisions set forth in any
of paragraphs (l)(i), (l)(ii), (1)(iii) or (l)(iv) hereof and the
breach or violation continues for a period of 30 days or more after the
Corporation receives notice thereof specifying the default from the
holders of at least 25% of the shares of Exchangeable Preferred Stock
then outstanding or (5) the Corporation fails to pay at the final
stated maturity (giving effect to any extensions thereof and applicable
grace periods) the principal amount of any Indebtedness of the
Corporation or any Subsidiary of the Corporation, or the final stated
maturity of any such Indebtedness is accelerated, if the aggregate
principal amount of such Indebtedness, together with the aggregate
principal amount of any other such Indebtedness in default for failure
to pay principal at the final stated maturity (giving effect to any
extensions thereof and applicable grace periods) or that has been
accelerated, aggregates $5,000,000 or more at one time, in each case,
after a 10-day period during which such default shall not have been
cured or such acceleration
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rescinded, then in the case of any of clauses (1)-(5) the number of
directors constituting the Board of Directors shall be adjusted by the
number, if any, necessary to permit the Holders of Exchangeable
Preferred Stock, voting separately and as one class, to elect the
lesser of two directors or that number of directors constituting at
least 25% of the Board of Directors. Each such event described in
clauses (1), (2), (3), (4) and (5) is a "Voting Rights Triggering
Event." Holders of a majority of the issued and outstanding shares of
Exchangeable Preferred Stock, voting separately and as one class, shall
have the exclusive right to elect the lesser of two directors or 25% of
the members of the Board of Directors at a meeting therefor called
following the occurrence of such Voting Rights Triggering Event, and at
every subsequent meeting at which the terms of office of the directors
so elected by the Holders of the Exchangeable Preferred Stock expire
(other than as described in (f)(iv)(B) below); provided, that, in the
event more than one of the above Voting Rights Triggering Events
occurs, at the same or at different times, the maximum number of
directors that such Holders shall be entitled to elect is the lesser of
2 directors and that number of directors constituting 25% of the Board
of Directors. The voting rights provided herein shall be the exclusive
remedy at law or in equity of the holders of the Exchangeable Preferred
Stock for any Voting Rights Triggering Event.
(B) The right of the Holders of Exchangeable Preferred Stock
voting together as a separate class to elect members of the Board of
Directors as set forth in subparagraph (f)(iv)(A) above shall continue
until such time as (x) in the event such right arises due to a Dividend
Default, all accumulated dividends that are in arrears on the
Exchangeable Preferred Stock are paid in full in cash; and (y) in all
other cases, the failure, breach or default giving rise to such Voting
Rights Triggering Event is cured or waived by the holders of at least a
majority of the shares of Exchangeable Preferred Stock then outstanding
and entitled to vote thereon, at which time (1) the right of the
Holders of Exchangeable Preferred Stock so to vote as a class for the
election of directors and (2) the term of office of the directors
elected by the Holders of the Exchangeable Preferred Stock shall each
terminate and the directors elected by the holders of Common Stock or
Capital Stock (other than the Exchangeable Preferred Stock) shall
constitute the entire Board of Directors. At any time after voting
power to elect directors shall have become vested and be continuing in
the Holders of Exchangeable Preferred Stock pursuant to paragraph
(f)(iv) hereof, or if vacancies shall
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exist in the offices of directors elected by the Holders of
Exchangeable Preferred Stock, a proper officer of the Corporation may,
and upon the written request of the Holders of record of at least
twenty-five percent (25%) of the shares of Exchangeable Preferred Stock
then outstanding addressed to the secretary of the Corporation shall,
call a special meeting of the Holders of Exchangeable Preferred Stock,
for the purpose of electing the directors which such Holders are
entitled to elect. If such meeting shall not be called by a proper
officer of the Corporation within twenty (20) days after personal
service of said written request upon the secretary of the Corporation,
or within twenty (20) days after mailing the same within the United
States by certified mail, addressed to the secretary of the Corporation
at its principal executive offices, then the Holders of record of at
least twenty-five percent (25%) of the outstanding shares of
Exchangeable Preferred Stock may designate in writing one of their
number to call such meeting at the expense of the Corporation, and such
meeting may be called by the Person so designated upon the notice
required for the annual meetings of stockholders of the Corporation and
shall be held at the place for holding the annual meetings of
stockholders. Any Holder of Exchangeable Preferred Stock so designated
shall have, and the Corporation shall provide, access to the lists of
stockholders to be called pursuant to the provisions hereof.
(C) At any meeting held for the purpose of electing
directors at which the Holders of Exchangeable Preferred Stock shall
have the right, voting together as a separate class, to elect directors
as aforesaid, the presence in person or by proxy of the Holders of at
least a majority of the outstanding shares of Exchangeable Preferred
Stock shall be required to constitute a quorum of such Exchangeable
Preferred Stock.
(D) Subject to subparagraph (f)(iv)(B), any vacancy
occurring in the office of a director elected by the Holders of
Exchangeable Preferred Stock may be filled by the remaining directors
elected by the Holders of Exchangeable Preferred Stock unless and until
such vacancy shall be filled by the Holders of Exchangeable Preferred
Stock.
(v) In any case in which the Holders of Exchangeable
Preferred Stock shall be entitled to vote pursuant to this paragraph
(f) or pursuant to Delaware law, each Holder of Exchangeable Preferred
Stock entitled to vote with respect to such matter shall be entitled to
one vote for each share of Exchangeable Preferred Stock held.
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(vi) Notwithstanding anything in this paragraph (f) to the
contrary, in the event that, at the time any vote is taken or required
to be taken pursuant to this paragraph (f), any shares of Private
Exchange Preferred Stock or Exchange Preferred Stock are outstanding
(the "Other Preferred Stock"), (A) the Holders of the Exchangeable
Preferred Stock then outstanding shall vote as one class with the
holders of such Other Preferred Stock for purposes of subparagraphs
(ii) (other than (ii)(C)), (iii) and (iv) of this paragraph (f) as if
the holders of such Other Preferred Stock were Holders of Exchangeable
Preferred Stock (it being understood that the Holders of the
Exchangeable Preferred Stock shall not be entitled to a separate class
vote for purposes of this paragraph (f) (other than subparagraph
(ii)(C)) in the event there are any shares of Other Preferred Stock
outstanding).
(g) Exchange.
(i) Requirements. The outstanding shares of Exchangeable
Preferred Stock are exchangeable as a whole but not in part, at the
option of the Corporation, on any Dividend Payment Date occurring after
the earlier of (i) July 2, 2001 and (ii) the date on which all of the
Existing Notes have been redeemed, only if and only to the extent
permitted by and subject to the terms and conditions of any
Indebtedness of the Corporation then outstanding, at any time on any
Dividend Payment Date for the Corporation's 11-1/4% Subordinated
Exchange Debentures due 2009 (the "Exchange Debentures") to be
substantially in the form of Exhibit A to the form of Indenture, a copy
of which is on file with the secretary of the Corporation; provided
that any such exchange may only be made if on or prior to the date of
such exchange (i) the Corporation has paid (or is deemed to have paid)
all accumulated dividends on the Exchangeable Preferred Stock
(including the dividends payable on the date of exchange) out of
legally available funds therefor and there shall be no contractual
impediment to such exchange; and (ii) immediately after giving effect
to such exchange, no Default or Event of Default (each as defined in
the Indenture) would exist under the Indenture and no default or event
of default would exist under the Credit Agreement. The exchange rate
shall be $1.00 principal amount of Exchange Debentures for each $1.00
of liquidation preference of Exchangeable Preferred Stock, including,
to the extent necessary, Exchange Debentures in principal amounts less
than $1,000, provided that the Corporation shall have the right, at its
option, to pay cash in an amount equal to the principal amount of that
portion
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of any Exchange Debenture that is not an integral multiple of $1,000
instead of delivering an Exchange Debenture in a denomination of less
than $1,000.
(ii) Procedure for Exchange. (A) At least thirty (30) days
and not more than sixty (60) days prior to the date fixed for exchange,
written notice (the "Exchange Notice") shall be given by first-class
mail, postage prepaid, to each Holder of record on the record date
fixed for such exchange of the Exchangeable Preferred Stock at such
Holder's address as the same appears on the stock books of the
Corporation, provided that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for the
exchange of any shares of Exchangeable Preferred Stock to be exchanged
except as to the Holder or Holders to whom the Corporation has failed
to give said notice or except as to the Holder or Holders whose notice
was defective. The Exchange Notice shall state:
(1) the date fixed for exchange;
(2) that the Holder is to surrender to the
Corporation, in the manner and at the place or places
designated, his certificate or certificates representing the
shares of Exchangeable Preferred Stock to be exchanged;
(3) that dividends on the shares of Exchangeable
Preferred Stock to be exchanged shall cease to accrue on such
Exchange Date whether or not certificates for shares of
Exchangeable Preferred Stock are surrendered for exchange on
such Exchange Date unless the corporation shall default in the
delivery of Exchange Debentures; and
(4) that interest on the Exchange Debentures shall
accrue from the Exchange Date whether or not certificates for
shares of Exchangeable Preferred Stock are surrendered for
exchange on such Exchange Date.
(B) On or before the Exchange Date, each Holder of
Exchangeable Preferred Stock shall surrender the certificate or
certificates representing such shares of Exchangeable Preferred Stock,
in the manner and at the place designated in the Exchange Notice. The
Corporation shall cause the Exchange Debentures to be executed on the
Exchange Date and, upon surrender in accordance with the Exchange
Notice of the certificates for any shares of Exchangeable Preferred
Stock so exchanged, duly endorsed (or otherwise in proper form for
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transfer, as determined by the Corporation), such shares shall be
exchanged by the Corporation into Exchange Debentures. The Corporation
shall pay interest on the Exchange Debentures at the rate and on the
dates specified therein from the Exchange Date.
(C) If notice has been mailed as aforesaid, and if on or
before the Exchange Date specified in such notice (1) the Indenture
shall have been duly executed and delivered by the Corporation and the
trustee thereunder and (2) all Exchange Debentures necessary for such
exchange shall have been duly executed by the Corporation and delivered
to the trustee under the Indenture with irrevocable instructions to
authenticate the Exchange Debentures necessary for such exchange, then
dividends will cease to accrue on the outstanding shares of
Exchangeable Preferred Stock and the rights of the Holders of
Exchangeable Preferred Stock so exchanged as stockholders of the
Corporation shall cease (except the right to receive Exchange
Debentures, an amount in cash, to the extent applicable, equal to the
amount of accumulated and unpaid dividends to the Exchange Date and, if
the Corporation so elects, cash in lieu of any Exchange Debenture not
an integral multiple of $1,000), and the Person or Persons entitled to
receive the Exchange Debentures issuable upon exchange shall be treated
for all purposes as the registered Holder or Holders of such Exchange
Debentures as of the Exchange Date.
(iii) No Exchange in Certain Cases. Notwithstanding the
foregoing provisions of this paragraph (g), the Corporation shall not
be entitled to exchange the Exchangeable Preferred Stock for Exchange
Debentures if such exchange, or any term or provision of the Indenture
or the Exchange Debentures, or the performance of the Corporation's
obligations under the Indenture or the Exchange Debentures, shall
materially violate or conflict with any applicable law or agreement or
instrument then binding on the Corporation or if, at the time of such
exchange, the Corporation is insolvent or if it would be rendered
insolvent by such exchange.
(h) Change of Control.
(i) In the event of a Change of Control occurring on or
after July 2, 2001 (the date of such occurrence being the "Change of
Control Date"), the Corporation shall, only if and only to the extent
permitted by any Indebtedness of the Corporation then outstanding,
notify the Holders of the Exchangeable Preferred Stock in writing of
such occurrence and shall make an offer to redeem all then outstanding
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shares of Exchangeable Preferred Stock at a redemption price of 101%
of the liquidation preference thereof plus, without duplication, an
amount in cash equal to all accumulated and unpaid dividends per share
(including an amount in cash equal to a prorated dividend for the
period from the Dividend Payment Date immediately prior to the Change
of Control Payment Date to the Change of Control Payment Date). In
addition, upon the occurrence of a Change of Control occurring prior to
July 2, 2001, the Corporation will have the option to offer to redeem
the Exchangeable Preferred Stock, in whole but not in part, at a
redemption price equal to 101% of the principal amount thereof, plus,
without duplication, accumulated and unpaid dividends to the Change of
Control Payment Date. If the Corporation does not make an offer to
redeem all of the outstanding Exchangeable Preferred Stock upon a
Change of Control, the annual dividend rate on the Exchangeable
Preferred Stock will increase by 4% over the then-applicable annual
dividend rate. Any offer to redeem the Exchangeable Preferred Stock
upon a Change of Control as provided in the paragraph (h)(i) shall
constitute a "Change of Control Offer."
(ii) To effect a Change of Control Offer within 30 days
following the Change of Control Date, the Corporation shall send, by
first class mail, postage prepaid, a notice to each Holder of
Exchangeable Preferred Stock at such Holder's address as it appears on
the stock books of the Corporation, which notice shall govern the terms
of the Change of Control Offer. The notice to the Holders shall contain
all instructions and materials necessary to enable such Holders to
tender Exchangeable Preferred Stock pursuant to the Change of Control
Offer. Such notice shall state:
(A) that a Change of Control has occurred, that the
Change of Control Offer is being made pursuant to this
paragraph (h) and that all Exchangeable Preferred Stock
validly tendered and not withdrawn will be accepted for
payment;
(B) the redemption price (including the amount of
accrued dividends, if any) and the redemption date (which
shall be no earlier than 30 days nor later than 60 days from
the date such notice is mailed, other than as may be required
by law) (the "Change of Control Payment Date");
(C) that any shares of Exchangeable Preferred
Stock not tendered will continue to accrue dividends;
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(D) that, unless the Corporation defaults in making
payment therefor, any share of Exchangeable Preferred Stock
accepted for payment pursuant to the Change of Control Offer
shall cease to accrue dividends after the Change of Control
Payment Date;
(E) that Holders electing to have any shares of
Exchangeable Preferred Stock redeemed pursuant to a Change of
Control Offer will be required to surrender the certificate or
certificates representing such shares, properly endorsed for
transfer together with such customary documents as the
Corporation and the transfer agent may reasonably require, in
the manner and at the place specified in the notice prior to
the close of business on the Business Day prior to the Change
of Control Payment Date;
(F) that Holders will be entitled to withdraw their
election if the Corporation receives, not later than five
Business Days prior to the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the number of shares of
Exchangeable Preferred Stock the Holder delivered for
redemption and a statement that such Holder is withdrawing his
election to have such shares of Exchangeable Preferred Stock
redeemed;
(G) that Holders whose shares of Exchangeable
Preferred Stock are redeemed only in part will be issued a new
certificate representing the unpurchased shares of
Exchangeable Preferred Stock; and
(H) the circumstances and relevant facts regarding
such Change of Control.
(iii) The Corporation will comply with any securities laws and
regulations, to the extent such laws and regulations are applicable to
the redemption of the Exchangeable Preferred Stock, in connection with
a Change of Control Offer.
(iv) On the Change of Control Payment Date, the Corporation
shall (A) accept for payment the shares of Exchangeable Preferred Stock
validly tendered pursuant to the Change of Control Offer, (B) pay to
the Holders of shares so accepted the redemption price therefor in cash
and (C) cancel and retire each surrendered certificate. Unless the
Corporation defaults in the payment for the shares of
Exchangeable Preferred Stock tendered pursuant to the Change
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of Control Offer, dividends shall cease to accrue with respect to the
shares of Exchangeable Preferred Stock tendered and all rights of
Holders of such tendered shares shall terminate, except for the right
to receive payment therefor, on the Change of Control Payment Date.
(v) If the redemption of the Exchangeable Preferred Stock
would violate or constitute a default or be otherwise prohibited under
any Indebtedness of the Corporation then outstanding, then,
notwithstanding anything to the contrary contained above, prior to
complying with the foregoing provisions, but in any event within 30
days following the Change of Control Date, the Corporation shall either
(A) repay in full all such Indebtedness (and terminate all commitments)
or (B) obtain the requisite consents, if any, under such Indebtedness
required to permit the redemption of Exchangeable Preferred Stock
required by this paragraph (h). Until the requirements of the
immediately preceding sentence are satisfied, the Corporation shall not
make, and shall not be obligated to make, any Change of Control Offer;
provided that the Corporation's failure to comply with the provisions
of this paragraph (h)(v) shall constitute a Voting Rights Triggering
Event; provided, further, that the Corporation shall not be required to
comply with the provisions of this paragraph (h)(v) in connection with
a Change of Control occurring prior to July 2, 2001, except in
connection with an optional offer to redeem the Exchangeable Preferred
Stock pursuant to the second sentence of paragraph (h)(i).
(i) Conversion or Exchange. The Holders of shares of
Exchangeable Preferred Stock shall not have any rights hereunder to convert such
shares into or exchange such shares for shares of any other class or classes or
of any other series of any class or classes of Capital Stock of the Corporation
other than the Exchange Preferred Stock and the Private Exchange Preferred
Stock.
(j) Reissuance of Exchangeable Preferred Stock. Shares of
Exchangeable Preferred Stock that have been issued and reacquired in any manner,
including shares purchased or redeemed or exchanged, shall (upon compliance with
any applicable provisions of the laws of Delaware) have the status of authorized
and unissued shares of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of Preferred Stock, provided
that any issuance of such shares as Exchangeable Preferred Stock must be in
compliance with the terms hereof.
21
(k) Business Day. If any payment, redemption or exchange shall
be required by the terms hereof to be made on a day that is not a Business Day,
such payment, redemption or exchange shall be made on the immediately succeeding
Business Day.
(l) Certain Additional Provisions.
(i) Limitation on Incurrence of Additional Indebtedness. The
Corporation shall not, and shall not permit any Restricted Subsidiary
of the Corporation to, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) other than Permitted Indebtedness.
Notwithstanding the foregoing limitation, the Corporation and its
Restricted Subsidiaries may incur Indebtedness if on the date of the
incurrence of such Indebtedness, after giving effect to the incurrence
of such Indebtedness, the Consolidated Fixed Charge Coverage Ratio of
the Corporation and its Restricted Subsidiaries is at least equal to
2.0 to 1.0.
(ii) Limitation on Restricted Payments. (a) The Corporation
shall not, and shall not permit any of its Restricted Subsidiaries to,
directly or indirectly, make any Restricted Payment if at the time of
such Restricted Payment and immediately after giving effect thereto:
(i) any Voting Rights Triggering Event shall have
occurred and be continuing; or
(ii) the Corporation could not incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in
compliance with paragraph 1(i);
or
(iii) the aggregate amount of Restricted Payments
made subsequent to the Issue Date (the amount expended
for such purposes, if other than in cash, being the fair
market value of such property as determined by the Board
of Directors of the Corporation, whose determination
shall be conclusive) exceeds the sum of (a) 50% of the
aggregate Consolidated Net Income of the Corporation
accrued on a cumulative basis during the period (treated
as one accounting period) beginning on the last day of
the fiscal quarter immediately preceding the Issue Date
and ending on the last day of the fiscal quarter of
the Corporation immediately preceding the date of such
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proposed Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income of the
Corporation for such period shall be a deficit, minus
100% of such deficit) plus (b) the aggregate net proceeds
received by the Corporation either (1) as capital
contributions to the Corporation after the Issue Date,
excluding any capital contributions pursuant to the Tax
Sharing Agreement or (2) from the issuance or sale of
Qualified Capital Stock (including Qualified Capital
Stock issued upon the conversion of convertible
Indebtedness, in exchange for outstanding Indebtedness or
from the exercise of options, warrants or rights to
purchase Qualified Capital Stock) of the Corporation to
any Person (other than to a Restricted Subsidiary of the
Corporation) after the Issue Date plus (c) in the case of
the disposition or repayment of any Investment
constituting a Restricted Payment made after the Issue
Date (excluding any Investment made pursuant to clause
(4) of the following paragraph), an amount equal to the
lesser of the return of capital with respect to such
Investment and the cost of such Investment, in either
case, less the cost of the disposition of such Investment
minus (d) 20% of all cash payments made pursuant to the
New Equity Incentive Plan. For purposes of the preceding
clause (iii)(b)(2), the value of the aggregate net
proceeds received by the Corporation upon the issuance of
Qualified Capital Stock either upon the conversion of
convertible Indebtedness or in exchange for outstanding
Indebtedness or upon the exercise of options, warrants or
rights will be the net cash proceeds received upon the
issuance of such Indebtedness, options, warrants or
rights plus the incremental amount received by the
Corporation upon the conversion, exchange or exercise
thereof.
(b) Notwithstanding the foregoing, these provisions will not
prohibit: (1) the payment of any dividend or the making of any
distribution within 60 days after the date of its declaration if such
dividend or distribution would have been permitted on the date of
declaration; (2) the purchase, redemption or other acquisition or
retirement of any Capital Stock of the Corporation or any warrants,
options or other rights to acquire shares of any class of such Capital
Stock (x) solely in exchange for shares of Qualified Capital Stock
(including any such exchange pursuant to a conversion right
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<PAGE>
or privilege in connection with which cash paid in lieu of fractional
shares or scrip), (y) through the application of the net cash proceeds
of a substantially concurrent sale (other than to a Restricted
Subsidiary of the Corporation) of shares of Qualified Capital Stock or
warrants, options or other rights to acquire Qualified Capital Stock or
(z) in the case of Disqualified Capital Stock, solely in exchange for,
or through the application of the net cash proceeds of a substantially
concurrent sale (other than to a Restricted Subsidiary of the
Corporation) of, Disqualified Capital Stock that has a redemption date
no earlier than, is issued by the Corporation or the same Person as and
requires the payment of current dividends or distributions in cash no
earlier than, in each case, the Disqualified Capital Stock being
purchased, redeemed or otherwise acquired or retired and which
Disqualified Capital Stock does not prohibit cash dividends on the
Exchangeable Preferred Stock or the exchange thereof for Exchange
Debentures; (3) payments by the Corporation to Lancer pursuant to the
Tax Sharing Agreement; (4) Investments constituting Restricted Payments
made as a result of the receipt of non-cash consideration from any
Asset Sale; and (5) guarantees in respect of Indebtedness incurred by
officers or employees of the Corporation or any Restricted Subsidiary
in the ordinary course of business and payments in discharge thereof in
an amount not to exceed $500,000 in any fiscal year.
(iii) Limitation on Transactions with Affiliates. (a) The
Corporation shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease
of assets, property or services) with any Affiliate or holder of 10% or
more of the Corporation's Common Stock (an "Affiliate Transaction") or
extend, renew, waive or otherwise modify the terms of any Affiliate
Transaction entered into prior to the Issue Date unless (i) such
Affiliate Transaction is between or among the Corporation and its
Wholly-Owned Restricted Subsidiaries; or (ii) the terms of such
Affiliate Transaction are fair and reasonable to the Corporation or
such Restricted Subsidiary, as the case may be, and the terms of such
Affiliate Transaction are at least as favorable as the terms which
could be obtained by the Corporation or such Restricted Subsidiary, as
the case may be, in a comparable transaction made on an arm's-length
basis between unaffiliated parties. Any Affiliate Transaction involving
an amount or having a value in excess of $1.0 million which is not
permitted under clause (i)
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above shall have been approved by a majority of the Corporation's Board
of Directors. In transactions with a value in excess of $5.0 million
which are not permitted under clause (i) above, the Corporation must
obtain a written opinion as to the fairness of such a transaction from
an independent investment banking firm.
(b) The foregoing provisions will not apply to (i) any Restricted
Payment that is not prohibited by the provisions described under
paragraph (1)(ii), (ii) payments to Lancer under the Tax Sharing
Agreement, (iii) payments to participants in the Equity Participation
Plan in an amount not exceeding $1.32 million in any fiscal year and
$5.28 million in the aggregate, (iv) reasonable and customary regular
fees to directors of the Corporation who are not employees of the
Corporation, (v) loans or advances to officers of the Corporation and
its Restricted Subsidiaries for bona fide business purposes of the
Corporation in the ordinary course of business, (vi) royalty payments
by the Corporation to T-H Licensing pursuant to that certain letter
agreement dated as of December 29, 1989 between the Corporation and T-H
Licensing (as such agreement may be amended from time to time pursuant
to its terms), provided that any such payment (less any amounts
permitted to be retained by T-H Licensing pursuant to the Credit
Agreement) is returned to the Corporation as a loan within sixty days
after receipt of such payment by T-H Licensing, (vii) payments or
distributions to participants in the New Equity Incentive Plan pursuant
to the terms thereof, (viii) payments of the Corporation's allocated
portion of the Lancer consolidated group's corporate expenses and fees
to Lancer or any Affiliate of Lancer incurred in connection with
Lancer's or any Affiliate of Lancer's performance of management
consulting, monitoring and financial advisory services with respect to
the Corporation and any Restricted Subsidiary in an amount not to
exceed $2.0 million in any fiscal year (excluding amounts paid prior to
the date hereof); provided, however, that notwithstanding anything to
the contrary contained in the Certificate of Designation, the
Corporation shall not be permitted to pay to Lancer or any Affiliate or
Lancer any amount for such services in excess of the amount set forth
in this clause (viii).
(iv) Limitation on Preferred Stock of Subsidiaries.
The Corporation shall not permit any Restricted Subsidiary
to issue any Preferred Stock (except to the Corporation or
to a Restricted Subsidiary) or permit any Person (other than
the Corporation or a Restricted Subsidiary) to hold any such
Preferred Stock unless the Corporation or such Restricted
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<PAGE>
Subsidiary would be entitled to incur or assume Indebtedness in
compliance with paragraph (1)(i) in an aggregate principal amount equal
to the aggregate liquidation value of the Preferred Stock to be issued.
(v) Reports. So long as any shares of Exchangeable Preferred
Stock are outstanding, the Corporation will provide to the holders of
Exchangeable Preferred Stock, within 15 days after it files them with
the Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the
foregoing as the Commission may by rules and regulations prescribe)
which the Corporation files with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. In the event that the Corporation is no
longer required to furnish such reports to its securityholders pursuant
to the Exchange Act, the Corporation will cause its consolidated
financial statements, comparable to those which would have been
required to appear in such annual or quarterly reports, to be delivered
to the Holders of Exchangeable Preferred Stock.
(m) Definitions. As used in this Certificate of Designation,
the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Acquired Indebtedness" means Indebtedness of a Person (a)
assumed in connection with an Asset Acquisition from such Person or (b)
existing at the time such Person becomes a Subsidiary of any other
Person.
"Additional Dividends" shall have the meaning ascribed
to it in paragraph (c) hereof.
"Affiliate" means with respect to any specified Person, any
other Person directly or indirectly controlling or controlled by or
under common control with such specified Person. The term "control"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"Affiliate Transaction" shall have the meaning ascribed
to it in paragraph 1(iii) hereof.
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"Asset Acquisition" means (i) an Investment by the Corporation
or any Subsidiary of the Corporation in any other Person pursuant to
which such Person shall become a Restricted Subsidiary of the
Corporation or shall be merged with or into the Corporation or any
Restricted Subsidiary of the Corporation or (ii) the acquisition by the
Corporation or any Restricted Subsidiary of the Corporation of assets
of any Person which constitute all or substantially all of the assets
of such Person or any division or line of business of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer,
lease or other disposition to any Person other than the Corporation or
a Wholly-Owned Restricted Subsidiary of the Corporation, in one or a
series of related transactions, of: (a) any Capital Stock of any
Restricted Subsidiary of the Corporation; (b) all or substantially all
of the properties and assets of any division or line of business of the
Corporation or any Restricted Subsidiary of the Corporation; or (c) any
properties or assets of the Corporation or a Restricted Subsidiary
(including proprietary brand names, whether registered or otherwise)
other than in the ordinary course of business (it being understood that
the sale or lease of any used or obsolete equipment is in the ordinary
course of business). For the purposes of this definition, the term
"Asset Sale" shall not include (i) any sale, issuance, conveyance,
transfer, lease or other disposition of properties or assets that is
governed by the provisions described under paragraph (f)(iii) and (ii)
any sale, issuance, conveyance, transfer, lease or other disposition of
properties or assets, whether in one transaction or a series of related
transactions, involving assets with a fair market value determined by
the Corporation to be not in excess of $1,000,000.
"Board of Directors" shall have the meaning ascribed to it in
the first paragraph of this Certificate of Designation.
"Business Day" means any day except a Saturday, a Sunday, or
any day on which banking institutions in New York, New York are
required or authorized by law or other governmental action to be
closed.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other
equivalents (however designated) of capital stock including each class
of common stock and preferred stock of such Person and (ii) with
respect to any
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Person that is not a corporation, any and all partnership or other
equity interests.
"Capitalized Lease Obligation" means any obligation under a
lease of (or other agreement conveying the right to use) any property
(whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP; and, for the
purpose of this definition, the amount of such obligation at any date
shall be the capitalized amount thereof at such date, determined in
accordance with GAAP consistently applied.
"Cash Equivalents" means, at any time, (i) any evidence of
Indebtedness with a maturity of 180 days or less 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);
(ii) certificates of deposit, time deposits, Eurodollar time deposits
and bankers' acceptances with a maturity of 180 days or less of any
financial institution that is a member of the Federal Reserve System
having combined capital and surplus and undivided profits of not less
than $500,000,000; (iii) commercial paper with a maturity of 180 days
or less issued by a corporation that is not an Affiliate of the
Corporation organized under the laws of any state of the United States
or the District of Columbia and rated at least A-1 by S&P or at least
P-1 by Moody's or at least an equivalent rating category of another
nationally recognized securities rating agency; and (iv) repurchase
agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the
government of the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of
America, in each case maturing within 180 days from the date of
acquisition; provided that the terms of such agreements comply with the
guidelines set forth in the Federal Financial Agreements of Depository
Institutions With Securities Dealers and Others, as adopted by the
Comptroller of the Currency on October 31, 1985.
"Change of Control" means the occurrence of any of the
following events; (a) any "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted
Holders, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable
28
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immediately or only after the passage of time), directly or indirectly,
of more than 50% of the total Voting Stock of the Corporation; (b) the
Corporation consolidates with, or merges with or into, another Person
or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Corporation in any such
event pursuant to a transaction in which the outstanding Voting Stock
of the Corporation is converted into or exchanged for cash, securities
or other property, other than any such transaction where (i) the
outstanding Voting Stock of the Corporation is converted into or
exchanged for (1) Voting Stock (other than Disqualified Capital Stock)
of the surviving or transferee corporation or (2) cash, securities and
other property in an amount which could be paid by the Corporation as a
Restricted Payment under the Indenture and (ii) immediately after such
transaction no "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting
Stock of the surviving or transferee corporation; or (c) during any
consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Corporation (together
with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Corporation
was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or Persons
whose election as directors or nomination for election was previously
so approved) cease for any reason to constitute a majority of the Board
of Directors of the Corporation then in office.
"Change of Control Date" shall have the meaning ascribed to
it in paragraph (h) hereof.
"Change of Control Offer" shall have the meaning ascribed to
it in paragraph (h) hereof.
"Change of Control Payment Date" shall have the meaning
ascribed to it in paragraph (h) hereof.
"Commission" means the Securities and Exchange Commission.
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"Common Stock" means, with respect to any Person, any and all
shares, interests or other participations in, and other equivalents
(however designated and whether voting or nonvoting) of, such Person's
common stock, whether outstanding at the Issue Date or issued after the
Issue Date, and includes, without limitation, all series and classes of
such common stock.
"Consolidated EBITDA" means, with respect to any Person for
any period, (i) the sum of, without duplication, the amount for such
period, taken as a single accounting period, of (a) Consolidated Net
Income, (b) Consolidated Non-cash Charges, (c) Consolidated Interest
Expense, (d) Consolidated Income Tax Expense and (e) all non-cash
accruals or cash expenses relating to the New Equity Incentive Plan (to
the extent such accruals or expenses reduce net income), less (ii)
non-cash items increasing Consolidated Net Income (other than in the
ordinary course of business); provided, however, that if, during such
period, such Person or any of its Restricted Subsidiaries shall have
consummated any Asset Sale or Asset Acquisition, Consolidated EBITDA
for such Person and its Restricted Subsidiaries for such period shall
be adjusted (in the manner set forth in the definition of the term
"Consolidated Fixed Charge Coverage Ratio") to give pro forma effect to
the Consolidated EBITDA directly attributable to the assets which are
the subject of such Asset Sales or Asset Acquisitions during such
period.
"Consolidated Fixed Charge Coverage Ratio" means, with respect
to any Person, the ratio of the aggregate amount of Consolidated EBITDA
of such Person for the four full fiscal quarters for which financial
information in respect thereof is available immediately preceding the
date of the transaction (the "Transaction Date") giving rise to the
need to calculate the Consolidated Fixed Charge Coverage Ratio (such
four full fiscal quarter period being referred to herein as the "Four
Quarter Period") to the aggregate amount of Consolidated Fixed Charges
of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of
such calculation to, without duplication, (a) the incurrence of any
Indebtedness of such Person or any of its Restricted Subsidiaries, or
the repayment of any Indebtedness of such Person or its Restricted
Subsidiary (other than the incurrence and repayment of Indebtedness
under a revolving credit facility) during the period commencing on the
first day of the Four Quarter Period to and including the
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Transaction Date (the "Reference Period"), including, without
limitation, the incurrence of the Indebtedness giving rise to the need
to make such calculation, as if such incurrence occurred on the first
day of the Reference Period, and (b) any Asset Sales or Asset
Acquisitions (including, without limitation, any Asset Acquisition
giving rise to the need to make such calculation as a result of such
Person or one of its Restricted Subsidiaries (including any Person who
becomes a Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness) occurring
during the Reference Period, as if such Asset Sale or Asset Acquisition
occurred on the first day of the Reference Period. Furthermore, in
calculating "Consolidated Fixed Charges" for purposes of determining
the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (i) interest on outstanding Indebtedness
determined on a fluctuating basis as of the Transaction Date and which
will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date, (ii) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally
be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed
to have been in effect during the Reference Period, (iii)
notwithstanding clauses (i) and (ii) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is
covered by Interest Rate Agreements, shall be deemed to have accrued at
the rate per annum resulting after giving effect to the operation of
such agreement and (iv) interest on any Indebtedness incurred pursuant
to a revolving credit facility shall be based on the average daily
principal amount outstanding under such facility during such Four
Quarter Period. In calculating the Consolidated Fixed Charge Coverage
Ratio, and giving pro forma effect to any incurrence of Indebtedness
during a Reference Period, pro forma effect shall be given to the use
of proceeds thereof to permanently repay or retire Indebtedness. If
such Person or any of its Restricted Subsidiaries directly or
indirectly guaranteed Indebtedness of a third Person, the above clauses
shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or such Restricted Subsidiary had directly incurred or
otherwise assumed such guaranteed Indebtedness.
"Consolidated Fixed Charges" means, with respect to any
Person for any period, the sum of, without duplication, the
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amounts for such period of (i) Consolidated Interest Expense and (ii)
the aggregate amount of cash dividends and other distributions paid or
accrued during such period in respect of Disqualified Capital Stock of
such Person and its Restricted Subsidiaries on a consolidated basis;
provided, however, that if, during such period, such Person or any of
its Restricted Subsidiaries shall have made any Asset Sales or Asset
Acquisitions, Consolidated Fixed Charges for such Person and its
Restricted Subsidiaries for such period shall be adjusted (in the
manner set forth in the definition of the term "Consolidated Fixed
Charge Coverage Ratio") to give pro forma effect to the Consolidated
Fixed Charges directly attributable to the assets which are the subject
of such Asset Sales or Asset Acquisitions during such period.
"Consolidated Income Tax Expense" means, with respect to any
Person for any period, the provision for federal, state, local and
foreign income taxes of such Person and its Restricted Subsidiaries for
such period as determined on a consolidated basis in accordance with
GAAP consistently applied.
"Consolidated Interest Expense" means, with respect to any
Person for any period, without duplication, (i) the sum of (a) the
interest expense of such Person and its Restricted Subsidiaries for
such period as determined on a consolidated basis in accordance with
GAAP consistently applied, including, without limitation, (1) any
amortization of debt discount, (2) the net cost under Interest Rate
Agreements (including any amortization of discounts), (3) the interest
portion of any deferred payment obligation which in accordance with
GAAP is required to be reflected on an income statement, (4) all
commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing, and (5) all
accrued interest and (b) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by
such Person and its Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP consistently applied, minus
(ii) any non-cash interest expense of the Corporation in respect of
Permitted Indebtedness incurred in connection with the New Equity
Incentive Plan, minus (iii) any amortization of deferred financing
discount costs and expenses.
"Consolidated Net Income" means, with respect to any Person,
for any period, the consolidated net income (or loss) of such Person
and its Restricted Subsidiaries for such period as determined in
accordance with GAAP
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consistently applied adjusted (A) to the extent included in
calculating such net income, by excluding, without duplication, (i) all
extraordinary gains or losses (net of fees and expenses relating to the
transaction giving rise thereto) and the non-recurring cumulative
effect of accounting changes, (ii) the portion of net income (or loss)
of such Person and its Restricted Subsidiaries allocable to minority
interests in unconsolidated Persons to the extent that cash dividends
or distributions have not actually been received by such Person or one
of its Restricted Subsidiaries, (iii) net income (or loss) of any
Person combined with such Person or one of its Restricted Subsidiaries
on a "pooling of interests" basis attributable to any period prior to
the date of combination, (iv) one-time unusual non-cash charges, (v)
any gain or loss realized upon the termination of any employee pension
benefit plan, on an after-tax basis, (vi) gains or losses in respect of
any Asset Sales by such Person or one of its Restricted Subsidiaries
(net of fees and expenses relating to the transaction giving rise
thereto), on an after-tax basis, (vii) the net income of any Restricted
Subsidiary of such Person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of
that income is not at the time permitted, 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 and (viii) the amount
of any Consolidated Non-cash Charges of such Person attributable to the
purchase method of accounting treatment in accordance with Accounting
Principles Board Opinion No. 16 dated August 1970, entitled "Business
Combinations" and (B) by adding, in the case of the Corporation, (i)
without duplication, capital contributions made by Lancer to the
Corporation pursuant to the Tax Sharing Agreement to the extent such
capital contributions represent a return to the Corporation of amounts
which had been included as income taxes in computing the Corporation's
Consolidated Net Income and (ii) for purposes of determining the
Corporation's ability to make Restricted Payments pursuant to paragraph
l(2), 100% (without duplication) of all non-cash accruals or cash
expenses relating to the New Equity Incentive Plan (to the extent such
accruals or expenses reduce net income).
"Consolidated Non-cash Charges" means, with respect to any
Person for any period, the aggregate depreciation, amortization and
other non-cash expenses (including, without limitation, non-cash
reserves and non-cash charges) of such Person and its Restricted
Subsidiaries reducing Consolidated
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Net Income of such Person and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP
consistently applied.
"Credit Agreement" means (a) the GE Credit Agreement, together
with all amendments, documents and instruments from time to time
delivered in connection with the GE Credit Agreement (including,
without limitation, any guaranty agreements and security documents), as
in effect on the date hereof and, subject to the proviso to the next
succeeding sentence, as the GE Credit Agreement and such other
agreements, documents and instruments may be amended, amended and
restated, renewed, extended, restructured, supplemented or otherwise
modified from time to time, and (b) any credit agreement, loan
agreement, note purchase agreement, indenture or other agreement,
document or instrument refinancing, refunding or otherwise replacing
the GE Credit Agreement or any other agreement deemed a Credit
Agreement under clause (a) or (b) hereof, whether or not with the same
agent, trustee, representative lenders or holders, and, subject to the
proviso to the next succeeding sentence, irrespective of any changes in
the terms and conditions thereof. Without limiting the generality of
the foregoing, the term "Credit Agreement" shall include any amendment,
amendment and restatement, renewal, extension, restructuring,
supplement or modification to any Credit Agreement and all refundings,
refinancings and replacements of any Credit Agreement, including any
agreement (i) extending the maturity of any Indebtedness incurred
thereunder or contemplated thereby, (ii) adding or deleting borrowers
or guarantors thereunder, so long as borrowers and issuers include one
or more of the Corporation and its Subsidiaries and their respective
successors and assigns, and (iii) increasing the amount of Indebtedness
incurred thereunder or available to be borrowed thereunder, provided
that on the date thereof such Indebtedness would not be prohibited
under the Indenture.
"Disqualified Capital Stock" means any Capital Stock which, 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 (excluding any maturity as the result of an optional redemption
by the issuer thereof) or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole
option of the holder thereof, in whole or in part, on or prior to March
15, 2009. Without limitation of the foregoing, Disqualified Capital
Stock shall be deemed to include (i) any Preferred Stock of a
Restricted Subsidiary
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of the Corporation, (ii) any Preferred Stock of the Corporation, with
respect to either of which, under the terms of such Preferred Stock, by
agreement or otherwise, such Restricted Subsidiary or the Corporation
is obligated to pay current dividends or distributions in cash during
the period prior to the redemption date of the Exchangeable Preferred
Stock, and (iii) as long as the Exchangeable Preferred Stock remains
outstanding, Senior Stock and Parity Stock. Notwithstanding anything in
this definition to the contrary, Preferred Stock of the Corporation or
any Restricted Subsidiary thereof that is issued with the benefit of
provision requiring a change of control offer to be made for such
Preferred Stock in the event of a change of control of the Corporation
or Restricted Subsidiary, which provisions have substantially the same
effect as paragraph (h), shall not be deemed to be Disqualified Capital
Stock solely by virtue of such provisions.
"Dividend Payment Date" means March 15 and September 15 of
each year; provided that the first Dividend Payment Date shall occur on
September 15, 1997.
"Dividend Period" means the Initial Dividend Period
and, thereafter, each semi-annual Dividend Period.
"Dividend Record Date" means March 1 and September 1 of each
year; provided that the first Dividend Record Date shall occur on
September 1, 1997.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations promulgated
thereunder.
"Exchange Date" means a date on which shares of Exchangeable
Preferred Stock are exchanged by the Corporation for Exchange
Debentures.
"Exchange Debentures" shall have the meaning ascribed
to it in paragraph (g) hereof.
"Exchange Notice" shall have the meaning ascribed to it
in paragraph (g) hereof.
"Exchange Offer" means a registered offer to exchange any and
all shares of the Exchangeable Preferred Stock for a like number of
shares (with a liquidation preference equal to that of the surrendered
shares) of another series of the Corporation's senior exchangeable
preferred stock that has terms identical in all material respects to
the Exchangeable
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Preferred Stock except that (i) the Exchange Preferred Stock shall
have been registered pursuant to an effective registration statement
under the Securities Act and the certificates therefor shall contain no
restrictive legends thereon and (ii) the certificate of designation
governing such Exchange Preferred Stock does not need to contain
provisions with respect to Additional Dividends, including, without
limitation, those contained in paragraph (c)(viii) hereof.
"Exchange Offer Registration Statement" means the registration
statement filed by the Corporation with the Commission with respect to
an Exchange Offer.
"Exchange Preferred Stock" means the series of the
Corporation's exchangeable preferred stock publicly offered in exchange
for the Exchangeable Preferred Stock.
"Exchangeable Preferred Stock" shall have the meaning
ascribed to it in paragraph (a) hereof.
"Existing Notes" means the Corporation's 11-3/8% Senior
Subordinated Notes due 2001.
"Existing Indenture" means the Indenture pursuant to which the
Existing Notes were issued.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System, or any successor thereto.
"GAAP" means generally accepted accounting principles in the
United States set forth in the Statements of Financial Accounting
Standards and Interpretations, Accounting Principles Board Opinions and
AICPA Accounting Research Bulletins which are applicable as of the
Issue Date.
"GE Credit Agreement" means the Credit Agreement, dated as of
July 7, 1993, as amended from time to time, among the Corporation, T-H
Licensing, Inc., as guarantor, the lenders named therein and General
Electric Capital Corporation, as agent for such lenders.
"Holder" means a holder of shares of Exchangeable Preferred
Stock as reflected in the stock books of the Corporation.
"incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by
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<PAGE>
conversion, exchange or otherwise), assume, guarantee or otherwise
become liable in respect of such Indebtedness or other obligation or
the recording (other than previously recorded), as required pursuant to
GAAP or otherwise, of any such Indebtedness or other obligation on the
balance sheet of such Person (and "incurrence," "incurred,"
"incurable," and "incurring" shall have meanings correlative to the
foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an incurrence of such Indebtedness.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all liabilities of such Person for borrowed money or
for the deferred purchase price of property or services, excluding any
trade payables and other accrued current liabilities incurred in the
ordinary course of business, but including, without limitation, all
obligations, contingent or otherwise, of such Person in connection with
any letters of credit, banker's acceptance or other similar credit
transaction, (b) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, (c) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the
rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property),
but excluding trade accounts payable arising in the ordinary course of
business, (d) all Capitalized Lease Obligations of such Person, (e) all
Indebtedness referred to in the preceding clauses of other Persons and
all dividends of other Persons, the payment of which is secured by (or
for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon property
(including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable
for the payment of such Indebtedness (the amount of such obligations
being deemed to be the lesser of the value of such property or asset or
the amount of the obligation so secured), (f) all guarantees of
Indebtedness referred to in this definition by such Person, (g) all
Disqualified Capital Stock valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends, (h)
all obligations under or in respect of currency exchange contracts and
Interest Rate Agreements of such Person and (i) any amendment,
supplement, modification, deferral, renewal, extension or refunding of
any liability of the types referred to in clauses (a)
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through (h) above. For purposes hereof, (x) the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have
a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified
Capital Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
in good faith by the board of directors of the issuer of such
Disqualified Capital Stock, and (y) Indebtedness is deemed to be
incurred pursuant to a revolving credit facility each time an advance
is made thereunder; provided, however, that, with respect to the
Corporation, Indebtedness referred to in this definition shall exclude
all obligations of the Corporation to Lancer under the Tax Sharing
Agreement and any liability for federal, state, local or other taxes
owed or owing by the Corporation.
"Initial Dividend Period" means the dividend period commencing
on the Issue Date and ending on September 15, 1997.
"Indenture" shall have the meaning ascribed to it in
paragraph (f) hereof.
"Interest Rate Agreement" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time
periodic payments calculated by applying either a floating or a fixed
rate of interest on a stated notional amount in exchange for periodic
payments made by such Person calculated by applying a fixed or a
floating rate of interest on the same notional amount and shall
include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or
indirect loan or other extension of credit, guarantee or capital
contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use
of others), or any purchase or acquisition by such Person of any
Capital Stock, bonds, notes, debentures or other securities or
evidences of Indebtedness issued by, any other Person.
"Issue Date" means the date of original issuance of the
Exchangeable Preferred Stock.
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"Junior Stock" shall have the meaning ascribed to it in
paragraph (b) hereof.
"Lancer" means Lancer Industries Inc., a Delaware corporation.
"Lien" means any mortgage, charge, pledge, lien (statutory or
other), security interest, hypothecation, assignment for security,
claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind. A Person shall be deemed to own
subject to a Lien any property which such Person has acquired or holds
subject to the interest of a vendor or lessor under any conditional
sale agreement, capital lease or other title retention agreement.
"Mandatory Redemption Price" shall have the meaning ascribed
to it in paragraph (e) hereof.
"Moody's" means Moody's Investors Services, Inc. and its
successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including
payments in respect of deferred payment obligations when received in
the form of cash or Cash Equivalents (except to the extent that such
obligations are financed or sold with recourse to the Corporation or
any Restricted Subsidiary of the Corporation net of (i) brokerage
commissions and other fees and expenses (including, without limitation,
fees and expenses of legal counsel and investment bankers) related to
such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) amounts required to be paid and which have been
paid, or amounts required to be pledged and which are pledged to secure
Indebtedness owed to any Person (other than the Corporation or any
Restricted Subsidiary of the Corporation) owning a beneficial interest
in the assets subject to the Asset Sale (which, in the case of a Lien,
is being pledged to permanently reduce Indebtedness secured by such
Lien) and (iv) appropriate amounts to be provided by the Corporation or
any Restricted Subsidiary of the Corporation, as the case may be, as a
reserve required in accordance with GAAP consistently applied against
any liabilities associated with such Asset Sale and retained by the
Corporation or any Restricted Subsidiary of the Corporation, as the
case may be, after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities
related to
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environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an
Officers' Certificate delivered to the Transfer Agent.
"New Equity Incentive Plan" means any long-term incentive
compensation plan adopted by the Corporation covering the Corporation's
executives and selected other key management employees.
"Officers' Certificate" means a certificate signed by two
officers or by an officer and either an Assistant Treasurer or an
Assistant Secretary of the Corporation which certificate shall include
a statement that, in the opinion of such signers all conditions
precedent to be performed by the Corporation prior to the taking of any
proposed action have been taken. In addition, such certificate shall
include (i) a statement that the signatories have read the relevant
covenant or condition, (ii) a brief statement of the nature and scope
of such examination or investigation upon which the statements are
based, (iii) a statement that, in the opinion of such signatories, they
have made such examination or investigation as is reasonably necessary
to express an informed opinion and (iv) a statement as to whether or
not, in the opinion of the signatories, such relevant conditions or
covenants have been complied with.
"Opinion of Counsel" means an opinion of counsel that, in such
counsel's opinion, all conditions precedent to be performed by the
Corporation prior to the taking of any proposed action have been taken.
Such opinion shall also include the statements called for in the second
sentence under "Officers' Certificate".
"Optional Redemption Price" shall have the meaning ascribed to
it in paragraph (e)(i) hereof.
"Parity Stock" shall have the meaning ascribed to it in
paragraph (b) hereof.
"Permitted Holders" means (i) Lancer and its Affiliates and
(ii) any "group" (as such term is defined in Sections 13(d) and 14(d)
of the Exchange Act) comprised solely of Lancer and its Affiliates (it
being understood that a "group" that includes any other person shall
not be a Permitted Holder).
"Permitted Indebtedness" means each and all of the
following:
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(1) Indebtedness of the Corporation or any guarantor under
the Credit Agreement in an aggregate principal amount at any time
outstanding not to exceed the greater of (x) $58,000,000, less the
amount of any scheduled principal payments actually made (excluding,
without limitation, any prepayments required to be made based upon the
Corporation's excess cash flow) or the amount of any other payments
which are applied or credited against scheduled principal payments on
the date such scheduled principal payments would otherwise have been
made (except to the extent refinanced under a replacement Credit
Agreement at the time of the respective repayment) by the Corporation
or any guarantor in respect of any term loans under the Credit
Agreement and the amount by which the aggregate commitment under any
revolving credit facility under the Credit Agreement at any time has
been permanently reduced to the extent that any repayments required to
be made in connection with effecting such permanent reduction have been
made (it being understood that to the extent a reduction in commitments
under any revolving credit facility under the Credit Agreement arises
solely in connection with a refinancing of outstanding amounts under
such revolving credit facility with borrowings under a replacement
Credit Agreement and the commitments under the Credit Agreement are
thereby replaced with commitments under such replacement Credit
Agreement such a permanent reduction shall not have occurred);
provided, however, that the Corporation or any such guarantor shall be
permitted to incur an additional amount of Indebtedness not to exceed
$15,000,000 under its revolving credit facility if the borrowing base
requirement under such facility permits such incurrence and (y) the
amount equal to the sum of 80% of the net book value of accounts
receivable and 60% of the net book value of inventory (determined on a
first-in-first-out basis) of the Corporation and its Restricted
Subsidiaries on a consolidated basis at the time such Indebtedness is
incurred, as determined in accordance with GAAP;
(2) Indebtedness of the Corporation and its Restricted
Subsidiaries pursuant to the Existing Notes and the Existing
Indenture;
(3) Indebtedness of the Corporation and its Restricted
Subsidiaries pursuant to the Exchange Debentures and the Indenture;
(4) Indebtedness of the Corporation outstanding on the
Issue Date;
(5) Interest Rate Agreements of the Corporation covering
Indebtedness of the Corporation; provided, however,
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that (i) any Indebtedness to which any such Interest Rate Agreement
relate bears interest at fluctuating interest rates and is otherwise
permitted to be incurred under this covenant and (ii) the notional
amount of any such Interest Rate Agreement does not exceed the
principal amount of the Indebtedness to which such Interest Rate
Agreement relates;
(6) Indebtedness of a Wholly-Owned Restricted Subsidiary of
the Corporation (x) to the Corporation or (y) to another Wholly-Owned
Restricted Subsidiary of the Corporation; provided, however, that any
such Indebtedness of a Wholly-Owned Restricted Subsidiary of the
Corporation is not subordinated in right of payment to any other
Indebtedness of such Restricted Subsidiary;
(7) Indebtedness of the Corporation to a Wholly-Owned
Restricted Subsidiary of the Corporation which is unsecured and
subordinated in right of payment from and after such time as the
Exchange Debentures shall become due and payable (whether at a Stated
Maturity, by acceleration or otherwise) to the payment and performance
of the Corporation's obligations under the Indenture and the Exchange
Debentures; provided, however, that any subsequent issuance or transfer
of Capital Stock that results in such Wholly-Owned Restricted
Subsidiary ceasing to be such, or any subsequent transfer of such
Indebtedness (other than to the Corporation or a Wholly-Owned
Restricted Subsidiary) will be deemed, in each case, to constitute the
issuance of such Indebtedness by the Corporation or of such
Indebtedness by such Wholly-Owned Restricted Subsidiary;
(8) Indebtedness of the Corporation to T-H Licensing arising
in connection with the loans described in clause (vi) of paragraph
1(iii)(b);
(9) Indebtedness of the Corporation representing Capitalized
Lease Obligations so long as such Indebtedness does not exceed 6.0% of
the amount of the gross property, plant and equipment of the
Corporation and its Restricted Subsidiaries determined on a
consolidated basis, as shown on the balance sheet of the Corporation as
of the end of the most recent fiscal quarter, in accordance with GAAP
consistently applied;
(10) Indebtedness of the Corporation or any Restricted
Subsidiary arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary
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course of business; provided that such Indebtedness is extinguished
within 5 business days of incurrence;
(11) Indebtedness of the Corporation or any Restricted
Subsidiary consisting of guarantees, indemnities or obligations in
respect of purchase price adjustments in connection with the
acquisition or disposition of assets permitted under the Indenture;
(12) Indebtedness of the Corporation in addition to that
described in clauses (1) through (11) above not to exceed $20,000,000
outstanding at any time in the aggregate, which Indebtedness may be
incurred under the Credit Agreement; or
(13) (i) Indebtedness of the Corporation, the proceeds of
which are used solely to refinance (whether by amendment, renewal,
extension or refunding) Indebtedness of the Corporation (including all
or a portion of the Exchange Debentures) or any of its Restricted
Subsidiaries and (ii) Indebtedness of any Restricted Subsidiary of the
Corporation the proceeds of which are used solely to refinance (whether
by amendment, renewal, extension or refunding) Indebtedness of such
Restricted Subsidiary; provided, however, that (A) the principal amount
of Indebtedness incurred pursuant to this clause (13) (or, if such
Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the
maturity thereof, the original issue price of such Indebtedness) shall
not exceed the sum of the principal amount of Indebtedness so
refinanced (or, if the Indebtedness so refinanced provides for an
amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration of the maturity thereof, the
original issue price of such Indebtedness plus any accretion value
attributable thereto since the original issuance of such Indebtedness)
plus the amount of any premium required to be paid in connection with
such refinancing pursuant to the terms of such Indebtedness or the
amount of any premium reasonably determined by the Corporation as
necessary to accomplish such refinancing by means of a tender offer or
privately negotiated purchase, plus the amount of expenses in
connection therewith and (B) in the case of any refinancing of
Indebtedness that is not Senior Debt, (1) such new Indebtedness is made
subordinated to the Exchange Debentures in the same manner and at least
to the same extent as the Indebtedness being refinanced and (2) such
new Indebtedness has a Weighted Average Life to Maturity and final
Stated Maturity of principal that exceeds the Weighted
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Average Life to Maturity and final Stated Maturity of principal,
respectively, of the Indebtedness being refinanced.
"Permitted Investments" means any of the following: (i)
Investments by the Corporation or any Wholly-Owned Restricted
Subsidiary of the Corporation in another Person if as a result of such
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, the
Corporation or such Wholly-Owned Restricted Subsidiary; (ii)
Investments in obligations of, or guaranteed by, the United States
government or any agency or political subdivision thereof maturing
within one year of the date of purchase; (iii) Investments in
commercial paper issued by corporations, each of which shall have a
consolidated net worth of at least $100,000,000 maturing within 180
days from the date of the original issue thereof and rated "P-1" or
better by Moody's or "A-1" or better by S&P or an equivalent rating or
better by any other nationally recognized securities rating agency;
(iv) Investments in certificates of deposit issued or acceptances
accepted by or guaranteed by any bank or trust company organized under
the laws of the United States of America or any state thereof or the
District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $100,000,000, maturing within one
year of the date of purchase; (v) Investments representing Capital
Stock or obligations issued to the Corporation or any of its Restricted
Subsidiaries in settlement claims against any other Person by reason of
a composition or readjustment of debt or a reorganization of any debtor
of the Corporation or of such Restricted Subsidiary; (vi) Investments
in Cash Equivalents; (vii) loans and advances to officers of the
Corporation and its Restricted Subsidiaries made in compliance with
clause (v) of paragraph 1(iii)(b); (viii) Investments by the
Corporation or a Wholly-Owned Restricted Subsidiary in the Capital
Stock of a Wholly-Owned Restricted Subsidiary; (ix) money market funds
organized under the laws of the United States of America or any state
thereof that invest substantially all of their assets in any of the
types of Investments described in clause (ii), (iii), (iv) or (vi)
above; (x) Investments in any of the Exchange Debentures; (xi)
receivables owing to the Corporation of any Restricted Subsidiary
created in the ordinary course of business; (xii) Investments
consisting of Indebtedness permitted under clause (5) of the definition
of Permitted Indebtedness; and (xiii) Investments in the aggregate
amount of $10,000,000 at any time outstanding.
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"Person" means any individual, partnership, corporation,
limited liability company, unincorporated organization, trust or joint
venture, or a governmental agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of
such Person that has preferential rights to any other Capital Stock of
such Person with respect to dividends or redemptions or upon
liquidation.
"Private Exchange Preferred Stock" means a series of the
Corporation's exchangeable preferred stock having terms identical in
all material respects to the Exchangeable Preferred Stock.
"pro forma" means, unless otherwise provided herein, with
respect to any calculation made or required to be made pursuant hereto,
a calculation in accordance with Article II of Regulation S-X under the
Securities Act.
"Qualified Capital Stock" means any Capital Stock that
is not Disqualified Capital Stock.
"Redemption Date", with respect to any shares of Exchangeable
Preferred Stock, means the date on which such shares of Exchangeable
Preferred Stock are redeemed by the Corporation pursuant to the terms
hereof.
"Redemption Notice" shall have the meaning ascribed to
it in paragraph (e) hereof.
"Restricted Payment" means (i) the declaration or payment of
any dividend or the making of any other distribution (other than
dividends or distributions payable in Qualified Capital Stock) on
shares of the Corporation's Parity Stock or Junior Stock, (ii) any
purchase, redemption, retirement or other acquisition for value of any
Parity Stock or Junior Stock of the Corporation, other than through the
exchange of such Parity Stock or Junior Stock or any warrants, rights
or options to acquire shares of any class of such Parity Stock or
Junior Stock for Qualified Capital Stock or warrants, rights or options
to acquire Qualified Capital Stock, and (iii) the making of any
Investment (other than a Permitted Investment).
"Restricted Subsidiary" means (i) T-H Licensing and (ii) any
other Subsidiary of the Corporation other than an Unrestricted
Subsidiary.
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"Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules and regulations promulgated
thereunder.
"S&P" means Standard & Poor's Corporation and its
successors.
"Senior Debt" means the principal of, premium, if any, and
interest on any Indebtedness of the Corporation, whether outstanding on
the Issue Date or thereafter created, incurred or assumed, unless, in
the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding
expressly provides that such indebtedness is pari passu with or
subordinated in right of payment to the Exchange Debentures. Without
limiting the generality of the foregoing, "Senior Debt" shall also
include (i) all obligations of the Corporation, whether outstanding on
the Issue Date or thereafter created, incurred or assumed, under or in
respect of the Credit Agreement, whether for principal, interest
(including, without limitation, interest accruing after the filing of a
petition initiating any proceeding under any state or federal
bankruptcy law whether or not such interest is an allowable claim),
reimbursement of amounts drawn under letters of credit issued or
arranged for pursuant thereto, guarantees in respect thereof, and all
charges, fees, expenses (including reasonable fees and expenses of
counsel) and other amounts in respect of the Credit Agreement incurred
by or owing to the lenders under the Credit Agreement or their
representative, agent or trustee, and all other obligations of the
Corporation incurred under or in respect of the Credit Agreement
(including, without limitation, any Interest Rate Agreements and in
respect of premiums, indemnities or otherwise, and all indebtedness
under the Credit Agreement which is disallowed, avoided or subordinated
pursuant to Section 548 of Title 11, United States Code or any
applicable state fraudulent conveyance law) and (ii) all obligations of
the Corporation under or in respect of the Existing Notes and the
Existing Indenture. Notwithstanding the foregoing, "Senior Debt" shall
not include (a) Indebtedness evidenced by the Exchange Debentures, (b)
Indebtedness that is expressly subordinate or junior in right of
payment to any Senior Debt of the Corporation, (c) Indebtedness which,
when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is by its terms without recourse to
the Corporation, (d) any repurchase, redemption or other obligation in
respect of Disqualified Capital Stock, (e) to the extent it might
constitute Indebtedness,
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amounts owing for goods, materials or services purchased in the
ordinary course of business or consisting of trade payables or other
current liabilities (other than any current liabilities owing under the
Credit Agreement or the current portion of any long-term Indebtedness
which would constitute Senior Debt but for the operation of this clause
(e)), (f) to the extent it might constitute Indebtedness, amounts owed
by the Corporation for compensation to employees or for services
rendered to the Corporation, (g) to the extent it might constitute
Indebtedness, any liability for federal, state, local or other taxes
owed or owing by the Corporation, (h) Indebtedness of the Corporation
to a Subsidiary of the Corporation or any other Affiliate of the
Corporation or any such Affiliate's Subsidiaries and (i) that portion
of any Indebtedness which at the time of issuance is issued in
violation of the Indenture.
"Senior Stock" shall have the meaning ascribed to it in
paragraph (b) hereof.
"Semi-annual Dividend Period" means the semi-annual period
commencing on each March 15 and September 15 ending the next succeeding
Dividend Payment Date, respectively; provided, the first Semi-annual
Dividend Period shall commence on the Issue Date and end on September
15, 1997.
"Shelf Notice" means a written notice delivered by the Company
to the Holders and the Transfer Agent following the occurrence of a
Shelf Registration Rights Event.
"Shelf Registration Statement" means a registration statement
filed by the Corporation with the Commission for an offering to be made
on a continuous basis pursuant to rule 415 promulgated under the
Securities Act covering all of the Exchangeable Preferred Stock or the
Private Exchange Preferred Stock.
"Shelf Registration Rights Event" means if, (a) prior to the
consummation of the Exchange Offer, the Company or Holders of at least
a majority of the aggregate liquidation preference of the Exchangeable
Preferred Stock determine in good faith (after conferring with counsel)
that (i) the Exchangeable Preferred Stock would not, upon receipt, be
tradeable by such Holders which are not affiliates (within the meaning
of the Securities Act) of the Company without restriction under the
Securities Act and without material restriction under applicable state
securities laws, (ii) the interests of the Holders would be materially
adversely
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affected by the consummation of the Exchange Offer or (iii) the
Commission is unlikely to permit the consummation of the Exchange Offer
prior to the 150th day after the Issue Date and (b) in the case of a
determination by such Holders, such Holders request in writing that the
Company file a Shelf Registration Statement.
"Significant Subsidiary" shall have the same meaning as in
Rule 1.02(v) of Regulation S-X under the Securities Act.
"Stated Maturity" means, with respect to any Indebtedness of
the Corporation, any date specified in the instrument governing such
Indebtedness as the fixed date on which the principal of such
Indebtedness, or any installment of interest on such Indebtedness, is
due and payable.
"Subsidiary," with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at least a
majority of the votes entitled to be cast in the election of directors
under ordinary circumstances shall at the time be owned, directly or
indirectly, by such Person or (ii) any other Person of which at least a
majority of the voting interest under ordinary circumstances is at the
time, directly or indirectly, owned by such Person.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated
as of July 18, 1990, between the Corporation and Lancer, as amended
from time to time.
"T-H Licensing" means T-H Licensing, Inc., a Delaware
corporation, a Wholly-owned subsidiary of the Corporation.
"Transfer Agent" means United States Trust Company of
New York, or any successor transfer agent for the
Exchangeable Preferred Stock.
"Unrestricted Subsidiary" means a Subsidiary of the
Corporation designated as such by the Corporation (a) no portion of the
Indebtedness or any other obligation (contingent or otherwise) of which
(i) is guaranteed by the Corporation or any other Subsidiary of the
Corporation, (ii) is recourse to or obligates the Corporation or any
other Subsidiary of the Corporation in any way or (iii) subjects any
property or asset of the Corporation or any other Subsidiary of the
Corporation, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, (b) which has no Indebtedness or any other
obligation that, if in default in any respect (including a nonpayment
default), would permit (upon notice, lapse of time or both) any holder
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of any other Indebtedness of the Corporation or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause of
the payment thereof to be accelerated or payable prior to its Stated
Maturity, (c) with which the Corporation or any other Subsidiary of the
Corporation has no contract, agreement, arrangement, understanding or
is subject to an obligation of any kind, whether written or oral, other
than a transaction on terms no less favorable to the Corporation or any
other Subsidiary of the Corporation than those which might be obtained
at the time from Persons who are not Affiliates of the Corporation, and
(d) with which neither the Corporation nor any other Subsidiary of the
Corporation has any obligation (i) to subscribe for additional shares
of Capital Stock or other equity interest therein or (ii) to maintain
or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. The
Corporation may designate an Unrestricted Subsidiary as a Restricted
Subsidiary by written notice to the Transfer Agent under the Indenture;
provided, however, that the Corporation shall not be permitted to
designate any Unrestricted Subsidiary as a Restricted Subsidiary unless
(A) after giving pro forma effect to such designation, the Corporation
would be permitted to incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under paragraph l(i) and (B) any
Indebtedness or Liens of such Unrestricted Subsidiary would be
permitted to be incurred by a Restricted Subsidiary of the Corporation
under paragraph l(i). A designation of an Unrestricted Subsidiary as a
Restricted Subsidiary may not thereafter be rescinded.
"Voting Stock" means any class or classes of Capital Stock
pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board
of directors, managers or trustees of any Person (irrespective of
whether or not, at the time, stock of any other class or classes shall
have, or might have, voting power by reason of the happening of any
contingency).
"Voting Rights Triggering Event" shall have the meaning
ascribed to it in paragraph f(iv) hereof.
"Weighted Average Life to Maturity" means, when applied
to any Indebtedness at any date, the number of years obtained by
dividing (a) the then outstanding aggregate principal amount of such
Indebtedness into (b) the total of the product obtained by multiplying
(i) the amount of each then remaining installment, sinking fund, serial
maturity or
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other required payment of principal, including payment at final
maturity, in respect thereof, by (ii) the number of years (calculated
to the nearest one-twelfth) which will elapse between such date and the
making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary of the Corporation of which 100% of the outstanding Capital
Stock is owned by the Corporation or another Wholly-Owned Restricted
Subsidiary of the Corporation. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the
ownership of a Restricted Subsidiary.
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IN WITNESS WHEREOF, said Fairfield Manufacturing Company,
Inc., has caused this Certificate of Designation to be signed by Kenneth A.
Burns, its President and Chief Operating Officer, this 7th day of March, 1997.
FAIRFIELD MANUFACTURING
COMPANY, INC.
By: /s/ KENNETH A. BURNS
______________________________
Name: Kenneth A. Burns
Title: President and Chief
Operating Officer
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FORM OF CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL RIGHTS OF 11-1/4%
CUMULATIVE EXCHANGEABLE PREFERRED STOCK AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
Fairfield Manufacturing Company, Inc. (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware, does hereby certify that, pursuant to authority conferred
upon the board of directors of the Corporation (the "Board of Directors") by its
Certificate of Incorporation, as amended (hereinafter referred to as the
"Certificate of Incorporation"), and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, said Board of
Directors, by unanimous written consent dated as of ____________, 1997 duly
approved and adopted the following resolution (the "Resolution"):
RESOLVED, that, pursuant to the authority vested in the Board
of Directors by its Certificate of Incorporation, the Board of
Directors does hereby create, authorize and provide for the issuance of
11-1/4% Cumulative Exchangeable Preferred Stock, par value $.01 per
share, with a stated value of $1,000.00 per share, consisting of
125,000 shares, having the designations, preferences, relative,
participating, optional and other special rights and the
qualifications limitations and restrictions thereof that are set
forth in the Certificate of Incorporation and in this Resolution as
follows:
(a) Designation. There is hereby created out of the
authorized and unissued shares of Preferred Stock of the Corporation a class
of Preferred Stock designated as the "11-1/4% Cumulative Exchangeable Preferred
Stock." The number of shares constituting such class shall be 125,000 and are
referred to as the "Exchangeable Preferred Stock." Up to 50,000 shares of
Exchangeable Preferred Stock shall be initially issued in exchange for all
outstanding shares of the Existing Preferred Stock properly tendered in
connection with the Exchange Offer, with an additional 75,000 shares reserved
for issuance in accordance with paragraph (c)(i) hereof and may not be issued
for any other purpose. The liquidation preference of the
<PAGE>
Exchangeable Preferred Stock shall be $1,000.00 per share.
(b) Rank. The Exchangeable Preferred Stock shall, with respect
to dividends and distributions upon liquidation, winding-up and dissolution of
the Corporation, rank (i) senior to all classes of Common Stock of the
Corporation and to each other class of Capital Stock of the Corporation or
series of Preferred Stock of the Corporation hereafter created the terms of
which do not expressly provide that it ranks senior to, or on a parity with, the
Exchangeable Preferred Stock as to dividends and distributions upon liquidation,
winding-up and dissolution of the Corporation (collectively referred to,
together with all classes of common stock of the Corporation, as "Junior
Stock"); (ii) on a parity with each class of Capital Stock of the Corporation or
series of Preferred Stock of the Corporation hereafter created the terms of
which expressly provide that such class or series will rank on a parity with the
Exchangeable Preferred Stock as to dividends and distributions upon liquidation,
winding-up and dissolution (collectively referred to as "Parity Stock");
provided that any such Parity Stock that was not approved by the Holders in
accordance with paragraph (f)(ii)(A) hereof (to the extent such approval is
required) shall be deemed to be Junior Stock and not Parity Stock; and (iii)
junior to each class of Capital Stock of the Corporation or series of Preferred
Stock of the Corporation hereafter created that has been approved by the Holders
in accordance with paragraph (f)(ii)(B) hereof and the terms of which expressly
provide that such class or series will rank senior to the Exchangeable Preferred
Stock as to dividends and distributions upon liquidation, winding-up and
dissolution of the Corporation (collectively referred to as "Senior Stock");
provided that any such Senior Stock that was not approved by the Holders in
accordance with paragraph (f)(ii)(B) hereof shall be deemed to be Junior Stock
and not Senior Stock.
(c) Dividends.
(i) Beginning on the Issue Date, the Holders of the
outstanding shares of Exchangeable Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, distributions in the form of cash
dividends on each share of Exchangeable Preferred Stock, at a rate per
annum equal to 11-1/4% of the then effective liquidation preference per
share of the Exchangeable Preferred Stock, payable semi-annually;
provided that such rate per annum is subject to increase as provided
for in clause (viii) below and paragraph (h) hereof. All dividends
shall be cumulative from the last dividend payment date on which
dividends were paid on the shares of Existing Preferred Stock
surrendered
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<PAGE>
in exchange therefor or, if no dividends have been paid on
the Existing Preferred Stock, from the Issue Date, whether or not
earned or declared, on a daily basis from such last dividend payment
date or the Issue Date (as the case may be) and shall be payable
semi-annually in arrears on each Dividend Payment Date, commencing on
September 15, 1997. Dividends (including Additional Dividends, if any)
may be paid, at the Corporation's option, on any Dividend Payment Date
occurring on or prior to March 15, 2002 either in cash or by the
issuance of additional shares of Exchangeable Preferred Stock
(including fractional shares) having an aggregate liquidation
preference equal to the amount of such dividends (but not less than
$1.00). In the event that on or prior to March 15, 2002 dividends are
declared and paid through the issuance of additional shares of
Exchangeable Preferred Stock as provided in the previous sentence, such
dividends shall be deemed paid in full and shall not accumulate. Each
dividend shall be payable to the Holders of record as they appear on
the stock books of the Corporation on the Dividend Record Date
immediately preceding the related Dividend Payment Date. Dividends
shall cease to accumulate in respect of the Exchangeable
Preferred Stock on the Exchange Date or on the date of their earlier
redemption unless the Corporation shall have failed to issue the
appropriate aggregate principal amount of Exchange Debentures in
respect of the Exchangeable Preferred Stock on such Exchange Date or
shall have failed to pay the relevant redemption price on the date
fixed for redemption.
(ii) All dividends paid with respect to shares of the
Exchangeable Preferred Stock pursuant to paragraph (c)(i) shall be paid
pro rata to the Holders entitled thereto.
(iii) For dividends payable after March 15, 2002, nothing
herein contained shall in any way or under any circumstances be
construed or deemed to require the Board of Directors to declare, or
the Corporation to pay or set apart for payment, any dividends on
shares of the Exchangeable Preferred Stock at any time.
(iv) Dividends accruing after March 15, 2002 on the
Exchangeable Preferred Stock for any past Dividend Period and dividends
in connection with any optional redemption pursuant to paragraph (e)(i)
may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to Holders of record on such date, not more than
forty-five (45) days prior to the payment thereof, as may be fixed by
the Board of Directors of the Corporation.
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<PAGE>
(v) No full dividends shall be declared by the Board of
Directors or paid or set apart for payment by the Corporation on any
Parity Stock for any period unless full cumulative dividends have been
or contemporaneously are declared and paid (or are deemed declared and
paid) in full, or declared and, if payable in cash, a sum in cash set
apart sufficient for such payment, on the Exchangeable Preferred Stock
for all Dividend Periods terminating on or prior to the date of payment
of such full dividends on such Parity Stock. If full dividends are not
so paid, all dividends declared upon shares of the Exchangeable
Preferred Stock and any other Parity Stock shall be declared pro rata
so that the amount of dividends declared per share on the Exchangeable
Preferred Stock and such Parity Stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the
Exchangeable Preferred Stock and such Parity Stock bear to each other.
(vi) (A)Holders of shares of the Exchangeable Preferred Stock
shall be entitled to receive the dividends provided for in paragraph
(c)(i) hereof in preference to and in priority over any dividends upon
any of the Junior Stock.
(B) So long as any share of the Exchangeable Preferred Stock
is outstanding, the Corporation shall not declare, pay or set apart for
payment any dividend on any of the Junior Stock or make any payment on
account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement of, any
of the Junior Stock or any warrants, rights, calls or options
exercisable for or convertible into any of the Junior Stock whether in
cash, obligations or shares of the Corporation or other property (other
than dividends in Junior Stock to the holders of Junior Stock), and
shall not permit any corporation or other entity directly or indirectly
controlled by the Corporation to purchase or redeem any of the Junior
Stock or any such warrants, rights, calls or options unless full
cumulative dividends determined in accordance herewith on the
Exchangeable Preferred Stock have been paid (or are deemed paid) in
full.
(C) So long as any share of the Exchangeable Preferred Stock
is outstanding, the Corporation shall not make any payment on account
of, or set apart for payment money for a sinking or other similar fund
for, the purchase, redemption or other retirement of, any of the Parity
Stock or any warrants, rights, calls or options exercisable for or
convertible into any of the Parity Stock, and shall not permit any
corporation or other entity directly or indirectly controlled by the
Corporation to purchase or
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<PAGE>
redeem any of the Parity Stock or any such warrants, rights, calls or
options unless full cumulative dividends determined in accordance
herewith on the Exchangeable Preferred Stock have been paid (or are
deemed paid) in full.
(vii) Dividends payable on the Exchangeable Preferred Stock
for any period less than a year shall be computed on the basis of a
360-day year of twelve 30-day months and the actual number of days
elapsed in the period for which payable. The amount of Additional
Dividends will be determined consistent with the preceding sentence and
by multiplying the applicable Additional Dividends by a fraction, the
numerator of which is the number of days such rate was applicable
during any Interest Period and the denominator of which is 360.
(d) Liquidation Preference.
(i) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation, the Holders of shares of Exchangeable Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders an amount in
cash equal to the liquidation preference for each share outstanding,
plus, without duplication, an amount in cash equal to accumulated and
unpaid dividends thereon to the date fixed for liquidation, dissolution
or winding up (including an amount equal to a prorated dividend for the
period from the last Dividend Payment Date to the date fixed for
liquidation, dissolution or winding up) before any payment shall be
made or any assets distributed to the holders of any of the Junior
Stock including, without limitation, common stock of the Corporation.
Except as provided in the preceding sentence, Holders of Exchangeable
Preferred Stock shall not be entitled to any distribution in the event
of any liquidation, dissolution or winding up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to pay
in full the liquidation payments payable to the Holders of outstanding
shares of the Exchangeable Preferred Stock and all Parity Stock, then
the holders of all such shares shall share equally and ratably in such
distribution of assets in proportion to the full liquidation preference
to which each is entitled until such preferences are paid in full, and
then in proportion to their respective amounts of accumulated but
unpaid dividends.
(ii) For the purposes of this paragraph (d), neither the
sale, conveyance, exchange or transfer (for cash, shares
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<PAGE>
of stock, securities or other consideration) of all or substantially
all of the property or assets of the Corporation nor the consolidation
or merger of the Corporation with or into one or more entities shall be
deemed to be a liquidation, dissolution or winding up of the affairs of
the Corporation.
(e) Redemption.
(i) Optional Redemption. (A) The Corporation may, at the
option of the Board of Directors, redeem at any time on or after March
15, 2002, subject to contractual and other restrictions with respect
thereto and to the extent of funds legally available therefor, in whole
or in part, in the manner provided for in paragraph (e)(iii) hereof,
any or all of the shares of the Exchangeable Preferred Stock, at the
redemption prices (expressed as a percentage of the liquidation
preference) set forth below plus, without duplication, an amount in
cash equal to all accumulated and unpaid dividends per share (including
an amount in cash equal to a prorated dividend for the period from the
Dividend Payment Date immediately prior to the Redemption Date to the
Redemption Date) (the "Optional Redemption Price") if redeemed during
the 12-month period beginning March 15 of each of the years set forth
below:
Year Percentage
---- ----------
2002 .............. 105.625%
2003 .............. 104.219%
2004 .............. 102.813%
2005 .............. 101.406%
2006 and thereafter 100.000%
provided that no redemption pursuant to this paragraph (e)(i)(A) shall
be authorized or made unless prior thereto full accumulated and unpaid
dividends are declared and paid in full, or declared and a sum in cash
set apart sufficient for such payment, on the Exchangeable Preferred
Stock for all Dividend Periods terminating on or prior to the
Redemption Date.
(B) In the event of a redemption pursuant to para graph
(e)(i)(A) hereof of only a portion of the then outstanding shares of
the Exchangeable Preferred Stock, the Corporation shall effect such
redemption on a pro rata basis according to the number of shares held
by each Holder of the Exchangeable Preferred Stock, except that the
Corporation may redeem such shares held by Holders of fewer than ten
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<PAGE>
shares (or shares held by Holders who would hold less than ten shares
as a result of such redemption), as may be determined by the
Corporation.
(ii) Mandatory Redemption. On March 15, 2009, the Corporation
shall redeem, subject to contractual and other restrictions with
respect thereto and to the extent of funds legally available therefor,
in the manner provided for in paragraph (e)(iii) hereof, all of the
shares of the Exchangeable Preferred Stock then outstanding at a
redemption price equal to 100% of the liquidation preference per share,
plus, without duplication, an amount in cash equal to all accumulated
and unpaid dividends per share (including an amount equal to a prorated
dividend for the period from the Dividend Payment Date immediately
prior to the Redemption Date to the Redemption Date) (the "Mandatory
Redemption Price").
(iii) Procedures for Redemption. (A) At least thirty (30) days
and not more than sixty (60) days prior to the date fixed for any
redemption of the Exchangeable Preferred Stock, written notice (the
"Redemption Notice") shall be given by first class mail, postage
prepaid, to each Holder of record on the record date fixed for such
redemption of the Exchangeable Preferred Stock at such Holder's address
as it appears on the stock books of the Corporation, provided that no
failure to give such notice nor any deficiency therein shall affect the
validity of the procedure for the redemption of any shares of
Exchangeable Preferred Stock to be redeemed except as to the Holder or
Holders to whom the Corporation has failed to give said notice or
except as to the Holder or Holders whose notice was defective. The
Redemption Notice shall state:
(1) whether the redemption is pursuant to
paragraph (e)(i)(A) or (e)(ii) hereof;
(2) the Optional Redemption Price or the
Mandatory Redemption Price, as the case may be;
(3) whether all or less than all the outstanding
shares of the Exchangeable Preferred Stock are to be redeemed
and the total number of shares of the Exchangeable Preferred
Stock being redeemed;
(4) the date fixed for redemption;
(5) that the Holder is to surrender to the
Corporation, in the manner, at the place or places and
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<PAGE>
at the price designated, his certificate or certificates
representing the shares of Exchangeable Preferred Stock to be
redeemed; and
(6) that dividends on the shares of the Exchangeable
Preferred Stock to be redeemed shall cease to accumulate on
such Redemption Date unless the Corporation defaults in the
payment of the Optional Redemption Price or the Mandatory
Redemption Price, as the case may be.
(B) Each Holder of Exchangeable Preferred Stock shall
surrender the certificate or certificates representing such shares of
Exchangeable Preferred Stock to the Corporation, duly endorsed (or
otherwise in proper form for transfer, as determined by the
Corporation), in the manner and at the place designated in the
Redemption Notice, and on the Redemption Date the full Optional
Redemption Price or Mandatory Redemption Price, as the case may be, for
such shares shall be payable in cash to the Person whose name appears
on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired. In the event
that less than all of the shares represented by any such certificate
are redeemed, a new certificate shall be issued representing the
unredeemed shares.
(C) On and after the Redemption Date, unless the Corporation
defaults in the payment in full of the applicable redemption price,
dividends on the Exchangeable Preferred Stock called for redemption
shall cease to accumulate on the Redemption Date, and all rights of the
Holders of redeemed shares shall terminate with respect thereto on the
Redemption Date, other than the right to receive the Optional
Redemption Price or the Mandatory Redemption Price, as the case may be,
without interest; provided, however, that if a notice of redemption
shall have been given as provided in paragraph (iii)(A) above and the
funds necessary for redemption (including an amount in respect of all
dividends that will accrue to the Redemption Date) shall have been
irrevocably deposited in trust for the equal and ratable benefit for
the Holders of the shares to be redeemed, then, at the close of
business on the day on which such funds are segregated and set aside,
the Holders of the shares to be redeemed shall cease to be stockholders
of the Corporation and shall be entitled only to receive the Optional
Redemption Price or the Mandatory Redemption Price, as the case may be,
without interest.
8
(f) Voting Rights.
(i) The Holders of Exchangeable Preferred Stock, except as
otherwise required under Delaware law or as set forth in paragraphs
(ii), (iii) and (iv) below, shall not be entitled or permitted to vote
on any matter required or permitted to be voted upon by the
stockholders of the Corporation.
(ii) (A) So long as any shares of the Exchangeable
Preferred Stock are outstanding, the Corporation shall not
authorize any class of Parity Stock without the affirmative vote or
consent of Holders of at least a majority of the then outstanding
shares of Exchangeable Preferred Stock, voting or consenting, as the
case may be, as one class, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting;
provided, however, that no such vote or consent shall be necessary in
connection with (i) issuance of additional shares of Exchangeable
Preferred Stock pursuant to the provisions of paragraph (c) of this
Certificate of Designation, or (ii) the authorization of the Existing
Preferred Stock and/or the Private Exchange Preferred Stock.
(B) So long as any shares of the Exchangeable Preferred Stock
are outstanding, the Corporation shall not authorize any class of
Senior Stock without the affirmative vote or consent of Holders of at
least a majority of the outstanding shares of Exchangeable Preferred
Stock, voting or consenting, as the case may be, as one class, given in
person or by proxy, either in writing or by resolution adopted at an
annual or special meeting.
(C) So long as any shares of the Exchangeable Preferred Stock
are outstanding, the Corporation shall not amend this Certificate of
Designation so as to affect adversely the specified rights,
preferences, privileges or voting rights of holders of shares of
Exchangeable Preferred Stock without the affirmative vote or consent of
Holders of at least a majority of the issued and outstanding shares of
Exchangeable Preferred Stock, voting or consenting, as the case may be,
as one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting.
(D) Prior to the exchange of Exchangeable Preferred Stock for
Exchange Debentures, the Corporation shall not amend or modify the
Indenture for the Exchange Debentures in the form as executed on the
Issue Date (the "Indenture")
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(except as expressly provided therein in respect of amendments without
the consent of holders of Exchange Debentures) without the affirmative
vote or consent of Holders of at least a majority of the shares of
Exchangeable Preferred Stock then outstanding, voting or consenting, as
the case may be, as one class, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting.
(E) Except as set forth in paragraphs (f)(ii)(A), (f)(ii)(B)
and (f)(ii)(C) above, (x) the creation, authorization or issuance of
any shares of any Junior Stock, Parity Stock or Senior Stock or (y) the
increase or decrease in the amount of authorized Capital Stock of any
class, including Preferred Stock, shall not require the consent of
Holders of Exchangeable Preferred Stock and shall not be deemed to
affect adversely the rights, preferences, privileges or voting rights
of Holders of Exchangeable Preferred Stock.
(iii) Without the affirmative vote or consent of Holders of a majority
of the issued and outstanding shares of Exchangeable Preferred Stock,
voting or consenting, as the case may be, as a separate class, given in
person or by proxy, either in writing or by resolution adopted at an
annual or special meeting, the Corporation shall not, in a single
transaction or series of related transactions, consolidate or merge
with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to, another Person or
adopt a plan of liquidation unless: (A) either (1) the Corporation is
the surviving or continuing Person or (2) the Person (if other than the
Corporation) formed by such consolidation or into which the Corporation
is merged or the Person that acquires by conveyance, transfer or lease
the properties and assets of the Corporation substantially as an
entirety or in the case of a plan of liquidation, the Person to which
assets of the Corporation have been transferred, shall be a
corporation, partnership or trust organized and existing under the laws
of the United States or any State thereof or the District of Columbia;
(B) if the Corporation is not the surviving Person, the Exchangeable
Preferred Stock shall be converted into or exchanged for and shall
become shares of such successor, transferee or resulting Person, having
in respect of such successor, transferee or resulting Person the same
powers, preferences and relative, participating, optional or other
special rights and the qualifications, limitations or restrictions
thereon, that the Exchangeable Preferred Stock had immediately prior to
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such transaction; (C) immediately after giving effect to such
transaction and the use of the proceeds therefrom (on a pro forma
basis, including giving effect to any Indebtedness incurred or
anticipated to be incurred in connection with such transaction), the
Corporation (in the case of clause (1) of the foregoing clause (A)) or
such Person (in the case of clause (2) of the foregoing clause (A))
shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under paragraph (l)(i) hereof; (D)
immediately after giving effect to such transactions, no Voting Rights
Triggering Event shall have occurred or be continuing; and (E) such
surviving Person shall have delivered to the Transfer Agent prior to
the consummation of the proposed transaction an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger
or transfer complies with the terms hereof and that all conditions
precedent herein relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
related transactions) of all or substantially all of the properties or
assets of one or more Subsidiaries of the Corporation, the Capital
Stock of which constitutes all or substantially all of the properties
and assets of the Corporation shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Corporation.
(iv) (A) If (1) after March 15, 2002 cash dividends on the
Exchangeable Preferred Stock are in arrears and unpaid for three or
more semi-annual Dividend Periods (whether or not consecutive) (a
"Dividend Default"); (2) the Corporation fails to redeem all of the
then outstanding shares of Exchangeable Preferred Stock on or before
March 15, 2009 or otherwise fails to discharge any redemption
obligation with respect to the Exchangeable Preferred Stock; (3) the
Corporation fails to make a Change of Control Offer (whether pursuant
to the terms of paragraph (h)(v) or otherwise) following a Change of
Control occurring on or after July 2, 2001 if such Change of Control
Offer is required by paragraph (h) hereof or fails to purchase shares
of Exchangeable Preferred Stock from Holders who elect to have such
shares purchased pursuant to the Change of Control Offer; (4) the
Corporation breaches or violates one of the provisions set forth in any
of paragraphs (l)(i), (l)(ii), (1)(iii) or (l)(iv) hereof and the
breach or violation continues for a period of 30 days or more after the
Corporation receives notice thereof specifying the default
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<PAGE>
from the holders of at least 25% of the shares of Exchangeable
Preferred Stock then outstanding or (5) the Corporation fails to pay at
the final stated maturity (giving effect to any extensions thereof and
applicable grace periods) the principal amount of any Indebtedness of
the Corporation or any Subsidiary of the Corporation, or the final
stated maturity of any such Indebtedness is accelerated, if the
aggregate principal amount of such Indebtedness, together with the
aggregate principal amount of any other such Indebtedness in default
for failure to pay principal at the final stated maturity (giving
effect to any extensions thereof and applicable grace periods) or that
has been accelerated, aggregates $5,000,000 or more at one time, in
each case, after a 10-day period during which such default shall not
have been cured or such acceleration rescinded, then in the case of any
of clauses (1)-(5) the number of directors constituting the Board of
Directors shall be adjusted by the number, if any, necessary to permit
the Holders of Exchangeable Preferred Stock, voting separately and as
one class, to elect the lesser of two directors or that number of
directors constituting at least 25% of the Board of Directors. Each
such event described in clauses (1), (2), (3), (4) and (5) is a "Voting
Rights Triggering Event." Holders of a majority of the issued and
outstanding shares of Exchangeable Preferred Stock, voting separately
and as one class, shall have the exclusive right to elect the lesser of
two directors or 25% of the members of the Board of Directors at a
meeting therefor called following the occurrence of such Voting Rights
Triggering Event, and at every subsequent meeting at which the terms of
office of the directors so elected by the Holders of the Exchangeable
Preferred Stock expire (other than as described in (f)(iv)(B) below);
provided, that, in the event more than one of the above Voting Rights
Triggering Events occurs, at the same or at different times, the
maximum number of directors that such Holders shall be entitled to
elect is the lesser of 2 directors and that number of directors
constituting 25% of the Board of Directors. The voting rights provided
herein shall be the exclusive remedy at law or in equity of the holders
of the Exchangeable Preferred Stock for any Voting Rights Triggering
Event.
(B) The right of the Holders of Exchangeable Preferred Stock
voting together as a separate class to elect members of the Board of
Directors as set forth in subparagraph (f)(iv)(A) above shall continue
until such time as (x) in the event such right arises due to a Dividend
Default, all accumulated dividends that are in arrears on the
Exchangeable Preferred Stock are paid in full in cash; and
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<PAGE>
(y) in all other cases, the failure, breach or default giving rise to
such Voting Rights Triggering Event is cured or waived by the holders
of at least a majority of the shares of Exchangeable Preferred Stock
then outstanding and entitled to vote thereon, at which time (1) the
right of the Holders of Exchangeable Preferred Stock so to vote as a
class for the election of directors and (2) the term of office of the
directors elected by the Holders of the Exchangeable Preferred Stock
shall each terminate and the directors elected by the holders of Common
Stock or Capital Stock (other than the Exchangeable Preferred Stock)
shall constitute the entire Board of Directors. At any time after
voting power to elect directors shall have become vested and be
continuing in the Holders of Exchangeable Preferred Stock pursuant to
paragraph (f)(iv) hereof, or if vacancies shall exist in the offices of
directors elected by the Holders of Exchangeable Preferred Stock, a
proper officer of the Corporation may, and upon the written request of
the Holders of record of at least twenty-five percent (25%) of the
shares of Exchangeable Preferred Stock then outstanding addressed to
the secretary of the Corporation shall, call a special meeting of the
Holders of Exchangeable Preferred Stock, for the purpose of electing
the directors which such Holders are entitled to elect. If such meeting
shall not be called by a proper officer of the Corporation within
twenty (20) days after personal service of said written request upon
the secretary of the Corporation, or within twenty (20) days after
mailing the same within the United States by certified mail, addressed
to the secretary of the Corporation at its principal executive offices,
then the Holders of record of at least twenty-five percent (25%) of the
outstanding shares of Exchangeable Preferred Stock may designate in
writing one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by the Person so designated
upon the notice required for the annual meetings of stockholders of the
Corporation and shall be held at the place for holding the annual
meetings of stockholders. Any Holder of Exchangeable Preferred Stock so
designated shall have, and the Corporation shall provide, access to the
lists of stockholders to be called pursuant to the provisions hereof.
(C) At any meeting held for the purpose of electing directors
at which the Holders of Exchangeable Preferred Stock shall have the
right, voting together as a separate class, to elect directors as
aforesaid, the presence in person or by proxy of the Holders of at
least a majority of the outstanding shares of Exchangeable
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<PAGE>
Preferred Stock shall be required to constitute a quorum of such
Exchangeable Preferred Stock.
(D) Subject to subparagraph (f)(iv)(B), any vacancy occurring
in the office of a director elected by the Holders of Exchangeable
Preferred Stock may be filled by the remaining directors elected by the
Holders of Exchangeable Preferred Stock unless and until such vacancy
shall be filled by the Holders of Exchangeable Preferred Stock.
(v) In any case in which the Holders of Exchangeable
Preferred Stock shall be entitled to vote pursuant to this paragraph
(f) or pursuant to Delaware law, each Holder of Exchangeable Preferred
Stock entitled to vote with respect to such matter shall be entitled to
one vote for each share of Exchangeable Preferred Stock held.
(vi) Notwithstanding anything in this paragraph (f) to the
contrary, in the event that, at the time any vote is taken or required
to be taken pursuant to this paragraph (f), any shares of Private
Exchange Preferred Stock or Existing Preferred Stock are outstanding
(the "Other Preferred Stock"), (A) the Holders of the Exchangeable
Preferred Stock then outstanding shall vote as one class with the
holders of such Other Preferred Stock for purposes of subparagraphs
(ii) (other than (ii)(C)), (iii) and (iv) of this paragraph (f) as if
the holders of such Other Preferred Stock were Holders of Exchangeable
Preferred Stock (it being understood that the Holders of the
Exchangeable Preferred Stock shall not be entitled to a separate class
vote for purposes of this paragraph (f) (other than subparagraph
(ii)(C)) in the event there are any shares of Other Preferred Stock
outstanding).
(g) Exchange.
(i) Requirements. The outstanding shares of Exchangeable
Preferred Stock are exchangeable as a whole but not in part, at the
option of the Corporation, on any Dividend Payment Date occurring after
the earlier of (i) July 2, 2001 and (ii) the date on which all of the
Existing Notes have been redeemed, only if and only to the extent
permitted by and subject to the terms and conditions of any
Indebtedness of the Corporation then outstanding, at any time on any
Dividend Payment Date for the Corporation's 11-1/4% Subordinated
Exchange Debentures due 2009 (the "Exchange Debentures") to be
substantially in the form of Exhibit A to the form of Indenture, a
copy of which is on file with the secretary of the Corporation;
provided that any such exchange may only be made if on or prior to the
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date of such exchange (i) the Corporation has paid (or is deemed to
have paid) all accumulated dividends on the Exchangeable Preferred
Stock (including the dividends payable on the date of exchange) out of
legally available funds therefor and there shall be no contractual
impediment to such exchange; and (ii) immediately after giving effect
to such exchange, no Default or Event of Default (each as defined in
the Indenture) would exist under the Indenture and no default or event
of default would exist under the Credit Agreement. The exchange rate
shall be $1.00 principal amount of Exchange Debentures for each $1.00
of liquidation preference of Exchangeable Preferred Stock, including,
to the extent necessary, Exchange Debentures in principal amounts less
than $1,000, provided that the Corporation shall have the right, at its
option, to pay cash in an amount equal to the principal amount of that
portion of any Exchange Debenture that is not an integral multiple of
$1,000 instead of delivering an Exchange Debenture in a denomination of
less than $1,000.
(ii) Procedure for Exchange. (A) At least thirty (30) days
and not more than sixty (60) days prior to the date fixed for exchange,
written notice (the "Exchange Notice") shall be given by first-class
mail, postage prepaid, to each Holder of record on the record date
fixed for such exchange of the Exchangeable Preferred Stock at such
Holder's address as the same appears on the stock books of the
Corporation, provided that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for the
exchange of any shares of Exchangeable Preferred Stock to be exchanged
except as to the Holder or Holders to whom the Corporation has failed
to give said notice or except as to the Holder or Holders whose notice
was defective. The Exchange Notice shall state:
(1) the date fixed for exchange;
(2) that the Holder is to surrender to the
Corporation, in the manner and at the place or places
designated, his certificate or certificates representing the
shares of Exchangeable Preferred Stock to be exchanged;
(3) that dividends on the shares of Exchangeable
Preferred Stock to be exchanged shall cease to accrue on such
Exchange Date whether or not certificates for shares of
Exchangeable Preferred Stock are surrendered for exchange on
such Exchange Date unless the corporation shall default in the
delivery of Exchange
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Debentures; and
(4) that interest on the Exchange Debentures shall
accrue from the Exchange Date whether or not certificates for
shares of Exchangeable Preferred Stock are surrendered for
exchange on such Exchange Date.
(B) On or before the Exchange Date, each Holder of
Exchangeable Preferred Stock shall surrender the certificate or
certificates representing such shares of Exchangeable Preferred Stock,
in the manner and at the place designated in the Exchange Notice. The
Corporation shall cause the Exchange Debentures to be executed on the
Exchange Date and, upon surrender in accordance with the Exchange
Notice of the certificates for any shares of Exchangeable Preferred
Stock so exchanged, duly endorsed (or otherwise in proper form for
transfer, as determined by the Corporation), such shares shall be
exchanged by the Corporation into Exchange Debentures. The Corporation
shall pay interest on the Exchange Debentures at the rate and on the
dates specified therein from the Exchange Date.
(C) If notice has been mailed as aforesaid, and if on or
before the Exchange Date specified in such notice (1) the Indenture
shall have been duly executed and delivered by the Corporation and the
trustee thereunder and (2) all Exchange Debentures necessary for such
exchange shall have been duly executed by the Corporation and delivered
to the trustee under the Indenture with irrevocable instructions to
authenticate the Exchange Debentures necessary for such exchange, then
dividends will cease to accrue on the outstanding shares of
Exchangeable Preferred Stock and the rights of the Holders of
Exchangeable Preferred Stock so exchanged as stockholders of the
Corporation shall cease (except the right to receive Exchange
Debentures, an amount in cash, to the extent applicable, equal to the
amount of accumulated and unpaid dividends to the Exchange Date and, if
the Corporation so elects, cash in lieu of any Exchange Debenture not
an integral multiple of $1,000), and the Person or Persons entitled to
receive the Exchange Debentures issuable upon exchange shall be treated
for all purposes as the registered Holder or Holders of such Exchange
Debentures as of the Exchange Date.
(iii) No Exchange in Certain Cases. Notwithstanding the
foregoing provisions of this paragraph (g), the Corporation shall not
be entitled to exchange the Exchangeable Preferred Stock for Exchange
Debentures if such exchange, or any term or provision of the Indenture
or the Exchange Debentures, or
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the performance of the Corporation's obligations under the Indenture or
the Exchange Debentures, shall materially violate or conflict with any
applicable law or agreement or instrument then binding on the
Corporation or if, at the time of such exchange, the Corporation is
insolvent or if it would be rendered insolvent by such exchange.
(h) Change of Control.
(i) In the event of a Change of Control occurring on or
after July 2, 2001 (the date of such occurrence being the "Change of
Control Date"), the Corporation shall, only if and only to the extent
permitted by any Indebtedness of the Corporation then outstanding,
notify the Holders of the Exchangeable Preferred Stock in writing of
such occurrence and shall make an offer to redeem all then outstanding
shares of Exchangeable Preferred Stock at a redemption price of 101% of
the liquidation preference thereof plus, without duplication, an amount
in cash equal to all accumulated and unpaid dividends per share
(including an amount in cash equal to a prorated dividend for the
period from the Dividend Payment Date immediately prior to the Change
of Control Payment Date to the Change of Control Payment Date). In
addition, upon the occurrence of a Change of Control occurring prior to
July 2, 2001, the Corporation will have the option to offer to redeem
the Exchangeable Preferred Stock, in whole but not in part, at a
redemption price equal to 101% of the principal amount thereof, plus,
without duplication, accumulated and unpaid dividends to the Change of
Control Payment Date. If the Corporation does not make an offer to
redeem all of the outstanding Exchangeable Preferred Stock upon a
Change of Control, the annual dividend rate on the Exchangeable
Preferred Stock will increase by 4% over the then-applicable annual
dividend rate. Any offer to redeem the Exchangeable Preferred Stock
upon a Change of Control as provided in the paragraph (h)(i) shall
constitute a "Change of Control Offer."
(ii) To effect a Change of Control Offer within 30 days
following the Change of Control Date, the Corporation shall send, by
first class mail, postage prepaid, a notice to each Holder of
Exchangeable Preferred Stock at such Holder's address as it appears on
the stock books of the Corporation, which notice shall govern the terms
of the Change of Control Offer. The notice to the Holders shall contain
all instructions and materials necessary to enable such Holders to
tender Exchangeable Preferred Stock pursuant to the Change of Control
Offer. Such notice shall state:
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(A) that a Change of Control has occurred, that the
Change of Control Offer is being made pursuant to this
paragraph (h) and that all Exchangeable Preferred Stock
validly tendered and not withdrawn will be accepted for
payment;
(B) the redemption price (including the amount of
accrued dividends, if any) and the redemption date (which
shall be no earlier than 30 days nor later than 60 days from
the date such notice is mailed, other than as may be required
by law) (the "Change of Control Payment Date");
(C) that any shares of Exchangeable Preferred
Stock not tendered will continue to accrue dividends;
(D) that, unless the Corporation defaults in making
payment therefor, any share of Exchangeable Preferred Stock
accepted for payment pursuant to the Change of Control Offer
shall cease to accrue dividends after the Change of Control
Payment Date;
(E) that Holders electing to have any shares of
Exchangeable Preferred Stock redeemed pursuant to a Change of
Control Offer will be required to surrender the certificate or
certificates representing such shares, properly endorsed for
transfer together with such customary documents as the
Corporation and the transfer agent may reasonably require, in
the manner and at the place specified in the notice prior to
the close of business on the Business Day prior to the Change
of Control Payment Date;
(F) that Holders will be entitled to withdraw their
election if the Corporation receives, not later than five
Business Days prior to the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the number of shares of
Exchangeable Preferred Stock the Holder delivered for
redemption and a statement that such Holder is withdrawing his
election to have such shares of Exchangeable Preferred Stock
redeemed;
(G) that Holders whose shares of Exchangeable
Preferred Stock are redeemed only in part will be issued a new
certificate representing the unpurchased shares of
Exchangeable Preferred Stock; and
(H) the circumstances and relevant facts
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regarding such Change of Control.
(iii) The Corporation will comply with any securities laws and
regulations, to the extent such laws and regulations are applicable to
the redemption of the Exchangeable Preferred Stock, in connection with
a Change of Control Offer.
(iv) On the Change of Control Payment Date, the Corporation
shall (A) accept for payment the shares of Exchangeable Preferred Stock
validly tendered pursuant to the Change of Control Offer, (B) pay to
the Holders of shares so accepted the redemption price therefor in cash
and (C) cancel and retire each surrendered certificate. Unless the
Corporation defaults in the payment for the shares of Exchangeable
Preferred Stock tendered pursuant to the Change of Control Offer,
dividends shall cease to accrue with respect to the shares of
Exchangeable Preferred Stock tendered and all rights of Holders of such
tendered shares shall terminate, except for the right to receive
payment therefor, on the Change of Control Payment Date.
(v) If the redemption of the Exchangeable Preferred Stock
would violate or constitute a default or be otherwise prohibited under
any Indebtedness of the Corporation then outstanding, then,
notwithstanding anything to the contrary contained above, prior to
complying with the foregoing provisions, but in any event within 30
days following the Change of Control Date, the Corporation shall either
(A) repay in full all such Indebtedness (and terminate all commitments)
or (B) obtain the requisite consents, if any, under such Indebtedness
required to permit the redemption of Exchangeable Preferred Stock
required by this paragraph (h). Until the requirements of the
immediately preceding sentence are satisfied, the Corporation shall not
make, and shall not be obligated to make, any Change of Control Offer;
provided that the Corporation's failure to comply with the provisions
of this paragraph (h)(v) shall constitute a Voting Rights Triggering
Event; provided, further, that the Corporation shall not be required to
comply with the provisions of this paragraph (h)(v) in connection with
a Change of Control occurring prior to July 2, 2001, except in
connection with an optional offer to redeem the Exchangeable Preferred
Stock pursuant to the second sentence of paragraph (h)(i).
(i) Conversion or Exchange. The Holders of shares of
Exchangeable Preferred Stock shall not have any rights hereunder to convert such
shares into or exchange such shares for shares of any other class or classes or
of any other series of any class or
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classes of Capital Stock of the Corporation other than the Existing Preferred
Stock and the Private Exchange Preferred Stock.
(j) Reissuance of Exchangeable Preferred Stock. Shares of
Exchangeable Preferred Stock that have been issued and reacquired in any manner,
including shares purchased or redeemed or exchanged, shall (upon compliance with
any applicable provisions of the laws of Delaware) have the status of authorized
and unissued shares of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of Preferred Stock, provided
that any issuance of such shares as Exchangeable Preferred Stock must be in
compliance with the terms hereof.
(k) Business Day. If any payment, redemption or exchange shall
be required by the terms hereof to be made on a day that is not a Business Day,
such payment, redemption or exchange shall be made on the immediately succeeding
Business Day.
(l) Certain Additional Provisions.
(i) Limitation on Incurrence of Additional Indebtedness. The
Corporation shall not, and shall not permit any Restricted Subsidiary
of the Corporation to, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) other than Permitted Indebtedness.
Notwithstanding the foregoing limitation, the Corporation and its
Restricted Subsidiaries may incur Indebtedness if on the date of the
incurrence of such Indebtedness, after giving effect to the incurrence
of such Indebtedness, the Consolidated Fixed Charge Coverage Ratio of
the Corporation and its Restricted Subsidiaries is at least equal to
2.0 to 1.0.
(ii) Limitation on Restricted Payments. (a) The Corporation
shall not, and shall not permit any of its Restricted Subsidiaries to,
directly or indirectly, make any Restricted Payment if at the time of
such Restricted Payment and immediately after giving effect thereto:
(i) any Voting Rights Triggering Event shall have
occurred and be continuing; or
(ii) the Corporation could not incur $1.00 of
additional Indebtedness (other than Permitted
Indebtedness) in compliance with paragraph 1(i);
or
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(iii) the aggregate amount of Restricted Payments
made subsequent to the Issue Date (the amount
expended for such purposes, if other than in cash,
being the fair market value of such property as
determined by the Board of Directors of the
Corporation, whose determination shall be conclusive)
exceeds the sum of (a) 50% of the aggregate
Consolidated Net Income of the Corporation accrued on
a cumulative basis during the period (treated as one
accounting period) beginning on the last day of the
fiscal quarter immediately preceding the Issue Date
and ending on the last day of the fiscal quarter of
the Corporation immediately preceding the date of
such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income of the
Corporation for such period shall be a deficit, minus
100% of such deficit) plus (b) the aggregate net
proceeds received by the Corporation either (1) as
capital contributions to the Corporation after the
Issue Date, excluding any capital contributions
pursuant to the Tax Sharing Agreement or (2) from the
issuance or sale of Qualified Capital Stock
(including Qualified Capital Stock issued upon the
conversion of convertible Indebtedness, in exchange
for outstanding Indebtedness or from the exercise of
options, warrants or rights to purchase Qualified
Capital Stock) of the Corporation to any Person
(other than to a Restricted Subsidiary of the
Corporation) after the Issue Date plus (c) in the
case of the disposition or repayment of any
Investment constituting a Restricted Payment made
after the Issue Date (excluding any Investment made
pursuant to clause (4) of the following paragraph),
an amount equal to the lesser of the return of
capital with respect to such Investment and the cost
of such Investment, in either case, less the cost of
the disposition of such Investment minus (d) 20% of
all cash payments made pursuant to the New Equity
Incentive Plan. For purposes of the preceding clause
(iii)(b)(2), the value of the aggregate net proceeds
received by the Corporation upon the issuance of
Qualified Capital Stock either upon the conversion of
convertible Indebtedness or in exchange for
outstanding Indebtedness or upon the exercise of
options, warrants or rights will be the net cash
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proceeds received upon the issuance of such
Indebtedness, options, warrants or rights plus the
incremental amount received by the Corporation upon
the conversion, exchange or exercise thereof.
(b) Notwithstanding the foregoing, these provisions will not
prohibit: (1) the payment of any dividend or the making of any
distribution within 60 days after the date of its declaration if such
dividend or distribution would have been permitted on the date of
declaration; (2) the purchase, redemption or other acquisition or
retirement of any Capital Stock of the Corporation or any warrants,
options or other rights to acquire shares of any class of such Capital
Stock (x) solely in exchange for shares of Qualified Capital Stock
(including any such exchange pursuant to a conversion right or
privilege in connection with which cash paid in lieu of fractional
shares or scrip), (y) through the application of the net cash proceeds
of a substantially concurrent sale (other than to a Restricted
Subsidiary of the Corporation) of shares of Qualified Capital Stock or
warrants, options or other rights to acquire Qualified Capital Stock or
(z) in the case of Disqualified Capital Stock, solely in exchange for,
or through the application of the net cash proceeds of a substantially
concurrent sale (other than to a Restricted Subsidiary of the
Corporation) of, Disqualified Capital Stock that has a redemption date
no earlier than, is issued by the Corporation or the same Person as and
requires the payment of current dividends or distributions in cash no
earlier than, in each case, the Disqualified Capital Stock being
purchased, redeemed or otherwise acquired or retired and which
Disqualified Capital Stock does not prohibit cash dividends on the
Exchangeable Preferred Stock or the exchange thereof for Exchange
Debentures; (3) payments by the Corporation to Lancer pursuant to the
Tax Sharing Agreement; (4) Investments constituting Restricted Payments
made as a result of the receipt of non-cash consideration from any
Asset Sale; and (5) guarantees in respect of Indebtedness incurred by
officers or employees of the Corporation or any Restricted Subsidiary
in the ordinary course of business and payments in discharge thereof in
an amount not to exceed $500,000 in any fiscal year.
(iii) Limitation on Transactions with Affiliates. (a) The
Corporation shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease
of assets, property or services) with any Affiliate or holder of 10% or
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more of the Corporation's Common Stock (an "Affiliate Transaction") or
extend, renew, waive or otherwise modify the terms of any Affiliate
Transaction entered into prior to the Issue Date unless (i) such
Affiliate Transaction is between or among the Corporation and its
Wholly-Owned Restricted Subsidiaries; or (ii) the terms of such
Affiliate Transaction are fair and reasonable to the Corporation or
such Restricted Subsidiary, as the case may be, and the terms of such
Affiliate Transaction are at least as favorable as the terms which
could be obtained by the Corporation or such Restricted Subsidiary, as
the case may be, in a comparable transaction made on an arm's-length
basis between unaffiliated parties. Any Affiliate Transaction involving
an amount or having a value in excess of $1.0 million which is not
permitted under clause (i) above shall have been approved by a majority
of the Corporation's Board of Directors. In transactions with a value
in excess of $5.0 million which are not permitted under clause (i)
above, the Corporation must obtain a written opinion as to the fairness
of such a transaction from an independent investment banking firm.
(b) The foregoing provisions will not apply to (i) any Restricted
Payment that is not prohibited by the provisions described under
paragraph (1)(ii), (ii) payments to Lancer under the Tax Sharing
Agreement, (iii) payments to participants in the Equity Participation
Plan in an amount not exceeding $1.32 million in any fiscal year and
$5.28 million in the aggregate, (iv) reasonable and customary regular
fees to directors of the Corporation who are not employees of the
Corporation, (v) loans or advances to officers of the Corporation and
its Restricted Subsidiaries for bona fide business purposes of the
Corporation in the ordinary course of business, (vi) royalty payments
by the Corporation to T-H Licensing pursuant to that certain letter
agreement dated as of December 29, 1989 between the Corporation and T-H
Licensing (as such agreement may be amended from time to time pursuant
to its terms), provided that any such payment (less any amounts
permitted to be retained by T-H Licensing pursuant to the Credit
Agreement) is returned to the Corporation as a loan within sixty days
after receipt of such payment by T-H Licensing, (vii) payments or
distributions to participants in the New Equity Incentive Plan pursuant
to the terms thereof, (viii) payments of the Corporation's allocated
portion of the Lancer consolidated group's corporate expenses and fees
to Lancer or any Affiliate of Lancer incurred in connection with
Lancer's or any Affiliate of Lancer's performance of management
consulting, monitoring and financial advisory
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services with respect to the Corporation and any Restricted Subsidiary
in an amount not to exceed $2.0 million in any fiscal year (excluding
amounts paid prior to the date hereof); provided, however, that
notwithstanding anything to the contrary contained in the Certificate
of Designation, the Corporation shall not be permitted to pay to Lancer
or any Affiliate or Lancer any amount for such services in excess of
the amount set forth in this clause (viii).
(iv) Limitation on Preferred Stock of Subsidiaries. The
Corporation shall not permit any Restricted Subsidiary to issue any
Preferred Stock (except to the Corporation or to a Restricted
Subsidiary) or permit any Person (other than the Corporation or a
Restricted Subsidiary) to hold any such Preferred Stock unless the
Corporation or such Restricted Subsidiary would be entitled to incur or
assume Indebtedness in compliance with paragraph (1)(i) in an aggregate
principal amount equal to the aggregate liquidation value of the
Preferred Stock to be issued.
(v) Reports. So long as any shares of Exchangeable Preferred
Stock are outstanding, the Corporation will provide to the holders of
Exchangeable Preferred Stock, within 15 days after it files them with
the Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the
foregoing as the Commission may by rules and regulations prescribe)
which the Corporation files with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. In the event that the Corporation is no
longer required to furnish such reports to its securityholders pursuant
to the Exchange Act, the Corporation will cause its consolidated
financial statements, comparable to those which would have been
required to appear in such annual or quarterly reports, to be delivered
to the Holders of Exchangeable Preferred Stock.
(m) Definitions. As used in this Certificate of Designation,
the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Acquired Indebtedness" means Indebtedness of a Person (a)
assumed in connection with an Asset Acquisition from such Person or (b)
existing at the time such Person becomes a Subsidiary of any other
Person.
"Additional Dividends" shall have the meaning ascribed
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to it in paragraph (c) hereof.
"Affiliate" means with respect to any specified Person, any
other Person directly or indirectly controlling or controlled by or
under common control with such specified Person. The term "control"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"Affiliate Transaction" shall have the meaning ascribed
to it in paragraph 1(iii) hereof.
"Asset Acquisition" means (i) an Investment by the Corporation
or any Subsidiary of the Corporation in any other Person pursuant to
which such Person shall become a Restricted Subsidiary of the
Corporation or shall be merged with or into the Corporation or any
Restricted Subsidiary of the Corporation or (ii) the acquisition by the
Corporation or any Restricted Subsidiary of the Corporation of assets
of any Person which constitute all or substantially all of the assets
of such Person or any division or line of business of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer,
lease or other disposition to any Person other than the Corporation or
a Wholly-Owned Restricted Subsidiary of the Corporation, in one or a
series of related transactions, of: (a) any Capital Stock of any
Restricted Subsidiary of the Corporation; (b) all or substantially all
of the properties and assets of any division or line of business of the
Corporation or any Restricted Subsidiary of the Corporation; or (c) any
properties or assets of the Corporation or a Restricted Subsidiary
(including proprietary brand names, whether registered or otherwise)
other than in the ordinary course of business (it being understood that
the sale or lease of any used or obsolete equipment is in the ordinary
course of business). For the purposes of this definition, the term
"Asset Sale" shall not include (i) any sale, issuance, conveyance,
transfer, lease or other disposition of properties or assets that is
governed by the provisions described under paragraph (f)(iii) and (ii)
any sale, issuance, conveyance, transfer, lease or other disposition of
properties or assets, whether in one transaction or a series of related
transactions, involving assets with a fair market value determined by
the Corporation to be not in excess of $1,000,000.
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"Board of Directors" shall have the meaning ascribed to it in
the first paragraph of this Certificate of Designation.
"Business Day" means any day except a Saturday, a Sunday, or
any day on which banking institutions in New York, New York are
required or authorized by law or other governmental action to be
closed.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other
equivalents (however designated) of capital stock including each class
of common stock and preferred stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all
partnership or other equity interests.
"Capitalized Lease Obligation" means any obligation under a
lease of (or other agreement conveying the right to use) any property
(whether real, personal or mixed) that is required to be classified
and accounted for as a capital lease obligation under GAAP; and, for
the purpose of this definition, the amount of such obligation at any
date shall be the capitalized amount thereof at such date, determined
in accordance with GAAP consistently applied.
"Cash Equivalents" means, at any time, (i) any evidence of
Indebtedness with a maturity of 180 days or less 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);
(ii) certificates of deposit, time deposits, Eurodollar time deposits
and bankers' acceptances with a maturity of 180 days or less of any
financial institution that is a member of the Federal Reserve System
having combined capital and surplus and undivided profits of not less
than $500,000,000; (iii) commercial paper with a maturity of 180 days
or less issued by a corporation that is not an Affiliate of the
Corporation organized under the laws of any state of the United States
or the District of Columbia and rated at least A-1 by S&P or at least
P-1 by Moody's or at least an equivalent rating category of another
nationally recognized securities rating agency; and (iv) repurchase
agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the
government of the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of
America, in each case maturing within
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180 days from the date of acquisition; provided that the terms of such
agreements comply with the guidelines set forth in the Federal
Financial Agreements of Depository Institutions With Securities Dealers
and Others, as adopted by the Comptroller of the Currency on October
31, 1985.
"Change of Control" means the occurrence of any of the
following events; (a) any "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted
Holders, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 50% of the total Voting Stock of the Corporation; (b) the
Corporation consolidates with, or merges with or into, another Person
or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Corporation in any such
event pursuant to a transaction in which the outstanding Voting Stock
of the Corporation is converted into or exchanged for cash, securities
or other property, other than any such transaction where (i) the
outstanding Voting Stock of the Corporation is converted into or
exchanged for (1) Voting Stock (other than Disqualified Capital Stock)
of the surviving or transferee corporation or (2) cash, securities and
other property in an amount which could be paid by the
Corporation as a Restricted Payment under the Indenture and (ii)
immediately after such transaction no "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act),
excluding Permitted Holders, is the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 50% of the total Voting Stock of the surviving or
transferee corporation; or (c) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board
of Directors of the Corporation (together with any new directors whose
election by such Board of Directors or whose nomination for election by
the stockholders of the Corporation was approved by a vote of 66 2/3%
of the directors then still in office who were either directors at the
beginning of such period or Persons whose election as directors or
nomination for election was previously so
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approved) cease for any reason to constitute a majority of the Board of
Directors of the Corporation then in office.
"Change of Control Date" shall have the meaning
ascribed to it in paragraph (h) hereof.
"Change of Control Offer" shall have the meaning
ascribed to it in paragraph (h) hereof.
"Change of Control Payment Date" shall have the meaning
ascribed to it in paragraph (h) hereof.
"Commission" means the Securities and Exchange
Commission.
"Common Stock" means, with respect to any Person, any and all
shares, interests or other participations in, and other equivalents
(however designated and whether voting or nonvoting) of, such Person's
common stock, whether outstanding at the Issue Date or issued after the
Issue Date, and includes, without limitation, all series and classes of
such common stock.
"Consolidated EBITDA" means, with respect to any Person for
any period, (i) the sum of, without duplication, the amount for such
period, taken as a single accounting period, of (a) Consolidated Net
Income, (b) Consolidated Non-cash Charges, (c) Consolidated Interest
Expense, (d) Consolidated Income Tax Expense and (e) all non-cash
accruals or cash expenses relating to the New Equity Incentive Plan (to
the extent such accruals or expenses reduce net income), less (ii)
non-cash items increasing Consolidated Net Income (other than in the
ordinary course of business); provided, however, that if, during such
period, such Person or any of its Restricted Subsidiaries shall have
consummated any Asset Sale or Asset Acquisition, Consolidated EBITDA
for such Person and its Restricted Subsidiaries for such period shall
be adjusted (in the manner set forth in the definition of the term
"Consolidated Fixed Charge Coverage Ratio") to give pro forma effect to
the Consolidated EBITDA directly attributable to the assets which are
the subject of such Asset Sales or Asset Acquisitions during such
period.
"Consolidated Fixed Charge Coverage Ratio" means, with respect
to any Person, the ratio of the aggregate amount of Consolidated EBITDA
of such Person for the four full fiscal quarters for which financial
information in respect thereof is available immediately preceding the
date of the transaction (the "Transaction Date") giving rise to the
need
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<PAGE>
to calculate the Consolidated Fixed Charge Coverage Ratio (such
four full fiscal quarter period being referred to herein as the "Four
Quarter Period") to the aggregate amount of Consolidated Fixed Charges
of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of
such calculation to, without duplication, (a) the incurrence of any
Indebtedness of such Person or any of its Restricted Subsidiaries, or
the repayment of any Indebtedness of such Person or its Restricted
Subsidiary (other than the incurrence and repayment of Indebtedness
under a revolving credit facility) during the period commencing on the
first day of the Four Quarter Period to and including the Transaction
Date (the "Reference Period"), including, without limitation, the
incurrence of the Indebtedness giving rise to the need to make such
calculation, as if such incurrence occurred on the first day of the
Reference Period, and (b) any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to
the need to make such calculation as a result of such Person or one of
its Restricted Subsidiaries (including any Person who becomes a
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness) occurring during the
Reference Period, as if such Asset Sale or Asset Acquisition occurred
on the first day of the Reference Period. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the
denominator (but not the numerator) of this "Consolidated Fixed Charge
Coverage Ratio," (i) interest on outstanding Indebtedness determined on
a fluctuating basis as of the Transaction Date and which will continue
to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on such Indebtedness
in effect on the Transaction Date, (ii) if interest on any Indebtedness
actually incurred on the Transaction Date may optionally be determined
at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest
rate in effect on the Transaction Date will be deemed to have been in
effect during the Reference Period, (iii) notwithstanding clauses (i)
and (ii) above, interest on Indebtedness determined on a fluctuating
basis, to the extent such interest is covered by Interest Rate
Agreements, shall be deemed to have accrued at the rate per annum
resulting after giving effect to the operation of such agreement and
(iv) interest on any Indebtedness incurred pursuant to a revolving
credit facility shall be based on
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the average daily principal amount outstanding under such facility
during such Four Quarter Period. In calculating the Consolidated Fixed
Charge Coverage Ratio, and giving pro forma effect to any incurrence of
Indebtedness during a Reference Period, pro forma effect shall be given
to the use of proceeds thereof to permanently repay or retire
Indebtedness. If such Person or any of its Restricted Subsidiaries
directly or indirectly guaranteed Indebtedness of a third Person, the
above clauses shall give effect to the incurrence of such guaranteed
Indebtedness as if such Person or such Restricted Subsidiary had
directly incurred or otherwise assumed such guaranteed Indebtedness.
"Consolidated Fixed Charges" means, with respect to any Person
for any period, the sum of, without duplication, the amounts for such
period of (i) Consolidated Interest Expense and (ii) the aggregate
amount of cash dividends and other distributions paid or accrued during
such period in respect of Disqualified Capital Stock of such Person and
its Restricted Subsidiaries on a consolidated basis; provided, however,
that if, during such period, such Person or any of its Restricted
Subsidiaries shall have made any Asset Sales or Asset Acquisitions,
Consolidated Fixed Charges for such Person and its Restricted
Subsidiaries for such period shall be adjusted (in the manner set forth
in the definition of the term "Consolidated Fixed Charge Coverage
Ratio") to give pro forma effect to the Consolidated Fixed Charges
directly attributable to the assets which are the subject of such Asset
Sales or Asset Acquisitions during such period.
"Consolidated Income Tax Expense" means, with respect to any
Person for any period, the provision for federal, state, local and
foreign income taxes of such Person and its Restricted Subsidiaries for
such period as determined on a consolidated basis in accordance with
GAAP consistently applied.
"Consolidated Interest Expense" means, with respect to any
Person for any period, without duplication, (i) the sum of (a) the
interest expense of such Person and its Restricted Subsidiaries for
such period as determined on a consolidated basis in accordance with
GAAP consistently applied, including, without limitation, (1) any
amortization of debt discount, (2) the net cost under Interest Rate
Agreements (including any amortization of discounts), (3) the interest
portion of any deferred payment obligation which in accordance with
GAAP is required to be reflected on an income statement, (4) all
commissions, discounts and other fees and charges owed with respect to
letters of
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credit and bankers' acceptance financing, and (5) all accrued interest
and (b) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
Subsidiaries during such period as determined on a consolidated basis
in accordance with GAAP consistently applied, minus (ii) any non-cash
interest expense of the Corporation in respect of Permitted
Indebtedness incurred in connection with the New Equity Incentive Plan,
minus (iii) any amortization of deferred financing discount costs and
expenses.
"Consolidated Net Income" means, with respect to any Person,
for any period, the consolidated net income (or loss) of such Person
and its Restricted Subsidiaries for such period as determined in
accordance with GAAP consistently applied adjusted (A) to the extent
included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses (net of fees and
expenses relating to the transaction giving rise thereto) and the
non-recurring cumulative effect of accounting changes, (ii) the portion
of net income (or loss) of such Person and its Restricted Subsidiaries
allocable to minority interests in unconsolidated Persons to the extent
that cash dividends or distributions have not actually been received by
such Person or one of its Restricted Subsidiaries, (iii) net income (or
loss) of any Person combined with such Person or one of its Restricted
Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of combination, (iv) one-time unusual non-cash
charges, (v) any gain or loss realized upon the termination of any
employee pension benefit plan, on an after-tax basis, (vi) gains or
losses in respect of any Asset Sales by such Person or one of its
Restricted Subsidiaries (net of fees and expenses relating to the
transaction giving rise thereto), on an after-tax basis, (vii) the net
income of any Restricted Subsidiary of such Person to the extent that
the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is not at the time permitted,
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 and (viii) the amount of any Consolidated Non-cash Charges
of such Person attributable to the purchase method of accounting
treatment in accordance with Accounting Principles Board Opinion No. 16
dated August 1970, entitled "Business Combinations" and (B) by adding,
in the case of the Corporation, (i) without duplication, capital
contributions made by Lancer to the Corporation pursuant to
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the Tax Sharing Agreement to the extent such capital contributions
represent a return to the Corporation of amounts which had been
included as income taxes in computing the Corporation's Consolidated
Net Income and (ii) for purposes of determining the Corporation's
ability to make Restricted Payments pursuant to paragraph l(2), 100%
(without duplication) of all non-cash accruals or cash expenses
relating to the New Equity Incentive Plan (to the extent such accruals
or expenses reduce net income).
"Consolidated Non-cash Charges" means, with respect to any
Person for any period, the aggregate depreciation, amortization and
other non-cash expenses (including, without limitation, non-cash
reserves and non-cash charges) of such Person and its Restricted
Subsidiaries reducing Consolidated Net Income of such Person and its
Restricted Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP consistently applied.
"Credit Agreement" means (a) the GE Credit Agreement, together
with all amendments, documents and instruments from time to time
delivered in connection with the GE Credit Agreement (including,
without limitation, any guaranty agreements and security documents), as
in effect on the date hereof and, subject to the proviso to the next
succeeding sentence, as the GE Credit Agreement and such other
agreements, documents and instruments may be amended, amended and
restated, renewed, extended, restructured, supplemented or otherwise
modified from time to time, and (b) any credit agreement, loan
agreement, note purchase agreement, indenture or other agreement,
document or instrument refinancing, refunding or otherwise replacing
the GE Credit Agreement or any other agreement deemed a Credit
Agreement under clause (a) or (b) hereof, whether or not with the same
agent, trustee, representative lenders or holders, and, subject to the
proviso to the next succeeding sentence, irrespective of any changes in
the terms and conditions thereof. Without limiting the generality of
the foregoing, the term "Credit Agreement" shall include any amendment,
amendment and restatement, renewal, extension, restructuring,
supplement or modification to any Credit Agreement and all refundings,
refinancings and replacements of any Credit Agreement, including any
agreement (i) extending the maturity of any Indebtedness incurred
thereunder or contemplated thereby, (ii) adding or deleting borrowers
or guarantors thereunder, so long as borrowers and issuers include one
or more of the Corporation and its Subsidiaries and their respective
successors and assigns, and (iii) increasing the amount of Indebtedness
incurred
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thereunder or available to be borrowed thereunder, provided that on the
date thereof such Indebtedness would not be prohibited under the
Indenture.
"Disqualified Capital Stock" means any Capital Stock (other
than any Existing Preferred Stock or any Private Exchange Preferred
Stock) which, 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 (excluding any maturity as the result
of an optional redemption by the issuer thereof) or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the sole option of the holder thereof, in whole or in
part, on or prior to March 15, 2009. Without limitation of the
foregoing, Disqualified Capital Stock shall be deemed to include (i)
any Preferred Stock of a Restricted Subsidiary of the Corporation, (ii)
any Preferred Stock of the Corporation, with respect to either of
which, under the terms of such Preferred Stock, by agreement or
otherwise, such Restricted Subsidiary or the Corporation is obligated
to pay current dividends or distributions in cash during the period
prior to the redemption date of the Exchangeable Preferred Stock, and
(iii) as long as the Exchangeable Preferred Stock remains outstanding,
Senior Stock and Parity Stock. Notwithstanding anything in this
definition to the contrary, Preferred Stock of the Corporation or any
Restricted Subsidiary thereof that is issued with the benefit of
provision requiring a change of control offer to be made for such
Preferred Stock in the event of a change of control of the Corporation
or Restricted Subsidiary, which provisions have substantially the same
effect as paragraph (h), shall not be deemed to be Disqualified Capital
Stock solely by virtue of such provisions.
"Dividend Payment Date" means March 15 and September 15 of
each year; provided that the first Dividend Payment Date shall occur on
September 15, 1997.
"Dividend Period" means the Initial Dividend Period and,
thereafter, each semi-annual Dividend Period.
"Dividend Record Date" means March 1 and September 1 of each
year; provided that the first Dividend Record Date shall occur on
September 1, 1997.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations promulgated
thereunder.
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"Exchange Date" means a date on which shares of Exchangeable
Preferred Stock are exchanged by the Corporation for Exchange
Debentures.
"Exchange Debentures" shall have the meaning ascribed to it in
paragraph (g) hereof.
"Exchange Notice" shall have the meaning ascribed to it in
paragraph (g) hereof.
"Exchange Offer" means a registered offer to exchange any and
all shares of the Existing Preferred Stock for a like number of shares
of Exchangeable Preferred Stock.
"Exchange Offer Registration Statement" means the registration
statement filed by the Corporation with the Commission with respect to
an Exchange Offer.
"Exchangeable Preferred Stock" shall have the meaning
ascribed to it in paragraph (a) hereof.
"Existing Notes" means the Corporation's 11-3/8% Senior
Subordinated Notes due 2001.
"Existing Indenture" means the Indenture pursuant to which the
Existing Notes were issued.
"Existing Preferred Stock" means the Corporation's
unregistered 11 1/4% Cumulative Exchangeable Preferred Stock issued on
or about March 12, 1997.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System, or any successor thereto.
"GAAP" means generally accepted accounting principles in the
United States set forth in the Statements of Financial Accounting
Standards and Interpretations, Accounting Principles Board Opinions and
AICPA Accounting Research Bulletins which are applicable as of the
Issue Date.
"GE Credit Agreement" means the Credit Agreement, dated as of
July 7, 1993, as amended from time to time, among the Corporation, T-H
Licensing, Inc., as guarantor, the lenders named therein and General
Electric Capital Corporation, as agent for such lenders.
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"Holder" means a holder of shares of Exchangeable Preferred
Stock as reflected in the stock books of the Corporation.
"incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion,
exchange or otherwise), assume, guarantee or otherwise become liable in
respect of such Indebtedness or other obligation or the recording
(other than previously recorded), as required pursuant to GAAP or
otherwise, of any such Indebtedness or other obligation on the balance
sheet of such Person (and "incurrence," "incurred," "incurable," and
"incurring" shall have meanings correlative to the foregoing); provided
that a change in GAAP that results in an obligation of such Person that
exists at such time becoming Indebtedness shall not be deemed an
incurrence of such Indebtedness.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all liabilities of such Person for borrowed money or
for the deferred purchase price of property or services, excluding any
trade payables and other accrued current liabilities incurred in the
ordinary course of business, but including, without limitation, all
obligations, contingent or otherwise, of such Person in connection with
any letters of credit, banker's acceptance or other similar credit
transaction, (b) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, (c) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the
rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property),
but excluding trade accounts payable arising in the ordinary course of
business, (d) all Capitalized Lease Obligations of such Person, (e) all
Indebtedness referred to in the preceding clauses of other Persons and
all dividends of other Persons, the payment of which is secured by (or
for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon property
(including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable
for the payment of such Indebtedness (the amount of such obligations
being deemed to be the lesser of the value of such property or asset or
the amount of the obligation so secured), (f) all guarantees of
Indebtedness referred to in this definition by such Person, (g) all
Disqualified Capital Stock valued at the greater of its voluntary or
involuntary maximum fixed repurchase price
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plus accrued dividends, (h) all obligations under or in respect of
currency exchange contracts and Interest Rate Agreements of such Person
and (i) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in
clauses (a) through (h) above. For purposes hereof, (x) the "maximum
fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance
with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair
market value of such Disqualified Capital Stock, such fair market value
shall be determined in good faith by the board of directors of the
issuer of such Disqualified Capital Stock, and (y) Indebtedness is
deemed to be incurred pursuant to a revolving credit facility each time
an advance is made thereunder; provided, however, that, with respect to
the Corporation, Indebtedness referred to in this definition shall
exclude all obligations of the Corporation to Lancer under the Tax
Sharing Agreement and any liability for federal, state, local or other
taxes owed or owing by the Corporation.
"Initial Dividend Period" means the dividend period commencing
on the Issue Date and ending on September 15, 1997.
"Indenture" shall have the meaning ascribed to it in
paragraph (f) hereof.
"Interest Rate Agreement" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time
periodic payments calculated by applying either a floating or a fixed
rate of interest on a stated notional amount in exchange for periodic
payments made by such Person calculated by applying a fixed or a
floating rate of interest on the same notional amount and shall
include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or
indirect loan or other extension of credit, guarantee or capital
contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use
of others), or any purchase or acquisition by such Person of any
Capital
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Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by, any other Person.
"Issue Date" means the date of original issuance of the
Existing Preferred Stock.
"Junior Stock" shall have the meaning ascribed to it in
paragraph (b) hereof.
"Lancer" means Lancer Industries Inc., a Delaware
corporation.
"Lien" means any mortgage, charge, pledge, lien (statutory or
other), security interest, hypothecation, assignment for security,
claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind. A Person shall be deemed to own
subject to a Lien any property which such Person has acquired or holds
subject to the interest of a vendor or lessor under any conditional
sale agreement, capital lease or other title retention agreement.
"Mandatory Redemption Price" shall have the meaning ascribed
to it in paragraph (e) hereof.
"Moody's" means Moody's Investors Services, Inc. and its
successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including
payments in respect of deferred payment obligations when received in
the form of cash or Cash Equivalents (except to the extent that such
obligations are financed or sold with recourse to the Corporation or
any Restricted Subsidiary of the Corporation net of (i) brokerage
commissions and other fees and expenses (including, without limitation,
fees and expenses of legal counsel and investment bankers) related to
such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) amounts required to be paid and which have
been paid, or amounts required to be pledged and which are pledged to
secure Indebtedness owed to any Person (other than the Corporation or
any Restricted Subsidiary of the Corporation) owning a beneficial
interest in the assets subject to the Asset Sale (which, in the case of
a Lien, is being pledged to permanently reduce Indebtedness secured by
such Lien) and (iv) appropriate amounts to be provided by the
Corporation or any Restricted Subsidiary of the Corporation, as the
case may be, as a reserve required in
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accordance with GAAP consistently applied against any liabilities
associated with such Asset Sale and retained by the Corporation or any
Restricted Subsidiary of the Corporation, as the case may be, after
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an
Officers' Certificate delivered to the Transfer Agent.
"New Equity Incentive Plan" means any long-term incentive
compensation plan adopted by the Corporation covering the Corporation's
executives and selected other key management employees.
"Officers' Certificate" means a certificate signed by two
officers or by an officer and either an Assistant Treasurer or an
Assistant Secretary of the Corporation which certificate shall include
a statement that, in the opinion of such signers all conditions
precedent to be performed by the Corporation prior to the taking of any
proposed action have been taken. In addition, such certificate shall
include (i) a statement that the signatories have read the relevant
covenant or condition, (ii) a brief statement of the nature and scope
of such examination or investigation upon which the statements are
based, (iii) a statement that, in the opinion of such signatories, they
have made such examination or investigation as is reasonably necessary
to express an informed opinion and (iv) a statement as to whether or
not, in the opinion of the signatories, such relevant conditions or
covenants have been complied with.
"Opinion of Counsel" means an opinion of counsel that, in such
counsel's opinion, all conditions precedent to be performed by the
Corporation prior to the taking of any proposed action have been taken.
Such opinion shall also include the statements called for in the second
sentence under "Officers' Certificate".
"Optional Redemption Price" shall have the meaning ascribed to
it in paragraph (e)(i) hereof.
"Parity Stock" shall have the meaning ascribed to it in
paragraph (b) hereof.
"Permitted Holders" means (i) Lancer and its Affiliates and
(ii) any "group" (as such term is defined in Sections 13(d) and 14(d)
of the Exchange Act) comprised solely of
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Lancer and its Affiliates (it being understood that a "group" that
includes any other person shall not be a Permitted Holder).
"Permitted Indebtedness" means each and all of the
following:
(1) Indebtedness of the Corporation or any guarantor under the Credit Agreement
in an aggregate principal amount at any time outstanding not to exceed the
greater of (x) $58,000,000, less the amount of any scheduled principal payments
actually made (excluding, without limitation, any prepayments required to be
made based upon the Corporation's excess cash flow) or the amount of any other
payments which are applied or credited against scheduled principal payments on
the date such scheduled principal payments would otherwise have been made
(except to the extent refinanced under a replacement Credit Agreement at the
time of the respective repayment) by the Corporation or any guarantor in respect
of any term loans under the Credit Agreement and the amount by which the
aggregate commitment under any revolving credit facility under the Credit
Agreement at any time has been permanently reduced to the extent that any
repayments required to be made in connection with effecting such permanent
reduction have been made (it being understood that to the extent a reduction in
commitments under any revolving credit facility under the Credit Agreement
arises solely in connection with a refinancing of outstanding amounts under such
revolving credit facility with borrowings under a replacement Credit Agreement
and the commitments under the Credit Agreement are thereby replaced with
commitments under such replacement Credit Agreement such a permanent reduction
shall not have occurred); provided, however, that the Corporation or any such
guarantor shall be permitted to incur an additional amount of Indebtedness not
to exceed $15,000,000 under its revolving credit facility if the borrowing base
requirement under such facility permits such incurrence and (y) the amount equal
to the sum of 80% of the net book value of accounts receivable and 60% of the
net book value of inventory (determined on a first-in-first-out basis) of the
Corporation and its Restricted Subsidiaries on a consolidated basis at the time
such Indebtedness is incurred, as determined in accordance with GAAP;
(2) Indebtedness of the Corporation and its Restricted
Subsidiaries pursuant to the Existing Notes and the Existing
Indenture;
(3) Indebtedness of the Corporation and its Restricted
Subsidiaries pursuant to the Exchange Debentures and the
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Indenture;
(4) Indebtedness of the Corporation outstanding on the
Issue Date;
(5) Interest Rate Agreements of the Corporation covering
Indebtedness of the Corporation; provided, however, that (i) any
Indebtedness to which any such Interest Rate Agreement relate bears
interest at fluctuating interest rates and is otherwise permitted to be
incurred under this covenant and (ii) the notional amount of any such
Interest Rate Agreement does not exceed the principal amount of the
Indebtedness to which such Interest Rate Agreement relates;
(6) Indebtedness of a Wholly-Owned Restricted Subsidiary of
the Corporation (x) to the Corporation or (y) to another Wholly-Owned
Restricted Subsidiary of the Corporation; provided, however, that any
such Indebtedness of a Wholly-Owned Restricted Subsidiary of the
Corporation is not subordinated in right of payment to any other
Indebtedness of such Restricted Subsidiary;
(7) Indebtedness of the Corporation to a Wholly-Owned
Restricted Subsidiary of the Corporation which is unsecured and
subordinated in right of payment from and after such time as the
Exchange Debentures shall become due and payable (whether at a Stated
Maturity, by acceleration or otherwise) to the payment and performance
of the Corporation's obligations under the Indenture and the Exchange
Debentures; provided, however, that any subsequent issuance or transfer
of Capital Stock that results in such Wholly-Owned Restricted
Subsidiary ceasing to be such, or any subsequent transfer of such
Indebtedness (other than to the Corporation or a Wholly-Owned
Restricted Subsidiary) will be deemed, in each case, to constitute the
issuance of such Indebtedness by the Corporation or of such
Indebtedness by such Wholly-Owned Restricted Subsidiary;
(8) Indebtedness of the Corporation to T-H Licensing arising
in connection with the loans described in clause (vi) of paragraph
1(iii)(b);
(9) Indebtedness of the Corporation representing Capitalized
Lease Obligations so long as such Indebtedness does not exceed 6.0% of
the amount of the gross property, plant and equipment of the
Corporation and its Restricted Subsidiaries determined on a
consolidated basis, as shown on the balance sheet of the Corporation as
of the end of the most recent fiscal quarter, in accordance with GAAP
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consistently applied;
(10) Indebtedness of the Corporation or any Restricted
Subsidiary arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided that such
Indebtedness is extinguished within 5 business days of incurrence;
(11) Indebtedness of the Corporation or any Restricted
Subsidiary consisting of guarantees, indemnities or obligations in
respect of purchase price adjustments in connection with the
acquisition or disposition of assets permitted under the Indenture;
(12) Indebtedness of the Corporation in addition to that
described in clauses (1) through (11) above not to exceed $20,000,000
outstanding at any time in the aggregate, which Indebtedness may be
incurred under the Credit Agreement; or
(13) (i) Indebtedness of the Corporation, the proceeds of
which are used solely to refinance (whether by amendment, renewal,
extension or refunding) Indebtedness of the Corporation (including all
or a portion of the Exchange Debentures) or any of its Restricted
Subsidiaries and (ii) Indebtedness of any Restricted Subsidiary of the
Corporation the proceeds of which are used solely to refinance (whether
by amendment, renewal, extension or refunding) Indebtedness of such
Restricted Subsidiary; provided, however, that (A) the principal amount
of Indebtedness incurred pursuant to this clause (13) (or, if such
Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the
maturity thereof, the original issue price of such Indebtedness) shall
not exceed the sum of the principal amount of Indebtedness so
refinanced (or, if the Indebtedness so refinanced provides for an
amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration of the maturity thereof, the
original issue price of such Indebtedness plus any accretion value
attributable thereto since the original issuance of such Indebtedness)
plus the amount of any premium required to be paid in connection with
such refinancing pursuant to the terms of such Indebtedness or the
amount of any premium reasonably determined by the Corporation as
necessary to accomplish such refinancing by means of a tender offer or
privately negotiated purchase, plus the amount of expenses
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in connection therewith and (B) in the case of any refinancing of
Indebtedness that is not Senior Debt, (1) such new Indebtedness is made
subordinated to the Exchange Debentures in the same manner and at least
to the same extent as the Indebtedness being refinanced and (2) such
new Indebtedness has a Weighted Average Life to Maturity and final
Stated Maturity of principal that exceeds the Weighted Average Life to
Maturity and final Stated Maturity of principal, respectively, of the
Indebtedness being refinanced.
"Permitted Investments" means any of the following: (i)
Investments by the Corporation or any Wholly-Owned Restricted
Subsidiary of the Corporation in another Person if as a result of such
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, the
Corporation or such Wholly-Owned Restricted Subsidiary; (ii)
Investments in obligations of, or guaranteed by, the United States
government or any agency or political subdivision thereof maturing
within one year of the date of purchase; (iii) Investments in
commercial paper issued by corporations, each of which shall have a
consolidated net worth of at least $100,000,000 maturing within 180
days from the date of the original issue thereof and rated "P-1" or
better by Moody's or "A-1" or better by S&P or an equivalent rating or
better by any other nationally recognized securities rating agency;
(iv) Investments in certificates of deposit issued or acceptances
accepted by or guaranteed by any bank or trust company organized under
the laws of the United States of America or any state thereof or the
District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $100,000,000, maturing within
one year of the date of purchase; (v) Investments representing
Capital Stock or obligations issued to the Corporation or any of its
Restricted Subsidiaries in settlement claims against any other Person
by reason of a composition or readjustment of debt or a
reorganization of any debtor of the Corporation or of such Restricted
Subsidiary; (vi) Investments in Cash Equivalents; (vii) loans and
advances to officers of the Corporation and its Restricted Subsidiaries
made in compliance with clause (v) of paragraph 1(iii)(b); (viii)
Investments by the Corporation or a Wholly-Owned Restricted Subsidiary
in the Capital Stock of a Wholly-Owned Restricted Subsidiary; (ix)
money market funds organized under the laws of the United States of
America or any state thereof that invest substantially all of their
assets in any of the types of Investments described in clause (ii),
(iii), (iv) or (vi)
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above; (x) Investments in any of the Exchange Debentures; (xi)
receivables owing to the Corporation of any Restricted Subsidiary
created in the ordinary course of business; (xii) Investments
consisting of Indebtedness permitted under clause (5) of the definition
of Permitted Indebtedness; and (xiii) Investments in the aggregate
amount of $10,000,000 at any time outstanding.
"Person" means any individual, partnership, corporation,
limited liability company, unincorporated organization, trust or joint
venture, or a governmental agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of
such Person that has preferential rights to any other Capital Stock of
such Person with respect to dividends or redemptions or upon
liquidation.
"Private Exchange Preferred Stock" means a series of the
Corporation's exchangeable preferred stock having terms identical in
all material respects to the Exchangeable Preferred Stock.
"pro forma" means, unless otherwise provided herein, with
respect to any calculation made or required to be made pursuant hereto,
a calculation in accordance with Article II of Regulation S-X under the
Securities Act.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Redemption Date", with respect to any shares of Exchangeable
Preferred Stock, means the date on which such shares of Exchangeable
Preferred Stock are redeemed by the Corporation pursuant to the terms
hereof.
"Redemption Notice" shall have the meaning ascribed to it in
paragraph (e) hereof.
"Restricted Payment" means (i) the declaration or payment of
any dividend or the making of any other distribution (other than
dividends or distributions payable in Qualified Capital Stock) on
shares of the Corporation's Parity Stock or Junior Stock, (ii) any
purchase, redemption, retirement or other acquisition for value of any
Parity Stock or Junior Stock of the Corporation, other than through the
exchange of such Parity Stock or Junior Stock or any warrants, rights
or options to acquire shares of any class of such Parity Stock or
Junior Stock for Qualified Capital
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Stock or warrants, rights or options to acquire Qualified Capital
Stock, and (iii) the making of any Investment (other than a Permitted
Investment).
"Restricted Subsidiary" means (i) T-H Licensing and (ii) any
other Subsidiary of the Corporation other than an Unrestricted
Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules and regulations promulgated
thereunder.
"S&P" means Standard & Poor's Corporation and its
successors.
"Senior Debt" means the principal of, premium, if any, and
interest on any Indebtedness of the Corporation, whether outstanding on
the Issue Date or thereafter created, incurred or assumed, unless, in
the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding
expressly provides that such indebtedness is pari passu with or
subordinated in right of payment to the Exchange Debentures. Without
limiting the generality of the foregoing, "Senior Debt" shall also
include (i) all obligations of the Corporation, whether outstanding on
the Issue Date or thereafter created, incurred or assumed, under or in
respect of the Credit Agreement, whether for principal, interest
(including, without limitation, interest accruing after the filing of a
petition initiating any proceeding under any state or federal
bankruptcy law whether or not such interest is an allowable claim),
reimbursement of amounts drawn under letters of credit issued or
arranged for pursuant thereto, guarantees in respect thereof, and all
charges, fees, expenses (including reasonable fees and expenses of
counsel) and other amounts in respect of the Credit Agreement incurred
by or owing to the lenders under the Credit Agreement or their
representative, agent or trustee, and all other obligations of the
Corporation incurred under or in respect of the Credit Agreement
(including, without limitation, any Interest Rate Agreements and in
respect of premiums, indemnities or otherwise, and all indebtedness
under the Credit Agreement which is disallowed, avoided or subordinated
pursuant to Section 548 of Title 11, United States Code or any
applicable state fraudulent conveyance law) and (ii) all obligations of
the Corporation under or in respect of the Existing Notes and the
Existing Indenture. Notwithstanding the foregoing, "Senior Debt" shall
not include (a) Indebtedness evidenced by the Exchange Debentures, (b)
Indebtedness that is expressly subordinate
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or junior in right of payment to any Senior Debt of the Corporation,
(c) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is by
its terms without recourse to the Corporation, (d) any repurchase,
redemption or other obligation in respect of Disqualified Capital
Stock, (e) to the extent it might constitute Indebtedness, amounts
owing for goods, materials or services purchased in the ordinary course
of business or consisting of trade payables or other current
liabilities (other than any current liabilities owing under the Credit
Agreement or the current portion of any long-term Indebtedness which
would constitute Senior Debt but for the operation of this clause (e)),
(f) to the extent it might constitute Indebtedness, amounts owed by the
Corporation for compensation to employees or for services rendered to
the Corporation, (g) to the extent it might constitute Indebtedness,
any liability for federal, state, local or other taxes owed or owing by
the Corporation, (h) Indebtedness of the Corporation to a Subsidiary of
the Corporation or any other Affiliate of the Corporation or any such
Affiliate's Subsidiaries and (i) that portion of any Indebtedness which
at the time of issuance is issued in violation of the Indenture.
"Senior Stock" shall have the meaning ascribed to it in
paragraph (b) hereof.
"Semi-annual Dividend Period" means the semi-annual period
commencing on each March 15 and September 15 ending the next succeeding
Dividend Payment Date, respectively; provided, the first Semi-annual
Dividend Period shall commence on the Issue Date and end on September
15, 1997.
"Significant Subsidiary" shall have the same meaning as in
Rule 1.02(v) of Regulation S-X under the Securities Act.
"Stated Maturity" means, with respect to any Indebtedness of
the Corporation, any date specified in the instrument governing such
Indebtedness as the fixed date on which the principal of such
Indebtedness, or any installment of interest on such Indebtedness, is
due and payable.
"Subsidiary," with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at least a
majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned,
directly or indirectly, by such Person or (ii) any other Person of
which at least a majority of the
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voting interest under ordinary circumstances is at the time, directly
or indirectly, owned by such Person.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated
as of July 18, 1990, between the Corporation and Lancer, as amended
from time to time.
"T-H Licensing" means T-H Licensing, Inc., a Delaware
corporation, a Wholly-owned subsidiary of the Corporation.
"Transfer Agent" means United States Trust Company of
New York, or any successor transfer agent for the Exchangeable
Preferred Stock.
"Unrestricted Subsidiary" means a Subsidiary of the
Corporation designated as such by the Corporation (a) no portion of the
Indebtedness or any other obligation (contingent or otherwise) of which
(i) is guaranteed by the Corporation or any other Subsidiary of the
Corporation, (ii) is recourse to or obligates the Corporation or any
other Subsidiary of the Corporation in any way or (iii) subjects any
property or asset of the Corporation or any other Subsidiary of the
Corporation, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, (b) which has no Indebtedness or any other
obligation that, if in default in any respect (including a nonpayment
default), would permit (upon notice, lapse of time or both) any holder
of any other Indebtedness of the Corporation or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause of
the payment thereof to be accelerated or payable prior to its Stated
Maturity, (c) with which the Corporation or any other Subsidiary of the
Corporation has no contract, agreement, arrangement, understanding or
is subject to an obligation of any kind, whether written or oral, other
than a transaction on terms no less favorable to the Corporation or any
other Subsidiary of the Corporation than those which might be
obtained at the time from Persons who are not Affiliates of the
Corporation, and (d) with which neither the Corporation nor any other
Subsidiary of the Corporation has any obligation (i) to subscribe for
additional shares of Capital Stock or other equity interest therein or
(ii) to maintain or preserve such Subsidiary's financial condition or
to cause such Subsidiary to achieve certain levels of operating
results. The Corporation may designate an Unrestricted Subsidiary as a
Restricted Subsidiary by written notice to the Transfer Agent under the
Indenture; provided, however, that the Corporation shall not be
permitted to designate any Unrestricted Subsidiary as a Restricted
Subsidiary unless
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(A) after giving pro forma effect to such designation, the Corporation
would be permitted to incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under paragraph l(i) and (B) any
Indebtedness or Liens of such Unrestricted Subsidiary would be
permitted to be incurred by a Restricted Subsidiary of the Corporation
under paragraph l(i). A designation of an Unrestricted Subsidiary as a
Restricted Subsidiary may not thereafter be rescinded.
"Voting Stock" means any class or classes of Capital Stock
pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board
of directors, managers or trustees of any Person (irrespective of
whether or not, at the time, stock of any other class or classes shall
have, or might have, voting power by reason of the happening of any
contingency).
"Voting Rights Triggering Event" shall have the meaning
ascribed to it in paragraph f(iv) hereof.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a)
the then outstanding aggregate principal amount of such Indebtedness
into (b) the total of the product obtained by multiplying (i) the
amount of each then remaining installment, sinking fund, serial
maturity or other required payment of principal, including payment at
final maturity, in respect thereof, by (ii) the number of years
(calculated to the nearest one-twelfth) which will elapse between such
date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary of the Corporation of which 100% of the outstanding Capital
Stock is owned by the Corporation or another Wholly-Owned Restricted
Subsidiary of the Corporation. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the
ownership of a Restricted Subsidiary.
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IN WITNESS WHEREOF, said Fairfield Manufacturing Company,
Inc., has caused this Certificate of Designation to be signed by
____________________, its _____________________, this _____ day of
_______________, 1997.
FAIRFIELD MANUFACTURING
COMPANY, INC.
By:
-------------------------------
Name:
Title:
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FIFTH AMENDMENT TO LOAN AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AGREEMENT (this "Amendment"), made and
entered into as of February 26, 1997, by and among LANCER INDUSTRIES, INC., a
Delaware corporation ("Lancer"), FAIRFIELD MANUFACTURING COMPANY, INC., a
Delaware corporation ("Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a
New York corporation ("GE Capital"), as sole "Lender" under the "Loan Agreement"
hereinafter referred to and as agent for itself and the other "Lenders" who may
hereafter become parties to the Loan Agreement (GE Capital, in such capacity,
the "Agent").
RECITALS:
A. Borrower and GE Capital, as a Lender and as Agent, entered into a
certain Loan Agreement, dated as of July 7, 1993, as amended pursuant to a First
Amendment to Loan Agreement, dated as of September 30, 1994, a Second Amendment
to Loan Agreement, dated March 30, 1995, but effective as of December 31, 1994,
a Third Amendment to Loan Agreement, dated as of March 31, 1995, and a Fourth
Amendment to Loan Agreement, dated as of December 5, 1996 (the "Loan Agreement";
capitalized terms used herein and not defined herein shall have the meanings
ascribed to them in the Loan Agreement), whereby, subject to the terms and
conditions set forth therein, GE Capital, as sole Lender thereunder, made the
Commitment and the Term Loans available to Borrower;
B. Pursuant to the Lancer Pledge Agreement, Lancer pledged to the
Agent all of the issued and outstanding common stock of Borrower.
C. The Lancer Pledge Agreement provides at Section 7(b) thereof that,
without the prior written consent of the Majority Lenders, Lancer will not cause
or permit Borrower to issue any additional shares of capital stock (with certain
exceptions not here applicable).
D. Lancer and Borrower have requested that Lenders consent to the
issuance of (i) up to 50,000 shares of Borrower's Cumulative Exchangeable
Preferred Stock having the terms set forth in Exhibit A (the "New Preferred
Stock") at an issue price of $1,000 per share, (ii) up to 50,000 shares of
another series of Cumulative Exchangeable Preferred Stock of the Borrower having
terms identical in all material respects to the terms of the New Preferred Stock
except that the Exchange Preferred Stock shall not be subject to transfer
restrictions (the "Exchange Preferred Stock") which will be registered under the
Securities Act of 1933, as amended, and will be issued in exchange for the New
Preferred Stock and (iii) shares of Preferred Stock issued from time to time in
lieu of payment of cash dividends on the New Preferred Stock and the Exchange
Preferred Stock in accordance with the terms of the Certificate of Designation
governing the Exchange Preferred Stock or the New Preferred Stock, as the case
may be (the Exchange Preferred Stock, the New Preferred Stock and such
additional shares of Preferred Stock herein, collectively, the "Preferred
Stock").
<PAGE>
E. Lancer and Borrower have further requested that Lenders (i) permit a
dividend to be paid by Borrower to Lancer from the proceeds of the issuance of
the New Preferred Stock and (ii) permit dividends to be paid on the Preferred
Stock from time to time in accordance with the terms of the Certificate of
Designations governing the New Preferred Stock or the Exchange Preferred Stock,
as the case may be.
F. Subject to the terms and conditions set forth herein, Lenders
are willing to permit Borrower to issue the Preferred Stock and to pay
such dividends.
G. In connection therewith, Lancer and Borrower understand and agree
that from and after the effective date of this Amendment as provided herein,
Borrower shall no longer be permitted to pay Permitted Dividends to Lancer.
H. Borrower and GE Capital, as Agent and sole Lender under the Loan
Agreement, desire to enter into this Amendment in order to (i) permit the
issuance of the New Preferred Stock as described generally in paragraph D of
these recitals and described more particularly herein, (ii) permit the payment
of certain dividends by Borrower on the New Preferred Stock as described
generally in paragraph E of these recitals and described more particularly
herein, (iii) delete provisions of the Loan Agreement permitting the payment of
Permitted Dividends, and (iv) amend the Loan Agreement in certain other respects
as hereinafter set forth.
In consideration of the premises and the mutual covenants and
agreements herein contained, the parties hereto covenant and agree as follows:
1. Consent to Issuance of New Preferred Stock. Effective upon
fulfillment, to the satisfaction of Lenders, of the conditions precedent set
forth in Section 3 hereof, and subject to the terms of the Loan Agreement, as
amended by this Amendment (including, without limitation, as to the use of the
proceeds of the issuance of the New Preferred Stock), as required pursuant to
Section 7(b) of the Lancer Pledge Agreement and Section 6.8 of the Loan
Agreement, Lenders hereby consent to the issuance of (i) up to 50,000 shares of
the New Preferred Stock at an issue price of $1,000 per share, (ii) up to 50,000
shares of the Exchange Preferred Stock in exchange for shares of the New
Preferred Stock and (iii) shares of Preferred Stock issued from time to time in
lieu of payment of cash dividends on the Preferred Stock in accordance with the
terms of the Certificate of Designation governing the New Preferred Stock or the
Exchange Preferred Stock, as the case may be; provided, however, that such
consent is expressly limited to such issuance and shall not be or be deemed to
be a consent to any other matter prohibited by the Lancer Pledge Agreement, the
Loan Agreement or any of the other Loan Documents, including, without
limitation, the issuance of the "Exchange Debentures" (as such term is defined
in the Offering Memorandum draft dated February 21, 1997 relating to such
issuance), or a waiver of any Default or Event of Default presently or hereafter
existing (other than those Defaults or Events of Default which would have
occurred but for the consent and amendments set forth herein solely as a result
of the transactions contemplated hereby).
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<PAGE>
2. Amendments to Loan Agreement. Effective on the Fifth Amendment
Date the Loan Agreement shall be deemed to be amended as follows:
(a) Amendments to Section 1.1 of the Loan Agreement.
(i) Section 1.1 of the Loan Agreement shall be deemed to be
amended by deleting the definitions of "Agreement," "Loan Documents,"
and "Monthly Payment Date" therein in their entirety and substituting
in lieu thereof the following revised definitions of "Agreement," "Loan
Documents," and "Monthly Payment Date".
"Agreement" means this Loan Agreement, either as originally
executed or as it may from time to time be supplemented,
modified, amended, renewed, extended or supplanted (including,
without limitation, by the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment and the
Fifth Amendment).
"Loan Documents" means, collectively, this Agreement, the
First Amendment, the Second Amendment, the Third Amendment,
the Fourth Amendment, the Fifth Amendment, the Notes, the
Blocked Account Agreements, the Subsidiary Guaranty, the
Collateral Documents, the Lancer Pledge Agreement and any
other agreements of any type or nature heretofore or hereafter
executed and delivered by Borrower or any of its Affiliates in
favor of the Agent or Lenders in any way relating to or in
furtherance of this Agreement, in each case either as
originally executed or as the same may from time to time be
supplemented, modified, amended, restated, extended or
supplanted.
"Monthly Payment Date" means the fifteenth day of each
calendar month after the Closing Date and shall also include
the Commitment Termination Date.
(ii) Section 1.1 of the Loan Agreement shall be deemed to be
further amended by deleting clause (h) of the definition of
"Consolidated Excess Cash Flow" therein and substituting in lieu
thereof the following revised clause (h):
(h) Permitted Preferred Stock Dividends declared and
paid in cash during such period.
(iii) Section 1.1 of the Loan Agreement shall be deemed to be
further amended by adding after the paranthetical in clause (e) of the
definition of Consolidated Fixed Charges the phrase "other than the
Offering Dividend and Permitted Preferred Stock Dividends".
(iv) Section 1.1 of the Loan Agreement shall be deemed further
amended by adding therein, in appropriate alphabetical order, the
following additional definitions:
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<PAGE>
"Certificates of Designation" means (i) in the case of the New
Preferred Stock, the Certificate of Designation relating to
the New Preferred Stock, in the form received by Lender
pursuant to Section 3(h), as in effect on the Fifth Amendment
Date and (ii) in the case of the Exchange Preferred Stock, the
Certificate of Designation relating to the Exchange Preferred
Stock, in the form received by Lender pursuant to Section
3(h), as in effect in the date of issuance of the Exchange
Preferred Stock.
"Draft Offering Memorandum" means the draft Offering
Memorandum, dated February 21, 1997, relating to the Offering,
a copy of which was delivered to Lender.
"Exchange Debentures" has the meaning given to such term in
the Draft Offering Memorandum.
"Exchange Preferred Stock" means Borrower's Cumulative
Exchangeable Preferred Stock, with par value $.01 per share
and a liquidation value of $1,000 per share which will have
terms identical in all material respects to the New Preferred
Stock (except for the absence of transfer restrictions) and
will be exchanged for shares of the New Preferred Stock.
"Fifth Amendment" means the Fifth Amendment to the Loan
Agreement, dated as of February 26, 1997, among Borrower, the
Agent and GE Capital, as sole Lender.
"Fifth Amendment Date" means the Issue Date provided that all
conditions precedent set forth in Section 3 hereof shall have
been satisfied on or prior to such date
"Issue Date" means the date on which the New Preferred Stock
is to be issued..
"New Preferred Stock" means Borrower's Cumulative Exchangeable
Preferred Stock, with a par value of $.01 per share and a
liquidation preference of $1,000 per share, and having such
other terms as are set forth on Exhibit A to the Fifth
Amendment.
"Offering" means the offering under Rule 144A under the
Securities Act pursuant to which Borrower will issue and sell
up to 50,000 shares of the New Preferred Stock.
"Offering Dividend" has the meaning set forth in clause (j)
of Section 6.3.
"Permitted Preferred Stock Dividends" has the meaning set
forth in clause (k) of Section 6.3.
(v) Section 1.1 of the Loan Agreement shall be deemed further
amended by deleting therefrom the definitions of "Special Loan",
"Special Dividend" and "Permitted Dividends".
4
<PAGE>
(b) Amendment to Section 3.3 of the Loan Agreement. (i) Section 3.3
of the Loan Agreement shall be deemed to be amended by deleting the last
sentence of clause (c) thereof and substituting in lieu thereof the following
sentence:
In addition, the Term Loans shall be prepaid in amounts equal to one
hundred percent (100%) of the Net Proceeds, or any portion thereof, of
any disposition of Property by Borrower or any of its Subsidiaries
permitted pursuant to Section 6.1(a)(ii) to the extent that such Net
Proceeds, or any portion thereof, are not applied to the purchase price
of replacement Equipment within one hundred eighty (180) days after the
date of disposition, and in any event, to the extent that such Net
Proceeds exceed the sum of One Million Five Hundred Thousand Dollars
($1,500,000) in the aggregate in any Fiscal Year.
(ii) Section 3.3 of the Loan Agreement shall be deemed further
amended by adding at the end of clause (d) thereof the following
sentence:
Notwithstanding anything in this clause (d) to the contrary,
the Borrower shall not be required to prepay the Term Loans as
the result of its receipt of the Net Proceeds from the
Offering.
(c) Amendment to Section 4.20 of the Loan Agreement. Section 4.20 of
the Loan Agreement shall be deemed to be amended by deleting such Section in its
entirety and substituting in lieu thereof the following revised Section 4.20:
4.20 Solvency. After giving effect to the entering into by
Borrower of this Agreement, the Fifth Amendment and the other Loan
Documents, the making of any Advance, the incurrence of any Letter of
Credit Obligation, the declaration and payment of the Offering
Dividend, and the declaration and payment of any Permitted Preferred
Stock Dividend, Borrower and each Subsidiary is Solvent.
(d) Amendment to Section 4.21 of the Loan Agreement. Section 4.21 of
the Loan Agreement shall be deemed to be amended by deleting such Section in its
entirety and substituting in lieu thereof the following revised Section 4.21:
4.21 Subordination of Subordinated Indebtedness. This
Agreement, as amended by the First Amendment, the Second Amendment, the
Third Amendment, the Fourth Amendment and the Fifth Amendment, and the
other Loan Documents to which Borrower or any Subsidiary is party, and,
to the extent permissible under Section 1010 of the Senior Subordinated
Note Indenture, all further amendments, amendments and restatements,
renewals, extensions, restructurings, supplements, modifications,
refinancings, refundings, or replacements hereof and thereof
constitute the "Credit Agreement" within the meaning of the Senior
Subordinated Note Indenture, and the Term Loans, the Revolving Credit
Loan, the Letter of Credit Obligations and all other Obligations of
Borrower to the Agent and the
5
<PAGE>
Lenders under this Agreement, the Notes and any of the other Loan
Documents, and, to the extent permissible pursuant to Section 1010 of
the Senior Subordinated Note Indenture, all further amendments,
amendments and restatements, renewals, extensions, restructurings,
supplements, modifications, refinancings, refundings and replacements
of any of the foregoing, constitute "Senior Indebtedness" of Borrower
within the meaning of the Senior Subordinated Note Indenture, and the
holders thereof from time to time shall be entitled to all of the
rights of a holder of "Senior Indebtedness" pursuant to Article 13 of
the Senior Subordinated Note Indenture.
(e) Amendment to Section 4.26 of the Loan Agreement. Section 4.26 of
the Loan Agreement shall be deemed to be amended by deleting such Section in its
entirety and substituting in lieu thereof the following revised Section 4.26:
4.26. The declaration and payment of the Offering Dividend by
Borrower to Lancer on the Fifth Amendment Date and the use of the
proceeds thereof by Lancer for the purpose set forth in Section 6.3(j)
are within the corporate powers of Borrower and Lancer, respectively,
and the declaration and payment of each Permitted Preferred Stock
Dividend subsequent to the Fifth Amendment Date will be within the
corporate powers of Borrower, each of such actions has been and will be
duly authorized by all requisite corporate action on the part of
Borrower and, with regard to the use of proceeds of the Offering
Dividend, Lancer, and none of such actions do or will (a) require any
consent or approval of any stockholder, security holder or creditor of
Borrower or Lancer (including, without limitation, the holders of the
Senior Subordinated Notes) not heretofore or theretofore obtained, (b)
violate or conflict with any provision of the certificate of
incorporation or by-laws of Borrower or Lancer, (c) result in or
require the creation of any Lien or Right of Others upon or with
respect to any Property of Borrower or Lancer, other than in favor of
Lenders, (d) violate any provision of Law applicable to Borrower or
Lancer, (e) contravene or conflict with any judgment, award, decree,
writ or determination of any Governmental Agency applicable to or
binding upon Borrower or Lancer or any of their respective Property or
to which Borrower or Lancer or any of their respective Property is
subject or (f) conflict with, result in a breach of or default under,
or with the giving of notice or the lapse of time or both, constitute a
breach of or default under, or cause or permit the acceleration of any
obligation owed under or require the termination of (i) the Senior
Subordinated Note Indenture, or the Senior Subordinated Notes or (ii)
any other Contractual Obligation of any Borrower or Lancer other than,
in the case of clause (ii), conflicts, breaches or defaults which,
either singly or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
(f) New Text at End of Article 4 of the Loan Agreement. Article 4 of
the Loan Agreement is hereby further amended by adding the following paragraph
at the end thereof:
In connection with its execution and delivery of the Fifth
Amendment, Borrower hereby affirms that each of the representations and
warranties of Borrower contained in this
6
<PAGE>
Agreement or in any of the other Loan Documents is correct in all
material respects as of the Fifth Amendment Date and after giving
effect to the Fifth Amendment (except to the extent that such
representations and warranties relate solely to an earlier date and
except as affected by transactions expressly contemplated by this
Agreement). In addition to induce GE Capital to enter into the Fifth
Amendment, Borrower represents and warrants to the Agent and Lenders as
follows:
(a) Financial Statements. Borrower has furnished to the
Lenders (i) Borrower's audited consolidated balance sheets for its
Fiscal Year ending December 31, 1995 and Borrower's related audited
consolidated statements of operations, stockholders' equity and cash
flows for its Fiscal Year ending December 31, 1995, (ii) Borrower's
unaudited consolidated balance sheet for the month ending December 31,
1996 and Borrower's related consolidated statements of operations,
stockholders' equity and cash flows for such month and for Borrower's
1996 Fiscal Year, and (iii) Borrower's operating and financial plan for
the five Fiscal Years ending after the date hereof, including projected
balance sheets, state ments of operations, and statements of cash flow.
The financial statements described in clauses (i) and (ii) above fairly
present the financial position and results of operations of Borrower,
on a consolidated basis, as at the dates and for the periods indicated
in accordance with GAAP consistently applied. The projections referred
to in clause (iii) above were prepared on the basis of the estimates
and assumptions stated therein and represented, at the date thereof,
Borrower's good faith projections of its future financial performance
prepared after reasonable investigations; such estimates, assumptions
and projections reflected Borrower's estimates of the most likely
future financial results and condition of Borrower, in the light of
business conditions existing at the date thereof; and any such
estimates, assumptions and projections, if prepared as of the Fifth
Amendment Date, would contain estimates of the future financial
performance of Borrower which would not materially and adversely differ
from the respective estimates contained in such financial projections.
As of the Fifth Amendment Date, no material developments have occurred
since the date of such projections which would lead Borrower to believe
that such projections, taken as a whole, are not reasonably attainable,
subject to the uncertainties and approximations inherent in any
projection.
(b) No Other Liabilities; No Material Adverse Effect. Neither
Borrower nor any Subsidiary has any liability or contingent liability
that is material to Borrower or such Subsidiary that is not reflected
in, reserved for or against or otherwise disclosed in the financial
statements described in clause (a) above, and, since December 31, 1996,
no event or circumstance has occurred that could reasonably be expected
to have a Material Adverse Effect.
(g) Amendment to Section 6.1 of the Loan Agreement. Section 6.1 of the
Loan Agreement shall be deemed amended by deleting the words and figure "Five
Hundred Thousand Dollars ($500,000)" from clause (ii) thereof and substituting
in lieu thereof the words and figure "One Million Five Hundred Thousand Dollars
($1,500,000)".
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<PAGE>
(h) Amendment to Section 6.3 of the Loan Agreement.
(i) Section 6.3 of the Loan Agreement shall be deemed to be
amended by deleting in words "not in excess of $750,000 in the
aggregate in any Fiscal Year" from clause (c) thereof and substituting
in lieu thereof the words "not in excess of $850,000 in the aggregate
in any Fiscal Year (inclusive of the amount not in excess of $100,000
in any Fiscal Year permitted to be retained and paid by T-H Licensing
as provided in clause (A) (2) of the second paragraph of Section 6.9(c)
hereof)".
(ii) Section 6.3 of the Loan Agreement shall be deemed to be
amended by deleting clauses (j) and (k) thereof and substituting in
lieu thereof the following revised clauses (j) and (k):
(j) a special cash dividend in the amount of up to $50,000,000, to be
declared and paid by Borrower to Lancer on the Fifth Amendment Date
from the proceeds of the issuance of the New Preferred Stock pursuant
to the Offering (the "Offering Dividend"), the proceeds of which are to
be used by Lancer, together with other funds of Lancer, solely for the
purpose of redeeming a portion of Lancer's outstanding Series C
Preferred Stock; and (k) cash dividends declared and paid by Borrower
on the New Preferred Stock subsequent to the Fifth Amendment Date;
provided that (A) such dividends are declared and paid in accordance
with the terms of the Certificate of Designations as in effect on the
Fifth Amendment Date; (B) no Default or Event of Default has occurred
and is continuing hereunder or would result from the declaration and
payment of such dividend; (C) such dividends are permitted to be paid
under Section 1011 of the Senior Subordinated Note Indenture as in
effect on the Closing Date (without requiring the obtaining of any
waiver or consent from the holders of the Senior Subordinated Notes);
and (D) the Agent shall have received all of the following prior to the
declaration and payment of each such dividend, all in form and
substance satisfactory to the Agent and legal counsel for the Agent:
(1) an Officer's Certificate affirming that the conditions set forth in
clauses (A), (B) and (C) above have been satisfied with respect to such
dividend (and attaching all calculations necessary to demonstrate
satisfaction of the condition set forth at clause (C) above); (2) such
documentation as the Agent may request to confirm that such dividend
has been duly authorized, including certificates of corporate
resolutions, certificates of Responsible Officials and the like; (3)
upon the written request of the Agent, the legal opinion of Debevoise &
Plimpton, special counsel to Borrower, with respect to such dividend
substantially in the form of paragraph 9 of Exhibit 1 to the Fifth
Amendment, together with copies of all factual certificates and legal
opinions upon which such counsel has relied; and (4) upon the written
request of the Agent, the favorable written opinion of Chartered
Capital Advisors, Inc., valuation consultants to Borrower or other
valuation consultants selected by Borrower and acceptable to Lender, as
to the solvency of Borrower after giving effect to the declaration and
payment of such dividend (any such dividend meeting the requirements of
clauses (A)-(D) above, a "Permitted Preferred Stock Dividend").
8
<PAGE>
(iii) Section 6.3 of the Loan Agreement shall be deemed to be
further amended by adding a new clause (l) thereof to read as follows:
(l) loans from Borrower to Lancer in an amount not in excess of
$5,000,000 at any time outstanding; provided, that (i) such loans
are on terms satisfactory to Lender, (ii) such loans are evidenced
by promissory notes, in form and substance satisfactory to Lender,
which notes have been endorsed in favor of, and delivered to
Lender, (iii) the proceeds of such loans are used by Lancer solely
for the purpose of redeeming its Series C Preferred Stock, (iv)
each such loan is permissible pursuant to Sections 1011 and 1016 of
the Senior Subordinated Note Indenture and Lender has received such
assurances in regard thereto as it shall request, including,
without limitation, certifications of Borrower and opinion of
Borrower's counsel with regard to such matters, each to be in form
and substance satisfactory to Lenders and (v) upon the written
request of the Agent, a solvency opinion in form and substance
satisfactory to Lenders.
(i) Amendment to Section 6.4 of the Loan Agreement. Section 6.4 of the
Loan Agreement shall be deemed to be amended by deleting the word "or" before
clause (b) thereof and by adding the word "or" after clause (b) thereof followed
by the following clause (c):
(c) amend, modify or change, or consent or agree to any
amendment, modification or change to, the Certificate of Designations
or any of the terms relating to the New Preferred Stock.
(j) Amendment to Section 6.9 of the Loan Agreement. Section 6.9 of the
Loan Agreement shall be deemed to be amended by deleting clause (c) thereof in
its entirety and substituting in lieu thereof the following revised clause (c):
(c) Borrower may pay royalties to T-H Licensing on a quarterly or
annual basis in the amounts provided in that certain letter agreement
dated as of December 29, 1989 between Borrower and T-H Licensing as in
effect on the Closing Date; provided that (i) except as provided below,
any such payment is returned by T-H Licensing to Borrower as a loan
within forty-five (45) days after receipt by T-H Licensing, (ii) no
principal, interest or other payment is payable or paid on any such
loans until the Obligations have been paid in full and the Loan
Agreement has been terminated, except that Borrower may pay interest to
T-H Licensing on such loans at a rate not in excess of the rate then in
effect with respect to the New Term Loans so long as, except as
provided below, any such interest payment is returned by T-H Licensing
to Borrower as a loan within sixty (60) days after receipt by T-H
Licensing and (iii) each such loan is evidenced by a promissory note
which is delivered by T-H Licensing to the Agent as additional
collateral under the Subsidiary Security Agreement.
Notwithstanding the foregoing, (A) T-H Licensing may retain from the
amounts otherwise required to be loaned to Borrower as provided in
clause (i) above, (1) amounts not in excess
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<PAGE>
of $100,000 per quarter and $500,000 in the aggregate during the term
of this Agreement so long as all such amounts are deposited in T-H
Licensing's Account No. 28096 at Wilmington Trust Company and are not
withdrawn by T-H Licensing for any purpose and (2) an amount not in
excess of $100,000 per year which may be used by T-H Licensing for the
purpose of making the payments to Lancer and its Affiliates specified
in clause (c) of Section 6.3 hereof (subject to the aggregate
limitation of $850,000 on all such payments by Borrower and its
Subsidiaries specified therein) and (B) T-H Licensing may retain from
the amounts otherwise required to be loaned to Borrower as provided in
clause (ii) above, amounts required to pay its patent registration fees
and reasonable legal expenses incurred in the ordinary course of
business.
(k) Amendment to Section 6.20 of the Loan Agreement. Section 6.20 of
the Loan Agreement shall be deemed to be amended by deleting such Section in its
entirety and substituting in lieu thereof the following revised Section 6.20:
6.20 Current Ratio. Borrower will not permit (as of the end of any
Fiscal Quarter) the ratio of Consolidated Current Assets to
Consolidated Current Liabilities (excluding the loans described in
Section 6.3(l)) to be less than the ratio set forth below next to the
Fiscal Year in which such Fiscal Quarter occurs:
FISCAL YEAR ENDING RATIO
------------------- ------
December 31, 1997 1.25:1.00
December 31, 1998 1.50:1.00
December 31, 1999 1.50:1.00
Each Fiscal Year thereafter 1.50:1.00
(l) Amendment to Section 9.1 of the Loan Agreement. Section 9.1 of the
Loan Agreement shall be deemed to be amended by changing the period at the end
of clause (q) thereof to a semicolon followed by the word "or" and by adding to
such Section a new clause (r) to read as follows:
(r) Board of Directors. The holders of the New Preferred Stock
become entitled to, and exercise their right to, elect any member of
Borrower's board of directors.
3. Conditions Precedent. This Amendment shall become effective on
the Issue Date, provided that each of the following conditions precedent shall
have been fulfilled, to Lenders' and its counsel's satisfaction on or prior to
such date:
(a) Documents. The Agent shall have received all of the following, each
dated as of the date hereof and all in form and substance satisfactory to the
Agent and legal counsel for the Agent:
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(i) a reaffirmation of the Subsidiary Guaranty and Subsidiary
Security Agreement signed by T-H Licensing;
(ii) an Officer's Certificate affirming that the conditions
set forth in clauses (b), (c), (d) and (e) below have been satisfied;
(iii) such documentation as the Agent may reasonably require
to confirm the good standing of Borrower in the state of its
incorporation, the qualification of Borrower to engage in business in
each jurisdiction in which it is engaged in business or required to be
so qualified, its authority to execute, deliver and perform this
Amendment and any other Loan Documents to be executed and delivered in
connection herewith to which it is party, certificates of good standing
and of qualification to engage in business, certificates of corporate
resolutions, incumbency certificates, certificates of Responsible
Officials and the like;
(iv) the legal opinion of Debevoise & Plimpton, special
counsel to Borrower, substantially in the form of Exhibit 1 to this
Amendment, together with copies of all factual certificates and legal
opinions upon which such counsel has relied;
(v) such other assurances, certificates, documents, consents
or opinions (in addition to those described hereinbelow) as the Agent
may reasonably require.
(b) Representations and Warranties. The representations and warranties
contained in Article 4 of the Loan Agreement (as amended hereby) shall be true
and correct in all material respects on and as of the date hereof as though made
on and as of that date (except to the extent that such representations and
warranties relate solely to an earlier date and except as affected by
transactions expressly contemplated by the Loan Agreement).
(c) Absence of Litigation. There shall not be pending or, to the best
knowledge of Borrower, threatened, any litigation, arbitration, injunction,
proceeding, governmental investigation or inquiry against or affecting Borrower
or any Property of Borrower before any Governmental Agency that could reasonably
be expected to have a Material Adverse Effect.
(d) No Default. After giving effect to this Fifth Amendment, Lancer,
Borrower and T-H Licensing shall be in compliance with all the terms and
provisions of the Loan Documents to which they are party, and no Default or
Event of Default shall have occurred and be continuing.
(e) No Material Adverse Effect. Since December 31, 1996, there shall
not have occurred: (1) any event or circumstance that could reasonably be
expected to have a Material Adverse Effect, or (2) any dividends or other
distributions made to the stockholders of Borrower, except as permitted by
Section 6.3 of the Loan Agreement and Section 7(b) of the Lancer Pledge
Agreement.
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(f) Compliance with Laws. Lenders shall be satisfied that Borrower and
its Subsidiaries are in compliance with all applicable Laws, including, without
limitation, all Environmental Laws and all Laws pertaining to labor,
occupational safety and health and ERISA matters except to the extent that
noncompliance could not reasonably be expected to have a Material Adverse
Effect. Lenders shall be satisfied that the execution and delivery of this Fifth
Amendment and the consummation of the transactions contemplated hereby will not
cause Borrower or any Subsidiary to violate any Contractual Obligation to which
it is party or by which it is bound or any Laws applicable to it.
(g) Senior Indebtedness. Lenders shall be satisfied that (i) Borrower's
issuance of the New Preferred Stock in the Offering is permissible pursuant to
the Senior Subordinated Note Indenture (without requiring the obtaining of any
waiver or consent from the holders of the Senior Subordinated Notes) and that
after giving effect thereto, each of the representations and warranties set
forth in Section 4.21 of the Loan Agreement shall continue to be true and
correct in all respects, and (ii) the Offering Dividend is permissible pursuant
to Section 1011 of the Senior Subordinated Note Indenture (without requiring the
obtaining of any waiver or consent from the holders of the Senior Subordinated
Notes); and Lenders shall have received such assurances in regard to each of
clauses (i) and (ii) above as Lenders shall request, including without
limitation, certifications of Borrower and an opinion of Borrower's counsel with
regard to such matters, each to be in form and substance satisfactory to
Lenders.
(h) New Preferred Stock. Lenders shall have received copies of (i) the
final Offering Memorandum relating to the Offering and (ii) the forms of
Certificates of Designation relating to each of the New Preferred Stock and the
Exchange Preferred Stock and (A) such final Offering Memorandum shall not
contain terms or provisions which, in the reasonable judgment of Lender, are
materially adversely different from the terms and provisions contained in the
Draft Offering Memorandum and (B) such Certificates of Designation shall not
contain terms or provisions which in the reasonable judgment of Lender are
materially adversely different form the terms contained in the Draft Offering
Memorandum and the Certificates of Designation shall otherwise be in form and
substance satisfactory to Lender in all material respects. No such approval by
Lender of the final Offering Memorandum or the Certificates of Designation shall
be deemed to be an approval by Lender of the issuance of the Exchange Debentures
which shall continue to be prohibited under the Lancer Pledge Agreement and the
Loan Agreement.
(i) Fees and Expenses. All fees and expenses payable by Borrower in
connection with the Offering shall have been paid from the proceeds of the
Offering.
(j) Solvency Opinion. Lenders shall have received the favorable written
opinion of Chartered Capital Advisors, Inc., valuation consultants to Borrower,
as to the solvency of Borrower after giving effect to the execution and delivery
of this Amendment, the Offering and the declaration and payment of the Offering
Dividend.
12
<PAGE>
4. Other Agreements
(a) Except as set forth expressly herein and above, all terms of the
Loan Agreement and the other Loan Documents shall be and remain in full force
and effect and shall constitute the legal, valid, binding and enforceable
obligations of Borrower to the Agent and Lenders. In furtherance of the
foregoing, Borrower acknowledges that from and after the date hereof, it shall
continue to be bound by all provisions of the Loan Agreement as amended hereby.
To the extent any terms and conditions in any of the other Loan Documents shall
contradict or be in conflict with any terms or conditions of the Loan Agreement,
after giving effect to this Amendment, such terms and conditions are hereby
deemed modified and amended accordingly to reflect the terms and conditions of
the Loan Agreement as modified and amended hereby.
(b) Borrower agrees to pay on demand the reasonable fees and
out-of-pocket expenses of counsel to GE Capital incurred in connection with the
preparation, execution, delivery and enforcement of this Amendment, the closing
hereof, and any other transactions contemplated hereby.
(c) To induce the Agent and Lenders to enter into this Amendment,
Borrower hereby acknowledges and agrees that, as of the date hereof, there
exists no right of offset, defense or counterclaim in favor of Borrower as
against the Agent or Lenders with respect to the Obligations.
(d) This Amendment shall be governed by, and construed in accordance
with the laws of the State of New York applicable to contracts made and
performed in such State and all applicable laws of the United States of America.
(e) This Amendment may be executed in two or more counterparts, all
of which shall constitute one and the same agreement.
5. Refinancings. Borrower reaffirms its agreement set forth in the
Fourth Amendment that Agent and Lender shall have the right of first refusal to
serve as agent and to participate as a lender, respectively, in any debt
refinancing of the Obligations under the Loan Agreement consummated at any time
prior to December 5, 1998, on substantially the same terms and conditions as
offered by any other prospective agent and lender; provided, however, that (i)
such right of first refusal shall not be applicable to any proposed refinancing
of the Obligations (or portion thereof) using the proceeds of subordinated
Indebtedness which is junior in rank to the Obligations and (ii) in the event
that any other Indebtedness of Borrower is refinanced contemporaneously with, or
as part of, any refinancing of the Obligations, such right of first refusal
shall only apply to the refinancing of the Obligations and not such other
Indebtedness.
6. Lancer Pledge Agreement. Lancer acknowledges and agrees that the
Lancer Pledge Agreement shall continue in full force and effect from and after
the execution and delivery of this Amendment without diminution or impairment.
13
<PAGE>
7. Termination of Amendment. This Amendment shall terminate and be of
no further force or effect on April 30, 1997 unless on or prior to such date (a)
all conditions precedent to the effectiveness hereof set forth in Section 3
hereof have been satisfied and (b) the Offering has occurred.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed under seal by their respective officers thereunto duly authorized, as
of the date first above written.
LANCER INDUSTRIES, INC.
By: /s/Peter A. Joseph
-----------------------------
Name: Peter A. Joseph
Title: President and Secretary
FAIRFIELD MANUFACTURING
COMPANY, INC.
By: /s/ Richard A. Bush
-----------------------------
Richard A. Bush
Vice President-Finance
[CORPORATE SEAL]
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent
and sole Lender
By:/s/ ELAINE L. MOORE
________________________________
Elaine L. Moore
Senior Vice President,
as duly authorized
14
<PAGE>
<PAGE>
ACKNOWLEDGMENT OF GUARANTOR
The undersigned, T-H Licensing, Inc., hereby (a) acknowledges its
receipt of a copy of and consents to the within and foregoing Amendment, (b)
agrees to be bound by the provisions thereof and (c) acknowledges and agrees
that the Subsidiary Guaranty, the Subsidiary Security Agreement and all other
Loan Documents to which the undersigned is a party shall continue in full force
and effect from and after the execution and delivery of the within and foregoing
Amendment without diminution or impairment.
IN WITNESS WHEREOF, the undersigned has set its hand and seal as of the
26th day of February, 1997.
T-H LICENSING, INC.
By: /s/ PETER A. JOSEPH
_________________________________
Peter A. Joseph
Vice President and Secretary
16
<PAGE>
CONSENT AND AMENDMENT LETTER
March 27, 1997
Fairfield Manufacturing Company, Inc.
U.S. Route 52 South
Lafayette, Indiana 47903
Attn: Richard Bush
Chief Financial Officer
Ladies and Gentlemen:
A. Preamble. We refer to that certain Loan Agreement, dated as of
July 7, 1993 (as amended, the "Loan Agreement"), between you and the
undersigned, General Electric Capital Corporation, as Agent and sole Lender.
Capitalized terms used herein and not defined herein have the meanings assigned
to them in the Loan Agreement.
You have advised us that pursuant to a Merger Agreement ("Merger
Agreement") to be entered into between you and First Colony Farms, Inc., a
Delaware corporation ("First Colony") and a Certificate of Merger ("Certificate
of Merger") to be filed with the Secretary of State of Delaware, you and First
Colony wish to merge with you being the surviving corporation of the Merger (the
"Merger") (the Merger Agreement and the Certificate of Merger collectively, the
"Merger Documents").
B. Consent. Without our prior written consent as sole Lender, the
Merger would be prohibited by Section 6.2 of the Loan Agreement and would result
in Events of Default under Sections 9.1(c) and 9.1(n) thereof. We hereby consent
to the consummation of the Merger and agree that Events of Default shall not be
deemed to exist under Sections 9.1(c) and 9.1(n) of the Loan Agreement solely as
a result of the consummation of the Merger to the satisfaction, on or prior
<PAGE>
to April 15, 1997, of the following conditions precedent:
1. You shall have provided to us evidence satisfactory to us showing
that prior to the consummation of the Merger First Colony has no
liabilities or indebtedness and that immediately following
consummation of the Merger you shall not have any liabilities or
indebtedness (including contingent liabilities) in excess of your
present liabilities and indebtedness, and one of your Senior Officers
shall have so certified to us in writing.
2. You shall have provided to us (a) copies of all certificates and
opinions required to be delivered in connection with the Merger
pursuant to the Senior Subordinated Note Indenture and the
Certificate of Designation pertaining to the New Preferred Stock, all
of which shall be in form and substance satisfactory to us; (b) a
certificate of your chief financial officer covering the matters set
forth in the officer's certificate to be delivered to the trustee
under the Senior Subordinated Note Indenture pursuant to Section
801(a) of the Senior Subordinated Note Indenture and (c) an opinion
of your counsel that the Merger does not violate the terms of the
Senior Subordinated Note Indenture or the Certificates of Designation
pertaining to the New Preferred Stock, or a reliance letter as to the
opinions to that effect that your counsel will deliver under the
Senior Subordinated Note Indenture and the Certificate of
Designation, all of which shall be in form and substance satisfactory
to us.
3. You shall have obtained all consents or approvals of any Governmental
Agency, party to any Contractual Obligation with you or other person
required in connection with the consummation of the Merger (other
than our consents and agreements set forth herein), and one of your
Senior Officers shall have so certified to us.
<PAGE>
4. After giving effect to the consummation of the Merger and the
consents and agreements set forth herein, no default or event of
default shall exist under any of your Contractual Obligations, and
one of your Senior Officers shall have so certified to us.
5. The Merger Documents shall be in form and substance satisfactory to
us.
6. You shall have delivered to us copies of the resolutions of your and
First Colony's respective boards of directors and shareholders
approving the Merger, certified to be true, correct and complete by
your and First Colony's respective Secretaries or assistant
secretaries.
7. At the time of consummation of the Merger and after giving effect
thereto and to the consents and agreements set forth herein, no
Default or Event of Default shall have occurred and be continuing.
The consent set forth herein shall become void and of no further
force and effect on April 15, 1997 unless on or prior to such date each of the
conditions precedent set forth above has been satisfied and the Merger has been
consummated.
C. Amendment. Effective upon satisfaction of all of the conditions
precedent set forth in Section B above and consummation of the Merger, the Loan
Agreement shall be deemed to be amended in the following manner:
The definition of Consolidated Fixed Charges set forth in Section 1.1
of the Loan Agreement shall be amended by adding at the end of clause
(d) thereof (before the word "plus") a comma followed by the phrase
"whether or not characterized as a dividend under GAAP".
D. Covenants. In order to induce the undersigned to consent to the
Merger, you hereby agree that (a) within fifteen (15) days after the date
hereof, Lancer shall pledge
<PAGE>
and deliver to us, pursuant to the Lancer Pledge Agreement all shares of your
common stock issued to it pursuant to Section 1.5(a) of the Merger Agreement,
accompanied by stock powers executed in blank and (b) within ten (10) days after
we so request, you shall execute and deliver to us such amendments to UCC
financing statements previously delivered by you and additional UCC financing
statements as we shall deem necessary or appropriate to evidence the continued
perfection of our liens on the Collateral.
E. Miscellaneous. The consent set forth herein is limited to the
matters expressly set forth herein and shall not be deemed to be a consent to
any other matter prohibited by the Loan Agreement or a waiver of any other
provision of the Loan Agreement. As amended pursuant to Section C hereof, all
provisions of the Loan Agreement shall continue in full force and effect.
<PAGE>
Please countersign in the space provided below to acknowledge your
concurrence with the foregoing.
Sincerely yours,
General Electric Capital
Corporation,
as Agent and Lender
By: /s/ ELAINE S. MOORE
-----------------------------
Elaine L. Moore
Senior Vice President-
Commercial Finance
Acknowledged and agreed:
Fairfield Manufacturing
Company, Inc.
By: /s/ RICHARD A. BUSH
---------------------------
Richard A. Bush
Vice President-Finance
<PAGE>
SECURITIES PURCHASE AGREEMENT
by and between
FAIRFIELD MANUFACTURING COMPANY, INC.
as Issuer
and
CIBC WOOD GUNDY SECURITIES CORP.
as Initial Purchaser
---------------------------------
Dated as of March 7, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
Section 1.1. Definitions............................................ 1
Section 1.2. Accounting Terms; Financial Statements................. 6
ARTICLE II
ISSUE OF SHARES; PURCHASE AND SALE OF
SHARES; REGISTRATION RIGHTS OF HOLDERS OF
SHARES; OFFERING BY INITIAL PURCHASER
Section 2.1. Issue of Shares........................................ 6
Section 2.2. Purchase, Sale and Delivery of Shares.................. 7
Section 2.3. Registration Rights of Holders of Shares............... 7
Section 2.4. Offering by the Initial Purchaser...................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES; RESALE OF SHARES
Section 3.1. Representations and Warranties of the Company.......... 8
Section 3.2. Resale of Shares....................................... 19
ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING
Section 4.1. Conditions Precedent to Obligations of the
Initial Purchaser...................................... 20
ARTICLE V
COVENANTS
Section 5.1. Covenants of the Company................................ 23
ARTICLE VI
FEES
Section 6.1 Costs, Expenses and Taxes............................... 25
-i-
<PAGE>
ARTICLE VII
INDEMNITY
Section 7.1. Indemnity............................................... 26
Section 7.2. Contribution............................................ 29
Section 7.3. Share Registration Rights Agreement..................... 30
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Survival of Provisions.................................. 30
Section 8.2. Termination............................................. 31
Section 8.3. No Waiver; Modifications in Writing..................... 32
Section 8.4 Information Supplied by the Initial Purchaser........... 32
Section 8.5. Communications.......................................... 33
Section 8.6. Execution in Counterparts............................... 33
Section 8.7. Successors.............................................. 34
Section 8.8. Governing Law........................................... 34
Section 8.9. Severability of Provisions.............................. 34
Section 8.10. Headings................................................ 34
SIGNATURE PAGE
EXHIBITS
Exhibit 1
Form of Opinion of Debevoise & Plimpton
Exhibit 2
Form of Opinion of Cahill Gordon & Reindel
-ii-
<PAGE>
SECURITIES PURCHASE AGREEMENT, dated as of March 7, 1997 (the
"Agreement"), by and between FAIRFIELD MANUFACTURING COMPANY, INC., a Delaware
corporation (the "Company"), and CIBC WOOD GUNDY SECURITIES CORP. (the "Initial
Purchaser").
In consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. As used in this Agreement,
and unless the context requires a different meaning, the following terms have
the meanings indicated:
"Accredited Investor" has the meaning provided therefor
in Section 3.2 of this Agreement.
"Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Affiliate" means, with respect to any Person, any other
Person which directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, the Person in question.
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, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided, however, that beneficial ownership of at least
10% of the voting securities of a Person shall be deemed to be control.
"Agreement" means this Agreement, as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Basic Documents" means, collectively, the Certificate of
Designation, the Shares, the Indenture, the Share Registration Rights Agreement
and this Agreement, including (in each case) any amendments thereto.
<PAGE>
-2-
"Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in the City
of New York are authorized or obligated by law to close.
"Certificate of Designation" means the certificate of
designation dated March 7, 1997 under which the Shares will be issued.
"Certificate of Incorporation" means the certificate of
incorporation of the Company.
"Closing" has the meaning provided therefor in Section 2.2(b)
of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Act.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
"Commonly Controlled Entity" has the meaning provided therefor
in Section 3.1(s) of this Agreement.
"Credit Agreement" has the meaning provided therefor in the
Certificate of Designation.
"Debentures" has the meaning provided therefor in Section
2.1 of this Agreement.
"Default" means any event, act or condition which, with notice
or lapse of time or both, would constitute an Event of Default under the
Indenture.
"Dividend Shares" has the meaning provided therefor in
Section 3.1(f) of this Agreement.
"Environmental Law" has the meaning provided therefor
in Section 3.1(z) of this Agreement.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
<PAGE>
-3-
"Event of Default" means any event defined as an Event
of Default in the Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Exchange Preferred Stock" shall have the meaning provided
therefor in the Share Registration Rights Agreement.
"Existing Indenture" means the indenture governing the
Existing Notes.
"Existing Notes" means the Company's 11-3/8% Senior
Subordinated Notes due July 1, 2001.
"Final Memorandum" has the meaning provided therefor in
Section 2.1 of this Agreement.
"Foreign Plans" has the meaning provided therefor in
Section 3.1(s) of this Agreement.
"Indebtedness" has the meaning provided therefor in the
Final Memorandum.
"Indemnified Party" has the meaning provided therefor
in Section 7.1(c) of this Agreement.
"Indemnifying Party" has the meaning provided therefor
in Section 7.1(c) of this Agreement.
"Indenture" means the indenture dated as of , 1997 by and
between the Company and the Trustee under which the Debentures will be issued.
"In-kind Debentures" has the meaning provided therefor
in Section 3.1(i) of this Agreement.
"Initial Purchaser" has the meaning provided therefor
in the introductory paragraph of this Agreement.
"Lancer" means Lancer Industries Inc., a Delaware
corporation.
"Lien" means, with respect to any property or assets of any
Person, any mortgage or deed of trust, pledge, hypothecation, assignment,
deposit arrangement, security
<PAGE>
-4-
interest, lien, charge, easement, encumbrance, preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including, without limitation,
any Capitalized Lease Obligation (as defined in the Certificate of Designation),
conditional sales, or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"Material Adverse Effect" means, with respect to the Company
and its Subsidiaries, a material adverse effect on the business, condition
(financial or otherwise), results of operations or prospects of the Company and
its Subsidiaries, taken as a whole; provided that, with respect to the Company,
"Material Adverse Effect" shall also mean a material adverse effect on the
ability of the Company to perform its obligations under the Basic Documents,
including this Agreement.
"Memorandum" has the meaning provided therefor in Section 2.1
of this Agreement.
"Offering" has the meaning provided therefor in the
Memorandum.
"Offering Materials" has the meaning provided therefor
in Section 7.1(a) of this Agreement.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, incorporated or unincorporated association,
joint-stock company, trust, government (or an agency or political subdivision
thereof) or other entity of any kind.
"PORTAL" means the Private Offerings, Resales and Trading
through Automated Linkages Market.
"Preliminary Memorandum" has the meaning provided
therefor in Section 2.1 of this Agreement.
"Private Exchange Shares" shall have the meaning provided
therefor in the Share Registration Rights Agreement.
"Proceeding" has the meaning provided therefor in Section
7.1(c) of this Agreement.
<PAGE>
-5-
"QIB" has the meaning provided therefor in Section 3.2 of
this Agreement.
"Regulation D" has the meaning provided therefor in Section
3.1(u) of this Agreement.
"Regulation S" has the meaning provided therefor in Section
3.1(ee) of this Agreement.
"Rule 144A" has the meaning provided therefor in Section
3.1(cc) of this Agreement.
"Securities" has the meaning provided therefor in Section
2.1 of this Agreement.
"Share Registration Rights Agreement" means the registration
rights agreement by and between the Company and the Initial Purchaser relating
to the Shares.
"Shares" has the meaning provided therefor in Section 2.1 of
this Agreement.
"State" means each of the states of the United States, the
District of Columbia and the Commonwealth of Puerto Rico.
"State Commission" means any agency of any State having
jurisdiction to enforce such State's securities laws.
"Subsidiaries" means, with respect to any Person, any
corporation, partnership, joint venture, association or other business entity,
whether now existing or hereafter organized or acquired, (i) in the case of a
corporation, of which more than 50% of the total voting power of the capital
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, officers or trustees thereof is held by such
first-named Person or any of its Subsidiaries; or (ii) in the case of a
partnership, joint venture, association or other business entity, with respect
to which such first-named Person or any of its Subsidiaries has the power to
direct or cause the direction of the management and policies of such entity by
contract or otherwise or if in accordance with generally accepted accounting
principles such entity is consolidated with the first-named Person for financial
statement purposes.
<PAGE>
-6-
"Supplement" has the meaning provided therefor in Section 2.1
of this Agreement.
"Taxes" has the meaning provided therefor in Section 3.1(v)
of this Agreement.
"T-H Licensing" means T-H Licensing, Inc., a Delaware
corporation.
"Time of Purchase" has the meaning provided therefor in
Section 2.2(b) of this Agreement.
"Trustee" means United States Trust Company of New York, as
trustee under the Indenture.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended, and the rules and regulations of the Commission thereunder.
"Voting Rights Triggering Event" means any event defined as
a Voting Rights Triggering Event under the Certificate of Designation.
1.2. Accounting Terms; Financial Statements. All accounting
terms used herein not expressly defined in this Agreement shall have the
respective meanings given to them in accordance with generally accepted
accounting principles in the United States as the same may be in effect from
time to time.
ARTICLE II
ISSUE OF SHARES; PURCHASE AND SALE
OF SHARES; RIGHTS OF HOLDERS OF SHARES;
OFFERING BY INITIAL PURCHASER
Section 2.1. Issue of Shares. The Company has authorized the
issuance of 50,000 shares of 11-1/4% Cumulative Exchangeable Preferred Stock,
par value $.01 per share (the "Shares"). The Shares are exchangeable, at the
option of the Company, in whole but not in part, for the Company's 11-1/4%
Subordinated Exchange Debentures due 2009 (the "Debentures") on any dividend
payment date occurring after the earlier of (i) July 2, 2001 and (ii) the date
on which all of the Existing Notes are redeemed, subject to the satisfaction of
certain conditions and provided that such exchange is permitted pursuant to the
terms of the Company's Indebtedness then outstanding. The Debentures are to be
<PAGE>
-7-
issued under the Indenture. The Shares and the Debentures are referred to herein
as the "Securities."
The Securities have not been registered under the Act, and the
Shares will be offered and sold to the Initial Purchaser in reliance on
exemptions therefrom.
In connection with the sale of the Shares, the Company has
prepared a preliminary offering memorandum dated February 25, 1997 (the
"Preliminary Memorandum") and prepared a final offering memorandum dated March
7, 1997 (the "Final Memorandum" and, together with the Preliminary Memorandum,
the "Memorandum") setting forth or including a description of the terms of the
Securities, the terms of the Offering, a description of the Company and any
material developments relating to the Company occurring after the date of the
most recent financial statements included therein.
Section 2.2. Purchase, Sale and Delivery of Shares. (a) On the
basis of the representations, warranties, agreements and covenants herein
contained and subject to the terms and conditions herein set forth, the Company
agrees that it will sell to the Initial Purchaser, and the Initial Purchaser
agrees that it will purchase from the Company at the Time of Purchase the Shares
at a purchase price of $970.00 per Share.
(b) The purchase, sale and delivery of the Shares will take
place at a closing (the "Closing") at the offices of Cahill Gordon & Reindel, 80
Pine Street, New York, New York, at 9:00 A.M., New York time, on March 12, 1997,
or such later date and time, if any, as the Initial Purchaser and the Company
shall agree. The time at which such Closing is concluded is herein called the
"Time of Purchase."
(c) One or more certificates in definitive form for the Shares
that the Initial Purchaser has agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Initial Purchaser requests upon notice to the Company at least 48 hours prior to
the Closing, shall be delivered by or on behalf of the Company to the Initial
Purchaser, against payment by or on behalf of the Initial Purchaser of the
purchase price therefor by wire transfer of immediately available funds wired in
accordance with the written instructions of the Company. The Company will make
such certificate or certificates for the Shares available for
<PAGE>
-8-
checking and packaging by the Initial Purchaser at the offices of the Initial
Purchaser, or such other place as the Initial Purchaser may designate, at least
24 hours prior to the Closing.
Section 2.3. Registration Rights of Holders of Shares. The
Initial Purchaser and its direct and indirect transferees of the Shares will
have such rights with respect to the registration of the Shares or the Exchange
Preferred Stock under the Act as set forth in the Share Registration Rights
Agreement.
Section 2.4. Offering by the Initial Purchaser. The Initial
Purchaser proposes to make an offering of the Shares at the price and upon the
terms and in the manner set forth in the Final Memorandum, as soon as
practicable after this Agreement has been executed and delivered and as in the
judgment of the Initial Purchaser is advisable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES; RESALE OF SHARES
Section 3.1. Representations and Warranties of the Company.
The Company represents and warrants to and agrees with the Initial Purchaser as
follows:
(a) The Final Memorandum, as of its date and at the Time of
Purchase, will not contain any untrue statement of a material fact or
omit to state a material fact 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 set forth in
this Section 3.1(a) do not apply to statements or omissions made in
reliance upon and in conformity with information relating to the
Initial Purchaser furnished to the Company in writing by the Initial
Purchaser expressly for use in the Final Memorandum or any amendment or
supplement thereto or relating to the manner of sale of the Shares by
the Initial Purchaser.
(b) The audited consolidated financial statements of the
Company and its Subsidiaries included in the Final Memorandum present
fairly in all material respects the financial position, results of
operations and cash flows of the Company and its Subsidiaries at the
dates and for the periods to which they relate and
<PAGE>
-9-
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, except as otherwise stated
therein. The summary and selected financial data in the Final
Memorandum present fairly in all material respects the financial
information shown therein and have been prepared and compiled on a
basis consistent with the audited financial statements included
therein, except as otherwise stated therein. Coopers & Lybrand LLP
("Coopers & Lybrand") is an independent public accounting firm within
the meaning of the Act and the rules and regulations promulgated
thereunder. The pro forma financial statements (including the notes
thereto) and the other pro forma financial information included in the
Final Memorandum have been prepared using reasonable assumptions and in
accordance with the applicable requirements of the Act and include all
adjustments necessary to present fairly the pro forma financial
information included within the Final Memorandum at the respective
dates and for the respective periods indicated.
(c) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has filed all reports with the Secretary of State of Delaware
required to obtain a certificate with respect to continued subsistence
in good standing from that office. Each Subsidiary of the Company is a
corporation duly incorporated or organized, validly existing and in
good standing under the laws of the state or other jurisdiction of its
incorporation or organization. Each of the Company and its Subsidiaries
is duly qualified and in good standing as a foreign corporation and is
authorized to do business in each jurisdiction in which the ownership
or leasing of any property or the character of its operations makes
such qualification necessary, except where the failure to be so
qualified or be in good standing would not have a Material Adverse
Effect.
(d) As of the Time of Purchase (after giving pro forma effect
to the Offering), the Company will have the authorized, issued and
outstanding capitalization as set forth in the Final Memorandum. All of
the issued and outstanding shares of capital stock of the Company and
its Subsidiaries are validly issued, all of such capital stock is fully
paid and nonassessable and none of such shares or interests were issued
in
<PAGE>
-10-
violation of any preemptive or similar rights. The Company has no
Subsidiaries other than T-H Licensing. Except as set forth in the Final
Memorandum, (i) all of the capital stock of each Subsidiary of the
Company is owned directly by the Company, free and clear of any Liens,
(ii) there are no outstanding subscriptions, options, warrants, rights,
convertible securities or other binding agreements or commitments of
any character obligating the Company or its Subsidiaries to issue any
securities and (iii) there is no agreement, understanding or
arrangement among the Company or its Subsidiaries and their respective
stockholders or any other Person relating to the ownership or
disposition of any capital stock in the Company or any of its
Subsidiaries, the election of directors of the Company or any of its
Subsidiaries or the governance of the Company's or any of its
Subsidiaries' affairs, and such agreements, arrangements or
understandings will not be breached or violated as a result of the
execution and delivery of, or the consummation of the transactions
contemplated by, this Agreement and the other Basic Documents.
(e) This Agreement has been duly authorized, executed
and delivered by the Company and (assuming the due authorization,
execution and delivery by the Initial Purchaser) is a valid and legally
binding obligation of the Company, enforceable against the Company in
accordance with its terms except (i) that the enforcement hereof may be
subject to bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally, and to general principles of
equity (regardless of whether enforcement is considered in a proceeding
in equity or at law) and the discretion of the court before which any
proceeding therefor may be brought and (ii) as any rights to indemnity
or contribution hereunder may be limited by federal and state
securities laws and public policy considerations.
(f) The Certificate of Designation relating to the Shares and
any additional Shares issued as dividends in accordance with the terms
of the Certificate of Designation (the "Dividend Shares"), as of the
Time of Purchase, will be duly authorized by the Company. The Shares,
the Dividend Shares, the Exchange Preferred Stock and the Private
Exchange Preferred
<PAGE>
-11-
Stock (as defined in the Share Registration Rights Agreement), as of
the Time of Purchase, will be duly authorized and, when issued and
delivered by the Company in accordance with the provisions of this
Agreement against payment therefor, in the case of the Shares, and in
accordance with the terms of the Certificate of Designation, in the
case of the Dividend Shares, will be validly issued, fully paid and
nonassessable and free of any preemptive or similar rights; the
certificates for the Shares and the Dividend Shares are in due and
proper form; and the holders of such Shares and Dividend Shares will
not be subject to personal liability by reason of being such holders.
The Company has reserved for issuance, and duly authorized the issuance
of, the maximum number of Dividend Shares issuable as dividends
pursuant to the terms of the Certificate of Designation. The
Certificate of Incorporation of the Company, by virtue of the
Certificate of Designation, sets forth the rights, preferences and
priorities of the Shares and the Dividend Shares.
(g) The Indenture, as of the Time of Purchase, will be duly
authorized by the Company and, when executed and delivered by the
Company (assuming the due authorization, execution and delivery by the
Trustee), will constitute a valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its terms
except (i) that the enforcement thereof may be subject to bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally, and to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and the
discretion of the court before which any proceeding therefor may be
brought and (ii) as any rights to indemnity or contribution thereunder
may be limited by federal and state securities laws and public policy
considerations.
(h) The Share Registration Rights Agreement, as of the Time of
Purchase, will be duly authorized by the Company and, when executed and
delivered by the Company (assuming the due authorization, execution and
delivery by the Initial Purchaser), will constitute a valid and legally
binding obligation of the Company, enforceable against it in accordance
with its terms except (i) that
<PAGE>
-12-
the enforcement thereof may be subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally, and
to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law) and the discretion of
the court before which any proceeding therefor may be brought and (ii)
as any rights to indemnity or contribution thereunder may be limited by
federal and state securities laws and public policy considerations.
(i) The Debentures and any additional Debentures issued as
interest in accordance with the provisions of the Indenture (the
"In-kind Debentures"), as of the Time of Purchase, will be duly
authorized by the Company for issuance and conform in all material
respects to the description thereof in the Final Memorandum. The
Debentures and the In-kind Debentures, when executed by the Company and
authenticated by the Trustee in accordance with the provisions of the
Indenture and delivered upon the exchange of the Shares and/or the
Dividend Shares, if any, in the case of the Exchange Debentures, or as
interest on outstanding Debentures, in the case of the In-kind
Debentures, will have been duly executed, issued and delivered and will
constitute valid and legally binding obligations of the Company,
entitled to the benefits of the Indenture and enforceable against the
Company in accordance with their terms, except (i) that the enforcement
thereof may be subject to bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and remedies
generally and to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and the
discretion of the court before which any proceeding therefor may be
brought and (ii) as any rights to indemnity or contribution thereunder
may be limited by federal and state securities laws and public policy
considerations.
(j) Immediately after the consummation of the transactions
contemplated by this Agreement (including the use of proceeds from the
sale of the Shares at the Time of Purchase), the fair value and present
fair saleable value of the assets of the Company (on a consolidated
basis) will exceed the sum of its stated
<PAGE>
-13-
liabilities and identified contingent liabilities; the Company (on a
consolidated basis) will not be, after giving effect to the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby (including the use of proceeds from
the sale of the Shares at the Time of Purchase), (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. In computing
the amount of contingent liabilities at any time, it is intended that
such liabilities will be computed at the amount that, in light of all
the facts and circumstances existing at such time, represents the
amount that can be reasonably be expected to become an actual or
matured liability.
(k) The Company has all requisite corporate power and
authority to (i) execute, deliver and perform its obligations under
each of this Agreement, the Certificate of Designation, the Indenture,
the Share Registration Rights Agreement, the Shares, the Dividend
Shares, the Debentures and the In-kind Debentures, (ii) execute,
deliver and perform its obligations under all other agreements and
instruments to be executed and delivered by the Company pursuant to or
in connection with each of the Basic Documents and the transactions
contemplated hereby and thereby and (iii) subsequent to the filing of
the Certificate of Designation, issue and deliver the Shares in the
manner and for the purpose contemplated by this Agreement.
(l) Subsequent to the date as of which information is given
in the Final Memorandum to the date hereof, except as otherwise stated
or contemplated thereby, there has not been (i) any event or condition
that has had or that could reasonably be expected to have a Material
Adverse Effect, (ii) any transaction entered into by the Company or any
of its Subsidiaries, other than in the ordinary course of business,
that is material to the Company and its Subsidiaries, taken as a whole,
or (iii) any dividend or distribution of any kind declared, paid or
made by the Company on its common stock.
(m) Except as set forth in the Final Memorandum, there is no
action, suit, investigation or proceeding, governmental or otherwise,
pending or, to the best
<PAGE>
-14-
knowledge of the Company, threatened to which the Company or any of its
Subsidiaries is or would be a party or of which the properties or
assets of the Company or its Subsidiaries are or may be subject, that
(i) seeks to restrain, enjoin, prevent the consummation of or otherwise
challenge the issuance and sale of the Shares by the Company or any of
the other transactions contemplated hereby, (ii) questions the legality
or validity of any such transactions or seeks to recover damages or
obtain other relief in connection with any such transactions or (iii)
could reasonably be expected to have a Material Adverse Effect.
(n) The execution, delivery and performance by the Company of
the Basic Documents, the issuance and sale by the Company of the
Shares, and the execution, delivery and performance by the Company of
all other agreements and instruments to be executed and delivered by
the Company pursuant hereto or thereto or in connection herewith or
therewith or in connection with any of the transactions contemplated
hereby or thereby, and compliance by the Company with the terms and
provisions hereof and thereof, do not and will not (i) violate any
provision of any law, rule or regulation (including, without
limitation, Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System), order, writ, judgment, decree, determination
or award presently in effect or in effect at the Time of Purchase
having applicability to the Company or any of its Subsidiaries, (ii)
conflict with or result in a breach of or constitute a default under
the certificate of incorporation or by-laws (or similar organizational
document) of the Company or any of its Subsidiaries, or, as of the Time
of Purchase, any indenture or loan or credit agreement, or any other
material agreement or instrument, to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective properties or assets may be
bound or affected, or (iii) except as contemplated by the Basic
Documents or the Credit Agreement, result in, or require the creation
or imposition of, any Lien upon or with respect to any of the
properties or assets now owned or hereafter acquired by the Company or
any of its Subsidiaries, except, in each case, where such violation,
conflict, default or creation or imposition of any Lien would not
(individually or in the
<PAGE>
-15-
aggregate) be reasonably likely to have a Material Adverse Effect.
(o) Each agreement or instrument (other than the Basic
Documents) executed and delivered by the Company in connection with the
Basic Documents and the transactions contemplated thereby has been duly
and validly authorized and, when executed and delivered by the Company,
will constitute a valid and legally binding obligation of the Company,
enforceable against it in accordance with its terms, except (i) that
the enforcement thereof may be subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally, and
to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law) and the discretion of
the court before which any proceeding therefor may be brought and (ii)
as any rights to indemnity and contribution hereunder and thereunder
may be limited by applicable law.
(p) Neither the Company nor any of its Subsidiaries is
currently or, after giving effect to the consummation of the
transactions contemplated by this Agreement, will be (i) in violation
of its respective certificate of incorporation or by-laws (or similar
organizational document), (ii) in default (nor will an event occur
which with notice or passage of time or both would constitute such a
default) under or in violation of any indenture or loan or credit
agreement or any other material agreement or instrument to which it is
a party or by which it or any of its properties or assets may be bound
or affected (except as set forth in the Final Memorandum), (iii) in
violation of any order of any court, arbitrator or governmental body,
or (iv) in violation of or will have violated any statute, rule or
regulation of any governmental authority, except in each case, which
default or violation (individually or in the aggregate) could
reasonably be expected to (x) affect the legality, validity or
enforceability of any of the Basic Documents in any material respect or
(y) have a Material Adverse Effect.
(q) Except as set forth in the Final Memorandum, and assuming
the accuracy of the Initial Purchaser's representations and warranties
set forth in Section 3.2
<PAGE>
-16-
hereof, and the due performance by the Initial Purchaser of the
covenants and agreements set forth in Section 3.2 hereof, no
authorization, consent, approval, license, qualification or formal
exemption from, nor any filing, declaration or registration with, any
court, governmental agency or regulatory authority or any securities
exchange is required in connection with the execution, delivery or
performance by the Company or any of its Subsidiaries (to the extent
they are a party thereto) of any of the Basic Documents or any of the
transactions contemplated thereby, except (i) as may be required under
state securities or "blue sky" laws or the laws of any foreign
jurisdiction in connection with the offer and sale of the Shares or
(ii) as would not (individually or in the aggregate) be reasonably
likely to have a Material Adverse Effect. All such authorizations,
consents, approvals, licenses, qualifications, exemptions, filings,
declarations and registrations set forth in the Final Memorandum (other
than as disclosed therein) which are required to have been obtained by
the date hereof have been obtained or made, as the case may be, and are
in full force and effect and not the subject of any pending or, to the
knowledge of the Company, threatened attack by appeal or direct
proceeding or otherwise.
(r) The Company is not, and immediately after the Time of
Purchase will not be, an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
(s) (i) No Reportable Event (as defined in Section 4043 of
ERISA) has occurred during the five-year period prior to the date on
which this representation is made with respect to any Employee Benefit
Plan (as defined in Section 3(3) of ERISA), (ii) the Company and its
Subsidiaries have complied in all material respects with the applicable
provisions of ERISA and the Code in connection with each Employee
Benefit Plan, (iii) neither the Company nor any person or entity
treated with the Company as a single employer under Section 414 of
ERISA (a "Commonly Controlled Entity") has had a complete or partial
withdrawal from any Multiemployer Plan (as defined in ERISA), (iv)
neither the Company nor any Commonly Controlled Entity would become
subject to any liability under ERISA if the Company or any such
Commonly Controlled
<PAGE>
-17-
Entity were to withdraw completely from all Multiemployer Plans as of
the valuation date most closely preceding the date on which this
representation is made, and (v) no such Multiemployer Plan is in
reorganization or insolvent, which, in any such case under clause (i),
(ii), (iii), (iv) or (v), individually or in the aggregate, will result
in a Material Adverse Effect.
(t) The Company and each of its Subsidiaries have good and
valid title to, or valid and enforceable leasehold interests in, all
properties and assets identified in the Final Memorandum as owned or
leased, respectively, by each of them which are material to the
business of the Company and its Subsidiaries, taken as a whole, free
and clear of all Liens, except (i) such Liens as are described in the
Final Memorandum or (ii) Liens created in the ordinary course of
business which are Permitted Liens (as defined in the Indenture). All
of the leases material to the business of the Company or any of its
Subsidiaries and under which the Company or any of its Subsidiaries, as
the case may be, holds properties described in the Final Memorandum,
are valid and binding as leased by them, with such exceptions as are
not material and do not interfere with the use made and proposed to be
made of such properties by the Company or any of its Subsidiaries, as
the case may be.
(u) Neither the Company nor any of its Subsidiaries, or any
person acting on its or their behalf, has engaged in (i) any form of
general solicitation or general advertising (within the meaning of
Regulation D under the Act ("Regulation D")) in connection with any
offer or sale of the Shares, (ii) any public offering of the shares
(within the meaning of Section 4(2) of the Act) or (iii) any action
which would require the registration of the offering and sale of the
Shares pursuant to this Agreement under any Act; provided that the
foregoing representation and warranty shall not be deemed to apply to
the actions of the Initial Purchaser.
(v) All tax returns required to be filed by the Company or any
of its Subsidiaries in any jurisdiction (including foreign
jurisdictions) have been duly filed and all taxes, assessments, fees
and other charges including, without limitation, withholding taxes,
<PAGE>
-18-
penalties, and interest ("Taxes") due or claimed to be due have been
paid, other than those Taxes being contested in good faith and for
which adequate reserves or accruals have been established in accordance
with generally accepted accounting principles, except where the failure
to file such returns or to pay such Taxes is not reasonably likely to
have, singly or in the aggregate, a Material Adverse Effect. The
Company knows of no actual or proposed additional tax assessments for
any fiscal period against the Company or any of its Subsidiaries that,
individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect.
(w) The Company and each of its Subsidiaries owns or has the
legal right to use, all trade names, unregistered trademarks and
service marks, brand names, patents, patent rights, licenses, know-how,
registered and unregistered copyrights, registered trademarks and
service marks, and all applications for any of the foregoing, 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
reasonably be expected to have a Material Adverse Effect. Except as set
forth in the Final Memorandum, none of the Company or any of its
Subsidiaries has been charged with any material infringement with
respect to any intangible property of the character described above
relating to the business or been notified or advised of any material
claim of any other Person relating to any of the intangible property,
which infringements or claims (individually or in the aggregate) would
be reasonably likely to have a Material Adverse Effect.
(x) The Shares, the Certificate of Designation, the
Debentures, the Indenture, the Share Registration Rights Agreement and
this Agreement conform in all material respects to the descriptions
thereof in the Final Memorandum.
(y) Assuming the accuracy of the Initial Purchaser's
representations and warranties set forth in Section 3.2 hereof, and the
due performance by the Initial Purchaser of the covenants and
agreements set forth in Section 3.2 hereof, the offer and sale of the
Shares to the Initial Purchaser in the manner
<PAGE>
-19-
contemplated by this Agreement and the Memorandum does not require
registration under the Act.
(z) Except as described in the Final Memorandum, each of the
Company and its Subsidiaries is in compliance with the common law and
all federal, state, local and foreign laws, and any rules, regulations,
orders, decrees, judgments or injunctions issued or promulgated
thereunder relating to pollution and protection of public and employee
health and the environment ("Environmental Law") and with the terms and
conditions of any permit, license or approval required thereunder in
connection with the ownership, operation or use of its business,
property and assets where the failure to be in such compliance could
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect; except as disclosed in the Final Memorandum,
and to the knowledge of the Company, none of the Company or any of its
Subsidiaries is subject to any liability, absolute or contingent, under
any Environmental Law which liability would, individually or in the
aggregate, be reasonably likely to result in a Material Adverse Effect;
except as disclosed in the Final Memorandum, there is no civil,
criminal or administrative action, suit, demand, hearing, notice of
violation or deficiency, investigation, proceeding or notice of
potential responsibility or liability or demand letter or request for
information pending or, to the knowledge of the Company, threatened
against the Company or any of its Subsidiaries under any Environmental
Law which, if determined adversely to the Company or any such
Subsidiary, would, individually or in the aggregate, be reasonably
likely to result in a Material Adverse Effect.
(aa) No labor dispute exists with the employees of the Company
or any of its Subsidiaries or, to the knowledge of the Company or any
of its Subsidiaries, is threatened or imminent, except as described in
or contemplated by the Final Memorandum and except for such disputes
that would not be reasonably likely to result in a Material Adverse
Effect.
(bb) Each of the Company and its Subsidiaries carries
insurance (including self insurance) in such amounts and covering such
risks as in its reasonable
<PAGE>
-20-
determination is adequate for the conduct of its business and the value
of its properties.
(cc) No securities of the Company or any of its Subsidiaries
are of the same class (within the meaning of Rule 144A under the Act
("Rule 144A")) as the Shares and listed on a national securities
exchange registered under Section 6 of the Exchange Act, or quoted in a
U.S. automated inter-dealer quotation system.
(dd) None of the Company or its Subsidiaries has
taken, nor will any of them take, directly or indirectly, any action
designed to, or that might be reasonably expected to, cause or result
in stabilization or manipulation of the price of the Shares.
(ee) None of the Company, its Subsidiaries, any of their
respective Affiliates or any person acting on its or their behalf
(other than the Initial Purchaser) has engaged in any directed selling
efforts (within the meaning of Regulation S under the Act ("Regulation
S") with respect to the Shares and the Company, its Subsidiaries and
their respective Affiliates and any person acting on its or their
behalf (other than the Initial Purchaser) have acted in accordance with
the offering restrictions requirement of Regulation S.
(ff) As of the Time of Purchase, the Company will have duly
authorized each of the transactions contemplated hereby and by the
Final Memorandum.
(gg) Except as stated in the Final Memorandum, the Company
does not know of any claims for services, either in the nature of a
finder's fee or financial advisory fee, with respect to the offering of
the Shares and the transactions contemplated by the Final Memorandum.
Section 3.2. Resale of Shares. The Initial Purchaser
represents and warrants that it is a "qualified institutional buyer" (as defined
in Rule 144A ("QIB")). The Initial Purchaser represents and warrants and agrees
with the Company that (a) it has not and will not, directly or indirectly,
solicit offers for, or offer or sell, the Shares by any form of general
solicitation or general advertising (as those terms are used in Regulation D) or
in any manner involving a public offering (within the meaning of Section
<PAGE>
-21-
4(2) of the Act); (b) it has not and will not, directly or indirectly, engage in
any "directed selling efforts" (within the meaning of Regulation S under the
Act) in the United States in connection with the Shares being offered and sold
pursuant to Regulation S under the Act; (c) it has not and will not, directly or
indirectly, purchase with a view to or for offer or sale in connection with any
distribution that would be in violation of federal or state law; and (d) it has
and will solicit offers for the Shares only from, and will offer the Shares only
to (A) in the case of offers inside the United States, (i) Persons whom the
Initial Purchaser reasonably believes to be QIBs or, if any such Person is
buying for one or more institutional accounts for which such Person is acting as
fiduciary or agent, only when such Person has represented to the Initial
Purchaser that each such account is a QIB, to whom notice has been given that
such sale or delivery is being made in reliance on Rule 144A, and, in each case,
in transactions under Rule 144A or (ii) a limited number of other institutional
investors reasonably believed by the Initial Purchaser to be "Accredited
Investors" (as defined in Rule 501(a)(1), (2), (3) or (7) of the Act) that,
prior to their purchase of the Shares, deliver to the Initial Purchaser and the
Company a letter containing the representations and agreements set forth in
Annex A to the Final Memorandum and (B) in the case of offers outside the United
States, to Persons other than U.S. Persons in reliance upon Regulation S, in
transactions meeting the requirements of Regulation S.
ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING
Section 4.1. Conditions Precedent to Obligations of the
Initial Purchaser. The obligation of the Initial Purchaser to purchase the
Shares to be purchased by it hereunder is subject to the satisfaction of the
following conditions:
(a) The Initial Purchaser shall have received an opinion,
addressed to the Initial Purchaser in form and substance satisfactory
to counsel to the Initial Purchaser and dated the Time of Purchase,
from Debevoise & Plimpton, counsel to the Company, covering the matters
set forth in Exhibit 1 hereto.
(b) The Initial Purchaser shall have received an opinion,
addressed to the Initial Purchaser in form and
<PAGE>
-22-
substance satisfactory to the Initial Purchaser and dated the Time of
Purchase, of Cahill Gordon & Reindel, counsel to the Initial Purchaser,
substantially in the form of Exhibit 2 hereto.
In rendering such opinions in accordance with Sections 4.1(a)
and (b), each such counsel may rely as to factual matters upon
certificates or other documents furnished by officers and directors of
the Company and representations of the Initial Purchaser and by
government officials, and upon such other documents as such counsel
deem appropriate as a basis for their opinion. Each such counsel may
specify the jurisdictions in which it is admitted to practice and that
it is not admitted to practice in any other jurisdiction or an expert
in the law of any other jurisdiction. To the extent such opinion
concerns the laws of any other such jurisdiction such counsel may rely
upon the opinion of counsel (satisfactory to the Initial Purchaser)
admitted to practice in such jurisdiction. Any opinion relied upon by
such counsel as aforesaid shall be delivered to the Initial Purchaser
together with the opinion of such counsel, which opinion shall state
that such counsel believes that their and the Initial Purchaser's
reliance thereon is justified.
(c) The Company shall have received an opinion, in form and
substance satisfactory to the Initial Purchaser and counsel to the
Initial Purchaser and dated the Time of Purchase, of Chartered Capital
Advisers, Inc., concerning the effect of the Offering on the capital
structure of the Company.
(d) The Initial Purchaser shall have received from Coopers &
Lybrand a comfort letter or letters dated the date hereof and the Time
of Purchase in form and substance satisfactory to counsel to the
Initial Purchaser.
(e) The representations and warranties made by the Company
herein shall be true and correct in all material respects (except for
changes expressly provided for in this Agreement) on and as of the Time
of Purchase with the same effect as though such representations and
warranties had been made on and as of the Time of Purchase; the Company
shall have complied in all material respects with all agreements
<PAGE>
-23-
to be performed as set forth in or contemplated hereunder and in the
other Basic Documents required to be performed by the Company at or
prior to the Time of Purchase.
(f) Subsequent to the date of the Final Memorandum, (i) there
shall not have been any change, or any development involving a
prospective change, which has had or could be reasonably likely to have
a Material Adverse Effect, and (ii) the Company and its Subsidiaries
shall have conducted their respective businesses only in the ordinary
course (except as contemplated or disclosed in the Final Memorandum).
(g) At the Time of Purchase and after giving effect to the
consummation of the transactions contemplated by this Agreement and the
other Basic Documents, there shall exist no Voting Rights Triggering
Event.
(h) The purchase of and payment for the Shares by the Initial
Purchaser hereunder shall not be prohibited or enjoined (temporarily
or permanently) by any applicable law or governmental regulation
(including, without limitation, Regulation G, T, U or X of the Board
of Governors of the Federal Reserve System).
(i) At the Time of Purchase, the Initial Purchaser shall have
received a certificate, dated the Time of Purchase, from the Company
stating that the conditions specified in Sections 4.1(e), (f), (g) and
(l) have been satisfied or duly waived at the Time of Purchase.
(j) Each of the Basic Documents shall be satisfactory in form
and substance to the Initial Purchaser and shall have been executed and
delivered by all the respective parties thereto and shall be in full
force and effect.
(k) All proceedings taken in connection with the issuance of
the Shares and the transactions contemplated by this Agreement, the
other Basic Documents and all documents and papers relating thereto
shall be satisfactory to the Initial Purchaser and counsel to the
Initial Purchaser. The Initial Purchaser and counsel to the Initial
Purchaser shall have received copies of such papers and documents as
<PAGE>
-24-
they may reasonably request in connection therewith, all in form and
substance reasonably satisfactory to them.
(l) The issuance and sale of the Shares hereunder shall not
have been enjoined (temporarily or permanently) at the Time of
Purchase.
(m) There shall not have been any announcement by any
"nationally recognized statistical rating organization" (as defined in
Rule 436(g) of the Act) that (A) it is downgrading its rating assigned
to any debt securities of the Company, or (B) it is reviewing its
rating assigned to any debt securities of the Company with a view to
possible downgrading, or with negative implications, or of a possible
change in any such rating that does not indicate the direction of the
possible change.
(n) The Initial Purchaser shall have sold the Shares in
accordance with the provisions of Section 3.2 hereof.
(o) The Trustee shall have received a letter, addressed to the
Trustee and dated the Time of Purchase, from Debevoise & Plimpton to
the effect that its opinion delivered in accordance with Section 4.1(a)
may be relied upon by the Trustee as though the same was delivered to
it.
On or before the Time of Purchase, the Initial Purchaser and
counsel to the Initial Purchaser shall have received such further documents,
opinions, certificates and schedules or other instruments relating to the
business, corporate, legal and financial affairs of the Company and its
Subsidiaries as they may reasonably request.
ARTICLE V
COVENANTS
Section 5.1. Covenants of the Company. The Company covenants
and agrees with the Initial Purchaser that:
(a) The Company will not amend or supplement the Final
Memorandum or any amendment or supplement thereto of which the Initial
Purchaser shall not previously
<PAGE>
-25-
have been advised and furnished a copy for a reasonable period of time
prior to the proposed amendment or supplement and as to which the
Initial Purchaser shall not have given its consent, which consent shall
not be unreasonably or untimely withheld. The Company will promptly,
upon the reasonable request of the Initial Purchaser or counsel to the
Initial Purchaser, make any amendments or supplements to the
Preliminary Memorandum or the Final Memorandum that may be necessary or
advisable in the opinion of the Initial Purchaser or counsel to the
Initial Purchaser in connection with the resale of the Shares by the
Initial Purchaser.
(b) The Company will cooperate with the Initial Purchaser in
arranging for the qualification of the Shares for offering and sale
under the securities or "blue sky" laws of such jurisdictions as the
Initial Purchaser may designate and will continue such qualifications
in effect for as long as may be reasonably necessary to complete the
resale of the Shares; provided, however, that in connection therewith,
the Company shall not be required to qualify as a foreign corporation
or to execute a general consent to service of process in any
jurisdiction or subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction where it is not then so subject.
(c) If, at any time prior to the completion of the distribution by the
Initial Purchaser of the Shares, the Exchange Preferred Stock or the
Private Exchange Preferred Stock, any event occurs or information
becomes known as a result of which the Final Memorandum as then amended
or supplemented would include any untrue statement of a material fact,
or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if for any other reason it is necessary at any time
to amend or supplement the Final Memorandum to comply with applicable
law, the Company will promptly notify the Initial Purchaser thereof
(who thereafter will not use such Final Memorandum until appropriately
amended or supplemented) and will prepare, at the expense of the
Company, an amendment or supplement to the Final Memorandum that
corrects such statement or omission or effects such compliance;
provided, however, that the Company's obligation hereunder shall not be
applicable
<PAGE>
-26-
to the extent resale by the Initial Purchaser may be accomplished
pursuant to a Registration Statement (as defined in the Share
Registration Rights Agreement).
(d) The Company will, without charge, provide to the Initial
Purchaser and to counsel to the Initial Purchaser as many copies of the
Preliminary Memorandum and the Final Memorandum or any amendment or
supplement thereto as the Initial Purchaser may reasonably request.
(e) The Company will apply the net proceeds from the sale of
the Shares as set forth under "Use of Proceeds" in the Final
Memorandum.
(f) For and during the period ending on the date no Securities
are outstanding, the Company will furnish to the Initial Purchaser
copies of all reports and other communications (financial or otherwise)
furnished by the Company to the holders of the Securities and to its
common stockholders generally and, promptly after available, copies of
any reports or financial statements furnished to or filed by the
Company with the Commission or any national securities exchange on
which any class of securities of the Company may be listed.
(g) Prior to the Time of Purchase, the Company will furnish to
the Initial Purchaser, as soon as they have been prepared, a copy of
any unaudited interim financial statements of the Company for any
period subsequent to the period covered by the most recent financial
statements appearing in the Final Memorandum.
(h) None of the Company or any of its Affiliates will sell,
offer for sale or solicit offers to buy or otherwise negotiate in
respect of any "security" (as defined in the Act) which could be
integrated with the sale of the Shares in a manner which would require
the registration of the Shares under the Act.
(i) The Company will not, and will not permit any of its
Subsidiaries to, solicit any offer to buy or offer to sell the
Securities by means of any form of general solicitation or general
advertising (within the meaning of Regulation D) or in any manner
involving a public offering (within the meaning of Section 4(2) of the
Act).
<PAGE>
-27-
(j) For so long as any of the Securities remain outstanding
and are "restricted securities" (as defined in Rule 144(a)(3) of the
Act) and not salable in full under Rule 144 of the Act (or any
successor provision), the Company will make available, upon request, to
any seller of such Securities the information specified in Rule
144A(d)(4) under the Act, unless the Company is then subject to Section
13 or 15(d) of the Exchange Act.
(k) The Company will use its best efforts to (i) permit the
Shares to be included for quotation on PORTAL and (ii) permit the
Shares to be eligible for clearance and settlement through The
Depository Trust Company.
(l) The Company will use its best efforts to do and perform
all things required to be done and performed by it under this Agreement
and the other Basic Documents prior to or after the Closing and to
satisfy all conditions precedent on its part to the obligations of the
Initial Purchaser to purchase and accept delivery of the Shares.
ARTICLE VI
FEES
Section 6.1. Costs, Expenses and Taxes. The Company agrees to pay all
costs and expenses incident to the performance of its obligations under this
Agreement, whether or not the transactions contemplated herein are consummated
or this Agreement is terminated pursuant to Section 8.2 hereof, including, but
not limited to, all costs and expenses incident to (i) its negotiation,
preparation, printing, typing, reproduction, execution and delivery of this
Agreement and each of the other Basic Documents, any amendment or supplement to
or modification of any of the foregoing and any and all other documents
furnished pursuant hereto or thereto or in connection herewith or therewith,
(ii) any costs of printing the Preliminary Memorandum and the Final Memorandum
and any amendment or supplement thereto, any other marketing related materials
and any "blue sky" memoranda (which shall include the reasonable disbursements
of counsel to the Initial Purchaser in respect thereof), (iii) all arrangements
relating to the delivery to the Initial Purchaser of copies of the foregoing
documents, (iv) the fees and disbursements of the counsel, the
<PAGE>
-28-
accountants and any other experts or advisors retained by the Company, (v) pre
paration (including printing), issuance and delivery to the Initial Purchaser of
the Shares, including transfer agent fees, (vi) the qualification of the Shares
under state securities and "blue sky" laws, including filing fees and reasonable
fees and disbursements of counsel to the Initial Purchaser relating thereto,
(vii) its respective expenses and the cost of any private or chartered jets in
connection with any meetings with prospective investors in the Shares, including
transfer agent fees, (viii) fees and expenses of the Trustee including fees and
expenses of counsel to the Trustee, (ix) all expenses and listing fees incurred
in connection with the application for quotation of the Shares on PORTAL, (x)
any fees charged by investment rating agencies for the rating of the Shares and
(xi) except as limited by Article VII, all costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses), if any, in
connection with the enforcement of this Agreement, the Shares or any other
agreement furnished pursuant hereto or thereto or in connection herewith or
therewith.
ARTICLE VII
INDEMNITY
Section 7.1. Indemnity.
(a) Indemnification by the Company. The Company agrees and
covenants to hold harmless and indemnify the Initial Purchaser and any
Affiliates thereof (including any director, officer, employee, agent or
controlling Person of any of the foregoing) from and against any losses, claims,
damages, liabilities and expenses (including expenses of investigation) to which
the Initial Purchaser and its Affiliates may become subject arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Memorandum and any amendments or supplements thereto, or
arising out of or based upon the omission or alleged omission thereon to state a
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; provided, however, that the Company shall not be liable under this
paragraph (a) to the extent that such losses, claims, damages or liabilities
arose out of or are based upon an untrue statement or omission made in the
Memorandum and any amendments or supplements thereto in reliance upon and in
<PAGE>
-29-
conformity with information relating to the Initial Purchaser furnished in
writing by the Initial Purchaser for inclusion therein (or for a breach by the
Initial Purchaser of any representation or warranty contained in this
Agreement); provided, further, that the Company shall not be liable under this
paragraph (a) to the extent that such losses, claims, damages or liabilities
arose out of or are based upon an untrue statement or omission made in any
Memorandum that is corrected in the Final Memorandum (or any amendment or
supplement thereto) if the person asserting such loss, claim, damage or
liability purchased Shares from the Initial Purchaser in reliance on such
Memorandum but was not given the Final Memorandum (or any amendment or
supplement thereto) on or prior to the confirmation of the sale of such Shares.
The Company further agrees to reimburse the Initial Purchaser for any reasonable
legal and other expenses as they are incurred by it in connection with
investigating, preparing to defend or defending any lawsuits, claims or other
proceedings or investigations arising in any manner out of or in connection with
such Person being the Initial Purchaser; provided that if the Company reimburses
the Initial Purchaser hereunder for any expenses incurred in connection with a
lawsuit, claim or other proceeding for which indemnification is sought, the
Initial Purchaser hereby agrees to refund such reimbursement of expenses to the
extent that the losses, claims, damages or liabilities arise out of or are based
upon an untrue statement or omission made in the Memorandum and any amendments
or supplements thereto in reliance upon and in conformity with information
relating to the Initial Purchaser furnished in writing by the Initial Purchaser
for inclusion therein (or for a breach by the Initial Purchaser of any
representation or warranty contained in this Agreement). The Company further
agrees that the indemnification, contribution and reimbursement commitments set
forth in this Article VII shall apply whether or not the Initial Purchaser is a
formal party to any such lawsuits, claims or other proceedings. The indemnity,
contribution and expense reimbursement obligations of the Company under this
Article VII shall be in addition to any liability the Company may otherwise
have.
(b) Indemnification by the Initial Purchaser. The Initial
Purchaser agrees to hold harmless and indemnify the Company and any Affiliates
thereof (including any director, officer, employee, agent or controlling Person
of any of the foregoing) from and against any losses, claims, damages,
liabilities and expenses insofar as such losses,
<PAGE>
-30-
claims, damages, liabilities or expenses arise out of or are based upon any
untrue statement of any material fact contained in the Offering Materials, or
any omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or omission was made
in reliance upon and in conformity with information relating to the Initial
Purchaser furnished in writing by the Initial Purchaser for inclusion therein.
The indemnity, contribution and expense reimbursement obligations of the Initial
Purchaser under this Article VII shall be in addition to any liability the
Initial Purchaser may otherwise have and shall apply whether or not the Company
or any Affiliates thereof is a formal party to any lawsuits, claims or other
proceedings.
(c) Procedure. If any Person shall be entitled to indemnity
hereunder (each an "Indemnified Party"), such Indemnified Party shall give
prompt written notice to the party or parties from which such indemnity is
sought (each an "Indemnifying Party") of the commencement of any action, suit,
investigation or proceeding, governmental or otherwise (a "Proceeding"), with
respect to which such Indemnified Party seeks indemnification or contribution
pursuant hereto; provided, however, that the failure so to notify the
Indemnifying Parties shall not relieve the Indemnifying Parties from any
obligation or liability except to the extent that the Indemnifying Parties have
been prejudiced materially by such failure. The Indemnifying Parties shall have
the right, exercisable by giving written notice to an Indemnified Party promptly
after the receipt of written notice from such Indemnified Party of such
Proceeding, to assume, at the Indemnifying Parties' expense, the defense of any
such Proceeding, with counsel reasonably satisfactory to such Indemnified Party;
provided, however, that an Indemnified Party or parties (if more than one such
Indemnified Party is named in any Proceeding) shall have the right to employ
separate counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or parties unless: (1) the Indemnifying Parties agree to
pay such fees and expenses; or (2) the Indemnifying Parties fail promptly to
assume the defense of such Proceeding or fail to employ counsel reasonably
satisfactory to such Indemnified Party or parties; or (3) the named parties to
any such Proceeding (including any impleaded parties) include both such
Indemnified Party or parties and the Indemnifying Party or an Affiliate of the
<PAGE>
-31-
Indemnifying Party and such Indemnified Parties, and the Indemnified Parties
shall have been advised in writing by counsel that there may be one or more
legal defenses available to such Indemnified Party or parties that are different
from or additional to those available to the Indemnifying Parties, in which
case, if such Indemnified Party or parties notifies the Indemnifying Parties in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Parties, the Indemnifying Parties shall not have the right to
assume the defense thereof with respect to the Indemnified Parties and such
counsel shall be at the expense of the Indemnifying Parties, it being
understood, however, that the Indemnifying Parties shall not, in connection with
any one such Proceeding or separate but substantially similar or related
Proceedings 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 (together with appropriate local counsel) at any
time for such Indemnified Party or parties, or for fees and expenses that are
not reasonable. No Indemnified Party or Parties will settle any Proceeding
without the consent of the Indemnifying Party or parties (but such consent shall
not be unreasonably withheld). No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending
or threatened Proceeding in respect of which any Indemnified Party is or could
have been or a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability or claims that are the subject of such
Proceeding.
Section 7.2. Contribution. If for any reason the
indemnification provided for in Section 7.1 of this Agreement is unavailable to
an Indemnified Party, or insufficient to hold it harmless, in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
applicable 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 or liabilities in such proportion as is
appropriate to reflect not only the relative benefits received by the
Indemnifying Party on the one hand and the Indemnified Party on the other, but
also the relative fault of the Indemnifying and Indemnified Parties in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as
<PAGE>
-32-
well as any other relevant equitable considerations. The relative benefits
received by the Indemnifying and Indemnified Parties shall be deemed to be in
the same proportion as the total proceeds from the offering of the Shares
(before deducting expenses) received by the Company bear to the total discounts
and commissions received by the Initial Purchaser. The relative fault of the
Indemnifying and Indemnified Parties 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 Indemnifying or Indemnified Parties 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 and liabilities referred to above shall be
deemed to include any legal or other fees or expenses incurred by such party in
connection with investigating or defending any such claim.
The Company, on the one hand, and the Initial Purchaser, on
the other hand, agree that it would not be just and equitable if contribution
pursuant to the immediately preceding paragraph were determined pro rata or per
capita or by any other method of allocation which does not take into account the
equitable considerations referred to in such paragraph. Notwithstanding any
other provision of this Section 7.2, the Initial Purchaser shall not be
obligated to make contributions hereunder that in the aggregate exceed the total
discounts, commissions and other compensation received by the Initial Purchaser
under this Agreement, less the aggregate amount of any damages that the Initial
Purchaser has otherwise been required to pay by reason of the untrue or alleged
untrue statements or a breach of a representation or warranty or the omissions
or alleged omissions to state a material fact; provided, however, that 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.
Section 7.3. Share Registration Rights Agreement.
Notwithstanding anything to the contrary in this Article VII, the
indemnification and contribution provisions of the Share Registration Rights
Agreement shall govern any claim with respect thereto.
ARTICLE VIII
<PAGE>
-33-
MISCELLANEOUS
Section 8.1. Survival of Provisions. The representations,
warranties and covenants of the Company, its officers and the Initial Purchaser
made herein, the indemnity and contribution agreements contained herein and each
of the provisions of Articles VI, VII and VIII shall remain operative and in
full force and effect regardless of (a) the investigation made by or on behalf
of the Company, the Initial Purchaser or any Indemnified Party, (b) acceptance
of any of the Shares and payment therefor, (c) any termination of this Agreement
or (d) disposition of the Shares by the Initial Purchaser whether by redemption,
exchange, sale or otherwise.
Section 8.2. Termination. (a) This Agreement may be terminated
in the sole discretion of the Initial Purchaser by notice to the Company given
prior to the Time of Purchase in the event that the Company shall have failed,
refused or been unable to perform all obligations and satisfy all conditions on
its part to be performed or satisfied hereunder at or prior thereto or, if at or
prior to the Closing:
(i) the Company or any of its Subsidiaries shall have
sustained any loss or interference with respect to its businesses or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any strike, labor dispute,
slow down or work stoppage or any legal or governmental proceeding,
which loss or interference, in the sole judgment of the Initial
Purchaser, has had or has a Material Adverse Effect, or there shall
have been, in the sole judgment of the Initial Purchaser, any event or
development that, individually or in the aggregate, has or could be
reasonably likely to have a Material Adverse Effect (including without
limitation a change in control of the Company or any of its
Subsidiaries), except in each case as described in the Final Memorandum
(exclusive of any amendment or supplement thereto);
(ii) trading in securities of the Company or in securities
generally on the New York Stock Exchange, American Stock Exchange or
the Nasdaq National Market shall have been suspended or minimum or
maximum prices shall have been established on any such exchange or
market;
<PAGE>
-34-
(iii) a banking moratorium shall have been declared by
New York or United States authorities;
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, or (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international
calamity or emergency, or (C) any material change in the financial
markets of the United States which, in the case of (A), (B) or (C)
above and in the sole judgment of the Initial Purchaser, makes it
impracticable or inadvisable to proceed with the offering or the
delivery of the Shares as contemplated by the Final Memorandum; or
(v) any securities of the Company shall have been downgraded
or placed on any "watch list" for possible downgrading by any
nationally recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section
8.2 shall be without liability of any party to any other party except as
provided in Section 8.1 hereof.
Section 8.3. No Waiver; Modifications in Writing. No
failure or delay on the part of the Company or the Initial Purchaser in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
the Initial Purchaser at law or in equity or otherwise. No waiver of or consent
to any departure by the Company or the Initial Purchaser from any provision of
this Agreement shall be effective unless signed in writing by the party entitled
to the benefit thereof, provided that notice of any such waiver shall be given
to each party hereto as set forth below. Except as otherwise provided herein,
no amendment, modification or termination of any provision of this Agreement
shall be effective unless signed in writing by or on behalf of each of the
Company and the Initial Purchaser. Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by the Company or the Initial
Purchaser from the terms of any
<PAGE>
-35-
provision of this Agreement, shall be effective only in the specific instance
and for the specific purpose for which made or given. Except where notice is
specifically required by this Agreement, no notice to or demand on the Company
in any case shall entitle the Company to any other or further notice or demand
in similar or other circumstances.
Section 8.4. Information Supplied by the Initial Purchaser.
The statements set forth in the fourth and fifth sentences of the third
paragraph and the seventh paragraph under the heading "Plan of Distribution" in
the Final Memorandum (to the extent such statements relate to the Initial
Purchaser) constitute the only information furnished by the Initial Purchaser to
the Company for the purposes of Sections 3.1(a) and 7.1(a) and (b) hereof.
Section 8.5. Communications. All notices, demands and other
communications provided for hereunder shall be in writing, and, (a) if to the
Initial Purchaser, shall be given by registered or certified mail, return
receipt requested, telex, telegram, telecopy, courier service or personal
delivery, addressed to CIBC Wood Gundy Securities Corp., 425 Lexington Avenue,
3rd Floor, New York, New York 10017, Attention: Andrew Heyer, with a copy to
Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, Attention:
Roger Meltzer, Esq., and (b) if to the Company, shall be given by similar means
to Fairfield Manufacturing Company, Inc., U.S. 52 South, P.O. Box 7940,
Lafayette, Indiana 47903-7940, Attention: President, with a copy to Debevoise &
Plimpton, 875 Third Avenue, New York, New York 10022, Attention: Ralph Arditi,
Esq. In each case notices, demands and other communications shall be deemed
given when received.
Section 8.6. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto on
separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Agreement.
Section 8.7. Successors. This Agreement shall inure
to the benefit of and be binding upon the Initial Purchaser, the
Company and their respective successors and legal representatives, and nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other Person any legal or equitable right, remedy or claim
<PAGE>
-36-
under or in respect of this Agreement, or any provisions herein contained; this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such Persons and for the benefit of
no other Person except that (i) the indemnities of the Company contained in
Section 7.1(a) of this Agreement shall also be for the benefit of the directors,
officers, employees and agents of the Initial Purchaser and any Person or
Persons who control the Initial Purchaser within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act and (ii) the indemnities of the
Initial Purchaser contained in Section 7.1(b) of this Agreement shall also be
for the benefit of the directors of the Company, their respective officers,
employees and agents and any Person or Persons who control the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No
purchaser of Shares from the Initial Purchaser will be deemed a successor
because of such purchase.
Section 8.8. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
Section 8.9. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 8.10. Headings. The Article and Section
headings and Table of Contents used or contained in this
Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
FAIRFIELD MANUFACTURING
COMPANY,
INC.
By: /s/ RICHARD A. BUSH
-------------------------------
Name: Richard A. Bush
Title: Vice President Finance
The foregoing Agreement is hereby
confirmed and accepted as of the
date first written above
CIBC WOOD GUNDY SECURITIES CORP.
By: /s/ ANDREW R. HEYER
____________________________
Name: Andrew R. Heyer
Title: Managing Director
<PAGE>
-------------------------------------------------------
SHARE REGISTRATION RIGHTS AGREEMENT
Dated as of March 12, 1997
by and between
FAIRFIELD MANUFACTURING COMPANY, INC.
as Issuer
and
CIBC WOOD GUNDY SECURITIES INC.
as Initial Purchaser
-------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions..............................................1
2. Exchange Offer...........................................5
3. Shelf Registration.......................................9
4. Additional Dividends....................................11
5. Registration Procedures.................................12
6. Registration Expenses...................................23
7. Indemnification.........................................24
8. Rules 144 and 144A......................................29
9. Underwritten Registrations..............................29
10. Registration of Transfers and Exchanges.................29
11. Miscellaneous...........................................36
(a) Remedies.......................................36
(a) Enforcement....................................36
(a) No Inconsistent Agreements.....................36
(b) Adjustments Affecting Registrable
Preferred Stock..............................36
(c) Amendments and Waivers.........................36
(d) Notices........................................37
(e) Successors and Assigns.........................38
(f) Counterparts...................................38
(g) Headings.......................................38
(h) Governing Law..................................38
(i) Severability...................................39
(j) Securities Held by the Company
or Its Affiliates............................39
(k) Third Party Beneficiaries......................39
(l) Entire Agreement...............................39
-i-
<PAGE>
SHARE REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as
of March 12, 1997, by and between FAIRFIELD MANUFACTURING COMPANY, INC., a
Delaware corporation (the "Company"), and CIBC WOOD GUNDY SECURITIES CORP. (the
"Initial Purchaser").
This Agreement is entered into in connection with the
Securities Purchase Agreement, dated as of March 7, 1997, by and between the
Company and the Initial Purchaser (the "Purchase Agreement"), relating to the
sale by the Company to the Initial Purchaser of the Company's 11-1/4% Cumulative
Exchangeable Preferred Stock, par value $.01 per share (the "New Preferred
Stock"). The New Preferred Stock is exchangeable, at the option of the Company,
in whole but not in part, for the Company's 11- 1/4% Subordinated Exchange
Debentures due 2009 (the "Debentures") on any dividend payment date occurring
after the earlier of (i) July 2, 2001 and (ii) the date on which the Company's
11-3/8% Senior Subordinated Notes due 2001 are redeemed, subject to certain
conditions.
In order to induce the Initial Purchaser to enter into the
Purchase Agreement, the Company has agreed to provide the registration rights
set forth in this Agreement for the benefit of the Initial Purchaser and its
direct and indirect transferees and assigns. The execution and delivery of this
Agreement is a condition to the Initial Purchaser's obligation to purchase the
New Preferred Stock under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Dividends: See Section 4(a) hereof.
Advice: See Section 5 hereof.
Agreement: See the introductory paragraphs hereto.
Applicable Period: See Section 2 hereof.
Certificate of Designation: The Certificate of Designation
governing the New Preferred Stock as filed with
<PAGE>
-2-
the Secretary of State of the State of Delaware, as amended from time to time.
Certificate Shares: See Section 10 hereof.
Closing: The Closing as defined in the Purchase Agreement.
Closing Date: The Closing Date as defined in the
Purchase Agreement.
Company: See the introductory paragraphs hereto.
Debentures: See the introductory paragraphs hereto.
Depositary: The Depository Trust Company until a
successor is appointed by the Company and the Transfer Agent.
Effectiveness Date: The 150th day after the Issue Date.
Effectiveness Period: See Section 3 hereof.
Event Date: See Section 4 hereof.
Exchange Act: The Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations of the
SEC promulgated thereunder.
Exchange Preferred Stock: See Section 2 hereof.
Exchange Offer: See Section 2 hereof.
Exchange Registration Statement: See Section 2 hereof.
Filing Date: Within 30 days after the Issue Date.
Global Certificates: See Section 10 hereof.
Holder: Any holder of shares of Registrable Preferred Stock.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
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Initial Purchaser: See the introductory paragraphs
hereto.
Initial Shelf Registration: See Section 3(a) hereof.
Inspectors: See Section 5(n) hereof.
Issue Date: The date on which the original New Preferred
Stock was issued and sold to the Initial Purchaser pursuant to the
Purchase Agreement.
NASD: See Section 5(r) hereof.
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2 hereof.
Person: An individual, partnership, corporation, limited
liability company, unincorporated association, trust or joint venture, or a
governmental agency or political subdivision thereof.
Private Exchange: See Section 2 hereof.
Private Exchange Certificate: The certificate of
designation governing the terms of the Private Exchange Preferred Stock.
Private Exchange Preferred Stock: See Section 2 hereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs hereto.
Records: See Section 5(n) hereof.
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Registrable Preferred Stock: Each share of New Preferred Stock
upon original issuance thereof and at all times subsequent thereto, each share
of Exchange Preferred Stock as to which Section 2(c)(1)(i) hereof is applicable
upon original issuance and at all times subsequent thereto and each share of
Private Exchange Preferred Stock upon original issuance thereof and at all
times subsequent thereto, until in the case of any such shares of New Preferred
Stock, Exchange Preferred Stock or Private Exchange Preferred Stock, as the
case may be, the earliest to occur of (i) a Registration Statement (other than,
with respect to any Exchange Preferred Stock as to which Section 2(c)(1)(i)
hereof is applicable, the Exchange Registration Statement) covering such
shares of New Preferred Stock, Exchange Preferred Stock or such Private
Exchange Preferred Stock, as the case may be, have been declared effective
by the SEC and such shares of New Preferred Stock, Exchange Preferred
Stock or Private Exchange Preferred Stock, as the case may be, have been
disposed of in accordance with such effective Registration Statement, (ii) such
shares of New Preferred Stock, Exchange Preferred Stock or Private Exchange
Preferred Stock, as the case may be, are sold in compliance with Rule 144 or
could be sold in compliance with paragraph (k) of such Rule 144, (iii) such
shares of New Preferred Stock have been exchanged for shares of Exchange
Preferred Stock pursuant to an Exchange Offer and such shares of Exchange
Preferred Stock are tradeable by the holders thereof which are not affiliates of
the Company (within the meaning of the Act) without restriction under the Act
and without material restriction under applicable state securities laws, or (iv)
such shares of New Preferred Stock, Exchange Preferred Stock or Private Exchange
Preferred Stock, as the case may be, cease to be outstanding. For purposes of
this Agreement and the registration requirements contained herein, Registrable
Preferred Stock shall be deemed to include, and all Registration Statements
required to be filed in accordance with the terms of this Agreement shall cover,
the Exchange Debentures (as defined in the Purchase Agreement) into which the
New Preferred Stock, Exchange Preferred Stock or Private Exchange Preferred
Stock that is Registrable Preferred Stock is exchangeable.
Registration Default: See Section 4(a) hereof.
Registration Statement: Any registration statement of the
Company, including, but not limited to, the Exchange Registration Statement,
filed with the SEC pursuant to the provisions of this Agreement, including the
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Prospectus, amendments and supplements to such registration statement, including
post-effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
Rule 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended
from time to time, and the rules and regulations of the SEC promulgated
thereunder.
Shelf Notice: See Section 2(c) hereof.
Shelf Registration: See Section 3(b) hereof.
Subsequent Shelf Registration: See Section 3(b) hereof.
Transfer Agent. The Transfer Agent for the New
Preferred Stock, the Exchange Preferred Stock and/or the Private
Exchange Preferred Stock, as the context may require.
Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
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(a) The Company agrees to use its best efforts to file with
the SEC as soon as practicable after the Closing, but in no event later than the
Filing Date, an offer to exchange (the "Exchange Offer") any and all shares of
the New Preferred Stock for a like number of shares (with a liquidation
preference equal to that of the surrendered shares) of another series of senior
exchangeable preferred stock of the Company that will have terms identical in
all material respects to the New Preferred Stock (the "Exchange Preferred
Stock"), except that (i) the Exchange Preferred Stock shall have been registered
pursuant to an effective Registration Statement under the Securities Act and the
certificates therefor shall contain no restrictive legend thereon and (ii) the
certificate of designation governing such Exchange Preferred Stock does
not need to contain the provisions set forth in the Certificate of Designation
concerning Additional Dividends including, without limitation,
paragraph (c)(viii) thereof. The Exchange Offer shall be registered under
the Securities Act on the appropriate form (the "Exchange Registration
Statement") and shall comply with all applicable tender offer rules and
regulations under the Exchange Act. The Company agrees to use its best efforts
to (x) cause the Exchange Registration Statement to be declared effective
under the Securities Act on or before the Effectiveness Date; (y) keep the
Exchange Offer open for at least 30 business days (or longer if required by
applicable law) after the date that notice of the Exchange Offer is mailed
to Holders; and (z) consummate the Exchange Offer on or prior to the 180th
day following the Issue Date. If after such Exchange Registration Statement
is initially declared effective by the SEC, the Exchange Offer or the issuance
of the Exchange Preferred Stock thereunder is interfered with by any stop
order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Exchange Registration Statement shall
be deemed not to have become effective for purposes of this Agreement.
Each Holder who participates in the Exchange Offer will be required to represent
that any Exchange Preferred Stock received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
Person to participate in the distribution of the Exchange Preferred Stock in
violation of the provisions of the Securities Act, and that such Holder is not
an affiliate of the Company within the meaning of the Securities Act. Upon
consummation of the Exchange Offer in accordance with this Section 2, the
provisions of this Agreement shall continue to apply, mutatis mutandis, solely
with respect to
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Registrable Preferred Stock that is Private Exchange Preferred Stock and
Exchange Preferred Stock held by Participating Broker-Dealers, and the
Company shall have no further obligation to register Registrable Preferred Stock
(other than Private Exchange Preferred Stock and other than in respect of any
Exchange Preferred Stock as to which clause 2(c)(1)(i) hereof applies) pursuant
to Section 3 hereof. No securities other than the Exchange Preferred Stock shall
be included in the Exchange Registration Statement.
(b) The Company shall include within the Prospectus contained
in the Exchange Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchaser, that shall
contain a summary statement of the positions taken or policies made by the
Staff of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3
under the Exchange Act) of Exchange Preferred Stock received by such
broker-dealer (a "Participating Broker-Dealer") in the Exchange Offer (other
than with respect to any shares of New Preferred Stock acquired by them and
having, or that is reasonably likely to be determined to have, the status of an
unsold allotment in the initial distribution), whether such positions or
policies have been publicly disseminated by the Staff of the SEC or such
positions or policies, in the judgment of the Initial Purchaser, represent the
prevailing views of the Staff of the SEC. Such "Plan of Distribution" section
shall also expressly permit the use of the Prospectus by all Persons subject to
the prospectus delivery requirements of the Securities Act, including all
Participating Broker-Dealers, and include a statement describing the means by
which Participating Broker-Dealers may resell the Exchange Preferred Stock.
The Company shall use its best efforts to keep the Exchange
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by all Persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as is necessary to comply with applicable law in
connection with any resale of the Exchange Preferred Stock; provided, however,
that such period shall not exceed 180 days after the Exchange Registration
Statement is declared effective (or such longer period if extended pursuant to
the last paragraph of Section 5 hereof) (the "Applicable Period").
<PAGE>
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If, prior to consummation of the Exchange Offer, the Initial
Purchaser holds any shares of New Preferred Stock acquired by them and having,
or that is reasonably likely to be determined to have, the status of an unsold
allotment in the initial distribution, and the Initial Purchaser reasonably
determines that it is not eligible to participate in the Exchange Offer, the
Company shall, upon the request of the Initial Purchaser simultaneously with the
delivery of the Exchange Preferred Stock in the Exchange Offer, issue and
deliver to the Initial Purchaser in exchange (the "Private Exchange") for such
shares of New Preferred Stock held by the Initial Purchaser exchangeable
preferred stock having a liquidation preference equal to that of the surrendered
shares of the New Preferred Stock and having terms identical in all material
respects to the New Preferred Stock (the "Private Exchange Preferred Stock").
The Private Exchange Preferred Stock shall bear the same CUSIP number as the
Exchange Preferred Stock.
Dividends on the Exchange Preferred Stock and the Private
Exchange Preferred Stock will accumulate from the last dividend payment date on
which dividends were paid on the New Preferred Stock surrendered in exchange
therefor or, if no dividends have been paid (or deemed to have been paid in
accordance with the terms of the Certificate of Designation) on the New
Preferred Stock, from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder a copy of the Prospectus forming part
of the Exchange Registration Statement, together with an appropriate
letter of transmittal and related documents;
(2) utilize the services of a depositary for the Exchange
Offer with an address in the Borough of Manhattan, The City of
New York;
(3) permit Holders to withdraw tendered shares of New
Preferred Stock at any time prior to the close of business, New York
time, on the last business day on which the Exchange Offer shall remain
open; and
(4) otherwise comply in all material respects with all
applicable laws, rules and regulations.
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As soon as practicable after the close of the Exchange Offer
or the Private Exchange, as the case may be, the Company shall:
(1) accept for exchange all shares of New Preferred Stock
tendered and not validly withdrawn pursuant to the Exchange Offer
or the Private Exchange;
(2) deliver to the Transfer Agent for cancellation and
retirement certificates representing all shares of New Preferred
Stock so accepted for exchange; and
(3) cause the Transfer Agent to countersign and deliver
promptly to each Holder of shares of New Preferred Stock, certificates
for the shares of Exchange Preferred Stock or Private Exchange
Preferred Stock, as the case may be, equal in liquidation preference to
the shares of New Preferred Stock of such Holder so accepted for
exchange.
The certificate of designation for the Exchange Preferred
Stock and the Private Exchange Certificate, if any, shall each provide that the
shares of Exchange Preferred Stock and Private Exchange Preferred Stock shall
vote as a class with each other and, under certain circumstances, with each
holder of any New Preferred Stock on all matters submitted to them to vote,
including, but not limited to, changes in the respective certificates of
incorporation and election of directors.
(c) If (1) prior to the consummation of the Exchange Offer,
the Company or Holders of at least a majority in aggregate liquidation
preference of the Registrable Preferred Stock reasonably determine in good faith
(after conferring with counsel) that (i) the Exchange Preferred Stock would not,
upon receipt, be tradeable by such Holders which are not affiliates (within the
meaning of the Securities Act) of the Company without restriction under the
Securities Act and without material restrictions under applicable state
securities laws, (ii) the interests of the Holders under this Agreement would be
materially adversely affected by the consummation of the Exchange Offer or (iii)
the SEC is unlikely to permit the consummation of the Exchange Offer prior to
the Effectiveness Date, (2) subsequent to the consummation of the Private
Exchange, any holder of the Private Exchange Preferred Stock so requests or (3)
the Exchange Offer is commenced and not consummated within 180 days of the date
of this Agreement, then the
<PAGE>
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Company shall promptly deliver to the Holders and the Transfer Agent written
notice thereof (the "Shelf Notice") and shall file an Initial Shelf
Registration pursuant to Section 3 (provided that, in the event an Exchange
Offer is consummated within 30 days following the delivery of a Shelf
Notice, the Company shall be relieved of its obligation to file an Initial Shelf
Registration pursuant to clause (3)). Following the delivery of a Shelf Notice
to the Holders of Registrable Notes (in the circumstances contemplated by
clauses (1) and (3) of the preceding sentence), the Company shall not have any
further obligation to conduct the Exchange Offer or the Private Exchange under
this Section 2.
(d) If the issuance of the Debentures requires registration
under the Securities Act and any such issuance shall not have been effectively
registered under the Securities Act pursuant to the Exchange Registration
Statement or a Shelf Registration Statement, then, prior to any issuance of
Debentures, the Company shall file with the Commission and cause to become
effective a Registration Statement registering the issuance of such Debentures.
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c)
hereof, then:
(a) Shelf Registration. The Company shall prepare and
file with the SEC a Registration Statement for an offering to be made on
a continuous basis pursuant to Rule 415 covering all of the Registrable
Preferred Stock (the "Initial Shelf Registration"). If the Company shall not
have yet filed an Exchange Registration Statement, the Company shall use its
best efforts to file with the SEC the Initial Shelf Registration on or prior to
the Filing Date. Otherwise, the Company shall use its best efforts to file with
the SEC the Initial Shelf Registration within 30 days of the delivery of the
Shelf Notice. The Initial Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Registrable Preferred Stock for
resale by Holders in the manner or manners designated by them (including,
without limitation, one or more underwritten offerings). The Company shall not
permit any securities other than the Registrable Preferred Stock to be included
in the Initial Shelf Registration or any Subsequent Shelf Registration (as
defined below).
The Company shall use its best efforts to cause the Initial
Shelf Registration to be declared effective
<PAGE>
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under the Securities Act on or prior to the Effectiveness Date and to keep
the Initial Shelf Registration continuously effective under the Securities
Act until the date that is 36 months from the Effectiveness Date, subject
to extension pursuant to the last paragraph of Section 5 hereof (the
"Effectiveness Period"), or such shorter period ending when (i) all the
shares of Registrable Preferred Stock covered by the Initial Shelf
Registration have been sold in the manner set forth and as contemplated in
the Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering
all of the Registrable Preferred Stock has been declared effective under the
Securities Act.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale of all of the securities registered thereunder), the Company shall use its
reasonable best efforts to obtain the prompt withdrawal of any order suspending
the effectiveness thereof, and in any event shall within 45 days of such
cessation of effectiveness amend the Initial Shelf Registration in a manner to
obtain the withdrawal of the order suspending the effectiveness thereof, or file
an additional "shelf" Registration Statement pursuant to Rule 415 covering all
of the Registrable Preferred Stock (a "Subsequent Shelf Registration"). If a
Subsequent Shelf Registration is filed, the Company shall use its reasonable
best efforts to cause the Subsequent Shelf Registration to be declared effective
under the Securities Act as soon as practicable after such filing and to keep
such Registration Statement continuously effective for a period equal to the
number of days in the Effectiveness Period less the aggregate number of days
during which the Initial Shelf Registration or any Subsequent Shelf
Registration was previously continuously effective. As used herein the term
"Shelf Registration" means the Initial Shelf Registration and any Subsequent
Shelf Registration.
(c) Supplements and Amendments. The Company shall promptly
supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority of shares of the Registrable Preferred
Stock covered by such Registration Statement or by any underwriter of such
Registrable Preferred Stock.
<PAGE>
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4. Additional Dividends
(a) The Company and the Initial Purchaser agree that the
Holders of Registrable Preferred Stock will suffer damages if the Company fails
to fulfill its obligations under Section 2 or Section 3 hereof and that it would
not be feasible to ascertain the extent of such damages with precision.
Accordingly, the Company agrees to pay additional interest on the New Preferred
Stock ("Additional Dividends") under the circumstances set forth below:
(i) if the Exchange Registration Statement has not been
filed on or prior to the Filing Date or the Initial Shelf Registration
has not been filed within 30 days following the delivery of a Shelf
Notice;
(ii) if neither the Exchange Registration Statement nor the
Initial Shelf Registration has been declared effective on or prior to
the Effectiveness Date; and/or
(iii) if either (A) the Company has not exchanged the Exchange
Preferred Stock for all New Preferred Stock validly tendered in
accordance with the terms of the Exchange Offer on or prior to 180 days
after the Issue Date or (B) the Exchange Registration Statement ceases
to be effective at any time prior to the time that the Exchange Offer
is consummated or (C) if applicable, the Shelf Registration has been
declared effective and such Shelf Registration ceases to be effective
at any time prior to the earlier of the date on which all Registrable
Preferred Stock covered by the Shelf Registration have been sold in the
manner set forth and as contemplated in the Shelf Registration or the
third anniversary of the Issue Date;
(each such event referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the New
Preferred Stock will be the immediate accrual of Additional Dividends as
follows: the per annum dividend rate on the New Preferred Stock will increase by
0.5% per annum upon the occurrence of a Registration Default; and the per annum
dividend rate will increase by an additional 0.5% per annum for each subsequent
90-day period during which the Registration Default remains uncured, up to a
maximum additional interest rate of 1.0% per annum, provided, however, that (1)
upon the filing of the Exchange Registration Statement or the Initial Shelf
Registration (in the case of (i) above), (2) upon the
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effectiveness of the Exchange Registration Statement or a Shelf Registration
(in the case of (ii) above) or (3) upon the exchange of Exchange Preferred
Stock for all New Preferred Stock tendered (in the case of (iii)(A) above),
or upon the effectiveness of the Exchange Registration Statement which had
ceased to remain effective (in the case of (iii)(B) above), or upon the
effectiveness of the Shelf Registration which had ceased to remain effective
(in the case of (iii)(C) above), Additional Dividends on the New Preferred
Stock as a result of such clause (i), (ii) or (iii) (or the relevant subclause
thereof), as the case may be, shall cease to accrue and the dividend rate on
the New Preferred Stock will immediately revert (without any further action
by the Company) to the interest rate originally borne by the New Preferred
Stock.
(b) The Company shall notify the Transfer Agent within one
business day after each and every date on which an event occurs in respect of
which Additional Dividends are required to be paid (an "Event Date"). Any
amounts of Additional Dividends due pursuant to (a)(i), (a)(ii) or (a)(iii) of
this Section 4 will be payable semi-annually on each March 15 and September 15
commencing on September 15, 1997 (to the Holders of record on the March 1 and
September 1 immediately preceding such dates) in accordance with the Certificate
of Designation and the Private Exchange Certificate, if applicable, commencing
with the first such date occurring after any such Additional Dividends commence
to accrue after March 15, 1997.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof, the Company shall effect such registrations
to permit the sale of the securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Registration Statement filed by the Company hereunder the
Company shall:
(a) Use its best efforts to prepare and file with the SEC
prior to the Filing Date (or, in the case of an Initial Shelf Registration,
within 30 days of the delivery of a Shelf Notice), a Registration Statement as
prescribed by Sections 2 or 3 hereof, and use its best efforts to cause each
such Registration Statement to become effective and remain effective as provided
herein; provided, however, that, if (1) such filing is pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration
<PAGE>
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Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Preferred Stock during the Applicable Period, before filing any
Registration Statement or Prospectus or any amendments or supplements thereto,
the Company shall furnish to and afford the Holders of the Registrable
Preferred Stock covered by such Registration Statement or each such
Participating Broker-Dealer, as the case may be, their counsel and the
managing underwriters, if any, a reasonable opportunity to review copies of
all such documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed (in each
case at least three business days prior to such filing). The Company shall
not file any Registration Statement or Prospectus or any amendments or
supplements thereto if the Holders of a majority in aggregate principal amount
of the shares of Registrable Preferred Stock covered by such Registration
Statement, or any such Participating Broker-Dealer, as the case may be, their
counsel, or the managing underwriters, if any, shall reasonably object;
provided, however, during any delay in meeting the time frames contemplated by
Section 4 hereof as a result of actions by any Holder of Registrable Preferred
Stock, no Additional Dividends shall accrue or be payable to such Holder.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration or Exchange Registration
Statement, as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period or the Applicable
Period, as the case may be; cause the related Prospectus to be supplemented by
any Prospectus supplement required by applicable law, and as so supplemented to
be filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; and comply with the provisions of the
Securities Act and the Exchange Act applicable to it with respect to the
disposition of all securities covered by such Registration Statement as so
amended or in such Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus. The Company shall be deemed not to have used its
reasonable best efforts to keep a Registration Statement effective during the
Applicable Period if it voluntarily takes any action that would result in
selling Holders of the Registrable Preferred Stock covered thereby or
Participating Broker-Dealers seeking to sell Exchange Preferred Stock not
<PAGE>
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being able to sell such Registrable Preferred Stock or such Exchange Preferred
Stock during that period unless such action is required by applicable law or
unless the Company complies with this Agreement, including without limitation,
the provisions of paragraph 5(k) hereof and the last paragraph of this
Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section
3 hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, notify the selling Holders of
shares of Registrable Preferred Stock, or each such Participating Broker-Dealer,
as the case may be, their counsel and the managing underwriters, if any,
promptly (but in any event within two business days), and confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective under the
Securities Act (including in such notice a written statement that any Holder
may, upon request, obtain, at the sole expense of the Company, one conformed
copy of such Registration Statement or post-effective amendment including
financial statements and schedules, documents incorporated or deemed to be
incorporated by reference and exhibits), (ii) of the issuance by the SEC of any
stop order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time when a
Prospectus is required by the Securities Act to be delivered in connection with
sales of the Registrable Preferred Stock or resales of Exchange Preferred Stock
by Participating Broker-Dealers the representations and warranties of the
Company contained in any agreement (including any underwriting agreement),
contemplated by Section 5(m) hereof, cease to be true and correct in all
material respects, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of a Registration Statement or any of the Registrable Preferred Stock or the
Exchange Preferred Stock to be sold by any Participating Broker-Dealer for offer
or sale in any jurisdiction, or the initiation or threatening of any proceeding
for such purpose, (v) of the happening of any event, the existence of any
condition or any information becoming known that makes any statement made in
such
<PAGE>
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Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in or amendments or supplements to such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it 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 not misleading, and that in the case of
the Prospectus, it 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 and (vi) of the Company's determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, use its reasonable best efforts to
prevent the issuance of any order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of a Prospectus or
suspending the qualification (or exemption from qualification) of any of the
Registrable Preferred Stock or the Exchange Preferred Stock to be sold by any
Participating Broker-Dealer, for sale in any jurisdiction, and, if any such
order is issued, to use its reasonable best efforts to obtain the withdrawal of
any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and
if requested by the managing underwriter or underwriters (if any), or the
Holders of a majority of shares of the Registrable Preferred Stock being sold in
connection with an underwritten offering or any Participating Broker-Dealer, (i)
promptly incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters (if any), such Holders,
any Participating Broker-Dealer or counsel for any of them determine is
reasonably necessary to be included therein, (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment and
<PAGE>
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(iii) supplement or make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, furnish to each selling Holder of
Registrable Preferred Stock and to each such Participating Broker-Dealer who so
requests and to counsel and each managing underwriter, if any, at the sole
expense of the Company, one conformed copy of the Registration Statement or
Registration Statements and each post-effective amendment thereto, including
financial statements and schedules, and, if requested, all documents
incorporated or deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, deliver to each selling Holder of
Registrable Preferred Stock, or each such Participating Broker-Dealer, as the
case may be, their respective counsel, and the underwriters, if any, at the sole
expense of the Company, as many copies of the Prospectus (including each form of
preliminary prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders of Registrable Preferred Stock or each
such Participating Broker-Dealer, as the case may be, and the underwriters or
agents, if any, and dealers (if any), in connection with the offering and sale
of the Registrable Preferred Stock covered by, or the sale by Participating
Broker-Dealers of the Exchange Preferred Stock pursuant to, such Prospectus and
any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Preferred
Stock or any delivery of a Prospectus contained in the Exchange Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, to use its reasonable best
<PAGE>
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efforts to register or qualify, and to cooperate with the selling Holders of
Registrable Preferred Stock or each such Participating Broker-Dealer, as the
case may be, the managing underwriter or underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Preferred Stock for offer and sale under the securities or Blue Sky laws of
such jurisdictions within the United States as any selling Holder,
Participating Broker-Dealer, or the managing underwriter or underwriters
reasonably request; provided, however, that where Exchange Preferred Stock
held by Participating Broker-Dealers or Registrable Preferred Stock is offered
other than through an underwritten offering, the Company agrees to cause the
Company's counsel to perform Blue Sky investigations and file registrations
and qualifications required to be filed pursuant to this Section 5(h); keep
each such registration or qualification (or exemption therefrom) effective
during the period such Registration Statement is required to be kept effective
and do any and all other acts or things reasonably necessary or advisable to
enable the disposition in such jurisdictions of the Exchange Preferred Stock
held by Participating Broker-Dealers or the Registrable Preferred Stock
covered by the applicable Registration Statement; provided, however, that
the Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
(i) If a Shelf Registration is filed pursuant to Section 3
hereof, cooperate with the selling Holders of Registrable Preferred Stock and
the managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing shares of Registrable
Preferred Stock to be sold, which certificates shall not bear any restrictive
legends and shall be in a form eligible for deposit with The Depository Trust
Company; and enable such shares of Registrable Preferred Stock to be in such
denominations and registered in such names as the managing underwriter or
underwriters, if any, or Holders may reasonably request.
(j) Use its best efforts to cause the Registrable Preferred
Stock 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 or the underwriter or underwriters, if any, to
consummate the disposition of such Registrable Preferred Stock, except as may be
required
<PAGE>
-19-
solely as a consequence of the nature of such selling Holder's business,
in which case the Company will cooperate in all reasonable respects
with the filing of such Registration Statement and the granting of such
approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable
prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole
expense of the Company, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Preferred Stock being sold thereunder or to the purchasers of
the Exchange Preferred Stock to whom such Prospectus will be delivered by a
Participating Broker-Dealer, any such Prospectus will not contain an untrue
statement of a material fact or omit to state a 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.
(l) Prior to the effective date of the first Registration
Statement relating to the Registrable Preferred Stock, (i) provide the Transfer
Agent with certificates for the Registrable Preferred Stock in a form eligible
for deposit with The Depository Trust Company and (ii) provide a CUSIP number
for the Registrable Preferred Stock.
(m) In connection with any underwritten offering of
Registrable Preferred Stock pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary in underwritten offerings of preferred
stock similar to the New Preferred Stock and take all such other actions as are
reasonably requested by the managing underwriter or underwriters in order to
expedite or facilitate the registration or the disposition of such Registrable
Preferred Stock and, in such connection, (i) make such representations and
warranties to, and covenants with, the underwriters with respect to the business
of the Company and its subsidiaries (including any acquired business, properties
or entity, if applicable) and
<PAGE>
-20-
the Registration Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, as are customarily
made by issuers to underwriters in underwritten offerings of preferred stock
similar to the New Preferred Stock, and confirm the same in writing if and when
requested; (ii) obtain the written opinion of counsel to the Company and written
updates thereof in form, scope and substance reasonably satisfactory to the
managing underwriter or underwriters, ad dressed to the underwriters covering
the matters customarily covered in opinions requested in underwritten offerings
of preferred stock similar to the New Preferred Stock and such other matters as
may be reasonably requested by the managing underwriter or underwriters; (iii)
obtain "cold comfort" letters and updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements and
financial data are, or are required to be, included or incorporated by reference
in the Registration Statement), addressed to each of the underwriters, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with underwritten offerings of
preferred stock similar to the New Preferred Stock and such other matters as
reasonably requested by the managing underwriter or underwriters; and (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in Section 7
hereof (or such other provisions and procedures acceptable to Holders of a
majority in aggregate principal amount of shares of Registrable Preferred Stock
covered by such Registration Statement and the managing underwriter or
underwriters or agents) with respect to all parties to be indemnified pursuant
to said Section. The above shall be done at each closing under such underwriting
agreement, or as and to the extent required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, make available for inspection by
any selling Holder of such Registrable Preferred Stock being sold, or each such
<PAGE>
-21-
Participating Broker-Dealer, as the case may be, any underwriter participating
in any such disposition of Registrable Preferred Stock, if any, and any
attorney, accountant or other agent retained by any such selling Holder or each
such Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and instruments of the Company and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise any
applicable due diligence responsibilities, and cause the officers, directors and
employees of the Company and its subsidiaries to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement. Records that the Company determines, in good faith, to be
confidential and any Records that it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court of competent jurisdiction, (iii)
disclosure of such information is, in the opinion of counsel for any Inspector,
necessary or advisable in connection with any action, claim, suit or proceeding,
directly or indirectly, involving or potentially involving such Inspector and
arising out of, based upon, relating to, or involving this Agreement or any
transactions contemplated hereby or arising hereunder or (iv) the information in
such Records has been made generally available to the public (other than as a
result of a breach of any obligation of confidentiality hereunder by an
Inspector or any of its representatives). Each selling Holder of such
Registrable Securities and each such Participating Broker-Dealer will be
required to agree that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company unless and
until such information is generally available to the public. Each selling Holder
of such Registrable Preferred Stock and each such Participating Broker-Dealer
will be required to further agree that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company to undertake appropriate action to prevent
disclosure of the Records deemed confidential at the Company's sole expense.
<PAGE>
-22-
(o) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) (i) commencing at the end
of any fiscal quarter in which Registrable Preferred Stock is sold to
underwriters in a firm commitment or best efforts underwritten offering and (ii)
if not sold to underwriters in such an offering, commencing on the first day of
the first fiscal quarter of the Company after the effective date of a
Registration Statement, which statements shall cover said 12-month periods.
(p) Upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Company, in a form customary for
underwritten transactions, addressed to the Transfer Agent for the benefit of
all Holders of Registrable Preferred Stock participating in the Exchange Offer
or the Private Exchange, as the case may be, that the Exchange Preferred Stock
or Private Exchange Preferred Stock, as the case may be, is duly authorized,
validly issued, fully paid and non-assessable.
(q) If an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of shares of Registrable Preferred Stock by Holders
to the Company (or to such other Person as directed by the Company) in exchange
for shares of Exchange Preferred Stock or Private Exchange Preferred Stock, as
the case may be, the Company shall mark, or cause to be marked, on the
certificates representing such shares of Registrable Preferred Stock that such
shares of Registrable Preferred Stock are being cancelled in exchange for the
Exchange Preferred Stock or the Private Exchange Preferred Stock, as the case
may be.
(r) Cooperate with each seller of Registrable Preferred Stock
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Preferred Stock and their
respective counsel in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD").
(s) Provide an indenture trustee for the Exchange Indenture
(as defined in the Purchase Agreement) and cause the Exchange Indenture to be
qualified under the TIA not
<PAGE>
-23-
later than the effective date of the Exchange Offer or the first Registration
Statement relating to the Registrable Preferred Stock; and in connection
therewith, cooperate with the trustee under the Exchange Indenture and the
Holders of the Registrable Preferred Stock to effect such changes to such
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 such
trustee to execute, all documents as may be required to effect such changes, and
all other forms and documents required to be filed with the SEC to enable the
Exchange Indenture to be so qualified in a timely manner.
(t) Use its reasonable best efforts to cause the Registrable
Preferred Stock covered by a Registration Statement or the Exchange Preferred
Stock, as the case may be, to be rated with the appropriate rating agencies, if
so requested by the Holders of a majority of shares of Registrable Preferred
Stock covered by such Registration Statement or the Exchange Preferred Stock, as
the case may be, or the managing underwriter or underwriters, if any.
(u) Use its best efforts to take all other steps necessary or
advisable to effect the registration of the Exchange Preferred Stock and/or
Registrable Preferred Stock covered by a Registration Statement contemplated
hereby.
The Company may require each seller of Registrable Preferred
Stock as to which any registration is being effected to furnish to the
Company such information regarding such seller and the distribution of such
Registrable Preferred Stock as the Company may, from time to time, reasonably
request. The Company may exclude from such registration the Registrable
Preferred Stock of any seller who unreasonably fails to furnish such information
within a reasonable time after receiving such request and during any delay in
meeting the time frames contemplated by Section 4 hereof as a result of a delay
in receiving such information, no Additional Dividends shall accrue or be
payable to such seller. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
Each Holder of Registrable Preferred Stock and each
Participating Broker-Dealer agrees by acquisition of such Registrable Preferred
Stock or Exchange Preferred Stock to be sold by such Participating
Broker-Dealer, as the case
<PAGE>
-24-
may be, that, upon actual receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv),
5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition
of such Registrable Preferred Stock covered by such Registration Statement or
Prospectus or Exchange Preferred Stock to be sold by such Holder or
Participating Broker-Dealer, as the case may be, until such Holder's or
Participating Broker-Dealer's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 5(k) hereof, or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any amendments or
supplements thereto. In the event the Company shall give any such notice, each
of the Effectiveness Period and the Applicable Period shall be extended by the
number of days during such periods from and including the date of the giving of
such notice to and including the date when each seller of Registrable Preferred
Stock covered by such Registration Statement or Exchange Preferred Stock to be
sold by such Participating Broker-Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) hereof or (y) the Advice.
6. Registration Expenses
All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required
to be made with the NASD in connection with an underwritten offering and
(B) fees and expenses of compliance with state securities or "blue sky" laws
(including, without limitation, reasonable fees and disbursements of counsel
in connection with "blue sky" qualifications of the Registrable Preferred
Stock or Exchange Preferred Stock and determination of the eligibility of the
Registrable Preferred Stock or Exchange Preferred Stock for investment under
the laws of such jurisdictions (x) where the holders of Registrable Preferred
Stock are located, in the case of the Exchange Preferred Stock, or (y) as
provided in Section 5(h) hereof, in the case of Registrable Preferred Stock or
Exchange Preferred Stock to be sold by a Participating Broker-Dealer during the
Applicable Period)), (ii) printing expenses, including, without limitation,
expenses of printing certificates for
<PAGE>
-25-
Registrable Preferred Stock or Exchange Preferred Stock in a form eligible
for deposit with The Depository Trust Company and of printing prospectuses
if the printing of prospectuses is requested by the managing underwriter or
underwriters, if any, by the Holders of a majority of shares of the
Registrable Preferred Stock included in any Registration Statement
or sold by any Participating Broker-Dealer as the case may be, (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and fees and disbursements of special counsel for the sellers of
Registrable Preferred Stock (subject to the provisions of Section 6(b) hereof),
(v) fees and disbursements of all independent certified public accountants
referred to in Section 5(m)(iii) hereof (including, without limitation, the
expenses of any special audit and "cold comfort" letters required by or incident
to such performance), (vi) rating agency fees, (vii) Securities Act liability
insurance, if the Company desires such insurance, (viii) fees and expenses of
the Transfer Agent, (ix) fees and expenses of all other Persons retained by the
Company, (x) internal expenses of the Company (including, without limitation,
all salaries and expenses of officers and employees of the Company performing
legal or accounting duties), (xi) the fees and expenses incurred in connection
with the listing of the securities to be registered on any securities exchange,
if applicable, and (xii) the expenses relating to printing, word processing and
distributing all Registration Statements, underwriting agreements, securities
sales agreements, indentures and any other documents necessary in order to
comply with this Agreement but in each case excluding fees and expenses of
counsel to any underwriters or the Holders and underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
Registrable Preferred Stock by a Holder.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless each
Holder of Registrable Preferred Stock and each Participating Broker-Dealer
selling Exchange Preferred Stock during the Applicable Period, the officers and
directors of each such Person, and each Person, if any, who controls any such
Person within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act (each, a "Participant"), from and against any and all
losses, claims, damages and liabilities (including, without limitation, the
reasonable legal fees and other expenses actually incurred in connection with
any suit, action or proceeding or any claim asserted) caused by, arising out of
or based upon any
<PAGE>
-26-
untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement (or any amendment thereto) or Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) or any preliminary prospectus, or caused by, arising
out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
any Participant or underwriter furnished to the Company in writing by such
Participant or underwriter expressly for use therein; provided that the
foregoing indemnity with respect to any preliminary Prospectus shall not inure
to the benefit of any Participant or underwriter (or to the benefit of any
person controlling such Participant or underwriter) from whom the person
asserting any such losses, claims, damages or liabilities purchased Registrable
Preferred Stock or Exchange Preferred Stock if such untrue statement or omission
or alleged untrue statement or omission made in such preliminary Prospectus is
eliminated or remedied in the related Prospectus (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) and a
copy of the related Prospectus (as so amended or supplemented) shall have been
furnished to such Participant or underwriter at or prior to the sale of such
Registrable Preferred Stock or Exchange Preferred Stock, as the case may be, to
such person or at a time the Company had notified persons under the last
paragraph of Section 5 hereof to cease using such Registration Statement or
Prospectus.
(b) Each Participant will be required to agree, severally and
not jointly, to indemnify and hold harmless the Company, its directors and
officers who sign the Registration Statement and each Person who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act to the same extent as the foregoing indemnity from the
Company to each Participant, but only (i) with reference to information
relating to such Participant furnished to the Company in writing by such
Participant expressly for use in any Registration Statement or Prospectus,
any amendment or supplement thereto, or any preliminary prospectus or
(ii) with respect to any untrue statement or representation made by such
Participant in writing to the Company. The
<PAGE>
-27-
liability of any Participant under this paragraph shall in no event exceed the
proceeds received by such Participant from sales of Registrable Preferred
Stock or Exchange Preferred Stock giving rise to such obligations.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought pursuant
to either of the two preceding paragraphs, such Person (the "Indemnified
Person") shall promptly notify the Person against whom such indemnity may be
sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon
request of the Indemnified Person, shall retain counsel reasonably satisfactory
to the Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
Indemnifying Person shall not relieve it of any obligation or liability which it
may have hereunder or otherwise (unless and to the extent that it did not
otherwise learn of such action or claim and such omission results in the
forfeiture by the Indemnifying Person of substantial rights and defenses). In
any such proceeding, any Indemnified Person shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Person unless (i) the Indemnifying Person and the
Indemnified Person shall have mutually agreed in writing to the contrary, (ii)
the Indemnifying Person has failed to retain counsel reasonably satisfactory to
the Indemnified Person or (iii) the named parties in any such proceeding
(including any impleaded parties) include both the Indemnifying Person and the
Indemnified Person and the Indemnified Person shall have been advised by counsel
that representation of both parties by the same counsel would be inappropriate
under applicable standards of professional conduct due to differing interests
between them. It is understood that, unless there exists a conflict among
Indemnified Persons, the Indemnifying Person shall not, in connection with any
one such proceeding or separate but substantially similar related proceeding 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 (in addition to any local counsel) for all Indemnified Persons, and
that all such fees and expenses shall be reimbursed promptly as they are
incurred. Any such separate firm for the Participants
<PAGE>
-28-
and such control Persons of Participants shall be designated in writing by
Participants who sold a majority of shares of Registrable Preferred Stock and
Exchange Preferred Stock sold by all such Participants and any such separate
firm for the Company, its directors, its officers and such control Persons of
the Company shall be designated in writing by the Company. The Indemnifying
Person shall not be liable for any settlement of any proceeding effected without
its prior written consent (which consent shall not be unreasonably withheld or
delayed), but if settled with such consent or if there be a final non-appealable
judgment for the plaintiff for which the Indemnified Person is entitled to
indemnification pursuant to this Agreement, the Indemnifying Person agrees to
indemnify and hold harmless each Indemnified Person from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an Indemnified Person shall have requested an
Indemnifying Person to reimburse the Indemnified Person for reasonable fees and
expenses actually incurred by counsel as contemplated by the third sentence of
this paragraph, the Indemnifying Person agrees that it shall be liable for any
settlement of any proceeding effected without its consent if (i) such settlement
is entered into more than 30 days after receipt by such Indemnifying Person of
the aforesaid request and (ii) such Indemnifying Person shall not have
reimbursed the Indemnified Person in accordance with such request prior to the
date of such settlement; provided, however, that the Indemnifying Person shall
not be liable for any settlement effected without its consent pursuant to this
sentence if the Indemnifying Person is contesting, in good faith, the request
for reimbursement. No Indemnifying Person shall, without the prior written
consent of the Indemnified Person, effect any settlement or compromise of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party, unless such settlement includes an unconditional
written release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding.
(d) If the indemnification provided for in the first and
second paragraphs of this Section 7 is for any reason unavailable to, or
insufficient to hold harmless, an Indemnified Person in respect of any losses,
claims, damages or liabilities referred to therein, then each Indemnifying
Person under such paragraphs, in lieu of indemnifying such Indemnified Person
thereunder and in order to provide for just and equitable contribution, shall
contribute to the
<PAGE>
-29-
amount paid or payable by such Indemnified Person as a result of such
losses, claims, damages or liabilities in such proportion as is appropriate
to reflect (i) the relative benefits received by the Indemnified Person
or Persons on the one hand and the Indemnified Person or Persons on the
other from the offering of the New Preferred Stock or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, not
only such relative benefits but also the relative fault of the Indemnifying
Person or Persons on the one hand and the Indemnified Person or Persons on the
other in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof) as well as any other relevant equitable
considerations. The relative fault of the parties 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 on the one hand or such
Participant or such other Indemnified Person, as the case may be, on the other,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Preferred
Stock or Exchange Preferred Stock, as the case may be, exceeds the amount of any
damages that such Participant has otherwise been required to pay or has paid 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 Securities Act) shall be entitled to
<PAGE>
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contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in
this Section 7 will be in addition to any liability which the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
The Company covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder in a timely manner in accordance
with the requirements of the Securities Act and the Exchange Act and, if at any
time the Company is not required to file such reports, it will, upon the request
of any Holder of Registrable Preferred Stock, make publicly available annual
reports and such information, documents and other reports of the type specified
in Sections 13 and 15(d) of the Exchange Act. The Company further covenants for
so long as any Registrable Preferred Stock remains outstanding, to make
available to any Holder of Registrable Preferred Stock in connection with any
sale thereof, the information required by Rule 144A(d)(4) under the Securities
Act in order to permit resales of such Registrable Preferred Stock pursuant to
(a) Rule 144A or (b) any similar rule or regulation hereafter adopted by the
SEC, unless at the time the Registrable Preferred Stock are not fully salable
under Rule 144 or any successor provision.
9. Underwritten Registrations
If any of the Registrable Preferred Stock covered by any Shelf
Registration is to be sold in an underwritten offering, the investment banker or
investment bankers and manager or managers that will manage the offering will be
selected by the Holders of a majority of shares of such Registrable Preferred
Stock included in such offering and reasonably acceptable to the Company.
No Holder of Registrable Preferred Stock may participate in
any underwritten registation hereunder unless such Holder (a) agrees to sell
such Holder's Registrable Preferred Stock on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities,
<PAGE>
-31-
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Registration of Transfers and Exchanges
(a) Transfer and Exchange of Certificated Shares. When
shares of New Preferred Stock or Private Exchange Preferred Stock that are
represented by definitive certificates ("Certificated Shares") are presented to
the Transfer Agent with a request:
(i) to register the transfer of the Certificated Shares; or
(ii) to exchange such Certificated Shares for an equal
number of Certificated Shares,
the Holders hereby acknowledge that the Transfer Agent shall register the
transfer or make the exchange as requested if the requirements under this
Section 10(a) hereof for such transactions are met; provided, however, that the
Certificated Shares presented or surrendered for registration of transfer or
exchange:
(x) shall be duly endorsed or accompanied by a written instruction
of transfer in form satisfactory to the Company and the
Transfer Agent, duly executed by the holder thereof or by his
attorney, duly authorized in writing; and
(y) in the case of Registrable Preferred Stock, such shares of New
Preferred Stock or Private Exchange Preferred Stock be
accompanied by the following additional information and
documents, as applicable:
(A) if such shares are being delivered to the Transfer
Agent by a Holder for registration in the name of
such Holder, without transfer, a certification from
such Holder to that effect (in substantially the form
of Exhibit A hereto); or
(B) if such shares are being transferred to a
qualified institutional buyer (as defined in Rule
144A under the Securities Act, a "QIB") in
accordance with Rule 144A under the Securities Act
or pursuant to an exemption from registration in
accordance with Rule 144
<PAGE>
-32-
or Regulation S under the Securities Act, a
certification to that effect (in substantially
the form of Exhibit A hereto);
or
(C) if such shares are being transferred to an
institutional "accredited investor" within the
meaning of subparagraph (a)(1), (a)(2), (a)(3) or
(a)(7) of Rule 501 under the Securities Act, delivery
of a Certificate of Transfer in the form of Exhibit B
hereto and an opinion of counsel and/or other
information satisfactory to the Company to the effect
that such transfer is in compliance with the
Securities Act; or
(D) if such shares are being transferred in reliance
on another exemption from the registration
requirements of the Securities Act, a
certification to that effect (in substantially the
form of Exhibit A hereto) and an opinion of
counsel reasonably acceptable to the Company to
the effect that such transfer is in compliance
with the Securities Act.
(b) Restrictions on Transfer of Certificated Shares for a
Beneficial Interest in Global Shares. Certificated Shares may not be exchanged
for a beneficial interest in one or more global certificates representing all
shares of New Preferred Stock or Private Exchange Preferred Stock held by the
Depositary (the "Global Certificates") except upon satisfaction of the
requirements set forth below. Upon receipt by the Transfer Agent of Certificated
Shares, duly endorsed or accompanied by appropriate instruments of transfer, in
form satisfactory to the Transfer Agent, together with:
(A) certification, substantially in the form of Exhibit A
hereto, that such Certificated Shares are being
transferred to a QIB in accordance with Rule 144A
under the Securities Act; and
(B) written instructions directing the Transfer Agent to
make, or to direct the Depositary to make, an
endorsement on the Global Certificate to reflect an
increase in the aggregate number of shares of New
Preferred
<PAGE>
-33-
Stock or Private Exchange Preferred Stock
represented by the Global Certificate,
then the Transfer Agent shall cancel the certificate representing such
Certificated Shares and cause, or direct the Depositary to cause, in accordance
with the standing instructions and procedures existing between the Depositary
and the Transfer Agent, the number of shares of New Preferred Stock or Private
Exchange Preferred Stock represented by the Global Certificates to be increased
accordingly. If no Global Certificate is then outstanding, the Company shall
issue and the Transfer Agent shall authenticate a new Global Certificate in the
appropriate amount.
(c) Transfer and Exchange of Global Certificates. The
transfer and exchange of Global Certificates or beneficial interests therein
shall be effected through the Depositary, in accordance with the procedures
of the Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global
Certificate for Certificated Shares.
(i) Any person having a beneficial interest in a Global
Certificate may upon request exchange such beneficial
interest for Certificated Shares. Upon receipt by the
Transfer Agent of written instructions or such other
form of instructions as is customary for the Depositary
from the Depositary or its nominee on behalf of any
person having a beneficial interest in a Global
Certificate and upon receipt by the Transfer Agent of a
written order or such other form of instructions as is
customary for the Depositary or the person designated
by the Depositary as having such a beneficial interest
containing registration instructions and, in the case
of any such transfer or exchange of Registrable
Preferred Stock, the following additional information
and documents:
(A) if such beneficial interest is being transferred to
the person designated by the Depositary as being the
beneficial owner, a certification from such person to
that effect (in substantially the form of Exhibit A
hereto); or
<PAGE>
-34-
(B) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A under the Securities
Act or pursuant to an exemption from registration in
accordance with Rule 144 or Regulation S under the
Securities Act, a certification to that effect (in
substantially the form of Exhibit A hereto); or
(C) if such beneficial interest is being transferred
to an institutional "accredited investor" within
the meaning of subparagraphs (a)(1), (a)(2),
(a)(3) or (a)(7) of Rule 501 under the Securities
Act, delivery of a Certificate of Transfer in the
form of Exhibit B hereto and an opinion of counsel
and/or other information satisfactory to the
Company to the effect that such transfer is in
compliance with the Securities Act; or
(D) 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 (in substantially the
form of Exhibit A hereto) and an opinion of
counsel from the transferee or transferor
reasonably acceptable to the Company to the effect
that such transfer is in compliance with the
Securities Act,
then the Transfer Agent will cause, in accordance with the
standing instructions and procedures existing between the
Depositary and the Transfer Agent, the aggregate number of
shares of New Preferred Stock or Private Exchange Preferred
Stock represented by the Global Certificates to be reduced
and, following such reduction, the Company will execute and,
upon receipt of an authentication order in the form of an
Officers' Certificate, the Transfer Agent will authenticate
and deliver to the transferee a certificate representing such
Certificated Shares.
(ii) Certificated Shares issued in exchange for a beneficial
interest in a Global Certificate pursuant to this
Section 10(d) shall be registered in such names and for
such number of shares of New Preferred Stock or Private
Exchange Preferred
<PAGE>
-35-
Stock as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct
the Transfer Agent in writing. The Transfer Agent shall
deliver such Certificated Shares to the persons in whose
names such shares of New Preferred Stock or Private Exchange
Preferred Stock are so registered.
(e) Restrictions on Transfer and Exchange of Global
Certificates. A Global Certificate may not be transferred as a whole except by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary.
(f) Authentication of Certificated Shares in Absence of
Depositary. If at any time:
(i) the Depositary for the shares of New Preferred Stock or
Private Exchange Preferred Stock notifies the Company that the
Depositary is unwilling or unable to continue as Depositary
for the Global Certificates and a successor Depositary for
the Global Certificates is not appointed by the Company
within 90 days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Transfer
Agent in writing that it elects to cause the issuance of
Certificated Shares,
then the Company will execute, and the Transfer Agent, upon receipt of an
Officers' Certificate requesting the authentication and delivery of Certificated
Shares, will authenticate and deliver certificates representing Certificated
Shares, in an aggregate number equal to the aggregate number of certificates
representing Certificated Shares represented by the Global Certificates, in
exchange for such Global Certificates.
(g) Legends.
(i) Except as permitted by the following paragraph (ii), each
Global Certificate and each certificate representing
Certificated Shares shall bear a legend substantially in the
form attached hereto as Exhibit C.
<PAGE>
-36-
(ii) Upon the shares of Private Exchange Preferred Stock
ceasing to be Registrable Preferred Stock:
(A) in the case of any certificate that represents
Certificated Shares, the Transfer Agent shall
permit the holder thereof to exchange such
certificate for a certificate representing such
Certificated Shares that does not bear the first
paragraph of the legend referred to above and
rescind any related restriction on the transfer;
and
(B) any such shares represented by a Global Certificate
shall not be subject to the provisions set forth in
(i) above (such sales or transfers being subject only
to the provisions of Section 10(c) hereof).
(h) Cancellation and/or Adjustment of a Global Certificate.
At such time as all beneficial interests in a Global Certificate have either
been exchanged for certificates representing Certificated Shares, redeemed,
repurchased or cancelled, such Global Certificates shall be returned to or
retained and cancelled by the Transfer Agent. At any time prior to such
cancellation, if any beneficial interest in a Global Certificate is exchanged
for certificates representing Certificated Shares, redeemed, repurchased or
cancelled, the number of shares represented by such Global Certificates shall be
reduced and an endorsement shall be made on such Global Certificates, by the
Transfer Agent to reflect such reduction.
(i) Obligations with Respect to Transfers and
Exchanges of Certificated Shares.
(i) To permit registrations of transfers and exchanges, the
Company shall execute, at the Transfer Agent's request, and
the Transfer Agent shall authenticate certificates
representing Certificated Shares and Global
Certificates.
(ii) All certificates representing Certificated Shares and Global
Certificates issued upon any registration, transfer or
exchange of certificates representing Certificated Shares or
Global Certificates shall be the valid obligations of the
Company, entitled to the same benefits as the shares
surrendered upon the registration of transfer or exchange.
<PAGE>
-37-
(iii) Prior to due presentment for registration of transfer of any
shares of Registrable Preferred Stock, the Transfer Agent and
the Company may deem and treat the person in whose name any
such shares are registered as the absolute owner of such
shares, and neither the Transfer Agent nor the Company shall
be affected by notice to the contrary.
11. Miscellaneous
(a) Remedies. In the event of a breach by the Company of any
of its obligations under this Agreement, other than the occurrence of an event
which requires payment of Additional Dividends, each Holder of Registrable
Preferred Stock, in addition to being entitled to exercise all rights provided
herein, in the Certificate of Designation or, in the case of the Initial
Purchaser, in the Purchase Agreement or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) Enforcement. The Transfer Agent shall be authorized to
enforce the provisions of this Agreement for the ratable benefit of the Holders.
(c) No Inconsistent Agreements. The Company has not, as of the
date hereof, and the Company shall not, after the date of this Agreement, enter
into any agreement with respect to any of its securities that is inconsistent
with the rights granted to the Holders of Registrable Preferred Stock in this
Agreement or otherwise conflicts with the provisions hereof. The Company has not
entered and will not enter into any agreement with respect to any of its
securities that will grant to any Person piggy-back registration rights with
respect to a Registration Statement.
(d) Actions Affecting Registrable Preferred Stock. The Company
shall not, directly or indirectly, take any action with respect to the
Registrable Preferred Stock as a class that would materially adversely affect
the ability of the Holders of Registrable Preferred Stock to
<PAGE>
-38-
include such Registrable Preferred Stock in a registration undertaken pursuant
to this Agreement.
(e) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of (A) the Holders of not less than a majority of shares
of the then outstanding Registrable Preferred Stock and (B) in circumstances
that would materially adversely affect the Participating Broker-Dealers, the
Participating Broker-Dealers holding not less than a majority of shares of the
Exchange Preferred Stock held by all Participating Broker-Dealers; provided,
however, that Section 7 and this Section 11(c) may not be amended, modified or
supplemented without the prior written consent of each Holder and each
Participating Broker-Dealer (including any person who was a Holder or
Participating Broker-Dealer of Registrable Preferred Stock or Exchange Preferred
Stock, as the case may be, disposed of pursuant to any Registration Statement).
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders of Registrable Preferred Stock whose securities are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect,
impair, limit or compromise the rights of other Holders of Registrable Preferred
Stock may be given by Holders of at least a majority of shares of the
Registrable Preferred Stock being sold by such Holders pursuant to such
Registration Statement; provided, however, that the provisions of this sentence
may not be amended, modified or supplemented except in accordance with the
provisions of the immediately preceding sentence.
(f) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Preferred Stock or any
Participating Broker-Dealer, at the most current address of such Holder
or Participating Broker-Dealer, as the case may be, on the stock books
of the Company with a copy in like manner to the Initial Purchaser as
follows:
CIBC WOOD GUNDY SECURITIES CORP.
425 Lexington Avenue, 3rd Floor
<PAGE>
-39-
New York, New York 10017
Facsimile No: (212) 885-4998
Attention: Corporate Finance
Department
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No: (212) 269-5420
Attention: Roger Meltzer, Esq.
2. if to the Initial Purchaser, at the addresses
specified in Section 11(f)(1);
3. if to the Company, at the addresses as follows:
FAIRFIELD MANUFACTURING COMPANY, INC.
U.S. 52 South
Lafayette, Indiana 47903-7904
Facsimile No: (765) 474-3474
Attention: President
with copies to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Facsimile No: (212) 909-6836
Attention: Ralph Arditi, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one
business day after being timely delivered to a next-day air courier; and when
receipt is acknowledged by the addressee, if sent by facsimile.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, including the Holders; provided, however, that this Agreement shall not
inure to the benefit of or be binding upon a successor or assign of a Holder
unless and to the extent such successor or assign holds Registrable Preferred
Stock.
<PAGE>
-40-
(h) 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.
(i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT
TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(k) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(l) Securities Held by the Company or Its Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
shares of Registrable Preferred Stock is required hereunder, shares of
Registrable Preferred Stock held by the Company or its affiliates (as such
term is defined in Rule 405 under the Securities Act) shall not be counted
in determining whether such consent or approval was given by the Holders of
such required percentage.
(m) Third Party Beneficiaries. Holders of Registrable
Preferred Stock and Participating Broker-Dealers are intended third party
beneficiaries of this Agreement and this Agreement may be enforced by such
Persons.
<PAGE>
-41-
(n) Entire Agreement. This Agreement, together with the
Purchase Agreement and the Certificate of Designation, is intended by the
parties as a final and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein and therein
and any and all prior oral or written agreements, representations, or
warranties, contracts, understandings, correspondence, conversations and
memoranda between the Initial Purchaser on the one hand and the Company on the
other, or between or among any agents, representatives, parents, subsidiaries,
affiliates, predecessors in interest or successors in interest with respect to
the subject matter hereof and thereof are merged herein and replaced hereby.
<PAGE>
-42-
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
FAIRFIELD MANUFACTURING COMPANY, INC.
By: /s/ RICHARD A. BUSH
--------------------------
Name: Richard A. Bush
Title: Vice President Finance
The foregoing Agreement is hereby
confirmed and accepted as of the
date first written above
CIBC WOOD GUNDY SECURITIES, CORP.
By: /s/ WILLIAM P. PHOENIX
------------------------------
Name: William P. Phoenix
Title: Managing Director
<PAGE>
EXHIBIT A
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF REGISTRABLE PREFERRED STOCK
Re: Shares of New Preferred Stock
and/or Private Exchangeable Preferred Stock
(the "Shares") of Fairfield Manufacturing
Company, Inc.
This Certificate relates to ____ Shares held in* ___
book-entry or* _______ certificated form by ______ (the "Transferor").
The Transferor:*
|_| has requested the Transfer Agent by written order to deliver in
exchange for its beneficial interest in the Global Certificate held by the
Depositary one or more certificates in definitive, registered form an aggregate
number equal to its beneficial interest in such Global Certificate (or the
portion thereof indicated above); or
|_| has requested the Transfer Agent by written order to exchange or
register the transfer of one or more certificates representing Shares.
In connection with such request and in respect of each such
Share, the Transferor does hereby certify that Transferor is familiar with the
Registration Rights Agreement relating to the above captioned Shares and the
restrictions on transfers thereof as provided in Section 10 of such Registration
Rights Agreement, and that the transfer of these Shares does not require
registration under the Securities Act of 1933, as amended (the "Securities Act")
because*:
|_| Such Shares are being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 10 (a)(y)(A) or Section 10(d)(i)(A)
of the Registration Rights Agreement).
|_| Such Shares are being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Securities Act), in reliance on Rule
144A or in accordance with Regulation S under the Securities Act.
|_| Such Shares are being transferred in accordance with
Rule 144 under the Securities Act.
<PAGE>
-44-
|_| Such Shares are being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Securities Act,
other than Rule 144A or Rule 144 or Regulation S 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.
---------------------------
[INSERT NAME OF TRANSFEROR]
By: -----------------------
Date: _____________
*Check applicable box.
<PAGE>
EXHIBIT B
Certificate of Transfer
Fairfield Manufacturing Company, Inc.
U.S. 52 South
Lafayette, Indiana 47903-7940
Ladies and Gentlemen:
In connection with our proposed purchase of shares of New
Preferred Stock or Private Exchange Preferred Stock, each par value $.01 per
share (the "Securities"), of Fairfield Manufacturing Company, Inc. (the
"Company"), we confirm that:
1. We understand that the Securities have not been registered
under the Securities Act of 1933, as amended (the "Securities Act")
and, unless so registered, may not be sold except as permitted in the
following sentence. We agree on our own behalf and on behalf of any
investor account for which we are purchasing Securities to offer, sell
or otherwise transfer such Securities while they are Registrable
Preferred Stock within the meaning of the Registration Rights Agreement
to which this certificate is an exhibit only (a) to the Company or any
of its subsidiaries, (b) pursuant to a registration statement which has
been declared effective under the Securities Act, (c) so long as the
Securities are eligible for resale pursuant to Rule 144A, under the
Securities Act, to a person we reasonably believe is a "qualified
institutional buyer" under Rule 144A (a "QIB") that purchases for its
own account or for the account of a QIB and to whom notice is given
that the transfer is being made in reliance on Rule 144A, (d) pursuant
to offers and sales that occur outside the United States within the
meaning of Regulation S under the Securities Act, (e) to an
institutional "accredited investor" within the meaning of subparagraphs
(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act that is
purchasing for his own account or for the account of such an
institutional "accredited investor," or (f) pursuant to any other
available exemption from the registration requirements of the
Securities Act, subject in each of the foregoing cases to any
requirement of law that the disposition of our property or the property
of such investor account or accounts be
<PAGE>
at all times within our or their control and to compliance with any
applicable state securities laws. The foregoing restrictions on
resale will not apply after the Securities are no longer Registrable
Preferred Stock. We understand that the Securities purchased by us
will bear a legend to the foregoing effect.
2. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and we are acquiring the Securities for investment purposes and
not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act and we have such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each
able to bear the economic risk of our or its investment for an
indefinite period.
3. We are acquiring the Securities purchased by us for our own
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
4. You and your counsel are entitled to rely upon this letter
and you are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered
hereby.
Very truly yours,
(Name of Purchaser)
By: ____________________
Date:___________________
Upon transfer the Securities would be registered in the name
of the new beneficial owner as follows:
Name:___________________
Address:________________
<PAGE>
Taxpayer ID Number:________________
<PAGE>
EXHIBIT C
[LEGENDS]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A)
IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT)
OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501
(A)(1), (2), (3) OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2)
AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS
SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO FAIRFIELD
MANUFACTURING COMPANY, INC. (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B)
INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR
HAS HAD FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRANSFER AGENT A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRANSFER AGENT), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER THE
ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRANSFER AGENT
AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE THE BENEFITS OF A SHARE
REGISTRATION RIGHTS AGREEMENT DATED AS
<PAGE>
OF MARCH 12, 1997 BY AND BETWEEN THE COMPANY AND CIBC WOOD GUNDY SECURITIES
CORP., A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. NO
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE
WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.
[THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE SHARE REGISTRATION
RIGHTS AGREEMENT AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A
DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS
NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE SHARE REGISTRATION
RIGHTS AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY 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) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE SHARE REGISTRATION RIGHTS AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS 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)
- --------
(1)This paragraph is to be included only if the certificate is in global form.
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes,
extraordinary item and cumulative
effect of change in accounting
principle $(6,050) $(2,719) $ (903) $12,430 $ 7,649
Add back fixed charges:
Interest expense 10,063 10,348 11,674 12,269 11,260
Amortization of deferred financing
costs 1,430 997 703 636 670
------- ------- ------- ------- -------
Total fixed charges 11,493 11,345 12,377 12,905 11,930
Adjusted earnings $ 5,443 $ 8,626 $11,474 $25,335 $19,579
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 0.5 0.8 0.9 2.0 1.6
======= ======= ======= ======= =======
Earnings (insufficient) to cover fixed $(6,050) $(2,719) $ (903) $12,430 $ 7,649
charges ======= ======= ======= ======= =======
</TABLE>
<PAGE>
Consent of Independent Accountants
We consent to the inclusion in this registration statement on Form S-4 (File
No.333- ) of our report dated January 31, 1997 (except Note 11, as to which the
date is March 12, 1997), on our audits of the consolidated financial statements
of Fairfield Manufacturing Company, Inc. and Subsidiary. We also consent to the
reference to our firm under the caption "Experts."
COOPERS & LYBRAND, L.L.P.
Indianapolis, Indiana
April 8, 1997
<PAGE>
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
__________________
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
__________________
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
____________________
Fairfield Manufacturing Company, Inc.
(Exact name of obligor as specified in its charter)
Delaware 35-0300750
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
U. S. Route 52 South
Lafayette, IN 47905
(Address of principal executive offices) (Zip Code)
__________________
11-1/4% Subordinated Exchange Debentures due 2009
(Title of the indenture securities)
==============================================
<PAGE>
- 2 -
GENERAL
1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Reserve Bank of New York (2nd District), New York,
New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Fairfield Manufacturing Company, Inc. currently is not in default
under any of its outstanding securities for which United States
Trust Company of New York is Trustee. Accordingly, responses to
Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1
are not required under General Instruction B.
16. List of Exhibits
T-1.1 -- Organization Certificate, as amended, issued by the
State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration
No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. List of Exhibits
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New
York, as amended, is incorporated by reference to
Exhibit T-1.4 to Form T-1 filed on September 15,
1995 with the Commission pursuant to the Trust
Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section
321(b) of the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the
trustee pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of April 7, 1997, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United
States Trust Company of New York and its parent company, U. S. Trust
Corporation.
In answering Item 2 in this statement of eligibility as to matters
peculiarly within the knowledge of the obligor or its directors, the
trustee has relied upon information furnished to it by the obligor
and will rely on information to be furnished by the obligor and the
trustee disclaims responsibility for the accuracy or completeness of
such information.
__________________
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, United States Trust Company of New York, a corporation
organized and existing under the laws of the State of New York, has
duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in the City of New
York, and State of New York, on the 7th day of April, 1997.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Cynthia Chaney
CC/pg
<PAGE>
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
January 7, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform Act of 1990,
and subject to the limitations set forth therein, United States Trust
Company of New York ("U.S. Trust") hereby consents that reports of
examinations of U.S. Trust by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities
and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/Gerard F. Ganey
By: Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
SEPTEMBER 30, 1996
(IN THOUSANDS)
ASSETS
Cash and Due from Banks $ 38,257
Short-Term Investments 82,377
Securities, Available for Sale 861,975
Loans 1,404,930
Less: Allowance for Credit Losses 13,048
----------
Net Loans 1,391,882
Premises and Equipment 60,012
Other Assets 133,673
----------
Total Assets $2,568,176
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 466,849
Interest Bearing 1,433,894
----------
Total Deposits 1,900,743
Short-Term Credit Facilities 369,045
Accounts Payable and Accrued Liabilities 143,604
Total Liabilities $2,413,392
==========
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 42,394
Retained Earnings 98,402
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes (1,007)
----------
Total Stockholder's Equity 154,784
----------
Total Liabilities and
Stockholder's Equity $2,568,176
==========
I, Richard E. Brinkmann, Senior Vice President & Comptroller of
the named bank do hereby declare that this Statement of Condition
has been prepared in conformance with the instructions issued by
the appropriate regulatory authority and is true to the best of my
knowledge and belief.
Richard E. Brinkmann, SVP & Controller
October 24, 1996
<PAGE>
[FORM OF LETTER OF TRANSMITTAL]
FAIRFIELD MANUFACTURING COMPANY, INC.
OFFER TO EXCHANGE ITS SHARES OF
11 1/4% CUMULATIVE EXCHANGEABLE PREFERRED STOCK
('NEW PREFERRED STOCK'), WHICH HAD BEEN REGISTERED UNDER THE
SECURITIES ACT, FOR ANY AND ALL OF ITS OUTSTANDING SHARES OF
11 1/4% CUMULATIVE EXCHANGEABLE PREFERRED STOCK ('EXISTING PREFERRED STOCK'),
PURSUANT TO THE PROSPECTUS DATED , 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE
OFFER MAY BE EXTENDED (THE 'EXPIRATION DATE'). TENDERS MAY BE
WITHDRAWN PRIOR TO THE EXPIRATION DATE.
TO: UNITED STATES TRUST COMPANY OF NEW YORK, EXCHANGE AGENT
<TABLE>
<CAPTION>
By Mail: By Facsimile:
<S> <C>
United States Trust Company of New York (212)420-6152
P.O. Box 843 (For Eligible Institutions Only)
Cooper Station
New York, N.Y. 10276
Attention: Corporate Trust Services
<CAPTION>
By Overnight Courier or
By Hand after 4:30 p.m.: By Hand to 4:30 p.m.:
<S> <C>
United States Trust Company of New York United States Trust Company of New York
770 Broadway, 13th Floor 111 Broadway
New York, N.Y. 10003 New York, N.Y. 10006
Attention: Corporate Trust Redemption Unit Attention: Lower Level Corporate Trust Window
For Information Call:
(800) 548-6565
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
ANY BOX BELOW.
------------------
List below the Existing Preferred Stock to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate number(s)
and number of shares(s) of Existing Preferred Stock should be listed on a
separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF EXISTING PREFERRED STOCK TENDERED
NAME(S) AND ADDRESS(ES) OF REGISTERED
HOLDER(S), EXACTLY AS NAME(S) APPEAR(S)
ON EXISTING PREFERRED STOCK CERTIFICATE
(PLEASE FILL IN, IF BLANK) (1) (2) (3) (4)
AGGREGATE
NUMBER OF
SHARES OF
EXISTING
PREFERRED
STOCK
TENDERED
AGGREGATE IN
CERTIFICATE NUMBER OF EXCHANGE
NUMBER(S) SHARES OF FOR
OF EXISTING AGGREGATE CERTIFICATED
EXISTING PREFERRED NUMBER NEW
PREFERRED REPRESENTED BY OF SHARES PREFERRED
STOCK* CERTIFICATE TENDERED** STOCK***
<S> <C> <C> <C> <C>
- ------------------------------------- ----------- ------------- --------- -----------
- ------------------------------------- ----------- ------------- --------- -----------
- ------------------------------------- ----------- ------------- --------- -----------
- ------------------------------------- ----------- ------------- --------- -----------
</TABLE>
<PAGE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated in this column, the number of shares
represented by all Existing Preferred Stock Certificates identified in
Column 1 or delivered to the Exchange Agent shall be deemed tendered.
*** Unless otherwise indicated, the holder will be deemed to have tendered
shares of Existing Preferred Stock in exchange for a beneficial interest
in one or more fully registered global certificates, which will be
deposited with, or on behalf of, The Depository Trust Company ('DTC') and
registered in the name of Cede & Co., its nominee.
2
<PAGE>
The undersigned acknowledges that he, she or it has received and reviewed
the Prospectus, dated , 1997 (the 'Prospectus'), of Fairfield
Manufacturing Company, Inc., a Delaware corporation ('Fairfield'), and this
Letter of Transmittal (the 'Letter of Transmittal'), which together constitute
Fairfield's offer (the 'Exchange Offer') to exchange one share of its 11 1/4%
Cumulative Exchangeable Preferred Stock (the 'New Preferred Stock'), for each
issued and outstanding share of its 11 1/4% Cumulative Exchangeable Preferred
Stock (the 'Existing Preferred Stock'). The New Preferred Stock and the Existing
Preferred Stock are collectively referred to as the 'Preferred Stock.'
Capitalized terms used but not defined herein have the meanings ascribed to them
in the Prospectus.
The undersigned has completed the appropriate boxes above and below and
signed this Letter of Transmittal to indicate the action the undersigned desires
to take with respect to the Exchange Offer.
This Letter of Transmittal is to be used either if certificates of Existing
Preferred Stock are to be forwarded herewith or if delivery of Existing
Preferred Stock is to be made by book-entry transfer to an account maintained by
the Exchange Agent at DTC, pursuant to the procedures set forth in 'The Exchange
Offer--Procedures for Tendering' in the Prospectus. Delivery of this Letter of
Transmittal and any other required documents should be made to the Exchange
Agent. Delivery of documents to a book-entry transfer facility does not
constitute delivery to the Exchange Agent.
Holders whose Existing Preferred Stock are not immediately available or who
cannot deliver their Existing Preferred Stock and all other documents required
hereby to the Exchange Agent on or prior to the Expiration Date must tender
their Existing Preferred Stock according to the guaranteed delivery procedure
set forth in the Prospectus under the caption 'The Exchange Offer--Procedures
for Tendering.' See Instruction 1.
/ / CHECK HERE IF TENDERED SHARES OF EXISTING PREFERRED STOCK ARE BEING
DELIVERED TO THE EXCHANGE AGENT IN EXCHANGE FOR CERTIFICATED NEW PREFERRED
STOCK.
Unless the undersigned (i) has completed item (4) in the box entitled
'Description of Existing Preferred Stock Tendered' and (ii) has checked the box
above, the undersigned will be deemed to have tendered Existing Preferred Stock
in exchange for a beneficial interest in one or more fully registered global
certificates, which will be deposited with, or on behalf of, DTC and registered
in the name of Cede & Co., its nominee. Beneficial interests in such registered
global certificates will be shown on, and transfers thereof will be effected
only through, records maintained by DTC and its participants. See 'Description
of the New Preferred Stock and Exchange Debentures--Book-Entry, Delivery and
Form' as set forth in the Prospectus.
/ / CHECK HERE IF TENDERED SHARES OF EXISTING PREFERRED STOCK ARE BEING
DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE
EXCHANGE AGENT WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution
--------------------------
/ / The Depository Trust Company
Account Number
----------------------------------------------------------------
Transaction Code Number
--------------------------------------------------------
/ / CHECK HERE IF TENDERED SHARES OF EXISTING PREFERRED STOCK ARE BEING
DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE
EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s): ___________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Eligible Institution that Guaranteed Delivery: _____________________
If delivered by book-entry transfer:
Account Number
-------------------------------------------------------------
Transaction Code Number
---------------------------------------------------------
3
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to conditions of the Exchange Offer, the
undersigned hereby tenders to Fairfield the shares of Existing Preferred Stock
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Existing Preferred Stock tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Exchange Agent, as agent of
Fairfield, all right, title and interest in and to such Existing Preferred Stock
as are being tendered hereby, and irrevocably constitutes and appoints the
Exchange Agent as the agent and attorney-in-fact of the undersigned to cause the
Existing Preferred Stock tendered hereby to be transferred and exchanged.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the
Existing Preferred Stock tendered hereby and to acquire the New Preferred Stock
issuable upon the exchange of such tendered Existing Preferred Stock, and that
the Exchange Agent, as agent of Fairfield, will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim when the same are accepted by
the Exchange Agent, as agent of Fairfield. The undersigned will, upon request,
execute and deliver any additional documents deemed by Fairfield or the Exchange
Agent to be necessary or desirable to complete the exchange, sale, assignment
and transfer of the Existing Preferred Stock tendered hereby.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on the interpretation of the staff of the Securities and Exchange
Commission (the 'SEC'), as set forth in Exxon Capital Holdings Corporation
(available May 13, 1988) or similar noaction letters issued to third parties.
Based on such interpretation of the staff of the SEC set forth in such no-action
letters, Fairfield believes that the New Preferred Stock issued in exchange for
the Existing Preferred Stock pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by a holder thereof (other than any
such holder that is an 'affiliate' of Fairfield within the meaning of Rule 405
under the Securities Act of 1933, as amended (the 'Securities Act')) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that (i) such New Preferred Stock is acquired in the
ordinary course of such holder's business, (ii) at the time of the commencement
of the Exchange Offer such holder has no arrangement with any person to
participate in a distribution of the New Preferred Stock and (iii) such holder
is not engaged in, and does not intend to engage, in a distribution of the New
Preferred Stock. By tendering Existing Preferred Stock in exchange for New
Preferred Stock, each holder will represent to the Company that: (i) it is not
such an affiliate of the Company, (ii) any New Preferred Stock to be received by
it will be acquired in the ordinary course of business and (iii) at the time of
the commencement of the Exchange Offer it had no arrangement with any person to
participate in a distribution of the New Preferred Stock. If the undersigned is
not a broker-dealer or is a broker-dealer but will not receive New Preferred
Stock for its own account in exchange for Existing Preferred Stock, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of New Preferred Stock.
If the undersigned is a broker-dealer that will receive New Preferred Stock
for its own account in exchange for Existing Preferred Stock, where such
Existing Preferred Stock were acquired as a result of market-making activities
or other trading activities, it acknowledges that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Preferred Stock; however, by so acknowledging and by delivering a
4
<PAGE>
prospectus, the undersigned will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act. The SEC has taken the
position that such broker-dealers may fulfill their prospectus delivery
requirements with respect to the New Preferred Stock (other than a resale of New
Preferred Stock received in exchange for an unsold allotment from the original
sale of the Existing Preferred Stock) with the Prospectus. The Prospectus, as it
may be amended or supplemented from time to time, may be used by such
broker-dealers for a period of time, starting on the Expiration Date and ending
on the close of business 180 days after the date the Registration Statement
relating to the Exchange Offer has become effective. Fairfield has agreed that,
for such period of time, it will make the Prospectus (as it may be amended or
supplemented) available to broker-dealer which, with Fairfield's prior written
consent, makes a market in the Existing Preferred Stock and receives New
Preferred Stock pursuant to the Exchange Offer (each a 'Participating
Broker-Dealer') for use in connection with any resale of such New Preferred
Stock. By acceptance of the Exchange Offer, each broker-dealer that receives New
Preferred Stock pursuant to the Exchange Offer hereby acknowledges and agrees to
notify Fairfield prior to using the Prospectus in connection with the sale or
transfer of New Preferred Stock and that, upon receipt of notice from Fairfield
of the happening of any event which makes any statement in the Prospectus untrue
in any material respect or which requires the making of any changes in the
Prospectus in order to make the statements therein not misleading, such
broker-dealer will suspend use of the Prospectus until (i) Fairfield has amended
or supplemented the Prospectus to correct such misstatement or omission and (ii)
either the Company has furnished copies of the amended or supplemented
Prospectus to such broker-dealer or, if Fairfield has not otherwise agreed to
furnish such copies and declines to do so after such broker-dealer so requests,
such broker-dealer has obtained a copy of such amended or supplemented
Prospectus as filed with the SEC. Fairfield agrees to deliver such notice and
such amended or supplemented Prospectus promptly to any Participating
Broker-Dealer that has so notified Fairfield. Except as described above, the
Prospectus may not be used for or in connection with an offer to resell, a
resale or any other retransfer of New Preferred Stock.
The undersigned represents that (i) the New Preferred Stock acquired
pursuant to the Exchange Offer are being obtained in the ordinary course of such
holder's business, (ii) such holder has no arrangements with any person to
participate in the distribution of such New Preferred Stock or, if such holder
intends to participate in the Exchange Offer for the purpose of distributing the
New Preferred Stock, such holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable,
and (iii) (x) such holder is not (a) a broker-dealer that will receive New
Preferred Stock for its own account in exchange for Existing Preferred Stock
that were acquired as a result of market-making activities or other trading
activities, or (b) an 'affiliate,' as defined in Rule 405 under the Securities
Act, of Fairfield or (y) if such holder is such a broker-dealer or an affiliate,
such holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
The undersigned, if a California resident, hereby further represents and
warrants that the undersigned (or the beneficial owner of the Existing Preferred
Stock tendered hereby, if not the undersigned) (i) is a bank, savings and loan
association, trust company, insurance company, investment company registered
under the Investment Company Act of 1940, pension or profit-sharing trust (other
than a pension or profit-sharing trust of Fairfield, a self-employed individual
retirement plan, or individual retirement account), a corporation which has a
net worth on a consolidated basis according to its most recent audited financial
statements of not less than $14,000,000, or a wholly owned subsidiary of any of
the foregoing, and (ii) is acquiring the New Preferred Stock for its own account
for investment purposes (or for the account of the beneficial owner of such New
Preferred Stock for investment purposes).
5
<PAGE>
All authority conferred or agreed to be conferred in this Letter of
Transmittal and every obligation of the undersigned hereunder shall be binding
upon the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned. This
tender may be withdrawn only in accordance with the procedures set forth in the
instructions contained in this Letter of Transmittal.
The undersigned understands that tenders of the Existing Preferred Stock
pursuant to any one of the procedures described under 'The Exchange
Offer--Procedures for Tendering' in the Prospectus and in the instructions
hereto will constitute a binding agreement between the undersigned and Fairfield
in accordance with the terms and subject to the conditions of the Exchange
Offer.
The undersigned understands that if its Existing Preferred Stock are
accepted for exchange, dividends on the New Preferred Stock will accumulate from
the last dividend payment date on which dividends were paid on the shares of
Existing Preferred Stock surrendered in exchange thereof, or if no dividends
have been paid, from the original date of issuance of the Existing Preferred
Stock.
The undersigned recognizes that unless the holder of Existing Preferred
Stock (i) completes item (4) of the Box entitled 'Description of Existing
Preferred Stock Tendered' above and (ii) checks the box entitled 'Check here if
tendered shares of Existing Preferred Stock are being delivered to the Exchange
Agent in exchange for certificated New Preferred Stock' above, such holder, when
tendering such shares of Existing Preferred Stock, will be deemed to have
tendered such Existing Preferred Stock in exchange for a beneficial interest in
one or more fully registered global certificates, which will be deposited with,
or on behalf of, DTC and registered in the name of Cede & Co., its nominee.
Beneficial interests in such registered global certificates will be shown on,
and transfers thereof will be effected only through, records maintained by DTC
and its participants. See 'Description of the New Preferred Stock--Book-Entry,
Delivery and Form' in the Prospectus.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus under 'The Exchange Offer-- Conditions,' Fairfield may not be
required to accept for exchange any of the Existing Preferred Stock tendered.
Existing Preferred Stock not accepted for exchange or withdrawn will be returned
to the undersigned at the address set forth below unless otherwise indicated
under 'Special Delivery Instructions' below.
The undersigned acknowledges that by tendering the Existing Preferred Stock
pursuant to any one of the procedures described under 'The Exchange
Offer--Procedures for Tendering' in the Prospectus and in the instructions
hereto, the undersigned agrees that once the Exchange Offer is consummated,
Fairfield shall not be obligated to file or prepare a Shelf Registration
Statement (as defined in the Share Registration Rights Agreement, dated as of
March 12, 1997, as amended (the 'Registration Agreement'), among Fairfield and
the Initial Purchaser, or take any other action provided in Sections 2 or 3 of
the Registration Agreement with respect to a Shelf Registration Statement, and
the undersigned hereby waives any requirement of the Registration Agreement that
Fairfield files, prepares or takes any other action relating to a Shelf
Registration Statement once the Exchange Offer is consummated.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptability of any tender will be determined by Fairfield, in its
sole discretion, and such
6
<PAGE>
determination will be final and binding. Unless waived by Fairfield,
irregularities and defects must be cured by the Expiration Date. Fairfield shall
not be obligated to give notice of any defects or irregularities in tenders and
shall not incur any liability for failure to give any such notice.
Unless otherwise indicated herein in the box entitled 'Special Issuance
Instructions' below, the undersigned hereby requests that the New Preferred
Stock (and, if applicable, substitute certificates representing Existing
Preferred Stock for any Existing Preferred Stock not exchanged) be issued in the
name of the undersigned. Similarly, unless otherwise indicated under the box
entitled 'Special Delivery Instructions' below, the undersigned hereby requests
that the New Preferred Stock (and, if applicable, substitute certificates
representing Existing Preferred Stock for any Existing Preferred Stock not
exchanged) be sent to the undersigned at the address shown above in the box
entitled 'Description of Existing Preferred Stock Tendered.'
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED 'DESCRIPTION OF EXISTING
PREFERRED STOCK TENDERED' ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED THE EXISTING PREFERRED STOCK AS SET FORTH IN SUCH BOX(ES) ABOVE.
7
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9)
X
------------------------------------ --------------------------------
X
------------------------------------ --------------------------------
Signature(s) of Owner(s) Date
Area Code and Telephone Number
----------------------------------------------
If a holder is tendering any Existing Preferred Stock, this Letter of
Transmittal must be signed by the registered holders(s) as the name(s) appear(s)
on the certificate(s) for the Existing Preferred Stock or by any person(s)
authorized to become registered holders(s) by endorsements and documents
transmitted herewith. If signature is by a trustee, executor, administrator,
guardian, officer or other person acting in a fiduciary or representative
capacity, please set forth full title below. See Instruction 3.
Name(s):
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Capacity:
-----------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:
-------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
Dated:
--------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if New Preferred Stock (and, if To be completed ONLY if certificates for New Preferred Stock
applicable, substitute certificates representing Existing (and, if applicable, substitute certificates
Preferred Stock for any Existing Preferred Stock not representing Existing Preferred Stock for any Existing
exchanged) are to be issued in the name of and sent to Preferred Stock not exchanged) are to be sent to someone
someone other than the person or persons whose signature(s) other than the person or persons whose signature(s)
appear(s) on this Letter of Transmittal above. appear(s) on this Letter of Transmittal above or to such
person or persons at an address other than shown
in the box entitled 'Description of Existing Preferred
Issue New Preferred Stock to: Stock Tendered' on this Letter of Transmittal above.
Name(s):
----------------------------------------
(PLEASE TYPE OR PRINT) Mail New Preferred Stock to:
Name(s):
- ------------------------------------------------- ------------------------------------------------
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
------------------------------------------------
(PLEASE TYPE OR PRINT)
Address: Address:
----------------------------------------- ------------------------------------------------
----------------------------------------- ------------------------------------------------
(ZIP CODE) (ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
</TABLE>
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS
LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S)
FOR EXISTING
<PAGE>
PREFERRED STOCK OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF SUCH EXISTING
PREFERRED STOCK AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: FAIRFIELD MANUFACTURING COMPANY, INC.
<TABLE>
<S> <C> <C>
SUBSTITUTE PART I--Taxpayer Identification Number
FORM W-9
Enter your taxpayer identification number
in the appropriate box. For most
individuals, this is your social security ------------------------------------
number. If you do not have a number, see Social Security Number
DEPARTMENT OF THE TREASURY how to obtain a 'TIN' in the enclosed OR
INTERNAL REVENUE SERVICE Guidelines. ------------------------------------
Employer Identification Number
NOTE: If the account is in more than one
name, see the chart on page 2 of the
enclosed Guidelines to determine what
number to give.
PAYOR'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN) PART II--For Payees Exempt from Backup Withholding (See enclosed Guidelines)
AND CERTIFICATION CERTIFICATION--Under the penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been notified
by the Internal Revenue Service (the 'IRS') that I am subject to backup
withholding as a result of a failure to report all interest or dividends or the
IRS has notified me that I am no longer subject to backup withholding.
SIGNATURE DATE
----------------------------------------- ---------------------------
</TABLE>
CERTIFICATION GUIDELINES--You must cross out item (2) of the above certification
if you have been notified by the IRS that you are subject to backup withholding
because of underreporting of interest or dividends on your tax return. However,
if after being notified by the IRS that you were subject to backup withholding
you received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2).
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31 percent of all
payments made to me on account of the New Preferred Stock shall be retained
until I provide a Taxpayer Identification Number to the payer and that, if I do
not provide my Taxpayer Identification Number within sixty (60) days, such
retained amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31 percent of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
Taxpayer Identification Number.
SIGNATURE __________________________ DATE __________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE NEW PREFERRED STOCK.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Existing Preferred Stock;
Guaranteed Delivery Procedure
The Letter of Transmittal is to be used to forward, and must accompany, all
certificates representing Existing Preferred Stock tendered pursuant to the
Exchange Offer. Certificates representing the Existing Preferred Stock in proper
form for transfer (or a confirmation of book-entry transfer of such Existing
Preferred Stock into the Exchange Agent's account at the book-entry transfer
facility) as well as a properly completed and duly executed copy of this Letter
of Transmittal and all other documents required by this Letter of Transmittal,
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. Existing Preferred Stock
tendered must be in integral multiples of $1000.
The method of delivery of this Letter of Transmittal, the Existing
Preferred Stock and all other required documents is at the election and risk of
the tendering holders, but the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. If such delivery is by mail, it is
recommended that registered or certified mail properly insured, with return
receipt requested, be used. In all cases, sufficient time should be allowed to
permit timely delivery.
If a holder desires to tender Existing Preferred Stock and such holder's
Existing Preferred Stock are not immediately available or time will not permit
such holder's Letter of Transmittal, Existing Preferred Stock (or a confirmation
of book-entry transfer of Existing Preferred Stock into the Exchange Agent's
account at the book-entry transfer facility) or other required documents to
reach the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date, or such holder cannot complete the procedure of book-entry
transfer on a timely basis, such holder may nevertheless tender Existing
Preferred Stock if:
(a) such tender is made by or through an Eligible Institution (as
defined below);
(b) the Exchange Agent has received from such Eligible Institution
prior to 5:00 p.m., New York City time, on the Expiration Date, a properly
completed and duly executed Letter of Transmittal (of facsimile thereof)
and Notice of Guaranteed Delivery, substantially in the form provided by
Fairfield (by facsimile transmission, mail or hand delivery), setting forth
the name and address of the holder of such Existing Preferred Stock and the
amount of Existing Preferred Stock tendered, stating that the tender is
being made thereby and guaranteeing that, within three New York Stock
Exchange ('NYSE') trading days after the execution of the Notice of
Guaranteed Delivery, a Book-Entry Confirmation and any other documents
required by this Letter of Transmittal and the instructions hereto, will be
deposited by such Eligible Institution with the Exchange Agent; and
(c) a Book-Entry Confirmation and all other required documents
required by the Letter of Transmittal are received by the Exchange Agent
within three NYSE trading days after the Notice of Guaranteed Delivery.
<PAGE>
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Existing
Preferred Stock (or a timely confirmation of a book-entry transfer of Existing
Preferred Stock into the Exchange Agent's account at the book-entry transfer
facility) or a Notice of Guaranteed Delivery from an Eligible Institution is
received by the Exchange Agent.
See 'The Exchange Offer' in the Prospectus.
2. Withdrawals
Any holder may withdraw a tender of Existing Preferred Stock prior to 5:00
p.m., New York City time on the Expiration Date. For a withdrawal to be
effective, a written notice of withdrawal must be received by the Exchange Agent
prior to 5:00 p.m., New York City time on the Expiration Date at one of its
addresses set forth herein. Any such notice of withdrawal must specify the name
and number of the account at the Book-Entry Transfer Facility from which the
Existing Preferred Stock was tendered, identify the aggregate liquidation
preference of the Existing Preferred Stock to be withdrawn, and specify the name
and number of the account at the Book- Entry Transfer Facility to be credited
with the withdrawn Existing Preferred Stock and otherwise comply with the
procedures of such facility. The Exchange Agent will return properly withdrawn
Existing Preferred Stock as soon as practicable following receipt of notice of
withdrawal. All questions as to the validity (including time of receipt) of
notices of withdrawals will be determined by Fairfield, in its sole discretion,
and such determination will be final and binding on all parties. See 'The
Exchange Offer--Withdrawal of Tenders' in the Prospectus. If Existing Preferred
Stock have been tendered pursuant to the procedures for book-entry transfer, any
notice of withdrawal must specify the name and number of the participant's
account at DTC to be credited with the withdrawn Existing Preferred Stock or
otherwise comply with DTC's procedures. See 'The Exchange Offer-Withdrawal of
Tenders' in the Prospectus.
3. Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures
If this Letter of Transmittal is signed by the registered holder of the
Existing Preferred Stock tendered hereby, the signature must correspond exactly
with the name as written on the face of the certificates without any change
whatsoever.
If any tendered Existing Preferred Stock are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Existing Preferred Stock are registered in different names
on several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Letter of Transmittal as there are different
registrations of certificates.
If this Letter of Transmittal or any Existing Preferred Stock or powers of
attorney 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 indicate when signing, and unless
waived by Fairfield, proper evidence satisfactory to Fairfield of their
authority so to act must be submitted.
The signatures on this Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Existing Preferred Stock
surrendered for exchange pursuant thereto
2
<PAGE>
are tendered (i) by a registered holder of the Existing Preferred Stock who has
not completed the box entitled 'Special Issuance Instructions' or 'Special
Delivery Instructions' in this Letter of Transmittal or (ii) for the account of
an Eligible Institution. In the event that the signatures in this Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantees must be by a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States, or an 'eligible institution'
within the meaning of Rule 17Ad-15 of the Securities Exchange Act of 1934, as
amended (each an 'Eligible Institution'). If Existing Preferred Stock are
registered in the name of a person other than the signer of this Letter of
Transmittal, the Existing Preferred Stock surrendered for exchange must be
endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by Fairfield in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
4. Special Issuance and Delivery Instructions
Tendering holders of Existing Preferred Stock should indicate in the
applicable box the name and address to which New Preferred Stock issued pursuant
to the Exchange Offer are to be issued or sent, if different from the name or
address of the person signing this Letter of Transmittal. In the case of
issuance in a different name, the employer identification or social security
number of the person named must also be indicated. If no such instructions are
given, any New Preferred Stock will be issued in the name of, and delivered to,
the name or address of the person signing this Letter of Transmittal and any
Existing Preferred Stock not accepted for exchange will be returned to the name
or address of the person signing this Letter of Transmittal.
5. Backup Federal Income Tax Withholding and Substitute Form W-9
Under the federal income tax laws, payments that may be made by Fairfield
on account of New Preferred Stock issued pursuant to the Exchange Offer may be
subject to backup withholding at the rate of 31%. In order to avoid such backup
withholding, each tendering holder should complete and sign the Substitute Form
W-9 included in this Letter of Transmittal and either (a) provide the correct
taxpayer identification number ('TIN') and certify, under penalties of perjury,
that the TIN provided is correct and that (i) the holder has not been notified
by the Internal Revenue Service (the 'IRS') that the holder is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the IRS has notified the holder that the holder is no longer subject to backup
withholding; or (b) provide an adequate basis for exemption. If the tendering
holder has not been issued a TIN and has applied for one, or intends to apply
for one in the near future, such holder should write 'Applied For' in the space
provided for the TIN in Part I of the Substitute Form W-9, sign and date the
Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer
Identification Number. If 'Applied For' is written in Part I, Fairfield (or the
Transfer Agent with respect to the New Preferred Stock or a broker or custodian)
may still withhold 31% of the amount of any payments made on account of the New
Preferred Stock until the holder furnishes Fairfield or the Transfer Agent with
Respect to the New Preferred Stock, broker or custodian with its TIN. In
general, if a holder is an individual, the taxpayer identification number is the
Social Security number of such individual. If the Exchange Agent or Fairfield is
not provided with the correct TIN, the holder may be subject to a $50 penalty
imposed by the IRS. Certain holders (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, such holder must submit a statement (generally, IRS Form W-8),
signed under penalties of perjury, attesting to that individual's exempt
3
<PAGE>
status. Such statements can be obtained from the Exchange Agent. For further
information concerning backup withholding and instructions for completing the
Substitute Form W-9 (including how to obtain a taxpayer identification number if
you do not have one and how to complete the Substitute Form W-9 if Existing
Preferred Stock are registered in more than one name), consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Existing Preferred Stock to be deemed invalidly tendered, but may require
Fairfield or the Transfer Agent with respect to the New Preferred Stock, broker
or custodian to withhold 31% of the amount of any payments made on account of
the New Preferred Stock. Backup withholding is not an additional federal income
tax. Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the IRS.
6. Transfer Taxes
Fairfield will pay all transfer taxes, if any, applicable to the transfer
of Existing Preferred Stock to it or its order pursuant to the Exchange Offer.
If, however, New Preferred Stock and/or substitute Existing Preferred Stock not
exchanged are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Existing Preferred Stock
tendered hereby, or if tendered Existing Preferred Stock are registered in the
name of any person other than the person signing this Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the transfer of Existing
Preferred Stock to Fairfield or its order pursuant to the Exchange Offer, the
amount of any such transfer taxes (whether imposed on the registered holder or
any other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted
herewith, the amount of such transfer taxes will be billed directly to such
tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Existing Preferred Stock specified in
this Letter of Transmittal.
7. Waiver of Conditions
Fairfield reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. No Conditional Tenders
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Existing Preferred Stock, by execution of
this Letter of Transmittal, shall waive any right to receive notice of the
acceptance of their Existing Preferred Stock for exchange.
Fairfield nor any other person is obligated to give notice of defects or
irregularities in any tender, nor shall any of them incur any liability for
failure to give any such notice.
9. Inadequate Space
If the space provided herein is inadequate, the aggregate liquidation
preference of Existing Preferred Stock being tendered and the certificate number
or numbers (if available) should be
4
<PAGE>
listed on a separate schedule attached hereto and separately signed by all
parties required to sign this Letter of Transmittal.
10. Mutilated, Lost, Stolen or Destroyed Existing Preferred Stock
Any holder whose Existing Preferred Stock have been mutilated, lost, stolen
or destroyed should contact the Exchange Agent at the address indicated above
for further instructions.
11. Requests for Assistance or Additional Copies
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number indicated
above.
5
<PAGE>
EXHIBIT 99.2
[FORM OF NOTICE OF GUARANTEED DELIVERY]
With Respect to
FAIRFIELD MANUFACTURING COMPANY, INC.
11 1/4% CUMULATIVE EXCHANGEABLE PREFERRED STOCK
This form must be used by a holder of the 11 1/4% Cumulative
Exchangeable Preferred Stock, par value $.01 par value, liquidation preference
$1000.00 per share (the "Existing Preferred Stock") of Fairfield Manufacturing
Company, Inc., a Delaware corporation ("Fairfield"), that wishes to tender
Existing Preferred Stock to the Exchange Agent pursuant to the guaranteed
delivery procedures described in "The Exchange Offer--Procedures for Tendering"
of the Prospectus dated _______________, 1997 (the "Prospectus") and in
Instruction 1 to the accompanying Letter of Transmittal. Any holder that wishes
to tender Existing Preferred Stock pursuant to such guaranteed delivery
procedures must ensure that the Exchange Agent receives this Notice of
Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration
Date of the Exchange Offer. Capitalized terms not defined herein have the
meaning ascribed to them in the Prospectus or the Letter of Transmittal.
To: United States Trust Company of New York, Exchange Agent
<TABLE>
<S> <C>
By Mail: By Facsimile:
United States Trust Company of New York (212)420-6152
P.O. Box 843 (For Eligible Institutions Only)
Cooper Station
New York, N.Y. 10276
Attention: Corporate Trust Services
By Overnight Courier or By Hand to 4:30 p.m.:
By Hand after 4:30 p.m.: United States Trust Company of New York
United States Trust Company of New York 111 Broadway
770 Broadway, 13th Floor New York, N.Y. 10006
New York, N.Y. 10003 Attention: Lower Level Corporate Trust Window
Attention: Corporate Trust Redemption Unit
</TABLE>
For Information Call:
(800) 548-6565
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
<PAGE>
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Fairfield, 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
Existing Preferred Stock specified below pursuant to the guaranteed delivery
procedures set forth in the Prospectus and in Instruction 1 of the Letter of
Transmittal. The undersigned hereby tenders the Existing Preferred Stock listed
below:
<TABLE>
<CAPTION>
Certificate Number(s) (if known) of
Existing Preferred Stock or Account Aggregate Number of Shares Aggregate Principal
Number at the Book-Entry Facility Represented by Certificate Amount of Shares Tendered
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
All authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
SIGN HERE
Name of Registered or Acting Holder:
Signature(s):___________________________________________________________________
Name(s) (please print):_________________________________________________________
Address:________________________________________________________________________
Telephone Number:_______________________________________________________________
Date:___________________________________________________________________________
GUARANTEE
(Not to be used for signature guarantee)
<PAGE>
The undersigned, a firm which is a member of a registered
national securities exchange or of the National Associates 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 Existing
Preferred Stock tendered hereby in proper form for transfer (or confirmation of
the book-entry transfers of such Existing Preferred Stock into the Exchange
Agent's account at the book-entry transfer facility described in the Prospectus
under the caption "The Exchange Offer--Procedures for Tendering" and in the
Letter of Transmittal) and any other required documents, all by 5:00 p.m., New
York City time, on the fifth business day following the Expiration Date.
SIGN HERE
Name of firm:__________________________________________________________________
Authorized Signature:__________________________________________________________
Name (please print):___________________________________________________________
Address:_______________________________________________________________________
Telephone Number:______________________________________________________________
Date:__________________________________________________________________________
DO NOT SEND SHARES WITH THIS FORM. ACTUAL SURRENDER OF SHARES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
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 5:00 p.m., New
York City time, on 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 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
or certified mail properly insured, with return receipt
<PAGE>
requested, is recommended. In all cases sufficient time should be allowed to
assure timely delivery. For a description of the guaranteed delivery procedure,
see Instruction 1 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
Existing Preferred Stock referred to herein, the signature must correspond with
the name(s) written on the face of the Existing Preferred Stock 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 as the owner of Existing Preferred
Stock, the signature must correspond with the name shown on the security
position listing as the owner of the Existing Preferred Stock.
If this Notice of Guaranteed Delivery is signed by a person
other than the registered holder(s) of any Existing Preferred Stock 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 Existing Preferred Stock 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.
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 as sistance concerning the Exchange Offer.
<PAGE>
Exhibit 99.3
[Form of Exchange Agent Agreement]
UNITED STATES TRUST COMPANY OF NEW YORK
EXCHANGE AGENT AGREEMENT
April __, 1997
United States Trust
Company of New York,
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Cynthia Chaney
Ladies and Gentlemen:
Fairfield Manufacturing Company, Inc., a Delaware corporation
(the "Company"), is offering to exchange (the "Exchange Offer") its 11 1/4%
Cumulative Exchangeable Preferred Stock, par value $.01 per share, liquidation
preference $1,000.00 per share (the "New Preferred Stock"), which has been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for each issued and outstanding share of its 11 1/4% Cumulative Exchangeable
Preferred Stock, par value $.01 per share, liquidation preference $1,000.00 per
share (the "Existing Preferred Stock" and, together with the New Preferred
Stock, the "Preferred Stock"), pursuant to a prospectus (the "Prospectus")
included in the Company's Registration Statement on Form S-4 (File No.
333-_____), as amended (the "Registration Statement"), filed with the Securities
and Exchange Commission (the "SEC"). The term "Expiration Date" shall mean 5:00
p.m., New York City time, on __________, 1997, unless the Exchange Offer is
extended as provided in the Prospectus, in which case the term "Expiration Date"
shall mean the latest date and time to which the Exchange Offer is extended.
Upon execution of this Agreement, United States Trust Company of New York will
act as the Exchange Agent for the Exchange Offer (the "Exchange Agent"). A copy
of the Prospectus is attached hereto as Exhibit A. Capitalized terms used and
not otherwise defined herein shall have the respective meanings ascribed thereto
in the Prospectus.
A copy of each of the form of the letter of transmittal (the
"Letter of Transmittal"), the form of the notice of guaranteed delivery (the
"Notice of Guaranteed Delivery") and each other document to be delivered with
respect to the Exchange Offer (collectively, the "Tender Documents") to be used
by holders of Existing Preferred Stock (the "Holders") to surrender Existing
Preferred Stock in order to receive New Preferred Stock pursuant to the Exchange
Offer are attached hereto as Exhibit B.
The Company hereby appoints you to act as Exchange Agent in
connection with the Exchange Offer. In carrying out your duties as Exchange
Agent, you are to act in accordance with the following provisions of this
Agreement:
1. You are to mail the Prospectus and the Tender Documents to
all of the Holders and participants on the day that you are notified by the
Company that the Registration Statement has become effective under the
Securities Act of 1933, as amended, or as soon as practicable thereafter, and to
make subsequent mailings thereof at the Company's request to any persons who
become Holders prior to the Expiration Date and to any persons as may from time
to time be requested by the Company. All mailings pursuant to this Section 1
shall be by first class mail, postage prepaid, unless otherwise specified by the
Company. You shall also accept and comply with telephone requests for
information relating to the Exchange Offer provided that such information shall
relate only to the procedures for tendering Existing Preferred Stock in (or
withdrawing tenders of Existing Preferred Stock from) the Exchange Offer. All
other requests for information relating to the Exchange Offer shall be directed
to the Company, Attention: Richard A. Bush, Vice President-Finance, Fairfield
Manufacturing Company, Inc., U.S. Route 52 South, Lafayette, Indiana 47905,
telephone (765) 474-3474, facsimile (765) 474-7248.
2. In the event that any of the holders does not tender
electronically, you are to examine the Letters of Transmittal and the Existing
Preferred Stock and other documents delivered or mailed to you, by or for the
Holders, prior to the Expiration Date, to ascertain whether (i) the Letters of
Transmittal are properly executed and completed
<PAGE>
in accordance with the instructions set forth therein, (ii) the Existing
Preferred Stock is in proper form for transfer and (iii) all other documents
submitted to you are in proper form. In each case where a Letter of Transmittal
or other document has been improperly executed or completed or, for any other
reason, is not in proper form, or some other irregularity exists, you are
authorized to endeavor to take such action as you consider appropriate to notify
the tendering Holder of such irregularity and as to the appropriate means of
resolving the same. Determination of questions as to the proper completion or
execution of the Letters of Transmittal, or as to the proper form for transfer
of the Existing Preferred Stock or as to any other irregularity in connection
with the submission of Letters of Transmittal and/or Existing Preferred Stock
and other documents in connection with the Exchange Offer, shall be made by the
officers of, or counsel for, the Company at their written instructions or oral
direction confirmed by facsimile. Any determination made by the Company on such
questions shall be final and binding.
3. In the event of any extension, termination or amendment of
the Exchange Offer, the Company shall notify the Holders thereof by making a
timely press release to an appropriate news agency or by such other method as
the Company may determine in its sole discretion and, if appropriate, you shall
assist the Company in the delivery of such notice or any related documentation
at the Company's expense. In the event of any such termination, you will
return all tendered Existing Preferred Stock to the persons entitled thereto, at
the request and expense of the Company.
4. Tender of the Existing Preferred Stock may be made only as
set forth in the Letter of Transmittal or by an Agent's Message. Notwithstanding
the foregoing, tenders which the Company shall approve in writing as having been
properly tendered shall be considered to be properly tendered. Letters of
Transmittal and Notices of Guaranteed Delivery shall be recorded by you as to
the date and time of receipt and shall be preserved and retained by you at the
Company's expense for five years. New Preferred Stock is to be issued in
exchange for Existing Preferred Stock pursuant to the Exchange Offer only
against deposit with you prior to the Expiration Date or, in the case of a
tender in
<PAGE>
accordance with the guaranteed delivery procedures outlined in Instruction 1 of
the Letter of Transmittal, within three New York Stock Exchange trading days
after the Expiration Date of the Exchange Offer, together with executed Letters
of Transmittal and any other documents required by the Exchange Offer.
You are hereby directed to establish an account with respect
to the Existing Preferred Stock at The Depositary Trust Company (the "Book Entry
Transfer Facility") within two days after the Effective Date of the Exchange
Offer in accordance with SEC Regulation 240.17 Ad. Any financial institution
that is a participant in the Book Entry Transfer Facility system may, until the
Expiration Date, make book-entry delivery of the Existing Preferred Stock by
causing the Book Entry Facility to transfer such share certificates representing
such Existing Preferred Stock into your account in accordance with the procedure
for such transfer established by the Book Entry Transfer Facility. In every
case, however, a Letter of Transmittal (or a manually executed facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other required documents must be transmitted to and received
by you prior to the Expiration Date or the guaranteed delivery procedures
described in the Instruction 1 of the Letter of Transmittal must be complied
with.
5. Upon the oral or written request of the Company (with
written confirmation of any such oral request thereafter), you will transmit by
telephone, and promptly thereafter confirm in writing, to (i) Richard A. Bush,
Vice President-Finance, Fairfield Manufacturing Company, Inc., U.S. Route 52
South, Lafayette, Indiana 47905, telephone (765) 474-3474, facsimile (765)
474-7248, and (ii) Ralph R. Arditi, Debevoise & Plimpton, 875 Third Avenue, New
York, New York, 10022, telephone (212) 909-6000, facsimile (212) 909-6836 or
such other persons as the Company may reasonably request, the aggregate number
and principal amount of Existing Preferred Stock tendered to you and the number
and principal amount of Existing Preferred Stock properly tendered that day. In
addition, you will also inform the aforementioned persons, upon oral request
made from time to time (with written confirmation of such request
<PAGE>
thereafter) prior to the Expiration Date, of such information as they or any of
them may reasonably request.
6. Upon the terms and subject to the conditions of the
Exchange Offer, delivery of shares of New Preferred Stock to be issued in
exchange for accepted shares of Existing Preferred Stock will be made by you
promptly after acceptance of the tendered shares of Existing Preferred Stock.
The Company shall deposit with you a sufficient quantity of shares of New
Preferred Stock in order for you to timely meet the terms and conditions of the
Exchange Offer, and you shall not issue any shares of New Preferred Stock until
you have received a sufficient number of shares of New Preferred Stock to carry
out the requisite deliveries pursuant to the terms of the Exchange Offer. You
will hold all items which are deposited for tender with you after 5:00 p.m., New
York City time, on the Expiration Date pending further instructions from an
officer of the Company.
7. If any Holder shall report to you that his or
her failure to surrender Existing Preferred Stock registered in his or her name
is due to the loss or destruction of a certificate or certificates, you shall
request such Holder (i) to furnish to you an affidavit of loss and, if required
by the Company, a bond of indemnity in an amount and evidenced by such
certificate or certificates of a surety, as may be satisfactory to you and the
Company, and (ii) to execute and deliver an agreement to indemnify the Company
and you in such form as is acceptable to you and the Company. The obligees to be
named in each such indemnity bond shall include the Company and you. You shall
report to the Company the names of all Holders who claim that their Existing
Preferred Stock has been lost or destroyed and the principal amount of such
Existing Preferred Stock.
8. As soon as practicable after the Expiration Date after you
mail or deliver to a Holder the New Preferred Stock that such Holder may be
entitled to receive, you shall arrange for cancellation of the Existing
Preferred Stock submitted to you. Such Existing Preferred Stock shall be
forwarded to United States Trust Company of New York, as Transfer Agent (the
"Transfer Agent"), under the Certificate of Designation dated as of March 7,
1997, governing the Preferred Stock, for cancellation and retirement as you are
<PAGE>
instructed by the Company (or a representative designated by the Company) in
writing.
9. For your services as the Exchange Agent
hereunder, the Company shall pay you the amounts set forth
on Exhibit C hereto.
10. You are not authorized to pay or offer to pay any
concessions, commissions or solicitation fees to any broker, dealer, bank or
other person or to engage or utilize any person to solicit tenders.
11. As the Exchange Agent hereunder you:
(a) shall have no duties or obligations
other than those specifically set forth herein or
in the Exhibits attached hereto or as may be
subsequently requested in writing of you by the
Company and agreed to by you in writing with
respect to the Exchange Offer;
(b) will be regarded as making no representations and
having no responsibilities as to the validity, accuracy,
sufficiency, value or genuineness of any Existing Preferred
Stock deposited with you hereunder or any New Preferred Stock,
any Tender Documents or other documents prepared by the
Company in connection with the Exchange Offer, the Prospectus
or any signatures or endorsements other than your own, and
will not be required to make and will not make any
representations as to the validity, sufficiency, value or
genuineness of the Exchange Offer or any other disclosure
materials in connection therewith; provided, however, that in
no way will your general duty to act in good faith be
discharged by the foregoing;
(c) shall not be obligated to take any legal action
hereunder which might in your judgment involve any expense or
liability unless you shall have been furnished with an
indemnity reasonably satisfactory to you;
<PAGE>
(d) may rely on, and shall be fully protected and
indemnified as provided in Section 12 hereof in acting upon,
the written or oral instructions with respect to any matter
relating to your acting as Exchange Agent specifically covered
by this Agreement or supplementing or qualifying any such
action of any officer or agent of such other person or persons
as may be designated or whom you reasonably believe have been
designated by the Company;
(e) may consult with counsel satisfactory to
you, including counsel for the Company, and the
advice of such counsel shall be full and complete
authorization and protection in respect of any action taken,
suffered or omitted by you hereunder in good faith and in
accordance with such advice of such counsel;
(f) shall not at any time advise any person as to the
wisdom of the Exchange Offer or as to the market value or
decline or appreciation in market value of any Existing
Preferred Stock or New Preferred Stock;
(g) shall not be liable for any action which you may
do or refrain from doing in connection with this Agreement
except for your gross negligence, willful misconduct or bad
faith;
(h) shall have no obligation to make any payment of
any type hereunder unless sufficient funds have been deposited
with you to pay in full all such amounts; and no provision of
this Agreement shall require you to risk your own funds or
otherwise incur any financial liability in the performance of
any of your duties or exercise of your rights hereunder;
(i) are acting in a ministerial capacity as the
Company's agent hereunder and no trust or other fiduciary
relationship shall be established by this Agreement, either
with the Company or any other party; and
<PAGE>
(j) may rely upon any statement, consent, agreement
or other instrument not only as to its due execution, its
validity, and the effectiveness of its provisions, but also as
to the truth and accuracy of any information therein, which
you shall in good faith believe to be genuine or to have been
represented or signed by a proper person or persons.
12. The Company covenants and agrees to indemnify and hold
harmless United States Trust Company of New York, and its officers, directors,
employees, agents and affiliates (collectively, the "Indemnified Parties" and
each an "Indemnified Party") against any loss, liability or reasonable expense
of any nature (including reasonable attorneys' and other fees and expenses)
incurred in connection with the administration of the duties of the Indemnified
Parties hereunder in accordance with this Agreement other than losses,
liabilities or expenses arising from the gross negligence or willful misconduct
of the Indemnified Party; provided, further, such Indemnified Party shall use
its best efforts to notify the Company by letter, or by cable, telex or
telecopier confirmed by letter, of the written assertion of a claim against such
Indemnified Party, or of any action commenced against such Indemnified Party,
promptly after but in any event within 10 days of the date such Indemnified
Party shall have received any such written assertion of a claim or shall have
been served with a summons, or other legal process, giving information as to the
nature and basis of the claim; provided, however, that failure to so notify the
Company shall not relieve the Company of any liability which it may otherwise
have hereunder except such liability that is a direct result of such Indemnified
Party's failure to so notify the Company. The Company shall be entitled to
participate at its own expense in the defense of any such claim or legal action
and if the Company so elects or if the Indemnified Party in such notice to the
Company so directs, the Company shall assume the defense of any suit brought to
enforce any such claim. In the event the Company assumes such defense, the
Company shall not be liable for any fees and expenses thereafter incurred by
such Indemnified Party, except for any reasonable fees and expenses of such
Indemnified Party incurred as a result of the need to have separate
<PAGE>
representation because of a conflict of interest between such Indemnified Party
and the Company. You shall not enter into a settlement or other compromise with
respect to any indemnified loss, liability or expense without the prior written
consent of the Company, which shall not be unreasonably withheld or delayed if
not adverse to the Company's interests.
13. This Agreement and your appointment as the Exchange Agent
shall be construed and enforced in accordance with the laws of the State of New
York without regard to the conflicts of laws provisions thereof, and shall inure
to the benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of the parties hereto. No other person shall acquire or
have any rights under or by virtue of this Agreement.
14. The parties hereto hereby irrevocably submit to the venue
and jurisdiction of any New York State or Federal court sitting in the Borough
of Manhattan in New York City in any action or proceeding arising out of or
relating to this Agreement, and the parties hereby irrevocably agree that all
claims in respect of such action or proceeding arising out of or relating to
this Agreement, shall be heard and determined in such a New York State or
federal court. The parties hereby consent to and grant to any such court
jurisdiction over the persons of such parties and over the subject matter of any
such dispute and agree that delivery or mailing of any process or other papers
in the manner provided herein, or in such other manner as may be permitted by
law, shall be valid and sufficient service thereof.
15. This Agreement may not be modified, amended or
supplemented without an express written agreement executed by the parties
hereto. Any inconsistency between this Agreement and the Tender Documents, as
they may from time to time be supplemented or amended, shall be resolved in
favor of the latter, except with respect to the duties, liabilities and
indemnification of you as Exchange Agent.
16. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute
<PAGE>
one and the same agreement.
17. In case any provision of this Agreement 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.
18. Unless terminated earlier by the parties hereto, this
Agreement shall terminate 90 days following the Expiration Date. Notwithstanding
the foregoing, Sections 9 and 12 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver to
the Transfer Agent any certificates for Existing Preferred Stock or New
Preferred Stock, funds or property then held by you as Exchange Agent under this
Agreement.
19. All notices and communications hereunder shall be in
writing and shall be deemed to be duly given if delivered or mailed first-class
certified or registered mail, postage prepaid, or telecopied as follows:
If to the Company: Richard A. Bush,
Vice President-Finance
Fairfield Manufacturing Company,
Inc.
U.S. Route 52 South
Lafayette, Indiana 47905
Telephone: (765) 474-3474
Facsimile: (765) 474-7248
and a copy to: Ralph R. Arditi
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Telephone: (212) 909-6000
Facsimile: (212) 909-6836
If to you: United States Trust
Company of New York,
114 West 47th Street, 25th Floor
New York, NY 10036
Attn: Cynthia Chaney
Telephone: (212) 852-1661
Facsimile: (212) 852-1626
<PAGE>
or such other address or telecopy number as any of the above may have furnished
to the other parties in writing for such purpose.
20. This Letter Agreement and all of the
obligations hereunder shall be assumed by any and all successors and assigns
of the Company.
21. This Agreement and the other agreements, documents and
exhibits referred to herein constitute the entire agreement between the parties
pertaining to the subject matter hereof and supersede all prior and
contemporaneous agreements and undertakings of the parties in connection
herewith.
If the foregoing is in accordance with your understanding,
would you please indicate your agreement by signing and returning the enclosed
copy of this Agreement to the Company.
Very truly yours,
FAIRFIELD MANUFACTURING
COMPANY, INC.
By:
-------------------------------
Name:
Title:
Agreed to this ____ day of ________, 1997
UNITED STATES TRUST COMPANY OF NEW YORK
By:
-------------------------------------
Name:
Title:
