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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FAIRFIELD MANUFACTURING COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3566 63-0500160
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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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
VICE PRESIDENT--FINANCE
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
(212) 909-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities of an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
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CALCULATION OF REGISTRATION FEE
PROPOSED
TITLE OF EACH CLASS MAXIMUM OFFERING PROPOSED
OF SECURITIES TO BE AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
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9 5/8% Senior Subordinated
Notes due 2008.............. $100,000,000 100% $100,000,000 $27,800
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
------------------------
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.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 10, 1999
PROSPECTUS [LOGO]
OFFER TO EXCHANGE FOR ALL OUTSTANDING
9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
------------------------------
We are offering to exchange (the "Exchange Offer") all of our outstanding
9 5/8% Senior Subordinated Notes Due 2008 (the "Old Notes") for our registered
9 5/8% Senior Subordinated Notes Due 2008 (the "New Notes"). The Old Notes and
the New Notes are collectively referred to as the "Notes".
THE NEW NOTES:
The terms of the New Notes are identical in all material respects to the
terms of the Old Notes except that the New Notes:
o are registered under the Securities Act of 1933, and therefore will not
contain restrictions on transfer;
o will not contain certain provisions relating to additional interest; and
o will contain terms of an administrative nature that differ from those of
the Old Notes.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 10 OF THIS
PROSPECTUS BEFORE INVESTING.
THE EXCHANGE OFFER:
o Our offer to exchange Old Notes for New Notes will be open until 5:00
p.m., New York City time, on , 1999, unless we extend the
offer.
o You should carefully review the procedures for tendering the Old Notes
beginning on page 80 of this prospectus.
o The Exchange Offer is subject to customary conditions. We may waive
these conditions.
o If you fail to tender your Old Notes, you will continue to hold
unregistered securities and your ability to transfer them could be
adversely affected.
o No public market currently exists for the Notes.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE NOTES OR DETERMINED THAT THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
The date of this Prospectus is , 1999.
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CUSTOM GEAR
Fairfield's custom gear products are used in a variety of applications,
including those pictured below.
This prospectus incorporates important business and financial information
about us that is not included in or delivered with this Prospectus. We will
provide without charge to each person to whom a copy of this Prospectus is
delivered, upon written or oral request of any such person, a copy of any and
all such information. Requests for such copies should be directed to the Vice
President--Finance, Fairfield Manufacturing Company, Inc., U.S. Route 52 South,
Lafayette, Indiana 47903 (telephone number (765) 474-3474). You should request
any such information at least five days in advance of the date on which you
expect to make your decision with respect to this offer. In any event, you must
request such information prior to , 1999.
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IMPORTANT INFORMATION ABOUT THIS PROSPECTUS
The information in this Prospectus is current only as of the date on its
cover, and may change after that date. For any time after the cover date of this
Prospectus, we do not represent that our affairs are the same as described or
that the information in this Prospectus is correct--nor do we imply those things
by delivering this Prospectus, or offering to exchange securities.
We have used information that we believe comes from reliable sources, but
we do not assure you that the information in this Prospectus is accurate or
complete. This Prospectus contains summaries, believed to be accurate, of
certain terms of certain documents. All such summaries are qualified in their
entirety by reference to the actual documents. Copies of the actual documents
will be made available upon request to the Company. In making an investment
decision, you must rely upon your own examination of this Prospectus and the
terms of the offering and the Notes, including the merits and risks involved.
You should rely only on the information contained in this Prospectus. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it.
You might not be legally able to participate in this exchange offering--we
are not giving you legal, business, financial or tax advice about any matter.
You should consult with your own attorney, accountant and other advisors about
those matters (including to see if you may legally participate in this private,
unregistered offering).
WE ARE NOT MAKING THE EXCHANGE OFFER, NOR WILL WE ACCEPT SURRENDERS FOR
EXCHANGE FROM ANY HOLDER OF OLD NOTES, IN ANY JURISDICTION IN WHICH THE EXCHANGE
OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES
OR "BLUE SKY" LAWS OF SUCH JURISDICTION.
FORWARD-LOOKING STATEMENTS
WE MAKE FORWARD-LOOKING STATEMENTS THROUGHOUT THIS PROSPECTUS. WHENEVER YOU
READ A STATEMENT THAT IS NOT SIMPLY A STATEMENT OF HISTORICAL FACT (SUCH AS WHEN
WE DESCRIBE WHAT WE BELIEVE, EXPECT OR ANTICIPATE WILL OCCUR, AND OTHER SIMILAR
STATEMENTS), YOU MUST REMEMBER THAT OUR EXPECTATIONS MAY NOT BE CORRECT, EVEN
THOUGH WE BELIEVE THEY ARE REASONABLE. WE DO NOT GUARANTEE THAT THE TRANSACTIONS
AND EVENTS DESCRIBED IN THIS PROSPECTUS WILL HAPPEN AS DESCRIBED (OR THAT THEY
WILL HAPPEN AT ALL). YOU SHOULD READ THIS PROSPECTUS COMPLETELY AND WITH THE
UNDERSTANDING THAT ACTUAL FUTURE RESULTS MAY BE MATERIALLY DIFFERENT FROM WHAT
WE EXPECT. WE WILL NOT UPDATE THESE FORWARD-LOOKING STATEMENTS, EVEN THOUGH OUR
SITUATION WILL CHANGE IN THE FUTURE. WHETHER ACTUAL RESULTS WILL CONFORM WITH
OUR EXPECTATIONS AND PREDICTIONS IS SUBJECT TO A NUMBER OF RISKS AND
UNCERTAINTIES, INCLUDING:
o THE FACTORS DISCUSSED UNDER "RISK FACTORS" IN THIS PROSPECTUS;
o OUR OUTSTANDING INDEBTEDNESS AND OUR LEVERAGE;
o RESTRICTIONS IMPOSED BY THE TERMS OF OUR INDEBTEDNESS;
o THE HIGH DEGREE OF COMPETITION IN OUR BUSINESS;
o THE SUSCEPTIBILITY OF OUR BUSINESS TO GENERAL ECONOMIC CONDITIONS;
o THE CYCLICAL NATURE OF OUR BUSINESS;
o FUTURE MODIFICATIONS OF EXISTING ENVIRONMENTAL LAWS AND HUMAN HEALTH
REGULATIONS;
o DISCOVERY OF UNKNOWN CONTINGENT LIABILITIES, INCLUDING ENVIRONMENTAL
CONTAMINATION AT OUR FACILITY;
o OUR DEPENDENCE ON SUPPLIERS OF RAW MATERIALS AND MAJOR CUSTOMERS;
o RISKS RELATED TO YEAR 2000 ISSUES; AND
o FUTURE CAPITAL REQUIREMENTS.
AVAILABLE INFORMATION
We have filed a Registration Statement on Form S-4 (the "Registration
Statement") to register, under the Securities Act of 1933, as amended (the
"Securities Act"), the New Notes to be issued in exchange for the Old Notes.
This Prospectus is a part of the Registration Statement. As allowed by the rules
of the
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Securities and Exchange Commission (the "Commission"), this Prospectus does not
contain all the information you can find in the Registration Statement or the
exhibits to the Registration Statement.
We currently file with the Commission annual reports containing the
information required to be contained in Form 10-K promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), quarterly
reports containing the information required to be contained in Form 10-Q
promulgated under the Exchange Act and from time to time such other information
as is required to be contained in Form 8-K promulgated under the Exchange Act.
Such filings can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at Regional Offices of the Commission located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and at Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Room of the Commission
at 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. You may
obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains a site on the World Wide
Web that contains filings of registrants who file such material with the
Commission electronically. The Commission's internet address on the World Wide
Web is http://www.sec.gov.
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PROSPECTUS SUMMARY
This summary highlights selected information from this document, but does
not contain all the details of the Notes and information about us, including
information that may be important to you. Therefore, we urge you to read this
entire document carefully, including the Risk Factors and the Consolidated
Financial Statements. Unless the context otherwise requires, references in this
document to "us", "we", "our", "ours", the "Company" or "Fairfield" mean
Fairfield Manufacturing Company, Inc. and its subsidiaries.
THE COMPANY
We believe we are the leading independent manufacturer (based on sales) of
high precision custom gears and assemblies and planetary gear systems in North
America. In each of the "custom products" and "planetary gear system" markets in
which we participate, we estimate that our market share is twice that of any
other independent manufacturer. Most of our custom gears and assemblies and
planetary gear systems are used by original equipment manufacturers, or OEMs, as
components in various kinds of heavy mobile equipment. Our customers include
such industry leaders as General Electric, General Motors, John Deere,
Caterpillar and Ingersoll-Rand. In 1998, our net sales increased by 14.6% over
1997 to $220.3 million and EBITDA (as defined) increased by 18.8% over 1997 to
$37.1 million. For the quarter ended March 31, 1999, we had net sales of
$60.4 million and EBITDA of $11.9 million, compared with net sales of
$55.4 million and EBITDA of $9.0 million, for the same period in 1998. For the
twelve months ended March 31, 1999, we had net sales of $225.3 million and
EBITDA of $40.0 million.
Custom Products. Custom gears are components of larger systems, such as
axles, drive differentials and transmission units. Custom assemblies are
differentials, wheel drives, power transmissions and conveyor/tram drives that
are generally produced as complete units. Most of the businesses who purchase
our custom gears and assemblies are OEMs; for many of them we are the sole
independent supplier of selected gear products. Our custom gear customers
include OEMs who produce:
o rail equipment, such as locomotives;
o mining equipment, such as underground mining and transfer equipment and
above-ground haul trucks;
o agricultural equipment, such as tractors and harvesting equipment;
o industrial equipment, such as mixers, printing presses and compressors;
o construction equipment, such as loaders, scrapers and excavators; and
o materials-handling equipment, such as forklifts and conveyors.
Custom gears and assemblies accounted for $118.5 million (or 53.8%) of our 1998
net sales and $30.6 million (or 50.7%) of our 1999 first quarter net sales.
Planetary Gear Systems. Planetary gear systems 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 conventional axles would otherwise present design
Difficulties. We market our planetary gear systems under the
Torque-Hub(Registered) name. As a result of the performance history and
reputation for quality of our Torque-Hub(Registered) products, we believe the
Torque-Hub(Registered) name has become closely identified with planetary gear
systems. Torque-Hub(Registered) customers include OEMs who produce:
o access platform equipment, such as aerial-lifts and utility trucks;
o road rehabilitation equipment, such as pavers and road compactors;
o construction equipment, such as excavators and trenchers;
o forestry equipment, such as logging loaders and feller bunchers;
o agricultural equipment, such as crop sprayers and windrowers; and
o marine equipment, such as hoist and jack-up boats.
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Planetary gear systems accounted for $101.8 million (or 46.2%) of our 1998 net
sales and $29.8 million (or 49.3%) of our 1999 first quarter net sales.
We have been granted "preferred supplier" status by a majority of our
customers due to our ability to meet their business requirements, including
General Electric, General Motors, John Deere, Caterpillar and Ingersoll-Rand. We
have also been certified as meeting "ISO-9001" standards, which are increasingly
being used by OEMs in lieu of individual certification procedures. In addition,
we have been certified as meeting "QS-9000" standards. We believe ISO-9001 and
QS-9000 certifications provide us with a competitive advantage because a number
of OEMs now require one of these certifications as a condition to doing
business.
COMPETITIVE STRENGTHS
We have a leading market position in the custom product and planetary gear
system markets in which we participate. We believe our competitive strengths
are:
o the breadth and quality of our product offerings;
o our long-standing relationships (in many cases 20 years or more) with
our major customers;
o our state-of-the-art engineering and manufacturing technology, including
our heat treating facilities, computer-aided design and manufacturing
systems, and computer controlled machine tools and gear grinders;
o our cost-competitiveness;
o our experienced engineering staff, and its close collaboration with our
sales force and customers in designing and developing products to meet
our customers' needs; and
o our stable, knowledgeable sales force, many of whose members have
engineering degrees and have worked with the same customers for many
years.
In addition, we believe that our management team, with an average of over 20
years of experience in manufacturing, will be instrumental in further
strengthening our market position.
BUSINESS STRATEGY
We intend to enhance our market position and improve our profitability by:
CAPITALIZING ON INDUSTRY TRENDS. We seek to increase our revenues
and market share by taking advantage of industry trends, including:
o the trend among OEMs to purchase complete gear assemblies or
systems rather than individual gear products;
o 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
similar to us, rather than manufacture such products in-house; and
o 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 similar to
us.
These trends are driven by the OEMs' desire to reduce their
production and supply costs and focus on their core competencies. We
have capitalized upon these trends as evidenced by increasing sales
of complete gear assemblies and systems, particularly to
manufacturers of agricultural and heavy-duty equipment. For example,
in 1998 we started delivering a new complete gearbox assembly to a
baler manufacturer and a family of bull gears and pinions to an axle
manufacturer for on-highway Class 8 vehicles. In addition, we
continue to receive orders from a number of captive gear
manufacturers, such as those of General Electric, General Motors and
John Deere, for certain gear products that these OEMs previously
produced in-house. We have also established sole sourcing
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relationships with many of our major customers for selected gear
products. We believe we can continue to take advantage of these
industry trends because of our broad product offerings, large
manufacturing capacity, sophisticated manufacturing and design
capabilities and established reputation for producing high-quality
products.
IMPROVING PRODUCTION EFFICIENCY AND REDUCING OVERALL COSTS. We have
taken a number of steps to improve our efficiency and increase our
profit margins. Specifically, we are:
o converting various operations to cellular manufacturing;
o reorganizing the physical layout of our plant;
o installing new, more efficient machinery; and
o improving our employee training programs.
In addition, we are actively working to reduce the price we pay for
raw materials by using suppliers throughout the world, purchasing
more from fewer suppliers and entering into long-term supply
agreements. We are also controlling our selling, general and
administrative expenses. We believe these initiatives will help us
to lower our costs.
MAINTAINING OUR POSITION AS A HIGH-QUALITY, LOW-COST
MANUFACTURER. We have broad-based, integrated manufacturing
capabilities which, we believe, provide us with an advantage over
our competitors. These capabilities include:
o state-of-the-art heat treating facilities;
o computer-aided design and manufacturing systems; and
o computer numerically controlled machine tools and gear grinders.
Since 1994, we have invested $57.0 million in capital equipment and
in our manufacturing facility. We believe our manufacturing capacity
is substantially larger than that of our independent competitors,
enabling us to fill large orders at a lower cost. We plan to
continue to selectively purchase more equipment to improve our
manufacturing processes and expand capacity.
LEVERAGING OUR LONG-TERM RELATIONSHIPS WITH MAJOR CUSTOMERS;
INTRODUCING NEW PRODUCTS. We believe we have strong relationships with
our customers due to the following factors:
o the continuity of our customer relationships;
o our awareness of and involvement in our customers' planning
processes; and
o our commitment to provide ongoing engineering services.
We believe we are better able to proactively design and implement
solutions to our customers' evolving requirements based upon our
strong customer relationships.
We are developing, testing and marketing new products, and new
applications for existing products, to increase sales, profit and
market share. Historically, our planetary gear system business has
generated a significant portion of our new products and new product
applications. We are continually working to add new custom gear and
assembly product offerings and are currently developing a number of
new applications including: (1) differentials for automotive,
industrial and commercial vehicles, and off-highway trucks,
(2) transmissions, and (3) axles.
EVALUATING SELECTED ACQUISITIONS. We intend to examine and, if
appropriate, to pursue strategic acquisitions of complementary
businesses in order to increase product manufacturing capacity,
broaden product offerings and penetrate new geographic markets.
------------------------
Our principal executive offices are located at U.S. 52 South, Lafayette,
Indiana 47905. Our telephone number is (765) 474-3474.
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
We completed on May 19, 1999 the private offering (the "Original Offering")
of $100,000,000 aggregate principal amount of 9 5/8% Senior Subordinated Notes
due 2008 (the "Old Notes").
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The Exchange Offer.................. You are entitled to exchange in this exchange offer (the "Exchange Offer")
Old Notes for our registered 9 5/8% Senior Subordinated Notes due 2008 (the
"New Notes"). The Old Notes and the New Notes are collectively referred to
as the "Notes".
Resale of New Notes................. We believe that the New Notes that will be issued in this Exchange Offer
may be resold by most investors without compliance with the registration
and prospectus delivery provisions of the Securities Act, subject to
certain conditions. You should read the discussion under the heading "The
Exchange Offer" for further information regarding the Exchange Offer and
resale of the New Notes.
Registration Rights Agreement....... In connection with the sale of the Old Notes to the initial purchasers, we
entered into a Registration Rights Agreement with the initial purchasers
(the "Registration Rights Agreement") requiring us to use our best efforts
to make the Exchange Offer.
Consequence of Failure to Exchange
Old Notes........................... You will continue to hold Old Notes which will remain subject to their
existing transfer restrictions if:
o you do not tender your Old Notes; or
o you tender your Old Notes and they are not accepted for exchange.
Subject to certain limited exceptions, we will have no obligation to
register the Old Notes after we consummate the Exchange Offer. See "The
Exchange Offer--Terms of the Exchange Offer" and "--Consequences of Failure
to Exchange."
Expiration Date..................... The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1999, unless we extend it, in which case "Expiration Date"
means the latest date and time to which the Exchange Offer is extended.
Interest on the New Notes........... The New Notes will accrue interest at a rate of 9 5/8% per annum from
May 19, 1999, the issue date of the Old Notes (the "Issue Date") or from
the most recent date to which interest has been paid or provided for on the
Old Notes. No additional interest will be paid on Old Notes tendered and
accepted for exchange.
Conditions to the Exchange Offer.... The Exchange Offer is subject to certain customary conditions, which may be
waived by us. See "The Exchange Offer--Conditions."
Procedures for Tendering Old
Notes............................... If you wish to accept the Exchange Offer, you must submit a Letter of
Transmittal, and any other required documentation and effect a tender of
Old Notes pursuant to the procedures for book-entry transfer (or other
applicable procedures), all in accordance with the instructions described
in this prospectus and in the Letter of Transmittal. See "The Exchange
Offer--Procedures for Tendering", "--Book-Entry Transfer", and
"--Guaranteed Delivery Procedures." Certain other procedures may apply with
respect to certain book-entry transfers. See "The Exchange
Offer--Exchanging Book-Entry Notes."
Guaranteed Delivery Procedures...... If you wish to tender your Old Notes, but cannot properly do so prior to
the Expiration Date, you may tender your Old Notes according to the
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guaranteed delivery procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights................... Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. To withdraw a tender of Old Notes,
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 Old Notes and Delivery
of New Notes........................ Subject to certain conditions, any and all Old Notes that are validly
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 Notes issued
pursuant to the Exchange Offer will be delivered as soon as practicable
following the Expiration Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Certain U.S. Tax Consequences....... We believe that the exchange of Old Notes for New Notes will not constitute
a taxable exchange for U.S. federal income tax purposes. See "Certain
United States Federal Income Tax Considerations."
Exchange Agent...................... First Union National Bank is serving as the Exchange Agent.
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SUMMARY OF THE TERMS OF THE NEW NOTES
The terms of the New Notes are identical in all material respects to the
terms of the Old Notes except that the New Notes:
o are registered under the Securities Act, and therefore will not contain
restrictions on transfer;
o will not contain certain provisions relating to additional interest; and
o will contain terms of an administrative nature that differ from those of
the Old Notes.
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Maturity Date....................... October 15, 2008.
Interest Rate:...................... 9 5/8% per year.
Interest Payment Dates.............. Each April 15 and October 15, beginning on October 15, 1999.
Security and Ranking................ The Notes will not be secured by any collateral.
The Notes will rank below all of our senior debt and will rank equal to our
other senior subordinated debt. Therefore, if we default, your right to
payment under the Notes will be junior to the rights of holders of our
senior debt to collect money we owe them at the time. See our Consolidated
Financial Statements elsewhere in this Prospectus.
Guarantees.......................... The Notes will not be guaranteed by anyone on the issue date. We have
agreed that, under some circumstances, our subsidiaries may guarantee the
Notes in the future.
Optional Redemption
beginning April 15, 2004............ Except in the case of certain equity offerings by us, we cannot choose to
redeem the Notes before April 15, 2004.
At any time after that date (which may be more than once), we can choose to
redeem some or all of the Notes at certain specified prices, plus accrued
interest.
Optional Redemption
after Equity Offerings.............. At any time (which may be more than once) before April 15, 2002 we can
choose to buy back up to 35% of the outstanding Notes (including
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the original principal amount of any additional Notes issued under the
Indenture) with money that we raise in one or more public equity offerings,
as long as:
o we pay 109.625% of the face amount of the Notes bought, plus accrued
interest;
o we buy the Notes back within 90 days of completing the equity offering;
and
o at least 65% of the Notes originally issued remain outstanding afterwards
(including the original principal amount of any additional Notes issued
under the Indenture).
Change of Control Offer............. If we experience a change in control, we must give holders of the Notes the
opportunity to sell us their Notes at 101% of their face amount, plus
accrued interest.
We might not be able to pay you the required price for Notes you present to
us at the time of a change of control, because:
o we might not have enough funds at that time; or
o the terms of our senior debt may prevent us from purchasing them.
Asset Sale Proceeds................. We may have to use the cash proceeds from certain sales of assets to offer
to buy back the Notes at their face amount, plus accrued interest.
Certain Indenture Provisions........ The indenture governing the Notes (the "Indenture") will limit what we may
do. The provisions of the indenture will limit our ability to:
o incur more debt;
o pay dividends and make distributions;
o issue stock of subsidiaries;
o make certain investments;
o repurchase stock;
o create liens;
o enter into transactions with affiliates; and
o merge, consolidate or sell assets.
These covenants are subject to a number of important exceptions. See
"Description of the Notes--Certain Covenants."
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RISK FACTORS
PROSPECTIVE PURCHASERS OF THE NOTES SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER THE CAPTION "RISK FACTORS" AND ALL OTHER INFORMATION
SET FORTH IN THIS PROSPECTUS IN EVALUATING AN INVESTMENT IN THE NOTES.
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SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary financial data for the three years ended December 31, 1998 are
derived from our audited Consolidated Financial Statements included in this
Offering Memorandum.
The summary financial data for the three months ended March 31, 1998 and
March 31, 1999 are derived from our unaudited Consolidated Financial Statements
included in this Offering Memorandum. These unaudited Consolidated Financial
Statements, in our opinion, have been prepared on the same basis as the audited
Consolidated Financial Statements and include all adjustments necessary for a
fair presentation of our financial condition and results of operations for such
periods. The results of operations for the three month period ended March 31,
1999 are not necessarily indicative of results of operations for the full fiscal
year ending December 31, 1999.
The summary pro forma financial data are derived from historical financial
data modified, as described in the notes to the summary below, to reflect the
use of the proceeds of the offering of the Old Notes (a) to redeem
$67.15 million outstanding aggregate principal amount of our previously
outstanding 11 3/8% Senior Subordinated Notes due 2001 (the "2001 Notes"), for
an aggregate redemption price of approximately $68.6 million, (b) to repay
approximately $27.7 million of our borrowings under our senior credit facility
and (c) to pay the fees and expenses of the offering of the Old Notes, estimated
at approximately $3.7 million. The issuance of the Old Notes, the redemption of
the 2001 Notes and the repayment of $27.7 million of our borrowings under our
senior credit facility (the "Credit Facility") are collectively referred to as
the "Refinancing." The summary pro forma financial data are not necessarily
indicative of the financial position or results of operations had the
Refinancing actually been completed on the dates assumed and are not necessarily
indicative of the financial position or results of operations that may be
expected for any future period.
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.
7
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- ------------------
1996 1997 1998 1998 1999
-------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net sales.............................................. $195,205 $192,281 $220,316 $55,388 $60,399
Cost of sales.......................................... 158,668 157,715 178,933 45,368 47,341
Selling, general and administrative expenses........... 16,868 16,989 16,816 4,201 4,339
-------- -------- -------- ------- -------
Operating income....................................... 19,669 17,577 24,567 5,819 8,719
Interest expense, net.................................. 11,930 12,676 12,697 3,303 2,825
Net income............................................. 3,919 2,181 6,074 1,372 3,235
Dividends and discount accretion of cumulative
exchangeable preferred stock (1) .................... -- 4,686 5,817 1,453 1,454
Net income (loss) available to common stockholder...... 3,919 (2,505) 257 (81) 1,781
OTHER FINANCIAL DATA:
EBITDA (2) ............................................ $ 32,016 $ 31,235 $ 37,104 $ 9,009 $11,922
Depreciation........................................... 10,830 11,000 11,000 2,803 2,804
Amortization (3) ...................................... 2,277 2,278 2,267 572 554
Cash interest expense, net (4) ........................ 11,260 12,005 12,037 3,132 2,672
Capital expenditures................................... 11,165 10,902 10,536 4,061 3,568
Cash flows from operations............................. 26,619 12,099 15,364 (3,307) 6,607
Cash flows from financing activities................... (13,593) (4,323) (5,065) 4,687 (4,673)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
-------------------- -------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------- --------- ------ ---------
<S> <C> <C> <C> <C>
PRO FORMA FINANCIAL DATA: (5)
Cash interest expense, net (dollars in thousands).................. $12,037 $11,217 $2,672 $ 2,727
Ratio of total debt to EBITDA (2).................................. 3.0x 3.1x (6) 2.7x 2.9x (6)
Ratio of EBITDA to cash interest expense, net (2).................. 3.1x 3.3x 4.5x 4.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-------------------------
ACTUAL PRO FORMA (7)
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital, excluding current portions of long-term debt........ $ 14,709 $ 15,954
Total assets......................................................... 173,550 175,581
Long-term debt (including current maturities)........................ 109,150 114,293
Cumulative exchangeable preferred stock (8).......................... 48,090 48,090
Stockholder's equity (deficit)....................................... (46,099) (47,966)(9)
</TABLE>
(see footnotes on the following page)
8
<PAGE>
NOTES TO SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
(1) Our 11 1/4% Cumulative Exchangeable Preferred Stock (the "Exchangeable
Preferred Stock"), with an aggregate liquidation preference of $50.0
million, was issued on March 12, 1997.
(2) EBITDA represents income (loss) before interest expense, income taxes,
preferred stock dividends and discount accretion, extraordinary items and
cumulative effect of a change in accounting principle (net), depreciation
and amortization. EBITDA is included because we understand that such
information is considered to be an additional basis on which to evaluate
our ability to pay interest, repay debt and make capital expenditures.
Excluded from EBITDA are interest expense, income taxes, depreciation,
amortization and preferred stock dividends and discount accretion, each of
which can significantly affect our results of operations and liquidity and
should be considered in evaluating our financial performance. EBITDA is not
intended to represent and should not be considered more meaningful than, or
as an alternative to, measures of operating performance determined in
accordance with generally accepted accounting principles.
Our EBITDA for 1997 has also been adjusted to exclude the effect of a
$1.1 million non-recurring charge. This charge included a $1.0 million
consulting agreement with our former Chairman of the Board for services to
be rendered through 2001. See "Management--Consulting Agreement."
(3) Includes the amortization of deferred financing costs and the amortization
of the excess of investment over net assets acquired.
(4) Cash interest expense, net includes interest income, but excludes
amortization of deferred financing costs of $670,000 for 1996, $671,000 for
1997, $660,000 for 1998, $171,000 for the three months ended March 31,
1998, and $153,000 for the three months ended March 31, 1999.
(5) Adjusted to give effect to the Refinancing as if (i) with respect to the
year ended December 31, 1998 the Refinancing had occurred on January 1,
1998, and (ii) with respect to the three months ended March 31, 1999, as if
the Refinancing had occurred on January 1, 1999. See "Use of Proceeds,"
"Capitalization" and "Description of Other Indebtedness and Preferred
Stock--Credit Facility."
(6) The ratio of total debt to EBITDA for the year ended December 31, 1998
represents the ratio of pro forma long-term debt (including current
maturities) as of December 31, 1998 to EBITDA for the year ended December
31, 1998. The ratio of total debt to EBITDA for the three months ended
March 31, 1999 represents the ratio of pro forma long-term debt (including
current maturities) as of such date to EBITDA for the 12 month period ended
March 31, 1999.
(7) Adjusted to give effect to the Refinancing as if such event had occurred on
March 31, 1999.
(8) Represents the book value of the Exchangeable Preferred Stock.
(9) Adjusted to reflect the after-tax cost of redeeming our 2001 Notes. This
cost reflects (i) the premium on the redemption along with the write-off of
the deferred financing charges in connection with the original issue of the
2001 Notes, and (ii) the interest on the Notes from issuance until
redemption of the 2001 Notes on July 1, 1999, net of the interest savings
on repayment of the Credit Facility over the same period.
9
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors as well as the
other information in this Prospectus before making an investment decision.
IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED OLD NOTES
We will only issue New Notes in exchange for Old Notes that are timely and
properly tendered. Therefore, you should allow sufficient time to ensure timely
delivery of the Old Notes and you should carefully follow the instructions on
how to tender your Old Notes. Neither we nor the Exchange Agent are required to
tell you of any defects or irregularities with respect to your tender of the Old
Notes. If you do not exchange your Old Notes for New Notes pursuant to the
Exchange Offer, the Old Notes you hold will continue to be subject to the
existing transfer restrictions. In general, the Old Notes may not be offered or
sold, unless registered under the Securities Act, or exempt from registration
under the Securities Act and applicable state securities laws. We do not
anticipate that we will register Old Notes under the Securities Act.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES
We are a highly leveraged company, remain so after the Refinancing and will
remain so after the completion of the Exchange Offer. After giving effect to the
Refinancing:
o as of March 31, 1999, we would have had $114.3 million of long-term debt
including current maturities, representing 99.9% of our total
capitalization (including our Exchangeable Preferred Stock);
o for fiscal year 1998, our pro forma ratio of earnings to fixed charges,
excluding preferred stock dividends and accretion, would have been
2.1:1; and
o as of March 31, 1999, we would have had the ability to borrow an
additional $19.6 million under our Credit Facility.
In addition, we have our Exchangeable Preferred Stock outstanding which we
must redeem on March 15, 2009 with a payment of $50.0 million (plus accumulated
dividends).
Our level of indebtedness could have important consequences to holders of
the Notes, including the following:
o a substantial portion of our cash flow from operations must be dedicated
to the payment of interest on our indebtedness and dividends on our
Exchangeable Preferred Stock;
o our leverage may make us more vulnerable to economic downturns, limit
our ability to withstand competitive pressures, and limit our
flexibility to plan for (or react to) changes in our business and the
industry in which we operate;
o our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate
purposes may be impaired; and
o borrowings under the Credit Facility will bear interest at fluctuating
rates making us more susceptible to the above risks.
If we are unable to generate sufficient cash flow from operations in the
future, we may be unable to repay or refinance all or a portion of our then
existing debt or to obtain additional financing. There can be no assurance that
any such refinancing would be possible or that any additional financing could be
obtained on terms that are acceptable to us.
10
<PAGE>
OUR CREDIT FACILITY, THE INDENTURE FOR THE NOTES AND THE TERMS OF THE
EXCHANGEABLE PREFERRED STOCK IMPOSE SIGNIFICANT OPERATING AND FINANCIAL
RESTRICTIONS
Our Credit Facility and the Indenture for the Notes, as well as the
Certificate of Designation for the Exchangeable Preferred Stock, will impose
significant operating and financial restrictions on us. These restrictions will
affect, and in certain cases will, among other things, limit our ability to:
o incur additional indebtedness and liens;
o make capital expenditures;
o make investments and sell assets;
o enter into transactions with affiliates; or
o consolidate, merge or sell all or substantially all of our assets.
There can be no assurance that such covenants will not adversely affect our
ability to finance our future operations or capital needs or to engage in other
business activities that may be in our interest. See "Description of the Notes"
and "Description of Other Indebtedness and Preferred Stock."
THE NOTES WILL BE CONTRACTUALLY SUBORDINATED IN RIGHT OF PAYMENT TO OUR SENIOR
DEBT
The Notes will be subordinated in right of payment to all of our senior
debt, including indebtedness under the Credit Facility. In addition, the
Indenture will permit us to incur additional senior debt, if certain conditions
are met. In the event of our insolvency, liquidation, reorganization,
dissolution or other winding-up or upon a default in payment with respect to, or
the acceleration of, any senior debt, the holders of such senior debt must be
paid in full before the holders of the Notes may be paid. If we incur any
additional senior subordinated debt, the holders of such debt would be entitled
to share ratably with the holders of the Notes in any proceeds distributed in
connection with any insolvency, liquidation, reorganization, dissolution or
other winding-up. This may have the effect of reducing the amount of proceeds
paid to holders of the Notes. In addition, no payments may be made with respect
to the principal of, or interest on the Notes if a payment default exists with
respect to our senior debt and, under certain circumstances, no payments may be
made with respect to the principal of, or interest on the Notes for a certain
period if a non-payment default exists with respect to senior debt. See
"Description of the Notes--Subordination."
WE MAY NOT BE ABLE TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE
Upon the occurrence of a Change of Control (as defined), we will be
required to make an offer to purchase the Notes at a price in cash equal to 101%
of the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of repurchase. Certain events involving a Change of
Control may result in an event of default under the Credit Facility and our
other indebtedness that may be incurred in the future. An event of default under
the Credit Facility or other future indebtedness could result in an acceleration
of such indebtedness, in which case the subordination provisions of the Notes
would require payment in full (or provision therefor) of all senior debt before
we can repurchase or make other payments in respect of the Notes. See
"Description of the Notes--Change of Control," "Description of the Notes--
Subordination" and "Description of Other Indebtedness and Preferred Stock."
There can be no assurance that we would have sufficient resources to repurchase
the Notes or pay our obligations if the indebtedness under the Credit Facility
or other future senior debt were accelerated upon the occurrence of a Change of
Control. There can be no assurance that we will be able to obtain the consent of
the lenders under the Credit Facility to enable us to repurchase the Notes.
WE ARE SUSCEPTIBLE TO GENERAL ECONOMIC CONDITIONS
Our sales and profits change based upon the general economy. In the event
of a general economic downturn or a recession in the United States or certain
other markets, we believe that certain of our customers may reduce or delay
purchases of our products, reducing our sales. During prior recessionary
periods, our profits declined. Any future downturn would likely have a similar
impact. In addition, there can
11
<PAGE>
be no assurance that the markets for custom gears and planetary gear systems
will grow or that any growth will result in increased demand for our products.
WE ARE CONTROLLED BY LANCER INDUSTRIES INC.
We are wholly owned by Lancer Industries Inc. ("Lancer"), a Delaware
corporation. As a result, Lancer is able to direct and control our policies.
Some of our directors and officers are stockholders of Lancer, including Paul S.
Levy who controls over 50% of the voting power of Lancer's shares. Circumstances
could occur in which the interests of Lancer could be in conflict with the
interests of the holders of the Notes. In addition, Lancer may have an interest
in pursuing acquisitions, divestitures or other transactions that Lancer
believes would enhance its equity investment in us, even though such
transactions might involve risks to the holders of the Notes. See "Ownership of
Capital Stock" and "Related Transactions."
A LARGE PORTION OF OUR EMPLOYEES ARE UNIONIZED
Approximately 84% of our employees are unionized. In the fourth quarter of
1998, we agreed to a new three year collective bargaining agreement with
UAW-Local 2317. We consider relations with our employees to be satisfactory. We
believe that we will be able to negotiate a new labor contract with our union
employees on acceptable terms after the current contract expires; however, there
can be no assurance that we will be able to do so or that the negotiation
process will not involve material disruptions in our business.
OUR INDUSTRY IS HIGHLY COMPETITIVE
We operate in a highly competitive industry. Our custom gear business
competes primarily with major domestic manufacturers, regional domestic
manufacturers, foreign producers and captive gear manufacturers. Our planetary
gear business competes primarily with several large competitors, as well as a
large number of relatively small suppliers. There can be no assurance that our
products will compete successfully with those of our competitors or that we will
be able to maintain our operating margins if the competitive environment
changes.
WE ARE SUBJECT TO ENVIRONMENTAL REGULATIONS
Our operations and properties 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, "Environmental Laws"). Because Environmental Laws frequently are
revised and supplemented, with a trend towards greater stringency, the cost of
compliance is difficult to estimate and may be more than we anticipate. We
believe that complying with existing and publicly proposed Environmental Laws
and the resolution of our existing environmental liabilities associated with
waste disposal and releases will not have a material adverse effect on our
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."
WE DEPEND ON SIGNIFICANT CUSTOMERS
Our six largest customers accounted for approximately 45% of our net sales
in 1998. We anticipate a similar or greater concentration of customers for the
foreseeable future. These major customers may exert significant bargaining
leverage when negotiating with us or other suppliers. There can be no assurance
that our customers will continue to purchase our products to the degree they
have in the past or at all. The loss of, or a significant adverse change in, our
relationship with any major customer could have a material adverse effect on us.
In addition, an affiliate of General Electric Corporation, our largest customer,
is the lender under our Credit Facility.
12
<PAGE>
WE MAY BE AFFECTED BY YEAR 2000 ISSUES
The Year 2000 issue concerns the potential exposures related to the
erroneous generation of business and financial information resulting from
computer systems and programs that use two digits, rather than four, to define
the applicable year. These programs may not distinguish between a year that
begins with "20" and "19". These programs may process data incorrectly or stop
processing data altogether. We rely upon our own and vendor-supplied technology
and recognize the potential business risk to our assets and systems associated
with the arrival of the Year 2000.
We are currently addressing potential Year 2000 issues associated with our
systems and our suppliers' products, services, systems and operations. We expect
to complete this process by September 30, 1999. Our failure, or the failure of
our customers or suppliers, to be Year 2000 compliant could have a material
adverse effect on our results of operations, cash flow, business and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of the Year 2000."
THERE IS NO PUBLIC TRADING MARKET FOR THE NEW NOTES
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for the remaining untendered or tendered but not
accepted Old Notes could be adversely affected. Because we anticipate that most
holders of the Old Notes will elect to exchange the Old Notes for New Notes due
to the absence of restrictions on the resale of New Notes under the Securities
Act, we anticipate that the liquidity of the market for any Old Notes remaining
after the consummation of the Exchange Offer may be substantially limited.
The New Notes are a new issue of securities for which there is currently no
active trading market. If the New Notes are traded after their initial issuance,
they may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, our financial
condition and other factors beyond our control, including general economic
conditions. We do not intend to apply for a listing or quotation of the New
Notes. No assurance can be given as to the development or liquidity of any
trading market for the New Notes. Likewise, no assurance can be given regarding
the ability of holders of the New Notes to sell their New Notes or the prices at
which such holders may be able to sell their New Notes.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Notes will not
be subject to similar disruptions. Any such disruptions may have an adverse
effect on holders of the New Notes.
13
<PAGE>
USE OF PROCEEDS
There will no proceeds to the Company from the issuance of New Notes
pursuant to the Exchange Offer.
The gross proceeds from the sale of the Old Notes pursuant to the Original
Offering were $100.0 million. We used such proceeds for the Refinancing as
follows: (1) approximately $68.6 million was used to redeem our 2001 Notes,
(2) approximately $27.7 million was used to reduce outstanding amounts under our
Credit Facility, and (3) approximately $3.7 million was applied for the fees and
expenses of the Original Offering (including the commissions of the initial
purchasers and payment of the incremental interest expense for the Notes from
the issue date until the completion of the Refinancing). See "Description of
Other Indebtedness and Preferred Stock--Credit Facility."
The outstanding aggregate principal amount of our 2001 Notes was
$67.2 million. We redeemed our 2001 Notes on July 1, 1999 at a redemption price
of 102.125% of the principal amount thereof, together with accrued and unpaid
interest thereon from December 31, 1998 to the date of redemption.
The following table sets forth the estimated sources and uses of funds of
the offering (dollars in thousands):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Existing Notes.................................................................. $100,000
--------
Total sources of funds....................................................... $100,000
--------
--------
USES OF FUNDS:
Redemption of 2001 Notes........................................................ $ 68,577
Reduction of outstanding amounts under Credit Facility.......................... 27,707
Estimated transaction fees and expenses......................................... 3,716
--------
Total uses of funds.......................................................... $100,000
--------
--------
</TABLE>
14
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of March 31,
1999 and pro forma to give effect to the Refinancing as if such event had
occurred on March 31, 1999. 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 Offering Memorandum.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-------------------------
ACTUAL PRO FORMA (1)
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt, including current portion:
Credit Facility
Revolving credit facility (2)..................................................... $ -- $ --
Term loans........................................................................ 42,000 14,293
2001 Notes........................................................................... 67,150 --
Notes offered hereby................................................................. -- 100,000
-------- ---------
Total debt........................................................................ 109,150 114,293
Exchangeable Preferred Stock (3)....................................................... 48,090 48,090
Stockholder's equity (deficit):
Common stock, par value $.01 per share (10,000,000 shares authorized, 8,554,000
shares issued and outstanding).................................................... 86 86
Additional paid-in capital........................................................... 43,461 43,461
Accumulated deficit.................................................................. (89,646) (91,513)(4)
-------- ---------
Total stockholder's equity (deficit).............................................. (46,099) (47,966)
-------- ---------
Total capitalization.............................................................. $111,141 $ 114,417
-------- ---------
-------- ---------
</TABLE>
- ------------------
(1) Adjusted to give effect to the Refinancing as if such event had occurred on
March 31, 1999. See "Use of Proceeds" and "Description of Other Indebtedness
and Preferred Stock--Credit Facility."
(2) Advances under the revolving credit facility are subject to borrowing base
availability. After giving effect to the Refinancing, as of March 31, 1999,
we would have had $19.6 million of total unused availability under the
revolving credit facility, plus the option (subject to certain conditions)
to increase the availability by an additional $20.0 million. See
"Description of Other Indebtedness and Preferred Stock--Credit Facility."
(3) The Exchangeable Preferred Stock has a $50.0 million liquidation preference.
(4) Adjusted to reflect the after-tax cost of redeeming the 2001 Notes. This
cost reflects (i) the premium on the redemption along with the write-off of
the deferred financing charges in connection with the original issue of the
2001 Notes, and (ii) the estimated interest on the Old Notes from their
issuance until redemption of the 2001 Notes on July 1, 1999, net of the
interest savings on repayment of the Credit Facility over the same period.
15
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data below have been derived from, and
should be read in conjunction with, the Consolidated Financial Statements and
the notes thereto included elsewhere in this Prospectus. The unaudited pro forma
balance sheet as of March 31, 1999 has been prepared on the basis that the
Refinancing occurred on March 31, 1999. The unaudited pro forma statement of
operations for the year ended December 31, 1998 has been prepared on the basis
that the Refinancing occurred on January 1, 1998. The unaudited pro forma
statement of operations for the three month period ended March 31, 1999 has been
prepared on the basis that the Refinancing occurred on January 1, 1999.
Adjustments for the Refinancing are based upon our historical financial
information and certain assumptions that management believes are
reasonable. The pro forma financial data do not necessarily reflect what
our results of operations or our financial position actually would
have been if the Refinancing had in fact occurred at the date or dates
indicated, nor is it indicative of our results of operations or financial
position for any future date or period.
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS TOTAL
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 1,188 $ 1,188
Trade receivables, less allowance of $700................................. 26,901 26,901
Inventory................................................................. 26,280 26,280
Prepaid expenses.......................................................... 377 377
-------- ------- ---------
Total current assets.................................................... 54,746 54,746
Property, plant and equipment, net of accumulated depreciation of $97,015... 68,557 68,557
-------- ------- ---------
Other assets:
Excess of investment over net assets acquired, less accumulated
amortization of $15,483................................................. 48,876 48,876
Deferred financing costs, less accumulated amortization of $3,837......... 1,371 2,031 (1) 3,402
-------- ------- ---------
Total other assets...................................................... 50,247 2,031 52,278
-------- ------- ---------
Total assets............................................................ $173,550 $ 2,031 $ 175,581
-------- ------- ---------
-------- ------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................................... $ 14,988 $ 14,988
Due to parent............................................................. 1,366 1,366
Accrued liabilities....................................................... 21,636 21,636
Deferred income taxes..................................................... 2,047 (1,245)(2) 802
-------- ------- ---------
Total current liabilities............................................... 40,037 (1,245) 38,792
-------- ------- ---------
Accrued retirement costs.................................................... 15,257 15,257
Deferred income taxes....................................................... 7,115 7,115
Long-term debt.............................................................. 109,150 5,143 (3) 114,293
Exchangeable Preferred Stock................................................ 48,090 48,090
-------- ------- ---------
Stockholder's equity (deficit):
Common stock: par value $.01 per share, 10,000,000 shares authorized,
8,554,000 issued and outstanding........................................ 86 86
Additional paid-in capital................................................ 43,461 43,461
Accumulated deficit....................................................... (89,646) (1,867)(4) (91,513)
-------- ------- ---------
Total stockholder's deficit............................................. (46,099) (1,867) (47,966)
-------- ------- ---------
Total liabilities and stockholder's deficit............................. $173,550 $ 2,031 $ 175,581
-------- ------- ---------
-------- ------- ---------
</TABLE>
16
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS TOTAL
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................................................... $220,316 $ 220,316
Cost of sales............................................................... 178,933 178,933
Selling, general and administrative expenses................................ 16,816 16,816
-------- ------- ---------
Operating income.......................................................... 24,567 24,567
Interest expense, net....................................................... 12,697 (1,038)(5) 11,659
Other expense, net.......................................................... 70 70
-------- ------- ---------
Income before income taxes and extraordinary item......................... 11,800 1,038 12,838
Provision for income taxes.................................................. 5,300 415 (6) 5,715
-------- ------- ---------
Income before extraordinary item.......................................... 6,500 623 7,123
Loss on early extinguishment of debt, net of tax............................ (426) (1,861)(7) (2,287)
-------- ------- ---------
Net income................................................................ $ 6,074 $(1,238) $ 4,836
-------- ------- ---------
-------- ------- ---------
Preferred stock dividends and discount accretion............................ (5,817) (5,817)
-------- ------- ---------
Net income (loss) available to common stockholder......................... $ 257 $(1,238) $ (981)
-------- ------- ---------
-------- ------- ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS TOTAL
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................................................... $ 60,399 $ 60,399
Cost of sales............................................................... 47,341 47,341
Selling, general and administrative expenses................................ 4,339 4,339
-------- ------- ---------
Operating income.......................................................... 8,719 8,719
Interest expense, net....................................................... 2,825 30 (8) 2,855
Other expense, net.......................................................... 2 2
-------- ------- ---------
Income before income taxes and extraordinary item......................... 5,892 (30) 5,862
Provision for income taxes.................................................. 2,657 (12)(6) 2,645
-------- ------- ---------
Income before extraordinary item.......................................... 3,235 (18) 3,217
Loss on early extinguishment of debt, net of tax............................ -- (1,536)(9) (1,536)
-------- ------- ---------
Net income................................................................ $ 3,235 $(1,554) $ 1,681
-------- ------- ---------
-------- ------- ---------
Preferred stock dividends and discount accretion............................ (1,454) (1,454)
-------- ------- ---------
Net income available to common stockholder................................ $ 1,781 $(1,554) $ 227
-------- ------- ---------
-------- ------- ---------
</TABLE>
17
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
(1) Represents the writeoff of $1,019 in deferred financing costs associated
with our 2001 Notes offset by an increase of $3,050 in deferred financing
costs incurred in the Refinancing.
(2) Income tax benefit associated with the loss on the early extinguishment of
the existing debt at 40% rate.
(3) Net increase in outstanding long-term debt based upon: (i) redemption of
$67,150 in 2001 Notes; (ii) reduction in outstanding term loans of $27,707;
and (iii) issuance of $100,000 in the Notes.
(4) Represents the after-tax cost of redeeming the 2001 Notes. This cost
reflects (i) the premium on the redemption along with the write-off of the
deferred financing charges in connection with the original issue of the 2001
Notes, and (ii) the estimated interest on the Notes from their issuance
until redemption of the 2001 Notes on July 1, 1999, net of the interest
savings on repayment of the Credit Facility over the same period.
(5) Interest expense was adjusted to reflect (i) $11,217 resulting from the
following borrowings:
<TABLE>
<CAPTION>
AVERAGE INTEEST INTEREST
DEBT INSTRUMENT PRINCIPAL RATE EXPENSE
- ------------------------------------------------------------- --------- -------- --------
<S> <C> <C> <C>
The Notes.................................................... $ 100,000 9.625% 9,625
Term Loans................................................... 21,678 7.060% 1,530
Unused revolver fees and letter of credit fees............... 62
--------
Total................................................. $ 11,217
--------
--------
</TABLE>
(ii) the elimination of $9,125 interest on the 2001 Notes; (iii) the
elimination of $2,912 interest on the Credit Facility; (iv) the elimination
of amortization of $541 in deferred financing fees on the 2001 Notes; and
(v) the amortization of deferred financing fees on the Refinancing of $323.
Borrowings under the Credit Facility represent floating rate debt.
(6) Income tax benefit at 40% rate.
(7) Represents the reversal of the $426 historical extraordinary loss on early
extinguishment of debt, net of tax, and the after-tax cost of redeeming the
2001 Notes, which reflects (i) the premium on the redemption; (ii) the
write-off of the deferred financing charges in connection with the original
issue of the 2001 Notes; and (iii) the tax benefit associated with the loss
at a tax rate of 40%.
(8) Interest expense was adjusted to reflect (i) $2,727 resulting from the
following borrowings:
<TABLE>
<CAPTION>
AVERAGE INTEEST INTEREST
DEBT INSTRUMENT PRINCIPAL RATE EXPENSE
- ------------------------------------------------------------- --------- -------- --------
<S> <C> <C> <C>
The Notes.................................................... $ 100,000 9.625% 2,406
Term Loans................................................... 17,293 7.060% 305
Unused revolver fees and letter of credit fees............... 16
--------
Total................................................. $ 2,727
--------
--------
</TABLE>
(ii) the elimination of $1,910 interest on the 2001 Notes; (iii) the
elimination of $762 interest on the Credit Facility; (iv) the elimination of
amortization of $114 in deferred financing fees on the 2001 Notes; and
(v) the amortization of deferred financing fees on the Refinancing of $89.
Borrowings under the Credit Facility represent floating rate debt.
(9) Represents the after-tax cost of redeeming the 2001 Notes, which includes
(i) the premium on the redemption; (ii) the write-off of the deferred
financing charges in connection with the original issue of the 2001 Notes;
and (iii) the tax benefit associated with the loss at a tax rate of 40%.
18
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth our selected consolidated historical
financial data for each of the years in the five-year period ended December 31,
1998 and for the three months ended March 31, 1998 and March 31, 1999.
The selected financial data for the three years ended December 31, 1998 are
derived from our audited Consolidated Financial Statements included in this
Prospectus. They have been audited by PricewaterhouseCoopers LLP, independent
accountants. The selected financial data for the years ended December 31, 1994
and 1995 are derived from our audited financial statements for such years.
The selected financial data for the three months ended March 31, 1998 and
March 31, 1999 are derived from our unaudited Consolidated Financial Statements
included in this Prospectus. Such unaudited Consolidated Financial Statements,
in our opinion, have been prepared on the same basis as the audited Consolidated
Financial Statements and include all adjustments necessary for a fair
presentation of the financial condition and results of operations for such
periods. The results of operations for the three month period ended March 31,
1999 are not necessarily indicative of results of operations for the full fiscal
year ending December 31, 1999.
The following selected consolidated 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.
19
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................ $150,689 $192,111 $195,205 $192,281 $220,316 $55,388 $60,399
Cost of sales........................ 123,092 151,890 158,668 157,715 178,933 45,368 47,341
Selling, general and administrative
expenses........................... 15,924 14,759 16,868 16,989 16,816 4,201 4,339
-------- -------- -------- -------- -------- ------- -------
Operating income..................... 11,673 25,462 19,669 17,577 24,567 5,819 8,719
Interest expense, net................ 12,377 12,905 11,930 12,676 12,697 3,303 2,825
Net income (loss) (1)................ (2,293) 6,910 3,919 2,181 6,074 1,372 3,235
Dividends and discount accretion of
cumulative exchangeable preferred
stocks (2)......................... -- -- -- 4,686 5,817 1,453 1,454
Net income (loss) available to common
stockholder........................ 2,293 6,910 3,919 (2,505) 257 (81) 1,781
OTHER FINANCIAL DATA:
EBITDA (3)........................... $ 22,621 $ 36,971 $ 32,016 $ 31,235 $ 37,104 $ 9,009 $11,922
Depreciation......................... 9,540 10,027 10,830 11,000 11,000 2,803 2,804
Amortization (4)..................... 2,310 2,245 2,277 2,278 2,267 572 554
Cash interest expense, net (5)....... 11,674 12,269 11,260 12,005 12,037 3,132 2,672
Capital expenditures................. 9,164 11,645 11,165 10,902 10,536 4,061 3,568
Cash flow from operations............ 9,590 13,856 26,619 12,099 15,364 (3,307) 6,607
Cash flow from financing
activities......................... (5,434) 663 (13,593) (4,323) (5,065) 4,687 (4,673)
Ratio of earnings to fixed
charges, excluding preferred
stock dividends and accretion(6)... -- 2.0x 1.6x 1.4x 1.9x 1.8x 3.1x
Ratio of earnings to fixed
changes(7)......................... -- 2.0x 1.6x -- 1.1x -- 1.6x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital, excluding current portions of
long-term debt.............................. $ 11,848 $ 20,280 $ 15,123 $ 11,824 $ 15,870 $ 14,709
Total assets.................................. 170,581 183,155 176,370 173,212 175,118 173,550
Long-term debt (including current
maturities)................................. 115,000 113,000 118,000 114,000 112,150 109,150
Cumulative exchangeable preferred stock (8)... -- -- -- 47,850 48,042 48,090
Stockholder's equity (deficit)................ 45 9,958 (4,570) (52,188) (49,020) (46,099)
</TABLE>
(see footnotes on the following page)
20
<PAGE>
NOTES TO SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
<TABLE>
<S> <C>
(1) During 1998, we recorded an extraordinary loss of $0.4 million, net of tax, relating to the early
extinguishment of $17.9 million of Existing Notes. During 1994, we 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, "Employer's Accounting for Post-employment Benefits."
(2) The Exchangeable Preferred Stock was issued on March 12, 1997.
(3) EBITDA represents income (loss) before interest expense, income taxes, preferred stock dividends and discount
accretion, extraordinary items and cumulative effect of a change in accounting principle (net), depreciation
and amortization. EBITDA is included because we understand that such information is considered to be an
additional basis on which to evaluate our ability to pay interest, repay debt and make capital expenditures.
Excluded from EBITDA are interest expense, income taxes, other income, depreciation, amortization and
preferred stock dividends and discount accretion, each of which can significantly affect our results of
operations and liquidity and should be considered in evaluating our financial performance. EBITDA is not
intended to represent and should not be considered more meaningful than, or as an alternative to, measures of
operating performance as determined in accordance with generally accepted accounting principles.
Our EBITDA for 1997 has also been adjusted to exclude the effect of a $1.1 million non-recurring charge. This
charge included a $1.0 million consulting agreement with our former Chairman of the Board for services to be
rendered through 2001. See "Management--Consulting Agreement."
(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
$703,000 for 1994, $638,000 for 1995, $670,000 for 1996, $671,000 for 1997, $660,000 for 1998, $171,000 for
the three months ended March 31, 1998 and $153,000 for the three months ended March 31, 1999.
(6) The ratio of earnings to fixed charges has been calculated by dividing earnings before income taxes and fixed
charges by fixed charges. Fixed charges consist of interest expense, amortization of deferred financing costs
and the component of operating lease expense which we believe represents an appropriate interest factor.
Earnings were insufficient to cover fixed charges by $0.9 million in 1994.
(7) The ratio of earnings to fixed charges has been calculated by dividing earnings before income taxes and fixed
charges by fixed charges. Fixed charges consist of interest expense, amortization of deferred financing costs,
the component of operating lease expense which we believe represents an appropriate interest factor and
preferred stock dividends and accretion . Earnings were insufficient to cover fixed charges by $0.9 million in
1994, $5.6 million in 1997 and $0.1 million in the first three months of 1998.
(8) Represents the book value of the Exchangeable Preferred Stock.
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Our net sales increased from $150.7 million in 1994 to $220.3 million in
1998, representing a compound annual growth rate of 10.0%. Our 1998 net sales of
$220.3 million, represented a 14.6% increase from 1997 net sales of $192.3
million. Our net sales for the three months ended March 31, 1999 were $60.4
million, an increase of $5.0 million, or 9.0%, from the same period in 1998.
We believe that the increase in the demand for our products has been
principally a result of:
o our increased marketing efforts;
o new product introductions, both in the planetary gear system and
the custom gear and assemblies businesses; and
o increased demand for our customers' products, including the effect
of favorable economic conditions.
The sales increases have also been accompanied by a shift in our product mix.
Sales of our planetary gear system products increased as a percentage of net
sales from 34.0% in 1994 to 46.2% in 1998. Conversely, sales of our custom gear
products as a percentage of net sales decreased from 66.0% to 53.8% during the
same period.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared with Three Months Ended
March 31, 1998
Our net sales for the three months ended March 31, 1999 were $60.4 million,
an increase of $5.0 million, or 9.0%, from the same period in 1998. The increase
in sales for the three months ended March 31, 1999 resulted from continued
strong market demand for our products as well as increased productive capacity
from our capital investment program.
Our cost of sales for the three months ended March 31, 1999 increased by
$1.9 million, to $47.3 million, compared to $45.4 million for the same period in
1998. Gross margin was 21.6% for the first quarter of 1999 compared to 18.1% for
the first quarter of 1998. The increase in cost of sales compared to the same
period in 1998 was primarily a result of increased sales volume during 1999
while the increase in gross margin was driven by improved raw material prices,
increased productivity as well as improved product pricing and a more favorable
product mix.
Our selling, general and administrative expenses ("SG&A"), including
goodwill amortization, were $4.3 million, or 7.2% of net sales, for the three
months ended March 31, 1999, compared to $4.2 million, or 7.6% of net sales, for
the same period in 1998.
Our earnings from operations for the three months ended March 31, 1999
increased 49.8% to $8.7 million, or 14.4% of net sales, compared to $5.8
million, or 10.5% of net sales, for the comparable 1998 period.
Our interest expense in the first quarter of 1999 decreased to $2.8 million
from $3.3 million for the first quarter of 1998. This decrease reflects lower
debt balances and lower average interest rates in the first quarter of 1999
versus the first quarter of 1998.
We had net income before income taxes of $5.9 million in the first quarter
of 1999 compared to $2.5 million for the first quarter of 1998.
Our net income of $3.2 million for the first quarter of 1999 represents a
135.8% increase over net income of $1.4 million for the same period of 1998.
The net income available to our common stockholder was $1.8 million for the
first quarter of 1999 compared to a net loss available to our common stockholder
of $0.1 million for the same period in 1998.
22
<PAGE>
Fiscal Year 1998 Compared with Fiscal Year 1997
Our net sales for 1998 increased $28.0 million to $220.3 million compared
to $192.3 million in 1997. This 14.6% increase was due to strong market demand
for our products in specific markets as well as a strong overall economy. Net
sales of our Torque-Hub(Registered) products increased to $101.8 million in
1998, a 19.5% increase from 1997, primarily due to strong demand in the access
platform and road rehabilitation markets. Net sales of custom gears and
assemblies increased to $118.5 million in 1998, a 10.6% increase from 1997
primarily due to strong demand in the rail, mining and off highway industries.
Our cost of sales for 1998 increased $21.2 million to $178.9 million, or
81.2% of net sales, compared to $157.7 million, or 82.0% of net sales in 1997.
Cost of sales increased over 1997 in conjunction with the increase in sales. The
0.8% improvement in cost of sales as a percentage of net sales, was due to
operating efficiencies from increased volume and favorable sales mix.
Our SG&A, including goodwill amortization, decreased to $16.8 million in
1998, compared to $17.0 million in 1997. SG&A expenses for 1997 included a
charge of $1.1 million primarily related to a consulting agreement with our
former Chairman of the Board (see Note 2 to the Consolidated Financial
Statements and "Management--Consulting Agreement").
Our operating income increased $7.0 million, or 39.8%, to $24.6 million in
1998 compared to $17.6 million in 1997 due to the reasons discussed above.
Our interest expense, including amortization of deferred financing costs,
was $12.7 million for 1998 and 1997. Although interest rates decreased slightly
in 1998, interest expense was essentially unchanged from 1997 due to higher
average outstanding principal throughout the year.
Our effective tax rates for 1998 and 1997 were 44.9% and 54.8%,
respectively. See Note 7 to the Consolidated Financial Statements for a further
discussion of income taxes.
Our net income increased $3.9 million to $6.1 million for 1998 compared to
$2.2 million for 1997.
We recorded a loss on early extinguishment of debt, net of tax, of $0.4
million in 1998 related to the repurchase of $17.9 million of our Existing Notes
(see Note 8 to the Consolidated Financial Statements).
Our net income available to our common stockholder for 1998 increased
$2.8 million to $0.3 million compared to a $2.5 million net loss available to
our common stockholder for 1997.
Fiscal Year 1997 Compared with Fiscal Year 1996
Our net sales decreased to $192.3 million in 1997, a 1.5% decrease from
1996 net sales of $195.2 million, principally due to weaker demand for our
products during the first quarter of 1997 versus the first quarter of 1996. Net
sales of custom gears for 1997 decreased to $107.1 million, a 4.6% decrease from
1996 net sales of $112.3 million, due primarily to the end of programs related
to the defense industry. The decrease in custom net sales was partially offset
by an increase of $2.3 million (or 2.8%) in net sales of Torque-Hub(Registered)
products, primarily due to demand for compact units.
Our cost of sales for 1997 decreased by 0.6% to $157.7 million or 82.0% of
net sales, compared to $158.7 million, or 81.3% of net sales in 1996. This
decrease is primarily due to the decrease in net sales partially offset by
increased employment and training costs during the second half of 1997 to meet
increased demand.
Our SG&A, including goodwill amortization, increased to $17.0 million in
1997, compared to $16.9 million in 1996. SG&A expenses for 1997 included a
$1.1 million charge primarily related to a consulting agreement with our former
Chairman of the Board (see Note 2 to the Consolidated Financial Statements and
"Management--Consulting Agreement") and for 1996 included a $0.5 million
write-off of a receivable due to a customer's bankruptcy.
Our earnings from operations for 1997 decreased $2.1 million to $17.6
million compared to $19.7 million in 1996, primarily due to the factors above.
23
<PAGE>
Our interest expense, including amortization of deferred financing costs,
was $12.7 million for 1997, compared to $11.9 million for 1996. The principal
reason for the increase was higher outstanding debt levels during 1997 due to a
$15.0 million increase in debt during December 1996 which was used to fund a
$17.0 million dividend to Lancer.
Our effective tax rates for 1997 and 1996 were 54.8% and 48.8%,
respectively (See Note 7 to the Consolidated Financial Statements).
Our net income for 1997 was $2.2 million compared to $3.9 million for 1996.
We had a net loss available to our common stockholder for 1997 of $2.5
million as compared to $3.9 million in net income available to our common
stockholder for 1996.
IMPACT OF THE YEAR 2000
During 1997, we began the process of assessing the magnitude of the year
2000 ("Y2K") on our primary computer systems ("Business System"). Following this
assessment, we established a plan to modify, upgrade, or replace noncompliant
hardware and software applications with a target completion date of March 1999
for all "critical" applications and continuing through 1999 for "non-critical"
applications. We are currently on schedule with regard to critical applications.
Testing is being performed on an ongoing basis upon completion of an application
and is expected to continue throughout 1999. As of March 31, 1999, all critical
applications and approximately 90% of all Business System applications have been
remediated and tested. We have not developed a comprehensive contingency plan
with regard to the Business System as all critical applications are expected to
be Y2K ready. If progress toward Y2K readiness deviates from the anticipated
time line or we identify significant additional risks, appropriate contingency
plans will be developed at that time.
None of our products contain imbedded electronics or other potentially date
sensitive components and as such do not require any Y2K compliance effort.
Several types of systems and equipment such as phones, facilities,
manufacturing equipment, etc. (collectively, "non-IT systems"), that are not
typically thought of as computer systems may contain imbedded hardware or
software that may have a time element. We have completed an inventory of non-IT
systems and have contacted vendors of these systems and equipment to determine
if they are Y2K compliant. As of March 31, 1999 we have received responses from
vendors confirming the compliance of approximately 80% of all manufacturing
equipment and identifying non-compliance with approximately 5% of machines. We
are in the process of repairing, upgrading or replacing non-IT systems that have
been identified as being non-compliant and are actively following up with
vendors from whom responses have not been received. We have not developed a
comprehensive contingency plan with regard to non-IT systems and equipment, as
all identified mission critical systems and equipment are expected to be Y2K
ready by the end of 1999. If progress toward Y2K readiness deviates from the
anticipated time line or we identify significant additional risks, appropriate
contingency plans will be developed at that time.
We are primarily utilizing internal IT resources with the additional
assistance of contract programmers who are familiar with the software. It is
currently estimated that the total cost associated with required modifications
for both the Business System and non-IT systems to become Y2K ready will be
approximately $0.4 million to $0.5 million, of which approximately $0.2 million
had been spent as of March 31, 1999. These costs are being expensed as incurred
and are being funded from existing operating budgets.
We rely on third party suppliers for raw materials, water, utilities,
transportation, and other services. Interruption of supplier operations due to
Y2K issues could affect our operations. We are in the process of evaluating and
monitoring the status of key suppliers' progress toward Y2K compliance. As a
component of this process, we have sent a questionnaire to suppliers inquiring
about their Y2K plans and state of readiness. At March 31, 1999, we had received
responses from 25 key suppliers, which together represented over 75% of our
total material purchases in 1998. All respondents have acknowledged the issues
surrounding Y2K, have a plan in place, and have stated their intent to be
compliant by the end of 1999 or earlier. We will continue to monitor the
progress of key suppliers during 1999, and, if necessary, determine potential
24
<PAGE>
alternative suppliers and/or develop contingency requirements. These activities,
while a means of risk management, cannot eliminate the potential for disruption
of our operations due to third party failure.
We are also dependent upon our customers for sales and cash flow. We are in
the process of contacting key customers to ascertain their Y2K readiness. The
progress of key customers toward Y2K compliance will continue to be monitored
throughout 1999.
The failure to correct a material Y2K problem in our critical Business
System applications and non-IT systems could result in an interruption in, or
failure of, certain normal business activities or operations. Additionally, in
the event that any of our key suppliers and customers fail to successfully and
timely achieve Y2K compliance and we are unable to replace them with alternate
suppliers or new customers, our normal business activities could be adversely
affected. Such interruptions or failures could have a material adverse impact on
our results of operations, cash flows, and financial condition.
The above discussion of Y2K and its potential impact on us contains forward
looking statements that are based on our best estimates of future events.
Specific factors that could affect the actual outcome of these estimates and
conclusions include a possible loss of technical resources to perform the work,
failure to identify all susceptible systems, non-compliance by third parties
whose operations impact us, and other similar uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
We use funds provided by operations and short-term borrowings under our
Credit Facility to meet liquidity requirements. Net cash provided by operations
for the three months ended March 31, 1999 was $6.6 million, an increase of
$9.9 million compared with the same period in 1998 when net cash used by
operations was $3.3 million. Net cash provided by operations was $15.4 million,
$12.1 million and $26.6 million for the years ended December 31, 1998, 1997 and
1996, respectively.
Working capital at March 31, 1999 decreased to $14.7 million from $15.9
million at December 31, 1998 reflecting improved management of receivables and
inventory. Working capital at December 31, 1998 increased from $7.8 million at
December 31, 1997. The increase was primarily due to increases in accounts
receivable and inventory in conjunction with higher sales levels and a decrease
in current maturities of long term debt due to the amendment of the Credit
Facility.
Capital expenditures for manufacturing equipment, machine tools, and
building improvement totaled $3.6 million and $4.1 million during the first
three months of 1999 and 1998, respectively, of which $0.4 million and $0.2
million in 1999 and 1998, respectively, was funded by an increase in accounts
payable. Capital expenditures for both 1999 and 1998 have been primarily for
increased capacity and productivity to support increased sales. We expect
capital expenditures will be approximately $10.0 million in both 1999 and 2000.
Net cash used by financing activities was $4.7 million during the first
quarter of 1999 compared to net cash provided by financing activities of $4.7
million in the first quarter of 1998. Strong operating cash flows and capital
contributions during 1999 were used to fund the preferred stock dividend as well
as repayments of long term debt. Net cash used by financing activities was
$5.1 million, $4.3 million and $13.6 million in 1998, 1997 and 1996,
respectively. Net use in 1998 resulted primarily from cash dividends on our
outstanding preferred stock. Net use in 1997 resulted primarily from cash
dividends on preferred stock and the repayment of long-term debt. We paid a
$47.7 million dividend to Lancer in 1997 that was offset by the net proceeds
from the issuance of preferred stock of $47.7 million. Net use in 1996 resulted
primarily from a $17.0 million dividend we paid to Lancer, partially offset by
$5.0 million in net additional borrowings under our Credit Facility.
Under the Tax Sharing Agreement (See "Related Transactions--Tax Sharing
Agreement"), Lancer made capital contributions to us of $2.7 million, $2.6
million and $1.6 million in 1998, 1997 and 1996, respectively. See Note 7 to the
Consolidated Financial Statements for a further discussion of capital
contributions made pursuant to the Tax Sharing Agreement.
25
<PAGE>
Our Credit Facility provided for a $20 million revolving line of credit,
$35 million in term loans, and a $10 million debt repurchase line for
repurchases of our 2001 Notes. At March 31, 1999, we had $19.6 million available
under the revolving line of credit since we have letters of credit of
approximately $0.4 million issued under this facility. We also have the option
to increase our availability under this line of credit by $20 million (subject
to certain conditions). Prior to the Original Offering, we had $35.0 million of
term loans, and $7.0 million under the debt repurchase line outstanding under
our Credit Facility. We used a portion of the proceeds of the Original Offering
to repay our debt repurchase line and a portion of the term loans. Following the
Refinancing, we have approximately $14.3 million of term loans outstanding and
$19.6 million of availability for borrowings under the Credit Facility, which we
can increase (subject to certain conditions) by $20.0 million to $39.6 million.
See "Use of Proceeds" and "Description of Other Indebtedness and Preferred
Stock".
The 2001 Notes were issued in 1993 in the principal amount of
$85.0 million. During 1998, we repurchased $17.9 million of the 2001 Notes on
the open market with funds provided under the Credit Facility. We recorded a
$0.4 million loss, net of tax, in conjunction with these repurchases related to
the write-off of deferred financing charges and premium paid on repurchase. At
December 31, 1998, $67.2 million of the 2001 Notes remained outstanding. We
redeemed the 2001 Notes on July 1, 1999 from the proceeds of the offering of the
Old Notes pursuant to the Original Offering. See "Use of Proceeds".
We expect to use cash flows from operations to fund our planned capital
requirements for 1999, including capital expenditures, interest on long term
debt and preferred stock dividends. Our Credit Facility, as discussed above, may
also be utilized to meet additional liquidity needs. See "Description of Other
Indebtedness and Preferred Stock".
26
<PAGE>
BUSINESS
We believe we are the leading independent manufacturer (based on sales) of
high precision custom gears and assemblies and planetary gear systems in North
America. In each of the "custom products" and "planetary gear system" markets in
which we participate, we estimate that our market share is twice that of any
other independent manufacturer. Most of our custom gears and assemblies and
planetary gear systems are used by original equipment manufacturers, or OEMs, as
components in various kinds of heavy mobile equipment. Our customers include
such industry leaders as General Electric, General Motors, John Deere,
Caterpillar and Ingersoll-Rand. In 1998, our net sales increased by 14.6% over
1997 to $220.3 million and EBITDA increased by 18.8% over 1997 to
$37.1 million. For the quarter ended March 31, 1999, we had net sales of
$60.4 million and EBITDA of $11.9 million, compared with net sales of
$55.4 million and EBITDA of $9.0 million, for the same period in 1998. For the
twelve months ended March 31, 1999, we had net sales of $225.3 million and
EBITDA of $40.0 million.
Custom Products. Custom gears are components of larger systems, such as
axles, drive differentials and transmission units. Custom assemblies are
differentials, wheel drives, power transmissions and conveyor/tram drives that
are generally produced as complete units. Most of the businesses who purchase
our custom gears and assemblies are OEMs; for many of them we are the sole
independent supplier of selected gear products. Our custom gear customers
include OEMs who produce:
o rail equipment, such as locomotives;
o mining equipment, such as underground mining and transfer equipment and
above-ground haul trucks;
o agricultural equipment, such as tractors and harvesting equipment;
o industrial equipment, such as mixers, printing presses and compressors;
o construction equipment, such as loaders, scrapers and excavators; and
o materials-handling equipment, such as forklifts and conveyors.
Custom gears and assemblies accounted for $118.5 million (or 53.8%) of our 1998
net sales and $30.6 million (or 50.7%) of our 1999 first quarter net sales.
Planetary Gear Systems. Planetary gear systems 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 conventional axles would otherwise present design
difficulties. We market our planetary gear systems under the
Torque-Hub(Registered) name. As a result of the performance history and
reputation for quality of our Torque-Hub(Registered) products, we believe the
Torque-Hub(Registered) name has become closely identified with planetary gear
systems. Torque-Hub(Registered) customers include OEMs who produce:
o access platform equipment, such as aerial-lifts and utility trucks;
o road rehabilitation equipment, such as pavers and road compactors;
o construction equipment, such as excavators and trenchers;
o forestry equipment, such as logging loaders and feller bunchers;
o agricultural equipment, such as crop sprayers and windrowers; and
o marine equipment, such as hoist and jack-up boats.
Planetary gear systems accounted for $101.8 million (or 46.2%) of our 1998 net
sales and $29.8 million (or 49.3%) of our 1999 first quarter net sales.
COMPETITIVE STRENGTHS
We have a leading market position in the custom product and planetary gear
system markets in which we participate. We believe our competitive strengths
are:
o the breadth and quality of our product offerings;
27
<PAGE>
o our long-standing relationships (in many cases 20 years or more) with our
major customers;
o our state-of-the-art engineering and manufacturing technology, including
our heat treating facilities, computer-aided design and manufacturing
systems, and computer controlled machine tools and gear grinders;
o our cost-competitiveness;
o our experienced engineering staff, and its close collaboration with our
sales force and customers in designing and developing products to meet
our customers' needs; and
o our stable, knowledgeable sales force, many of whose members have
engineering degrees and have worked with the same customers for many
years.
In addition, we believe that our management team, with an average of over 20
years of experience in manufacturing, will be instrumental in further
strengthening our market position.
BUSINESS STRATEGY
We intend to enhance our market position and improve our profitability by:
CAPITALIZING ON INDUSTRY TRENDS. We seek to increase our revenues and
market share by taking advantage of industry trends, including:
o the trend among OEMs to purchase complete gear assemblies or systems
rather than individual gear products;
o 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
similar to us, rather than manufacture such products in-house; and
o 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 similar to
us.
These trends are driven by the OEMs' desire to reduce their production and
supply costs and focus on their core competencies. We have capitalized upon
these trends as evidenced by increasing sales of complete gear assemblies
and systems, particularly to manufacturers of agricultural and heavy-duty
equipment. For example, in 1998 we started delivering a new complete
gearbox assembly to a baler manufacturer and a family of bull gears and
pinions to an axle manufacturer for on-highway Class 8 vehicles. In
addition, we continue to receive orders from a number of captive gear
manufacturers, such as those of General Electric, General Motors and John
Deere, for certain gear products that these OEMs previously produced
in-house. We have also established sole sourcing relationships with many of
our major customers for selected gear products. We believe we can continue
to take advantage of these industry trends because of our broad product
offerings, large manufacturing capacity, sophisticated manufacturing and
design capabilities and established reputation for producing high-quality
products.
IMPROVING PRODUCTION EFFICIENCY AND REDUCING OVERALL COSTS. We have taken a
number of steps to improve our efficiency and increase our profit margins.
Specifically, we are:
o converting various operations to cellular manufacturing;
o reorganizing the physical layout of our plant;
o installing new, more efficient machinery; and
o improving our employee training programs.
In addition, we are actively working to reduce the price we pay for raw
materials by using suppliers throughout the world, purchasing more from
fewer suppliers and entering into long-term supply agreements. We are also
controlling our selling, general and administrative expenses. We believe
these initiatives will help us to lower our costs.
28
<PAGE>
MAINTAINING OUR POSITION AS A HIGH-QUALITY, LOW-COST MANUFACTURER. We have
broad-based, integrated manufacturing capabilities which, we believe,
provide us with an advantage over our competitors. These capabilities
include:
o state-of-the-art heat treating facilities;
o computer-aided design and manufacturing systems; and
o computer numerically controlled machine tools and gear grinders.
Since 1994, we have invested $57.0 million in capital equipment and in our
manufacturing facility. We believe our manufacturing capacity is
substantially larger than that of our independent competitors, enabling us
to fill large orders at a lower cost. We plan to continue to selectively
purchase more equipment to improve our manufacturing processes and expand
capacity.
LEVERAGING OUR LONG-TERM RELATIONSHIPS WITH MAJOR CUSTOMERS; INTRODUCING NEW
PRODUCTS.
We believe we have strong relationships with our customers due to the
following factors:
o the continuity of our customer relationships;
o our awareness of and involvement in our customers' planning
processes; and
o our commitment to provide ongoing engineering services.
We believe we are better able to proactively design and implement solutions
to our customers' evolving requirements based upon our strong customer
relationships.
We are developing, testing and marketing new products, and new applications
for existing products, to increase sales, profit and market share.
Historically, our planetary gear system business has generated a significant
portion of our new products and new product applications. We are continually
working to add new custom gear and assembly product offerings and are
currently developing a number of new applications including: (1)
differentials for automotive, industrial and commercial vehicles, and
off-highway trucks, (2) transmissions, and (3) axles.
EVALUATING SELECTED ACQUISITIONS. We intend to examine and, if appropriate,
to pursue strategic acquisitions of complementary businesses in order to
increase product manufacturing capacity, broaden product offerings and
penetrate new geographic markets.
PRODUCTS
Custom Products. Custom gears and assemblies accounted for approximately
$30.6 million of our net sales in the first quarter of 1999 and approximately
$118.5 million, $107.1 million and $112.3 million of our net sales in 1998, 1997
and 1996, respectively. We manufacture a wide variety of custom gears, ranging
in type (e.g. helical, spiral bevel, spur and HYPOID(Registered)) and size (from
one inch to 60 inches in diameter), and have a manufacturing capability which we
believe is one of the broadest in the custom gear business. We manufacture
custom gears and assemblies to customers' specifications, which are often
developed by us or with our assistance. Our custom gears and assemblies are used
in a wide variety of applications and markets, ranging from off-highway heavy
equipment to high speed precision gears for industrial purposes.
Historically, we have focused on severe application custom business. These
custom products, which are design and engineering intensive, are used in rail,
mining, agricultural, construction, 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, the trend among OEMs to focus on their core competencies
(final assembly and system integration) rather than produce gears and
gear-related assemblies in-house appears to be continuing.
29
<PAGE>
Planetary Gear Systems. We market our planetary gear systems under the
Torque-Hub(Registered) name. These products accounted for approximately
$29.8 million of our net sales in the first quarter of 1999 and approximately
$101.8 million, $85.2 million and $82.9 million of our net sales in 1998, 1997
and 1996, respectively. We believe 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. Planetary gear systems
are primarily employed in cases where the use of axles presents design
difficulties. We produce a broad line of planetary gear systems 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 (which power the drive wheels of vehicles with small
diameter wheels such as small lift trucks and mowers).
We have introduced a number of new Torque-Hub(Registered) products in
recent years, including two-speed drives (Torque II(Registered) series) and
compact drives (CW and CT series) for wheeled or tracked vehicles. We believe
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 we believe
allows for better flexibility and is well-suited for a variety of applications.
These 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
Our customers are almost exclusively OEMs and include many industry leaders
with whom we have had relationships of 20 years or more. Sales to General
Electric accounted for approximately 10.6% of our net sales in 1998. No customer
accounted for more than 10% of total net sales in 1997 or 1996.
We have been granted "preferred supplier" status by a majority of our
customers due to our ability to meet their business requirements, including
General Electric, General Motors, John Deere, Caterpillar and Ingersoll-Rand. We
have also been certified as meeting "ISO-9001" standards, which are increasingly
being used by OEMs in lieu of individual certification procedures. In addition,
we have been certified as meeting "QS-9000" standards. We believe ISO-9001 and
QS-9000 certifications provide us with a competitive advantage because a number
of OEMs now require one of these certifications as a condition to doing
business.
We believe that our stable, experienced sales force is a primary reason for
our success in maintaining customer loyalty and building new customer
relationships. Our sales department is organized geographically and consists
primarily of sales engineers, who have an average of over 14 years of experience
with us and many of whom have worked with the same customers for many years. In
addition, each sales engineer has substantial expertise concerning our products
and product applications. Application engineers work closely with our 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, we have developed close working relationships with many of
them. Customer loyalty to us 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 our custom gear products and approximately 70% of our
Torque-Hub(Registered) products are sold directly to OEMs. Since
Torque-Hub(Registered) products can be sold to more than one customer, we use
distributors to increase our penetration of the planetary gear systems market.
Approximately 30% of our Torque-Hub(Registered) line is sold through a network
of approximately 40 distributors located in the United States and abroad.
International sales, principally Canada, accounted for approximately
$3.7 million of our net sales in the first quarter of 1999 and approximately
$16.2 million, $13.3 million and $11.3 million of our net sales in 1998, 1997
and 1996, respectively.
30
<PAGE>
DESIGN AND MANUFACTURING
We believe that our state-of-the-art technology and experienced engineering
staff provide us with a competitive advantage and are major factors behind our
strong market position.
We have selectively invested in state-of-the-art manufacturing technology
in recent years to improve product quality and price competitiveness, and to
reduce lead time. Our manufacturing technology includes the latest
computer-aided design and manufacturing (CAD/CAM) systems, and over 150 computer
numerically controlled (CNC) lathes, machine tools and gear grinders.
Our engineering department consists of over 65 engineers and technicians,
including specialists in product, tool, manufacturing, and industrial
engineering. In addition, we have 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 meet specific customer requirements. These capabilities enable us
to service clients who demand high quality, creative solutions to their product
needs.
Our engineers and designers are skilled in the use of, and have available,
certain of the latest tools and techniques to create cost efficient designs.
Procedures such as finite element analysis are routinely used by our engineers
and designers to optimize material content and ensure functional reliability of
designed components. This type of analysis and simulation 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, our 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.
We have our own comprehensive heat treating facilities. These in-house
facilities allow us to control the annealing and carburizing processes that
determine the load-carrying capacity of the final product. Our heat treating
operations help ensure proper development and maintenance of gear tooth
characteristics. As a result, we believe that we are able to provide our
customers with improved quality and reduced lead times in filling orders.
MATERIALS AND SUPPLY ARRANGEMENTS
We generally manufacture our custom and Torque-Hub(Registered) products to
our customers' specifications and, as a result, do not generally contract for or
maintain substantial inventory in raw materials or components. We purchase our
three principal raw material needs (steel forgings, steel bars and castings) on
a spot basis based on specific customer orders. Raw material purchases from one
supplier represented approximately 13.9% of raw material purchases in 1998 and
1997. During 1996, purchases from a single supplier did not exceed 10% of raw
material purchases. Alternative sources are available to fulfill each of our
major raw material requirements. We have never experienced a delay in production
as a result of a supply shortage of a major raw material.
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, we believe there is a trend among such manufacturers
to outsource, or purchase their gears from independent manufacturers like
Fairfield. The North American planetary gear 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. We compete with
other manufacturers based on a number of factors, including
31
<PAGE>
delivery capability, quality and price. We believe that our breadth of
manufacturing, engineering and technological capabilities provide us with a
competitive advantage.
EMPLOYEES
At December 31, 1998, we had 1,322 employees, of whom approximately 92%
were employed in manufacturing. Our production and maintenance employees,
representing approximately 84% of our employees, became members of the United
Auto Workers (UAW) union in October 1994. In October 1998 a new three year labor
agreement was ratified by our union employees. We consider our relations with
our employees to be satisfactory.
BACKLOG
We had total order backlog of approximately $102.6 million, $121.2 million
and $110.8 million as of March 31, 1999, December 31, 1998 and December 31,
1997, respectively, for shipments due to be delivered by us for the six-month
period following such dates.
ENVIRONMENTAL MATTERS
Our operations and properties are subject to a wide variety of increasingly
complex and stringent environmental laws. As such, the nature of our operations
exposes us 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. We believe our operations and properties are in
substantial compliance with such environmental laws. Based upon our experience
to date, we believe that the future cost of compliance with existing
environmental laws, and liability for known environmental claims pursuant to
such environmental laws, will not have a material adverse effect on our
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.
INTELLECTUAL PROPERTY
The trade names Torque-Hub(Registered) and Torque II(Registered) are
registered trademarks. Our planetary gear systems are sold under the
Torque-Hub(Registered) trade name. Directly and through our wholly-owned
subsidiary, T-H Licensing, Inc., we own numerous patents worldwide. None of such
patents is individually considered material to our business.
PROPERTIES
We own and operate a single facility in Lafayette, Indiana, consisting of
39 acres of land, approximately 540,000 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.
LEGAL PROCEEDINGS
We are a party to routine litigation incidental to the conduct of our
business, much of which is covered by insurance and none of which is expected to
have a material adverse effect.
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<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company, including their respective ages
as of March 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Paul S. Levy......................................... 51 Chairman of the Board and Vice President
Peter A. Joseph...................................... 46 Director, Vice President and Secretary
Stephen K. Clough.................................... 45 Director, President and Chief Executive Officer
Jess C. Ball......................................... 57 Director
W.B. Lechman......................................... 66 Director
Andrew R. Heyer...................................... 41 Director
Richard A. Bush...................................... 41 Vice President Finance
James R. Dammon...................................... 55 Vice President Engineering
Mark D. Gustus....................................... 40 Vice President Operations
Dan E. Phebus........................................ 42 Vice President Marketing
Clem L. Strimel...................................... 37 Vice President Sales
</TABLE>
Mr. Levy was elected Chairman of the Board effective August 1998. 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 Jackson Automotive Group, Inc., Hayes Lemmerz
International, Inc., New World Pasta Company, and BSL Holdings, Inc.
Mr. Joseph has been Vice President and a Director of the Company since
1989. Mr. Joseph has served as President of Lancer since April 1992 and a
Director of Lancer since July 1989. Mr. Joseph has been a partner of Palladium
Equity Partners, L.L.C. since December 1998. Prior to joining Palladium Equity
Partners, L.L.C., Mr. Joseph was a Melton Fellow at Hebrew University from July
1997 until August 1998, and was a General Partner of Joseph Littlejohn & Levy
until July 1997.
Mr. Clough was appointed President and Chief Executive Officer and elected
to the Board of Directors effective August 1998. Prior to his appointment,
Mr. Clough was employed by Kaydon Corporation, where he served as the President
and Chief Executive Officer from June 1996 to June 1998 and the President and
Chief Operating Officer from September 1989 to June 1996.
Mr. Ball has been a Director of the Company since 1991. Mr. Ball was
President and Chief Executive Officer of the Company from October 1994 to May
1996. From December 1991 through September 1994, Mr. Ball was President and
Chief Executive Officer of Alford Industries (a company which filed for
bankruptcy protection and has been liquidated).
Mr. Lechman has been a Director of the Company since 1989. Mr. Lechman
served as Chairman of the Board from October 1994 to July 1997 and as President
and Chief Executive Officer of the Company from 1989 to October 1994.
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 is President Emeritus of the American Gear
Manufacturers Association.
Mr. Heyer has been a Director of the Company since August 1998. Mr. Heyer
is a Managing Director at CIBC World Markets Corp., where he serves as co-head
of The High Yield Group. Prior to joining CIBC World Markets Corp., Mr. Heyer
was founder and Managing Director of the Argosy Group L.P. which was acquired by
CIBC World Markets Corp. in 1995. Mr. Heyer is also Chairman of the Board of
Directors of The Hain Food Group, Inc. and serves on the Board of Directors of
Niagara Corporation and Hayes Lemmerz International, Inc.
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.
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<PAGE>
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. Gustus has been Vice President Operations since July 1997. Prior to his
present position, Mr. Gustus was Director of Materials and Assembly. Mr. Gustus
has been with the Company for over 15 years.
Mr. Phebus has been the Vice President Marketing since March 1999. Prior to
his present position, Mr. Phebus was acting Vice President Sales and Marketing,
Director of Business Development, Quality Assurance Manager, and Sales Engineer.
Mr. Phebus has been with the Company for nearly 20 years.
Mr. Strimel has been Vice President Sales since March 1999. Prior to his
current position, Mr. Strimel was Director of Custom Sales from October 1996 to
February 1999. Prior to joining Fairfield, Mr. Strimel was with United Defense
for nine years where he served as a Program Manager from 1991 to 1996.
COMPENSATION OF DIRECTORS
Messrs. Ball and Lechman each receive an annual fee of $30,000 per year for
services as a director. Mr. Lechman entered into a consulting agreement with the
Company (see Note 2 to the Consolidated Financial Statements and the description
below) in August 1997. No other directors receive any additional compensation
for services performed as a director or for serving on committees of the Board
of Directors of the Company or for meeting attendance.
EXECUTIVE COMPENSATION
The following table sets forth, for each of the fiscal years ending
December 31, 1998, 1997 and 1996, the compensation paid to or accrued by the
Chief Executive Officer ("CEO") of the Company and each of the four most highly
compensated executive officers other than the CEO (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) COMPENSATION (2)
- ------------------------------------------------------------ ---- -------- --------- ----------------
<S> <C> <C> <C> <C>
Stephen K. Clough (2) ...................................... 1998 $154,872 $ 155,600 $ 18,869
President and Chief Executive Officer
Richard A. Bush ........................................... 1998 $107,500 $ 44,000 $ 6,038
Vice President Finance 1997 104,004 30,000 6,874
1996 103,537 52,000 5,950
James R. Dammon ........................................... 1998 $118,560 $ 47,424 $ 6,852
Vice President Engineering 1997 114,000 30,000 6,079
1996 114,437 57,000 4,988
Mark D. Gustus ............................................ 1998 $110,000 $ 44,000 $ 3,698
Vice President Operations 1997 91,272 30,000 3,475
1996 84,536 41,094 3,460
Kenneth A. Burns (4) ....................................... 1998 $166,671 $ -- $198,324 (5)
1997 250,000 65,000 12,900
1996 185,279 100,000 3,325
</TABLE>
- ------------------
(1) Amounts shown were earned under the Fairfield Manufacturing Company, Inc.
Management Incentive Compensation Plan.
(2) Mr. Clough joined the Company as President and Chief Executive Officer
effective August 12, 1998.
(footnotes continued on next page)
34
<PAGE>
(footnotes continued from previous page)
(3) 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.
Other compensation for Mr. Clough includes moving expenses and the value of
other fringe benefits provided by the Company.
(4) Mr. Burns resigned as Chairman of the Board, President and Chief Executive
Officer of the Company effective August 12, 1998.
(5) Other compensation for Mr. Burns includes contributions by the Company to
the Savings Plan, imputed value of life insurance benefits provided by the
Company, severance and the value of other benefits provided by the Company.
As of December 31, 1998 the Company has no further obligations due
Mr. Burns.
INCENTIVE PLAN FOR SENIOR MANAGEMENT
The Company intends to establish the Incentive Plan for Senior Management
(the "Equity Incentive Plan") to provide incentive compensation arrangements for
its senior executives and other key management employees, including each of the
executive officers of the Company listed under the caption "Management." The
Company's Board of Directors is currently considering the terms and conditions
of the Equity Incentive Plan, which is expected to be adopted before the end of
1999. The Company expects that the Equity Incentive Plan will have a notional
incentive compensation pool to record amounts available to fund awards granted
under the Equity Incentive Plan, and that amounts will be credited to the pool
if the Company achieves the performance objectives established by the Board of
Directors. In that case, recipients of awards under the Equity Incentive Plan
will be entitled to payment of a percentage of the pool, subject to the
recipient's continued employment with the Company.
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").
ESTIMATED ANNUAL BENEFITS FOR
YEARS OF BENEFIT SERVICE INDICATED (2)
<TABLE>
<CAPTION>
AVERAGE ANNUAL COMPENSATION (1) 5 10 15 20 25 30
- ------------------------------------------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$100,000........................................ $ 6,705 $13,411 $20,116 $26,821 $33,526 $40,232
$125,000........................................ 8,518 17,036 25,553 34,071 42,589 51,107
$150,000........................................ 10,330 20,661 30,991 41,321 51,651 61,982
$160,000 and over............................... 11,055 22,111 33,166 44,221 55,276 66,332
</TABLE>
- ------------------
(1) The preceding table illustrates the pension benefits provided by the Pension
Plan, calculated on a straight life annuity basis for an eligible employee
retiring at age 65 in 1998. Average annual compensation covered under the
Pension Plan is the highest average annual total compensation received from
the Company for any 5 calendar years during the 10 years immediately
preceding the participant's separation from service. Annual total
compensation for Pension Plan purposes includes all compensation disclosed
in the Summary Compensation Table excluding moving expenses and fringe
benefits provided by the Company. Average annual compensation, used in
determining a participant's pension benefit, is limited under the Pension
Plan to comply with the Internal Revenue Code. This limit was $160,000 for
1998.
(2) At December 31, 1998 Messrs. Clough, Bush, Dammon, and Gustus had 0, 4, 33,
and 17 years of credited service, respectively, for purposes of calculating
their benefits under the Pension Plan.
35
<PAGE>
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Stephen K. Clough,
effective August 12, 1998 in connection with his appointment as President and
Chief Executive Officer of the Company. The agreement is for a three year term
expiring on August 12, 2001. The agreement provides for Mr. Clough to receive a
base salary of $400,000 or such greater amount as may be determined by the Board
of Directors of the Company upon periodic review. In addition, Mr. Clough is
eligible to receive bonuses in each fiscal year covered by the agreement based
on the achievement of target performance objectives for himself and the Company
as established by the Board of Directors. Mr. Clough is eligible to participate
in any other benefit plan that the Company provides to its executives and
employees from time to time.
CONSULTING AGREEMENT
In August 1997, the Company entered into a consulting agreement with W.B.
Lechman (the "Consulting Agreement") the previous Chairman of the Company's
Board of Directors. In consideration for services being rendered under the
Consulting Agreement, Mr. Lechman will receive total payments of $1.0 million,
which will be paid in installments through July 31, 2001 ("the consulting
period"). In the event that Mr. Lechman dies prior to the end of the consulting
period or is unable to perform the services requested due to mental or physical
disabilities, the Company shall pay to his legal representatives or
beneficiaries the remaining unpaid balance under the Consulting Agreement which
would have been due under the agreement had Mr. Lechman continued to provide
such services for the term of the Consulting Agreement. Due to the provisions of
the agreement, the Company has recognized the entire $1.0 million as expense in
1997.
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<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 Named 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 March 31, 1999. The number of authorized shares of the Company's capital
stock as of March 31, 1999 was 10,150,000, consisting of 10,000,000 shares of
common stock and 150,000 shares of Preferred Stock. As of March 31, 1999, the
Company had 8,554,000 shares of Common Stock and 50,000 shares of Exchangeable
Preferred Stock issued and outstanding.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES SHARES
NAME OWNED OUTSTANDING
- ---------------------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Lancer Industries Inc.(1) .............................................................. 8,554,000 100%
450 Lexington Avenue, Suite 3350
New York, New York 10017
Peter A. Joseph (2)..................................................................... -- --
Paul S. Levy (2)........................................................................ -- --
Andrew R. Heyer (2)..................................................................... -- --
Stephen K. Clough....................................................................... -- --
Richard A. Bush......................................................................... -- --
James R. Dammon......................................................................... -- --
Jess C. Ball............................................................................ -- --
W.B. Lechman............................................................................ -- --
Mark D. Gustus.......................................................................... -- --
All directors and executive officers ................................................... -- --
as a group (11 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 Credit Facility as security
for the Company's obligations thereunder.
(2) Lancer has one class of common stock, Class B Common Stock, with a par value
of $478.44 per share. Lancer's common stock is held as follows:
(i) Canadian Imperial Bank of Commerce ("CIBC"), through affiliates,
beneficially owns approximately 23% of Lancer's common stock, (ii) certain
entities affiliated with Mutual Series Fund (the "Mutual Entities") own
approximately 27% of Lancer's common stock, (iii) Mr. Paul S. Levy, the
Chairman of the Board and Chief Executive Officer of the Company, directly
and through his participation in the Lancer Employee Stock Ownership Plan
(the "ESOP") beneficially owns approximately 22% of Lancer's common stock,
and through a proxy in his favor to vote the shares of Lancer's common stock
beneficially owned by CIBC and others, has the right to direct the voting of
over 50% of Lancer's common stock, and (iv) Mr. Peter A. Joseph, a Vice
President and a Director of the Company, directly, through a trust and
through his participation in the ESOP, beneficially owns and has the right
to direct the voting of approximately 16% of Lancer's common stock.
Mr. Levy, the Mutual Entities and an affiliate of CIBC are parties to a
stockholders' arrangement relating to the composition of the Board of
Directors of Lancer and certain other matters.
Mr. Levy is the Chairman of the Board and Chief Executive Officer of Lancer.
Mr. Joseph is the President and a Director of Lancer. Mr. Heyer, a Director
of the Company, is a Director of Lancer and a Managing Director of an
affiliate of CIBC.
37
<PAGE>
RELATED TRANSACTIONS
CONTROL BY LANCER INDUSTRIES INC.
The Company is wholly owned by Lancer, a Delaware corporation. As a result,
Lancer is able to direct and control the policies of the Company and its
subsidiaries. Certain stockholders of Lancer are Directors and officers of the
Company. Certain stockholders of Lancer are parties to a stockholders'
arrangement relating to the composition of the Board of Directors of Lancer and
certain other matters. Circumstances could occur in which the interests of
Lancer could be in conflict with the interests of the Company and/or the holders
of the Notes. In addition, Lancer may have an interest in pursuing acquisitions,
divestitures or other transactions that Lancer believes would enhance its equity
investment in the Company, even though such transactions might involve risks to
the holders of the Notes. See "Ownership of Capital Stock."
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 federal tax return filed by Lancer. The
Company and Lancer have entered into a tax sharing agreement (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 a separate federal tax return (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. See Note 7 to the Consolidated
Financial Statements for a further discussion of income taxes.
OTHER ARRANGEMENTS WITH LANCER
From time to time, Lancer incurs legal, accounting and miscellaneous other
expenses on behalf of the Company. In fiscal 1998, 1997 and 1996, the Company
made aggregate payments to Lancer in respect of such expenses incurred by Lancer
on the Company's behalf in the amounts of $730,000, $484,000 and $570,000,
respectively.
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<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS AND PREFERRED STOCK
CREDIT FACILITY
The Company, T-H Licensing and General Electric Capital Corporation ("GE
Capital") are party to the Amended and Restated Loan Agreement, dated as of
, 1999 (the "GE Credit Agreement"), which sets forth the terms and
conditions of the Credit Facility. The GE Credit Agreement provides for
(i) $ million of term loans (the "Term Loans") and (ii) a $20.0 million
revolving credit facility (the "Revolver" and, together with the Term Loans, the
"Credit Facility"), including up to $2.0 million under a letter of credit
subfacility, subject to borrowing base availability. At the Company's option,
the Revolver availability may be increased by up to $20.0 million, subject to
the satisfaction of certain conditions. Currently, the only borrowings under the
Revolver are letters of credit issued for $0.4 million.
The GE Credit Agreement amends and restates a previous credit facility
extended to the Company by GE Capital which had provided for $35.0 million of
term loans, a $10.0 million debt repurchase line and a $20.0 million revolving
credit facility. As of March 31, 1999, the Company's total borrowings under the
previous credit facility were $42.0 million, consisting of $35.0 million of term
loans and $7.0 million of debt repurchase loan. The Company repaid
$27.7 million of such loans from the proceeds of the Original Offering.
The Company's current borrowings under the Credit Facility consist of
$14.3 million of Term Loans. The Company does not have any borrowings
outstanding under the Revolver other than $0.4 million in respect of letters of
credit. The following description of the Credit Facility does not purport to be
complete and is qualified in its entirety by reference to the GE Credit
Agreement.
Commitments under the Revolver terminate on July 1, 2005. The Term Loans
are payable in a single principal payment on July 1, 2005. The GE Credit
Agreement permits the Company to make optional prepayments under the Credit
Facility. The Company is required to make prepayments on the Term Loans in an
amount equal to the net proceeds received from certain pension plan reversions
and permitted dispositions of assets out of the ordinary course of business by
the Company or its subsidiaries.
Interest under the Credit Facility is payable at one of the two specified
rates, as selected by the Company, as follows: (i) 0.75% 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) a margin ranging between 0.75% and 1.75% over a
rate calculated based on the one-, two-, three- or six-month Eurodollar rate.
The margin on the Eurodollar rate will be based on the Company's ratio of
consolidated EBITDA to interest expense calculated on a rolling four quarter
basis.
Borrowings under the Credit Facility are guaranteed by T-H Licensing and
any future subsidiaries of the Company. Indebtedness under the Credit Facility
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 limiting,
among other things, additional debt, additional liens, transactions with
affiliates, mergers and consolidations, liquidations and dissolutions, sales of
assets, dividends, capital expenditures, sale and leaseback transactions,
operating leases, investments, loans and advances, prepayment and modification
of debt instruments, the taking, or the failure to take, certain actions with
respect to the Tax Sharing Agreement and other matters customarily restricted in
such agreements. The GE Credit Agreement also requires that the Company maintain
compliance with certain specified financial ratios and tests including ratios
with respect to fixed charges, interest coverage and working capital. In
addition, the GE Credit Agreement contains certain customary affirmative
covenants and events of default.
EXCHANGEABLE PREFERRED STOCK AND EXCHANGE DEBENTURES
On March 12, 1997 the Company issued 50,000 shares of 11 1/4% Cumulative
Exchangeable Preferred Stock, liquidation preference $1,000 per share,
representing an aggregate liquidation preference of $50.0 million. The
Exchangeable Preferred Stock is exchangeable at the option of the Company, in
whole but not in part, for 11 1/4% Subordinated Exchange Debentures Due 2009
(the "Exchange Debentures"), in aggregate principal amount equal to the
liquidation preference of the Exchangeable Preferred Stock following the
redemption of the Existing Notes, subject to the satisfaction of certain
conditions. Certain terms of the
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<PAGE>
Preferred Stock and Exchange Debentures are set forth below. The Exchangeable
Preferred Stock issued pursuant to a Certificate of Designation of the
Exchangeable Preferred Stock (the "Certificate of Designation"), which sets
forth the terms and conditions of such stock, including, in certain
circumstances, voting rights. The Exchange Debentures, if issued, will be issued
under the Exchange Indenture, dated as of March 12, 1997, by and between the
Company and the United States Trust Company of New York, as Trustee.
Mandatory Redemption/Maturity Date. The Company is required, subject to
certain conditions, to redeem all of the Exchangeable 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. The maturity date of the Exchange
Debentures is March 15, 2009.
Optional Redemption. The Exchangeable Preferred Stock, or, as the case may
be, 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 12, 2002, at
the following redemption prices (expressed as percentages of the then effective
liquidation preference, or, as the case may be, the principal amount thereof)
together with all accrued and unpaid dividends in the case of the Exchangeable
Preferred Stock, and all accrued and unpaid interest in the case of the Exchange
Debentures: for the 12-month period beginning March 15, 2002: 105.625%; for the
12-month period beginning March 15, 2003: 104.219%; for the 12-month period
beginning March 15, 2004: 102.813%; for the 12-month period beginning March 15,
2005: 101.406%; and on or after March 15, 2006: 100.000%.
Dividends/Interest Rate. The Exchangeable Preferred Stock pays dividends at
a rate equal to 11 1/4% per annum of the liquidation preference per share,
payable semiannually on each March 15 and September 15 in cash, or, on or prior
to March 15, 2002, in kind, on each March 15 and September 15. Interest on the
Exchange Debentures is 11 1/4% per annum, payable semiannually on each March 15
and September 15 in cash, or, on or prior to March 15, 2002, in kind.
Ranking. The Exchangeable 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 Facility and
indebtedness in respect of the Notes. The Exchange Debentures are unsecured
subordinated obligations of the Company, subordinated to all existing and future
senior debt of the Company, including without limitation, the indebtedness under
the Credit Agreement and indebtedness in respect to the Notes.
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 other
indebtedness of the Company then outstanding, the Company is required to offer
to redeem the Exchangeable Preferred Stock or, as the case may be, the Exchange
Debentures, at a redemption price equal to 101% of the liquidation preference,
or, as the case may be, the principal amount, plus, without duplication,
accumulated and unpaid dividends or 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 Exchangeable
Preferred Stock or, as the case may be, the Exchange Debentures, in whole but
not in part, at a redemption price equal to 101% of the liquidation preference,
or, as the case may be, the principal amount thereof, plus, without duplication,
accumulated and unpaid dividends or 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 Exchangeable Preferred Stock or the Exchange Debentures, the
annual dividend rate of the Exchangeable Preferred Stock or, as the case may be,
the Exchange Debentures, will increase by 4.0% over the then-applicable annual
dividend or interest rate.
Certain Restrictive Provisions. The Certificate of Designation of the
Exchangeable Preferred Stock contains 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 Exchangeable Preferred Stock that ranks on a parity with or senior to
the Exchangeable Preferred Stock. The Exchange Indenture for the Exchange
Debentures contains similar restrictive provisions.
40
<PAGE>
DESCRIPTION OF THE NOTES
The Company issued the Old Notes under an Indenture, dated as of May 19,
1999 (the "Indenture"), between the Company and First Union National Bank, as
trustee (the "Trustee"). The New Notes will also be issued under the Indenture.
The terms of the New Notes are identical in all material respects to the terms
of the Old Notes except that the New Notes are registered under the Securities
Act (and therefore will not contain restrictions on transfer), will not contain
certain provisions relating to additional interest, and will contain terms of an
administrative nature that differ from those of the Old Notes.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "TIA"), as in effect on the date of the Indenture. The Notes are
subject to all such terms, and holders of the Notes are referred to the
Indenture and the TIA for a statement of them. The following is a summary of
material terms and provisions of the Notes. This summary does not purport to be
a complete description of the Notes and is subject to the detailed provisions
of, and qualified in its entirety by reference to, the Notes and the Indenture
(including the definitions contained therein). The Indenture has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
Definitions relating to certain capitalized terms are set forth under "--Certain
Definitions." Capitalized terms that are used but not otherwise defined herein
have the meanings ascribed to them in the Indenture and such definitions are
incorporated herein by reference.
The Notes are expected to be eligible for trading in the PORTAL market.
GENERAL
The Indenture provides for the issuance of the $100 million principal
amount of Notes and additional series of Notes to be issued from time to time in
aggregate principal amounts of not less than $25 million per series, subject to
compliance with the covenant described below under "--Limitation on Increased
Additional Indebtedness" and provided that no Default or Event of Default exists
under the Indenture at the time of issuance or would result therefrom. All Notes
will be substantially identical in all material respects other than issuance
dates. The Notes will be general unsecured obligations of the Company,
subordinated in right of payment to Senior Indebtedness of the Company and
senior in right of payment to any current or future subordinated indebtedness of
the Company, including the Exchange Debentures.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on October 15, 2008. The Notes will bear interest at
a rate of 9 5/8% per annum from the Issue Date until maturity. Interest is
payable semi-annually in arrears on each April 15 and October 15, commencing
October 15, 1999, to holders of record of the Notes at the close of business on
the immediately preceding April 1 and October 1, respectively. The Notes are not
subject to any mandatory sinking fund.
OPTIONAL REDEMPTION
The Company may redeem the Notes at its option, in whole at any time or in
part from time to time, on or after April 15, 2004 at the following redemption
prices (expressed as percentages of the principal amount thereof), together, in
each case, with accrued and unpaid interest, if any, to the redemption date, if
redeemed during the twelve-month period beginning on April 15 of each year
listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------ ----------
<S> <C>
2004........................................................ 104.813%
2005........................................................ 103.208%
2006........................................................ 101.604%
2007 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may redeem in the aggregate up
to 35% of the original principal amount of Notes (including the original
principal amount of any additional Notes issued under the Indenture) at any time
and from time to time prior to April 15, 2002 at a redemption price equal to
41
<PAGE>
109.625% of the aggregate principal amount so redeemed, plus accrued and unpaid
interest, if any, to the redemption date out of the Net Proceeds of one or more
Qualified Equity Offerings; provided that:
(1) at least 65% of the original principal amount of Notes (including
the original principal amount of any additional Notes) originally issued
remains outstanding immediately after the occurrence of any such
redemption; and
(2) any such redemption occurs within 90 days following the closing of
any such Qualified Equity Offering.
In the event of a redemption of fewer than all of the Notes, the Trustee
shall select the Notes to be redeemed in compliance with the requirements of the
principal national securities exchange, if any, on which such Notes are listed
or, if such Notes are not then listed on a national securities exchange, by lot
or in such other manner as the Trustee shall deem fair and equitable. The Notes
will be redeemable in whole or in part upon not less than 30 nor 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
Notes. Any such redemption or notice may, at the Company's discretion, be
subject to the satisfaction of one or more conditions precedent. On and after
any redemption date, interest will cease to accrue on the Notes or portions
thereof called for redemption unless the Company shall fail to redeem any such
Note.
SUBORDINATION
The Obligations represented by the Notes are, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the
payment when due of all existing and future Senior Indebtedness of the Company,
will rank pari passu in right of payment with all existing and future Senior
Subordinated Indebtedness of the Company and will be senior in right of payment
to all existing and future Subordinated Obligations of the Company. As of March
31, 1999, after giving pro forma effect to the Refinancing we would have had
approximately $14.3 million of Senior Indebtedness, approximately $19.6 million
available for borrowings under the Senior Credit Facility and $100 million of
Senior Subordinated Indebtedness. Although the Indenture contains limitations on
the amount of additional Indebtedness that the Company may incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Indebtedness may be Senior Indebtedness.
In the event of any:
(1) 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;
(2) liquidation, dissolution or other winding-up of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy;
(3) general assignment for the benefit of creditors of the Company; or
(4) 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 or Sale of Assets"),
(all of the foregoing events described in clauses (1) through (4) referred to
herein individually as a "Bankruptcy Proceeding" and collectively as "Bankruptcy
Proceedings"), the holders of Senior Indebtedness 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 Indebtedness of the Company before the holders of
the Notes are entitled to receive or retain any payment or distribution of any
kind on account of the Notes. In the event that, notwithstanding the foregoing,
the Trustee or any holder of Notes 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
Notes before all Senior Indebtedness 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 Indebtedness and will be immediately
paid over or delivered to the holders of Senior Indebtedness
42
<PAGE>
or their representative or representatives to the extent necessary to make
payment in full of all Senior Indebtedness remaining unpaid, after giving effect
to any concurrent payment or distribution, or provision therefor, to or for the
holders of Senior Indebtedness. By reason of such subordination, in the event of
any such Bankruptcy Proceeding, creditors of the Company who are holders of
Senior Indebtedness may recover more, ratably, than other creditors of the
Company, including holders of the Notes, and creditors of the Company who are
not holders of Senior Indebtedness or of the Notes may recover more, ratably,
than the holders of the Notes.
Upon the occurrence of a Payment Default on Designated Senior Indebtedness,
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 Notes by the Company) may be made by or
on behalf of the Company or any Restricted Subsidiary of the Company, including,
without limitation, by way of set-off or otherwise, for or on account of the
Notes, or for or on account of the purchase, redemption or other acquisition of
any Notes, and neither the Trustee nor any holder or owner of any Notes shall
take or receive from the Company or any Restricted Subsidiary of the Company,
directly or indirectly in any manner, payment in respect of all or any portion
of Notes commencing on the date of receipt by the Trustee of written notice from
the representative of the holders of Designated Senior Indebtedness (the
"Representative") of the occurrence of such 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 Notes, including any missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness, no payment or distribution of any assets of the Company of any
kind may be made by the Company or any Restricted Subsidiary of the Company,
including, without limitation, by way of set-off or otherwise, for or on account
of the Notes, or for or on account of the purchase or redemption or other
acquisition of any Notes, 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
(1) more than 179 days shall have elapsed since receipt of such
written notice by the Trustee,
(2) such Non-Payment Event of Default shall have been cured or waived
in writing or shall have ceased to exist or such Designated Senior
Indebtedness shall have been paid in full or
(3) 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 (1), (2) or (3), the Company shall resume
making any and all required payments in respect of the Notes, including any
missed payments, unless the holders of such Designated Senior Indebtedness or
the Representative of such holders have or has accelerated the maturity of such
Designated Senior Indebtedness, or any Payment Default otherwise exists.
Notwithstanding any other provision of the Indenture, in no event shall a
Payment Blockage Period commenced in accordance with the provisions of the
Indenture described in this paragraph extend beyond 179 days from the date of
the receipt by the Trustee of the notice referred to above (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 until at least 180 consecutive days have elapsed from
the last day of the Initial Blockage Period. Notwithstanding any other provision
of the Indenture, no Non-Payment Event of Default with respect to Designated
Senior Indebtedness 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
43
<PAGE>
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.
Each Guarantee will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness of the respective Guarantor and will be subject to the rights of
holders of Designated Senior Indebtedness of such Guarantor to initiate blockage
periods, upon terms substantially comparable to the subordination of the Notes
to all Senior Indebtedness of the Company.
If the Company or any Guarantor fails to make any payment on the Notes 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 Indenture and would enable the
holders of the Notes to accelerate the maturity thereof. See "--Events of
Default."
A holder of Notes by his acceptance of Notes 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 Indenture and appoints the Trustee its
attorney-in-fact for such purpose.
CERTAIN COVENANTS
The 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 2.25 to 1.00.
Limitation on Other Subordinated Indebtedness. The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
incur, contingently or otherwise, any Indebtedness (other than the Notes and the
Guarantees, as the case may be) that is both (i) expressly subordinated in right
of payment to any Senior Indebtedness of the Company or any of its Restricted
Subsidiaries, as the case may be, and (ii) senior in right of payment to the
Notes and the Guarantees, as the case may be. Unsecured Indebtedness is not
deemed to be subordinate or junior to secured Indebtedness merely because it is
unsecured and Indebtedness that is not guaranteed by a particular Person is not
deemed to be subordinate or junior to Indebtedness that is so guaranteed merely
because it is not so guaranteed. For purposes of this covenant, Indebtedness is
deemed to be senior in right of payment to the Notes if it is not explicitly
subordinated in right of payment to Senior Indebtedness at least to the same
extent as the Notes are subordinated to such Senior Indebtedness.
Limitation on Restricted Payments. 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:
(1) any Default or Event of Default shall have occurred and be
continuing; or
(2) 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
(3) 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
44
<PAGE>
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, without
duplication,
(x) as capital contributions to the Company after the Issue
Date; and
(y) 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 (D) 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.
For purposes of the preceding clause (3)(b)(y), 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:
(A) 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;
(B) the redemption of the Existing Notes; provided, the notice of
redemption for the Existing Notes shall be given in accordance with Article
Eleven of the Existing Indenture on or prior to June 30, 1999;
(C) 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 is 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;
(D) the purchase, redemption, retirement, defeasance or other
acquisition of Indebtedness of the Company that is subordinate or junior in
right of payment to the Notes 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 Notes, at least to the extent that the Indebtedness
being acquired is subordinated to the Notes and has a Weighted Average
Life to Maturity no less than that of the Notes; 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
Notes, at least to the extent that the Indebtedness being acquired is
subordinated to the Notes and has a Weighted Average Life to Maturity no
less than that of the Notes;
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(E) payments by the Company to Lancer pursuant to the Tax Sharing
Agreement;
(F) 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;
(G) the declaration and payment of regularly accruing dividends to
holders of the Existing Preferred Stock; provided that at the time of the
applicable dividend payment date, and after giving pro forma effect to such
dividend, the Company would have been able to incur at least $1.00 of
additional Indebtedness pursuant to the "--Limitation of Incurrence of
Additional Indebtedness" covenant;
(H) the declaration and payment of regularly accruing dividends to
holders of any class or series of Disqualified Capital Stock of the Company
or its Restricted Subsidiaries issued after the Issue Date in accordance
with the "--Limitation on Incurrence of Additional Indebtedness" covenant;
(I) the declaration and payment of regularly accruing dividends to
holders of any class or series of Designated Preferred Stock of the Company
issued after the Issue Date; provided that at the time of such issuance,
and after giving effect to such issuance on a pro forma basis (for purposes
of making determinations on a pro forma basis pursuant to this clause (I),
treating all dividends which will accrue on such Designated Preferred Stock
during the four full fiscal quarters immediately following such issuance,
as well as all other Designated Preferred Stock then outstanding, as if
same will in fact be, or have in fact been, paid in cash), the Company
would have been able to incur at least $1.00 of additional Indebtedness
pursuant to the "--Limitation on Incurrence of Additional Indebtedness"
covenant;
(J) Investments constituting Restricted Payments made as a result of
the receipt of non-cash consideration from any Asset Sale;
(K) Restricted Payments in aggregate amount not to exceed
$10 million; and
(L) the declaration and payment of regularly accruing dividends to
holders of Preferred Stock of Restricted Subsidiaries issued after the
Issue Date in accordance with the "--Limitation on Incurrence of Additional
Indebtedness"covenant;
provided that in calculating the aggregate amount of Restricted Payments made
subsequent to the Issue Date for purposes of clause (3) above amounts expended
pursuant to clauses (A) and (L) of this paragraph shall be included in such
calculation and amounts expended pursuant to clauses (B) through (K) shall be
excluded from such calculation.
Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur or otherwise cause or suffer to exist
or become effective any Liens of any kind (other than Permitted Liens) upon any
property or asset of the Company or any of its Restricted Subsidiaries or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary of the
Company which owns property or assets (an "Initial Lien"), now owned or
hereafter acquired, unless:
(1) if such Initial Lien secures Indebtedness which is pari passu with
the Notes, then the Notes are secured on an equal and ratable basis with
the obligations so secured until such time as such obligation is no longer
secured by a Lien; or
(2) if such Initial Lien secures Indebtedness which is subordinated to
the Notes, any such Lien shall be subordinated to the Lien granted to the
holders of the Notes to the same extent as such Indebtedness is
subordinated to the Notes.
Any Lien created in favor of the Notes pursuant hereto will be
automatically and unconditionally released and discharged upon (i) the
unconditional release and discharge of the Initial Lien to which it relates or
(ii) the sale, exchange or transfer to any Person that is not an Affiliate of
the Company or any Restricted Subsidiary of the property or assets secured by
such Initial Lien, or of all of the equity interests held by the Company and the
Restricted Subsidiaries in, or all or substantially all of the assets of, the
Restricted Subsidiary whose property or assets were the subject of such Lien,
provided that, in the case of clause (ii), the provisions of the covenant
"--Limitation on Asset Sales" are complied with in connection with such sale,
exchange or transfer.
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Limitations on Transactions with Affiliates. The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter
into, renew or extend any transaction (including, without limitation, the
purchase, sale, lease or exchange of property or assets, or the rendering of any
service) with any holder (or any Affiliate of such holder) of 10% or more of any
class of Capital Stock of the Company or with any Affiliate of the Company or
any Restricted Subsidiary, except upon fair and reasonable terms no less
favorable to the Company or such Restricted Subsidiary than could be obtained,
at the time of such transaction or, if such transaction is pursuant to a written
agreement, at the time of the execution of the agreement providing therefore, in
a comparable arm's length transaction with a Person that is not such a holder or
an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(A) transactions (1) approved by a majority of the disinterested
members of the Board of Directors or (2) for which the Company or a
Restricted Subsidiary delivers to the Trustee a written opinion of a
nationally recognized accounting, valuation or investment banking firm
stating that the transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view;
(B) any transaction solely between the Company and any of its
Restricted Subsidiaries or solely between Restricted Subsidiaries;
(C) any Permitted Investment or any Restricted Payment that is not
prohibited by the provisions described under the "--Limitation on
Restricted Payments" covenant above;
(D) payments to Lancer under the Tax Sharing Agreement;
(E) 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;
(F) reasonable and customary regular fees to directors of the Company;
(G) 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;
(H) in the event T-H Licensing is not a Guarantor at the time of such
payment, 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;
(I) payments or distributions to participants in the Equity Incentive
Plan pursuant to the terms thereof;
(J) transactions in connection with Permitted Receivables Financing;
and
(K) 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 and monitoring 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); and
(L) any transaction between the Company and any of its Affiliates
involving ordinary course of business investment banking, commercial
banking, financial advisory services and related activities.
Notwithstanding the foregoing, any transaction or series of related
transactions covered by the first paragraph of this "--Limitation on
Transactions with Affiliates" covenant and not covered by clauses (B) through
(L) of this paragraph, (a) the aggregate amount of which exceeds $5 million in
value, must be approved to be fair in the manner provided for in clause (A) (1)
or (2) above and (b) the aggregate amount of which exceeds $10 million in value,
must be determined to be fair in the manner provided for in clause (A) (2)
above.
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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 consensual encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to:
(1) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock owned by the Company or
a Restricted Subsidiary;
(2) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary of the Company;
(3) make loans or advances to the Company or any other Restricted
Subsidiary of the Company;
(4) 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
(5) 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:
(A) applicable law;
(B) 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;
(C) any encumbrance or restriction in any agreement:
(1) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, or the subletting, assignment or
transfer of any lease, license, conveyance or contract or similar
property or asset;
(2) contained in any mortgage, pledge or other security
agreement securing Indebtedness of a Restricted Subsidiary to the
extent restricting the transfer of the property subject thereto; or
(3) pursuant to customary provisions restricting dispositions of
real property interests set forth in any reciprocal easement
agreements of the Company or any Restricted Subsidiary;
(D) Purchase Money Indebtedness permitted under the "--Limitation
on Incurrence of Additional Indebtedness" covenant;
(E) with respect to a Restricted Subsidiary (or any of its property
or assets) imposed pursuant to an agreement entered into for the direct
or indirect sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary (or the property
or assets that are subject to such restriction) pending the closing of
such sale or disposition;
(F) on the transfer of property or assets required by any
regulatory authority having jurisdiction over the Company or any
Restricted Subsidiary or any of their businesses;
(G) with respect to a Receivables Subsidiary, an agreement relating
to Indebtedness of a Receivable Subsidiary which is permitted under the
"--Limitation on Incurrence of Additional Indebtedness" covenant above
or pursuant to an agreement relating to a Permitted Receivables
Financing by a Receivables Subsidiary;
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(H) 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 by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture;
(I) existing under Senior Indebtedness otherwise permitted to be
incurred pursuant to the "--Limitation on Incurrence of Additional
Indebtedness" covenant that limits the right of the debtor to dispose of
assets securing such Indebtedness;
(J) any encumbrance or restriction pursuant to any agreement that
extends, refinances, renews or replaces any agreement described in
clause (B) above, which is not materially more restrictive or less
favorable to the holders of Notes than those existing under the
agreement being extended, refinanced or renewed (as determined in good
faith by the Company); and
(K) pursuant to an agreement or instrument relating to Indebtedness
permitted by clause (18) of the definition of "Permitted Indebtedness"
(a "Refinancing Agreement"); provided, however, that the encumbrances
and restrictions contained in any such Refinancing Agreement or
amendment are no less favorable to the holders of the Notes taken as a
whole than encumbrances and restrictions contained in the initial
agreement or agreements to which such Refinancing Agreement or amendment
relates (as determined in good faith by the Board of Directors, whose
determination shall be conclusive).
Limitation on Asset Sales. The Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) 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 of the assets sold or otherwise
disposed of (as determined in good faith by the Board of Directors of the
Company, and evidenced by a board resolution, which determination shall be
conclusive);
(2) not less than 75% of the consideration (excluding, in the case of
an Asset Sale (or series of related Asset Sales) of assets, by way of
relief from, or by another Person assuming responsibilities for, any
liabilities, contingent or otherwise, that are not Indebtedness) received
by the Company or such applicable Restricted Subsidiary, as the case may
be, is in the form of cash or Cash Equivalents; provided that this clause
(2) shall not apply to any Asset Sale (or series of related Asset Sales),
involving assets that accounted for less than one percent of Consolidated
EBITDA during the period of the most recent four consecutive fiscal
quarters ending prior to the date of such Asset Sale for which consolidated
financial statements of the Company are available; provided, further, that
only for purposes of this clause (2) the following shall be deemed to
constitute cash:
(a) the oustanding principal amount of Indebtedness of the Company
or any Restricted Subsidiary (other than (x) Capital Stock which
constitutes Indebtedness and (y) Indebtedness to the Company or any
Restricted Subsidiary) assumed by the transferee (which shall not
consitute the Company or a Restricted Subsidiary) pursuant to the
respective Asset Sale, so long as the Company or such Restricted
Subsidiary is irrevocably and unconditionally released from all
liability under such Indebtedness; and
(b) any notes or other obligations received by the Company or any
Restricted Subsidiary from such transferee that are, within 180 days
after the date of the respective Asset Sale converted by the Company
into cash (to the extent of the cash received in that conversion); and
(3) the Asset Sale Proceeds received by the Company or such Restricted
Subsidiary are applied:
(a) to the extent the Company or any such Restricted Subsidiary, as
the case may be, elects, or is required, to prepay, repay or purchase
indebtedness under any then existing Senior Indebtedness of the Company
or any such Restricted Subsidiary within 365 days following the receipt
of the Asset Sale Proceeds from any Asset Sale;
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(b) 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, reasonably related, ancillary or
complementary to the business of the Company (including extensions or
developments thereof) or any such Restricted Subsidiary as conducted on
the Issue Date; provided that such investment occurs (or a definitive
agreement committing so to invest is entered) within 365 days following
receipt of such Asset Sale Proceeds;
(c) to the extent of the balance of Available Asset Sale Proceeds
after the application in accordance with clause (a) or (b), if on such
365th day in the case of clauses (3)(a) and (3)(b), the Available Asset
Sale Proceeds exceed $10.0 million, the Company shall apply an amount
equal to the Available Asset Sale Proceeds to an offer to repurchase the
Notes, at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the purchase date
(an "Excess Proceeds Offer").
Notwithstanding the foregoing, in the event that a Restricted Subsidiary
that is not a Wholly-Owned Restricted Subsidiary dividends or distributes to all
of its stockholders on a pro rata basis any proceeds of an Asset Sale to the
Company or another Restricted Subsidiary, the Company or such Restricted
Subsidiary need only apply its share of such proceeds in accordance with the
preceding clauses (a), (b) and (c).
If an Excess Proceeds Offer is not fully subscribed, the Company may retain
the portion of the Available Asset Sale Proceeds not required to repurchase
Notes.
If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the date specified in clause (3)(c) above,
a notice to the holders stating, among other things:
(1) that such holders have the right to require the Company to apply
the Available Asset Sale Proceeds to repurchase such Notes at a purchase
price in cash equal to 100% of the principal amount thereof plus accrued
and unpaid interest, if any, to the purchase date;
(2) the purchase date, which shall be no earlier than 30 days and not
later than 45 days from the date such notice is mailed;
(3) the instructions that each holder must follow in order to have
such Notes purchased; and
(4) the calculations used in determining the amount of Available Asset
Sale Proceeds to be applied to the purchase of such Notes.
In the event of the transfer of substantially all of the property and
assets of the Company and its Restricted Subsidiaries, taken as a whole, to a
Person in a transaction permitted under "--Merger, Consolidation or Sale of
Assets" below, the successor Person shall be deemed to have sold the properties
and assets of the Company and its Restricted Subsidiaries not so transferred for
purposes of this covenant, and shall comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and other securities laws and regulations thereunder to the extent
such laws and regulations are applicable in connection with the repurchase of
Notes pursuant to an Excess Proceeds Offer. To the extent that the provisions of
any securities laws or regulations conflict with the "Asset Sale" provisions of
the Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
"Asset Sale" provisions of the Indenture by virtue thereof.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Restricted Subsidiary) unless the Company or
such Restricted Subsidiary would be entitled to incur or assume Indebtedness
under "--Limitation on Incurrence of Additional Indebtedness" above in an
aggregate principal amount equal to the aggregate liquidation value of the
Preferred 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
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any Indebtedness of the Company or any Guarantor, (excluding any Guarantee of a
Restricted Subsidiary which constitutes Acquired Indebtedness of such Subsidiary
so long as such Guarantee does not apply to any other Indebtedness of the
Company and its Restricted Subsidiaries not acquired pursuant to the respective
acquisition or merger) unless such Restricted Subsidiary is a Guarantor or
simultaneously executes and delivers a supplemental indenture providing for the
guarantee of payment of the Notes by such Restricted Subsidiary; provided,
however, that a Restricted Subsidiary may guarantee the Company's obligations
under any Senior Indebtedness without executing and delivering such supplemental
indenture or guaranteeing the Notes; provided, further, that in the case of any
guarantee of any Guarantor with respect to Senior Subordinated Indebtedness, the
guarantee of the payment of the Notes by such Guarantor to be provided in
accordance herewith shall be pari passu with the guarantee with respect to such
Senior Subordinated Indebtedness in the same manner and to the same extent as
the Senior Subordinated Indebtedness is guaranteed. 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 a Restricted
Subsidiary or a holder, directly or indirectly, of any Capital Stock of the
Company or any of its Restricted Subsidiaries which is otherwise in compliance
with the terms of the 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. In addition, a Guarantor shall be deemed to be released from
all obligations under its Guarantee in the event such Guarantor is designated an
Unrestricted Subsidiary.
Limitation on Creation of Subsidiaries. The Company will not create or
acquire, and it will not permit any of its Restricted Subsidiaries to create or
acquire, any Subsidiary other than:
(1) a Restricted Subsidiary existing as of the Issue Date;
(2) a Restricted Subsidiary conducting a business similar or
reasonably related, ancillary or complementary thereto or extensions or
developments thereof to the business of the Company and its Subsidiaries on
the Issue Date; or
(3) an Unrestricted Subsidiary;
provided, however, that each Restricted Subsidiary organized under the laws of
the United States or any State thereof or the District of Columbia acquired or
created pursuant to clause (2) shall, at the time it has either assets or
shareholder's equity in excess of $10,000, have executed a guarantee, in the
form attached to the Indenture and reasonably satisfactory in form and substance
to the Trustee (and with such documentation relating thereto as the Trustee
shall require, including, without limitation a supplement or amendment to the
Indenture and opinions of counsel as to the enforceability of such guarantee);
provided, further, in the event the Company and its Restricted Subsidiaries, on
a consolidated basis, incurs Acquired Indebtedness (assuming such incurrence is
in accordance with the "--Limitation on Incurrence of Additional Indebtedness"
covenant) as a result of the acquisition of a Restricted Subsidiary and the
terms of such Acquired Indebtedness prohibits the guarantee of the Notes by such
newly-acquired Restricted Subsidiary or such newly-acquired Restricted
Subsidiary would be in breach or default of the terms of the Acquired
Indebtedness as a result of such guarantee, such Restricted Subsidiary will not
be required to execute a guarantee; however, until such Restricted Subsidiary
executes and delivers a guarantee in accordance with this covenant, none of the
Company or any other Restricted Subsidiary will transfer any assets (other than
in the ordinary
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course of business) to such newly-acquired Restricted Subsidiary and such newly
acquired Restricted Subsidiary will not transfer such Acquired Indebtedness to
the Company or any other Restricted Subsidiary.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company shall be obligated
to make an offer to purchase (the "Change of Control Offer") each holder's
outstanding Notes at a purchase price (the "Change of Control Purchase 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) in accordance with
the procedures set forth below.
Within 30 days of the occurrence of a Change of Control, the Company shall
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to the Trustee and to each
holder of the Notes, at the address appearing in the register maintained by the
Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a business day no earlier than 30 days nor later than 60 days from
the date such notice is mailed (the "Change of Control Payment Date"));
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the business day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
business day preceding 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 Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered;
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall, to the extent
lawful,
(1) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer,
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so tendered, and
(3) deliver or cause to be delivered to the Trustee Notes so accepted
together with an Officer's Certificate stating the Notes or portions
thereof tendered to the Company.
The Paying Agent shall promptly mail to each holder of Notes so accepted
payment in an amount equal to the purchase price for such Notes, and the Company
shall execute and issue, and the Trustee shall promptly authenticate and mail to
such holder, a new Note equal in principal amount to any unpurchased
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portion of the Notes surrendered; provided that each such new Note shall be
issued in an original principal amount in denominations of $1,000 and integral
multiples thereof.
The Indenture requires that if the Credit Agreement is in effect, or any
amounts are owing thereunder or in respect thereof, at the time of the
occurrence of a Change of Control, prior to the mailing of the notice to holders
described in the second preceding paragraph, but in any event within 30 days
following any Change of Control, the Company covenants to:
(1) repay in full all obligations and terminate all commitments under
or in respect of the Credit Agreement and all other Senior Indebtedness the
terms of which require repayment upon a Change of Control or offer to repay
in full all obligations and terminate all commitments under or in respect
of the Credit Agreement and all such Senior Indebtedness and repay the
Indebtedness owed to each such lender who has accepted such offer; or
(2) obtain the requisite consents under the Credit Agreement and all
such other Senior Indebtedness to permit the repurchase of the Notes as
described above.
The Company must first comply with the covenant described in the preceding
sentence before it shall be required to purchase Notes in the event of a Change
of Control; provided that the Company's failure to comply with the covenant
described in the preceding sentence constitutes an Event of Default described in
clause (3) under "--Events of Default" below if not cured within 30 days after
the notice required by such clause. As a result of the foregoing, a holder of
the Notes may not be able to compel the Company to purchase the Notes unless the
Company is able at the time to refinance all of the obligations under or in
respect of the Credit Agreement and all such other Senior Indebtedness or obtain
requisite consents under the Credit Agreement and all such other Senior
Indebtedness.
The Indenture will further provide that (1) if the Company or any
Restricted Subsidiary thereof has issued any outstanding (a) indebtedness that
is subordinated in right of payment to the Notes or (b) Preferred Stock, and the
Company or such Restricted 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 Notes that have
accepted the Company's change of control offer and shall otherwise have
consummated the change of control offer made to holders of the Notes and
(2) the Company will not issue Indebtedness that is subordinated in right of
payment to the Notes or Preferred Stock with change of control provisions
requiring the payment of such Indebtedness or Preferred Stock prior to the
payment of the Notes in the event of a Change in Control under the Indenture.
The Company will comply with the requirements of Rule 14e-1 of the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of Notes
pursuant to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the Indenture,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the "Change of
Control" provisions of the Indenture by virtue thereof.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company will not and will not permit any of its Restricted Subsidiaries
to consolidate with, merge with or into, or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its assets of the
Company (as an entirety or substantially as an entirety in one transaction or a
series of related transactions), to any Person unless:
(1) the Company or such Restricted Subsidiary, as the case may be,
shall be the continuing Person, or the Person (if other than the Company or
such Restricted Subsidiary) formed by such consolidation or into which the
Company or such Restricted Subsidiary, as the case may be, is merged or to
which the properties and assets of the Company or such Restricted
Subsidiary, as the case may be, are sold, assigned, transferred, leased,
conveyed or otherwise disposed of shall be a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia and shall
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expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all of the obligations of
the Company or such Restricted Subsidiary, as the case may be, under the
Indenture, the Notes and any Guarantees and the obligations thereunder
shall remain in full force and effect;
(2) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and
(3) immediately after giving effect to such transaction on a pro forma
basis the Company or such Person could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under "--Certain
Covenants--Limitation on Additional Indebtedness" above;
provided that (x) any Restricted Subsidiary may merge into the Company or
another Person that is a Restricted Subsidiary and (y) the Company may merge
with an Affiliate incorporated or organized for the purpose of reincorporating
or reorganizing the Company in another jurisdiction to realize tax benefits
without complying with clause (3) provided, in the case of a transaction
pursuant to subclause (y), immediately after giving effect to such transaction
on a pro forma basis, either (A) the surviving entity could incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) under "--Certain
Covenants--Limitation on Incurrence of Additional Indebtedness" or (B) the Fixed
Charge Coverage Ratio of the surviving entity is not less than the Fixed Charge
Coverage Ratio of the Company immediately prior to such transaction and the
surviving entity conducts business in the same line or an extension of the same
line of business as that of the Company immediately prior to such transaction.
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance not unsatisfactory to the
Trustee, an Officer's Certificate stating that such consolidation, merger or
transfer and the supplemental indenture in respect thereto comply with this
provision and that all conditions precedent herein provided for relating to such
transaction or transactions have been complied with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(1) default in payment of any principal of, or premium, if any, on the
Notes whether at maturity, upon redemption or otherwise (whether or not
such payment shall be prohibited by the subordination provisions of the
Indenture);
(2) default for 30 days in payment of any interest on the Notes;
(3) default by the Company or any Restricted Subsidiary in the
observance or performance of any other covenant in the Notes or the
Indenture for 60 consecutive days after written notice from the Trustee or
the holders of not less than 25% in aggregate principal amount of the Notes
then outstanding (except in the case of a default with respect to the
"Change of Control" or "Merger, Consolidation or Sale of Assets" covenant
which shall constitute an Event of Default with such notice requirement but
without such passage of time requirement);
(4) failure to pay when due principal, interest or premium in an
aggregate amount of $7.5 million or more with respect to any Indebtedness
of the Company or any Restricted Subsidiary thereof, or the acceleration of
any such Indebtedness aggregating $7.5 million or more, which default shall
not be cured, waived or postponed pursuant to an agreement with the holders
of such Indebtedness within 60 consecutive days after written notice as
provided in the Indenture, or acceleration shall not be rescinded or
annulled within 20 consecutive days after written notice as provided in the
Indenture;
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(5) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $7.5 million (excluding (i) amounts
covered by insurance for which coverage is not being challenged or denied,
and (ii) amounts for which coverage has been challenged or denied that the
Company is contesting in good faith) 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
(6) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Restricted Subsidiary thereof.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any Default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.
The Indenture will provide that if an Event of Default (other than an Event
of Default of the type described in clause (6) above) shall have occurred and be
continuing, then the Trustee or the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may declare to be immediately due
and payable the entire principal amount of all the Notes then outstanding plus
accrued interest to the date of acceleration (1) and the same shall become
immediately due and payable or (2) if there are any amounts outstanding under
the Credit Agreement, shall become immediately due and payable upon the first to
occur of an acceleration under the Credit Agreement or five business days after
receipt by the Company and the Representative under the Credit Agreement of a
notice of acceleration; provided, however, that after such acceleration but
before a judgment or decree based on acceleration is obtained by the Trustee,
the holders of a majority in aggregate principal amount of outstanding Notes
may, under certain circumstances, rescind and annul such acceleration if,
(1) the rescission would not conflict with judgment or decree;
(2) all Events of Default, other than nonpayment of principal,
premium, if any, or interest that has become due solely because of the
acceleration, have been cured or waived as provided in the Indenture,
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal which has become due
otherwise than by such declaration of acceleration, has been paid,
(4) the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances, and
(5) in the event of the cure or waiver of an Event of Default of the
type described in clause (5) of the above Events of Default, the Trustee
shall have received an Officers' Certificate and an opinion of counsel that
such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization shall occur, the principal, premium and
interest amount with respect to all of the Notes shall be due and payable
immediately without any declaration or other act on the part of the Trustee or
the holders of the Notes. In addition, if within 60 days after such Event of
Default arising from certain events of bankruptcy, insolvency or reorganization
arose (x) the Indebtedness that is the basis for such Event of Default has been
discharged, or (y) the holders thereof have rescinded or waived the
acceleration, notice or action (as the case may be) giving rise to such Event of
Default, or (z) the default in respect of such Indebtedness that is the basis
for such Event of Default has been cured, the declaration of acceleration of the
Notes referred to in the preceding clause and such Event of Default and all
consequences thereof (including without limitation any acceleration or resulting
payment default) shall be annulled, waived and rescinded, automatically and
without any action by the Trustee or the holders of the Notes, and be of no
further effect.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations provided for in the Indenture and under the Trust Indenture
Act.
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No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as Trustee, and unless the
Trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
Notwithstanding the foregoing, such limitations do not apply to a suit
instituted on such Note on or after the respective due dates expressed in such
Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that prior to any redemption date or to the maturity
date of the Notes the Company may elect either:
(1) to defease and be discharged from any and all of its and any
Guarantor's obligations with respect to the Notes (except for the
obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an
office or agency in respect of the Notes and to hold monies for payment in
trust) ("legal defeasance"); or
(2) to be released from its obligations with respect to the Notes
under certain covenants contained in the Indenture ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises
its legal defeasance option, payment of the Notes may not be accelerated
because of an Event of Default with respect thereto. If the Company
exercises its covenants defeasance option, payment of the Notes may not be
accelerated because of an Event of Default specified in clause (3) under
"Events of Defaults" above.
In order to exercise either defeasance option, the Company must deposit
with the Trustee (or other qualifying trustee), in trust for such purpose, money
and/or non-callable 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
Notes, on the scheduled due dates therefor or on a selected date of redemption
in accordance with the terms of the Indenture. Such a trust may only be
established if, among other things, the Company has delivered to the Trustee an
opinion of counsel (as specified in the Indenture), (a) 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 (b) describing
either a private ruling concerning the Notes or a published ruling of the
Internal Revenue Service, to the effect that holders of the Notes 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 manner and at
the same times, as would have been the case if such deposit, defeasance and
discharge had not occurred.
MODIFICATION OF INDENTURE
From time to time, the Company, any Guarantors and the Trustee may, without
the consent of holders of the Notes, amend or supplement the Indenture for
certain specified purposes, including providing for uncertificated Notes in
addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not, in the opinion of the
Trustee, materially and adversely affect the rights of any holder. Without the
consent of any holder, the Company and the Trustee may amend the Indenture to
cure any ambiguity, omission, defect or inconsistency, to provide for the
assumption by a successor of the obligations of the Company under the Indenture,
to provide for uncertificated Notes in addition to or in place of certificated
Notes (provided, however, that the uncertificated Notes are issued in registered
form for purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to add
Guarantees with respect to the Notes, to secure the Notes, to add to the
covenants of the Company for the benefit of the holders of the Notes or to
surrender any right or power conferred upon the Company, to provide that any
Indebtedness that becomes or will become an obligation of the Successor Company
pursuant to a transaction governed by the provisions described under "--Merger,
Consolidation or Sale of Assets" (and that is not a Subordinated Obligation) is
Senior
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Subordinated Indebtedness for purposes of this Indenture, to make any change
that does not adversely affect the rights of any holder of the Notes or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the TIA. However, no amendment may be made to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Senior Indebtedness then outstanding unless the holders of such
Senior Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
The Indenture contains provisions permitting the Company, any Guarantors
and the Trustee, with the consent of holders of at least a majority in principal
amount of the outstanding Notes, to modify or supplement the Indenture, except
that no such modification shall, without the consent of each holder affected
thereby:
(1) reduce the amount of Notes whose holders must consent to an
amendment, supplement, or waiver to the Indenture;
(2) reduce the rate of or change the time for payment of interest,
including defaulted interest, on any Note;
(3) reduce the principal of or premium on or change the stated
maturity of any Note or change the date on which any Notes may be subject
to redemption or repurchase or reduce the redemption or repurchase price
therefor;
(4) make any Note payable in money other than that stated in the Note
or change the place of payment from New York, New York;
(5) waive a default on the payment of the principal of, interest on or
redemption payment with respect to any Note;
(6) make any change in provisions of the Indenture protecting the
right of each holder of Notes to receive payment of principal of and
interest on such Notes 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 Notes to waive Defaults or Events of Default;
(7) amend, change or modify in any material respect the obligation of
the Company to make and consummate a Change of Control Offer in the event
of a Change of Control or make and consummate an Excess Proceeds Offer with
respect to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto; or
(8) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the holders of Notes.
In addition, without the consent of the holders of 90% in principal amount
of the Notes then outstanding, no amendment may release any Guarantor from any
of its obligations under its Guarantee or the Indenture otherwise than in
accordance with the terms of the Indenture.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to the holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect thereby will not impair or affect the validity of the amendment.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements of
Section 13(a) or 15(d) of the Exchange Act, it will continue to furnish (if
permitted) the information required thereby to the Commission and to the holders
of the Notes. The Indenture provides that even if the Company is entitled under
the Exchange Act not to furnish (if permitted) such information to the
Commission or to the holders of the Notes, it will nonetheless continue to
furnish such information to the Commission and holders of the Notes.
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COMPLIANCE CERTIFICATE
The Company is required to deliver to the Trustee, on or before 120 days
after the end of the Company's fiscal year and on or before 60 days after the
end of each of the first, second and third fiscal quarters in each year, an
Officers' Certificate stating whether or not the signers know of any Default or
Event of Default that has occurred and is in existence, and whether the Company
has complied with its obligations under the 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.
THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The 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 Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
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.
The Indenture and the TIA will impose certain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, that if it acquires any conflicting
interest as described in the TIA, it must eliminate such conflict, apply to the
SEC for permission to continue as Trustee with such conflict, or resign.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder of the Company, any Guarantor
or any Subsidiary of any thereof shall have any liability for any obligation of
the Company or any Guarantor under the Indenture, the Notes or any Guarantor or
for any claim based on, in respect of, or by reason of, any such obligation or
its creation. Each holder of the Notes, by accepting the Notes, waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to any principles of conflict of laws to the extent that the application
of the law of another jurisdiction would be required thereby.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such 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 Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption and,
further, is not required to transfer or exchange any Note for a period of
15 days before selection of the Notes to be redeemed.
The registered holder of a Note 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
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or is merged into or consolidated with any
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other Person or which is assumed in connection with the acquisition of assets
from such Person and, in each case, not incurred by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary or such merger, consolidation or acquisition; provided that
Indebtedness of such Person which is redeemed, defeased, retired or otherwise
repaid at the time of or immediately upon consummation of such merger,
consolidation or acquisition shall not be Acquired Indebtedness.
"Affiliate" means, with respect to any specific Person, any other Person
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
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 or policies of
such Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that, for purposes of the covenant described under
"--Certain Covenants--Limitation on Transactions with Affiliates" beneficial
ownership of at least 10% of the voting securities of a Person, either directly
or indirectly, shall be deemed to be control.
"Asset Acquisition" means
(1) an Investment by the Company or any Restricted 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
(2) 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, other than to the Company or a Restricted Subsidiary of the
Company, in one or a series of related transactions, of:
(1) any Capital Stock in any Restricted Subsidiary of the Company;
(2) 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
(3) any other properties or assets of the Company or any 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,
damaged equipment or equipment unsuitable for the Company's business or any
sale of any of the Company's products is in the ordinary course of
business) thereof.
For purposes of this definition, the term Asset Sales shall not
include:
(A) 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";
(B) 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 $1.0 million;
(C) any Restricted Payment made in compliance with the "--Certain
Covenants--Limitations on Restricted Payments" covenant, and any
disposition of any Permitted Investment;
(D) surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind;
(E) the licensing of intellectual property;
(F) any Sale-Leaseback Transaction; and
(G) any Permitted Receivables Financing.
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"Asset Sale Proceeds" means, with respect to any Asset Sale:
(1) cash received by the Company or any Restricted Subsidiary of the
Company from such Asset Sale, after
(a) provision for all income or other taxes measured by or
resulting from such Asset Sale,
(b) payment of all brokerage commissions, underwriting and other
fees and expenses, including, without limitation, legal, accounting,
investment advisory and appraisal fees, related to such Asset Sale,
(c) provision for minority interest holders in any Restricted
Subsidiary of the Company as a result of such Asset Sale,
(d) repayment of Indebtedness that is required to be repaid in
connection with such Asset Sale or is secured by a Lien on the property
or assets sold, and
(e) deduction of appropriate amounts to be provided by the Company
or a Restricted Subsidiary of the Company as a reserve, in accordance
with GAAP, against any liabilities associated with the assets sold or
disposed of in such Asset Sale and retained by the Company or a
Restricted Subsidiary after such Asset Sale, including, without
limitation, pension, severance, relocation and other post-employment
benefit liabilities and liabilities related to environmental matters or
against any indemnification obligations associated with the assets sold
or disposed of in such Asset Sale; and
(2) promissory notes and other noncash consideration received by the
Company or any Restricted Subsidiary of the Company from such Asset Sale or
other disposition upon the liquidation or conversion of such notes or
noncash consideration into cash, net of any fees, discounts, commissions or
taxes paid or payable as a result of such conversion or liquidation.
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (3)(a) or (3)(b), and which have not yet been the basis
for an Excess Proceeds Offer in accordance with clause (3)(c) of the first
paragraph of "--Certain Covenants--Limitation on Asset Sales".
"Capital Stock" means
(1) 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
(2) 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:
(1) any evidence of Indebtedness with a maturity of 365 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);
(2) certificates of deposit, time deposits, Eurodollar time deposits
and bankers' acceptances with a maturity of 365 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;
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(3) commercial paper with a maturity of 365 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;
(4) 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 365 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; and
(5) investments in money market funds with assets of $5.0 million or
greater.
"Certificate of Designation" means the certificate of designation of the
powers, preferences and relative, participating, optional and other special
rights of the Existing Preferred Stock.
"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
either (x) the Permitted Holders or (y) 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.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" 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 Equity
Incentive Plan (to the extent such
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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
during the four full fiscal quarters for which financial information is
available (the "Four Quarter Period") ending on or prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio (the "Transaction Date") 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
(1) 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") and the discharge
of any other Indebtedness repaid, repurchased or otherwise discharged with
as if the discharge had occurred on the first day of 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
(2) 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 Restricted 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 (including any Consolidated EBITDA
associated with such Asset Acquisition and including any pro forma expense
and cost reductions determined in accordance with Article 11 of Regulation
S-X relating to such 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":
(1) 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;
(2) 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;
(3) notwithstanding clauses (1) and (2) 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
(4) interest on any Indebtedness incurred pursuant to a revolving
credit facility will be based on the average monthly 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.
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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, without duplication, of
(i) Consolidated Interest Expense, plus
(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,
plus
(iii) the product of (a) all dividend accruals, whether or not paid or
payable in cash, during such period on any Disqualified Capital Stock of
the Company or any of its Restricted Subsidiaries, and on any Preferred
Stock of Restricted Subsidiaries of the Company, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the
then current combined federal, state and local statutory tax rate of the
Company, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP, plus
(iv) the product of (a) all dividends actually paid, whether paid in
cash or in any other consideration (but excluding any dividends to the
extent paid through the issuance of additional shares of Qualified Capital
Stock of the Company), during such period with respect to any Designated
Preferred Stock of the Company, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of the Company,
expressed as a decimal, in each on a consolidated basis in accordance with
GAAP.
"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,
(1) 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,
(i) any amortization of debt discount,
(ii) the net cost under Interest Rate Agreements (including any
amortization of discounts),
(iii) the interest portion of any deferred payment obligation
which in accordance with GAAP is required to be reflected on an
income statement,
(iv) all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing,
(v) all accrued interest,
(vi) interest-equivalent costs associated with any Permitted
Receivables Financing, whether accounted for as interest expense or
loss on the sale of Receivables and Related Assets, 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,
(2) any non-cash interest expense of the Company in respect of
Permitted Indebtedness incurred in connection with the Equity Incentive
Plan, minus
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(3) 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 determined in accordance with GAAP consistently
applied, adjusted:
(a) to the extent included in calculating such net income, by
excluding, without duplication,
(1) all extraordinary gains and losses, non-recurring cumulative
effect of accounting changes and, without duplication, non-recurring or
unusual gains and losses and all restructuring charges,
(2) 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,
(3) solely for purposes of determining the aggregate amount
available for Restricted Payments under clause (3) of the covenant
"--Limitation on Restricted Payments," 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,
(4) one time unusual non-cash charges,
(5) any gain or loss realized upon the termination of any employee
pension benefit plan, on an after-tax basis,
(6) gains or losses in respect of any Asset Sales (without giving
effect to clause (B) under the definition of Asset Sale) 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,
(7) the net income of any Restricted Subsidiary that is not a
Guarantor 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
(8) the amount of any Consolidated Non-cash Charges attributable to
applying the purchase method of accounting in accordance with GAAP; and
(b) by adding, in the case of the Company,
(1) 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
(2) 100% (without duplication) of all non-cash accruals or cash
expenses relating to the Equity Participation Plan or 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 Senior Credit Facility, together with all amendments,
documents and instruments from time to time delivered in connection with
the Senior Credit Facility (including, without limitation, any guaranty
agreements and security documents), as in effect on the date hereof and as
the Senior Credit Facility and such other agreements, documents and
instruments may be amended, amended and restated,
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refunded, refinanced, replaced, repaid, 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 Senior Credit Facility or any other agreement
deemed a Credit Agreement under clause (a) hereof or under this clause
(b) whether or not with the same agent, trustee, representative lenders or
holders, and 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 agreement deemed a
Credit Agreement under clause (a) or (b) hereof, and all refundings,
refinancings and replacements of any Credit Agreement, including any agreement
(i) changing the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder, so long as borrowers and guarantors 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.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Preferred Stock" means Preferred Stock (not constituting
Disqualified Capital Stock) of the Company (excluding the Existing Preferred
Stock, any other Preferred Stock issued on or prior to the Issue Date and any
Preferred Stock issued in exchange or substitution for any of the foregoing)
that is designated as Designated Preferred Stock pursuant to an officer's
certificate executed by the principal executive officer or the principal
financial officer of the Company, on the issuance date thereof, the cash
proceeds of which are excluded from the calculation set forth in the clause
(3)(b) of the "--Limitation on Restricted Payments" covenant.
"Designated Senior Indebtedness," as to the Company or any Guarantor, as
the case may be, means:
(1) any Senior Indebtedness under the Credit Agreement; and
(2) any other Senior Indebtedness which at the time of determination
exceeds $15.0 million in aggregate principal amount (or accreted value in
the case of Indebtedness issued at a discount) outstanding or available
under a committed facility, which is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by such Person and as to which the Trustee has been given
written notice of such designation.
"Disqualified Capital Stock" means any Capital Stock of a Person or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable solely at the option of the holder thereof, in whole or in part,
on or prior to the maturity date of the Notes, for cash or securities
constituting Indebtedness; provided, however, that Capital Stock of a Person or
any Restricted Subsidiary thereof that is issued with the benefit of provisions
requiring an offer to be made for such Preferred Stock in the event of a change
of control of or asset sale by such Person or Restricted Subsidiary, which
provisions have substantially the same effect as the provisions of the Indenture
described under "--Change of Control" and "--Certain Covenants--Limitation on
Asset Sales," shall not be deemed to be Disqualified Capital Stock solely by
virtue of such provisions; provided, further, that if such Capital Stock is
issued pursuant to any plan for the benefit of employees of the Company or its
Subsidiaries or by any such plan to such employees, such Capital Stock shall not
constitute Disqualified Capital Stock solely because it may be required to be
repurchased by the Company in order to satisfy applicable statutory or
regulatory obligations.
"Equity Incentive Plan" means any long-term incentive compensation plan
(other than the Equity Participation Plan) adopted by the Company covering the
Company's executives and selected other key management employees, as such plans
may be amended from time to time by the Board of Directors of the Company
pursuant to their terms.
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"Equity Participation Plan" means the Fairfield Manufacturing Company, Inc.
Equity Participation Plan, as such plan may be amended from time to time.
"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 Existing 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 11 1/4% Cumulative
Exchangeable Preferred Stock, par value $.01 per share.
"Event of Default" has the meaning set forth under "--Events of Default"
herein.
"fair market value" means, with respect to any asset or property, the
price, taking into account any liabilities, which could be negotiated in an
arm's-length, free market transaction, for cash, between a willing seller and a
willing and able buyer, neither of whom is under undue pressure or compulsion to
complete the transaction. Fair market value shall be determined by the Board of
Directors of the Company acting reasonably and in good faith and shall be
evidenced by a resolution of the Board of Directors of the Company delivered to
the Trustee.
"GAAP" means generally accepted accounting principles in the United States
applicable as of the Issue Date.
"Guarantee" means the guarantee of the Obligations of the Company with
respect to the Notes by each Guarantor.
"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).
"Hedging Obligations" means, with respect to any Person, the net payment
obligations of such Person under (a) Interest Rate Agreements and (b) other
agreements or arrangements entered into in order to protect such Person against
fluctuations in commodity prices, interest rates or currency exchange rates.
"incur" means, with respect to any Indebtedness of any Person, to create,
issue, incur (by conversion, exchange or otherwise), assume, enter into any
guarantee of, or otherwise become liable in respect of such Indebtedness or the
recording, as required pursuant to GAAP or otherwise, of any such Indebtedness
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:
(1) all indebtedness 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,
including reimbursement and similar obligations, of such Person in
connection with any letters of credit, banker's acceptance or other similar
credit transaction;
(2) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments;
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(3) 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;
(4) all Capitalized Lease Obligations and Purchase Money Indebtedness
of such Person;
(5) all Indebtedness referred to in the preceding clauses of other
Persons, the payment of which is 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);
(6) all guarantees of Indebtedness referred to in this definition by
such Person;
(7) all Disqualified Capital Stock valued at its mandatory maximum
redemption price or liquidation preference plus accrued dividends;
(8) all net obligations under or in respect of Hedging Obligations of
such Person; and
(9) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses
(1) through (8) above.
For purposes hereof, 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.
For purposes of determining compliance with, and the outstanding principal
amount of any particular Indebtedness:
(1) any other obligation of the obligor of such Indebtedness (or of
any other Person who could have incurred such Indebtedness under this
covenant) arising under any guarantee, Lien, or letter of credit supporting
such Indebtedness shall be disregarded to the extent that such guarantee,
Lien or letter of credit secures the principal amount of such Indebtedness;
(2) in the event that Indebtedness meets the criteria of more than one
type of Indebtedness, the Company, in its sole discretion, shall classify
such item of Indebtedness and only be required to include the amount and
type of such Indebtedness in one of such clauses;
(3) Indebtedness which provides that an amount less than the principal
amount thereof shall be due upon any declaration of acceleration thereof
shall be deemed to be incurred or outstanding in an amount equal to the
accreted value thereof at the date of determination; and
(4) for purposes of determining compliance with any U.S.
dollar-denominated restrictions on the incurrence of Indebtedness
denominated in a foreign currency, the U.S. dollar-equivalent principal
amount of such Indebtedness incurred pursuant thereto shall be calculated
based on the relevant currency exchange rate in effect on the date that
such Indebtedness was incurred if such Indebtedness is incurred to
refinance other Indebtedness denominated in a foreign currency, and such
refinancing would cause the applicable U.S. dollar-denominated restriction
to be exceeded if calculated at the relevant currency exchange rate in
effect on the date of such refinancing, such U.S. dollar-denominated
restriction shall be deemed not to have been exceeded so long as the
principal amount of such refinancing Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced.
"Independent Financial Advisor" means an accounting, valuation or
investment banking firm of national reputation in the United States which, in
the judgment of the Board of Directors of the Company, is otherwise independent
and qualified to perform the task for which it is to be engaged.
"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
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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 of 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 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 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 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 the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"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 interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement of any kind on or with respect to such
property or assets (including without limitation, any Capitalized Lease
Obligation, conditional sales, or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Proceeds" means:
(1) in the case of any sale of Capital Stock by or equity contribution
to any Person, the aggregate net proceeds received by such Person, after
payment of expenses, commissions and the like incurred in connection
therewith, whether such proceeds are in cash or in property (valued at the
fair market value thereof, as determined in good faith by the Board of
Directors of such Person, at the time of receipt);
(2) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into shares of Capital Stock of
the Company which is not Disqualified Capital Stock, the net book value of
such outstanding securities on the date of such exchange, exercise,
conversion or surrender (plus any additional amount required to be paid by
the holder to such Person upon such exchange, exercise, conversion or
surrender, less any and all payments made to the holders, e.g., on account
of fractional shares and less all expenses incurred by such Person in
connection therewith); and
(3) in the case of any issuance of any Indebtedness by the Company or
any Restricted Subsidiary, the aggregate net cash proceeds received by such
Person after the payments of expenses, commissions, underwriting discounts
and the like incurred in connection therewith.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles, or, after passage of time, would
entitle one or more Persons to accelerate the maturity of any Designated Senior
Indebtedness.
"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.
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"Officer's Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the Chief Operating Officer, Chief
Financial Officer, the President, any Vice President or any Treasurer or
Secretary of such Person that shall comply with applicable provisions of the
Indenture.
"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 Indebtedness.
"Permitted Holders" means (i) Lancer and its Affiliates, (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), (iii) Canadian
Imperial Bank of Commerce and its Affiliates, and (iv) Paul S. Levy and his
Affiliates.
"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 sum of (A) the greater of (x) $60,000,000 and (y) the amount
equal to the sum of 85% 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 and (B) any amounts outstanding under the Senior
Credit Facility that utilize subclause (13) of this definition (less the
amount of net proceeds which have been received in connection with the
applicable Permitted Receivables Financing; provided that such reduction
shall apply only for so long as a Permitted Receivables Financing is in
effect);
(2) Indebtedness of the Company and its Restricted Subsidiaries
pursuant to the Initial Notes, the Exchange Notes issued in exchange for
the Initial Notes and any Notes issued in exchange or replacement of the
Initial Notes or the Exchange Notes, and any Guarantees of the foregoing;
(3) Indebtedness of the Company outstanding on the date of the
Indenture; provided, a notice of redemption for the Existing Notes shall be
given in accordance with Article Eleven of the Existing Indenture on or
prior to June 30, 1999;
(4) Hedging Obligations entered into in the ordinary course of the
Company's or its Restricted Subsidiaries' business and not for speculative
purposes;
(5) Indebtedness of a Restricted Subsidiary of the Company (x) to the
Company or (y) to another Restricted Subsidiary of the Company; provided,
however, that any such Indebtedness of a 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 (other than Permitted
Indebtedness of such Restricted Subsidiary);
(6) Indebtedness of the Company to a 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 Notes 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
Indenture and the Notes; provided, however, that any subsequent issuance or
transfer of Capital Stock that results in such Restricted Subsidiary
ceasing to be such, or any subsequent transfer of such Indebtedness (other
than to the Company or a Restricted Subsidiary) will be deemed, in each
case, to constitute the issuance of such Indebtedness by the Company or of
such Indebtedness by such Restricted Subsidiary;
(7) Indebtedness of the Company to T-H Licensing which complies with
the "--Limitation on Transactions with Affiliates" covenant;
(8) Indebtedness of the Company or any Guarantor representing
Capitalized Lease Obligations and Purchase Money Indebtedness 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
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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;
(9) 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;
(10) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of purchase
price adjustments (including adjustments in the purchase price related to
the performance or results of any acquired business) in connection with the
acquisition or disposition of assets permitted under the Indenture;
(11) Any Indebtedness or other obligations of the Company issued to
participants in the Equity Incentive Plan or Equity Participation Plan,
provided that such Indebtedness is subordinated in right of payment to the
Notes;
(12) Indebtedness arising by reason of any Lien created or permitted
to exist in compliance with the "--Limitation on Liens" covenant;
(13) Indebtedness of a Receivables Subsidiary pursuant to a Permitted
Receivables Financing; provided that after giving effect to the incurrence
thereof, the Company could incur at least $1.00 of Indebtedness under
subclause (1) of this definition in compliance with the "--Limitation on
Incurrence of Additional Indebtedness" covenant;
(14) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, issued in the ordinary course of
business of the Company or such Restricted Subsidiary, including, without
limitation, in order to provide security for worker's compensation claims
or payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business and other Indebtedness with
respect to workers' compensation claims, self-insurance obligations,
insurance purposes, performance, surety and similar bonds and completion
guarantees provided by the Company or any Restricted Subsidiary in the
ordinary course of business;
(15) Guarantees of Indebtedness otherwise permitted under the
Indenture;
(16) Obligations in respect of trade letters of credit, performance
and surety bonds and completion guarantees provided by the Company or any
Restricted Subsidiary in the ordinary course of business;
(17) Indebtedness of the Company or any Guarantor (which may but is
not required to be incurred under the Credit Agreement) in addition to that
described in clauses (1) through (16) above not to exceed $20 million
outstanding at any time in the aggregate; Indebtedness may be incurred
under the Credit Agreement; or
(18) (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 Notes but excluding the Existing Notes) 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 (18) (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 accrued and unpaid interest thereon 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
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accomplish such refinancing by means of a tender offer or privately
negotiated purchase, plus the amount of expenses (including discounts and
commissions) in connection therewith and (B) in the case of any refinancing
of Indebtedness that is not Senior Indebtedness, (1) such new Indebtedness
is made subordinated to or pari passu with the Notes 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.
For purposes of determining compliance with the covenant under
"--Limitation on Incurrence of Additional Indebtedness," in the event an item of
Indebtedness meets the criteria of more than one of the categories of Permitted
Indebtedness, or is entitled to be incurred pursuant to the second sentence of
the covenant under "--Limitation on Incurrence of Additional Indebtedness," the
Company shall, at its sole discretion, classify such item of Indebtedness as any
of the appropriate items of Permitted Indebtedness or as Indebtedness being
incurred pursuant to the second sentence of the covenant under "--Limitation on
Incurrence of Additional Indebtedness" and thereafter may, at its sole
discretion, reclassify such item of Indebtedness from time to time in any manner
that complies with the definition of Permitted Indebtedness and/or the second
sentence of the covenant under "--Limitation on Incurrence of Additional
Indebtedness."
"Permitted Investment" means any of the following:
(1) Investments by the Company or any 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 Restricted
Subsidiary;
(2) 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;
(3) Investments in commercial paper issued by corporations, each of
which shall have a consolidated net worth of at least $100,000,000 maturing
within 365 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;
(4) 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;
(5) 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;
(6) Investments in cash and Cash Equivalents;
(7) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers compensation, performance and
similar deposits entered into as a result of the operations of the business
in the ordinary course;
(8) loans and advances to officers of the Company and its Restricted
Subsidiaries made in compliance with clause (G) of the second paragraph
under the covenant "--Limitation on Transactions with Affiliates" described
above;
(9) Investments by the Company or a Restricted Subsidiary in a
Restricted Subsidiary;
(10) 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 (2), (3),
(4) or (6) above;
(11) Investments in any of the Notes;
(12) receivables owing to the Company or any Restricted Subsidiary
created in the ordinary course of business;
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(13) Investments consisting of Indebtedness permitted under clause
(5) of the definition of Permitted Indebtedness; and
(14) Hedging obligations entered into in the ordinary course of the
Company's or its Restricted Subsidiaries business and not for speculative
purposes;
(15) Guarantees of Indebtedness and other obligations otherwise
permitted under the Indenture;
(16) Investments made by the Company or its Restricted Subsidiaries as
a result of consideration received in connection with an Asset Sale made in
compliance with the "Limitation on Asset Sales" covenant;
(17) Investments in connection with a Permitted Receivables Financing
by or to any Receivables Subsidiary, including Investments of funds held in
accounts permitted or required by the arrangements governing such Permitted
Receivables Financing or any related Indebtedness; and
(18) Investments in the aggregate amount of $20 million at any time
outstanding.
"Permitted Liens" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent, (b) that would not have 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, or (c) 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;
(2) 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);
(3) deposits or pledges in connection with bids, tenders, leases and
contracts (other than contracts for the payment of money);
(4) 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;
(5) 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;
(6) 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;
(7) 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; or that would not have 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;
(8) leases, subleases, licenses or sublicenses to third parties;
(9) Liens securing Indebtedness incurred in compliance with the
"--Limitation on Incurrence of Additional Indebtedness" covenant;
(10) Liens existing on, or provided for under written arrangements
existing on, the Issue Date, or (in the case of any such Liens securing
Indebtedness of the Company or any of its Subsidiaries existing
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or arising under written arrangements existing on the Issue Date) securing
any Refinancing Indebtedness in respect of such Indebtedness so long as the
Lien securing such Refinancing Indebtedness is limited to all or part of
the same property or assets (plus improvements, accessions, proceeds or
dividends or distributions in respect thereof) that secured (or under such
written arrangements could secure) the original Indebtedness;
(11) Liens securing Hedging Obligations;
(12) Liens arising out of judgments, decrees, orders or awards in
respect of which the Company shall in good faith be prosecuting an appeal
or proceedings for review, which appeal or proceedings shall not have been
finally terminated, or if the period within which such appeal or
proceedings may be initiated shall not have expired;
(13) Liens on properties or assets of the Company or any Restricted
Subsidiary securing Senior Indebtedness;
(14) Liens existing on property or assets of a Person at the time such
Person becomes a Subsidiary of the Company (or at the time the Company or a
Restricted Subsidiary acquires such property or assets); provided, however,
that such Liens are not created in connection with, or in contemplation of,
such other Person becoming such a Subsidiary (or such acquisition of such
property or assets), and that such Liens are limited to all or part of the
same property or assets (plus improvements, accessions, proceeds or
dividends or distributions in respect thereof) that secured (or, under the
written arrangements under which such Liens arose, could secure) the
obligations to which such Liens relate;
(15) Liens on Capital Stock of an Unrestricted Subsidiary that secure
Indebtedness or other obligation of such Unrestricted Subsidiary;
(16) Liens securing the Existing Notes, the Notes, the Exchange Notes
or the Exchange Debentures;
(17) Liens securing Refinancing Indebtedness incurred in respect of
any Indebtedness secured by, or securing any refinancing, refunding,
extension, renewal or replacement (in whole or in part) of any other
obligation secured by, any other Permitted Liens, provided that any such
new Lien is limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or dividends or distributions in respect
thereof) that secured (or, under the written arrangements under which the
original Lien arose could secure) the obligations to which such Liens
relate; and
(18) Liens securing letters of credit entered into the ordinary course
of business and consistent with past business practice;
(19) Liens in favor of the Company or any Restricted Subsidiary;
(20) Liens securing Purchase Money Indebtedness;
(21) Liens on and pledges of the stock of any Unrestricted Subsidiary
securing any Indebtedness of such Unrestricted Subsidiary;
(22) Liens on Receivables and Related Assets securing Indebtedness or
otherwise permitted to be incurred, in each case, with a Permitted
Receivables Financing.
"Permitted Receivables Financing" means a transaction or series of
transactions (including amendments, supplements, extensions, renewals,
replacements, refinancings or modifications thereof) pursuant to which a
Receivables Subsidiary purchases Receivables and Related Assets from the Company
or any Subsidiary and finances such Receivables and Related Assets through the
issuance of indebtedness or equity interests or through the sale of the
Receivables and Related Assets or a fractional undivided interest in the
Receivables and Related Assets; provided that:
(1) the Board of Directors shall have determined in good faith that
such Permitted Receivables Financing is economically fair and reasonable to
the Company and the Receivables Subsidiary;
(2) all sales of Receivables and Related Assets to or by the
Receivables Subsidiary are made at fair market value (as determined in good
faith by the Board of Directors of the Company);
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(3) the financing terms, covenants, termination events and other
provisions thereof shall be market terms (as determined in good faith by
the Board of Directors of the Company);
(4) no portion of the Indebtedness of a Receivables Subsidiary is
Guaranteed by or is recourse to the Company or any Restricted Subsidiary
(other than recourse for customary representations, warranties, covenants
and indemnities, none of which shall relate to the collectibility of the
Receivables and Related Assets); and
(5) neither the Company nor any Subsidiary has any obligation to
maintain or preserve the Receivable Subsidiary's financial condition.
"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 Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"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.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Equity Offering" means a sale by the Company of shares of its
Qualified Capital Stock (however designated and whether voting or non-voting)
and any and all rights, warrants or options to acquire such Qualified Capital
Stock.
"Receivables and Related Assets" means accounts receivable and instruments,
chattel paper, obligations, general intangibles and other similar assets, in
each case relating to such receivables, including interests in merchandise or
goods, the sale or lease of which gave rise to such receivable, related
contractual rights, guarantees, insurance proceeds, collections, other related
assets and proceeds of all of the foregoing.
"Receivables Subsidiary" means a wholly owned Subsidiary which is
established for the limited purpose of acquiring and financing Receivables and
Related Assets and engaging in activities ancillary thereto.
"Restricted Payment" means any of the following:
(1) the declaration or payment of any dividend or any other
distribution or payment on Capital Stock of the Company or any Restricted
Subsidiary of the Company or any payment made to the direct or indirect
holders (in their capacities as such) of Capital Stock of the Company or
any Restricted Subsidiary of the Company (other than (a) dividends or
distributions payable solely in Capital Stock (other than Disqualified
Capital Stock) or in options, warrants or other rights to purchase such
Capital Stock (other than Disqualified Capital Stock), (b) in the case of
Restricted Subsidiaries of the Company, dividends or distributions payable
to the Company or to a Wholly Owned Restricted Subsidiary of the Company
and (c) other pro rata dividends or other distributions made by a
Restricted Subsidiary of the Company that is not a Wholly Owned Restricted
Subsidiary to minority stockholders);
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any of its Restricted
Subsidiaries (other than Capital Stock owned by the Company or a Wholly
Owned Restricted Subsidiary of the Company, excluding Disqualified Capital
Stock) or any option, warrants or other rights to purchase such Capital
Stock;
(3) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for
value, prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, of any Indebtedness which is subordinated in right of
payment to the Notes (other than
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subordinated Indebtedness acquired in anticipation of satisfying a
scheduled sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition);
(4) the making of any Investment in any Person other than a Permitted
Investment; and
(5) forgiveness of any Indebtedness of an Affiliate of the Company to
the Company or a Restricted Subsidiary of the Company.
For purposes of determining the amount expended for Restricted Payments,
cash distributed or invested shall be valued at the face amount thereof and
property other than cash shall be valued at its fair market value.
"Restricted Subsidiary" means (i) T-H Licensing, Inc. and (ii) any other
Subsidiary of the Company other than an Unrestricted Subsidiary.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal property, which property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
Person in contemplation of such leasing.
"S&P" means Standard & Poor's Corporation and its successors.
"Senior Credit Facility" means the Loan Agreement, dated as of July 7,
1993, among the Company, the lenders named therein and General Electric Capital
Corporation, as agent for such lenders and other financial institutions party
thereto from time to time as such agreement may be assumed by any successor in
interest, and as such agreement may be amended, supplemented, waived or
otherwise modified from time to time, or refunded, refinanced, restructured,
replaced, renewed, repaid, increased or extended from time to time (whether in
whole or in part, whether with the original agent and lenders or other agents
and lenders or otherwise).
"Senior Indebtedness" means the principal of and premium, if any, and
interest on, and any and all other fees, expense reimbursement obligations and
other amounts due pursuant to the terms of all agreements, documents and
instruments providing for, creating, securing or evidencing or otherwise entered
into in connection with:
(1) all Indebtedness of the Company owed to lenders under the Credit
Agreement or Designated Senior Indebtedness;
(2) all obligations of the Company with respect to any Hedging
Obligations;
(3) all obligations of the Company to reimburse any bank or other
person in respect of amounts paid under letters of credit, acceptances or
other similar instruments;
(4) all other Indebtedness of the Company which does not provide that
it is to rank pari passu with or subordinate to the Notes; and
(5) all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any of the Senior
Indebtedness described above.
Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include:
(A) Indebtedness of the Company to any of its Subsidiaries, or to any
Affiliate of the Company (other than in connection with customary
commercial banking services);
(B) Indebtedness represented by the Notes;
(C) Indebtedness represented by the Exchange Debentures, if issued in
accordance with the Exchange Indenture;
(D) any Indebtedness which by the express terms of the agreement or
instrument creating, evidencing or governing the same is junior or
subordinate in right of payment to any item of Senior Indebtedness;
(E) any trade payable arising from the purchase of goods or materials
or for services obtained in the ordinary course of business;
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(F) that portion of any Indebtedness of the Company that at the time
of incurrence is incurred in violation of the Indenture, unless such
Indebtedness consists of Designated Senior Indebtedness, and the holder(s)
of such Indebtedness and their agents and representatives (i) had no actual
knowledge at the time of incurrence that the incurrence of such
Indebtedness violated the Indenture and (ii) shall have received a
certificate from an officer of the Company to the effect that the
incurrence of such Indebtedness does not violate the provisions of the
Indenture;
(G) Indebtedness represented by Disqualified Capital Stock; and
(H) any Indebtedness to or guaranteed on behalf of any shareholders of
the Company or any Subsidiary of the Company.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such indebtedness is
to rank pari passu in right of payment with the Notes.
"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 Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which any principal of such Note 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.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the date of the Indenture or thereafter incurred) that is
expressly subordinate in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary", with respect to any Person, means:
(1) 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
(2) 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. See
"Related Transactions--Tax Sharing Agreement."
"Unrestricted Subsidiary" means a Subsidiary of the Company designated as
such by the Company:
(1) no portion of the Indebtedness or any other obligation (contingent
or otherwise) of which
(a) is guaranteed by the Company or any Restricted Subsidiary of
the Company,
(b) is recourse to or obligates the Company or any Restricted
Subsidiary of the Company in any way (other than solely with respect to
the stock of such Unrestricted Subsidiary) or
(c) subjects any property or asset of the Company or any Restricted
Subsidiary of the Company, directly or indirectly, contingently or
otherwise, to the satisfaction thereof (other than solely with respect
to the stock of such Unrestricted Subsidiary); and
(2) with which neither the Company nor any Restricted Subsidiary of
the Company has any obligation (other than by the terms of the Indenture)
(a) to subscribe for additional shares of Capital Stock or other equity
interest therein or (b) 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 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
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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 Indenture.
"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
(1) the then outstanding aggregate principal amount of such
Indebtedness into
(2) the total of the product obtained by multiplying (a) 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 (b) 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.
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THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
exhibit to the Registration Statement.
TERMS OF THE EXCHANGE OFFER
General
In connection with the issuance of the Old Notes pursuant to a Notes
Purchase Agreement, dated as of May 12, 1999, between Fairfield Manufacturing
Company, Inc. and CIBC World Markets Corp., Fleet Securities, Inc., ING Baring
Furman Selz LLC and Schroder & Co. Inc. (the "Initial Purchasers"), the Initial
Purchasers and their respective assignees became entitled to the benefits of the
Registration Rights Agreement.
Under the Registration Rights Agreement, the Company has agreed (1) to use
its best efforts to cause to be filed with the Commission the Registration
Statement of which this prospectus is a part with respect to a registered offer
to exchange the Old Notes for the New Notes and (2) to use its reasonable best
efforts to consummate the Exchange Offer within 45 days after the date on which
the Registration Statement is declared effective. 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 Old Notes. The Exchange Offer being
made hereby, if consummated within 180 days after the initial issuance of the
Old Notes, will satisfy those requirements under the Registration Rights
Agreement.
Upon the terms and subject to the conditions set forth in this prospectus
and in the Letters of Transmittal, all Old Notes 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 Notes will be issued in exchange for an equal
principal amount of outstanding Old Notes accepted in the Exchange Offer. Old
Notes may be tendered only in integral multiples of $1,000. This Prospectus,
together with the Letters of Transmittal, is being sent to all registered
holders as of , 1999. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered for exchange. However, the
obligation to accept Old Notes for exchange pursuant to the Exchange Offer is
subject to certain customary conditions as set forth herein under
"--Conditions."
Old Notes 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 Old
Notes for the purposes of receiving the New Notes and delivering New Notes to
such holders.
Based on interpretations by the Staff of the Commission as set forth in
no-action letters issued to third parties (including Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated
(available June 5, 1991), K-III Communications Corporation (available May 14,
1993) and Shearman & Sterling (available July 2, 1993)), the Company believes
that the New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is 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:
o such New Notes are acquired in the ordinary course of business;
o at the time of the commencement of the Exchange Offer such holder has no
arrangement or understanding with any person to participate in a
distribution of such New Notes; and
o such holder is not engaged in, and does not intend to engage in, a
distribution of such New Notes.
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 Notes as it has in such no-action letters.
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By tendering Old Notes in exchange for New Notes and executing the Letter
of Transmittal, each holder will represent to the Company that:
o any New Notes to be received by it will be acquired in the ordinary
course of business;
o it has no arrangements or understandings with any person to participate
in the distribution of the Old Notes or New Notes within the meaning of
the Securities Act; and
o it is not an "affiliate," as defined in Rule 405 under the Securities
Act, of the Company.
If such holder is a broker-dealer who acquired the Old Notes, as a result
of market-making activities or other trading activities, such holder must
acknowledge it will deliver a prospectus in connection with any resale of New
Notes. See "Plan of Distribution." Each holder, whether or not it is a
broker-dealer, shall also represent that it is not acting on behalf of any
person that could not truthfully make any of the foregoing representations
contained in this paragraph. If a holder of Old Notes 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 unless such sale is made
pursuant to an exemption from such requirements.
Upon consummation of the Exchange Offer, subject to certain limited
exceptions, holders of Old Notes who do not exchange their Old Notes for New
Notes in the Exchange Offer will no longer be entitled to registration rights
and will not be able to offer or sell their Old Notes, unless such Old Notes are
subsequently 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. Subject to limited exceptions, the Company
will have no obligation to effect a subsequent registration of the Old Notes.
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean , 1999, 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.
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
Old Notes 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 (1) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not permit
acceptance of Old Notes 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 prior to the Expiration Date, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (2) to
amend the terms of the Exchange Offer in any manner deemed by it to be
advantageous to the holders of the Old Notes. 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 Old Notes 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.
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INTEREST ON THE NEW NOTES
The New Notes will accrue interest at the rate of 9 5/8% per annum from the
last interest payment date on which interest was paid on the Old Note
surrendered in exchange therefor, or, if no interest has been paid on such Old
Note, from the Issue Date, provided, that if an Old Note is surrendered for
exchange on or after a record date for an interest payment date that will occur
on or after the date of such exchange and as to which interest will be paid,
interest on the New Note received in exchange therefor will accrue from the date
of such interest payment date. Interest on the New Notes is payable on April 15
and October 15 of each year, commencing October 15, 1999. No additional interest
will be paid on Old Notes tendered and accepted for exchange.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
applicable 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:
o certificates of such Old Notes must be received by the Exchange Agent
along with the applicable Letter of Transmittal; or
o a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, 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 with the applicable Letter of Transmittal; or
o the holder must comply with the guaranteed delivery procedures described
below.
The method of delivery of Old Notes, Letter 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 Old Notes, Letters of Transmittal or other
required documents should be sent to the Company. Delivery of all Old Notes (if
applicable), Letters of Transmittal and other 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 Old Notes 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 Old Notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to tender should contact
such registered holder promptly and instruct such registered holder to tender on
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
Rule17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the
Old Notes tendered pursuant thereto are tendered (i) by a registered holder of
Old Notes who has not completed the box entitled "Special Issuance Instructions"
or " Special Delivery Instructions" on the applicable Letter of Transmittal or
(ii) 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, time of receipt and
withdrawal of the tendered Old Notes will be determined by the Company in its
sole discretion, which determination will be final and
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binding. the Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes 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 Old
Notes. The Company's interpretation of the terms and conditions of the Exchange
Offer, including the instructions in the Letters of Transmittal, will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. 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 Old Notes, nor shall any of them incur any liability
for failure to give such notification. Tenders of Old Notes will not be deemed
to have been made until such irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned 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 Indenture:
o to purchase or make offers for any Old Notes that remain outstanding
subsequent to the Expiration Date or, as set forth under "--Conditions,"
to terminate the Exchange Offer;
o to redeem Old Notes as a whole or in part at any time and from time to
time, as set forth under "Description of the Notes--Optional Redemption;"
and
o to the extent permitted under applicable law, to purchase Old Notes 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 OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Old Notes properly tendered will be accepted promptly after the Expiration
Date, and the New Notes will be issued promptly after acceptance of the Old
Notes. See "--Conditions." For purposes of the Exchange Offer, Old Notes 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. For
each Old Note accepted for exchange, the holder of such Old Note will receive a
New Note having a principal amount equal to that of the surrendered Old Note. In
all cases, issuance of New Notes for Old Notes that are accepted for exchange
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of:
o certificates for such Old Notes or a timely Book-Entry Confirmation of
such Old Notes into the Exchange Agent's account at the applicable
Book-Entry Transfer Facility;
o a properly completed and duly executed Letter of Transmittal; and
o all other required documents.
If any tendered Old Notes are not accepted for any reason set forth in the
terms and conditions of the Exchange Offer, such unaccepted or such nonexchanged
Old Notes will be returned without expense to the tendering holder thereof (if
in certificated form) or 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 Old Notes at the applicable 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 such Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing such
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of
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Old Notes may be effected through book-entry transfer at the applicable
Book-Entry Transfer Facility, the applicable 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.
EXCHANGING BOOK-ENTRY NOTES
The Exchange Agent and the Book-Entry Transfer Facility have confirmed that
any financial institution that is a participant in the Book-Entry Transfer
Facility may utilize the Book-Entry Transfer Facility Automated Tender Offer
Program ("ATOP") procedures to tender Old Notes.
Any participant in the applicable Book-Entry Transfer Facility may make
book-entry delivery of Old Notes by causing such Book-Entry Transfer Facility to
transfer such Old Notes into the Exchange Agent's account in accordance with
such Book-Entry Transfer Facility's ATOP procedures for transfer. However, the
exchange for the Old Notes so tendered will only be made after a Book-Entry
Confirmation of such book-entry transfer of Old Notes into the Exchange Agent's
account, and timely receipt by the Exchange Agent of an Agent's Message and any
other documents required by the Letter of Transmittal. The term "Agent's
Message" means a message, transmitted by the Book-Entry Transfer Facility and
received by the Exchange Agent and forming part of a Book-Entry Confirmation,
which states that the Book-Entry Transfer Facility has received an express
acknowledgment from a participant tendering Old Notes that are the subject of
such Book-Entry Confirmation that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal, and that the Company may
enforce such agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if:
o the tender is made through an Eligible Institution;
o prior to the Expiration Date, the Exchange Agent receives by facsimile
transmission, mail or hand delivery from such Eligible Institution a
properly completed and duly executed Letter of Transmittal and Notice of
Guaranteed Delivery, substantially in the form provided by the Company,
which:
(1) sets forth the name and address of the holder of Old Notes and the
amount of Old Notes tendered;
(2) states that the tender is being made thereby; and
(3) guarantees that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered
Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required
by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
o the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, and all
other documents required by the Letter of Transmittal are received by the
Exchange Agent within three NYSE trading days after the date of execution
of the Notice of Guaranteed Delivery.
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WITHDRAWAL OF TENDERS
Tenders of Old Notes 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:
o specify the name of the person having tendered the Old Notes to be
withdrawn;
o identify the Old Notes to be withdrawn, including the principal amount of
such Old Notes;
o in the case of Old Notes tendered by book-entry transfer, specify the
number of the account at the Book-Entry Transfer Facility from which the
Old Notes were tendered and specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Old
Notes and otherwise comply with the procedures of such facility;
o contain a statement that such holder is withdrawing its election to have
such Old Notes exchanged;
o be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such Old Notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the trustee with respect to the Old Notes
register the transfer of such Old Notes in the name of the person
withdrawing the tender; and
o specify the name in which such Old Notes are registered, if different
from the person who tendered such Old Notes.
All questions as to the validity, form, eligibility and time of receipt of
such notice will be determined by the Company, whose determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for exchange for purposes of the Exchange Offer.
Any Old Notes which have been tendered for exchange but which are not exchanged
for any reason will be returned to the tendering holder thereof without cost to
such holder, in the case of physically tendered Old Notes, or credited to an
account maintained with the applicable Book-Entry Transfer Facility for the Old
Notes as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering" and "--Book-Entry Transfer" above at any time on or prior to
5:00 p.m., New York City time, on the Expiration Date.
CONDITIONS
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer if at any time
prior to 5:00 p.m., New York City time, on the Expiration Date, the Company
determines that the Exchange Offer violates applicable law, any applicable
interpretation of the staff of the Commission or any order of any governmental
agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended. the Company is required to use every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest possible moment.
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EXCHANGE AGENT
First Union National Bank 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 Letters of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Mail, Hand Delivery or For Information Call:
Overnight Courier: (704) 590-7413
First Union National Bank Facsimile Transmission Number:
1525 West W.T. Harris Boulevard (704) 590-7628
Corporate Actions
Charlotte, North Carolina 28288
Attention: Marsha Rice
</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 Old Notes, and in handling or forwarding tenders for exchange.
The expenses to be incurred by the Company in connection with the Exchange
Offer will be paid by the Company, including fees and expenses of the Exchange
Agent and Trustee and accounting, legal, printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, New Notes or Old Notes
for principal amounts not tendered or accepted for exchange are to be registered
or issued in the name of any person other than the registered holder of the Old
Notes tendered, or if tendered Old Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Old Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes imposed on the
registered holder or any other persons will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes 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 Old Notes 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 Old Notes under the Securities Act. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be adversely affected.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
consequences of the exchange of the Old Notes for the New Notes and the
ownership and disposition of the New Notes. This summary applies only to a
beneficial owner of a New Note who acquires the New Notes in exchange for Old
Notes purchased at the Initial Offering from the Initial Purchasers and for the
Original Offering price thereof.
This summary is based on provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), existing and proposed Treasury regulations promulgated
thereunder (the "Treasury Regulations") and administrative and judicial
interpretations thereof, all as of the date hereof and all of which are subject
to change, possibly on a retroactive basis.
This summary does not address the tax consequences to subsequent purchasers
of the New Notes and is limited to the New Notes that are held as "capital
assets" within the meaning of section 1221 of the Code. This summary is for
general information only, and does not address all of the tax consequences that
may be relevant to particular acquirors in light of their personal
circumstances, or to certain types of acquirors (such as banks and other
financial institutions, real estate investment trusts, regulated investment
companies, insurance companies, tax-exempt organizations, dealers in securities,
persons who own Notes through partnerships or other pass-through entities,
persons who hold a Note as part of a straddle, hedge, conversion transaction or
other integrated investment, or persons whose functional currency is not the
U.S. dollar). In addition, this summary does not include any description of the
tax laws of any state, local or non-U.S. government that may be applicable to a
particular acquiror.
PROSPECTIVE ACQUIRORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE PARTICULAR U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO
THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES, AS WELL AS THE
TAX CONSEQUENCES UNDER STATE, LOCAL, NON-U.S. AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN TAX LAWS.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is, for U.S. federal income tax purposes, (a) a citizen or resident of the
United States, (b) a corporation created or organized in the United States or
under the laws of the United States or of any political subdivision of the
United States, (c) an estate whose income is subject to U.S. federal income tax
regardless of its source or (d) a trust if (i) a court within the United States
is able to exercise primary supervision over the administration of the trust and
(ii) at least one U.S. person has authority to control all substantial decisions
of the trust.
THE EXCHANGE OFFER
The Exchange of an Old Note for a New Note of a U.S. Holder pursuant to the
Exchange Offer will not constitute a taxable exchange of the Old Notes, and thus
a U.S. Holder will not recognize taxable gain or loss upon receipt of a New
Note. As a result, each U.S. Holder will have the same adjusted tax basis and
holding period in the New Notes as it had in the Old Notes immediately before
the exchange.
INCOME TAXATION OF U.S. HOLDERS
Payment of Interest on the Notes. In general, interest paid on a Note will
be taxable to a U.S. Holder as ordinary interest income, as received or accrued,
in accordance with such holder's method of accounting for federal income tax
purposes.
Liquidated Damages. Since the Notes provide for the payment of liquidated
damages in the form of additional interest in certain circumstances described
under "Exchange Offer; Registration Rights" ("Liquidated Damages"), the Notes
may be subject to special rules under the Treasury Regulations that are
applicable to debt instruments that provide for one or more contingent payments.
Under the Treasury Regulations, however, the special rules applicable to
contingent payment debt instruments will not apply if, as of the issue date, the
contingency is either "remote" or "incidental." The Company believes that, for
these purposes, the payment of Liquidated Damages is a remote or incidental
contingency. The Company's determination that such payments are a remote or
incidental contingency for these purposes is binding on a U.S. Holder, unless
such U.S. Holder discloses in the proper manner to the Internal Revenue Service
(the
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"IRS") that it is taking a different position. Prospective investors should
consult their tax advisors as to the tax considerations relating to the payment
of Liquidated Damages, in particular in connection with the Treasury Regulations
relating to contingent payment interests.
Sale, Exchange or Retirement of the Notes. Upon the sale, exchange,
redemption, retirement at maturity or other disposition of a Note, a U.S. Holder
will generally recognize taxable gain or loss equal to the difference between
the sum of the cash and the fair market value of all other property received on
such disposition (except to the extent such cash or property is attributable to
accrued interest, which will be taxable as ordinary income) and such holder's
adjusted tax basis in the Note.
Gain or loss recognized on the disposition of a Note generally will be
capital gain or loss, and will be long-term capital gain or loss if, at the time
of such disposition, the holder's holding period for the Note is more than one
year.
Backup Withholding and Information Reporting. In general, a U.S. Holder
will be subject to backup withholding at the rate of 31% with respect to
interest, principal and premium, if any, paid on a Note, unless the holder
(a) is an entity that is exempt from withholding (including corporations,
tax-exempt organizations and certain qualified nominees) and, when required,
demonstrates this fact, or (b) provides the Company with its taxpayer
identification number ("TIN") (which for an individual would be the holder's
social security number), certifies that the TIN provided to the Company is
correct and that the holder has not been notified by the IRS that it is subject
to backup withholding due to underreporting of interest or dividends, and
otherwise complies with applicable requirements of the backup withholding rules.
In addition, such payments of principal, premium and interest to U.S. Holders
that are not exempt entities will generally be subject to information reporting
requirements. A U.S. Holder who does not provide the Company with its correct
TIN may be subject to penalties imposed by the IRS.
The Company will report to U.S. Holders and the IRS the amount of any
"reportable payments" (including any interest paid) and any amounts withheld
with respect to the Notes during the calendar year.
The amount of any backup withholding from a payment to a U.S. Holder will
be allowed as a credit against such holder's federal income tax liability and
may entitle such holder to a refund, provided that the required information is
furnished to the IRS. Treasury Regulations, generally effective for payments
made after December 31, 2000 (the "New Withholding Regulations"), modify certain
of the certification requirements for backup withholding. It is possible that
the Company and other withholding agents may request a new withholding exemption
from holders in order to qualify for continued exemption from backup withholding
under the New Withholding Regulations.
TAXATION OF NON-U.S. HOLDERS
Payment of Interest on the Notes. In general, payments of interest
received by any beneficial owner of a Note that is not a U.S. Holder (a
"Non-U.S. Holder") will not be subject to a U.S. federal withholding tax (except
as described below under "Backup Withholding and Information Reporting"),
provided that (a) under an exemption for certain portfolio interest, (i) the
Non-U.S. Holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company that is entitled to
vote, (ii) the holder is not a "controlled foreign corporation" (generally, a
non-U.S. corporation controlled by U.S. shareholders) that is related to the
Company actually or constructively through stock ownership and (iii) either
(x) the beneficial owner of the Note, under penalties of perjury, provides the
Company or its agent with the beneficial owner's name and address and certifies
that it is not a U.S. person on IRS Form W-8 (or a suitable substitute form) or
(y) a securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
holds the Note and certifies to the Company or its agent under penalties of
perjury that such a Form W-8 (or suitable substitute form) has been received by
it from the beneficial owner or qualifying intermediary and furnishes the payor
a copy thereof, (b) the Non-U.S. Holder is subject to U.S. federal income tax
with respect to the Note on a net basis because payments received with respect
to the Note are effectively connected with the conduct of a trade or business
within the United States by the holder (in which case the holder may also be
subject to U.S. "branch profits tax") and the holder provides the Company with a
properly executed IRS Form 4224 (or a suitable substitute therefor), or (c) the
Non-U.S. Holder is entitled to the benefits of an income tax treaty under which
the
86
<PAGE>
interest is exempt from U.S. withholding tax and the holder or such holder's
agent provides a properly executed IRS Form 1001 (or a suitable substitute
therefor) claiming the exemption. Payments of interest not exempt from U.S.
federal withholding tax as described above will be subject to withholding at the
rate of 30% (subject to reduction under the applicable income tax treaty).
The New Withholding Regulations generally will not affect the certification
rules described in the preceding paragraph, but will provide alternative methods
for satisfying such requirements. The New Withholding Regulations also generally
will require, in the case of Notes held by a non-U.S. partnership, that (a) the
certification described in the preceding paragraph be provided by the partners
rather than the foreign partnership and (b) the partnership provide certain
information. A look-through rule will apply in the case of tiered partnerships.
In addition, the New Withholding Regulations may require that a Non-U.S. Holder
(including a non-U.S. partnership or a partner thereof) obtain a TIN and make
certain certifications if interest in respect of a Note is not portfolio
interest and the Non-U.S. Holder wishes to claim a reduced rate of withholding
under an income tax treaty. It is possible that the Company and other
withholding agents may request a new withholding exemption from Non-U.S. Holders
in order to qualify for continued exemption from withholding under the New
Withholding Regulations. Each Non-U.S. Holder should consult its own tax advisor
regarding the application of the New Withholding Regulations.
Sale, Exchange or Retirement of the Notes. A Non-U.S. Holder generally
will not be subject to U.S. federal income tax (or withholding thereof) in
respect of gain realized on the sale, exchange, redemption, retirement at
maturity or other disposition of Notes, unless (a) the gain is effectively
connected with the conduct of a trade or business within the United States by
the holder, or (b) the holder is an individual who is present in the United
States for a period or periods aggregating 183 or more days in the taxable year
of the disposition and certain other conditions are met.
With respect to a Non-U.S. Holder subject to U.S. federal income tax as
described in the preceding paragraph, an exchange of a Note for an Exchange Note
will not be treated as a taxable exchange of the Note. As described under
"--Taxation of U.S. Holders--Liquidated Damages," the Notes provide for the
payment of Liquidated Damages in certain circumstances. Non-U.S. Holders should
consult their tax advisors as to the tax considerations relating to debt
instruments that provide for one or more contingent payments, in particular as
to the availability of the exemption for portfolio interest, and the ability of
holders to claim the benefits of income tax treaty exemptions from U.S.
withholding tax on interest, in respect of such Liquidated Damages.
Backup Withholding and Information Reporting. Under current Treasury
Regulations, backup withholding and information reporting do not apply to
payments made by the Company or a paying agent to Non-U.S. Holders if the
requisite certification is received, provided that the payor does not have
actual knowledge that the holder is a U.S. person. If any payments of principal
and interest are made to a Non-U.S. Holder by or through the non-U.S. office of
a non-U.S. custodian, non-U.S. nominee or other non-U.S. agent of such holder,
or if the non-U.S. office of a non-U.S. "broker" (as defined in applicable
Treasury Regulations) pays the proceeds of the sale of a Note or a coupon to the
seller thereof, backup withholding and information reporting will not apply.
Information reporting requirements (but not backup withholding) will apply,
however, to a payment by a non-U.S. office of a broker that is a U.S. person,
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, or that is a "controlled
foreign corporation" (generally, a non-U.S. corporation controlled by U.S.
shareholders) with respect to the United States, unless the broker has
documentary evidence in its records that the holder is a non-U.S. person and
certain other conditions are met, or the holder otherwise establishes an
exemption. Payment by a U.S. office of a broker is subject to both backup
withholding at a rate of 31% and information reporting unless the holder
certifies under penalties of perjury that it is a non-U.S. person, or otherwise
establishes an exemption. A Non-U.S. Holder may obtain a refund or a credit
against such holder's U.S. federal income tax liability of any amounts withheld
under the backup withholding rules, provided the required information is
furnished to the IRS.
In addition, in certain circumstances, interest on a Note owned by a
Non-U.S. Holder will be required to be reported annually on IRS Form 1042S, in
which case such form will be filed with the IRS and furnished to the holder.
87
<PAGE>
The New Withholding Regulations revise (substantially in certain respects)
the procedures that withholding agents and payees must follow to comply with, or
to establish an exemption, from these information reporting and backup
withholding provisions for payments after December 31, 2000. It is possible that
the Company and other withholding agents may request a new withholding exemption
from Non-U.S. Holders in order to qualify for continued exemption from backup
withholding under the New Withholding Regulations. Each Non-U.S. Holder should
consult its own tax advisor regarding the application to such holder of the New
Withholding Regulations.
Estate Tax. Subject to applicable estate tax treaty provisions, Notes held
at the time of death (or theretofore transferred subject to certain retained
rights or powers) by an individual who at the time of death is a Non-U.S. Holder
will not be included in such holder's gross estate for U.S. federal estate tax
purposes, provided that (a) the individual does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock of
the Company entitled to vote and (b) the income on the Notes is not effectively
connected with the conduct of a U.S. trade or business by the individual.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge and represent that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by certain
broker-dealers (as specified in the Registration Rights Agreement) in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, for a period not to exceed 180 days
after the Expiration Date, it will furnish additional copies of this prospectus,
as amended or supplemented, to any such broker-dealer that reasonably requests
such documents for use in connection with any such resale. In addition, until
, 1999, all dealers effecting transactions in the New Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes 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 Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to 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 Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has agreed to pay certain expenses incident to the Exchange
Offer. In addition, the Company has agreed to indemnify the holders of the Old
Notes against certain liabilities.
88
<PAGE>
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by
Debevoise & Plimpton, New York.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
89
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of March 31, 1999............................................................ F-2
Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998................... F-3
Consolidated Statements of Stockholder's Equity (Deficit) for the three months
ended March 31, 1999..................................................................................... F-4
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998................... F-5
Notes to Consolidated Financial Statements................................................................. F-6
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants.......................................................................... F-7
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................... F-8
Consolidated Statements of Operations for the three years ended December 31, 1998.......................... F-9
Consolidated Statements of Stockholder's Equity (Deficit) for the three years
ended December 31, 1998.................................................................................. F-10
Consolidated Statements of Cash Flows for the three years ended December 31, 1998.......................... F-11
Notes to Consolidated Financial Statements................................................................. F-12
Schedule II - Valuation and Qualifying Accounts and Reserves, for the three years ended December 31,
1998..................................................................................................... F-21
</TABLE>
F-1
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31,
1999
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................................... $ 1,188
Trade receivables, less allowance of $700.......................................................... 26,901
Inventory.......................................................................................... 26,280
Prepaid expenses................................................................................... 377
---------
Total current assets............................................................................ 54,746
Property, plant and equipment, net of accumulated depreciation of $97,015............................ 68,557
---------
Other assets:
Excess of investment over net assets acquired, less accumulated amortization of $15,483............ 48,876
Deferred financing costs, less accumulated amortization of $3,837.................................. 1,371
---------
Total other assets.............................................................................. 50,247
---------
Total assets.................................................................................... $ 173,550
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................................................... 1$4,988....
Due to parent...................................................................................... 1,366
Accrued liabilities................................................................................ 21,636
Deferred income taxes.............................................................................. 2,047
---------
Total current liabilities....................................................................... 40,037
---------
Accrued retirement costs............................................................................. 15,257
Deferred income taxes................................................................................ 7,115
Long-term debt....................................................................................... 109,150
11 1/4% Cumulative exchangeable preferred stock...................................................... 48,090
---------
Stockholder's equity (deficit):
Common stock: par value $.01 per share, 10,000,000 shares authorized, 8,554,000 issued and
outstanding..................................................................................... 86
Additional paid-in capital......................................................................... 43,461
Accumulated deficit................................................................................ (89,646)
---------
Total stockholder's deficit..................................................................... (46,099)
---------
Total liabilities and stockholder's deficit..................................................... $ 173,550
---------
---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Net sales................................................................................ $60,399 $55,388
Cost of sales............................................................................ 47,341 45,368
Selling, general and administrative expenses............................................. 4,339 4,201
------- -------
OPERATING INCOME......................................................................... 8,719 5,819
Interest expense, net.................................................................... 2,825 3,303
Other expense, net....................................................................... 2 14
------- -------
INCOME BEFORE INCOME TAXES............................................................... 5,892 2,502
Provision for income taxes............................................................... 2,657 1,130
------- -------
NET INCOME............................................................................... $ 3,235 $ 1,372
------- -------
------- -------
Preferred stock dividends and discount accretion......................................... (1,454) (1,453)
------- -------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDER........................................ $ 1,781 $ (81)
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
For the Three Months Ended March 31, 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
STOCK-
ADDITIONAL HOLDER'S
COMMON PAID-IN ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT (DEFICIT)
------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1998....................................... $ 85 $ 42,322 $ (91,427) $ (49,020)
Capital contribution............................................. 1 1,139 -- 1,140
Preferred stock dividends........................................ -- -- (1,406) (1,406)
Preferred stock discount accretion............................... -- -- (48) (48)
Net income....................................................... -- -- 3,235 3,235
---- -------- --------- ---------
Balance, March 31, 1999.......................................... $ 86 $ 43,461 $ (89,646) $ (46,099)
---- -------- --------- ---------
---- -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................................... $ 3,235 $ 1,372
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation and amortization.......................................................... 3,358 3,375
Deferred income taxes.................................................................. (345) (160)
Accrued retirement costs............................................................... (1,021) (1,026)
Changes in working capital:
Trade receivables................................................................... 467 (6,026)
Inventory........................................................................... (761) (3,210)
Prepaid expenses.................................................................... (8) (95)
Accounts payable.................................................................... 1,467 3,122
Due to parent....................................................................... 844 600
Accrued liabilities................................................................. (629) (1,259)
------- -------
Net cash provided (used) by operating activities....................................... 6,607 (3,307)
------- -------
INVESTING ACTIVITIES:
Additions to property, plant and equipment, net.......................................... (3,568) (4,061)
------- -------
Net cash used by investing activities.................................................. (3,568) (4,061)
------- -------
FINANCING ACTIVITIES:
Capital contributions, principally under tax sharing agreement........................... 1,140 500
Repayment of long-term debt.............................................................. (2,000) (1,000)
Net change in revolving credit facility.................................................. (1,000) 8,000
Payment of preferred stock dividends..................................................... (2,813) (2,813)
------- -------
Net cash provided (used) by financing activities.................................... (4,673) 4,687
------- -------
CASH AND CASH EQUIVALENTS:
Decrease in cash and cash equivalents.................................................... (1,634) (2,681)
------- -------
Beginning of year........................................................................ 2,822 3,059
------- -------
End of year.............................................................................. $ 1,188 $ 378
------- -------
------- -------
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest............................................................................... $ 4,677 $ 5,549
Federal taxes to parent under tax sharing agreement (Note 2)........................... 1,640 500
Non-cash investing and financing activities:
Additions to property, plant and equipment included in accounts payable at end of
period.............................................................................. $ 399 $ 246
Preferred stock dividends accrued........................................................ 1,406 1,405
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
1. INTERIM FINANCIAL INFORMATION
The accompanying consolidated financial statements have been prepared by
Fairfield Manufacturing Company, Inc. and subsidiaries (the "Company"), without
audit, pursuant to the rules and regulations of the Securities Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
enable a reasonable understanding of the information presented. These
consolidated financial statements should be read in conjunction with the audited
financial statements and the notes thereto for the year ended December 31, 1998.
In the opinion of management the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the Company's
financial position at March 31, 1999 and the results of operations and cash
flows for the three months ended March 31, 1999 and 1998. However, interim
financial results are not necessarily indicative of the results for a full year.
Certain prior year information has been reclassified to conform to current year
presentation.
2. PARENT COMPANY OF REGISTRANT
The Company is wholly-owned by Lancer Industries Inc. ("Lancer").
The Company is included in the consolidated federal income tax return of
Lancer. The Company and Lancer have entered into a Tax Sharing Agreement under
which the Company is required to calculate its current federal income tax
liability on a separate return basis and pay that amount to Lancer. To the
extent such tax liability subsequently reduces Lancer's available tax benefits,
Lancer is required to reimburse the Company in an amount equivalent to 50% of
such reduction by making a capital contribution to the Company. Lancer made
capital contributions to the Company pursuant to this agreement of $1,140 and
$500 during the three months ended March 31, 1999 and 1998, respectively. The
Company issued 74,000 and 73,000 shares of common stock to Lancer during the
three months ended March 31, 1999 and 1998, respectively, in recognition of
these capital contributions.
3. INVENTORY
Inventory, which is valued at the lower of last-in, first-out (LIFO) cost
or market, consists of the following:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
<S> <C>
Raw materials....................................................... $ 3,542
Work in process..................................................... 12,190
Finished goods...................................................... 10,548
--------
26,280
Less: excess of FIFO cost over LIFO cost............................ --
--------
$ 26,280
--------
--------
</TABLE>
F-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholder
of Fairfield Manufacturing Company, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholder's equity (deficit), and of
cash flows present fairly, in all material respects, the financial position of
Fairfield Manufacturing Company, Inc. and its subsidiary (collectively the
"Company") at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/S/ PRICEWATERHOUSECOOPERS LLP
Indianapolis, Indiana
January 28, 1999
F-7
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:...........................................................................
Cash and cash equivalents............................................................... $ 2,822 $ 3,059
Trade receivables, less allowance of $700 and $600 in 1998 and 1997, respectively....... 27,368 22,733
Inventory............................................................................... 25,519 23,875
Prepaid expenses........................................................................ 369 1,048
-------- --------
Total current assets................................................................. 56,078 50,715
Property, plant and equipment, net........................................................ 68,239 69,227
-------- --------
Other assets:
Excess of investment over net assets acquired, less accumulated amortization of $15,082
and $13,475 in 1998 and 1997, respectively........................................... 49,277 50,884
Deferred financing costs, less accumulated amortization of $3,684 and $3,026 in 1998 and
1997, respectively................................................................... 1,524 2,386
-------- --------
Total other assets................................................................... 50,801 53,270
-------- --------
Total assets......................................................................... $175,118 $173,212
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:......................................................................
Current maturities of long-term debt.................................................... $ -- $ 4,000
Accounts payable........................................................................ 13,967 10,896
Due to parent........................................................................... 482 2,208
Accrued liabilities..................................................................... 23,712 22,987
Deferred income taxes................................................................... 2,047 2,800
-------- --------
Total current liabilities............................................................ 40,208 42,891
Accrued retirement costs.................................................................. 16,278 15,778
Deferred income taxes..................................................................... 7,460 8,881
Long-term debt............................................................................ 112,150 110,000
Commitments and contingencies (Note 11)................................................... -- --
11 1/4% Cumulative exchangeable preferred stock........................................... 48,042 47,850
-------- --------
Stockholder's equity (deficit):
Common stock: par value $.01 per share, 10,000,000 shares authorized, 8,480,000 and
8,190,000 issued and outstanding in 1998 and 1997, respectively...................... 85 82
Additional paid-in capital.............................................................. 42,322 39,414
Accumulated deficit..................................................................... (91,427) (91,684)
-------- --------
Total stockholder's deficit.......................................................... (49,020) (52,188)
-------- --------
Total liabilities and stockholder's deficit.......................................... $175,118 $173,212
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Years Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................................... $220,316 $192,281 $195,205
Cost of sales................................................................ 178,933 157,715 158,668
Selling, general and administrative expenses................................. 16,816 16,989 16,868
-------- -------- --------
OPERATING INCOME............................................................. 24,567 17,577 19,669
Interest expense, net........................................................ 12,697 12,676 11,930
Other expense, net........................................................... 70 80 90
-------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM............................ 11,800 4,821 7,649
Provision for income taxes................................................... 5,300 2,640 3,730
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM............................................. 6,500 2,181 3,919
Loss on early extinguishment of debt, net of tax............................. (426) -- --
-------- -------- --------
NET INCOME................................................................... $ 6,074 $ 2,181 $ 3,919
-------- -------- --------
-------- -------- --------
Preferred stock dividends and discount accretion............................. (5,817) (4,686) --
-------- -------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDER............................ $ 257 $ (2,505) $ 3,919
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
For the Three Years Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED STOCK-HOLDER'S
STOCK CAPITAL DEFICIT EQUITY (DEFICIT)
------ ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996..................................... $ 77 $ 35,209 $ (25,328) $ 9,958
Capital contribution......................................... 1 1,579 -- 1,580
Common stock 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)
---- -------- --------- --------
---- -------- --------- --------
Capital contribution......................................... $ 4 $ 2,616 $ -- $ 2,620
Common stock dividends....................................... -- -- (50,770) (50,770)
Preferred stock dividends.................................... -- -- (4,536) (4,536)
Preferred stock discount accretion........................... -- -- (150) (150)
Advance to parent............................................ -- -- 3,027 3,027
Merger with First Colony Farms............................... -- 10 -- 10
Net income................................................... -- -- 2,181 2,181
---- -------- --------- --------
Balance, December 31, 1997................................... $ 82 $ 39,414 $ (91,684) $(52,188)
---- -------- --------- --------
---- -------- --------- --------
Capital contribution......................................... $ 3 $ 2,908 $ -- $ 2,911
Preferred stock dividends.................................... -- -- (5,625) (5,625)
Preferred stock discount accretion........................... -- -- (192) (192)
Net income................................................... -- -- 6,074 6,074
---- -------- --------- --------
Balance, December 31, 1998................................... $ 85 $ 42,322 $ (91,427) $(49,020)
---- -------- --------- --------
---- -------- --------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income..................................................................... $ 6,074 $ 2,181 $ 3,919
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 13,267 13,277 13,108
Deferred income tax benefit.................................................. (2,097) (4,107) (170)
Increase in accrued retirement costs......................................... 687 355 665
Loss on early extinguishment of debt......................................... 426 -- --
Changes in working capital:
Trade receivables......................................................... (5,085) 1,963 (368)
Inventory................................................................. (1,644) (4,957) 5,994
Prepaid expenses.......................................................... 679 (195) 44
Accounts payable.......................................................... 3,595 (1,467) 3,289
Due to parent............................................................. (1,726) 1,921 (520)
Accrued liabilities....................................................... 1,188 3,128 658
-------- -------- --------
Net cash provided by operating activities.................................... 15,364 12,099 26,619
-------- -------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment, net................................ (10,536) (10,902) (11,165)
-------- -------- --------
Net cash used by investing activities........................................ (10,536) (10,902) (11,165)
-------- -------- --------
FINANCING ACTIVITIES:
Capital contributions, principally under tax sharing agreement................. 2,911 2,620 1,580
Payment of dividends........................................................... -- (50,770) (17,000)
Advance to Parent.............................................................. -- 3,027 (3,027)
Proceeds from issuance of long-term debt....................................... 19,000 -- 15,000
Repayment of long-term debt.................................................... (20,218) (6,000) (3,000)
Net change in Revolver......................................................... (1,000) 2,000 (7,000)
Proceeds of preferred stock offering........................................... -- 50,000 --
Payment of preferred stock issuance costs...................................... -- (2,300) --
Payment of debt issuance costs................................................. (133) (41) (146)
Payment of preferred stock dividends........................................... (5,625) (2,859) --
-------- -------- --------
Net cash used by financing activities........................................ (5,065) (4,323) (13,593)
-------- -------- --------
CASH AND CASH EQUIVALENTS:
Increase (decrease) in cash and cash equivalents............................... (237) (3,126) 1,861
Beginning of year.............................................................. 3,059 6,185 4,324
-------- -------- --------
End of year.................................................................... $ 2,822 $ 3,059 $ 6,185
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest..................................................................... $ 13,442 $ 12,135 $ 11,627
Federal taxes to parent under tax sharing agreement (Note 7)................. 7,710 4,020 4,030
State taxes.................................................................. 1,550 120 1,310
Non-cash investing and financing activities:
Additions to property, plant and equipment included in accounts payable at
end of period............................................................. $ 845 $ 1,369 $ 2,266
Preferred stock dividends accrued............................................ $ 1,677 $ 1,677 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-11
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Fairfield Manufacturing Company, Inc. ("Fairfield") is wholly owned by
Lancer Industries Inc. ("Lancer"). Fairfield has one wholly owned subsidiary,
T-H Licensing, Inc. ("T-H Licensing"). Fairfield, T-H Licensing and Lancer are
all Delaware corporations.
Fairfield manufactures high precision custom gears and assemblies 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. T-H Licensing owns certain intangible assets
including various patents and trademarks.
Principles of Consolidation
These consolidated financial statements include the accounts of Fairfield
and T-H Licensing (jointly the "Company"). All significant intercompany accounts
and transactions have been eliminated.
Concentrations of Risk
The Company grants credit without collateral to most of its customers.
Sales to one customer accounted for 10.6% of total net sales in 1998. No
customer accounted for more than 10% of total net sales in 1997 or 1996.
Revenue
Sales are recognized at the time of shipment to the customer. International
sales, as determined by ship to location, accounted for $16,195, $13,286 and
$11,312 of the Company's net sales in 1998, 1997 and 1996, respectively, and
were primarily to Canada. Custom gears and assemblies accounted for
approximately $118,500, $107,100 and $112,300 of the Company's 1998, 1997 and
1996 net sales, respectively. Planetary gear systems accounted for approximately
$101,800, $85,200 and $82,900 of the Company's 1998, 1997 and 1996 net sales,
respectively.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Inventory
Inventory is valued at the lower of last-in, first-out (LIFO) cost or
market.
Property, Plant and Equipment, Net
Property, plant and equipment, net are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets which range from 15 to 30 years for land
improvements, 5 to 40 years for buildings and improvements, and 3 to 20 years
for machinery and equipment.
F-12
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except share data)
Income Taxes
Income taxes are provided based on the liability method of accounting. 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.
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 financial liabilities, other than Senior
Subordinated Notes ("Notes"), also approximate their carrying value. The
estimated fair value of the Notes at December 31, 1998 was approximately 102% of
carrying value based on recent market purchases by the Company.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
2. RELATED PARTY TRANSACTIONS
On December 5, 1996, the Company advanced $3,000 to Lancer. This advance
was classified as a component of stockholder's equity (deficit) at December 31,
1996, at which date the related accrued interest was $27. During February 1997,
the Company declared a dividend $3,070 ($0.39 per share) in settlement of the
advance and the accrued interest of $70.
Effective August 1, 1997, Mr. Lechman, former Chairman of the Board, and
Director, entered into a consulting agreement (the "Agreement") with the
Company. In consideration for services to be rendered under the Agreement,
Mr. Lechman will receive quarterly payments through July 31, 2001 ("the
consulting period") totaling $1.0 million. In the event that Mr. Lechman dies
prior to the end of the consulting period or is unable to perform the services
requested due to mental or physical disabilities, the Company shall pay to his
legal representatives or beneficiaries the remaining unpaid balance under the
Agreement which would have been due under the agreement had Mr. Lechman
continued to provide such services for the term of the Agreement. Due to the
provisions of the agreement, the Company recognized the entire $1.0 million as
expense in 1997.
F-13
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except share data)
3. INVENTORY
Inventory at December 31, consists of:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Raw materials....................................... $ 3,852 $ 3,495
Work in process..................................... 11,933 11,892
Finished products................................... 9,734 8,488
------- -------
25,519 23,875
Less: Excess of FIFO cost over LIFO cost............ -- --
------- -------
$25,519 $23,875
------- -------
------- -------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net at December 31, includes the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land and improvements............................. $ 1,346 $ 1,256
Buildings and improvements........................ 20,758 19,248
Machinery and equipment........................... 141,091 133,024
-------- --------
163,195 153,528
Less: Accumulated depreciation.................... (94,956) (84,301)
-------- --------
$ 68,239 $ 69,227
-------- --------
-------- --------
</TABLE>
Depreciation expense was $11,000, $11,000 and $10,830 for the years ended
December 31, 1998, 1997 and 1996, respectively.
5. ACCRUED LIABILITIES
Accrued liabilities at December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Compensation and employee benefits.................. $ 6,940 $ 6,610
Accrued retirement and postemployment............... 3,058 2,902
Interest payable.................................... 4,340 5,075
Other............................................... 9,374 8,400
------- -------
$23,712 $22,987
------- -------
------- -------
</TABLE>
F-14
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except share data)
6. EMPLOYEE BENEFIT PLANS
<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- -------------------
1998 1997 1998 1997
-------- ------- -------- -------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year................... $ 43,671 $42,972 $ 9,433 $ 9,329
Service cost.............................................. 1,622 1,445 362 342
Interest cost............................................. 3,099 2,911 658 646
Participant contributions................................. -- -- 184 208
Amendments................................................ 758 -- -- --
Actuarial loss (gain)..................................... 3,522 (2,055) 620 (9)
Benefits paid............................................. (1,663) (1,602) (1,102) (1,083)
-------- ------- -------- -------
Benefit obligation at end of year......................... 51,009 43,671 10,155 9,433
-------- ------- -------- -------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year............ 33,684 31,348 -- --
Actual return on plan assets.............................. 2,831 2,109 -- --
Company contribution...................................... 1,731 1,829 918 875
Participant contributions................................. -- -- 184 208
Benefits paid............................................. (1,663) (1,602) (1,102) (1,083)
-------- ------- -------- -------
Fair value of plan assets at end of year.................. 36,583 33,684 -- --
-------- ------- -------- -------
Funded status............................................. (14,426) (9,987) (10,155) (9,433)
Unrecognized actuarial loss............................... 2,040 (1,512) 3,145 2,676
Unrecognized prior service cost........................... 2,302 1,733 (188) (251)
-------- ------- -------- -------
Accrued benefit........................................... $(10,084) $(9,766) $ (7,198) $(7,008)
-------- ------- -------- -------
-------- ------- -------- -------
WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount rate............................................. 6.50% 7.25% 6.50% 7.25%
Expected return on plan assets............................ 8.50% 8.50%
</TABLE>
Other postretirement benefits provided by the Company include limited
health care and life insurance benefits for certain retired employees. The
health care cost trend rate is not a factor in the calculation of the other
postretirement benefit obligation as the plan limits per capita benefits to a
fixed level. Claims in excess of this amount are the responsibility of the
retiree.
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------------------- --------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost......................................... $ 1,622 $ 1,445 $ 1,387 $ 362 $ 342 $ 332
Interest cost........................................ 3,099 2,911 2,862 658 646 656
Expected return on plan assets....................... (2,861) (2,685) (2,549) -- -- --
Recognized actuarial loss............................ -- -- -- 151 166 214
Amortization of prior service cost................... 189 189 189 (63) (63) (63)
------- ------- ------- ------ ------ ------
Net periodic benefit cost............................ $ 2,049 $ 1,860 $ 1,889 $1,108 $1,091 $1,139
------- ------- ------- ------ ------ ------
------- ------- ------- ------ ------ ------
</TABLE>
As discussed above, healthcare benefits provided by the Company are set at
a fixed per capita amount. Consequently, changes in health care rates have no
effect on the other postretirement benefit obligation, service cost or interest
cost.
The Company has a contributory defined contribution savings plan which
covers all of its eligible employees. Eligibility in the plan is obtained the
month following hire with no minimum age requirement.
F-15
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except share data)
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, 1998, 1997
and 1996 was $1,510, $1,347 and $1,356, respectively.
The Company provides postemployment benefits to certain former and inactive
employees. Net periodic postemployment benefit cost for years ended
December 31, included the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost.................................................................... $153 $137 $115
Interest cost................................................................... 185 179 157
Amortization of unrecognized losses............................................. 19 -- --
---- ---- ----
$357 $316 $272
---- ---- ----
---- ---- ----
</TABLE>
The recorded liabilities for these postemployment benefits, none of which
have been funded, are $2,053 and $1,906 at December 31, 1998 and 1997,
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.
The expense equivalent to provision for income taxes in each of the three
years in the period ended December 31, consists of:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Current, principally federal............................................. $ 7,397 $ 5,120 $3,900
Deferred, principally federal............................................ (2,097) (2,480) (170)
------- ------- ------
$ 5,300 $ 2,640 $3,730
------- ------- ------
------- ------- ------
Tax benefit of extraordinary loss........................................ $ (277) $ -- $ --
------- ------- ------
------- ------- ------
</TABLE>
The expense equivalent to provision for income taxes for 1998, 1997 and
1996 results principally from current year operating results.
A reconciliation of the expected expense equivalent to provision for income
taxes at the statutory federal income tax rate and the actual tax provision each
of the three years ended December 31, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Tax provision at 35% statutory rate........................................ $4,130 $1,687 $2,677
State taxes, net of federal................................................ 519 370 231
Non-deductible amortization of excess of investment over net assets
acquired................................................................. 555 555 555
Other, net................................................................. 96 28 267
------ ------ ------
$5,300 $2,640 $3,730
------ ------ ------
------ ------ ------
Effective Rate............................................................. 44.9% 54.8% 48.8%
------ ------ ------
------ ------ ------
</TABLE>
F-16
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except share data)
Deferred income taxes applicable to temporary differences at December 31,
1998 and 1997 (net of a $1.6 million reclassification from deferred tax
liabilities to currently payable taxes made in conjunction with the filing of
the 1996 tax return) are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Assets:
Employee benefits.................................................... $ 9,646 $ 9,450
-------- --------
Gross deferred tax assets............................................ 9,646 9,450
-------- --------
Liabilities:
Inventory basis difference........................................... (4,864) (4,824)
Property, plant and equipment basis difference....................... (14,022) (16,242)
Other net............................................................ (267) (65)
-------- --------
Gross deferred tax liabilities....................................... (19,153) (21,131)
-------- --------
Net deferred tax liability........................................... $ (9,507) $(11,681)
-------- --------
-------- --------
</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 subsequently reduces Lancer's available tax benefits, Lancer is
required to reimburse the Company in an amount equivalent to 50% of such
reduction by making a capital contribution to the Company. Lancer made capital
contributions to the Company pursuant to this agreement of $2,710, $2,620, and
$1,580 during 1998, 1997 and 1996, respectively. The Company issued common stock
to Lancer in recognition of these capital contributions (see Note 10).
The Company has certain federal net operating loss carryforwards of
approximately $200,000 from its merger with First Colony Farms, Inc. which begin
expiring in 2001. These carryforwards are subject to limitations imposed by the
Internal Revenue Code. At December 31, 1998 and 1997, these carryforwards have
been fully reduced by a valuation allowance.
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Senior Revolving Credit Facility, due July 1, 2005
Rate at December 31, 1998: 6.8%............................................... $ 1,000 $ 2,000
Senior Term Loan, due July 1, 2005
Rates at December 31, 1998: 6.6%-6.8%......................................... 35,000 27,000
Senior Debt Repurchase Line, due in 20 equal quarterly installments beginning
August 15, 2000
Rates at December 31, 1998: 6.9%-7.3%......................................... 9,000 --
Senior Subordinated Notes, 11.375%, due July 1, 2001............................ 67,150 85,000
-------- --------
Total debt.................................................................... 112,150 114,000
Less: Current maturities........................................................ -- (4,000)
-------- --------
Total long-term debt.......................................................... $112,150 $110,000
-------- --------
-------- --------
</TABLE>
The Company's Senior Subordinated Notes (the "Notes") are redeemable at the
option of the Company, in whole or in part, at certain specified call prices on
or after July 1, 1998.
F-17
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except share data)
During the third and fourth quarters of 1998, the Company repurchased
$17,850 of Notes on the open market. The loss on early extinguishment of debt
represents the write off of related deferred financing charges and premium paid
on repurchase, net of a $277 tax benefit.
In 1993 concurrent with the issuance of the Notes, the Company entered into
a loan agreement (the "Loan Agreement") with a senior lending institution which
established the Revolving Credit Facility ("Revolver") and Term Loan
(collectively with the Debt Repurchase Line the "Credit Facilities"). This Loan
Agreement was most recently amended in October 1998, to extend the maturity of
the Revolver and Term Loan to July, 1, 2005, lower the interest rate, and
establish the Debt Repurchase Line, to be used for repurchases of the Company's
Notes up to $10,000.
The Revolver permits the Company to borrow up to $20,000 subject to
borrowing base availability (as defined in the agreement) and, at the option of
the Company (subject to certain conditions), may be increased by two additional
$5,000 options.
The Loan Agreement was also amended during March 1997, to allow the sale of
the Preferred Stock (see Note 9) and the $47,700 dividend to Lancer.
Interest under the Credit Facilities is payable at varying rates based on
prime or LIBOR. The unused Revolver at December 31, 1998, net of $449 of
outstanding letters of credit, was $18,551. The unused Debt Repurchase Line
(subject to certain conditions) at December 31, 1998 was $1,000.
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
Credit Facility and the Notes allow the payment of dividends provided certain
financial covenants are met.
The future maturities of long-term debt at December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999........................................................ $ --
2000........................................................ 900
2001........................................................ 68,950
2002........................................................ 1,800
2003........................................................ 1,800
Thereafter.................................................. 38,700
--------
$112,150
--------
--------
</TABLE>
9. REDEEMABLE EXCHANGEABLE PREFERRED STOCK
On March 12, 1997, the Company completed a private offering of 50,000
shares of 11 1/4% Series A Cumulative Exchangeable Preferred Stock ("Preferred
Stock"). Each share has a liquidation preference of one thousand dollars, 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 (prior to March 15,
2002) be paid, at the Company's option, either in cash or in additional shares
of Preferred Stock. Semi-annual dividends have been paid in cash since issuance.
The net proceeds from this offering of $47,700 were used to fund a dividend
to Lancer, and used by Lancer to redeem approximately $47,700 of its Series C
Preferred Stock.
F-18
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except share data)
10. STOCKHOLDER'S EQUITY
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 in cash and certain net operating loss carryforwards.
Issuance of Common Stock
The Company issued 73,000, 94,000, 50,000, and 73,000 additional shares of
its common stock on March 31, June 30, September 30, and December 31, 1998,
respectively, to Lancer in consideration of certain capital contributions made
by Lancer to the Company pursuant to the Tax Sharing Agreement and other capital
contributions.
The Company issued 52,000, 53,000 and 280,000 additional shares of its
common stock on March 31, June 30, and December 31, 1997, respectively, to
Lancer in consideration of certain capital contributions made by Lancer to the
Company pursuant to the Tax Sharing Agreement and other capital contributions.
Dividends
On March 12, 1997 and December 5, 1996 the Company, with the approval of
its senior lender, declared and paid dividends of $47,700 ($6.11 per share) and
$17,000 ($2.19 per share), respectively, to Lancer.
11. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated to make payments under noncancellable operating
leases expiring at various dates through 2003.
Future minimum payments by year under operating leases consist of the
following at December 31, 1998:
<TABLE>
<CAPTION>
YEAR MINIMUM RENTAL
- --------------------------------------------------------- --------------
<S> <C>
1999..................................................... $ 518
2000..................................................... 430
2001..................................................... 133
2002..................................................... 86
2003..................................................... 30
------
$1,197
------
------
</TABLE>
Rental expense for the years ended December 31, 1998, 1997 and 1996 was
$506, $447, and $446, respectively.
Equity Participation Plan
The Company maintains an Equity Participation Plan (the "Plan") which
provides for the award of up to an aggregate of 180,000 Equity Participation
Rights ("Rights") to certain current and past officers and key employees. At
December 31, 1998, all 180,000 rights were granted and have vested and 117,000
rights were outstanding.
F-19
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except share data)
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.
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, 1998 and 1997 the exercise price exceeds estimated fair
market value of the Company's common stock. During 1997, the Company paid $25 to
redeem 63,000 rights. No additional compensation was charged to earnings for
this plan during 1998, 1997 or 1996.
F-20
<PAGE>
FAIRFIELD MANUFACTURING COMPANY, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS CHARGED TO BALANCE AT
DESCRIPTION PERIOD AND EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
- --------------------------------------- ------------ --------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1998
----
Allowance for doubtful accounts... $600 $ 100 $-- $ -- $ 700
1997
----
Allowance for doubtful accounts... $600 $ 32 $-- $ (32) $ 600
1996
----
Allowance for doubtful accounts... $600 $ 520 $-- $ (520) $ 600
</TABLE>
F-21
<PAGE>
TORQUE-HUB(REGISTERED)
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.
Torque-Hub(Registered) is a registered trademark of Fairfield Manufacturing
Company, Inc.
<PAGE>
================================================================================
WE HAVE NOT AUTHORIZED ANY DEALER, SALES-PERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING TO YOU OTHER THAN THE INFORMATION CONTAINED IN
THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION OR
REPRESENTATIONS.
THIS PROSPECTUS DOES NOT OFFER TO EXCHANGE OR ASK FOR OFFERS TO EXCHANGE
ANY OF THE SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL, WHERE THE PERSON
MAKING THE OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHO CANNOT LEGALLY
BE OFFERED TO EXCHANGE THE SECURITIES.
THE INFORMATION IN THIS PROSPECTUS IS CURRENT ONLY AS OF THE DATE ON ITS
COVER, AND MAY CHANGE AFTER THAT DATE. FOR ANY TIME AFTER THE COVER DATE OF THIS
PROSPECTUS, WE DO NOT REPRESENT THAT OUR AFFAIRS ARE THE SAME AS DESCRIBED OR
THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT--NOR DO WE IMPLY THOSE THINGS
BY DELIVERING THIS PROSPECTUS OR SELLING SECURITIES TO YOU.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 10
Use of Proceeds................................ 14
Capitalization................................. 15
Unaudited Pro Forma Financial Data............. 16
Selected Consolidated Historical Financial
Data......................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
Business....................................... 27
Management..................................... 33
Ownership of Capital Stock..................... 37
Related Transactions........................... 38
Description of Other Indebtedness and Preferred
Stock........................................ 39
Description of the Notes....................... 41
The Exchange Offer............................. 78
Certain United States Federal Tax
Considerations............................... 85
Plan of Distribution........................... 88
Legal Matters.................................. 89
Experts........................................ 89
Index to Consolidated Financial Statements..... F-1
</TABLE>
Until , 1999, all dealers effecting transactions in the New
Notes, whether or not participating in this distribution, may be required to
deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
================================================================================
[LOGO]
FAIRFIELD MANUFACTURING
COMPANY, INC.
OFFER TO EXCHANGE FOR
ALL OUTSTANDING
9 5/8% SENIOR SUBORDINATED
NOTES DUE 2008
-------------------
PROSPECTUS
-------------------
, 1999
================================================================================
<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 shall have power to 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 the person 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 the
person in connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
the person's 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
the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
(b) A corporation shall have power to 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 the person 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 the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person 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 present or former director or officer 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, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person 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
II-1
<PAGE>
of the present or former director, officer employee or agent is proper in
the circumstances because the person has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
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 such person is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation 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 bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in such person's 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 such person and incurred by such person in
any such capacity, or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify such person
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 such
person 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 such person 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."
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
II-2
<PAGE>
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-3
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) List of Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.01 -- Restated Certificate of Incorporation of Fairfield, together with the Certificate of Amendment, dated
March 7, 1997, and filed on March 11, 1997, incorporated by reference from Exhibit 3(a) to the
Registration Statement on Form S-4 (file no. 333-24823) of the Company as filed with the Securities
and Exchange Commission on April 9, 1997 (the "1997 Form S-4").
3.02 -- By-Laws of Fairfield, incorporated by reference from Exhibit 3(c) to the Company's Form 10-K for the
fiscal year ended December 31, 1994 as filed with the Securities and Exchange Commission on
March 22, 1995 (the "1994 Form 10-K").
4.01 -- Indenture, dated as of May 19, 1999, between the Company and First Union National Bank, as trustee.
4.02 -- Indenture, dated as of March 12, 1997, between Fairfield and United States Trust Company of New York
as Trustee, incorporated by reference from Exhibit 4(c) to the 1997 Form S-4.
4.03 -- Certificate of Designation, dated March 12, 1997, for the 11 1/4% Cumulative Exchangeable Preferred
Stock, incorporated by reference from Exhibit 4(d) to the 1997 Form S-4.
5.01 -- Opinion of Debevoise & Plimpton as to the legality of the securities being registered.
10.01* -- Amended and Restated Loan Agreement, among Fairfield, the lenders named therein and General Electric
Capital Corporation ("GECC"), as agent.
10.02 -- Security Agreement, dated as of July 7, 1993, between T-H Licensing, Inc. ("T-H Licensing") and GECC,
as agent, incorporated by reference from Exhibit 10(d) to the Company's Form 10-Q for the six months
ended June 30, 1993 and filed with the Securities and Exchange Commission on August 16, 1993, 1993
(the "1993 Second Quarter Form 10-Q").
10.03 -- Stock Pledge Agreement, dated as of July 7, 1993, between Fairfield and GECC, as agent, incorporated
by reference from Exhibit 10(e) to the 1993 Second Quarter Form 10-Q.
10.04 -- Trademark Security Agreement, dated as of July 7, 1993, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(g) to the 1993 Second Quarter Form 10-Q.
10.05 -- Trademark Security Agreement, dated as of July 7, 1993, between T-H Licensing and GECC, as agent,
incorporated by reference from Exhibit 10(h) to the 1993 Second Quarter Form 10-Q.
10.06 -- Patent Security Agreement, dated as of July 7, 1993, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(i) to the 1993 Second Quarter Form 10-Q.
10.07 -- Patent Security Agreement, dated as of July 7, 1993, between T-H Licensing and GECC, as agent,
incorporated by reference from Exhibit 10(j) to the 1993 Second Quarter Form 10-Q.
10.08 -- Subsidiary Guaranty, dated as of July 7, 1993, between T-H Licensing and GECC, as agent, incorporated
by reference from Exhibit 10(k) to the 1993 Second Quarter Form 10-Q.
10.09 -- Mortgage, Assignment of Leases, Rents and Profits, Security Agreement and Fixture Filing, dated as of
July 7, 1993, between Fairfield and GECC, as agent, incorporated by reference from Exhibit 10(l) to
the 1993 Second Quarter Form 10-Q.
10.10 -- Collection Account Agreement, dated as of July 7, 1993, among Fairfield and GECC, and acknowledged by
Bank One, Lafayette, N.A., incorporated by reference from Exhibit 10(m) to the 1993 Second Quarter
Form 10-Q.
10.11 -- Used Machinery Account Agreement, dated as of July 7, 1993, among Fairfield and GECC, and
acknowledged by Bank One, Lafayette, N.A., incorporated by reference from Exhibit 10(n) to the 1993
Second Quarter Form 10-Q.
10.12 -- Quitclaim Grant of Security Interest, dated as of July 7, 1993, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(o) to the 1993 Second Quarter Form 10-Q.
10.13 -- Supplemental Quitclaim Grant of Security Interest (Patents only), dated as of July 7, 1993, between
Fairfield and GECC, as agent, incorporated by reference from Exhibit 10(p) to the 1993 Second Quarter
Form 10-Q.
10.14 -- First Amendment to Mortgage Assignment of Leases, Rents and Profits, Security Agreement and Fixture
Filing, dated as of March 31, 1995, between Fairfield and GECC, as agent, incorporated by reference
from Exhibit 10(t) to the 1994 Form 10-K.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
10.15 -- Stock Pledge Agreement, dated as of March 31, 1995, between Lancer Industries Inc. ("Lancer") and
GECC, as agent, incorporated by reference from Exhibit 10(u) to the 1994 Form 10-K.
<C> <C> <S>
10.16 -- Amended and Restated Security Agreement, dated as of March 31, 1995, between Fairfield and GECC, as
agent, incorporated by reference from Exhibit 10(v) to the 1994 Form 10-K.
10.17 -- Collective Bargaining Agreement, ratified October 29, 1998, between the Company and United Auto
Workers' Local 2317 incorporated by reference to Exhibit 10(a) to the Company's Form 10-Q for the
three months ended March 30, 1999 as filed with the Securities and Exchange Commission on April 26,
1999.
10.18 -- Tax Sharing Agreement, dated as of July 18, 1990, between Fairfield and Lancer, incorporated by
reference from Exhibit 10(z) to the Company's Form 10-K for the fiscal year ended December 31, 1995
as filed with the Securities and Exchange Commission on March 15, 1996 (the "1995 Form 10-K").
10.19 -- The Fairfield Manufacturing Company, Inc. (1992) Supplemental Executive Retirement Plan incorporated
by reference from Exhibit 10(aa) to the 1995 Form 10-K.
10.20 -- Letter Agreement, dated December 29, 1989, granting exclusive license from T-H Licensing to Fairfield
incorporated by reference from Exhibit 10(bb) to the 1995 Form 10-K.
10.21 -- Second Amendment to Mortgage Assignment of Leases, Rents and Profits, Security Agreement and Fixture
Filing, dated as of December 5, 1996, between Fairfield and GECC, as agent, incorporated by reference
from Exhibit 10(dd) to the Company's Form 10-K for the fiscal year ended December 31, 1996 as filed
with the Securities and Exchange Commission on February 25, 1997.
10.22 -- Consulting Agreement, dated August 1, 1997, between Fairfield and Wolodymyr B. Lechman, incorporated
by reference from Exhibit 10(hh) to the Company's Form 10-Q for the nine months ended September 30,
1997 as filed with the Securities and Exchange Commission on November 12, 1997.
10.23 -- Consent and Amendment, dated as of March 27, 1997, among Fairfield and GECC, as sole lender and
agent, incorporated by reference from Exhibit 10(gg) to the 1997 Form S-4.
10.24 -- Third Amendment to Mortgage Assignment of Leases, Rents and Profits, Security Agreement and Fixture
Filing, dated as of October 12, 1998 between Fairfield and GECC, as agent, incorporated by reference
from Exhibit 10(hh) to the Company's Form 10-Q for the nine months ended September 30, 1998 as filed
with the Securities and Exchange Commission on November 13, 1998 (the "1998 Third Quarter
Form 10-Q").
10.25 -- Employment Agreement dated as of August 4, 1998, between Fairfield and S. K. Clough, incorporated by
reference from Exhibit 10(ii) to the 1998 Third Quarter Form 10-Q.
10.26 -- Registration Rights Agreement, dated as of May 19, 1999, between Fairfield and the initial purchasers
named therein of the 9 5/8% Senior Subordinated Notes due 2008.
12.01 -- Computations of Ratio of Earnings to Fixed Charges.
23.01 -- Consent of Debevoise & Plimpton (included in opinion filed as Exhibit 5.01).
23.02 -- Consent of PricewaterhouseCoopers LLP.
24.01 -- Powers of Attorney.
25.01* -- Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939 (Form T-1) of First
Union National Bank.
27.01 -- Financial Data Schedule
99.01 -- Form of Letter of Transmittal used in connection with the Exchange Offer.
99.02 -- Form of Notice of Guaranteed Delivery used in connection with the Exchange Offer.
</TABLE>
- ------------------
* To be filed by amendment.
II-5
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES.
See the index to the Consolidated Financial Statements on page F-1 of the
Prospectus included in this Registration Statement.
ITEM 22. UNDERTAKINGS.
(a) 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.
(b) 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.
(c) 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.
(d) 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-6
<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 10TH DAY OF JUNE, 1999.
FAIRFIELD MANUFACTURING COMPANY, INC.
By: /s/ STEPHEN K. CLOUGH
----------------------------------
Stephen K. Clough
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THIS SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ STEPHEN K. CLOUGH Director, President and Chief Executive June 10, 1999
- ------------------------------------------ Officer
Stephen K. Clough
PRINCIPAL FINANCIAL OFFICER:
/s/ RICHARD A. BUSH Vice President--Finance June 10, 1999
- ------------------------------------------
Richard A. Bush
PRINCIPAL ACCOUNTING OFFICER:
/s/ RICHARD A. BUSH Vice President--Finance June 10, 1999
- ------------------------------------------
Richard A. Bush
DIRECTORS:
* Director June 10, 1999
- ------------------------------------------
Jess C. Ball
* Director June 10, 1999
- ------------------------------------------
Andrew R. Heyer
* Director June 10, 1999
- ------------------------------------------
W.B. Lechman
* Director and Chairman of the Board June 10, 1999
- ------------------------------------------
Paul S. Levy
*By: /s/ STEPHEN K. CLOUGH June 10, 1999
------------------------------
Stephen K. Clough
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.01 -- Restated Certificate of Incorporation of Fairfield, together with the Certificate of Amendment, dated
March 7, 1997, and filed on March 11, 1997, incorporated by reference from Exhibit 3(a) to the
Registration Statement on Form S-4 (file no. 333-24823) of the Company as filed with the Securities
and Exchange Commission on April 9, 1997 (the "1997 Form S-4").
3.02 -- By-Laws of Fairfield, incorporated by reference from Exhibit 3(c) to the Company's Form 10-K for the
fiscal year ended December 31, 1994 as filed with the Securities and Exchange Commission on
March 22, 1995 (the "1994 Form 10-K").
4.01 -- Indenture, dated as of May 19, 1999, between the Company and First Union National Bank, as trustee.
4.02 -- Indenture, dated as of March 12, 1997, between Fairfield and United States Trust Company of New York
as Trustee, incorporated by reference from Exhibit 4(c) to the 1997 Form S-4.
4.03 -- Certificate of Designation, dated March 12, 1997, for the 11 1/4% Cumulative Exchangeable Preferred
Stock, incorporated by reference from Exhibit 4(d) to the 1997 Form S-4.
5.01 -- Opinion of Debevoise & Plimpton as to the legality of the securities being registered.
10.01* -- Amended and Restated Loan Agreement, among Fairfield, the lenders named therein and General Electric
Capital Corporation ("GECC"), as agent.
10.02 -- Security Agreement, dated as of July 7, 1993, between T-H Licensing, Inc. ("T-H Licensing") and GECC,
as agent, incorporated by reference from Exhibit 10(d) to the Company's Form 10-Q for the six months
ended June 30, 1993 and filed with the Securities and Exchange Commission on August 16, 1993 (the
"1993 Second Quarter Form 10-Q").
10.03 -- Stock Pledge Agreement, dated as of July 7, 1993, between Fairfield and GECC, as agent, incorporated
by reference from Exhibit 10(e) to the 1993 Second Quarter Form 10-Q.
10.04 -- Trademark Security Agreement, dated as of July 7, 1993, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(g) to the 1993 Second Quarter Form 10-Q.
10.05 -- Trademark Security Agreement, dated as of July 7, 1993, between T-H Licensing and GECC, as agent,
incorporated by reference from Exhibit 10(h) to the 1993 Second Quarter Form 10-Q.
10.06 -- Patent Security Agreement, dated as of July 7, 1993, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(i) to the 1993 Second Quarter Form 10-Q.
10.07 -- Patent Security Agreement, dated as of July 7, 1993, between T-H Licensing and GECC, as agent,
incorporated by reference from Exhibit 10(j) to the 1993 Second Quarter Form 10-Q.
10.08 -- Subsidiary Guaranty, dated as of July 7, 1993, between T-H Licensing and GECC, as agent, incorporated
by reference from Exhibit 10(k) to the 1993 Second Quarter Form 10-Q.
10.09 -- Mortgage, Assignment of Leases, Rents and Profits, Security Agreement and Fixture Filing, dated as of
July 7, 1993, between Fairfield and GECC, as agent, incorporated by reference from Exhibit 10(l) to
the 1993 Second Quarter Form 10-Q.
10.10 -- Collection Account Agreement, dated as of July 7, 1993, among Fairfield and GECC, and acknowledged by
Bank One, Lafayette, N.A., incorporated by reference from Exhibit 10(m) to the 1993 Second Quarter
Form 10-Q.
10.11 -- Used Machinery Account Agreement, dated as of July 7, 1993, among Fairfield and GECC, and
acknowledged by Bank One, Lafayette, N.A., incorporated by reference from Exhibit 10(n) to the 1993
Second Quarter Form 10-Q.
10.12 -- Quitclaim Grant of Security Interest, dated as of July 7, 1993, between Fairfield and GECC, as agent,
incorporated by reference from Exhibit 10(o) to the 1993 Second Quarter Form 10-Q.
10.13 -- Supplemental Quitclaim Grant of Security Interest (Patents only), dated as of July 7, 1993, between
Fairfield and GECC, as agent, incorporated by reference from Exhibit 10(p) to the 1993 Second Quarter
Form 10-Q.
10.14 -- First Amendment to Mortgage Assignment of Leases, Rents and Profits, Security Agreement and Fixture
Filing, dated as of March 31, 1995, between Fairfield and GECC, as agent, incorporated by reference
from Exhibit 10(t) to the 1994 Form 10-K.
10.15 -- Stock Pledge Agreement, dated as of March 31, 1995, between Lancer Industries Inc. ("Lancer") and
GECC, as agent, incorporated by reference from Exhibit 10(u) to the 1994 Form 10-K.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.16 -- Amended and Restated Security Agreement, dated as of March 31, 1995, between Fairfield and GECC, as
agent, incorporated by reference from Exhibit 10(v) to the 1994 Form 10-K.
10.17 -- Collective Bargaining Agreement, ratified October 29, 1998, between the Company and United Auto
Workers' Local 2317 incorporated by reference to Exhibit 10(a) to the Company's Form 10-Q for the
three months ended March 30, 1999 as filed with the Securities and Exchange Commission on April 26,
1999.
10.18 -- Tax Sharing Agreement, dated as of July 18, 1990, between Fairfield and Lancer, incorporated by
reference from Exhibit 10(z) to the Company's Form 10-K for the fiscal year ended December 31, 1995
as filed with the Securities and Exchange Commission on March 15, 1996 (the "1995 Form 10-K").
10.19 -- The Fairfield Manufacturing Company, Inc. (1992) Supplemental Executive Retirement Plan incorporated
by reference from Exhibit 10(aa) to the 1995 Form 10-K.
10.20 -- Letter Agreement, dated December 29, 1989, granting exclusive license from T-H Licensing to Fairfield
incorporated by reference from Exhibit 10(bb) to the 1995 Form 10-K.
10.21 -- Second Amendment to Mortgage Assignment of Leases, Rents and Profits, Security Agreement and Fixture
Filing, dated as of December 5, 1996, between Fairfield and GECC, as agent, incorporated by reference
from Exhibit 10(dd) to the Company's Form 10-K for the fiscal year ended December 31, 1996 as filed
with the Securities and Exchange Commission on February 25, 1997.
10.22 -- Consulting Agreement, dated August 1, 1997, between Fairfield and Wolodymyr B. Lechman, incorporated
by reference from Exhibit 10(hh) to the Company's Form 10-Q for the nine months ended September 30,
1997 as filed with the Securities and Exchange Commission on November 12, 1997.
10.23 -- Consent and Amendment, dated as of March 27, 1997, among Fairfield and GECC, as sole lender and
agent, incorporated by reference from Exhibit 10(gg) to the 1997 Form S-4.
10.24 -- Third Amendment to Mortgage Assignment of Leases, Rents and Profits, Security Agreement and Fixture
Filing, dated as of October 12, 1998 between Fairfield and GECC, as agent, incorporated by reference
from Exhibit 10(hh) to the Company's Form 10-Q for the nine months ended September 30, 1998 as filed
with the Securities and Exchange Commission on November 13, 1998 (the "1998 Third Quarter
Form 10-Q").
10.25 -- Employment Agreement dated as of August 4, 1998, between Fairfield and S. K. Clough, incorporated by
reference from Exhibit 10(ii) to the 1998 Third Quarter Form 10-Q.
10.26 -- Registration Rights Agreement, dated as of May 19, 1999, between Fairfield and the initial purchasers
named therein of the 9 5/8% Senior Subordinated Notes due 2008.
12.01 -- Computations of Ratio of Earnings to Fixed Charges.
23.01 -- Consent of Debevoise & Plimpton (included in opinion filed as Exhibit 5.01).
23.02 -- Consent of PricewaterhouseCoopers LLP.
24.01 -- Powers of Attorney.
25.01* -- Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939 (Form T-1) of First
Union National Bank.
27.01 -- Financial Data Schedule
99.01 -- Form of Letter of Transmittal used in connection with the Exchange Offer.
99.02 -- Form of Notice of Guaranteed Delivery used in connection with the Exchange Offer.
</TABLE>
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* To be filed by amendment.
<PAGE>
Exhibit 4.01
================================================================================
FAIRFIELD MANUFACTURING COMPANY, INC.
and
FIRST UNION NATIONAL BANK,
as Trustee
-------------------
INDENTURE
Dated as of May 19, 1999
-------------------
$100,000,000
9-5/8% Senior Subordinated Notes due 2008
================================================================================
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CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
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310 (a)(1)............................................................... 7.10
(a)(2)............................................................... 7.10
(a)(3)............................................................... N.A.
(a)(4)............................................................... N.A.
(a)(5)............................................................... N.A.
(b).................................................................. 7.08; 7.10; 12.02
(b)(1)............................................................... 7.10
(c).................................................................. N.A.
311 (a).................................................................. 7.11
(b).................................................................. 7.11
(c).................................................................. N.A.
312 (a).................................................................. 2.06
(b).................................................................. 12.03
(c).................................................................. 12.03
313 (a).................................................................. 7.06
(b)(1)............................................................... N.A.
(b)(2)............................................................... 7.06
(c).................................................................. 7.06; 12.02
(d).................................................................. 7.06
314 (a).................................................................. 4.02; 4.04; 12.02
(b).................................................................. N.A.
(c)(1)............................................................... 12.04
(c)(2)............................................................... 12.04
(c)(3)............................................................... N.A.
(d).................................................................. N.A.
(e).................................................................. 12.05
(f).................................................................. N.A.
315 (a).................................................................. 7.01(b)
(b).................................................................. 7.05; 12.02
(c).................................................................. 7.01(a)
(d).................................................................. 7.01(c)
(e).................................................................. 6.12
316 (a) (last sentence).................................................. 2.10
(a)(1)(A)............................................................ 6.05
(a)(1)(B)............................................................ 6.04
(a)(2)............................................................... N.A.
(b).................................................................. 6.08
(c).................................................................. 8.04
317 (a)(1)............................................................... 6.09
(a)(2)............................................................... 6.10
(b).................................................................. 2.05; 7.12
318 (a).................................................................. 12.01
</TABLE>
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N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture
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ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions..........................................................................1
SECTION 1.02. Other Definitions...................................................................39
SECTION 1.03. Incorporation by Reference of Trust Indenture Act...................................40
SECTION 1.04. Rules of Construction...............................................................40
ARTICLE TWO
THE NOTES
SECTION 2.01. Amount of Notes.....................................................................41
SECTION 2.02. Form and Dating.....................................................................42
SECTION 2.03. Execution and Authentication........................................................42
SECTION 2.04. Registrar and Paying Agent..........................................................43
SECTION 2.05. Paying Agent To Hold Money in Trust.................................................44
SECTION 2.06. Noteholder Lists....................................................................45
SECTION 2.07. Transfer and Exchange...............................................................45
SECTION 2.08. Replacement Notes...................................................................46
SECTION 2.09. Outstanding Notes...................................................................46
SECTION 2.10. Treasury Notes......................................................................47
SECTION 2.11. Temporary Notes.....................................................................47
SECTION 2.12. Cancellation........................................................................47
SECTION 2.13. Defaulted Interest..................................................................48
SECTION 2.14. CUSIP Number........................................................................48
SECTION 2.15. Deposit of Moneys...................................................................48
SECTION 2.16. Book-Entry Provisions for Global Notes..............................................49
SECTION 2.17. Special Transfer Provisions.........................................................51
SECTION 2.18. Computation of Interest.............................................................53
ARTICLE THREE
REDEMPTION
SECTION 3.01. Election To Redeem; Notices to Trustee..............................................53
SECTION 3.02. Selection by Trustee of Notes To Be Redeemed........................................54
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SECTION 3.03. Notice of Redemption................................................................54
SECTION 3.04. Effect of Notice of Redemption......................................................55
SECTION 3.05. Deposit of Redemption Price.........................................................55
SECTION 3.06. Notes Redeemed in Part..............................................................56
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes....................................................................56
SECTION 4.02. Reports to Holders..................................................................56
SECTION 4.03. Waiver of Stay, Extension or Usury Laws.............................................57
SECTION 4.04. Compliance Certificate..............................................................57
SECTION 4.05. Taxes...............................................................................58
SECTION 4.06. Limitation on Additional Indebtedness...............................................58
SECTION 4.07. Limitation on Other Subordinated Indebtedness.......................................58
SECTION 4.08. Limitation on Restricted Payments...................................................59
SECTION 4.09. Limitation on Asset Sales...........................................................62
SECTION 4.10. Limitation on Transactions with Affiliates..........................................65
SECTION 4.11. Limitations on Liens................................................................66
SECTION 4.12. [Intentionally Omitted].............................................................67
SECTION 4.13. Limitation on Creation of Subsidiaries..............................................67
SECTION 4.14. Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries..........................................................68
SECTION 4.15. [Intentionally Omitted].............................................................70
SECTION 4.16. Limitation on Preferred Stock of Restricted Subsidiaries............................70
SECTION 4.17. Limitation on Guarantees by Restricted Subsidiaries.................................70
SECTION 4.18. Maintenance of Office or Agency.....................................................71
SECTION 4.19. Legal Existence.....................................................................72
SECTION 4.20. Change of Control Offer.............................................................72
SECTION 4.21. Maintenance of Properties; Insurance; Compliance with Law...........................75
SECTION 4.22. Further Assurance to the Trustee....................................................76
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Limitation on Consolidation, Merger and Sale of Assets..............................76
SECTION 5.02. Successor Person Substituted........................................................77
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ARTICLE SIX
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default...................................................................78
SECTION 6.02. Acceleration........................................................................80
SECTION 6.03. Other Remedies......................................................................81
SECTION 6.04. Waiver of Past Defaults and Events of Default.......................................81
SECTION 6.05. Control by Majority.................................................................81
SECTION 6.06. Limitation on Suits.................................................................82
SECTION 6.07. No Personal Liability of Directors, Officers,
Employees and Stockholders.......................................................82
SECTION 6.08. Rights of Holders To Receive Payment................................................83
SECTION 6.09. Collection Suit by Trustee..........................................................83
SECTION 6.10. Trustee May File Proofs of Claim....................................................83
SECTION 6.11. Priorities..........................................................................84
SECTION 6.12. Undertaking for Costs...............................................................84
SECTION 6.13. Restoration of Rights and Remedies..................................................84
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee...................................................................85
SECTION 7.02. Rights of Trustee...................................................................86
SECTION 7.03. Individual Rights of Trustee........................................................87
SECTION 7.04. Trustee's Disclaimer................................................................87
SECTION 7.05. Notice of Defaults..................................................................87
SECTION 7.06. Reports by Trustee to Holders.......................................................88
SECTION 7.07. Compensation and Indemnity..........................................................88
SECTION 7.08. Replacement of Trustee..............................................................89
SECTION 7.09. Successor Trustee by Consolidation, Merger, etc.....................................90
SECTION 7.10. Eligibility; Disqualification.......................................................90
SECTION 7.11. Preferential Collection of Claims Against Company...................................90
SECTION 7.12. Paying Agents.......................................................................90
ARTICLE EIGHT
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 8.01. Without Consent of Holders..........................................................91
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SECTION 8.02. With Consent of Holders.............................................................92
SECTION 8.03. Compliance with Trust Indenture Act.................................................94
SECTION 8.04. Revocation and Effect of Consents...................................................94
SECTION 8.05. Notation on or Exchange of Notes....................................................94
SECTION 8.06. Trustee To Sign Amendments, etc.....................................................95
ARTICLE NINE
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01. Discharge of Indenture..............................................................95
SECTION 9.02. Legal Defeasance....................................................................96
SECTION 9.03. Covenant Defeasance.................................................................96
SECTION 9.04. Conditions to Defeasance or Covenant Defeasance.....................................97
SECTION 9.05. Deposited Money and U.S. Government Obligations
To Be Held in Trust; Other Miscellaneous Provisions..............................99
SECTION 9.06. Reinstatement.......................................................................99
SECTION 9.07. Moneys Held by Paying Agent........................................................100
SECTION 9.08. Moneys Held by Trustee.............................................................100
ARTICLE TEN
GUARANTEE OF NOTES
SECTION 10.01. Guarantee..........................................................................101
SECTION 10.02. Execution and Delivery of Guarantee................................................102
SECTION 10.03. Limitation of Guarantee............................................................103
SECTION 10.04. Additional Guarantors..............................................................103
SECTION 10.05. Release of Guarantor...............................................................103
SECTION 10.06. Subordination of Subrogation and Other Rights; Subrogation.........................104
SECTION 10.07. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness................105
SECTION 10.08. Payment Over of Proceeds upon Dissolution, etc., of a Guarantor....................105
SECTION 10.09. Suspension of Guarantee Obligations When Guarantor Senior
Indebtedness in Default.........................................................107
SECTION 10.10. Trustee's Relation to Guarantor Senior Indebtedness................................109
SECTION 10.11. Subrogation to Rights of Holders of Guarantor Senior Indebtedness..................109
</TABLE>
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SECTION 10.12. Guarantee Subordination Provisions Solely To Define Relative Rights................110
SECTION 10.13. Trustee To Effectuate Subordination................................................110
SECTION 10.14. Notice to Trustee..................................................................111
SECTION 10.15. Rights of Trustee as a Holder of Guarantor Senior Indebtedness;
Preservation of Trustee's Rights................................................112
SECTION 10.16. Application of Certain Article Eleven Provisions...................................112
ARTICLE ELEVEN
SUBORDINATION OF NOTES
SECTION 11.01. Notes Subordinate to Senior Indebtedness...........................................113
SECTION 11.02. Payment Over of Proceeds upon Dissolution, etc.....................................113
SECTION 11.03. Suspension of Payment When Senior Indebtedness in Default..........................114
SECTION 11.04. Trustee's Relation to Senior Indebtedness..........................................116
SECTION 11.05. Subrogation to Rights of Holders of Senior Indebtedness............................117
SECTION 11.06. Provisions Solely To Define Relative Rights........................................117
SECTION 11.07. Trustee to Effectuate Subordination................................................118
SECTION 11.08. No Waiver of Subordination Provisions..............................................118
SECTION 11.09. Notice to Trustee..................................................................119
SECTION 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent.....................120
SECTION 11.11. Rights of Trustee as a Holder of Senior Indebtedness; Preservation
of Trustee's Rights.............................................................121
SECTION 11.12. Article Applicable to Paying Agents................................................121
SECTION 11.13. No Suspension of Remedies..........................................................121
ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. Trust Indenture Act Controls.......................................................121
SECTION 12.02. Notices............................................................................122
SECTION 12.03. Communications by Holders with Other Holders.......................................123
SECTION 12.04. Certificate and Opinion as to Conditions Precedent.................................123
SECTION 12.05. Statements Required in Certificate and Opinion.....................................124
SECTION 12.06. Rules by Trustee and Agents........................................................124
SECTION 12.07. Business Days; Legal Holidays......................................................125
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SECTION 12.08. Governing Law......................................................................125
SECTION 12.09. No Adverse Interpretation of Other Agreements......................................125
SECTION 12.10. No Recourse Against Others.........................................................125
SECTION 12.11. Successors.........................................................................126
SECTION 12.12. Multiple Counterparts..............................................................126
SECTION 12.13. Table of Contents, Headings, etc...................................................126
SECTION 12.14. Separability.......................................................................126
EXHIBITS
Exhibit A. Form of Note.......................................................................A-1
Exhibit B. Form of Legend for Rule 144A Notes and Other Notes that are
Restricted Notes................................................................B-1
Exhibit C. Form of Legend for Regulation S Note...............................................C-1
Exhibit D. Form of Legend for Global Note.....................................................D-1
Exhibit E. Form of Certificate To Be Delivered in Connection with Transfers to
Non-QIB Accredited Investors....................................................E-1
Exhibit F. Form of Certificate To Be Delivered in Connection with Transfers
Pursuant to Regulation S........................................................F-1
Exhibit G. Form of Guarantee..................................................................G-1
</TABLE>
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<PAGE>
INDENTURE, dated as of May 19, 1999, between FAIRFIELD
MANUFACTURING COMPANY, INC., a Delaware corporation, as issuer (the "Company"),
and FIRST UNION NATIONAL BANK, a national banking association organized under
the laws of the United States of America, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of the Notes.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person
(including an Unrestricted Subsidiary) existing at the time such Person becomes
a Restricted Subsidiary or is merged into or consolidated with any other Person
or which is assumed in connection with the acquisition of assets from such
Person and, in each case, not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such merger, consolidation or acquisition; provided that Indebtedness of such
Person which is redeemed, defeased, retired or otherwise repaid at the time of
or immediately upon consummation of such merger, consolidation or acquisition
shall not be Acquired Indebtedness.
"Additional Interest" has the meaning provided in Section 4(a)
of the Registration Rights Agreement.
"Additional Notes" means not less than $25.0 million per
series in aggregate principal amount of Notes (other than the Initial Notes)
issued under this Indenture from time to time in accordance with Sections 2.01,
2.02 and 4.06 hereof.
"Affiliate" means, with respect to any specific Person, any
other Person that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
Person. For the 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 or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that, for purposes of the
covenant described under Section 4.10
<PAGE>
-2-
beneficial ownership of at least 10% of the voting securities of a Person,
either directly or indirectly, shall be deemed to be control.
"Agent" means any Registrar, Paying Agent, or agent for
service or notices and demands.
"amend" means amend, modify, supplement, restate or amend and
restate, including successively; and "amending" and "amended" have correlative
meanings.
"Asset Acquisition" means
(1) an Investment by the Company or any Restricted 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
(2) 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, other than to the Company or a Restricted Subsidiary
of the Company, in one or a series of related transactions, of:
(1) any Capital Stock in any Restricted Subsidiary of the
Company;
(2) 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
(3) any other properties or assets of the Company or any
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, damaged equipment or equipment unsuitable for the Company's
business or any sale of any of the Company's products is in the
ordinary course of business) thereof.
For purposes of this definition, the term Asset Sales shall
not include:
(A) any sale, issuance, conveyance, transfer, lease or other
disposition, of properties or assets that is governed by the provisions
described under Section 5.01;
<PAGE>
-3-
(B) 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 $1.0 million;
(C) any Restricted Payment made in compliance with Section
4.08, and any disposition of any Permitted Investment;
(D) surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind;
(E) the licensing of intellectual property;
(F) any Sale-Leaseback Transaction; and
(G) any Permitted Receivables Financing.
"Asset Sale Proceeds" means, with respect to any Asset Sale:
(1) cash received by the Company or any Restricted Subsidiary
of the Company from such Asset Sale, after
(a) provision for all income or other taxes measured
by or resulting from such Asset Sale,
(b) payment of all brokerage commissions,
underwriting and other fees and expenses, including, without
limitation, legal, accounting, investment advisory and
appraisal fees, related to such Asset Sale,
(c) provision for minority interest holders in any
Restricted Subsidiary of the Company as a result of such Asset
Sale,
(d) repayment of Indebtedness that is required to be
repaid in connection with such Asset Sale or is secured by a
Lien on the property or assets sold, and
(e) deduction of appropriate amounts to be provided
by the Company or a Restricted Subsidiary of the Company as a
reserve, in accordance with GAAP, against any liabilities
associated with the assets sold or disposed of in such Asset
Sale and retained by the Company or a Restricted Subsidiary
after such Asset Sale, including, without limitation, pension,
severance, relocation and other post-employment benefit
liabilities and liabilities related to
<PAGE>
-4-
environmental matters or against any indemnification
obligations associated with the assets sold or disposed of in
such Asset Sale; and
(2) promissory notes and other noncash consideration received
by the Company or any Restricted Subsidiary of the Company from such
Asset Sale or other disposition upon the liquidation or conversion of
such notes or noncash consideration into cash, net of any fees,
discounts, commissions or taxes paid or payable as a result of such
conversion or liquidation.
"Available Asset Sale Proceeds" means, with respect to any
Asset Sale, the aggregate Asset Sale Proceeds from such Asset Sale that have not
been applied in accordance with clauses (3)(a) or (3)(b), and which have not yet
been the basis for an Excess Proceeds Offer in accordance with clause (3)(c) of
the first paragraph of Section 4.09.
"Bankruptcy Law" means Title 11 of the United States Code
entitled "Bankruptcy" or any other law relating to bankruptcy, insolvency,
winding up, liquidation, reorganization or relief of debtors, whether in effect
on the date hereof or hereafter.
"Board of Directors" means (i) in the case of a Person that is
a corporation, the board of directors of such Person or any committee authorized
to act therefor, (ii) in the case of a Person that is a limited partnership, the
board of directors of its corporate general partner or any committee authorized
to act therefor (or, if the general partner is itself a limited partnership, the
board of directors of such general partner's corporate general partner or any
committee authorized to act therefor) and (iii) in the case of any other Person,
the board of directors, management committee or similar governing body or any
authorized committee thereof responsible for the management of the business and
affairs of such Person.
"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.
"Capital Stock" means
(1) 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
(2) with respect to any Person that is not a corporation, any
and all partnership or other equity interests.
<PAGE>
-5-
"Capital 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:
(1) any evidence of Indebtedness with a maturity of 365 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);
(2) certificates of deposit, time deposits, Eurodollar time
deposits and bankers' acceptances with a maturity of 365 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;
(3) commercial paper with a maturity of 365 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;
(4) 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 365 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; and
(5) investments in money market funds with assets of $5.0
million or greater.
"Certificate of Designation" means the certificate of
designation of the powers, preferences and relative, participating, optional and
other special rights of the Existing Preferred Stock.
<PAGE>
-6-
"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 either (x) the Permitted Holders or (y) 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.
"Code" means the Internal Revenue Code of 1986, as amended.
<PAGE>
-7-
"Common Stock" 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.
"Commission" means the Securities and Exchange Commission.
"Company" means the party named as such in the first paragraph
of this Indenture until a successor replaces such party pursuant to Article Five
of this Indenture and thereafter means the successor.
"Company Request" means any written request signed in the name
of the Company by the Chairman of the Board of Directors, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer or the
Treasurer of the Company and attested to by the Secretary or 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 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 during the four full fiscal quarters for which financial information is
available (the "Four Quarter Period") ending on or prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio (the "Transaction Date") 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
<PAGE>
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(1) 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") and the
discharge of any other Indebtedness repaid, repurchased or otherwise
discharged with as if the discharge had occurred on the first day of
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
(2) 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 Restricted 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 (including any
Consolidated EBITDA associated with such Asset Acquisition and
including any pro forma expense and cost reductions determined in
accordance with Article 11 of Regulation S-X relating to such 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":
(1) 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;
(2) 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;
(3) notwithstanding clauses (1) and (2) 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
<PAGE>
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(4) interest on any Indebtedness incurred pursuant to a
revolving credit facility will be based on the average monthly
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, without duplication, of
(i) Consolidated Interest Expense, plus
(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, plus
(iii) the product of (a) all dividend accruals, whether or not
paid or payable in cash, during such period on any Disqualified Capital
Stock of the Company or any of its Restricted Subsidiaries, and on any
Preferred Stock of Restricted Subsidiaries of the Company, times (b) a
fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory
tax rate of the Company, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP, plus
(iv) the product of (a) all dividends actually paid, whether
paid in cash or in any other consideration (but excluding any dividends
to the extent paid through the issuance of additional shares of
Qualified Capital Stock of the Company), during such period with
respect to any Designated Preferred Stock of the Company, times (b) a
fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory
tax rate of the Company, expressed as a decimal, in each on a
consolidated basis in accordance with GAAP.
"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
<PAGE>
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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,
(1) 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,
(i) any amortization of debt discount,
(ii) the net cost under Interest Rate Agreements
(including any amortization of discounts),
(iii) the interest portion of any deferred payment
obligation which in accordance with GAAP is required to be
reflected on an income statement,
(iv) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers'
acceptance financing,
(v) all accrued interest,
(vi) interest-equivalent costs associated with any
Permitted Receivables Financing, whether accounted for as
interest expense or loss on the sale of Receivables and
Related Assets, 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,
(2) any non-cash interest expense of the Company in respect of
Permitted Indebtedness incurred in connection with the Equity Incentive
Plan, minus
(3) any amortization of deferred financing discount costs and
expenses.
<PAGE>
-11-
"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 determined in accordance with GAAP
consistently applied, adjusted:
(a) to the extent included in calculating such net income, by
excluding, without duplication,
(1) all extraordinary gains and losses, non-recurring
cumulative effect of accounting changes and, without
duplication, non-recurring or unusual gains and losses and all
restructuring charges,
(2) 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,
(3) solely for purposes of determining the aggregate
amount available for Restricted Payments under clause (3) of
Section 4.08, 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,
(4) one time unusual non-cash charges,
(5) any gain or loss realized upon the termination of
any employee pension benefit plan, on an after-tax basis,
(6) gains or losses in respect of any Asset Sales
(without giving effect to clause (B) under the definition of
Asset Sale) 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,
(7) the net income of any Restricted Subsidiary that
is not a Guarantor 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
(8) the amount of any Consolidated Non-cash Charges
attributable to applying the purchase method of accounting in
accordance with GAAP; and
<PAGE>
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(b) by adding, in the case of the Company,
(1) 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
(2) 100% (without duplication) of all non-cash
accruals or cash expenses relating to the Equity Participation
Plan or 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 corporate trust office of
the Trustee designated by the Trustee for purposes of this Indenture. The
Trustee initially designates its Charlotte, North Carolina office for purposes
of transfers and exchanges.
"Credit Agreement" means:
(a) the Senior Credit Facility, together with all amendments,
documents and instruments from time to time delivered in connection
with the Senior Credit Facility (including, without limitation, any
guaranty agreements and security documents), as in effect on the date
hereof and as the Senior Credit Facility and such other agreements,
documents and instruments may be amended, amended and restated,
refunded, refinanced, replaced, repaid, 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 Senior Credit
Facility or any other agreement deemed a Credit Agreement under clause
(a) hereof or under this clause (b) whether or not with the same agent,
trustee, representative lenders or holders, and irrespective of any
changes in the terms and conditions thereof.
<PAGE>
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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 agreement
deemed a Credit Agreement under clause (a) or (b) hereof, and all refundings,
refinancings and replacements of any Credit Agreement, including any agreement
(i) changing the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder, so long as borrowers and guarantors 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.
"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 Notes issued in the
form of one or more Global Notes, 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 Preferred Stock" means Preferred Stock (not
constituting Disqualified Capital Stock) of the Company (excluding the Existing
Preferred Stock, any other Preferred Stock issued on or prior to the Issue Date
and any Preferred Stock issued in exchange or substitution for any of the
foregoing) that is designated as Designated Preferred Stock pursuant to an
officer's certificate executed by the principal executive officer or the
principal financial officer of the Company, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth in the clause
(3)(b) of Section 4.08.
"Designated Senior Indebtedness" as to the Company or any
Guarantor, as the case may be, means:
(1) any Senior Indebtedness under the Credit Agreement; and
(2) any other Senior Indebtedness which at the time of
determination exceeds $15.0 million in aggregate principal amount (or
accreted value in the case of Indebtedness issued at a discount)
outstanding or available under a committed facility, which is
specifically designated in the instrument evidencing such Senior
Indebtedness as "Designated Senior Indebtedness" by such Person and as
to which the Trustee has been given written notice of such designation.
"Disinterested Director" means a member of the Board of
Directors of the Company who does not have any direct or indirect financial
interest in or with respect to the transaction being considered.
<PAGE>
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"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets.
"Disqualified Capital Stock" means any Capital Stock of a
Person or a Restricted Subsidiary thereof which, by its terms (or by the terms
of any security into which it is convertible or for which it is exchangeable at
the option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable solely at the option of the holder thereof, in whole or in part,
on or prior to the maturity date of the Notes, for cash or securities
constituting Indebtedness; provided, however, that Capital Stock of a Person or
any Restricted Subsidiary thereof that is issued with the benefit of provisions
requiring an offer to be made for such Preferred Stock in the event of a change
of control of or asset sale by such Person or Restricted Subsidiary, which
provisions have substantially the same effect as the provisions of this
Indenture described under Section 4.20 and Section 4.09, shall not be deemed to
be Disqualified Capital Stock solely by virtue of such provisions; provided,
further, that if such Capital Stock is issued pursuant to any plan for the
benefit of employees of the Company or its Subsidiaries or by any such plan to
such employees, such Capital Stock shall not constitute Disqualified Capital
Stock solely because it may be required to be repurchased by the Company in
order to satisfy applicable statutory or regulatory obligations.
"Equity Incentive Plan" means any long-term incentive
compensation plan (other than the Equity Participation Plan) adopted by the
Company covering the Company's executives and selected other key management
employees, as such plans may be amended from time to time by the Board of
Directors of the Company pursuant to their terms.
"Equity Participation Plan" means the Fairfield Manufacturing
Company, Inc. Equity Participation Plan, as such plan may be amended from time
to time.
"Exchange Act" means the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder.
"Exchange Date" means the date of original issuance of the
Exchange Debentures.
"Exchange Notes" has the meaning provided in the Registration
Rights Agreement.
"Exchange Debentures" means the Company's 11 1/4% Subordinated
Exchange Debentures due 2009 issuable in exchange for the Existing Preferred
Stock.
<PAGE>
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"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 11 1/4%
Cumulative Exchangeable Preferred Stock, par value $.01 per share.
"Event of Default" has the meaning set forth under Section
6.01.
"fair market value" means, with respect to any asset or
property, the price, taking into account any liabilities, which could be
negotiated in an arm's-length, free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair market value shall be
determined by the Board of Directors of the Company acting reasonably and in
good faith and shall be evidenced by a resolution of the Board of Directors of
the Company delivered to the Trustee.
"Final Maturity Date" means October 15, 2008.
"Financing Documents" means this Indenture, the Registration
Rights Agreement and the Notes.
"GAAP" means generally accepted accounting principles in the
United States applicable as of the Issue Date.
"Governmental Authority" shall mean any government or
political subdivision of the United States or any other country or any agency,
authority, board, bureau, central bank, securities exchange, commission,
department or instrumentality thereof or therein, including any court, tribunal,
grand jury or arbitrator, in each case whether foreign or domestic, or any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to such government or political subdivision.
"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.
<PAGE>
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"Guarantee" means the guarantee of the Obligations of the
Company with respect to the Notes by each Guarantor.
"Guarantor" means the issuer at any time of a Guarantee (so
long as such Guarantee remains outstanding).
"Guarantor Senior Indebtedness" means, with respect to any
Guarantor, the principal of and premium, if any, and interest on, and any and
all other fees, expense reimbursement obligations and other amounts due pursuant
to the terms of all agreements, documents and instruments providing for,
creating, securing or evidencing or otherwise entered into in connection with:
(1) all Indebtedness of such Guarantor owed to lenders under
the Credit Agreement or Designated Senior Indebtedness;
(2) all obligations of such Guarantor with respect to any
Hedging Obligations;
(3) all obligations of such Guarantor to reimburse any bank or
other person in respect of amounts paid under letters of credit,
acceptances or other similar instruments;
(4) all other Indebtedness of such Guarantor which does not
provide that it is to rank pari passu with or subordinate to the
Guarantee of such Guarantor; and
(5) all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any of the Guarantor
Senior Indebtedness described above.
Notwithstanding anything to the contrary in the foregoing,
Guarantor Senior Indebtedness will not include, with respect to any Guarantor:
(A) Indebtedness of such Guarantor to any of its Subsidiaries,
or to any Affiliate of such Guarantor (other than in connection with
customary commercial banking services);
(B) Indebtedness represented by the Guarantees;
(C) Indebtedness of such Guarantor under the Exchange
Debentures, if issued in accordance with the Exchange Indenture;
<PAGE>
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(D) any Indebtedness which by the express terms of the
agreement or instrument creating, evidencing or governing the same is
junior or subordinate in right of payment to any item of Guarantor
Senior Indebtedness;
(E) any trade payable arising from the purchase of goods or
materials or for services obtained in the ordinary course of business;
(F) that portion of any Indebtedness of such Guarantor that at
the time of incurrence is incurred in violation of the Indenture,
unless such Indebtedness consists of Designated Senior Indebtedness,
and the holder(s) of such Indebtedness and their agents and
representatives (i) had no actual knowledge at the time of incurrence
that the incurrence of such Indebtedness violated the Indenture and
(ii) shall have received a certificate from an officer of such
Guarantor to the effect that the incurrence of such Indebtedness does
not violate the provisions of the Indenture;
(G) Indebtedness represented by Disqualified Capital Stock;
and
(H) any Indebtedness to or guaranteed on behalf of any
shareholders of the Company or any Subsidiary of such Guarantor or any
of its subsidiaries.
"Hedging Obligations" means, with respect to any Person, the
net payment obligations of such Person under (a) Interest Rate Agreements and
(b) other agreements or arrangements entered into in order to protect such
Person against fluctuations in commodity prices, interest rates or currency
exchange rates.
"Holder" or "Noteholder" means the Person in whose name a Note
is registered on the Registrar's books.
"incur" means, with respect to any Indebtedness of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume, enter
into any guarantee of, or otherwise become liable in respect of such
Indebtedness or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness 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:
(1) all indebtedness 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,
<PAGE>
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without limitation, all obligations, including reimbursement and
similar obligations, of such Person in connection with any letters of
credit, banker's acceptance or other similar credit transaction;
(2) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments;
(3) 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;
(4) all Capitalized Lease Obligations and Purchase Money
Indebtedness of such Person;
(5) all Indebtedness referred to in the preceding clauses of
other Persons, the payment of which is 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);
(6) all guarantees of Indebtedness referred to in this
definition by such Person;
(7) all Disqualified Capital Stock valued at its mandatory
maximum redemption price or liquidation preference plus accrued
dividends;
(8) all net obligations under or in respect of Hedging
Obligations of such Person; and
(9) any amendment, supplement, modification, deferral,
renewal, extension or refunding of any liability of the types referred
to in clauses (1) through (8) above.
For purposes hereof, 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.
<PAGE>
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For purposes of determining compliance with, and the
outstanding principal amount of any particular Indebtedness:
(1) any other obligation of the obligor of such Indebtedness
(or of any other Person who could have incurred such Indebtedness under
this Section) arising under any guarantee, Lien, or letter of credit
supporting such Indebtedness shall be disregarded to the extent that
such guarantee, Lien or letter of credit secures the principal amount
of such Indebtedness;
(2) in the event that Indebtedness meets the criteria of more
than one type of Indebtedness, the Company, in its sole discretion,
shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such
clauses;
(3) Indebtedness which provides that an amount less than the
principal amount thereof shall be due upon any declaration of
acceleration thereof shall be deemed to be incurred or outstanding in
an amount equal to the accreted value thereof at the date of
determination; and
(4) for purposes of determining compliance with any U.S.
dollar-denominated restrictions on the incurrence of Indebtedness
denominated in a foreign currency, the U.S. dollar-equivalent principal
amount of such Indebtedness incurred pursuant thereto shall be
calculated based on the relevant currency exchange rate in effect on
the date that such Indebtedness was incurred if such Indebtedness is
incurred to refinance other Indebtedness denominated in a foreign
currency, and such refinancing would cause the applicable U.S.
dollar-denominated restriction to be exceeded if calculated at the
relevant currency exchange rate in effect on the date of such
refinancing, such U.S. dollar-denominated restriction shall be deemed
not to have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of such
Indebtedness being refinanced.
"Indenture" means this Indenture as amended, restated or
supplemented from time to time.
"Independent Financial Advisor" means an accounting, valuation
or investment banking firm of national reputation in the United States which, in
the judgment of the Board of Directors of the Company, is otherwise independent
and qualified to perform the task for which it is to be engaged.
<PAGE>
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"Initial Notes" means $100.0 million in aggregate principal
amount of 9 5/8% Senior Subordinated Notes due 2008 of the Company issued on the
Issue Date for so long as such securities constitute Restricted Notes.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501 (a)(1), (2), (3)
or (7) promulgated under the Securities Act.
"interest" means, with respect to the Notes, the sum of any
interest and any Additional Interest on the Notes.
"Interest Payment Dates" means each April 15 and October 15,
commencing October 15, 1999.
"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 of 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 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 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 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 the Initial Notes are first issued
by the Company and authenticated by the Trustee under this Indenture.
<PAGE>
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"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 interest, lien, charge, easement, encumbrance,
preference, priority, or other security agreement of any kind on or with respect
to such property or assets (including without limitation, any Capitalized Lease
Obligation, conditional sales, or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Majority Holders" means at any time, the Holders of more than
50% in aggregate principal amount of the Notes outstanding at such time.
"Maturity Date" when used with respect to any Note, means the
date on which the principal of such Note becomes due and payable as therein or
herein provided, whether at the Final Maturity Date or by declaration of
acceleration, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means:
(1) in the case of any sale of Capital Stock by or equity
contribution to any Person, the aggregate net proceeds received by such
Person, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in property
(valued at the fair market value thereof, as determined in good faith
by the Board of Directors of such Person, at the time of receipt);
(2) in the case of any exchange, exercise, conversion or
surrender of outstanding securities of any kind for or into shares of
Capital Stock of the Company which is not Disqualified Capital Stock,
the net book value of such outstanding securities on the date of such
exchange, exercise, conversion or surrender (plus any additional amount
required to be paid by the holder to such Person upon such exchange,
exercise, conversion or surrender, less any and all payments made to
the holders, e.g., on account of fractional shares and less all
expenses incurred by such Person in connection therewith); and
(3) in the case of any issuance of any Indebtedness by the
Company or any Restricted Subsidiary, the aggregate net cash proceeds
received by such Person after the payments of expenses, commissions,
underwriting discounts and the like incurred in connection therewith.
<PAGE>
-22-
"Non-Payment Event of Default" means any event (other than a
Payment Default) the occurrence of which entitles, or, after passage of time,
would entitle one or more Persons to accelerate the maturity of any Designated
Senior Indebtedness.
"Non-U.S. Person" means a Person who is not a U.S. person, as
defined in Regulation S.
"Notes" means, collectively, the Initial Notes, the Additional
Notes, if any, the Private Exchange Notes, if any, and the Exchange Notes,
treated as a single class of securities, as amended from time to time in
accordance with the terms hereof, that are issued pursuant to this Indenture.
"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.
"Obligor" means the Company.
"Offering Memorandum" means the Offering Memorandum dated May
12, 1999 pursuant to which the Initial Notes were offered.
"Officer", with respect to any Person (other than the
Trustee), means the Chairman of the Board of Directors, Chief Executive Officer,
the President, any Vice President, the Chief Financial Officer, the Treasurer or
the Secretary of such Person, or any other officer of such Person designated by
the Board of Directors of such Person and set forth in an Officers' Certificate
delivered to the Trustee.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chief Executive Officer, the Chief Operating Officer,
Chief Financial Officer, the President, any Vice President or any Treasurer or
Secretary of such Person that shall comply with applicable provisions of this
Indenture.
"Opinion of Counsel" means a written opinion from legal
counsel, which counsel is not unacceptable to the Trustee, stating the matters
required by Section 12.05 and delivered 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 Indebtedness.
<PAGE>
-23-
"Permitted Holders" means (i) Lancer and its Affiliates, (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), (iii)
CIBC World Markets Corp. and its Affiliates, and (iv) Paul S. Levy and his
Affiliates.
"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 sum of (A) the greater of (x) $60,000,000
and (y) the amount equal to the sum of 85% 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 and (B)
any amounts outstanding under the Senior Credit Facility that utilize
subclause (13) of this definition (less the amount of net proceeds
which have been received in connection with the applicable Permitted
Receivables Financing; provided that such reduction shall apply only
for so long as a Permitted Receivables Financing is in effect);
(2) Indebtedness of the Company and its Restricted
Subsidiaries pursuant to the Initial Notes, the Exchange Notes issued
in exchange for the Initial Notes and any Notes issued in exchange for
or replacement of the Initial Notes or the Exchange Notes and any
Guarantees of the foregoing;
(3) Indebtedness of the Company outstanding on the date of the
Indenture; provided, a notice of redemption for the Existing Notes
shall be given in accordance with Article Eleven of the Existing
Indenture on or prior to June 30, 1999;
(4) Hedging Obligations entered into in the ordinary course of
the Company's or its Restricted Subsidiaries' business and not for
speculative purposes;
(5) Indebtedness of a Restricted Subsidiary of the Company (x)
to the Company or (y) to another Restricted Subsidiary of the Company;
provided, however, that any such Indebtedness of a 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 (other than Permitted Indebtedness of such Restricted
Subsidiary);
(6) Indebtedness of the Company to a Restricted Subsidiary of
the Company which is unsecured and, unless owing to a Guarantor,
subordinated in right of
<PAGE>
-24-
payment from and after such time as the Notes 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
Indenture and the Notes; provided, however, that any subsequent
issuance or transfer of Capital Stock that results in such Restricted
Subsidiary ceasing to be such, or any subsequent transfer of such
Indebtedness (other than to the Company or a Restricted Subsidiary)
will be deemed, in each case, to constitute the issuance of such
Indebtedness by the Company or of such Indebtedness by such Restricted
Subsidiary;
(7) Indebtedness of the Company to T-H Licensing which
complies with Section 4.10;
(8) Indebtedness of the Company or any Guarantor representing
Capitalized Lease Obligations and Purchase Money Indebtedness 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;
(9) 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;
(10) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of
purchase price adjustments (including adjustments in the purchase price
related to the performance or results of any acquired business) in
connection with the acquisition or disposition of assets permitted
under the Indenture;
(11) Any Indebtedness or other obligations of the Company
issued to participants in the Equity Incentive Plan or Equity
Participation Plan, provided that such Indebtedness is subordinated in
right of payment to the Notes;
(12) Indebtedness arising by reason of any Lien created or
permitted to exist in compliance with Section 4.11;
(13) Indebtedness of a Receivables Subsidiary pursuant to a
Permitted Receivables Financing; provided that after giving effect to
the incurrence thereof, the
<PAGE>
-25-
Company could incur at least $1.00 of Indebtedness under subclause (1)
of this definition in compliance with Section 4.06;
(14) Indebtedness of the Company or any of its Restricted
Subsidiaries represented by letters of credit for the account of the
Company or such Restricted Subsidiary, as the case may be, issued in
the ordinary course of business of the Company or such Restricted
Subsidiary, including, without limitation, in order to provide security
for worker's compensation claims or payment obligations in connection
with self-insurance or similar requirements in the ordinary course of
business and other Indebtedness with respect to workers' compensation
claims, self-insurance obligations, insurance purposes, performance,
surety and similar bonds and completion guarantees provided by the
Company or any Restricted Subsidiary in the ordinary course of
business;
(15) Guarantees of Indebtedness otherwise permitted under the
Indenture;
(16) Obligations in respect of trade letters of credit,
performance and surety bonds and completion guarantees provided by the
Company or any Restricted Subsidiary in the ordinary course of
business;
(17) Indebtedness of the Company or any Guarantor (which may
but is not required to be incurred under the Credit Agreement) in
addition to that described in clauses (1) through (16) above not to
exceed $20 million outstanding at any time in the aggregate;
Indebtedness may be incurred under the Credit Agreement; or
(18) (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 Notes but excluding the Existing Notes) 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
(18) (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 accrued and unpaid interest thereon plus the amount of any
<PAGE>
-26-
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 (including discounts and
commissions) in connection therewith and (B) in the case of any
refinancing of Indebtedness that is not Senior Indebtedness, (1) such
new Indebtedness is made subordinated to or pari passu with the Notes
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.
For purposes of determining compliance with Section 4.06, in
the event an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness, or is entitled to be incurred pursuant to
the second sentence of Section 4.06, the Company shall, at its sole discretion,
classify such item of Indebtedness as any of the appropriate items of Permitted
Indebtedness or as Indebtedness being incurred pursuant to the second sentence
of Section 4.06 and thereafter may, at its sole discretion, reclassify such item
of Indebtedness from time to time in any manner that complies with the
definition of Permitted Indebtedness and/or the second sentence of Section 4.06.
"Permitted Investment" means any of the following:
(1) Investments by the Company or any 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
Restricted Subsidiary;
(2) 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;
(3) Investments in commercial paper issued by corporations,
each of which shall have a consolidated net worth of at least
$100,000,000 maturing within 365 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;
(4) 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
<PAGE>
-27-
having capital, surplus and undivided profits totaling more than
$100,000,000 maturing within one year of the date of purchase;
(5) 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;
(6) Investments in cash and Cash Equivalents;
(7) Investments in prepaid expenses, negotiable instruments
held for collection and lease, utility and workers compensation,
performance and similar deposits entered into as a result of the
operations of the business in the ordinary course;
(8) loans and advances to officers of the Company and its
Restricted Subsidiaries made in compliance with clause (G) of the
second paragraph of Section 4.10;
(9) Investments by the Company or a Restricted Subsidiary in a
Restricted Subsidiary;
(10) 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
(2), (3), (4) or (6) above;
(11) Investments in any of the Notes;
(12) receivables owing to the Company or any Restricted
Subsidiary created in the ordinary course of business;
(13) Investments consisting of Indebtedness permitted under
clause (5) of the definition of Permitted Indebtedness; and
(14) Hedging obligations entered into in the ordinary course
of the Company's or its Restricted Subsidiaries business and not for
speculative purposes;
(15) Guarantees of Indebtedness and other obligations
otherwise permitted under the Indenture;
(16) Investments made by the Company or its Restricted
Subsidiaries as a result of consideration received in connection with
an Asset Sale made in compliance with Section 4.09;
<PAGE>
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(17) Investments in connection with a Permitted Receivables
Financing by or to any Receivables Subsidiary, including Investments of
funds held in accounts permitted or required by the arrangements
governing such Permitted Receivables Financing or any related
Indebtedness; and
(18) Investments in the aggregate amount of $20 million at any
time outstanding.
"Permitted Liens" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or
claims either (a) not delinquent, (b) that would not have 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, or (c) 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;
(2) 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);
(3) deposits or pledges in connection with bids, tenders,
leases and contracts (other than contracts for the payment of money);
(4) 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;
(5) 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;
(6) 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
<PAGE>
-29-
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;
(7) 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; or that would not have 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;
(8) leases, subleases, licenses or sublicenses to third
parties;
(9) Liens securing Indebtedness incurred in compliance with
Section 4.06;
(10) Liens existing on, or provided for under written
arrangements existing on, the Issue Date, or (in the case of any such
Liens securing Indebtedness of the Company or any of its Subsidiaries
existing or arising under written arrangements existing on the Issue
Date) securing any Refinancing Indebtedness in respect of such
Indebtedness so long as the Lien securing such Refinancing Indebtedness
is limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or dividends or distributions in
respect thereof) that secured (or under such written arrangements could
secure) the original Indebtedness;
(11) Liens securing Hedging Obligations;
(12) Liens arising out of judgments, decrees, orders or awards
in respect of which the Company shall in good faith be prosecuting an
appeal or proceedings for review, which appeal or proceedings shall not
have been finally terminated, or if the period within which such appeal
or proceedings may be initiated shall not have expired;
(13) Liens on properties or assets of the Company or any
Restricted Subsidiary securing Senior Indebtedness;
(14) Liens existing on property or assets of a Person at the
time such Person becomes a Subsidiary of the Company (or at the time
the Company or a Restricted Subsidiary acquires such property or
assets); provided, however, that such Liens are not created in
connection with, or in contemplation of, such other Person becoming
such a Subsidiary (or such acquisition of such property or assets), and
that such Liens are limited to all or part of the same property or
assets (plus improvements,
<PAGE>
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accessions, proceeds or dividends or distributions in respect thereof)
that secured (or, under the written arrangements under which such Liens
arose, could secure) the obligations to which such Liens relate;
(15) Liens on Capital Stock of an Unrestricted Subsidiary that
secure Indebtedness or other obligation of such Unrestricted
Subsidiary;
(16) Liens securing the Existing Notes, the Notes, the
Exchange Notes or the Exchange Debentures;
(17) Liens securing Refinancing Indebtedness incurred in
respect of any Indebtedness secured by, or securing any refinancing,
refunding, extension, renewal or replacement (in whole or in part) of
any other obligation secured by, any other Permitted Liens, provided
that any such new Lien is limited to all or part of the same property
or assets (plus improvements, accessions, proceeds or dividends or
distributions in respect thereof) that secured (or, under the written
arrangements under which the original Lien arose could secure) the
obligations to which such Liens relate; and
(18) Liens securing letters of credit entered into the
ordinary course of business and consistent with past business practice;
(19) Liens in favor of the Company or any Restricted
Subsidiary;
(20) Liens securing Purchase Money Indebtedness;
(21) Liens on and pledges of the stock of any Unrestricted
Subsidiary securing any Indebtedness of such Unrestricted Subsidiary;
(22) Liens on Receivables and Related Assets securing
Indebtedness or otherwise permitted to be incurred, in each case, with
a Permitted Receivables Financing.
"Permitted Receivables Financing" means a transaction or
series of transactions (including amendments, supplements, extensions, renewals,
replacements, refinancings or modifications thereof) pursuant to which a
Receivables Subsidiary purchases Receivables and Related Assets from the Company
or any Subsidiary and finances such Receivables and Related Assets through the
issuance of indebtedness or equity interests or through the sale of the
Receivables and Related Assets or a fractional undivided interest in the
Receivables and Related Assets; provided that:
<PAGE>
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(1) the Board of Directors shall have determined in good faith
that such Permitted Receivables Financing is economically fair and
reasonable to the Company and the Receivables Subsidiary;
(2) all sales of Receivables and Related Assets to or by the
Receivables Subsidiary are made at fair market value (as determined in
good faith by the Board of Directors of the Company);
(3) the financing terms, covenants, termination events and
other provisions thereof shall be market terms (as determined in good
faith by the Board of Directors of the Company);
(4) no portion of the Indebtedness of a Receivables Subsidiary
is Guaranteed by or is recourse to the Company or any Restricted
Subsidiary (other than recourse for customary representations,
warranties, covenants and indemnities, none of which shall relate to
the collectibility of the Receivables and Related Assets); and
(5) neither the Company nor any Subsidiary has any obligation
to maintain or preserve the Receivable Subsidiary's financial
condition.
"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 Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Physical Notes" means certificated Notes in registered form
in substantially the form set forth in Exhibit A.
"Private Exchange" has the meaning set forth in the
Registration Rights Agreement.
"Private Exchange Notes" has the meaning set forth in the
Registration Rights Agreement.
"Private Placement Legend" means the legend initially set
forth on the Rule 144A Notes and Other Notes that are Restricted Notes in the
form set forth in Exhibit B.
<PAGE>
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"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.
"Purchase Money Indebtedness" means any Indebtedness incurred
in the ordinary course of business by a Person to finance the cost (including
the cost of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Equity Offering" means a sale by the Company of
shares of its Qualified Capital Stock (however designated and whether voting or
non-voting) and any and all rights, warrants or options to acquire such
Qualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A promulgated under the Securities Act.
"Receivables and Related Assets" means accounts receivable and
instruments, chattel paper, obligations, general intangibles and other similar
assets, in each case relating to such receivables, including interests in
merchandise or goods, the sale or lease of which gave rise to such receivable,
related contractual rights, guarantees, insurance proceeds, collections, other
related assets and proceeds of all of the foregoing.
"Receivables Subsidiary" means a wholly owned Subsidiary which
is established for the limited purpose of acquiring and financing Receivables
and Related Assets and engaging in activities ancillary thereto.
"redeem" means redeem, repurchase, defease or otherwise
acquire or retire for value; and "redemption" and "redeemed" have correlative
meanings.
"Redemption Date" when used with respect to any Note to be
redeemed means the date fixed for such redemption pursuant to the terms of the
Notes.
"refinance" means refinance, renew, extend, replace, defease
or refund, in whole or in part, including successively; and "refinancing" and
"refinanced" have correlative meanings.
"Registration Rights Agreement" means the Registration Rights
Agreement dated May 19, 1999 between the Company, and the initial purchasers
named therein.
<PAGE>
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"Regulation S" means Regulation S promulgated under the
Securities Act.
"Responsible Officer" when used with respect to the Trustee,
means an officer or assistant officer assigned to the corporate trust department
of the Trustee (or any successor group of the Trustee) with direct
responsibility for the administration of this Indenture and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Note" has the same meaning as "Restricted
Security" 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 Note is a Restricted
Note.
"Restricted Payment" means any of the following:
(1) the declaration or payment of any dividend or any other
distribution or payment on Capital Stock of the Company or any
Restricted Subsidiary of the Company or any payment made to the direct
or indirect holders (in their capacities as such) of Capital Stock of
the Company or any Restricted Subsidiary of the Company (other than (a)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to
purchase such Capital Stock (other than Disqualified Capital Stock),
(b) in the case of Restricted Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Wholly Owned Restricted
Subsidiary of the Company and (c) other pro rata dividends or other
distributions made by a Restricted Subsidiary of the Company that is
not a Wholly Owned Restricted Subsidiary to minority stockholders);
(2) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company or any of its
Restricted Subsidiaries (other than Capital Stock owned by the Company
or a Wholly Owned Restricted Subsidiary of the Company, excluding
Disqualified Capital Stock) or any option, warrants or other rights to
purchase such Capital Stock;
(3) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement
for value, prior to any scheduled maturity, scheduled repayment or
scheduled sinking fund payment, of any Indebtedness which is
subordinated in right of payment to the Notes (other than subordinated
Indebtedness acquired in anticipation of satisfying a scheduled sinking
fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition);
<PAGE>
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(4) the making of any Investment in any Person other than a
Permitted Investment; and
(5) forgiveness of any Indebtedness of an Affiliate of the
Company to the Company or a Restricted Subsidiary of the Company.
For purposes of determining the amount expended for Restricted
Payments, cash distributed or invested shall be valued at the face amount
thereof and property other than cash shall be valued at its fair market value
(as such fair market value is determined in good faith by the Board of Directors
of the Company).
"Restricted Subsidiary" means (i) T-H Licensing, Inc. and (ii)
any other Subsidiary of the Company other than an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities
Act.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"S&P" means Standard & Poor's Ratings Group and its
successors.
"Sale and Leaseback Transaction" means any arrangement with
any Person providing for the leasing by the Company or any Restricted Subsidiary
of the Company of any real or tangible personal property, which property has
been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person in contemplation of such leasing.
"Securities Act" means the Securities Act of 1933 and the
rules and regulations promulgated thereunder.
"S&P" means Standard & Poor's Corporation and its successors.
"Senior Credit Facility" means the Loan Agreement, dated as of
July 7, 1993, among the Company, the lenders named therein and General Electric
Capital Corporation, as agent for such lenders and other financial institutions
party thereto from time to time as such agreement may be assumed by any
successor in interest, and as such agreement may be amended, supplemented,
waived or otherwise modified from time to time, or refunded, refinanced,
restructured, replaced, renewed, repaid, increased or extended from time to time
(whether in whole or in part, whether with the original agent and lenders or
other agents and lenders or otherwise).
"Senior Indebtedness" means the principal of and premium, if
any, and interest on, and any and all other fees, expense reimbursement
obligations and other amounts
<PAGE>
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due pursuant to the terms of all agreements, documents and instruments providing
for, creating, securing or evidencing or otherwise entered into in connection
with:
(1) all Indebtedness of the Company owed to lenders under the
Credit Agreement or Designated Senior Indebtedness;
(2) all obligations of the Company with respect to any Hedging
Obligations;
(3) all obligations of the Company to reimburse any bank or
other person in respect of amounts paid under letters of credit,
acceptances or other similar instruments;
(4) all other Indebtedness of the Company which does not
provide that it is to rank pari passu with or subordinate to the Notes;
and
(5) all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any of the Senior
Indebtedness described above.
Notwithstanding anything to the contrary in the foregoing,
Senior Indebtedness will not include:
(A) Indebtedness of the Company to any of its Subsidiaries, or
to any Affiliate of the Company (other than in connection with
customary commercial banking services);
(B) Indebtedness represented by the Notes;
(C) Indebtedness represented by the Exchange Debentures, if
issued in accordance with the Exchange Indenture;
(D) any Indebtedness which by the express terms of the
agreement or instrument creating, evidencing or governing the same is
junior or subordinate in right of payment to any item of Senior
Indebtedness;
(E) any trade payable arising from the purchase of goods or
materials or for services obtained in the ordinary course of business;
(F) that portion of any Indebtedness of the Company that at
the time of incurrence is incurred in violation of the Indenture,
unless such Indebtedness consists of Designated Senior Indebtedness,
and the holder(s) of such Indebtedness and their agents and
representatives (i) had no actual knowledge at the time of incurrence
that
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the incurrence of such Indebtedness violated the Indenture and (ii)
shall have received a certificate from an officer of the Company to the
effect that the incurrence of such Indebtedness does not violate the
provisions of the Indenture;
(G) Indebtedness represented by Disqualified Capital Stock;
and
(H) any Indebtedness to or guaranteed on behalf of any
shareholders of the Company or any Subsidiary of the Company.
"Senior Subordinated Indebtedness" means the Notes and any
other Indebtedness of the Company that specifically provides that such
indebtedness is to rank pari passu in right of payment with the Notes.
"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 Note or
any installment of interest thereon, the date specified in such Note as the
fixed date on which any principal of such Note 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.
"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the date of this Indenture or thereafter
incurred) that is expressly subordinate in right of payment to the Notes
pursuant to a written agreement.
"Subsidiary", with respect to any Person, means:
(1) 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
(2) 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.
"Surviving Person" means, with respect to any Person involved
in or that makes any Disposition, the Person formed by or surviving such
Disposition or the Person to which such Disposition is made.
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"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.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date of this Indenture (except as
provided in Section 8.03 hereof).
"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:
(1) no portion of the Indebtedness or any other obligation
(contingent or otherwise) of which
(a) is guaranteed by the Company or any Restricted
Subsidiary of the Company,
(b) is recourse to or obligates the Company or any
Restricted Subsidiary of the Company in any way (other than
solely with respect to the stock of such Unrestricted
Subsidiary) or
(c) subjects any property or asset of the Company or
any Restricted Subsidiary of the Company, directly or
indirectly, contingently or otherwise, to the satisfaction
thereof (other than solely with respect to the stock of such
Unrestricted Subsidiary); and
(2) with which neither the Company nor any Restricted
Subsidiary of the Company has any obligation (other than by the terms
of the Indenture) (a) to subscribe for additional shares of Capital
Stock or other equity interest therein or (b) 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 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 Indenture and (B) any Indebtedness or Liens of such
Unrestricted Subsidiary would
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be permitted to be incurred by a Restricted Subsidiary of the Company
under the Indenture.
"U.S. Government Obligations" means (a) securities that are
direct obligations of the United States of America for the payment of which its
full faith and credit are pledged or (b) 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
(1) the then outstanding aggregate principal amount of such
Indebtedness into
(2) the total of the product obtained by multiplying (a) 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 (b) 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,
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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>
"Affiliate Transaction".......................................... 4.10
"Agent Members".................................................. 2.16(a)
"Basket"......................................................... 4.08(c)
"Business Day"................................................... 12.07
"CEDEL".......................................................... 2.16(a)
"Change of Control Date"......................................... 4.20
"Company Bankruptcy Proceeding".................................. 11.02
"Covenant Defeasance"............................................ 9.03
"Custodian"...................................................... 6.01
"Designation".................................................... 4.15(a)
"Euroclear"...................................................... 2.16(a)
"Events of Default".............................................. 6.01
"Excess Proceeds"................................................ 4.09
"Global Notes"................................................... 2.16(a)
"Initial Lien"................................................... 4.11
"Legal Defeasance"............................................... 9.02
"Legal Holiday".................................................. 12.07
"Note Portion of Excess Proceeds"................................ 4.09
"Other Debt"..................................................... 4.09
"Other Notes".................................................... 2.02
"Paying Agent"................................................... 2.04
"Preliminary Agreement".......................................... 4.14
"Refinancing Agreement".......................................... 4.14
"Registrar"...................................................... 2.04
"Regulation S Global Notes"...................................... 2.16(a)
"Regulation S Notes"............................................. 2.02
"Replacement Assets.............................................. 4.09
"Restricted Global Note"......................................... 2.16(a)
"Restricted Payment"............................................. 4.08
"Revocation"..................................................... 4.15(c)
"Rule 144A Notes"................................................ 2.02
</TABLE>
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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:
"indenture securities" means the Notes.
"indenture securityholder" means a Holder or Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor on the indenture securities" means the Company or any other
obligor on the Notes.
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 Commission
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) "or" is not exclusive;
(3) words in the singular include the plural, and in the
plural include the singular;
(4) words used herein implying any gender shall apply to both
genders;
(5) "herein" "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other Subsection;
(6) unless otherwise specified herein, all accounting terms
used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to be
delivered hereunder shall be prepared in accordance
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with GAAP as in effect from time to time, applied on a basis consistent
with the most recent audited consolidated financial statements of the
Company;
(7) "$," "U.S. Dollars" and "United States Dollars" each refer
to United States dollars, or such other money of the United States that
at the time of payment is legal tender for payment of public and
private debts; and
(8) whenever in this Indenture there is mentioned, in any
context, principal, interest or any other amount payable under or with
respect to any Note, such mention shall be deemed to include mention of
the payment of Additional Interest to the extent that, in such context,
Additional Interest is, was or would be payable in respect thereof.
ARTICLE TWO
THE NOTES
SECTION 2.01. Amount of Notes.
The Trustee shall authenticate (i) Notes for original issue on
the Issue Date in the aggregate principal amount of $100,000,000 and (ii)
Additional Notes for original issue from time to time, in each case upon a
written order of the Company in the form of an Officers' Certificate of the
Company. Such written order shall specify the amount of Notes to be
authenticated and the date on which the Notes are to be authenticated. All
Initial Notes and Additional Notes shall be identical in all respects other than
the issue dates and the date from which interest accrues except as provided in
this Section 2.01 and except that any Additional Note may contain any notations,
legends or endorsements permitted under Section 2.02.
Upon receipt of a Company Request and an Officers' Certificate
certifying that a registration statement relating to an exchange offer specified
in the Registration Rights Agreement or, with respect to the Additional Notes, a
registration rights agreement substantially identical to the Registration Rights
Agreement, is effective or that the conditions precedent to a private exchange
thereunder have been met, the Trustee shall authenticate an additional series of
Notes in an aggregate principal amount not to exceed the outstanding aggregate
principal amount of the Initial Notes or Additional Notes, as the case may be,
for issuance in exchange for the Notes tendered for exchange pursuant to such
exchange offer registered under the Securities Act or pursuant to a Private
Exchange. Exchange Notes or Private Exchange Notes may have such distinctive
series designations and
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such changes in the form thereof as are specified in the Company Request
referred to in the preceding sentence.
In the event that the Company shall issue and the Trustee
shall authenticate any Additional Notes, the Company shall use its reasonable
best efforts to obtain the "CUSIP" number for such Notes as is printed on the
Notes outstanding at such time. Notwithstanding the foregoing, all Notes issued
under this Indenture shall vote and consent together on all matters as one class
and no series of Notes will have the right to vote or consent as a separate
class on any matter.
SECTION 2.02. Form and Dating.
The Notes and the Trustee's certificate of authentication with
respect thereto shall be substantially in the form set forth in Exhibit A, which
is incorporated in and forms a part of this Indenture. The Notes may have
notations, legends or endorsements required by law, rule or usage to which the
Company is subject; in each case, the Company shall instruct the Trustee as to
the notation, legend or endorsement to be used. Without limiting the generality
of the foregoing, Notes offered and sold to Qualified Institutional Buyers in
reliance on Rule 144A ("Rule 144A Notes") shall bear the legend and include the
form of assignment set forth in Exhibit B, Notes offered and sold in offshore
transactions in reliance on Regulation S ("Regulation S Notes") shall bear the
legend and include the form of assignment set forth in Exhibit C, and Notes
offered and sold to Institutional Accredited Investors in transactions exempt
from registration under the Securities Act not made in reliance on Rule 144A or
Regulation S ("Other Notes") may be represented by a Restricted Global Note or,
if such an investor may not hold an interest in the Restricted Global Note, a
Physical Note, in each case, bearing the Private Placement Legend. Each Note
shall be dated the date of its authentication.
The terms and provisions contained in the Notes shall
constitute, and are 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 agree to be bound
thereby.
The Notes may be presented for registration of transfer and
exchange at the offices of the Registrar.
SECTION 2.03. Execution and Authentication.
Two Officers shall sign, or one Officer shall sign and one
Officer (each of whom shall, in each case, have been duly authorized by all
requisite corporate actions) shall attest to, the Notes for the Company by
manual or facsimile signature.
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If an Officer whose signature is on a Note was an Officer at
the time of such execution but no longer holds that office at the time the
Trustee authenticates the Note, the Note shall be valid nevertheless.
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder. Notwithstanding the foregoing, if
any Note shall have been authenticated and delivered hereunder but never issued
and sold by the Company, and the Company shall deliver such Note to the Trustee
for cancellation as provided in Section 2.12, for all purposes of this Indenture
such Note shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
The Trustee shall authenticate Initial Notes for original
issue in the aggregate principal amount of $100,000,000 (other than as provided
in Section 2.08 hereof) in one or more series, and from time to time, Additional
Notes in the aggregate principal amount of not less than $25.0 million per
series, upon a written order of the Company in the form of an Officers'
Certificate. Each such written order shall specify the amount of Notes to be
authenticated, whether the Notes are to be Initial Notes, Additional Notes or
Exchange Notes and whether the Notes are to be issued as Definitive Notes or
Global Notes or such other information as the Trustee shall reasonably request.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Notes. Unless otherwise provided
in the appointment, an authenticating agent may authenticate the Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
Each Paying Agent is designated as an authenticating agent for purposes of this
Indenture.
The Notes shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.04. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in The City of New York, State of New York)
where Notes may be presented for registration of transfer or for exchange (the
"Registrar"), and an office or agency where Notes may be presented for payment
(the "Paying Agent") and an office or
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agency where notices and demands to or upon the Company, if any, in respect of
the Notes and this Indenture may be served. The Registrar shall keep a register
of the Notes and of their transfer and exchange. The Company may have one or
more additional Paying Agents. The term "Paying Agent" includes any additional
Paying Agent. Neither the Company nor any Affiliate thereof may act as Paying
Agent.
The Company shall enter into an appropriate agency agreement,
which shall incorporate the provisions of the TIA, with any Agent that is not a
party to this Indenture. The agreement shall implement the provisions of this
Indenture that relate to such Agent. 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 fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
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
Notes and this Indenture.
SECTION 2.05. Paying Agent To Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit of the
Noteholders or the Trustee all money held by the Paying Agent for the payment of
principal of or premium or interest on the Notes (whether such money has been
paid to it by the Company or any other obligor on the Notes), and the Company
and the Paying Agent shall notify the Trustee of any default by the Company (or
any other obligor on the Notes) 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 the Paying Agent to pay all
money held by it to the Trustee and account for any funds disbursed and the
Trustee may at any time during the continuance of any Event of Default specified
in Section 6.01 (1) or (2), upon written request to the Paying Agent, require
such Paying Agent to pay forthwith all money so held by it to the Trustee and to
account for any funds disbursed. Upon making such payment, the Paying Agent
shall have no further liability for the money delivered to the Trustee.
Any moneys deposited with the Trustee or any Paying Agent or
then held by the Company in trust for the payment of the principal of, or
premium, if any, or interest on any Note that are not applied but remain
unclaimed by the Holder of such Note for two years after the date upon which the
principal of, or premium, if any, or interest on such Note shall have
respectively become due and payable shall be repaid to the Company upon a
Company Request, or if such moneys are then held by the Company in trust, such
moneys shall be released from such trust; and the Holder of such Note entitled
to receive such payment
<PAGE>
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shall thereafter, as an unsecured general creditor, look only to the Company and
the Guarantors for the payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money shall thereupon cease.
SECTION 2.06. Noteholder 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 the Noteholders. 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 the Noteholders.
SECTION 2.07. Transfer and Exchange.
Subject to Sections 2.16 and 2.17, when Notes are presented to
the Registrar with a request from the Holder of such Notes to register a
transfer or to exchange them for an equal principal amount of Notes of other
authorized denominations, the Registrar shall register the transfer as
requested. Every Note 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 attorneys duly authorized in writing. To permit
registrations of transfers and exchanges, the Company shall issue and execute
and the Trustee shall authenticate new Notes evidencing such transfer or
exchange at the Registrar's request. No service charge shall be made to the
Noteholder for any registration of transfer or exchange. The Company may require
from the Noteholder payment of a sum sufficient to cover any transfer taxes 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
2.11, 3.06, 4.09, 4.20 or 8.05 (in which events the Company shall be responsible
for the payment of such taxes). The Registrar shall not be required to exchange
or register a transfer of any Note for a period of 15 days immediately preceding
the mailing of notice of redemption of Notes to be redeemed or of any Note
selected, called or being called for redemption except the unredeemed portion of
any Note being redeemed in part.
Prior to the registration of any transfer by a Holder as
provided herein, the Company, the Trustee and any Agent shall treat the person
in whose name the Note is registered as the owner thereof for all purposes
whatsoever whether or not the Note shall be overdue, and neither the Company,
the Trustee nor any such Agent shall be affected by notice to the contrary. Any
Holder of the Global Note shall, by acceptance of such Global Note, agree that
transfers of the beneficial interests in such Global Note may be effected only
through a book entry system maintained by the Holder of such Global Note (or its
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agent), and that ownership of a beneficial interest in the Global Note shall be
required to be reflected in a book entry.
Each Holder of a Note agrees to indemnify the Company and the
Trustee against any liability that may result from the transfer, exchange or
assignment of such Holder's Note 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 compliance with any
Federal or state securities laws.
SECTION 2.08. Replacement Notes.
If a mutilated Note is surrendered to the Registrar or the
Trustee, or if the Holder of a Note claims that the Note has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Note if the Holder of such Note furnishes to the
Company and the Trustee evidence reasonably acceptable to them of the ownership
and the destruction, loss or theft of such Note and 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. If required by the Trustee or the Company, an
indemnity bond shall be posted, sufficient in the judgment of both to protect
the Company, the Trustee or any Paying Agent from any loss that any of them may
suffer if such Note is replaced. The Company may charge such Holder for the
Company's reasonable out-of-pocket expenses in replacing such Note (including
any tax or governmental charge that may be imposed in relation thereto and its
reasonable fees and expenses of counsel) and the Trustee may charge the Company
for the Trustee's expenses (including, without limitation, attorneys' fees and
disbursements) in replacing such Note (which shall be included in such
reasonable out-of-pocket expenses chargeable to such Holder). Every replacement
Note shall constitute a contractual obligation of the Company.
SECTION 2.09. Outstanding Notes.
The Notes outstanding at any time are all Notes that have been
authenticated by the Trustee except for (a) those cancelled by it, (b) those
delivered to it for cancellation, (c) to the extent set forth in Sections 9.01
and 9.02, on or after the date on which the conditions set forth in Section 9.01
or 9.02 have been satisfied, those Notes theretofore authenticated and delivered
by the Trustee hereunder and (d) those described in this Section 2.09 as not
outstanding. Subject to Section 2.10, a Note does not cease to be outstanding
because the Company or one of its Affiliates holds the Note.
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If a Note is replaced pursuant to Section 2.08, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser in whose hands such Note is a
legal, valid and binding obligation of the Company.
If the Paying Agent holds, in its capacity as such, on any
Maturity Date, money sufficient to pay all accrued interest and principal with
respect to the Notes 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 Notes cease to be outstanding and interest on them
ceases to accrue.
SECTION 2.10. Treasury Notes.
In determining whether the Holders of the required principal
amount of Notes have concurred in any declaration of acceleration or notice of
default or direction, waiver or consent or any amendment, modification or other
change to this Indenture, Notes owned by the Company or any other Affiliate of
the Company 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 or any amendment, modification
or other change to this Indenture, only Notes as to which a Responsible Officer
of the Trustee has received an Officers' Certificate stating that such Notes are
so owned shall be so disregarded. Notes so owned which have been pledged in good
faith shall not be disregarded if the pledgee establishes to the reasonable
satisfaction of the Trustee the pledgee's right so to act with respect to the
Notes and that the pledgee is not the Company, any other obligor on the Notes or
any of their respective Affiliates.
SECTION 2.11. Temporary Notes.
Until definitive Notes are prepared and ready for delivery,
the Company may prepare and the Trustee shall authenticate temporary Notes.
Temporary Notes shall be substantially in the form of definitive Notes but may
have variations that the Company considers appropriate for temporary Notes.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Notes in exchange for temporary Notes. Until such
exchange, temporary Notes shall be entitled to the same rights, benefits and
privileges as definitive Notes.
SECTION 2.12. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee shall cancel all Notes
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surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall (subject to the record-retention requirements of the
Exchange Act) destroy cancelled Notes and deliver a certificate of destruction
thereof to the Company. Subject to Section 2.08, the Company may not reissue or
resell, or issue new Notes to replace, Notes that the Company has redeemed or
paid, or that have been delivered to the Trustee for cancellation.
SECTION 2.13. Defaulted Interest.
If the Company defaults on a payment of interest on the Notes,
it shall pay the defaulted interest, plus (to the extent permitted by law) any
interest payable on the defaulted interest, in accordance with the terms hereof,
to the Persons who are Noteholders on a subsequent special record date, which
date shall be at least five Business Days prior to the payment date. The Company
shall fix such special record date and payment date in a manner not
unsatisfactory to the Trustee. At least 10 days before such special record date,
the Company shall mail to each Noteholder a notice that states the special
record date, the payment date and the amount of defaulted interest, and interest
payable on defaulted interest, if any, to be paid. The Company may make payment
of any defaulted interest in any other lawful manner not inconsistent with the
requirements (if applicable) of any securities exchange on which the Notes may
be listed and, upon such notice as may be required by such exchange, if, after
written notice given by the Company to the Trustee of the proposed payment
pursuant to this sentence, such manner of payment shall be deemed practicable by
the Trustee.
SECTION 2.14. CUSIP Number.
The Company in issuing the Notes may use a "CUSIP" number, and
if so, such CUSIP number shall be included 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
printed in the notice or on the Notes, and that reliance may be placed only on
the other identification numbers printed on the Notes. The Company shall
promptly notify the Trustee of any such CUSIP number used by the Company in
connection with the issuance of the Notes and of any change in the CUSIP number.
SECTION 2.15. 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 sufficient to make cash payments, if
any, due on such Interest Payment Date or Maturity Date, as
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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. The principal and interest on Global Notes shall be payable to the
Depository or its nominee, as the case may be, as the sole registered owner and
the sole holder of the Global Notes represented thereby. The principal and
interest on Physical Notes shall be payable, either in person or by mail, at the
office of the Paying Agent.
SECTION 2.16. Book-Entry Provisions for Global Notes.
(a) Rule 144A Notes initially shall be represented by one or
more notes in registered, global form without interest coupons (collectively,
the "Restricted Global Note"). Regulation S Notes initially shall be represented
by one or more notes in registered, global form without interest coupons
(collectively, the "Regulation S Global Note," and, together with the Restricted
Global Note and any other global notes representing Notes, the "Global Notes").
The Global Notes shall bear legends as set forth in Exhibit D. The Global Notes
initially shall (i) be registered in the name of the Depository or the nominee
of such Depository, in each case for credit to an account of an Agent Member
(or, in the case of the Regulation S Global Notes, of Euroclear System
("Euroclear") and Cedel Bank, S.A. ("CEDEL")), (ii) be delivered to the Trustee
as custodian for such Depository and (iii) bear legends as set forth in Exhibit
B with respect to Restricted Global Notes and Exhibit C with respect to
Regulation S Global Notes.
Members of, or direct or indirect participants in, the
Depository ("Agent Members") shall have no rights under this Indenture with
respect to any Global Note held on their behalf by the Depository, or the
Trustee as its custodian, or under the Global Notes, and the Depository may be
treated by the Company, the Trustee and any agent of the Company or the Trustee
as the absolute owner of the Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Note.
(b) Transfers of Global Notes shall be limited to transfer in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Notes may be transferred
or exchanged for Physical Notes in accordance with the rules and procedures of
the Depository and the provisions of Section 2.17. In addition, a Global Note
shall be exchangeable for Physical Notes if (i) the Depository notifies the
Company that it is unwilling or unable to continue as depository for such Global
Note or has ceased to be a clearing agency registered under the Exchange Act and
upon such notice or cessation the Company fails to appoint a successor
depository, (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of such Physical Notes or (iii) there shall
have occurred and be continuing a Default or
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an Event of Default with respect to the Notes. In all cases, Physical Notes
delivered in exchange for any Global Note or beneficial interests therein shall
be registered in the names, and issued in any approved denominations, requested
by or on behalf of the Depository (in accordance with its customary procedures).
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute, and the Trustee shall upon receipt of a written order from the
Company authenticate and make available for delivery, one or more Physical Notes
of like tenor and amount.
(d) In connection with the transfer of Global Notes as an
entirety to beneficial owners pursuant to paragraph (b), the Global Notes shall
be deemed to be surrendered to the Trustee for cancellation, and the Company
shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in writing in exchange for its
beneficial interest in the Global Notes, an equal aggregate principal amount of
Physical Notes of authorized denominations.
(e) Any Physical Note constituting a Restricted Note delivered
in exchange for an interest in a Global Note pursuant to paragraph (b), (c) or
(d) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of
Section 2.17, bear the Private Placement Legend or, in the case of the
Regulation S Global Note, the legend set forth in Exhibit C, in each case,
unless the Company determines otherwise in compliance with applicable law.
(f) On or prior to the 40th day after the later of the
commencement of the offering of the Notes represented by the Regulation S Global
Note and the issue date of such Notes (such period through and including such
40th day, the "Restricted Period"), a beneficial interest in a Regulation S
Global Note may be transferred to a Person who takes delivery in the form of an
interest in the corresponding Restricted Global Note only upon receipt by the
Trustee of a written certification from the transferor to the effect that such
transfer is being made (i)(a) to a Person whom the transferor reasonably
believes is a Qualified Institutional Buyer in a transaction meeting the
requirements of Rule 144A, (b) to an Institutional Accredited Investor for its
own account or for the account of another Institutional Accredited Investor in a
minimum principal amount of the Notes of $250,000, which is accompanied by an
opinion of counsel regarding the availability of such exemption from the
registration requirements under the Securities Act, or (c) pursuant to another
exemption from the registration requirements under the Securities Act which is
accompanied by an
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opinion of counsel regarding the availability of such exemption and (ii) in
accordance with all applicable securities laws of any state of the United States
or any other jurisdiction.
(g) Beneficial interests in the Restricted Global Note may be
transferred to a Person who takes delivery in the form of an interest in the
Regulation S Global Note or a Note held by an Institutional Accredited Investor
represented by a certificated Note bearing a restrictive legend, whether before
or after the expiration of the Restricted Period, only if the transferor first
delivers to the Trustee a written certificate to the effect that such transfer
is being made in accordance with Rule 903 or 904 of Regulation S or Rule 144 (if
available) and that, if such transfer occurs prior to the expiration of the
Restricted Period, the interest transferred will be held immediately thereafter
through Euroclear or CEDEL.
(h) Any beneficial interest in one of the Global Notes that is
transferred to a Person who takes delivery in the form of an interest in another
Global Note shall, upon transfer, cease to be an interest in such Global Note
and become an interest in such other Global Note and, accordingly, shall
thereafter be subject to all transfer restrictions and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(i) The Holder of any Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 2.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors
and Non-U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted Note
to any Institutional Accredited Investor which is not a QIB or to a Non-U.S.
Person:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Note, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after May
19, 2001 or such other date as such Note shall be freely transferable
under Rule 144 as certified in an Officers' Certificate or (y) (1) in
the case of a transfer to an Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons), the proposed transferee has
delivered to the Registrar a certificate substantially in the form of
Exhibit E hereto or (2) in the case of a transfer to a Non-U.S. Person
(including a QIB), the proposed transferor has delivered to the
Registrar a certificate substantially in the form of Exhibit F hereto;
provided that in the case of any transfer of a Note bearing the Private
Placement Legend
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for a Note not bearing the Private Placement Legend, the Registrar has
received an Officers' Certificate authorizing such transfer; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in a Global Note, upon receipt by the Registrar of
(x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depository's and the
Registrar's procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of a Global Note in an amount equal to the
principal amount of the beneficial interest in a Global Note to be transferred,
and (b) the Registrar shall reflect on its books and records the date and an
increase in the principal amount of a Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note transferred or
the Company shall execute and the Trustee shall authenticate and make available
for delivery one or more Physical Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration or any proposed registration of transfer of a
Note constituting a Restricted Note to a QIB (excluding transfers to Non-U.S.
Persons):
(i) the Registrar shall register the transfer if such transfer
is being made by a proposed transferor who has checked the box provided
for on such Holder's Note stating, or has otherwise advised the Company
and the Registrar in writing, that the sale has been made in compliance
with the provisions of Rule 144A to a transferee who has signed the
certification provided for on such Holder's Note stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Note for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such
account is a QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Notes to be transferred consist of Physical Notes which after transfer
are to be evidenced by an interest in the Global Note, upon receipt by
the Registrar of instructions given in accordance with the Depository's
and the Registrar's procedures, the Registrar shall reflect on its
books and records the date and an increase in the principal amount of
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the Global Note in an amount equal to the principal amount of the
Physical Notes to be transferred, and the Trustee shall cancel the
Physical Notes so transferred.
(c) Private Placement Legend. Upon the registration of
transfer, exchange or replacement of Notes not bearing the Private Placement
Legend, the Registrar shall deliver Notes that do not bear the Private Placement
Legend. Upon the registration of transfer, exchange or replacement of Notes
bearing the Private Placement Legend, the Registrar shall deliver only Notes
that bear the Private Placement Legend unless (i) it has received the Officers'
Certificate required by paragraph (a)(i)(y) of this Section 2.17, (ii) there is
delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Company and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act or (iii) such Note has been sold pursuant to an
effective registration statement under the Securities Act and the Registrar has
received an Officers' Certificate from the Company to such effect.
(d) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain for a period of two years copies of
all letters, notices and other written communications received pursuant to
Section 2.16 or this Section 2.17. The Company shall have the right to inspect
and make copies of all such letters, notices or other written communications at
any reasonable time upon the giving of reasonable notice to the Registrar.
SECTION 2.18. Computation of Interest.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Election To Redeem; Notices to Trustee.
If the Company elects to redeem Notes pursuant to paragraph 6
of the Notes, at least 10 Business Days prior to giving notice of such
redemption pursuant to Section 3.03 hereof (unless a shorter notice shall be
agreed to in writing by the Trustee), the Company
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shall notify the Trustee in writing of the Redemption Date, the principal amount
of Notes 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 Notes. Notice given to the Trustee
pursuant to this Section 3.01 may not be revoked after the time that notice is
given to Noteholders pursuant to Section 3.03.
SECTION 3.02. Selection by Trustee of Notes To Be Redeemed.
In the event that fewer than all of the Notes are to be
redeemed, the Trustee shall select the Notes to be redeemed, if the Notes are
listed on a national securities exchange, in accordance with the rules of such
exchange or, if the Notes are not so listed, either by lot, or such other method
as it shall deem fair and equitable. The Trustee shall promptly notify the
Company of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
The Trustee may select for redemption portions of the principal of the Notes
that have denominations larger than $1,000. Notes 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 Notes called for redemption
also apply to portions of Notes called for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days, and no more than 60 days, before a
Redemption Date, the Company shall mail, or cause to be mailed, a notice of
redemption by first-class mail to each Holder of Notes to be redeemed at his or
her last address as the same appears on the registry books maintained by the
Registrar pursuant to Section 2.04 hereof.
The notice shall identify the Notes to be redeemed (including
the CUSIP numbers thereof) and shall state:
(1) the Redemption Date;
(2) the redemption price and, if any, the amount of premium
and accrued interest to be paid;
(3) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
Redemption Date and upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
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(5) that Notes 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 Notes called for redemption ceases to accrue on
and after the Redemption Date and the only remaining right of the
Holders is to receive payment of the redemption price upon surrender to
the Paying Agent;
(7) the provision of paragraph 6 of the Notes, as the case may
be, pursuant to which the Notes called for redemption are being
redeemed; and
(8) the aggregate principal amount of Notes that are being
redeemed.
At the Company's written request made at least five Business
Days prior to the date on which notice is to be given, 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, Notes 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 Notes 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
record date and on or prior to the Interest Payment Date, the accrued interest
shall be payable to the Holder of the redeemed Notes 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, including
premium, if any, and accrued interest on all Notes to be redeemed on that date
other than Notes 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, including premium, if any, and accrued interest on
Notes called for redemption shall have been made available in accordance with
the preceding paragraph, the Notes
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called for redemption will cease to accrue interest and the only right of the
Holders of such Notes 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 Notes to the Redemption Date. If any Note surrendered 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 Note and any interest
not paid on such unpaid principal, in each case, at the rate and in the manner
provided in the Notes.
SECTION 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Trustee
shall authenticate for the Holder thereof a new Note equal in principal amount
to the unredeemed portion of the Note surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
The Company shall pay the principal of and interest (including
all Additional Interest, if any, as provided in the Registration Rights
Agreement) on the Notes on the dates and in the manner provided in the Notes and
this Indenture. An installment of principal or interest 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 such installment.
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 Notes.
SECTION 4.02. Reports to Holders.
The Company shall deliver to the Trustee and the Holders,
within 15 days of the filing of same with the Commission, copies of the
quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act. Notwithstanding that the
Company may not be subject to the reporting requirements of Section 13(a) or
15(d) of the Exchange Act, the Company shall file with the Commission within the
time periods specified therein, to the extent permitted to so file, and provide
the Trustee and the Holders with such quarterly and annual reports and such
information, documents
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and other reports specified in Sections 13(a) and 15(d) of the Exchange Act
within 15 days of the time periods specified therein. In addition, for so long
as any Notes remain outstanding, the Company shall furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act, and, to any beneficial holder of Notes, if not obtainable from
the Commission, information of the type that would be filed with the Commission
pursuant to the foregoing provisions, upon the request of any such holder. The
Company will also comply with the other provisions of TIA Section 314(a).
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 Notes 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 120 days
after the end of each fiscal year and on or before 60 days after the end of the
first, second and third quarters of each fiscal year, an Officers' Certificate
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 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 shall have occurred,
describing all such Defaults of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Notes is prohibited or if such event has occurred and
is in existence, a description of the event and what action the Company is
taking or proposes to take with respect thereto.
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(b) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, within 5 Business Days upon any Officer
becoming aware of the occurrence and continuance 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.
(c) The Company's fiscal year currently ends on December 31.
The Company will provide written notice to the Trustee of any change in its
fiscal year.
SECTION 4.05. Taxes.
The Company shall, and shall cause each of its Restricted
Subsidiaries to, pay prior to delinquency all material taxes, assessments, and
governmental levies except as contested in good faith and by appropriate
proceedings.
SECTION 4.06. Limitation on 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 2.25 to 1.00.
SECTION 4.07. Limitation on Other Subordinated Indebtedness.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, incur, contingently or
otherwise, any Indebtedness (other than the Notes or Guarantees, as the case may
be) that is both (i) expressly subordinated in right of payment to any Senior
Indebtedness of the Company or any of its Restricted Subsidiaries, as the case
may be, and (ii) senior in right of payment to the Notes or Guarantees, as the
case may be. Unsecured Indebtedness is not deemed to be subordinate or junior to
secured Indebtedness merely because it is unsecured and Indebtedness that is not
guaranteed by a particular Person is not deemed to be subordinate or junior to
Indebtedness that is so guaranteed merely because it is not so guaranteed. For
purposes of this Section 4.07, Indebtedness is deemed to be senior in right of
payment to the Notes if it is not explicitly subordinated in right of payment to
Senior Indebtedness at least to the same extent as the Notes are subordinated to
such Senior Indebtedness.
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SECTION 4.08. Limitation on Restricted Payments.
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:
(1) any Default or Event of Default shall have occurred and be
continuing; or
(2) the Company is not able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with
Section 4.06 hereof; or
(3) 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, without duplication,
(x) as capital contributions to the Company
after the Issue Date; and
(y) 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 (D) below of this Section 4.08), an
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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.
For purposes of the preceding clause (3)(b)(y), 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:
(A) 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;
(B) the redemption of the Existing Notes; provided, the notice
of redemption for the Existing Notes shall be given in accordance with
Article Eleven of the Existing Indenture on or prior to June 30, 1999;
(C) 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 is
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;
(D) the purchase, redemption, retirement, defeasance or other
acquisition of Indebtedness of the Company that is subordinate or
junior in right of payment to the Notes 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
Notes, at least to the extent that the Indebtedness being
acquired
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is subordinated to the Notes and has a Weighted Average Life
to Maturity no less than that of the Notes; 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 Notes, at
least to the extent that the Indebtedness being acquired is
subordinated to the Notes and has a Weighted Average Life to
Maturity no less than that of the Notes;
(E) payments by the Company to Lancer pursuant to the Tax
Sharing Agreement;
(F) 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;
(G) the declaration and payment of regularly accruing
dividends to holders of the Existing Preferred Stock; provided that at
the time of the applicable dividend payment date, and after giving pro
forma effect to such dividend, the Company would have been able to
incur at least $1.00 of additional Indebtedness pursuant to Section
4.06 hereof;
(H) the declaration and payment of regularly accruing
dividends to holders of any class or series of Disqualified Capital
Stock of the Company or its Restricted Subsidiaries issued after the
Issue Date in accordance with Section 4.06 hereof;
(I) the declaration and payment of regularly accruing
dividends to holders of any class or series of Designated Preferred
Stock of the Company issued after the Issue Date; provided that at the
time of such issuance, and after giving effect to such issuance on a
pro forma basis (for purposes of making determinations on a pro forma
basis pursuant to this clause (I), treating all dividends which will
accrue on such Designated Preferred Stock during the four full fiscal
quarters immediately following such issuance, as well as all other
Designated Preferred Stock then outstanding, as if same will in fact
be, or have in fact been, paid in cash), the Company would have been
able to incur at least $1.00 of additional Indebtedness pursuant to
Section 4.06 hereof;
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(J) Investments constituting Restricted Payments made as a
result of the receipt of non-cash consideration from any Asset Sale;
(K) Restricted Payments in aggregate amount not to exceed $10
million; and
(L) the declaration and payment of regularly accruing
dividends to holders of Preferred Stock of Restricted Subsidiaries
issued after the Issue Date in accordance with Section 4.06 hereof;
provided that in calculating the aggregate amount of Restricted Payments made
subsequent to the Issue Date for purposes of clause (3) above, amounts expended
pursuant to clauses (A) and (L) of this paragraph shall be included in such
calculation and amounts expended pursuant to clauses (B) through (K) shall be
excluded from such calculation.
SECTION 4.09. Limitation on Asset Sales.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) 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 of the assets sold
or otherwise disposed of (as determined in good faith by the Board of
Directors of the Company, and evidenced by a board resolution, which
determination shall be conclusive);
(2) not less than 75% of the consideration (excluding, in the
case of an Asset Sale (or series of related Asset Sales) of assets, by
way of relief from, or by another Person assuming responsibilities for,
any liabilities, contingent or otherwise, that are not Indebtedness)
received by the Company or such applicable Restricted Subsidiary, as
the case may be, is in the form of cash or Cash Equivalents; provided
that this clause (2) shall not apply to any Asset Sale (or series of
related Asset Sales), involving assets that accounted for less than one
percent of Consolidated EBITDA during the period of the most recent
four consecutive fiscal quarters ending prior to the date of such Asset
Sale for which consolidated financial statements of the Company are
available; provided, further, that only for purposes of this clause (2)
the following shall be deemed to constitute cash:
(a) the outstanding principal amount of Indebtedness
of the Company or any Restricted Subsidiary (other than (x)
Capital Stock which constitutes Indebtedness and (y)
Indebtedness to the Company or any Restricted
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Subsidiary) assumed by the transferee (which shall not
constitute the Company or a Restricted Subsidiary) pursuant to
the respective Asset Sale, so long as the Company or such
Restricted Subsidiary is irrevocably and unconditionally
released from all liability under such Indebtedness; and
(b) any notes or other obligations received by the
Company or any Restricted Subsidiary from such transferee that
are, within 180 days after the date of the respective Asset
Sale, converted by the Company into cash (to the extent of the
cash received in that conversion); and
(3) the Asset Sale Proceeds received by the Company or such
Restricted Subsidiary are applied:
(a) to the extent the Company or any such Restricted
Subsidiary, as the case may be, elects, or is required, to
prepay, repay or purchase indebtedness under any then existing
Senior Indebtedness of the Company or any such Restricted
Subsidiary within 365 days following the receipt of the Asset
Sale Proceeds from any Asset Sale;
(b) 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, reasonably related, ancillary or
complementary to the business of the Company (including
extensions or developments thereof) or any such Restricted
Subsidiary as conducted on the Issue Date; provided that such
investment occurs (or a definitive agreement committing so to
invest is entered) within 365 days following receipt of such
Asset Sale Proceeds;
(c) to the extent of the balance of Available Asset
Sale Proceeds after the application in accordance with clause
(a) or (b), if on such 365th day in the case of clauses (3)(a)
and (3)(b), the Available Asset Sale Proceeds exceed $10.0
million, the Company shall apply an amount equal to the
Available Asset Sale Proceeds to an offer to repurchase the
Notes, at a purchase price in cash equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if
any, to the purchase date (an "Excess Proceeds Offer").
Notwithstanding the foregoing, in the event that a Restricted
Subsidiary that is not a Wholly Owned Restricted Subsidiary dividends or
distributes to all of its stockholders on a pro rata basis any proceeds of an
Asset Sale to the Company or another Restricted
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Subsidiary, the Company or such Restricted Subsidiary need only apply its share
of such proceeds in accordance with the preceding clauses (a), (b) and (c).
If an Excess Proceeds Offer is not fully subscribed, the
Company may retain the portion of the Available Asset Sale Proceeds not required
to repurchase Notes.
If the Company is required to make an Excess Proceeds Offer,
the Company shall mail, within 30 days following the date specified in clause
(3)(c) above, a notice to the Holders stating, among other things:
(1) that such Holders have the right to require the Company to
apply the Available Asset Sale Proceeds to repurchase such Notes at a
purchase price in cash equal to 100% of the principal amount thereof
plus accrued and unpaid interest, if any, to the purchase date;
(2) the purchase date, which shall be no earlier than 30 days
and not later than 45 days from the date such notice is mailed;
(3) the instructions that each Holder must follow in order to
have such Notes purchased; and
(4) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the purchase of such
Notes.
In the event of the transfer of substantially all of the
property and assets of the Company and its Restricted Subsidiaries, taken as a
whole, to a Person in a transaction permitted under Section 5.01 below, the
successor Person shall be deemed to have sold the properties and assets of the
Company and its Restricted Subsidiaries not so transferred for purposes of this
Section 4.09, and shall comply with the provisions of this Section 4.09 with
respect to such deemed sale as if it were an Asset Sale.
The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Excess Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.09 by virtue thereof.
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SECTION 4.10. Limitation on Transactions with Affiliates.
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any holder
(or any Affiliate of such holder) of 10% or more of any class of Capital Stock
of the Company or with any Affiliate of the Company or any Restricted
Subsidiary, except upon fair and reasonable terms no less favorable to the
Company or such Restricted Subsidiary than could be obtained, at the time of
such transaction or, if such transaction is pursuant to a written agreement, at
the time of the execution of the agreement providing therefore, in a comparable
arm's length transaction with a Person that is not such a holder or an
Affiliate.
The foregoing limitation does not limit, and shall not apply
to:
(A) transactions (1) approved by a majority of the
disinterested members of the Board of Directors or (2) for which the
Company or a Restricted Subsidiary delivers to the Trustee a written
opinion of a nationally recognized accounting, valuation or investment
banking firm stating that the transaction is fair to the Company or
such Restricted Subsidiary from a financial point of view;
(B) any transaction solely between the Company and any of its
Restricted Subsidiaries or solely between Restricted Subsidiaries;
(C) any Permitted Investment or any Restricted Payment that is
not prohibited by the provisions described under Section 4.08 above;
(D) payments to Lancer under the Tax Sharing Agreement;
(E) 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;
(F) reasonable and customary regular fees to directors of the
Company;
(G) 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;
(H) in the event T-H Licensing is not a Guarantor at the time
of such payment, 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
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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;
(I) payments or distributions to participants in the Equity
Incentive Plan pursuant to the terms thereof;
(J) transactions in connection with Permitted Receivables
Financing;
(K) 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 and
monitoring 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); and
(L) any transaction between the Company and any of its
Affiliates involving ordinary course of business investment banking,
commercial banking, financial advisory services and related activities.
Notwithstanding the foregoing, any transaction or series of
related transactions covered by the first paragraph of this Section 4.10 and not
covered by clauses (B) through (L) above of this Section 4.10, (a) the aggregate
amount of which exceeds $5 million in value, must be approved to be fair in the
manner provided for in clause (A) (1) or (2) above and (b) the aggregate amount
of which exceeds $10 million in value, must be determined to be fair in the
manner provided for in clause (A) (2) above.
SECTION 4.11. Limitations on Liens.
The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur or otherwise cause or suffer to exist
or become effective any Liens of any kind (other than Permitted Liens) upon any
property or asset of the Company or any of its Restricted Subsidiaries or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary of the
Company which owns property or assets (an "Initial Lien"), now owned or
hereafter acquired, unless:
(1) if such Initial Lien secures Indebtedness which is pari
passu with the Notes, then the Notes are secured on an equal and
ratable basis with the obligations so secured until such time as such
obligation is no longer secured by a Lien; or
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(2) if such Initial Lien secures Indebtedness which is
subordinated to the Notes, any such Lien shall be subordinated to the
Lien granted to the holders of the Notes to the same extent as such
Indebtedness is subordinated to the Notes.
Any Lien created in favor of the Notes pursuant hereto will be
automatically and unconditionally released and discharged upon (i) the
unconditional release and discharge of the Initial Lien to which it relates or
(ii) the sale, exchange or transfer to any Person that is not an Affiliate of
the Company or any Restricted Subsidiary of the property or assets secured by
such Initial Lien, or of all of the equity interests held by the Company and the
Restricted Subsidiaries in, or all or substantially all of the assets of, the
Restricted Subsidiary whose property or assets were the subject of such Lien,
provided that, in the case of clause (ii), Section 4.09 is complied with in
connection with such sale, exchange or transfer.
SECTION 4.12. [Intentionally Omitted]
SECTION 4.13. Limitation on Creation of Subsidiaries.
The Company will not create or acquire, and it will not permit
any of its Restricted Subsidiaries to create or acquire, any Subsidiary other
than:
(1) a Restricted Subsidiary existing as of the Issue Date;
(2) a Restricted Subsidiary conducting a business similar or
reasonably related, ancillary or complementary thereto or extensions or
developments thereof to the business of the Company and its
Subsidiaries on the Issue Date; or
(3) an Unrestricted Subsidiary;
provided, however, that each Restricted Subsidiary organized under the laws of
the United States or any State thereof or the District of Columbia acquired or
created pursuant to clause (2) shall, at the time it has either assets or
shareholder's equity in excess of $10,000, have executed a guarantee, in the
form attached to the Indenture and reasonably satisfactory in form and substance
to the Trustee (and with such documentation relating thereto as the Trustee
shall require, including, without limitation a supplement or amendment to the
Indenture and opinions of counsel as to the enforceability of such guarantee in
accordance with Article Ten of this Indenture); provided, further, in the event
the Company and its Restricted Subsidiaries, on a consolidated basis, incurs
Acquired Indebtedness (assuming such incurrence is in accordance with Section
4.06 hereof) as a result of the acquisition of a Restricted Subsidiary and the
terms of such Acquired Indebtedness prohibits the guarantee of the Notes by such
newly-acquired Restricted
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Subsidiary or such newly-acquired Restricted Subsidiary would be in breach or
default of the terms of the Acquired Indebtedness as a result of such guarantee,
such Restricted Subsidiary will not be required to execute a guarantee; however,
until such Restricted Subsidiary executes and delivers a guarantee in accordance
with this covenant, none of the Company or any other Restricted Subsidiary will
transfer any assets (other than in the ordinary course of business) to such
newly-acquired Restricted Subsidiary and such newly acquired Restricted
Subsidiary will not transfer such Acquired Indebtedness to the Company or any
other Restricted Subsidiary.
SECTION 4.14. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted 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 consensual encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company to:
(1) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock owned by the
Company or a Restricted Subsidiary;
(2) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary of the Company;
(3) make loans or advances to the Company or any other
Restricted Subsidiary of the Company;
(4) 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
(5) 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:
(A) applicable law;
(B) 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
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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;
(C) any encumbrance or restriction in any agreement:
(1) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset
that is subject to a lease, license or similar contract, or
the subletting, assignment or transfer of any lease, license,
conveyance or contract or similar property or asset;
(2) contained in any mortgage, pledge or other
security agreement securing Indebtedness of a Restricted
Subsidiary to the extent restricting the transfer of the
property subject thereto; or
(3) pursuant to customary provisions restricting
dispositions of real property interests set forth in any
reciprocal easement agreements of the Company or any
Restricted Subsidiary;
(D) Purchase Money Indebtedness permitted under Section 4.06;
(E) with respect to a Restricted Subsidiary (or any of its
property or assets) imposed pursuant to an agreement entered into for
the direct or indirect sale or disposition of all or substantially all
of the Capital Stock or assets of such Restricted Subsidiary (or the
property or assets that are subject to such restriction) pending the
closing of such sale or disposition;
(F) on the transfer of property or assets required by any
regulatory authority having jurisdiction over the Company or any
Restricted Subsidiary or any of their businesses;
(G) with respect to a Receivables Subsidiary, an agreement
relating to Indebtedness of a Receivable Subsidiary which is permitted
under Section 4.06 above or pursuant to an agreement relating to a
Permitted Receivables Financing by a Receivables Subsidiary;
(H) 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 by virtue of any transfer
of, agreement to transfer, option or right with respect to, or Lien on,
any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by this Indenture;
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(I) existing under Senior Indebtedness otherwise permitted to
be incurred pursuant to Section 4.06 that limits the right of the
debtor to dispose of assets securing such Indebtedness;
(J) any encumbrance or restriction pursuant to any agreement
that extends, refinances, renews or replaces any agreement described in
clause (B) above, which is not materially more restrictive or less
favorable to the holders of Notes than those existing under the
agreement being extended, refinanced or renewed (as determined in good
faith by the Company); and
(K) pursuant to an agreement or instrument relating to
Indebtedness permitted by clause (18) of the definition of "Permitted
Indebtedness" (a "Refinancing Agreement"); provided, however, that the
encumbrances and restrictions contained in any such Refinancing
Agreement or amendment are no less favorable to the holders of the
Notes taken as a whole than encumbrances and restrictions contained in
the initial agreement or agreements to which such Refinancing Agreement
or amendment relates (as determined in good faith by the Board of
Directors, whose determination shall be conclusive).
SECTION 4.15. [Intentionally Omitted]
SECTION 4.16. Limitation on Preferred Stock of Restricted Subsidiaries.
The Company will not permit any of its Restricted Subsidiaries
to issue any Preferred Stock (other than to the Company or to a Restricted
Subsidiary) unless the Company or such Restricted Subsidiary would be entitled
to incur or assume Indebtedness under Section 4.06 above in an aggregate
principal amount equal to the aggregate liquidation value of the Preferred Stock
to be issued.
SECTION 4.17. 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,
(excluding any Guarantee of a Restricted Subsidiary which constitutes Acquired
Indebtedness of such Subsidiary so long as such Guarantee does not apply to any
other Indebtedness of the Company and its Restricted Subsidiaries not acquired
pursuant to the respective acquisition or merger) unless such Restricted
Subsidiary is a Guarantor or simultaneously executes and delivers a supplemental
indenture providing for the guarantee of payment of the Notes by such Restricted
Subsidiary
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in accordance with Article Ten of this Indenture; provided, however, that a
Restricted Subsidiary may guarantee the Company's obligations under any Senior
Indebtedness without executing and delivering such supplemental indenture or
guaranteeing the Notes; provided, further, that in the case of any guarantee of
any Guarantor with respect to Senior Subordinated Indebtedness, the guarantee of
the payment of the Notes by such Guarantor to be provided in accordance herewith
shall be pari passu with the guarantee with respect to such Senior Subordinated
Indebtedness in the same manner and to the same extent as the Senior
Subordinated Indebtedness is guaranteed. 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 a Restricted
Subsidiary or a holder, directly or indirectly, of any Capital Stock of the
Company or any of its Restricted Subsidiaries which is otherwise in compliance
with the terms of the 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. In
addition, a Guarantor shall be deemed to be released from all obligations under
its Guarantee in the event such Guarantor is designated an Unrestricted
Subsidiary.
SECTION 4.18. Maintenance of Office or Agency.
The Company shall maintain an office or agency where Notes 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
Notes and this Indenture may be served. The Company shall give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee.
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SECTION 4.19. Legal Existence.
Subject to Article Five hereof, the Company shall do or cause
to be done all things necessary to preserve and keep in full force and effect
(i) its legal 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 each such Restricted
Subsidiary and the rights (charter and statutory), licenses and franchises of
the Company and its Restricted Subsidiaries; provided 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 of the Company 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; provided, further, however, that
a determination by the Board of Directors of the Company shall not be required
in the event of a merger of one or more Restricted Subsidiaries of the Company
with or into another Restricted Subsidiary of the Company.
SECTION 4.20. Change of Control Offer.
Upon the occurrence of a Change of Control, the Company shall
be obligated to make an offer to purchase (the "Change of Control Offer") each
holder's outstanding Notes at a purchase price (the "Change of Control Purchase
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) in
accordance with the procedures set forth below.
Within 30 days of the occurrence of a Change of Control, the
Company shall (i) cause a notice of the Change of Control Offer to be sent at
least once to the Dow Jones News Service or similar business news service in the
United States and (ii) send by first-class mail, postage prepaid, to the Trustee
and to each Holder of the Notes, at the address appearing in the register
maintained by the Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to
this Section 4.20 and that all Notes tendered will be accepted for
payment;
(2) the Change of Control Purchase Price and the purchase date
(which shall be a Business Day no earlier than 30 days nor later than
60 days from the date such notice is mailed (the "Change of Control
Payment Date"));
(3) that any Note not tendered will continue to accrue
interest;
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(4) that, unless the Company defaults in the payment of the
Change of Control Purchase Price, any Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
(5) that holders accepting the offer to have their Notes
purchased pursuant to a Change of Control Offer will be required to
surrender the Notes to the Paying Agent at the address specified in the
notice prior to the close of business on the business day preceding the
Change of Control Payment Date;
(6) that holders will be entitled to withdraw their acceptance
if the Paying Agent receives, not later than the close of business on
the third Business Day preceding 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 Notes delivered for
purchase, and a statement that such Holder is withdrawing his election
to have such Notes purchased;
(7) that holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered;
(8) any other procedures that a holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall, to
the extent lawful,
(1) accept for payment Notes or portions thereof tendered
pursuant to the Change of Control Offer,
(2) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so tendered and
(3) deliver or cause to be delivered to the Trustee Notes so
accepted together with an Officer's Certificate stating the Notes or
portions thereof tendered to the Company.
The Paying Agent shall promptly mail to each holder of Notes
so accepted payment in an amount equal to the purchase price for such Notes, and
the Company shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a
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new Note equal in principal amount to any unpurchased portion of the Notes
surrendered; provided that each such new Note shall be issued in an original
principal amount in denominations of $1,000 and integral multiples thereof.
If the Credit Agreement is in effect, or any amounts are owing
thereunder or in respect thereof, at the time of the occurrence of a Change of
Control, prior to the mailing of the notice to holders described in the second
preceding paragraph, but in any event within 30 days following any Change of
Control, the Company covenants to:
(1) repay in full all obligations and terminate all
commitments under or in respect of the Credit Agreement and all other
Senior Indebtedness the terms of which require repayment upon a Change
of Control or offer to repay in full all obligations and terminate all
commitments under or in respect of the Credit Agreement and all such
Senior Indebtedness and repay the Indebtedness owed to each such lender
who has accepted such offer; or
(2) obtain the requisite consents under the Credit Agreement
and all such other Senior Indebtedness to permit the repurchase of the
Notes as described above.
The Company must first comply with the covenant described in
the preceding sentence before it shall be required to purchase Notes in the
event of a Change of Control; provided that the Company's failure to comply with
the covenant described in the preceding sentence constitutes an Event of Default
described in clause (3) under Section 6.01 below if not cured within 30 days
after the notice required by such clause. As a result of the foregoing, a holder
of the Notes may not be able to compel the Company to purchase the Notes unless
the Company is able at the time to refinance all of the obligations under or in
respect of the Credit Agreement and all such other Senior Indebtedness or obtain
requisite consents under the Credit Agreement and all such other Senior
Indebtedness.
In the event (1) if the Company or any Restricted Subsidiary
thereof has issued any outstanding (a) indebtedness that is subordinated in
right of payment to the Notes or (b) Preferred Stock, and the Company or such
Restricted 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 Notes that have accepted the
Company's change of control offer and shall otherwise have consummated the
change of control offer made to holders of the Notes and (2) the Company will
not issue Indebtedness that is subordinated in right of payment to the Notes or
Preferred Stock with change of control provisions
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requiring the payment of such Indebtedness or Preferred Stock prior to the
payment of the Notes in the event of a Change in Control under the Indenture.
The Company will comply with the requirements of Rule 14e-1 of
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.20 by virtue thereof.
SECTION 4.21. Maintenance of Properties; Insurance; Compliance with Law.
(a) The Company shall, and shall cause each of its Restricted
Subsidiaries to, at all times cause all material properties used or useful in
the conduct of their business to be maintained and kept in good condition,
repair and working order (reasonable wear and tear excepted) and supplied with
all necessary equipment, and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereto; provided, however,
that nothing in this Section 4.21 shall prevent the Company or any Restricted
Subsidiary from discontinuing the use, operation or maintenance of any such
properties, or disposing of any of them, if such discontinuance or disposal is,
in the reasonable judgment of the Company or such Restricted Subsidiary,
desirable for the Company or such Subsidiary and not adverse in any material
respect to the Holders.
(b) The Company shall maintain, and shall cause to be
maintained for each of its Restricted Subsidiaries, insurance covering such
risks as are usually and customarily insured against by corporations similarly
situated, in such amounts as shall be customary for corporations similarly
situated and with such deductibles and by such methods as shall be customary and
reasonable.
(c) The Company shall, and shall cause each of its
Subsidiaries to, comply with all statutes, laws, ordinances or government rules
and regulations to which they are subject, non-compliance with which would
materially adversely affect the business, earnings, properties, assets or
financial condition of the Company and their Subsidiaries taken as a whole.
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SECTION 4.22. Further Assurance to the Trustee.
The Company shall, upon the reasonable request of the Trustee,
execute and deliver such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the provisions of
this Indenture.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Limitation on Consolidation, Merger and Sale of Assets.
The Company will not and will not permit any of its Restricted
Subsidiaries to consolidate with, merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets of
the Company (as an entirety or substantially as an entirety in one transaction
or a series of related transactions), to any Person unless:
(1) the Company or such Restricted Subsidiary, as the case may
be, shall be the continuing Person, or the Person (if other than the
Company or such Restricted Subsidiary) formed by such consolidation or
into which the Company or such Restricted Subsidiary, as the case may
be, is merged or to which the properties and assets of the Company or
such Restricted Subsidiary, as the case may be, are sold, assigned,
transferred, leased, conveyed or otherwise disposed of shall be a
corporation organized and existing under the laws of the United States
or any State thereof or the District of Columbia and shall expressly
assume, by a supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all of the obligations of
the Company or such Restricted Subsidiary, as the case may be, under
the Indenture, the Notes and any Guarantees and the obligations
thereunder shall remain in full force and effect;
(2) immediately before and immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred
and be continuing; and
(3) immediately after giving effect to such transaction on a
pro forma basis the Company or such Person could incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) under
Section 4.06 above;
provided that (x) any Restricted Subsidiary may merge into the Company or
another Person that is a Restricted Subsidiary and (y) the Company may merge
with an Affiliate incorporated
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or organized for the purpose of reincorporating or reorganizing the Company in
another jurisdiction to realize tax benefits without complying with clause (3);
provided, in the case of a transaction pursuant to subclause (y), immediately
after giving effect to such transaction on a pro forma basis, either (A) the
surviving entity could incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under Section 4.06 or (B) the Fixed Charge Coverage
Ratio of the surviving entity is not less than the Fixed Charge Coverage Ratio
of the Company immediately prior to such transaction and the surviving entity
conducts business in the same line or an extension of the same line of business
as that of the Company immediately prior to such transaction.
In connection with any consolidation, merger or transfer of
assets contemplated by this provision, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance not unsatisfactory to the
Trustee, an Officer's Certificate stating that such consolidation, merger or
transfer and the supplemental indenture in respect thereto comply with this
provision and that all conditions precedent herein provided for relating to such
transaction or transactions have been complied with.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries of the Company the Capital Stock of which
constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
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 Restricted Subsidiary in
accordance with Section 5.01 hereof, 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 Restricted Subsidiary under this Indenture with
the same effect as if such successor corporation had been named as the Company
or such Restricted Subsidiary herein, and thereafter the predecessor corporation
shall be relieved of all obligations and covenants under this Indenture and the
Notes.
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ARTICLE SIX
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default.
The following events are "Events of Default":
(1) default in payment of any principal of, or premium, if
any, on the Notes whether at maturity, upon redemption or otherwise
(whether or not such payment shall be prohibited by Article Eleven);
(2) default for 30 days in payment of any interest on the
Notes;
(3) default by the Company or any Restricted Subsidiary in the
observance or performance of any other covenant in the Notes or this
Indenture for 60 consecutive days after written notice from the Trustee
or the Holders of not less than 25% in aggregate principal amount of
the Notes then outstanding (except in the case of a default with
respect to the covenants set forth in Section 4.20 or 5.01 which shall
constitute an Event of Default with such notice requirement but without
such passage of time requirement);
(4) failure to pay when due principal, interest or premium in
an aggregate amount of $7.5 million or more with respect to any
Indebtedness of the Company or any Restricted Subsidiary thereof, or
the acceleration of any such Indebtedness aggregating $7.5 million or
more which default, shall not be cured, waived or postponed pursuant to
an agreement with the holders of such Indebtedness within 60
consecutive days after written notice as provided in the Indenture, or
acceleration shall not be rescinded or annulled within 20 consecutive
days after written notice as provided in the Indenture;
(5) any final judgment or judgments which can no longer be
appealed for the payment of money in excess of $7.5 million (excluding
(i) amounts covered by insurance for which coverage is not being
challenged or denied, and (ii) amounts for which coverage has been
challenged or denied that the Company is contesting in good faith)
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;
(6) the Company or any Restricted Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
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(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian of it
or for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) admits in writing that it 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 either of the Company or
any Restricted Subsidiary in an involuntary case,
(B) appoints a Custodian of either of the Company or
any Restricted Subsidiary or for all or substantially all of
the property of either of the Company or any Restricted
Subsidiary, or
(C) orders the liquidation of either of the Company
or any Restricted Subsidiary,
and the order or decree remains unstayed and in effect for 60 days;
provided, however, that if the entry of such order or decree is
appealed and dismissed upon appeal, then the Event of Default hereunder
by reason of the entry of such order or decree shall be deemed to have
been cured.
The term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
Subject to 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 or the requirement for payment of Additional Interest unless written
notice thereof shall have been given to a Responsible Officer at the Corporate
Trust Office of the Trustee 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
described in Section 6.01(6) or (7)) shall have occurred and be continuing, then
the Trustee or the Holders of not less than 25% in aggregate principal amount of
the Notes then outstanding may by written notice to the Company declare to be
immediately due and payable the entire principal amount of all the Notes then
outstanding plus accrued and unpaid to the date of acceleration (1) and such
amounts shall become immediately due and payable or (2) if there are any amounts
outstanding under or in respect of the Credit Agreement, shall become due and
payable upon the first to occur of an acceleration of amounts outstanding under
or in respect of the Credit Agreement or five Business Days after receipt by the
Company and the representative under or in respect of the Credit Agreement of
notice of the acceleration of the Notes; provided, however, that after such
acceleration but before a judgment or decree based on such acceleration is
obtained by the Trustee, the Majority Holders may rescind and annul such
acceleration and its consequences if:
(1) the recission would not conflict with judgment or decree,
(2) all Events of Default, other than nonpayment of principal,
premium, if any, or interest that has become due solely because of the
acceleration, have been cured or waived as provided in this Indenture,
(3) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal
which has become due otherwise than by such declaration of
acceleration, has been paid,
(4) the Company has paid the Trustee its reasonable
compensation and reimbursed the Trustee for its expenses, disbursements
and advances, and
(5) in the event of the cure or waiver of an Event of Default
of the type described in clause (5) of Section 6.01, the Trustee shall
have received an Officers' Certificate and an opinion of counsel that
such Event of Default has been cured or waived.
No such recission shall affect any subsequent Default or impair any right
consequent thereto.
In case an Event of Default described in Section 6.01(6) or
(7) shall occur, the principal, premium and interest amount with respect to all
of the Notes shall be due and payable immediately without any declaration or
other act on the part of the Trustee or the Holders. In addition, if within 60
days after such Event of Default described in
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Section 6.01(6) or (7) arose (x) the Indebtedness that is the basis for such
Event of Default has been discharged, or (y) the holders thereof have rescinded
or waived the acceleration, notice or action (as the case may be) giving rise to
such Event of Default, or (z) the default in respect of such Indebtedness that
is the basis for such Event of Default has been cured, the declaration of
acceleration of the Notes referred to in the preceding clause and such Event of
Default and the consequences thereof (including without limitation any
acceleration or resulting payment default) shall be annulled, waived and
rescinded, automatically and without any action by the Trustee or the Holders,
and be of no further effect.
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 Notes or to
enforce the performance of any provision of the Notes 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 Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Noteholder 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. Any costs
associated with actions taken by the Trustee under this Section 6.03 shall be
reimbursed to the Trustee by the Company.
SECTION 6.04. Waiver of Past Defaults and Events of Default.
Subject to Sections 6.02, 6.08 and 8.02 hereof, the Majority
Holders have the right to waive any existing Default or Event of Default or
compliance with any provision of this Indenture or the Notes. Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred 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. In
case of any such waiver, the Company, the Trustee and the Holders shall be
restored to their former positions hereunder and under the Notes, respectively.
SECTION 6.05. Control by Majority.
The Majority Holders 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, shall have the right to
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refuse to follow any direction that conflicts with law (including the TIA) or
this Indenture or that the Trustee determines may be unduly prejudicial to the
rights of another Noteholder not taking part in such direction, and the Trustee
shall also 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 Responsible
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 6.08 below, a Noteholder may not institute
any proceeding or pursue any remedy with respect to this Indenture or the Notes
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 Notes 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,
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 Majority
Holders.
A Noteholder may not use this Indenture to prejudice the
rights of another Noteholder or to obtain a preference or priority over another
Noteholder.
SECTION 6.07. No Personal Liability of Directors, Officers,
Employees and Stockholders.
No director, officer, employee or stockholder of the Company,
any Guarantor or any Subsidiary of any thereof shall have any liability for any
obligation of the Company or any Guarantor under this Indenture, the Notes or
any Guarantor or for any claim based on, in respect of, or by reason of, any
such obligation or its creation. Each Holder of the Notes, by accepting the
Notes, waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes.
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SECTION 6.08. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal of, or premium, if
any, and interest of the Note (including Additional Interest) on or after the
respective due dates expressed in the Note, 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 6.09. 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 any Guarantor (or any other obligor on the Notes)
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 set forth in the Notes, 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.
SECTION 6.10. 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 any other
amounts due the Trustee under Section 7.07 hereof) and the Noteholders allowed
in any judicial proceedings relative to the Company or any Guarantor (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same after
deduction of its 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
Noteholder 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
Noteholders, 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
Noteholder any plan or reorganization,
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arrangement, adjustment or composition affecting the Notes or the rights of any
Holder thereof, or to authorize the Trustee to vote in respect of the claim of
any Noteholder in any such proceedings.
SECTION 6.11. Priorities.
If the Trustee collects any money pursuant to this Article
Six, it shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07
hereof;
SECOND: to holders of Senior Indebtedness to the extent
required by Article Eleven hereof;
THIRD: to Noteholders for amounts due and unpaid on the Notes
for principal, premium, if any, and interest (including Additional
Interest, if any) as to each, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Notes; and
FOURTH: to the Company or, to the extent the Trustee collects
any amount from any Guarantor, to such Guarantor.
The Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 6.11.
SECTION 6.12. 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 6.12 does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.08 hereof or a suit by Holders of more than 10% in
principal amount of the Notes then outstanding.
SECTION 6.13. 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 (including by reason of the waiver of
the applicable Event or Events
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of Default as permitted herein), 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 SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default actually known to a Responsible
Officer of the Trustee has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in their exercise as a prudent person would
exercise or use under the same circumstances in the conduct of his or her own
affairs.
(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.
(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 on their face 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.
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(2) The Trustee shall not be liable for any error of judgment
made in good faith, 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 the terms hereof.
(d) 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, powers or duties 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.
(e) Whether or not therein expressly so provided, paragraphs
(a), (b), (c) and (e) of this Section 7.01 shall govern every provision of this
Indenture that in any way relates to the Trustee.
(f) The Trustee may refuse to perform any duty or exercise any
right or power which may cause it to incur liability or expense unless it
receives indemnity satisfactory to it in its sole discretion against any loss,
liability, expense or fee.
(g) 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 Guarantor. 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 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 12.05 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.
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(3) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
(other than an 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 or powers; provided that the Trustee's
conduct does not constitute gross 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 Notes and may make loans to, accept deposits from,
perform services for or otherwise deal with the either of the Company or any
Guarantor, 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 Notes or
any Guarantee, it shall not be accountable for the Company's or any Guarantor's
use of the proceeds from the sale of Notes or any money paid to the Company or
any Guarantor pursuant to the terms of this Indenture and it shall not be
responsible for any statement in the Notes, Guarantee or this Indenture 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
Responsible Officer of the Trustee, the Trustee shall mail to each Noteholder
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
Note or a default in the observance or performance of any of the obligations of
the Company under Article Five, the Trustee may withhold the notice if and so
long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the best interest of the Noteholders.
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SECTION 7.06. Reports by Trustee to Holders.
If required by TIA Section 313(a), within 60 days after
January 1 of any year, commencing January 1, 2000 the Trustee shall mail to each
Noteholder a brief report dated as of such January 1 that complies with TIA
Section 313(a). The Trustee also shall comply with TIA Section 313(b)(2). The
Trustee shall also transmit by mail all reports as required by TIA Section
313(c) and TIA Section 313(d).
A copy of each report at the time of its mailing to
Noteholders shall be filed with the Commission and each stock exchange, if any,
on which the Notes are listed. The Company shall promptly notify the Trustee
when the Notes are listed on any stock exchange.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee and Agents from time to
time reasonable compensation 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 agents and
counsel.
The Company shall indemnify each of the Trustee and any
predecessor Trustee for, and hold each of them harmless against, any and all
loss, damage, claim, liability or expense, including without limitation taxes
(other than taxes based on the income of the Trustee or such Agent) and
reasonable attorneys' fees and expenses incurred by each of them 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 Trustee
or Agent shall notify the Company in writing promptly of any claim asserted
against the Trustee or Agent for which it may seek indemnity. However, the
failure by the Trustee or Agent to so notify the Company shall not relieve the
Company of its obligations hereunder except to the extent the Company is
prejudiced thereby.
Notwithstanding the foregoing, the Company need not reimburse
the Trustee for any expense or indemnify it against any loss or liability
incurred by the Trustee through its gross 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 Notes on all money or property held or collected by the
Trustee except such money or property held in trust to pay principal of
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and interest on particular Notes. The obligations of the Company under this
Section 7.07 to compensate and indemnify the Trustee, Agents and each
predecessor Trustee and to pay or reimburse the Trustee, Agents and each
predecessor Trustee for expenses, disbursements and advances shall be
liabilities of the Company and shall survive the resignation or removal of the
Trustee and the satisfaction, discharge or other termination of this Indenture,
including any termination or rejection hereof under any Bankruptcy Law.
When the Trustee 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 this Article Seven.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign by so notifying the Company in writing.
The Holders of a majority in principal amount of the outstanding Notes may
remove the Trustee by notifying the Company and 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:
(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
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee (and the Company shall pay the expenses related to such
petition, including reasonable compensation, disbursements and expenses of
counsel).
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If the Trustee fails to comply with Section 7.10 hereof, any
Noteholder 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 Noteholder. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Company obligations under Section
7.07 hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Consolidation, Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation, subject to Section 7.10 hereof, the successor corporation without
any further act shall be the successor Trustee; provided such entity shall be
otherwise qualified and eligible under this Article Seven.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1) and (2) in every respect. The Trustee
(together with its corporate parent) shall have a combined capital and surplus
of at least $100,000,000 as set forth in the most recent applicable published
annual report of condition. The Trustee shall comply with TIA Section 310(b),
including the provision in Section 310(b)(1) (including the proviso thereof).
If at any time the Trustee shall cease to be eligible pursuant to this Section
7.10, the Trustee shall resign immediately in the manner and with the effect
specified in this Article Seven.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311 (b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
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:
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(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 Notes
(whether such sums have been paid to it by the Company or by any
obligor on the Notes) in trust for the benefit of Holders of the Notes
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 Notes) in the payment of any installment of the principal of,
premium, if any, or interest on, the Notes when the same shall be due
and payable.
ARTICLE EIGHT
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 8.01. Without Consent of Holders.
The Company and any Guarantors, when authorized by a Board
Resolution of each of them, and the Trustee may amend, waive or supplement this
Indenture or the Notes without notice to or consent of any Noteholder:
(1) to comply with Section 5.01 hereof;
(2) to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided, however, that the uncertificated
Notes are issued in registered form for purposes of Section 163(f) of
the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to add Guarantees with
respect to the Notes, to secure the Notes;
(3) to comply with any requirements of the Commission under
the TIA;
(4) to cure any ambiguity, omission, defect or inconsistency;
(5) to make any other change that does not materially and
adversely affect the rights of any Noteholders hereunder;
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(6) to add to the covenants of the Company for the benefit of
the holders of the Notes or to surrender any right or power conferred
upon the Company;
(7) to add Guarantees with respect to the Notes; or
(8) to provide for the issuance of the Exchange Notes or the
Private Exchange Notes in accordance with Section 2.01 and pursuant to
the Registration Rights Agreement.
However, no amendment may be made to the subordination
provisions of the Indenture that adversely affects the rights of any holder of
Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
The Trustee is hereby authorized to join with the Company 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 and any Guarantors, when authorized by a Board
Resolution of each of them, and the Trustee may modify or supplement this
Indenture or the Notes with the written consent of the Majority Holders. The
Majority Holders may waive compliance in a particular instance by the Company or
any Guarantors with any provision of this Indenture or the Notes. Subject to
Section 8.04, without the consent of each Noteholder affected, however, an
amendment, supplement or waiver, including a waiver pursuant to Section 6.04,
may not:
(1) reduce the amount of Notes whose holders must consent to
an amendment, supplement, or waiver to the Indenture;
(2) reduce the rate of or change the time for payment of
interest, including defaulted interest, on any Note;
(3) reduce the principal of or premium on or change the stated
maturity of any Note or change the date on which any Notes may be
subject to redemption or repurchase or reduce the redemption or
repurchase price therefor;
(4) make any Note payable in money other than that stated in
the Note or change the place of payment from New York, New York;
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(5) waive a default on the payment of the principal of,
interest on or redemption payment with respect to any Note;
(6) make any change in provisions of this Indenture protecting
the right of each holder of Notes to receive payment of principal of
and interest on such Notes 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 Notes to waive Defaults or Events of Default;
(7) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control
Offer in the event of a Change of Control or make and consummate an
Excess Proceeds Offer with respect to any Asset Sale that has been
consummated or modify any of the provisions or definitions with respect
thereto; or
(8) modify or change any provision of this Indenture or the
related definitions affecting the subordination or ranking of the Notes
or any Guarantee in a manner which adversely affects the holders of
Notes.
In addition, without the consent of the holders of 90% in
principal amount of the Notes then outstanding, no amendment may release any
Guarantor from any of its obligations under its Guarantee or this Indenture
otherwise than in accordance with the terms of this Indenture.
After an amendment, supplement or waiver under this Section
8.02 becomes effective, the Company shall mail to the Holders a notice briefly
describing the amendment, supplement or waiver. However, the failure to give
such notice to all Holders, or any defect thereby will not impair or affect the
validity of the amendment.
Upon the written request of the Company, accompanied by a
Board Resolution authorizing the execution of any such supplemental indenture,
and upon the receipt by the Trustee of evidence not unsatisfactory to the
Trustee of the consent of the Noteholders as aforesaid and upon receipt by the
Trustee of the documents described in Section 8.06 hereof, the Trustee shall
join with the Company in the execution of such supplemental indenture unless
such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture, in which case the Trustee may, but shall not be
obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
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SECTION 8.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes
shall comply with the TIA as then in effect.
SECTION 8.04. Revocation and Effect of Consents.
Until an amendment, supplement, waiver or other action becomes
effective, a consent to it by a Holder of a Note is a continuing consent
conclusive and binding upon such Holder and every subsequent Holder of the same
Note or portion thereof, and of any Note issued upon the transfer thereof or in
exchange therefor or in place thereof, even if notation of the consent is not
made on any such Note. Subject to the following paragraph, any such Holder or
subsequent Holder may revoke the consent as to such Holder's Note or portion of
such Note by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Notes have consented (and not theretofore
revoked such consent) to the amendment, supplement or waiver.
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
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 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 (except as to any supplemental indenture
agreement or instrument or waiver entered into or any other action taken in
respect of such consent, prior to the expiration of such 90 day period).
After an amendment, supplement, waiver or other action becomes
effective, it shall bind every Noteholder, unless it makes a change described in
any of clauses (1) through (8) of Section 8.02 hereof. In that case the
amendment, supplement, waiver or other action shall bind each Holder of a Note
who has consented to it and every subsequent Holder of a Note or portion of a
Note that evidences the same debt as the consenting Holder's Note.
SECTION 8.05. Notation on or Exchange of Notes.
If an amendment, supplement, or waiver changes the terms of a
Note, the Trustee (in accordance with the specific written direction of the
Company) shall request the Holder of the Note (in accordance with the specific
written direction of the Company) to
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deliver it to the Trustee. In such case, the Trustee shall place an appropriate
notation on the Note 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 Note shall issue and the Trustee shall authenticate a new Note
that reflects the changed terms. Failure to make the appropriate notation or
issue a new Note shall not affect the validity and effect of such amendment,
supplement or waiver.
SECTION 8.06. Trustee To Sign Amendments, etc.
The Trustee shall sign any amendment, supplement or waiver
authorized pursuant to this Article Eight if the 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 such amendment,
supplement or waiver. In signing or refusing to sign such 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, in addition to the matters required by Section
12.04, that such amendment, supplement or waiver is authorized or permitted by
this Indenture and is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms (subject to
customary exceptions).
ARTICLE NINE
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01. Discharge of Indenture.
The Company may terminate its obligations under the Notes, and
this Indenture, except the obligations referred to in the last paragraph of this
Section 9.01, if there shall have been cancelled by the Trustee or delivered to
the Trustee for cancellation all Notes theretofore authenticated and delivered
(other than any Notes that are asserted to have been destroyed, lost or stolen
and that shall have been replaced as provided in Section 2.08 hereof) and the
Company has paid all sums payable by them hereunder or deposited all required
sums with the Trustee.
After such delivery, the Trustee upon Company Request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes 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 7.07, 9.05 and 9.06 hereof
shall survive.
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SECTION 9.02. Legal Defeasance.
The Company and the Guarantors may at the option of the
Company, by Board Resolution of the Board of Directors of the Company, be
discharged from their obligations with respect to the Notes and the Guarantees
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 Notes and to have satisfied all its other
obligations under such Notes and this Indenture insofar as such Notes 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 Notes 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 Notes when such payments are due, (B) the Company's obligations
with respect to such Notes under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.11 and 4.18 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 Nine. Subject to
compliance with this Article Nine, the Company may exercise its option under
this Section 9.02 with respect to the Notes notwithstanding the prior exercise
of its option under Section 9.03 below with respect to the Notes.
SECTION 9.03. Covenant Defeasance.
At the option of the Company, pursuant to a Board Resolution
of the Board of Directors of the Company, (x) the Company shall be released from
its obligations under Sections 4.02 (except for obligations mandated by the TIA)
through 4.17, inclusive, 4.19 through 4.21, inclusive, and (y) clauses (1), (2)
and (3) of Section 5.01 hereof and clause (3) of Section 6.01 hereof shall no
longer apply with respect to the outstanding Notes on and after the date the
conditions set forth in Section 9.04 hereof are satisfied (hereinafter,
"Covenant Defeasance"). For this purpose, such Covenant Defeasance means that
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such 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 Notes shall be unaffected thereby.
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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 Notes:
(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 Nine 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 Notes, (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 Notes 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
Notes;
(2) no Event of Default or Default with respect to the Notes
shall have occurred and be continuing on the date of such deposit or,
insofar as Events of Default under Section 6.01(6) or (7) are
concerned, 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 this
Indenture, the Senior Credit Facility 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 is bound;
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(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 Notes or Persons in their positions will not
recognize income, gain or loss for United States Federal income tax
purposes solely as a result of such Legal Defeasance and will be
subject to United States 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 Notes will not recognize
income, gain or loss for United States Federal income tax purposes as a
result of such Covenant Defeasance and will be subject to United States
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 preferring the Holders of the
Notes over any other creditors of the Company or with the intent of
defeating, hindering, delaying or defrauding any creditors of the
Company or others;
(10) the Company shall have delivered to the Trustee on
Opinion of Counsel to the effect that (i) the trust funds will not be
subject to the rights of the holders of Senior Indebtedness, including,
without limitation, those arising under this Indenture and (ii) after
the 91st day following the deposit, the trust funds will not be subject
to the effect of any applicable Bankruptcy Law; and
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(11) the Company shall have paid or duly provided for payment
under terms mutually satisfactory to the Company and the Trustee all
amounts then 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 Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent, to the Holders of such
Notes, of all sums due and to become due thereon in respect of principal,
premium, if any, and accrued interest, but such money need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the 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
Notes.
Anything in this Article Nine to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon a 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 Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article Nine 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 that if the Company has made any payment of principal of,
premium, if any, or accrued interest on any Notes because of the reinstatement
of their
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obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money or U.S. Government Obligations
held by the Trustee or Paying Agent.
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 written demand of the Company, be paid to the Trustee, or
if sufficient moneys have been deposited pursuant to Section 9.04 hereof, to the
Company upon a Company Request, 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 in trust for the payment of the principal of, or
premium, if any, or interest on any Note that are not applied but remain
unclaimed by the Holder of such Note for two years after the date upon which the
principal of, or premium, if any, or interest on such Note shall have
respectively become due and payable shall be repaid to the Company upon a
Company Request, or if such moneys are then held by the Company in trust, such
moneys shall be released from such trust; and the Holder of such Note entitled
to receive such payment shall thereafter, as an unsecured general creditor, look
only to the Company and the Guarantors for the payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money
shall thereupon cease; provided, that the Trustee or any such Paying Agent,
before being required to make any such repayment, may, at the expense of the
Company, either mail to each Noteholder affected, at the address shown in the
register of the Notes 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 release of any money held in trust by the
Company, Noteholders entitled to the money must look only to the Company for
payment as general creditors unless applicable abandoned property law designates
another Person.
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ARTICLE TEN
GUARANTEE OF NOTES
SECTION 10.01. Guarantee.
Subject to the provisions of this Article Ten, each Guarantor,
by execution of a Guarantee will, jointly and severally unconditionally
guarantee to each Holder and to the Trustee, on behalf of the Holders, (i) the
due and punctual payment of the principal of, and premium, if any, and interest
on each Note, when and as the same shall become due and payable, whether at
maturity, by acceleration or otherwise, the due and punctual payment of interest
(including Additional Interest) on the overdue principal of, and premium, if
any, and interest on the Notes, to the extent lawful, and the due and punctual
payment of all other Obligations of the Company to the Holders or the Trustee
(including without limitation amounts due the Trustee under Section 7.07) all in
accordance with the terms of such Note and this Indenture, and (ii) in the case
of any extension of time of payment or renewal of any Notes 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 a Guarantee, will,
agree that its obligations hereunder shall be absolute and unconditional,
irrespective of, and shall be unaffected by, any invalidity, irregularity or
unenforceability of any such Note or this Indenture, any failure to enforce the
provisions of any such Note or this Indenture, any waiver, modification or
indulgence granted to the Company with respect thereto by the Holder of such
Note 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 a Guarantee, will waive
diligence, presentment, demand for payment, 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 Note or
the Indebtedness evidenced thereby and all demands whatsoever, and will covenant
that the Guarantee will not be discharged as to any such Note except by payment
in full of the principal thereof, premium if any and interest thereon as
provided in Section 9.01 hereof. Each Guarantor, by execution of a 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 hereby may be accelerated as provided in Article Six hereof for the
purposes of this Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (ii) in the event of any declaration of acceleration of
such Obligations as provided in Article Six hereof, such Obligations (whether or
not due and payable) shall forthwith become due and payable by each Guarantor
for the purpose of this Guarantee. In addition, without limiting the foregoing
provisions, upon the effectiveness
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of an acceleration under Article 6 hereof, the Trustee shall promptly make a
demand for payment on the Notes under the Guarantee provided for in this Article
10 and not discharged. Failure to make such a 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 Note until the certificate of authentication on such
Note shall have been signed by or on behalf of the Trustee.
A 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, of 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.
A Guarantor, by execution of a Guarantee, will have the right
to seek contribution from any non-paying Guarantor so long as the exercise of
such right does not impair the rights of the Holders under such Guarantee.
SECTION 10.02. Execution and Delivery of Guarantee.
A Guarantee shall be executed by either manual or facsimile
signature of an Officer or an Officer of a general partner, as the case may be,
of such Guarantor.
If an officer of a Guarantor whose signature is on the
Guarantee no longer holds that office, such Guarantor's Guarantee shall be valid
nevertheless.
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SECTION 10.03. Limitation of Guarantee.
Each Guarantor, and by its acceptance hereof each Holder and
the Trustee, hereby confirms that it is the intention of all such parties that
the Guarantee does not constitute a fraudulent transfer or conveyance for
purposes of Title 11 of the United States Code, as amended, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
U.S. Federal or state law. To effectuate the foregoing intention, each Holder
and each Guarantor hereby irrevocably agree that the obligations of a Guarantor
under its Guarantee shall be limited to the maximum amount as will, after giving
effect to all other contingent and fixed liabilities of such Guarantor, and
after giving effect to any collections from or payments made by or on behalf of
such Guarantor in respect of the obligations of such Guarantor pursuant to this
Article Ten, result in the obligations of such Guarantor not constituting such a
fraudulent transfer or conveyance.
SECTION 10.04. 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 10.05. Release of Guarantor.
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 the terms of this Indenture (including
Sections 4.09, 4.20 and 5.01);
(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 the terms of this
Indenture (including Section 5.01); or
(iii) the Guarantor is designated an Unrestricted Subsidiary
in compliance with the terms of this Indenture (including Section
4.08);
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and in each such case, such Guarantor 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 and that such release is authorized and permitted hereunder.
The Trustee shall execute any documents reasonably requested
by the Company or a Guarantor in order to evidence the release of such Guarantor
from its obligations under its Guarantee endorsed on the Notes and under this
Article Ten.
SECTION 10.06. Subordination of Subrogation and Other Rights; Subrogation.
Each Guarantor hereby agrees that any claim against the
Company that arises from the payment, performance or enforcement of such
Guarantor's obligations under the Guarantee or this Indenture, including,
without limitation, any right of subrogation, shall be subject and subordinate
to, and no payment with respect to any such claim of such Guarantor shall be
made before, the payment in full in cash of all outstanding Senior Indebtedness
and Guarantor Senior Indebtedness in accordance with the provisions provided
therefor in this Indenture.
Upon the payment in full in cash or Cash Equivalents of all
Guarantor Senior Indebtedness of a Guarantor, the Holders of the Notes shall be
subrogated to the rights of the holders of such Guarantor Senior Indebtedness to
receive payments or distributions of cash, property or securities of such
Guarantor made on such Guarantor Senior Indebtedness until the principal of and
interest on the Notes shall be paid in full in cash or Cash Equivalents; and,
for the purposes of such subrogation, no payments or distributions to the
holders of such Guarantor Senior Indebtedness of any cash, property or
securities to which the Holders of the Notes or the Trustee on their behalf
would be entitled except for the provisions of this Article Ten, and no payment
over pursuant to the provisions of this Article Ten to the holders of such
Guarantor Senior Indebtedness by Holders of the Notes or the Trustee on their
behalf shall, as between such Guarantor, its creditors other than holders of
such Guarantor Senior Indebtedness, and the Holders of the Notes, be deemed to
be a payment by such Guarantor to or on account of such Guarantor Senior
Indebtedness. It is understood that the provisions of this Article Ten are and
are intended solely for the purpose of defining the relative rights of the
Holders of the Notes, on the one hand, and the holders of Guarantor Senior
Indebtedness of any such Guarantor on the other hand.
If any payment or distribution to which the Holders of the
Notes would otherwise have been entitled but for the provisions of this Article
Ten shall have been applied, pursuant to the provisions of this Article Ten, to
the payment of all amounts payable under Guarantor Senior Indebtedness of the
Guarantors, then and in such case, the Holders of the
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Notes shall be entitled to receive from the holders of such Guarantor Senior
Indebtedness any payments or distributions received by such holders of Guarantor
Senior Indebtedness in excess of the amount required to make payment in full in
cash of such Guarantor Senior Indebtedness.
SECTION 10.07. Guarantee Obligations Subordinated to Guarantor Senior
Indebtedness.
Each Guarantor, by execution of a Guarantee, will covenant and
agree, and each Holder of Notes, by its acceptance thereof, will likewise
covenants and agrees, that to the extent and in the manner hereinafter set forth
in this Article Ten, the Indebtedness represented by the Guarantee and the
payment of the principal of, premium, if any, and interest on the Notes pursuant
to the Guarantee by such Guarantor are hereby expressly made subordinate and
subject in right of payment as provided in this Article Ten to the prior
indefeasible payment and satisfaction in full in cash of all existing and future
Guarantor Senior Indebtedness of such Guarantor.
This Section 10.07 and the following Sections 10.08 through
10.16 shall constitute a continuing offer to all Persons who, in reliance upon
such provisions, become holders of or continue to hold Guarantor Senior
Indebtedness of any Guarantor; and such provisions are made for the benefit of
the holders of Guarantor Senior Indebtedness of each Guarantor; and such holders
are made obligees hereunder and they or each of them may enforce such
provisions.
SECTION 10.08. Payment Over of Proceeds upon Dissolution, etc., of a
Guarantor.
In the event of any:
(1) insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization or other similar
case or proceeding in connection therewith, relative to a Guarantor or
to its creditors, as such, or to its assets, whether voluntary or
involuntary;
(2) liquidation, dissolution or other winding-up of a
Guarantor, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy;
(3) general assignment for the benefit of creditors of a
Guarantor; or
(4) marshaling of assets or liabilities of a Guarantor (except
in connection with the merger or consolidation of a Guarantor or its
liquidation or dissolution following
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the transfer of substantially all of its assets, upon the terms and
conditions permitted under the circumstances described under Section
5.01).
(all of the foregoing events described in clauses (1) through
(4) referred to herein individually as a "Guarantor Bankruptcy Proceeding" and
collectively as "Guarantor Bankruptcy Proceedings"), the holders of Guarantor
Senior Indebtedness of a Guarantor will be entitled to receive payment and
satisfaction in full in cash of all amounts due on or in respect of all
Guarantor Senior Indebtedness of a Guarantor before the holders of the Notes are
entitled to receive or retain any payment or distribution of any kind on account
of the Notes.
In the event that, notwithstanding the foregoing, the Trustee
or any Holder of Notes receives any payment or distribution of assets of a
Guarantor of any kind, whether in cash, property or securities, including,
without limitation, by way of set-off or otherwise, in respect of the Notes
before all Guarantor Senior Indebtedness of a Guarantor 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 Guarantor Senior Indebtedness and will be
immediately paid over or delivered to the holders of Guarantor Senior
Indebtedness or their representative or representatives to the extent necessary
to make payment in full of all Guarantor Senior Indebtedness remaining unpaid,
after giving effect to any concurrent payment or distribution, or provision
therefor, to or for the holders of Guarantor Senior Indebtedness. By reason of
such subordination, in the event of any such Guarantor Bankruptcy Proceeding,
creditors of a Guarantor who are holders of Guarantor Senior Indebtedness may
recover more, ratably, than other creditors of a Guarantor, including Holders of
the Notes, and creditors of a Guarantor who are not holders of Guarantor Senior
Indebtedness or of the Notes may recover more, ratably, than the Holders of the
Notes.
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 conveyance, transfer or lease of its properties and
assets substantially as an entirety to another Person upon the terms and
conditions set forth in Article Five hereof shall not be deemed a dissolution,
winding-up, liquidation, reorganization, assignment for the benefit of creditors
or marshaling of assets and liabilities of a Guarantor for the purposes of this
Article Eleven if the Person formed by such consolidation or the surviving
entity of such merger or the Person which acquires by conveyance, transfer or
lease such properties and assets substantially as an entirety, as the case may
be, shall, as a part of such consolidation, merger, conveyance, transfer or
lease, comply with the conditions set forth in Article Five hereof.
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SECTION 10.09. Suspension of Guarantee Obligations When Guarantor Senior
Indebtedness in Default.
(a) Unless Section 10.08 hereof shall be applicable, upon the
occurrence of a Payment Default on Designated Senior Indebtedness, no payment or
distribution of any assets or securities of any Guarantor or any Restricted
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 the payment of its Obligations on its Guarantee)
may be made by or on behalf of such Guarantor or any Restricted 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 Notes shall take or receive from any Guarantor or
any Restricted Subsidiary of such Guarantor, directly or indirectly in any
manner, payment in respect of all or any portion of its Obligations on its
Guarantee commencing on the date of receipt by the Trustee of written notice
from the representative of the holders of Designated Senior Indebtedness which
constitutes Guarantor Senior Indebtedness (the "Guarantor Representative") of
the occurrence of such 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 clause
(b) of this Section 10.09, such Guarantor shall resume making any and all
required payments in respect of its Obligations under its Guarantee, including
any missed payments.
(b) Unless Section 10.08 hereof shall be applicable, upon the
occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness
which constitutes Guarantor Senior Indebtedness, no payment or distribution of
any assets of such Guarantor of any kind may be made by such Guarantor or any
Restricted Subsidiary of such Guarantor, including, without limitation, by way
of set-off or otherwise, for or on account of its Obligations under its
Guarantee, or for or on account of the purchase or redemption or other
acquisition of its Obligations under its Guarantee, for a period (a "Guarantor
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) 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 ceased to exist or such Designated Senior Indebtedness which constitutes
Guarantor Senior Indebtedness shall have been paid in full or (z) such Guarantor
Payment Blockage Period shall have been terminated by written notice to such
Guarantor or the Trustee from such Guarantor Representative, after which, in the
case of
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clause (x), (y) or (z), such Guarantor shall resume making any and all required
payments in respect of its Obligations under its Guarantee, including any missed
payments, unless the holders of such Designated Senior Indebtedness which
constitutes Guarantor Senior Indebtedness or the Guarantor Representative of
such holders have or has accelerated the maturity of such Designated Senior
Indebtedness which constitutes Guarantor Senior Indebtedness, or any Payment
Default otherwise exists. Notwithstanding any other provision of the Indenture,
in no event shall a Guarantor Payment Blockage Period commenced in accordance
with the provisions of this Section 10.09(b) extend beyond 179 days from the
date of the receipt by the Trustee of the notice referred to above (the "Initial
Guarantor Blockage Period"). Any number of additional Guarantor Payment Blockage
Periods may be commenced during the Initial Guarantor Blockage Period; provided,
however, that no such additional Guarantor Payment Blockage Period shall extend
beyond the Initial Guarantor Blockage Period. After the expiration of the
Initial Guarantor Blockage Period, no Guarantor Payment Blockage Period may be
commenced until at least 180 consecutive days have elapsed from the last day of
the Initial Guarantor Blockage Period. Notwithstanding any other provision of
this Indenture, no Non-Payment Event of Default with respect to Designated
Senior Indebtedness which constitutes Guarantor Senior Indebtedness and which
existed or was continuing on the date of the commencement of any Guarantor
Payment Blockage Period initiated by the Guarantor Representative shall be, or
be made, the basis for the commencement of a second Guarantor Payment Blockage
Period initiated by the Guarantor Representative, whether or not within the
Initial Guarantor 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 Note shall have received any payment from a
Guarantor prohibited by the foregoing provisions of this Section 10.09, then and
in such event such payment shall be paid over and delivered forthwith to the
Guarantor Representative initiating the Guarantor Payment Blockage Period, in
trust for distribution to the holders of Guarantor Senior Indebtedness or, if no
amounts are then due in respect of Guarantor Senior Indebtedness, promptly
returned to such Guarantor, or otherwise as a court of competent jurisdiction
shall direct.
(d) Nothing in this Section 10.09 or in Section 10.08 shall
prevent the Trustee from receiving any payment due to the Trustee in accordance
with Section 7.07 hereof.
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SECTION 10.10. Trustee's Relation to Guarantor Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the
rights set forth in this Article Ten with respect to any Guarantor Senior
Indebtedness which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Guarantor Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee or any
Paying Agent of any of its rights as such holder.
With respect to the holders of Guarantor Senior Indebtedness,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Ten, and no implied
covenants or obligations with respect to the holders of Guarantor Senior
Indebtedness shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior
Indebtedness and the Trustee shall not be liable to any holder of Guarantor
Senior Indebtedness (other than for its willful misconduct or gross negligence)
if it shall in good faith mistakenly pay over or deliver to the Holders of
Notes, the Company or any other Person moneys or assets to which any holder of
Guarantor Senior Indebtedness shall be entitled by virtue of this Article Ten or
otherwise. Nothing in this Section 10.10 shall affect the obligation of any
other such Person, the Company, or the Holders to hold such money or assets for
the benefit of, and to pay such money or assets over to, the holders of the
Guarantor Senior Indebtedness or their applicable representative or
representatives.
SECTION 10.11. Subrogation to Rights of Holders of Guarantor Senior
Indebtedness.
Upon the payment in full of all amounts payable under or in
respect of all Guarantor Senior Indebtedness of a Guarantor, the Holders shall
be subrogated to the rights of the holders of such Guarantor Senior Indebtedness
to receive payments and distributions of cash, property and securities of such
Guarantor made on such Guarantor Senior Indebtedness 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
Indebtedness of any cash, property or securities to which Holders of the Notes
would be entitled except for the provisions of this Article Ten and no payments
over pursuant to the provisions of this Article Ten to holders of Guarantor
Senior Indebtedness by Holders of the Notes, shall, as among each Guarantor, its
creditors other than holders of Guarantor Senior Indebtedness and the Holders of
the Notes, be deemed to be a payment or distribution by such Guarantor to or on
account of such Guarantor Senior Indebtedness.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article Ten shall
have been applied, pursuant to the provisions of this Article Ten, to the
payment of all amounts payable under Guarantor
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Senior Indebtedness, then and in such case, the Holders shall be entitled to
receive from the holders of such Guarantor Senior Indebtedness at the time
outstanding any payments or distributions received by such holders of Guarantor
Senior Indebtedness in excess of the amount sufficient to pay all amounts
payable under or in respect of such Guarantor Senior Indebtedness in full in
cash.
SECTION 10.12. Guarantee Subordination Provisions Solely To Define
Relative Rights.
The subordination provisions of this Article Ten are and are
intended solely for the purpose of defining the relative rights of the Holders
of the Notes on the one hand and the holders of Guarantor Senior Indebtedness on
the other hand. Nothing contained in this Article Ten or elsewhere in this
Indenture or in the Notes is intended to or shall (a) impair, as among each
Guarantor, its creditors other than holders of its Guarantor Senior Indebtedness
and the Holders of the Notes, 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 Notes and creditors
of such Guarantor other than the holders of the Guarantor Senior Indebtedness;
or (c) prevent the Holder of any Note 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 Ten of the holders
of Guarantor Senior Indebtedness (1) in any case, proceeding, dissolution,
liquidation or other winding-up, assignment for the benefit of creditors or
other marshaling of assets and liabilities of any Guarantor referred to in
Section 10.08 hereof, to receive, pursuant to and in accordance with such
Section, cash, property and securities otherwise payable or deliverable to such
Holder, or (2) under the conditions specified in Section 10.09 hereof, to
prevent any payment prohibited by such Section or enforce their rights pursuant
to Section 10.09(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 Ten
shall not be construed as preventing the occurrence of a Default or an Event of
Default hereunder.
SECTION 10.13. Trustee To Effectuate Subordination.
Each Holder of a Note by his acceptance thereof agrees to be
bound by such provisions and authorizes and directs the Trustee, on his behalf,
to take such action as may be necessary or appropriate to effectuate the
subordination provisions in this Article Ten and appoints the Trustee his
attorney-in-fact for any and all such purposes, including, in the event of any
Guarantor Bankruptcy Proceeding or other dissolution, winding-up, liquidation or
reorganization of a Guarantor whether in bankruptcy, insolvency, receivership
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proceedings, or otherwise, the prompt and timely filing of a claim for the
unpaid balance of the indebtedness of such Guarantor 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 Guarantor Senior Indebtedness,
or any Guarantor Representative, may, and hereby are authorized to, file such a
claim on behalf of Holders of the applicable Notes.
SECTION 10.14. Notice to Trustee.
(a) The Company or any Guarantor shall give prompt written
notice to the Trustee of any fact known to the Company or any such Guarantor
which would prohibit the making of any payment to or by the Trustee at its
Corporate Trust Office in respect of the Guarantees pursuant to the provisions
of this Article Ten. Notwithstanding the provisions of this Article Ten 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 Guarantees, unless and until the
Trustee shall have received written notice thereof from the Company or a holder
of Guarantor Senior Indebtedness or from any trustee, fiduciary, representative,
or agent therefor no later than two Business Days prior to such payment; and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of this Section 10.14, and subject to the provisions of Sections 7.01
and 7.02 hereof, 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
referred to in this Section 10.14 at least one Business Day prior to the date
upon which by the terms hereof any such payment 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 Note), then, anything herein
contained to the contrary notwithstanding but without limiting the rights and
remedies of the holders of Guarantor Senior Indebtedness or any trustee,
fiduciary, representative, or agent therefor as against the Holders of the Notes
or any other Person, 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 less than one Business Day prior to such date; nor shall the
Trustee be charged with knowledge of the curing of any such applicable default
in respect of Designated Senior Indebtedness or the elimination of the act or
condition preventing any such payment unless and until the Trustee shall have
received an Officers' Certificate to such effect (subject to the rights of the
holders of the Designated Senior Indebtedness under Section 10.09 hereof).
Nothing contained in this Section 10.14 shall limit the right of holders of
Senior Indebtedness to recover payments as contemplated by Section 10.08. The
Trustee shall be entitled to rely upon the delivery to it of a written notice by
a Person representing himself or itself to be a holder of any Senior
Indebtedness (or a trustee on behalf of, or other representative of, such
holder) to establish
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that such notice has been given by a holder of such Senior Indebtedness or a
trustee or representative on behalf of any such holder.
(b) Subject to the provisions of Section 7.01 hereof, the
Trustee shall be entitled to rely (to the extent reasonable and in good faith)
on the delivery to it of a written notice to the Trustee and the Company or a
Guarantor by a Person representing itself to be a holder of Guarantor Senior
Indebtedness (or a trustee, fiduciary, representative, or agent therefor) for
purposes of establishing that such notice actually has been given by a holder of
Guarantor Senior Indebtedness (or a trustee, fiduciary, representative, or agent
therefor); provided, however, that failure to give such notice to the Company or
a Guarantor 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
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article Ten, the Trustee may request such Person to furnish
evidence not unsatisfactory to the Trustee as to the amount of Guarantor Senior
Indebtedness 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 Ten, and if such evidence is not
furnished, the Trustee, acting in good faith, may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment.
SECTION 10.15. Rights of Trustee as a Holder of Guarantor Senior
Indebtedness; Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article Ten with respect to any Guarantor
Senior Indebtedness which may at any time be held by it, to the same extent as
any other holder of Guarantor Senior Indebtedness, and nothing in this Indenture
shall deprive the Trustee of any of its rights as such holder. Nothing in this
Article Ten shall apply to claims of, or payments to, the Trustee for its
compensation owing pursuant to and in accordance with, the first sentence of
Section 7.07 hereof.
SECTION 10.16. Application of Certain Article Eleven Provisions.
The provisions of Sections 11.08, 11.10, 11.12 and 11.13
hereof shall apply, mutatis mutandis, to each Guarantor and their respective
holders of Guarantor Senior Indebtedness and the rights, duties and obligations
set forth therein shall govern the rights, duties and obligations of each
Guarantor, the holders of Guarantor Senior Indebtedness and the Holders with
respect to the Guarantee and all references therein to Article Eleven hereof
shall mean this Article Ten.
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ARTICLE ELEVEN
SUBORDINATION OF NOTES
SECTION 11.01. Notes Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of Notes, by
its acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article Eleven, the Indebtedness
represented by the Notes and the payment of the principal of, premium, if any,
and interest on the Notes are hereby expressly made subordinate and subject in
right of payment as provided in this Article Eleven to the prior indefeasible
payment and satisfaction in full in cash of all existing and future Senior
Indebtedness.
This Article Eleven shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of or continue to
hold Senior Indebtedness; and such provisions are made for the benefit of the
holders of Senior Indebtedness; and such holders are made obligees hereunder and
they or each of them may enforce such provisions.
SECTION 11.02. Payment Over of Proceeds upon Dissolution, etc.
In the event of any:
(1) 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;
(2) liquidation, dissolution or other winding-up of the
Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy;
(3) general assignment for the benefit of creditors of the
Company; or
(4) 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 Section 5.01).
(all of the foregoing events described in clauses (1) through
(4) referred to herein individually as a "Bankruptcy Proceeding" and
collectively as "Bankruptcy Proceedings"),
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the holders of Senior Indebtedness 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 Indebtedness of the Company before the Holders of the Notes are
entitled to receive or retain any payment or distribution of any kind on account
of the Notes.
In the event that, notwithstanding the foregoing, the Trustee
or any Holder of Notes 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 Notes before all
Senior Indebtedness 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 Indebtedness and will be immediately paid over or
delivered to the holders of Senior Indebtedness or their representative or
representatives to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of Senior
Indebtedness. By reason of such subordination, in the event of any such
Bankruptcy Proceeding, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than other creditors of the Company,
including holders of the Notes, and creditors of the Company who are not holders
of Senior Indebtedness or of the Notes may recover more, ratably, than the
Holders of the Notes.
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 conveyance, transfer or lease of its properties and assets
substantially as an entirety to another Person upon the terms and conditions set
forth in Article Five 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 Eleven if the Person formed by such consolidation or the surviving
entity of such merger or the Person which acquires by conveyance, transfer or
lease such properties and assets substantially as an entirety, as the case may
be, shall, as a part of such consolidation, merger, conveyance, transfer or
lease, comply with the conditions set forth in Article Five hereof.
SECTION 11.03. Suspension of Payment When Senior Indebtedness in Default.
(a) Unless Section 11.02 hereof shall be applicable, upon the
occurrence of a Payment Default on Designated Senior Indebtedness, 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 Notes by the Company) may be made by or on
behalf of the Company or any Restricted Subsidiary of the Company, including,
without limitation, by way of set-off or otherwise, for or on account of the
Notes, or for or on
<PAGE>
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account of the purchase, redemption or other acquisition of any Notes, and
neither the Trustee nor any holder or owner of any Notes shall take or receive
from the Company or any Restricted Subsidiary of the Company, directly or
indirectly in any manner, payment in respect of all or any portion of Notes
commencing on the date of receipt by the Trustee of written notice from the
representative of the holders of Designated Senior Indebtedness (the
"Representative") of the occurrence of such 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 clause (b) of this Section 11.03, the Company shall
resume making any and all required payments in respect of the Notes, including
any missed payments.
(b) Unless Section 11.02 hereof shall be applicable, upon the
occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness,
no payment or distribution of any assets of the Company of any kind may be made
by the Company or any Restricted Subsidiary of the Company, including, without
limitation, by way of set-off or otherwise, for or on account of the Notes, or
for or on account of the purchase or redemption or other acquisition of any
Notes, 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 ceased to exist or such Designated
Senior Indebtedness 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 Notes, including any missed payments, unless the holders of such Designated
Senior Indebtedness or the Representative of such holders have or has
accelerated the maturity of such Designated Senior Indebtedness, or any Payment
Default otherwise exists. Notwithstanding any other provision of this Indenture,
in no event shall a Payment Blockage Period commenced in accordance with the
provisions of this Section 11.03(b) extend beyond 179 days from the date of the
receipt by the Trustee of the notice referred to above (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 until at least 180 consecutive days have elapsed from the last day of
the Initial Blockage Period. Notwithstanding any other provision of this
Indenture, no Non-Payment Event of Default with respect to Designated Senior
Indebtedness which existed or was continuing on the date of the commencement of
<PAGE>
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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 Note shall have received any payment prohibited by
the foregoing provisions of this Section 11.03, then and in such event such
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 Indebtedness or, if no amounts are then due in respect of Senior
Indebtedness, promptly returned to the Company, or otherwise as a court of
competent jurisdiction shall direct.
(d) Nothing in this Section 11.03 or in Section 11.02 shall
prevent the Trustee from receiving any payment due to the Trustee in accordance
with Section 7.07 hereof.
SECTION 11.04. Trustee's Relation to Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the
rights set forth in this Article Eleven with respect to any Senior Indebtedness
which may at any time be held by it in its individual or any other capacity to
the same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee or any Paying Agent of any of its rights as
such holder.
With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Eleven, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness and the
Trustee shall not be liable to any holder of Senior Indebtedness (other than for
its willful misconduct or gross negligence) if it shall in good faith mistakenly
pay over or deliver to the Holders of Notes, the Company or any other Person
moneys or assets to which any holder of Senior Indebtedness shall be entitled by
virtue of this Article or otherwise. Nothing in this Section 11.04 shall affect
the obligation of any other such Person, the Company, or the Holders to hold
such money or assets for the benefit of, and to pay such money or assets over
to, the holders of the Senior Indebtedness or their applicable representative or
representatives.
<PAGE>
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SECTION 11.05. Subrogation to Rights of Holders of Senior Indebtedness.
Upon the payment in full of all Senior Indebtedness, the
Holders of the Notes shall be subrogated to the rights of the holders of such
Senior Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of,
premium, if any and interest on the Notes shall be paid in full. For purposes of
such subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, property or securities to which the Holders of the
Notes would be entitled except for the provisions of this Article Eleven, and no
payments over pursuant to the provisions of this Article Eleven to the holders
of Senior Indebtedness by Holders of the Notes shall, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Notes, be deemed to be a payment or distribution by the Company to or on account
of the Senior Indebtedness.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article Eleven shall
have been applied, pursuant to the provisions of this Article Eleven, to the
payment of all amounts payable under the Senior Indebtedness of the Company,
then and in such case the Holders shall be entitled to receive from the holders
of such Senior Indebtedness at the time outstanding any payments or
distributions received by such holders of such Senior Indebtedness in excess of
the amount sufficient to pay all amounts payable under or in respect of such
Senior Indebtedness in full in cash.
SECTION 11.06. Provisions Solely To Define Relative Rights.
The provisions of this Article Eleven are and are intended
solely for the purpose of defining the relative rights of the Holders of the
Notes on the one hand and the holders of Senior Indebtedness on the other hand.
Nothing contained in this Article or elsewhere in this Indenture or in the Notes
is intended to or shall (a) impair, as among the Company, its creditors other
than holders of Senior Indebtedness and the Holders of the Notes, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders of
the Notes the principal of, premium, if any, and interest on the Notes 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 Notes
and creditors of the Company other than the holders of Senior Indebtedness; or
(c) prevent the Trustee or the Holder of any Note 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 Eleven
of the holders of Senior Indebtedness (1) in any case, proceeding, dissolution,
liquidation or other winding-up, assignment for the benefit of creditors or
other marshaling of assets and liabilities of the Company referred to in Section
11.02 hereof, to
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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 11.03, to prevent any payment
prohibited by such Section or enforce their rights pursuant to Section 11.03(c)
hereof.
The failure to make a payment on account of principal of,
premium, if any, or interest on the Notes by reason of any provision of this
Article Eleven shall not be construed as preventing the occurrence of a Default
or an Event of Default hereunder.
SECTION 11.07. Trustee to Effectuate Subordination.
Each Holder of a Note by his acceptance thereof agrees to be
bound by such provisions and authorizes and directs the Trustee, on his behalf,
to take such action as may be necessary or appropriate to effectuate the
subordination provisions in this Article Eleven and appoints the Trustee his
attorney-in-fact for any and all such purposes, including, in the event of any
Company Bankruptcy Proceeding or other dissolution, winding-up, liquidation or
reorganization of the Company whether in bankruptcy, insolvency, receivership
proceedings, or otherwise, the prompt and 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 Indebtedness, or any
Representative, may, and hereby are authorized to, file such a claim on behalf
of Holders of the applicable Notes.
SECTION 11.08. No Waiver of Subordination Provisions
(a) No right of any present or future holder of any Senior
Indebtedness 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. The provisions of this Article Eleven are intended
to be for the benefit of, and shall be enforceable directly by, the holders of
Senior Indebtedness.
(b) Without limiting the generality of subsection (a) of this
Section 11.08, the holders of Senior Indebtedness may, at any time and from time
to time, without the consent of or notice to the Trustee or the Holders of the
Notes, without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provisions in this Article Eleven or
the obligations hereunder of the Holders of the Notes to the holders of Senior
Indebtedness, do any one or more of the following: (1) change the manner,
<PAGE>
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place or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (2) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (3) release any Person liable in any manner for the collection or
payment of Senior Indebtedness; 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 Notes to take
any action to accelerate the maturity of the Notes pursuant to Article Six
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 11.09. 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
Notes pursuant to the provisions of this Article Eleven. Notwithstanding the
provisions of this Article Eleven 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
Notes, unless and until the Trustee shall have received written notice thereof
from the Company or a holder of Senior Indebtedness or from any trustee,
fiduciary, representative, or agent therefor no later than one Business Day
prior to such payment; and, prior to the receipt of any such written notice, the
Trustee, subject to the provisions of this Section 11.09, and subject to the
provisions of Sections 7.01 and 7.02 hereof, 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 referred to in this Section 11.09 at least one
Business Day prior to the date upon which by the terms hereof any such payment
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
Note), 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, representative, or agent therefor as against the
Holders of the Notes or any other Person, 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 less than one Business Day prior to such date; nor
shall the Trustee be charged with knowledge of the curing of any such applicable
default in respect of Designated Senior Indebtedness or the elimination of the
act or condition preventing any such payment unless and until the Trustee shall
have received an Officers' Certificate to such effect (subject to the rights of
the holders of the Senior Indebtedness under Section 11.03 hereof). Nothing
contained in this Section 11.09 shall limit the right of holders of Senior
Indebtedness to recover payments as
<PAGE>
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contemplated by Section 11.02 or 11.03. The Trustee shall be entitled to rely
upon the delivery to it of a written notice by a Person representing himself or
itself to be a holder of any Senior Indebtedness (or a trustee on behalf of, or
other representative of, such holder) to establish that such notice has been
given by a holder of such Senior Indebtedness or a trustee or representative on
behalf of any such holder.
(b) Subject to the provisions of Section 7.01 hereof, the
Trustee shall be entitled to rely (to the extent reasonable and in good faith)
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 Indebtedness (or a trustee,
fiduciary, representative, or agent therefor) for purposes of establishing that
such notice actually has been given by a holder of Senior Indebtedness (or a
trustee, fiduciary, representative, 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 Indebtedness to participate in any
payment or distribution pursuant to this Article Eleven, the Trustee may request
such Person to furnish evidence not unsatisfactory to the Trustee as to the
amount of Senior Indebtedness 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 Eleven, and if
such evidence is not furnished, the Trustee, acting in good faith, may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment.
SECTION 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent
Upon any payment or distribution of assets of the Company
referred to in the Article Eleven, 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 proceedings 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 the Holders, for the purpose of ascertaining the
persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article Eleven.
<PAGE>
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SECTION 11.11. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article Eleven with respect to any Senior
Indebtedness which may at any time be held by it, to the same extent as any
other holder of Senior Indebtedness, and nothing in this Indenture shall deprive
the Trustee of any of its rights as such holder. Nothing in this Article Eleven
shall apply to claims of, or payments to, the Trustee for its compensation owing
pursuant to and in accordance with, the first sentence of Section 7.07 hereof.
SECTION 11.12. 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 Eleven 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 Eleven in addition to or in place of the Trustee.
SECTION 11.13. No Suspension of Remedies.
Nothing contained in this Article Eleven shall limit the right
of the Trustee or the Holders of Notes to take any action to accelerate the
maturity of the Notes pursuant to Article Six hereof or to pursue any rights or
remedies hereunder or under applicable law, subject to the rights, if any, under
this Article Eleven of the holders, from time to time, of Senior Indebtedness.
ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. 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. If any provision of
this Indenture modifies any TIA provision that may be so modified, such TIA
provision shall be deemed to apply to this Indenture as so modified. If any
provision of this Indenture excludes any TIA provision that may be so excluded,
such TIA provision shall be excluded from this Indenture.
<PAGE>
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The provisions of TIA Sections 310 through 317 that impose
duties on any Person (including the provisions automatically deemed included
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
SECTION 12.02. Notices.
Except for notice or communications to Holders, 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 or any Guarantor:
FAIRFIELD MANUFACTURING COMPANY, INC.
U.S. 52 South
Lafayette, IN 47903-7940
Attention: Vice President, Finance
Fax Number: (765) 474-7248
with a copy to:
DEBEVOISE & PLIMPTON
875 Third Avenue
New York, NY 10022
Attention: Ralph Arditi, Esq.
Fax Number: (212) 909-6836
<PAGE>
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If to the Trustee:
First Union National Bank
Corporate Trust Administration, PA 1249
P.O. Box 7558
123 South Broad Street, 11th Floor
Philadelphia, PA 19101-7558
Fax Number: (215) 985-7290
Such notices or communications shall be effective when
received and shall be sufficiently given if so given within the time prescribed
in this Indenture.
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 Noteholder shall be
mailed to him by first-class mail, postage prepaid, at his address shown on the
register kept by the Registrar.
Failure to mail a notice or communication to a Noteholder or
any defect in it shall not affect its sufficiency with respect to other
Noteholders. If a notice or communication to a Noteholder is mailed in the
manner provided above, it shall be deemed duly given, whether or not the
addressee receives it.
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 12.03. Communications by Holders with Other Holders.
Noteholders may communicate pursuant to TIA Section 312(b)
with other Noteholders with respect to their rights under this Indenture or the
Notes. The Company the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
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(1) an Officers' Certificate (which shall include, to the
extent relevant, the statements set forth in Section 12.05 below)
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
(2) an Opinion of Counsel (which shall include the statements
set forth in Section 12.05 below) stating that, in the opinion of such
counsel, all such conditions precedent have been complied with;
except that, in the case of any such application or request as to which the
furnishing of such documents is specifically required by any provisions of this
Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
SECTION 12.05. Statements Required in Certificate and Opinion.
Each certificate and opinion with respect to compliance by or
on behalf of the Company with a condition or covenant provided for in this
Indenture (other than Section 4.04) 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; provided,
however, that with respect to matters of fact, an Opinion of Counsel
may rely on an Officers' Certificate or certificates of public
officials.
SECTION 12.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or
meetings of Noteholders. The Registrar and Paying Agent may make reasonable
rules for their functions.
<PAGE>
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SECTION 12.07. Business Days; Legal Holidays.
A "Business Day" is a day that is not a Legal Holiday. A
"Legal Holiday" is a Saturday, a Sunday or other day on which (i) commercial
banks in the City of New York are authorized or required by law to close or (ii)
the New York Stock Exchange is not open for trading. 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 12.08. Governing Law.
THIS INDENTURE AND THE NOTES 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.
SECTION 12.09. 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 12.10. No Recourse Against Others.
No recourse for the payment of the principal of or premium, if
any, or interest, including Additional Interest, on any of the Notes, 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 supplemental indenture, or in any of the Notes, or because of the
creation of any Indebtedness represented thereby, shall be had against any
stockholder, officer, director 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 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
Notes 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 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 Notes or implied therefrom, and that any and all such personal
liability of, and any and all claims against
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every stockholder, officer, employee 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 Notes. It is understood that this
limitation on recourse is made expressly for the benefit of any such
shareholder, employee, officer or director and may be enforced by any of them.
SECTION 12.11. Successors.
All agreements of the Company in this Indenture and the Notes
shall bind its respective successor. All agreements of the Trustee, any
additional trustee and any Paying Agents in this Indenture shall bind its
successor.
SECTION 12.12. 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.
SECTION 12.13. 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 12.14. 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 Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
<PAGE>
S-1
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed all as of the date and year first written above.
FAIRFIELD MANUFACTURING COMPANY, INC.
By:
---------------------------------
Name:
Title:
<PAGE>
S-2
FIRST UNION NATIONAL BANK, as Trustee
By:
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
CUSIP
FAIRFIELD MANUFACTURING COMPANY, INC.
No. $
9-5/8% SENIOR SUBORDINATED NOTE DUE 2008
FAIRFIELD MANUFACTURING COMPANY, INC., a Delaware corporation
(the "Company"), for value received, promises to pay to CEDE & CO. or registered
assigns the principal sum of $ dollars on October 15, 2008.
Interest Payment Dates: April 15 and October 15.
Record Dates: April 1 and October 1.
Reference is made to the further provisions of this Note
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 Note to be
signed manually or by facsimile by its duly authorized officers.
FAIRFIELD MANUFACTURING COMPANY, INC.
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
Dated: May 19, 1999
Certificate of Authentication
This is one of the 9-5/8% Senior Subordinated Notes due 2008
referred to in the within-mentioned Indenture.
FIRST UNION NATIONAL BANK, as Trustee
By:
---------------------------------
Dated: May 19, 1999
A-2
<PAGE>
[FORM OF REVERSE OF NOTE]
FAIRFIELD MANUFACTURING COMPANY, INC.
9-5/8% SENIOR SUBORDINATED NOTE DUE 2008
1. Interest. FAIRFIELD MANUFACTURING COMPANY, INC., a Delaware
corporation (the "Company"), promises to pay, until the principal hereof is paid
or made available for payment, interest on the principal amount set forth on the
face hereof at a rate of 9-5/8% per annum. Interest hereon will accrue from and
including the most recent date to which interest has been paid or, if no
interest has been paid, from and including May 19, 1999 to but excluding the
date on which interest is paid. Interest shall be payable in arrears on each
April 15 and October 15, commencing October 15, 1999. Interest will be computed
on the basis of a 360-day year of twelve 30-day months. The Company shall pay
interest on overdue principal and on overdue interest (to the full extent
permitted by law) at a rate of 9-5/8% per annum.
2. Method of Payment. The Company will pay interest hereon
(except defaulted interest) to the Persons who are registered Holders at the
close of business on April 1 or October 1 next preceding the interest payment
date (whether or not a Business Day). Holders must surrender Notes to a Paying
Agent to collect principal payments. The Company will pay principal and interest
in money of the United States of America that at the time of payment is legal
tender for payment of public and private debts. The Company may pay principal
and interest by wire transfer of Federal funds (provided that the Paying Agent
shall have received wire instructions on or prior to the relevant Interest
Record Date), or interest by check mailed to the Holder entitled thereto at the
address indicated on the register maintained by the Registrar for the Notes.
3. Paying Agent and Registrar. Initially, First Union National
Bank (the "Trustee") will act as a Paying Agent and Registrar. The Company may
change any Paying Agent or Registrar without notice. Neither the Company nor any
of its Affiliates may act as Paying Agent or Registrar.
4. Indenture. The Company issued the Notes under an Indenture
dated as of May 19, 1999 (the "Indenture") by and between the Company and the
Trustee. This is one of an issue of Notes of the Company issued, or to be
issued, under the Indenture. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb), as amended from time
to time. The Notes are subject to all such terms, and Holders are referred to
the Indenture and such Act for a statement of them. Capitalized and certain
other terms used herein and not otherwise defined have the meanings set forth in
the Indenture. The aggregate principal amount of Notes which may be issued under
the Indenture is not limited (except as otherwise provided in the Indenture) and
one or more additional
A-3
<PAGE>
series of Notes may be issued from time to time in aggregate principal amounts
of not less than $25,000,000 per series; provided that the aggregate principal
amount of Initial Notes on the Issue Date shall not exceed $100,000,000.
5. Subordination. The Indebtedness evidenced by the Notes
referred to below is, to the extent and in the manner provided in the Indenture,
subordinated and subject in right of payment to the prior indefeasible payment
in full in cash of all Senior Indebtedness as defined in the Indenture, and this
Note is issued subject to such provisions. Each Holder of this Note, 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.
6. Optional Redemption. (a) The Company, at its option, may
redeem the Notes, in whole at any time or in part, from time to time on or after
April 15, 2004 upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount), set forth
below, together, in each case, with accrued and unpaid interest to the
Redemption Date, if redeemed during the twelve month period beginning on April
15 of each year listed below:
Year Redemption Price
---- ----------------
2004.............................................. 104.813%
2005.............................................. 103.208%
2006.............................................. 101.604%
2007 and thereafter............................... 100.000%
(b) Notwithstanding the foregoing, the Company may redeem in
the aggregate up to 35% of the original principal amount of Notes (including the
original principal amount of any Additional Notes issued under the Indenture) at
any time and from time to time prior to April 15, 2002 at a redemption price
equal to 109.625% of the aggregate principal amount so redeemed, plus accrued
and unpaid interest, if any, to the redemption date out of the Net Proceeds of
one or more Qualified Equity Offerings; provided that at least 65% of the
aggregate principal amount of Notes (including the original principal amount of
any Additional Notes issued under the Indenture) originally issued remain
outstanding immediately after the occurrence of any such redemption and that any
such redemption occurs within 90 days following the closing of any such
Qualified Equity Offering.
(c) In the event of a redemption of fewer than all of the
Notes, the Trustee shall select the Notes to be redeemed in compliance with the
requirements of the principal national securities exchange, if any, while such
Notes are listed, or if such Notes are not then listed on a national securities
exchange, by lot or in such other manner as the Trustee shall deem fair and
equitable. The Notes will be redeemable in whole or in part upon not
A-4
<PAGE>
less than 30 nor 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 Notes. On and after any redemption date, interest will
cease to accrue on the Notes or portions thereof called for redemption unless
the Company shall fail to redeem any such Note.
7. Notice of Redemption. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at his registered address. On and after the
Redemption Date, unless the Company defaults in making the redemption payment,
interest ceases to accrue on Notes or portions thereof called for redemption.
8. Offers To Purchase. The Indenture provides that upon the
occurrence of a Change of Control or an Asset Sale and subject to further
limitations contained therein, the Company shall make an offer to purchase
outstanding Notes in accordance with the procedures set forth in the Indenture.
9. Registration Rights. Pursuant to a Registration Rights
Agreement among the Company and the initial purchasers named therein, the
Company will be obligated to consummate an exchange offer pursuant to which the
Holder of this Note shall have the right to exchange this Note for notes of a
separate series issued under the Indenture (or a trust indenture substantially
identical to the Indenture in accordance with the terms of the Registration
Rights Agreement) which have been registered under the Securities Act, in like
principal amount and having substantially identical terms as the Notes. The
Holders shall be entitled to receive certain additional interest payments in the
event such exchange offer is not consummated and upon certain other conditions,
all pursuant to and in accordance with the terms of the Registration Rights
Agreement.
10. Denominations, Transfer, Exchange. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. A Holder may transfer or exchange Notes in accordance with
the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay to it any
taxes and fees required by law or permitted by the Indenture. The Registrar need
not register the transfer of or exchange any Notes or portion of a Note selected
for redemption, or register the transfer of or exchange any Notes for a period
of 15 days before a mailing of notice of redemption.
11. Persons Deemed Owners. The registered Holder of this Note
may be treated as the owner of this Note for all purposes.
12. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee will pay the money back to
the Company at its written request. After that, Holders entitled to the money
must look to the Company for payment as general creditors unless an "abandoned
property" law designates another Person.
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<PAGE>
13. Amendment, Supplement, Waiver, Etc. The Company and the
Trustee (if a party thereto) may, without notice to or consent of the Holders of
any outstanding Notes, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, maintaining the qualification of the Indenture under
the Trust Indenture Act of 1939, as amended, and making any change that does not
materially and adversely affect the rights of any Holder. Other amendments and
modifications of the Indenture or the Notes may be made by the Company and the
Trustee with the consent of the Holders of not less than a majority of the
aggregate principal amount of the outstanding Notes, subject to certain
exceptions requiring the consent of the Holders of the particular Notes to be
affected.
14. Restrictive Covenants. The Indenture imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, incur additional Indebtedness, make payments in respect of
their Capital Stock or certain Indebtedness, make certain Investments, create or
incur liens, enter into transactions with Affiliates, enter into agreements
restricting the ability of Restricted Subsidiaries to pay dividends and make
distributions, issue Preferred Stock of any Restricted Subsidiaries of the
Company, and on the ability of the Company to merge or consolidate with any
other Person or transfer all or substantially all of the Company's or any
Guarantor's assets. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.04 of the Indenture, the
Company must make quarterly reports to the Trustee on compliance with such
limitations.
15. Successor Corporation. When a successor corporation
assumes all the obligations of its predecessor under the Notes and the Indenture
and the transaction complies with the terms of Article Five of the Indenture,
the predecessor corporation will, except as provided in Article Five, be
released from those obligations.
16. Defaults and Remedies. Events of Default are set forth in
the Indenture. Subject to certain limitations in the Indenture, if an Event of
Default (other than an Event of Default specified in Section 6.01(6) or (7) of
the Indenture with respect to the Company) occurs and is continuing, the Trustee
or the Holders of not less than 25% in aggregate principal amount of the
outstanding Notes may, by written notice to the Trustee and the Company, and the
Trustee upon the request of the Holders of not less than 25% in aggregate
principal amount of the outstanding Notes shall, declare all principal of and
accrued interest on all Notes to be immediately due and payable and (i) such
amounts shall become immediately due and payable or (ii) if there are any
amounts outstanding under or in respect of any Senior Indebtedness, such amounts
shall become due and payable upon the first to occur of an acceleration of
amounts outstanding under or in respect of such Senior Indebtedness or five
Business Days after receipt by the Company and the representative of the holders
of Senior Indebtedness, of notice of the acceleration of the Notes. If an Event
of Default specified in Section 6.01(6) or (7) of the Indenture occurs with
respect to the Company, the principal amount of and interest on, all Notes shall
ipso facto become and be
A-6
<PAGE>
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders notice of any continuing default (except a
default in payment of principal, premium, if any, or interest on the Notes or a
default in the observance or performance of any of the obligations of the
Company under Article Five of the Indenture) if it determines that withholding
notice is in their best interests.
17. Trustee Dealings with Company. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not Trustee.
18. No Recourse Against Others. No director, officer, employee
incorporator or stockholder, of the Company or any Guarantor shall have any
liability for any obligations of the Company or any Guarantors under the Notes,
the Indenture or any Guarantees or for a claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Notes.
19. Discharge. The Company's obligations pursuant to the
Indenture will be discharged, except for obligations pursuant to certain
sections thereof, subject to the terms of the Indenture, upon the payment of all
the Notes or upon the irrevocable deposit with the Trustee of United States
dollars or U.S. Government Obligations sufficient to pay when due principal of
and interest on the Notes to maturity or redemption, as the case may be.
20. Guarantees. The Note will be entitled to the benefits of
certain senior subordinated Guarantees made for the benefit of the Holders.
Reference is hereby made to the Indenture for a statement of the respective
rights, limitations of rights, duties and obligations thereunder of the
Guarantors, the Trustee and the Holders.
21. Authentication. This Note shall not be valid until the
Trustee signs the certificate of authentication on the other side of this Note.
22. Governing Law. THIS NOTE 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 CONFLICT OF LAWS. The Trustee, the Company and the Holders agree
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 the Indenture or the Notes.
A-7
<PAGE>
23. Abbreviations. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TENANT
(= 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).
The Company will furnish to any Holder 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, IN 47903-7940
Attention: Vice President, Finance
A-8
<PAGE>
ASSIGNMENT
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agent to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
Date: Your Signature:
------------------ --------------------------
(Sign exactly as your name
appears on the other side
of this Note)
Signature Guarantee:
------------------------
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
A-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note
purchased by the Company pursuant to Section 4.09 or Section 4.20 of the
Indenture, check the appropriate box:
|_| Section 4.09 |_| Section 4.20
If you want to have only part of the Note purchased by the
Company pursuant to Section 4.09 or Section 4.20 of the Indenture, state the
amount you elect to have purchased:
$
-------------------------
(multiple of $1,000)
Date:
---------------------
Your Signature:
----------------------------------------------
(Sign exactly as your name appears on the face
of this Note)
- ---------------------------
Signature Guaranteed
A-10
<PAGE>
EXHIBIT B
[FORM OF LEGEND FOR 144A NOTES AND OTHER NOTES THAT ARE RESTRICTED NOTES]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES 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 AGREES THAT IT
(1) WILL NOT PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") THAT
IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS NOTE AND THE LAST
DATE ON WHICH THE COMPANY, OR ANY AFFILIATE OF THE COMPANY, WAS THE OWNER OF
THIS NOTE (OR ANY PREDECESSOR OF THIS NOTES), RESELL OR OTHERWISE TRANSFER THIS
NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (D) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3), OR (7) OF RULE 501
UNDER THE SECURITIES ACT THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE), (E) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH RULE 904 UNDER THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (IF AVAILABLE) AND (2) WILL
GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY
PRIOR TO THE RESALE RESTRICTION TERMINATION DATE, IF THE PROPOSED TRANSFEREE IS
AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
TRUSTEE 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 ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
B-1
<PAGE>
[FORM OF ASSIGNMENT FOR 144A NOTES AND OTHER NOTES THAT ARE
RESTRICTED NOTES]
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agent to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
[Check One]
[ ] (a) this Note is being transferred in compliance
with the exemption from registration under the
Securities Act provided by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in
accordance with (a) above and documents are being
furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Sections 2.16 and 2.17 of the Indenture shall have been
satisfied.
Date: Your Signature:
--------------------- --------------------------------
(Sign exactly as your name
appears on the face of this Note)
Signature Guarantee:
-----------------------------------------------------------
B-2
<PAGE>
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
B-3
<PAGE>
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
-------------------- ------------------------------------
NOTICE: To be executed by
an executive officer
B-4
<PAGE>
EXHIBIT C
[FORM OF LEGEND FOR REGULATION S NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
UNLESS REGISTERED UNDER THE ACT OR EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT.
C-1
<PAGE>
[FORM OF ASSIGNMENT FOR REGULATION S NOTE]
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agent to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
[Check One]
[ ] (a) this Note is being transferred in compliance
with the exemption from registration under the
Securities Act provided by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in
accordance with (a) above and documents are being
furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Sections 2.16 and 2.17 of the Indenture shall have been
satisfied.
Date: Your Signature:
--------------------- -------------------------
(Sign exactly as your name
appears on the face of this Note)
Signature Guarantee:
-----------------------------------------------------------
C-2
<PAGE>
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
C-3
<PAGE>
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
-------------------- ------------------------------------
NOTICE: To be executed by
an executive officer
C-4
<PAGE>
EXHIBIT D
[FORM OF LEGEND FOR GLOBAL NOTE]
Any Global Note authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required in the
case of a Restricted Note) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN
THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE
(OTHER THAN A TRANSFER OF THIS NOTE 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 INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (A NEW YORK CORPORATION) ("DTC")
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IT REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR 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.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, AND TRANSFERS OF INTERESTS IN THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTION 2.16 OF THE INDENTURE.
D-1
<PAGE>
EXHIBIT E
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
[Trustee]
Fairfield Manufacturing Company, Inc.
[c/o Trustee]
Attention: Corporate Trust Administration
Ladies and Gentlemen:
In connection with our proposed purchase of 9-5/8% Senior
Subordinated Notes due 2008 (the "Notes") of Fairfield Manufacturing Company,
Inc., a Delaware Corporation (the "Company"), we confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the
Indenture dated as of May 19, 1999 relating to the Notes and we agree
to be bound by, and not to resell, pledge or otherwise transfer the
Notes except in compliance with, such restrictions and conditions and
the Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the Notes have not been registered under
the Securities Act or any other applicable securities laws, have not
been and will not be qualified for sale under the securities laws of
any non-U.S. jurisdiction and that the Notes may not be offered, sold,
pledged or otherwise transferred except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for
which we are acting as hereinafter stated, that if we should sell any
Notes, we will do so only (i) to the Company or any subsidiary thereof,
(ii) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined in Rule 144A), (iii) to an
institutional "accredited investor" (as defined below) that, prior to
such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to you a signed letter containing certain
representations and agreements relating to the restrictions on transfer
of the Notes, (iv) outside the United States to persons other than U.S.
persons in offshore transactions meeting the requirements of Rule 904
of Regulation S under the Securities Act, (v) pursuant to the exemption
form registration provided by Rule 144 under the Securities Act (if
applicable) or (vi) pursuant to an effective registration statement,
and we further agree to provide to any person purchasing any of the
Notes from us a notice advising such purchaser that resales of the
Notes are restricted as stated herein.
E-1
<PAGE>
3. We understand that, on any proposed resale of any Notes, we
will be required to furnish to you and the Company such certifications,
legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the
foregoing restrictions. We further understand that the Notes purchased
by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and 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
Notes, and we and any accounts for which we are acting each are able to
bear the economic risk of our or their investment, as the case may be.
5. We are acquiring the Notes purchased by us for our 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.
6. We are not acquiring the Notes with a view toward the
distribution thereof in a transaction that would violate the Securities
Act or the securities laws of any state of the United States or any
other applicable jurisdiction.
You are entitled to rely upon this letter and 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 Transferee]
By:
--------------------------------
Name:
Title:
Date:
---------------------
E-2
<PAGE>
EXHIBIT F
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
[Trustee]
Fairfield Manufacturing Company, Inc.
[c/o Trustee]
Attention: Corporate Trust Services
Re: Fairfield Manufacturing Company, Inc., a Delaware corporation (the
"Company") 9-5/8% Senior Subordinated Notes due 2008 (the "Notes")
Dear Sirs:
In connection with our proposed sale of $__________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a U.S. person or to
a person in the United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 904(a) of
Regulation S;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Notes.
F-1
<PAGE>
You are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby. Terms used in this certificate have the meanings set
forth in Regulation S.
Very truly yours,
[Name of Transferee]
By:
--------------------------------
F-2
<PAGE>
EXHIBIT G
[FORM OF GUARANTEE]
The undersigned (the "Guarantor") hereby unconditionally
guarantees, to the extent set forth in the Indenture dated as of May 19, 1999 by
and among Fairfield Manufacturing Company, Inc., as issuer, and First Union
National Bank, as trustee (the "Trustee") (as amended, restated or supplemented
from time to time, the "Indenture"), and subject to the provisions of the
Indenture, (a) the due and punctual payment of the principal of, and premium, if
any, and interest on the Notes, 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 overdue principal of, and premium and, to the extent
permitted by law, interest, and the due and punctual performance of all other
obligations of the Company to the Noteholders or the Trustee, all in accordance
with the terms set forth in Article Ten of the Indenture, and (b) in case of any
extension of time of payment or renewal of any Notes 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 Guarantor to the Noteholders and to the
Trustee pursuant to this Guarantee and the Indenture are expressly set forth,
and are expressly subordinated and subject in right of payment to the prior
payment in full of all Guarantor Senior Indebtedness, to the extent and in the
manner provided, in Article Ten of the Indenture, and reference is hereby made
to the Indenture for the precise terms and limitations of this Guarantee. Each
Holder of the Note to which this Guarantee is endorsed, by accepting such Note,
agrees to and shall be bound by such provisions.
[Signatures on Following Pages]
G-1
<PAGE>
IN WITNESS WHEREOF, the Guarantor named below has caused this
Guarantee to be signed by a duly authorized officer.
[GUARANTOR]
By:
--------------------------------
Name:
Title:
G-2
<PAGE>
Exhibit 5.01
[Letterhead of Debevoise & Plimpton]
June 7, 1999
Fairfield Manufacturing Company, Inc.
U.S. Route 52 South
Lafayette, Indiana 47903
Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Fairfield Manufacturing Company,
Inc. (the "Company") in connection with the preparation and filing with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), of a Registration Statement on Form S-4 (as
amended, the "Registration Statement") relating to the proposed exchange by the
Company of $100,000,000 aggregate principal amount of its 9 5/8% Senior
Subordinated Notes due 2008 (the "New Notes") for $100,000,000 aggregate
principal amount of its currently outstanding 9 5/8% Senior Subordinated Notes
due 2008 (the "Old Notes").
In so acting, we have examined and relied upon the originals, or
copies certified or otherwise identified to our satisfaction, of such records,
documents, certificates and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below.
We are of the opinion that, when the Registration Statement has become
effective under the Securities Act and the New Notes have been duly issued and
exchanged for the Old Notes in the manner described in the Registration
Statement, the New Notes will be
<PAGE>
2
validly issued and will be valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally or by general
principles of equity (regardless of whether such enforceability is considered
in an action at law or in equity).
We express no opinion as to the effect of any Federal or state laws
regarding fraudulent transfers or conveyances.
We express no opinion as to the laws of any jurisdiction other than
the Federal laws of the United States, the laws of the State of New York and
the General Corporation Law of the State of Delaware.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the headings "Legal
Matters" in the Prospectus. In giving such consent, we do not hereby concede
that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Debevoise & Plimpton
<PAGE>
Exhibit 10.26
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of May 19, 1999
by and among
FAIRFIELD MANUFACTURING COMPANY, INC.
and
THE INITIAL PURCHASERS
named herein
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions............................................................1
2. Exchange Offer.........................................................5
3. Shelf Registration Statement...........................................9
4. Additional Interest...................................................10
5. Registration Procedures...............................................12
6. Registration Expenses.................................................23
7. Indemnification.......................................................25
8. Rules 144 and 144A....................................................29
9. Underwritten Registrations............................................29
10. Miscellaneous........................................................30
(a) Remedies...................................................30
(b) Enforcement................................................30
(c) No Inconsistent Agreements.................................30
(d) Adjustments Affecting Registrable Notes....................31
(e) Amendments and Waivers.....................................31
(e) Notices....................................................31
(g) Successors and Assigns.....................................32
(h) Counterparts...............................................33
(i) Headings...................................................33
(j) Governing Law..............................................33
(k) Severability...............................................33
(l) Entire Agreement...........................................33
(m) Notes Held by the Company or its Affiliates................33
-i-
<PAGE>
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of
May 19, 1999, by and among Fairfield Manufacturing Company, Inc., a Delaware
corporation (the "Company"), and CIBC World Markets Corp., Fleet Securities,
Inc., ING Baring Furman Selz LLC and Schroder & Co. Inc., as initial purchasers
(the "Initial Purchasers").
This Agreement is entered into in connection with the Notes
Purchase Agreement, dated as of May 19, 1999 among the Company and the Initial
Purchasers (the "Purchase Agreement") relating to the sale by the Company to the
Initial Purchasers of $100,000,000 aggregate principal amount of the Company's
9-5/8% Senior Subordinated Notes due 2008. In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement to the Initial
Purchasers and their direct and indirect transferees and assigns. The execution
and delivery of this Agreement is a condition to the Initial Purchasers'
obligation to purchase the Notes 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 Interest: See Section 4(a).
Advice: See Section 5.
Applicable Period: See Section 2(b).
Closing: See the Purchase Agreement.
Company: See the introductory paragraph to this Agreement.
Effectiveness Date: The 180th day after the Issue Date.
Effectiveness Period: See Section 3(a).
Event Date: See Section 4(c).
<PAGE>
-2-
Exchange Act: The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2(a).
Exchange Offer: See Section 2(a).
Exchange Offer Registration Statement: See Section 2(a).
Filing Date: The 60th day after the Issue Date.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c).
Indemnifying Person: See Section 7(c).
Indenture: The Indenture, dated as of May 19, 1999, among the
Company and First Union National Bank, as trustee, pursuant to which the Notes
are being issued, as amended or supplemented from time to time in accordance
with the terms thereof.
Initial Purchasers: See the introductory paragraph to this
Agreement.
Initial Shelf Registration Statement: See Section 3(a).
Inspectors: See Section 5(o).
Issue Date: The date on which the original Notes are sold to
the Initial Purchasers pursuant to the Purchase Agreement.
Lien: See the Indenture.
NASD: See Section 5(t).
Notes: Collectively, the $100,000,000 aggregate principal
amount of the Company's 9-5/8% Senior Subordinated Notes due 2008 issued under
the Purchase Agreement and any replacements thereof.
Participant: See Section 7(a).
<PAGE>
-3-
Participating Broker-Dealer: See Section 2(b).
Person: An individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government (including any agency or political
subdivision thereof).
Private Exchange: See Section 2(b).
Private Exchange Notes: See Section 2(b).
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, with respect to the terms of the offering of any
portion of the Registrable Notes covered by such Registration Statement, 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 to this
Agreement.
Records: See Section 5(o).
Registrable Notes: Each Note upon its original issuance and at
all times subsequent thereto and, if issued, each Private Exchange Note, until
in the case of any such Note or any such Private Exchange Note, as the case may
be, (i) a Registration Statement covering such Note or such Private Exchange
Note has been declared effective by the SEC and such Note or such Private
Exchange Note, as the case may be, have been disposed of in accordance with such
effective Registration Statement, (ii) such Note or such Private Exchange Note,
as the case may be, are sold in compliance with Rule 144, (iii) in the case of
any Note, such Note has been exchanged for an Exchange Note or Exchange Notes
pursuant to an Exchange Offer or (iv) such Note or such Private Exchange Note,
as the case may be, cease to be outstanding.
Registration Default: See Section 4(a).
Registration Statement: Any registration statement of the
Company, including, but not limited to, the Exchange Offer
<PAGE>
-4-
Registration Statement or any Shelf Registration Statement, which covers any of
the Registrable Notes pursuant to the provisions of this Agreement, including
the 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 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 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, and
the rules and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c).
Shelf Registration Statement: See Section 3(b).
Subsequent Shelf Registration Statement: See Section 3(b).
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and, if existent, the
trustee under any indenture governing the Exchange Notes and Private Exchange
Notes (if any).
<PAGE>
-5-
Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter(s)
for reoffering to the public.
2. Exchange Offer
(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 Exchange Offer Registration Statement with respect to an offer
to exchange (the "Exchange Offer") any and all of the Registrable Notes (other
than the Private Exchange Notes, if any) for a like aggregate principal amount
of debt securities of the Company, which are identical to the Notes (the
"Exchange Notes") (and which are entitled to the benefits of the Indenture or a
trust indenture which is substantially identical to the Indenture (other than
such changes to the Indenture or any such identical trust indenture as are
necessary to comply with any requirements of the SEC to effect or maintain the
qualification thereof under the TIA) and which, in either case, has been
qualified under the TIA), except that the Exchange Notes (other than the Private
Exchange Notes, if any) shall have been registered pursuant to an effective
registration statement under the Securities Act and will not contain terms with
respect to transfer restrictions or provisions related to matters discussed in
Section 4 hereof. The Exchange Offer will be registered under the Securities Act
on the appropriate form (the "Exchange Offer Registration Statement") and will
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 Offer
Registration Statement to become effective under the Securities Act on or before
the Effectiveness Date; (y) keep the Exchange Offer open for at least 30 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 45th day following the date on which the Exchange Offer
Registration Statement is declared effective. Each Holder who participates in
the Exchange Offer will be required to represent that any Exchange Notes
received by it will be acquired in the ordinary course of its business, that
such Holder will have no arrangement or understanding with any Person to
participate in the distribution of the Exchange Notes in violation of the
provisions of the Securities Act, that such Holder is not an affiliate of any of
the Company within the meaning of Rule 405 promulgated under the Securities Act
or if it is such an affiliate, that it will comply with the registration and
prospectus delivery requirements of the Securities Act, to the extent
applicable, that, if it is a broker-dealer, such Holder will receive
<PAGE>
-6-
Exchange Notes for its own account in exchange for the Notes that were acquired
as a result of market-making or other trading activities and will deliver a
Prospectus in connection with any resale of such Exchange Notes, and that is not
acting on behalf of any Person who could not truthfully make the foregoing
representations. Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, to the
extent applicable, mutatis mutandis, solely with respect to Registrable Notes
that are Private Exchange Notes and Exchange Notes held by Participating
Broker-Dealers, and the Company shall have no further obligation to register
Registrable Notes (other than Private Exchange Notes and Exchange Notes held by
Participating Broker-Dealers) pursuant to Section 3 of this Agreement.
(b) The Company shall include within the Prospectus contained
in the Exchange Offer Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to CIBC World Markets Corp., an Initial
Purchaser, which 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 promulgated under the Exchange Act) of Exchange Notes
received by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"), whether such positions or policies have been publicly
disseminated by the staff of the SEC or such positions or policies, in the
reasonable judgment of the Initial Purchasers, represent the prevailing views of
the staff of the SEC. Such "Plan of Distribution" section shall also allow 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 Notes.
The Company shall use its best efforts to keep the Exchange
Offer 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 such Persons must comply with such
requirements in order to resell the Exchange Notes, provided that such period
shall not exceed 180 days following the consummation of the Exchange Offer (or
such longer period if extended pursuant to the last paragraph of Section 5) (the
"Applicable Period").
<PAGE>
-7-
If, prior to consummation of the Exchange Offer, any Initial
Purchaser holds any Notes acquired by it and having, or which are reasonably
likely to be determined to have, the status as an unsold allotment in the
initial distribution of the Notes, the Company upon the request of such Initial
Purchaser shall, simultaneously with the delivery of the Exchange Notes in the
Exchange Offer, issue and deliver to such Initial Purchaser, in exchange (the
"Private Exchange") for the Notes held by such Initial Purchaser, a like
principal amount of debt securities of the Company, that are identical in all
material respects to the Exchange Notes (the "Private Exchange Notes") (and
which are issued pursuant to the same indenture as the Exchange Notes) except
for the placement of a restrictive legend on the Private Exchange Notes. If
possible, the Private Exchange Notes shall bear the same CUSIP number as the
Exchange Notes. Interest on the Exchange Notes and Private Exchange Notes will
accrue from the last interest payment date on which interest was paid on the
Notes surrendered in exchange therefor or, if no interest has been paid on the
Notes, from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus
forming part of the Exchange Offer Registration Statement,
together with an appropriate letter of transmittal and related
documents;
(ii) utilize the services of a depositary for the
Exchange Offer with an address in the Borough of Manhattan,
The City of New York, which may be the Trustee or an affiliate
of the Trustee; and
(iii) permit Holders to withdraw tendered Notes 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.
As soon as practicable after the close of the Exchange Offer
or the Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all Notes tendered and not
validly withdrawn pursuant to the Exchange Offer or the
Private Exchange;
<PAGE>
-8-
(ii) deliver to the Trustee for cancellation all Notes
so accepted for exchange; and
(iii) cause the Trustee to authenticate and deliver
promptly to each Holder of Notes, Exchange Notes or Private
Exchange Notes, as the case may be, equal in principal amount
to the Notes of such Holder so accepted for exchange.
The Exchange Notes and the Private Exchange Notes may be
issued under (i) the Indenture or (ii) an indenture substantially identical to
the Indenture, which in either event will provide that (1) the Exchange Notes
will not be subject to the transfer restrictions or the provisions relating to
the matters described in Section 4 hereof set forth in the Indenture and (2) the
Private Exchange Notes will be subject to the transfer restrictions but not the
provisions relating to the matters described in Section 4 hereof set forth in
the Indenture. The Indenture or such indenture shall provide that the Exchange
Notes, the Private Exchange Notes and the Notes will vote and consent together
on all matters as one class and that neither the Exchange Notes, the Private
Exchange Notes nor the Notes will have the right to vote or consent as a
separate class on any matter.
(c) If (1) prior to the consummation of the Exchange Offer,
the Company or Holders of at least a majority in aggregate principal amount of
the Registrable Notes reasonably determine in good faith that (i) the Exchange
Notes would not, upon receipt, be tradable 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 restrictions under applicable
state securities laws, (ii) the interests of the Holders under this Agreement
would be adversely affected by the consummation of the Exchange Offer or (iii)
after conferring with counsel, the SEC is unlikely to permit the commencement of
the Exchange Offer on or after the Effectiveness Date, (2) subsequent to the
consummation of the Private Exchange, any holder of the Private Exchange Notes
so requests or (3) the Exchange Offer not consummated within 210 days of the
Issue Date the Company (following notice from the applicable Holders in the case
of clauses (1) and (2) above) shall promptly deliver to the Holders and the
Trustee written notice thereof (the "Shelf Notice") and shall file an Initial
Shelf Registration Statement pursuant to Section 3 (provided that, in the event
and 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 Statement pursuant to clause
<PAGE>
-9-
(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.
3. Shelf Registration Statement
If a Shelf Notice is delivered as contemplated by Section
2(c), then:
(a) Initial Shelf Registration Statement. 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
Notes (the "Initial Shelf Registration Statement"). If the Company shall have
not yet filed an Exchange Offer Registration Statement, the Company shall use
its best efforts to file with the SEC the Initial Shelf Registration Statement
on or prior to the Filing Date. In any other instance, the Company shall use its
best efforts to file with the SEC the Initial Shelf Registration Statement
within 60 days of the delivery of the Shelf Notice. The Initial Shelf
Registration Statement shall be on Form S-1 or another appropriate form
permitting registration of such Registrable Notes for resale by such 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 Notes to be included in the Initial Shelf Registration
Statement or any Subsequent Shelf Registration Statement. The Company shall use
its best efforts to cause the Initial Shelf Registration Statement to be
declared effective under the Securities Act, if an Exchange Offer Registration
Statement has not yet been declared effective, on or prior to the Effectiveness
Date, or, in any other instance, as soon as practicable thereafter and in no
event later than 120 days after filing of the Initial Shelf Registration
Statement, and to keep the Initial Shelf Registration Statement continuously
effective under the Securities Act until the date which is two years from the
Issue Date (subject to extension pursuant to the last paragraph of Section 5
hereof), or such shorter period ending the earliest of when (i) all Registrable
Notes covered by the Initial Shelf Registration Statement have been sold in the
manner set forth and as contemplated in the Initial Shelf Registration Statement
or (ii) a Subsequent Shelf Registration Statement covering all of the
Registrable Notes has been declared effective under the Securities Act (the
"Effectiveness Period").
<PAGE>
-10-
(b) Subsequent Shelf Registration Statements. If the Initial
Shelf Registration Statement or any Subsequent Shelf Registration Statement
ceases to be effective for any reason at any time during the Effectiveness
Period, the Company shall use its 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 Shelf Registration
Statement in a manner reasonably expected 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 Notes (a
"Subsequent Shelf Registration Statement"). If a Subsequent Shelf Registration
Statement is filed, the Company shall use its best efforts to cause the
Subsequent Shelf Registration Statement to be declared effective 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 Statement or any Subsequent Shelf Registration Statement was
previously continuously effective. As used herein, the term "Shelf Registration
Statement" means the Initial Shelf Registration Statement and any Subsequent
Shelf Registration Statement.
(c) Supplements and Amendments. The Company shall promptly
supplement and amend the Shelf Registration Statement if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration Statement, if required by the Securities Act, or if requested
by the Holders of a majority in aggregate principal amount of the Registrable
Notes covered by such Registration Statement or by any underwriter(s) of such
Registrable Notes.
4. Additional Interest
(a) The Company and the Initial Purchasers agree that the
Holders of Registrable Notes 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, as liquidated damages, additional interest on the
Notes ("Additional Interest") under the circumstances and to the extent set
forth below:
(i) If (a) the Exchange Offer Registration Statement or
Shelf Registration Statement is not filed within 60 days after
the Issue Date or (b) notwithstanding that the Company has
consummated or will consummate an Exchange
<PAGE>
-11-
Offer, the Company is required to file a Shelf Registration
Statement and such Shelf Registration Statement is not filed
on or prior to the date required by Section 3(a);
(ii) If (a) an Exchange Offer Registration Statement or
Shelf Registration Statement is not declared effective within
180 days after the Issue Date or (b) notwith-standing that the
Company has consummated or will consummate an Exchange Offer,
the Company is required to file a Shelf Registration Statement
pursuant to Section 3(a) and such Shelf Registration Statement
is not declared effective by the Commission on or prior to the
120th day following the date such Shelf Registration Statement
was filed; or
(iii) If either (a) the Company has not exchanged the
Exchange Notes for all Notes validly tendered in accordance
with the terms of the Exchange Offer on or prior to 45 days
after the date on which the Exchange Offer Registration
Statement was declared effective or (b) the Exchange Offer
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 Statement ceases to
be effective (at any time that the Company is obligated to
maintain the effectiveness thereof) at any time prior to the
second 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 Notes will
be the immediate accrual of Additional Interest from the date on which any such
Registration Default shall have occurred as follows: the per annum interest rate
on the Notes will increase by .50% during the first 90-day period following the
occurrence of a Registration Default and until it is waived or cured; and the
per annum interest rate will increase by an additional .25% for each subsequent
90-day period during which the Registration Default remains uncured, up to a
maximum additional interest rate of 2.0% per annum, provided, that (1) upon the
filing of the Exchange Offer Registration Statement or the Initial Shelf
Registration Statement (in the case of (i) above), (2) upon the effectiveness of
the Exchange Offer Registration Statement or a Shelf Registration Statement (in
the case of (ii) above), or (3) upon the exchange of Exchange Notes for all
Notes tendered (in the case of (iii)(a) above), or upon the effectiveness of the
Exchange Offer Registration Statement which had ceased to remain effective (in
the case of (iii)(b) above), or upon the effectiveness of
<PAGE>
-12-
the Shelf Registration Statement which had ceased to remain effective (in the
case of (iii)(c) above), Additional Interest on the Notes as a result of such
clauses (i), (ii) or (iii) (or the relevant subclause thereof), as the case may
be, shall cease to accrue and the interest rate on the Notes will revert to the
interest rate originally borne by the Notes.
(b) Notwithstanding the foregoing, no Additional Interest will
be payable with respect to a Registration Default described in clause (iii)(c)
above, if pending a material corporate transaction, the Company issues a notice
that the registration statement, or the prospectus contained therein, is
unusable, or such notice is required under applicable securities laws to be
issued by the Company, and the aggregate number of days in any consecutive
twelve month period for which all such notices have been issued or required to
be issued has not exceeded 30 days in the aggregate.
(c) The Company shall notify the Trustee within one business
day after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Any amounts of
Additional Interest due pursuant to this Section 4 will be payable in cash
semi-annually on each April 15 and October 15 (to the Holders of record of the
Notes on the April 1 and October 1 immediately preceding such dates), commencing
with the first such date occurring after any such Additional Interest commences
to accrue and until such Registration Default is cured, by depositing with the
Trustee, in trust for the benefit of such Holders, immediately available funds
in sums sufficient to pay such Additional Interest. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the Registrable Notes, multiplied by a fraction,
the numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed), and the denominator of which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Section 2 or 3 hereof, the Company shall:
(a) Use its best efforts to prepare and file with the
SEC, prior to the Filing Date, a Registration Statement or
Registration Statements as prescribed by Section 2 or 3, and
use its best efforts to cause each such
<PAGE>
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Registration Statement to become effective and remain
effective as provided herein, provided that, if (1) such
filing is pursuant to Section 3, or (2) a Prospectus contained
in an Exchange Offer Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act
by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, before filing any
Registration Statement or Prospectus or any amendments or
supplements thereto, the Company shall, if requested, furnish
to and afford the Holders of the Registrable Notes covered by
such Registration Statement and each such Participating
Broker-Dealer, as the case may be, their counsel and the
managing underwriter(s), 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 (at least 5 business
days prior to such filing). The Company shall not file any
Registration Statement or Prospectus or any amendments or
supplements thereto in respect of which the Holders must be
afforded an opportunity to review prior to the filing of such
document, if the Holders of a majority in aggregate principal
amount of the Registrable Notes covered by such Registration
Statement, or such Participating Broker-Dealer, as the case
may be, their counsel, or the managing underwriter(s), if any,
shall reasonably object.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration Statement
or Exchange Offer 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)
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 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 Notes covered thereby
<PAGE>
-14-
or Participating Broker-Dealers seeking to sell Exchange Notes
not being able to sell such Registrable Notes or such Exchange
Notes 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
clause 5(c)(v) below.
(c) If (1) a Shelf Registration Statement is filed
pursuant to Section 3, or (2) a Prospectus contained in an
Exchange Offer Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act
by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, notify the selling Holders
of Registrable Notes, or each such Participating
Broker-Dealer, as the case may be, their counsel and the
managing underwriter(s), 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 thereto has been filed, and, with
respect to a Registration Statement or any post-effective
amendment thereto, when the same has become effective under
the Securities Act (including in such notice a written
statement that any Holder may, upon request, obtain, without
charge, one conformed copy of such Registration Statement or
post-effective amendment thereto 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 Notes or resales of Exchange Notes by
Participating Broker-Dealers the representations and
warranties of the Company contained in any agreement
(including any underwriting agreement contemplated by Section
5(n) below) cease to be true and correct, (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 Notes or the Exchange Notes 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
or any information becoming known that makes any statement
made in such Registration Statement or related Prospectus or
any document
<PAGE>
-15-
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 light of the circumstances under which
they were made, not misleading, and (vi) of the Company's
reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
(d) If (1) a Shelf Registration Statement is filed
pursuant to Section 3, or (2) a Prospectus contained in an
Exchange Offer Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act
by any Participating Broker-Dealer who seeks to sell Exchange
Notes 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 Notes or the Exchange Notes 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 Statement is filed pursuant
to Section 3 and if requested by the managing underwriter(s),
if any, or the Holders of a majority in aggregate principal
amount of the Registrable Notes being sold in connection with
an underwritten offering, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such
information as the managing underwriter(s), if any, or such
Holders reasonably request to be included therein and (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.
<PAGE>
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(f) If (1) a Shelf Registration Statement is filed
pursuant to Section 3, or (2) a Prospectus contained in an
Exchange Offer Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act
by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, furnish to each selling
Holder of Registrable Notes who so requests in writing
(including facsimiles thereof) and to each such Participating
Broker-Dealer who so requests Iin writing (including
facsimiles thereof) and to counsel and the managing
underwriter(s), if any, without charge, 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 Statement is filed
pursuant to Section 3, or (2) a Prospectus contained in an
Exchange Offer Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act
by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, deliver to each selling
Holder of Registrable Notes, or each such Participating
Broker-Dealer, as the case may be, their counsel, and the
managing underwriter or underwriters, if any, without charge,
as many copies of the Prospectus or Prospectuses (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 Notes or each such Participating Broker-Dealer, as
the case may be, and the managing underwriter or underwriters
or agents, if any, and dealers (if any), in connection with
the offering and sale of the Registrable Notes covered by, or
the sale by Participating Broker-Dealers of the Exchange Notes
pursuant to, such Prospectus and any amendment or supplement
thereto.
(h) Prior to any public offering of Registrable Notes
or any delivery of a Prospectus contained in the Exchange
Offer Registration Statement by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, to use its reasonable best efforts to
register or qualify, and to cooperate with the selling
<PAGE>
-17-
Holders of Registrable Notes 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 of (or
exemption from such registration or qualification), such
Registrable Notes 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, if any, reasonably
request in writing, provided that where Exchange Notes held by
Participating Broker-Dealers or Registrable Notes are offered
other than through an underwritten offering, the Company
agrees to cause its 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 Notes held by Participating
Broker-Dealers or the Registrable Notes covered by the
applicable Registration Statement; provided 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 Statement is filed pursuant
to Section 3, cooperate with the selling Holders of
Registrable Notes and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Notes 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 Registrable Notes 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 Notes
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 managing underwriter or underwriters, if any, to
consummate the disposition of such Registrable Notes, except
as may be required solely as a consequence of the nature of
such selling Holder's business, in which case the Company will
cooperate in all
<PAGE>
-18-
reasonable respects with the filing of such Registration
Statement and the granting of such approvals.
(k) If (1) a Shelf Registration Statement is filed
pursuant to Section 3, or (2) a Prospectus contained in an
Exchange Offer Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act
by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, upon the occurrence of any
event contemplated by paragraph 5(c)(v) or 5(c)(vi), as
promptly as reasonably practicable prepare and (subject to
Section 5(a)) file with the SEC, at the 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 Notes being sold thereunder or to the
purchasers of the Exchange Notes 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 light
of the circumstances under which they were made, not
misleading.
(l) Use its reasonable best efforts to cause the
Registrable Notes covered by a Registration Statement or the
Exchange Notes, as the case may be, to be rated with the
appropriate rating agencies, if so requested by the Holders of
a majority in aggregate principal amount of Registrable Notes
covered by such Registration Statement or the Exchange Notes,
as the case may be, or the managing underwriter or
underwriters, if any.
(m) Prior to the effective date of the first
Registration Statement relating to the Registrable Notes, (i)
provide the Trustee with certificates for the Registrable
Notes or Exchange Notes, as the case may be, in a form
eligible for deposit with The Depository Trust Company and
(ii) provide a CUSIP number for the Registrable Notes or
Exchange Notes, as the case may be.
(n) In connection with an underwritten offering of
Registrable Notes pursuant to a Shelf Registration Statement,
enter into an underwriting agreement as is customary in
underwritten offerings of debt securities similar to the Notes
and take all such other actions as are
<PAGE>
-19-
reasonably requested by the managing underwriter(s), if any,
in order to expedite or facilitate the registration or the
disposition of such Registrable Notes, and in such connection,
(i) make such representations and warranties to the managing
underwriter or underwriters on behalf of any underwriters,
with respect to the business of the Company and its
subsidiaries and 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 debt
securities similar to the Notes, and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Company
and updates thereof in form and substance reasonably
satisfactory to the managing underwriter or underwriters,
addressed to the managing underwriter or underwriters covering
the matters customarily covered in opinions requested in
underwritten offerings of debt securities similar to the Notes
and such other matters as may be reasonably requested by the
managing underwriter(s); (iii) obtain "cold comfort" letters
and updates thereof in form 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 any 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 in the Registration Statement), addressed to the
managing underwriter or underwriters on behalf of any
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
debt securities similar to the Notes and such other matters as
may be 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
Registrable Notes 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.
<PAGE>
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(o) If (1) a Shelf Registration Statement is filed
pursuant to Section 3, or (2) a Prospectus contained in an
Exchange Offer Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act
by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, make available for
inspection by any selling Holder of such Registrable Notes
being sold, or each such Participating Broker-Dealer, as the
case may be, the managing underwriter or underwriters
participating in any such disposition of Registrable Notes, 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 (collectively, the
"Inspectors"), at the offices where normally kept, during
reasonable business hours, all financial and other records,
pertinent corporate documents and properties of the Company
and its respective 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
respective subsidiaries to supply all information in each case
reasonably requested by any such Inspector in connection with
such Registration Statement. Records which the Company
determines, in good faith, to be confidential and any Records
which they notify 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 material
misstatement or material 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 or (iii) the information in such
Records has been made generally available to the public. Each
selling Holder of such Registrable Notes and each such
Participating Broker-Dealer or underwriter 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 or for any purpose other than in
connection with such Registration Statement unless and until
such is made generally available to the public. Each selling
Holder of such Registrable Notes 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 prompt notice to the
Company and allow the Company to undertake appropriate
<PAGE>
-21-
action to prevent disclosure of the Records deemed
confidential at its expense.
(p) Provide an indenture trustee for the Registrable
Notes or the Exchange Notes, as the case may be, and cause the
Indenture or the trust indenture provided for in Section 2(a),
as the case may be, to be qualified under the TIA not later
than the effective date of the Exchange Offer Registration
Statement or the first Registration Statement relating to the
Registrable Notes; and in connection therewith, cooperate with
the trustee under any such indenture and the Holders of the
Registrable Notes, 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 such
indenture to be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of
the SEC and make generally available to its securityholders
earnings 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 Notes are 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.
(r) Upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Company, in a
form customary for underwritten offerings of debt securities
similar to the Notes, addressed to the Trustee for the benefit
of all Holders of Registrable Notes participating in the
Exchange Offer or the Private Exchange, as the case may be,
and which includes an opinion that (i) the Company has duly
authorized, executed and delivered the Exchange Notes and
Private Exchange Notes and the related indenture and (ii) each
of the Exchange Notes or the Private Exchange Notes, as the
case may be,
<PAGE>
-22-
and related indenture constitute a legal, valid and binding
obligation of the Company, enforceable against the Company
in accordance with its respective terms (with customary
exceptions).
(s) If an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by Holders
to the Company (or to such other Person as directed by the
Company) in exchange for the Exchange Notes or the Private
Exchange Notes, as the case may be, the Company shall mark, or
cause to be marked, on such Registrable Notes that such
Registrable Notes are being canceled in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may
be; and, in no event shall such Registrable Notes be marked as
paid or otherwise satisfied.
(t) Cooperate with each seller of Registrable Notes
covered by any Registration Statement and the managing
underwriter(s), if any, participating in the disposition of
such Registrable Notes and their respective counsel in
connection with any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD").
(u) Use its best efforts to take all other reasonable
steps necessary to effect the registration of the Registrable
Notes covered by a Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes or
Participating Broker-Dealer as to which any registration is being effected to
furnish to the Company such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, as the
Company may, from time to time, reasonably request. The Company may, at its
option, exclude from such registration the Registrable Notes of any seller or
Participating Broker-Dealer who unreasonably fails to furnish such information
within a reasonable time after receiving such request. Each seller as to which
any Shelf Registration Statement 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.
<PAGE>
-23-
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, that, upon
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 Notes covered
by such Registration Statement or Prospectus or Exchange Notes 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), 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 Notes
covered by such Registration Statement or Exchange Notes to be sold by such
Holder or 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) or (y) the Advice.
6. Registration Expenses
(a) 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 Registration Statement or a Shelf Registration
Statement 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 Notes or Exchange Notes and determination of the eligibility of the
Registrable Notes or Exchange Notes for investment under the laws of such
jurisdictions in the United States (X) where the Holders of Registrable Notes
are located, in the case of the Exchange Notes, or (Y) as provided in Section
5(h), in the case of Registrable Notes or Exchange Notes to be sold by a
Participating Broker-Dealer during the Applicable Period)), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Notes or
<PAGE>
-24-
Exchange Notes in a form eligible for deposit with The Depository Trust Company
and of printing Prospectuses if the printing of Prospectuses is reasonably
requested by the managing underwriter or underwriters, if any, or, in respect of
Registrable Notes or Exchange Notes to be sold by any Participating
Broker-Dealer during the Applicable Period, by the Holders of a majority in
aggregate principal amount of the Registrable Notes included in any Registration
Statement or of such Exchange Notes, as the case may be), (iii) messenger,
telephone and delivery expenses of the Company, (iv) fees and disbursements of
counsel for the Company and fees and disbursements of special counsel for the
sellers of Registrable Notes (subject to the provisions of Section 6(b) hereof),
(v) fees and disbursements of all independent certified public accountants
referred to in Section 5(n)(iii) (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 desire such insurance, (viii) fees and expenses of the Trustee,
(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 expense of any annual audit, (xii) if the Company
elects to list any such securities, the fees and expenses incurred in connection
with any listing of such securities to be registered on any securities exchange
and (xiii) 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.
(b) In connection with any Shelf Registration Statement
hereunder, the Company shall reimburse the Holders of the Registrable Notes
being registered in such registration for the reasonable fees and disbursements
of not more than one counsel (in addition to appropriate local counsel) chosen
by the Holders of a majority in aggregate principal amount of the Registrable
Notes to be included in such Registration Statement and other reasonable
out-of-pocket expenses of the Holders of Registrable Notes incurred in
connection with the registration of the Registrable Notes. The Company shall not
have any obligation to pay any underwriting fees, discounts or commissions
attributable to the sale of Registrable Notes.
<PAGE>
-25-
7. Indemnification
(a) The Company agrees to indemnify and hold harmless each
Holder of Registrable Notes and each Participating Broker-Dealer selling
Exchange Notes 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
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 Notes or Exchange Notes 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 Notes or Exchange Notes, 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.
<PAGE>
-26-
(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 liability of any Participant under this paragraph shall in no event exceed
the proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes 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
<PAGE>
-27-
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 and such control Persons of
Participants shall be designated in writing by Participants who sold a majority
of Registrable Notes and Exchange Notes 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
<PAGE>
-28-
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 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 Notes 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
<PAGE>
-29-
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 Notes or Exchange Notes, 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
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, so long as any Registrable Notes
remain outstanding, 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 and, if at any time the Company is not
required to file such reports, it will, upon the request of any Holder of
Registrable Notes, make publicly available other information of a like nature so
long as necessary to permit sales pursuant to Rule 144 or Rule 144A. The Company
further covenants that so long as any Registrable Notes remain outstanding to
make available to any Holder of Registrable Notes 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 Notes pursuant to Rule 144A (or any
similar rule or regulation hereafter adopted by the SEC) unless at the time the
Registrable Notes are not fully salable under Rule 144 or any successor
provision.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf
Registration Statement are 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 in aggregate
principal amount of such
<PAGE>
-30-
Registrable Notes included in such offering and shall be reasonably acceptable
to the Company.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes 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, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
10. Miscellaneous
(a) Remedies. In the event of a breach by the Company of any
of its obligations under this Agreement, each Holder of Registrable Notes, in
addition to being entitled to exercise all rights provided herein, in the
Indenture or, in the case of the Initial Purchasers, 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.
The provisions of this Section 10(a) shall not apply with respect to the
occurrence of any event which requires the payment of Additional Interest by the
Company.
(b) Enforcement. The Trustee 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 Notes in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not entered or
will not enter into any agreement with respect to any of its securities which
will grant to any Person piggy-back rights with respect to a Registration
Statement required to be filed under this Agreement.
<PAGE>
-31-
(d) Adjustments Affecting Registrable Notes. The Company shall
not, directly or indirectly, take any action with respect to the Registrable
Notes as a class that would adversely affect the ability of the Holders of
Registrable Notes to include such Registrable Notes 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 the then
outstanding Registrable Notes and (B) in circumstances that would materially
adversely affect the Participating Broker-Dealers, the Participating
Broker-Dealers holding not less than a majority in aggregate principal amount of
the Exchange Notes held by all Participating Broker-Dealers; provided, however,
that Section 7 and this Section 10(e) 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 Notes or Exchange Notes, 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
Notes 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 Notes may be given by Holders of at least
a majority of the Registrable Notes 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 Notes or any
Participating Broker-Dealer, at the most current address of such Holder or
Participating Broker-Dealer, as the case may be, on the records of the registrar
under the Indenture with a copy in like manner to the Initial Purchasers as
follows:
<PAGE>
-32-
CIBC WORLD MARKETS CORP.
425 Lexington Avenue, 3rd Floor
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.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee
under the Indenture at the address specified in such Indenture.
(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, including without limitation
<PAGE>
-33-
and without the need for an express assignment, subsequent Holders of
Registrable Notes.
(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 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.
(l) Entire Agreement. This Agreement, together with the
Purchase Agreement and the Indenture, is intended by the parties as a final
expression of their agreement, and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein.
(m) Notes Held by the Company or its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes 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.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
FAIRFIELD MANUFACTURING COMPANY, INC.
By:
---------------------------------
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written.
CIBC WORLD MARKETS CORP.
FLEET SECURITIES, INC.
ING BARING FURMAN SELZ LLC
SCHRODER & CO. INC.
By: CIBC WORLD MARKETS CORP.
By:
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT 12.01
Fairfield Manufacturing Company, Inc.
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Year Ended Three Months Ended
1994 1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes, extraordinary item
and cumulative effect of change in accounting
principle $ (903) $12,430 $ 7,649 $ 4,821 $11,800 $2,502 $5,892
------- ------- ------- ------- ------- ------ ------
Add back fixed charges:
Interest expense 11,674 12,269 11,260 12,005 12,037 3,132 2,672
Amortization of deferred financing costs 703 638 670 671 660 171 153
Preferred stock dividend and accretion -- -- -- 10,413 10,576 2,642 2,644
------- ------- ------- ------- ------- ------ ------
Total fixed charges $12,377 $12,907 $ 11,930 $ 23,089 $23,273 $5,945 $5,469
------- ------- -------- -------- ------- ------ ------
Income (loss) before income taxes,
extraordinary item and cumulative
effect of change in accounting
principal plus fixed charges, less
preferred stock dividend and accretion $11,474 $25,337 $19,579 $ 17,497 $24,497 $5,805 $8,717
------- ------- ------- ------- ------- ------ ------
------- ------- ------- ------- ------- ------ ------
Ratio of earnings to fixed charges -- 2.0 1.6 -- 1.1 -- 1.6
Earnings insufficient to cover fixed charges $ (903) $(5,592) $ (140)
------- ------- ------
------- ------- ------
</TABLE>
<PAGE>
Exhibit 23.02
[Letterhead of PricewaterhouseCoopers LLP]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form
S-4 of Fairfield Manufacturing Company, Inc., of our report dated January 28,
1999 relating to the financial statements and financial statement schedules of
Fairfield Manufacturing Company, Inc., which appear in such Registration
Statement. We also consent to the references to us under the headings "Experts"
and "Selected Consolidated Historical Financial Data" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
June 8, 1999
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned, Director, President and Chief Executive
Officer of Fairfield Manufacturing Company, Inc. (the "Company"), does hereby
constitute and appoint Richard A. Bush as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead in any and all capacities, to execute and deliver in
his name and on his behalf:
(a) one or more Registration Statements on Form S-4 or any
other appropriate form (each, a "Registration Statement") of the
Company to be filed by the Company with the Securities and Exchange
Commission ("SEC") (including, without limitation, Registration
Statements filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Securities Act")) for the purpose of offering
to exchange (the "Exchange Offer") up to $100 million aggregate
principal amount of the Company's 9 5/8% Senior Subordinated Notes due
2008 (the "New Notes") for a like principal amount of the Company's
issued and outstanding 9 5/8% Senior Subordinated Notes due 2008 (the
"Old Notes"); and
(b) any and all supplements and amendments (including,
without limitation, post-effective amendments) to such Registration
Statements;
and any and all other documents and instruments in connection with the Exchange
Offers which such attorney-in-fact and agent deems necessary or advisable to
enable the Company to comply with (a) the Securities Act, the Securities
Exchange Act of 1934, as amended, and the other federal securities laws of the
United States of America and the rules, regulations and requirements of the SEC
in respect of any thereof, (b) the securities or Blue Sky laws of any state or
other governmental subdivision of the United States of America and (c) the
securities or similar applicable laws of Canada, England and any other foreign
jurisdiction; and the undersigned does hereby ratify and confirm as his own
acts and deeds that such attorney-in-fact and agent shall do or cause to be
done by virtue hereof. Such attorney-in-fact and agent shall have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
this power of attorney this 7th day of June, 1999.
/s/ Stephen K. Clough
-----------------------------
Stephen K. Clough
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned, Vice President - Finance of Fairfield
Manufacturing Company, Inc. (the "Company"), does hereby constitute and appoint
Stephen K. Clough as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead in any and all capacities, to execute and deliver in his name and on his
behalf:
(a) one or more Registration Statements on Form S-4 or any
other appropriate form (each, a "Registration Statement") of the
Company to be filed by the Company with the Securities and Exchange
Commission ("SEC") (including, without limitation, Registration
Statements filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Securities Act")) for the purpose of offering
to exchange (the "Exchange Offer") up to $100 million aggregate
principal amount of the Company's 9 5/8% Senior Subordinated Notes due
2008 (the "New Notes") for a like principal amount of the Company's
issued and outstanding 9 5/8% Senior Subordinated Notes due 2008 (the
"Old Notes"); and
(b) any and all supplements and amendments (including,
without limitation, post-effective amendments) to such Registration
Statements;
and any and all other documents and instruments in connection with the Exchange
Offers which such attorney-in-fact and agent deems necessary or advisable to
enable the Company to comply with (a) the Securities Act, the Securities
Exchange Act of 1934, as amended, and the other federal securities laws of the
United States of America and the rules, regulations and requirements of the SEC
in respect of any thereof, (b) the securities or Blue Sky laws of any state or
other governmental subdivision of the United States of America and (c) the
securities or similar applicable laws of Canada, England and any other foreign
jurisdiction; and the undersigned does hereby ratify and confirm as his own
acts and deeds all that such attorney-in-fact and agent shall do or cause to be
done by virtue hereof. Such attorney-in-fact and agent shall have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
this power of attorney this 7th day of June, 1999.
/s/ Richard A. Bush
------------------------------
Richard A. Bush
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned, Chairman of the Board and a Director of
Fairfield Manufacturing Company, Inc. (the "Company"), does hereby constitute
and appoint Stephen K. Clough and Richard A. Bush, and each of them, as 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 execute and deliver in his name and on his behalf:
(a) one or more Registration Statements on Form S-4 or any
other appropriate form (each, a "Registration Statement") of the
Company to be filed by the Company with the Securities and Exchange
Commission ("SEC") (including, without limitation, Registration
Statements filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Securities Act")) for the purpose of offering
to exchange (the "Exchange Offer") up to $100 million aggregate
principal amount of the Company's 9 5/8% Senior Subordinated Notes due
2008 (the "New Notes") for a like principal amount of the Company's
issued and outstanding 9 5/8% Senior Subordinated Notes due 2008 (the
"Old Notes"); and
(b) any and all supplements and amendments (including,
without limitation, post-effective amendments) to such Registration
Statements;
and any and all other documents and instruments in connection with the Exchange
Offers which such attorneys-in-fact and agents, or any one of them, deem
necessary or advisable to enable the Company to comply with (a) the Securities
Act, the Securities Exchange Act of 1934, as amended, and the other federal
securities laws of the United States of America and the rules, regulations and
requirements of the SEC in respect of any thereof, (b) the securities or Blue
Sky laws of any state or other governmental subdivision of the United States of
America and (c) the securities or similar applicable laws of Canada, England
and any other foreign jurisdiction; and the undersigned does hereby ratify and
confirm as his own acts and deeds all that such attorneys-in-fact and agents,
and each of them, shall do or cause to be done by virtue hereof. Each one of
such attorneys-in-fact and agents shall have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
this power of attorney this 7th day of June, 1999.
/s/ Paul S. Levy
------------------------------
Paul S. Levy
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned, a Director of Fairfield Manufacturing
Company, Inc. (the "Company"), does hereby constitute and appoint Stephen K.
Clough and Richard A. Bush, and each of them, as 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 execute and deliver in his name and on his behalf:
(a) one or more Registration Statements on Form S-4 or any
other appropriate form (each, a "Registration Statement") of the
Company to be filed by the Company with the Securities and Exchange
Commission ("SEC") (including, without limitation, Registration
Statements filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Securities Act")) for the purpose of offering
to exchange (the "Exchange Offer") up to $100 million aggregate
principal amount of the Company's 9 5/8% Senior Subordinated Notes due
2008 (the "New Notes") for a like principal amount of the Company's
issued and outstanding 9 5/8% Senior Subordinated Notes due 2008 (the
"Old Notes"); and
(b) any and all supplements and amendments (including,
without limitation, post-effective amendments) to such Registration
Statements;
and any and all other documents and instruments in connection with the Exchange
Offers which such attorneys-in-fact and agents, or any one of them, deem
necessary or advisable to enable the Company to comply with (a) the Securities
Act, the Securities Exchange Act of 1934, as amended, and the other federal
securities laws of the United States of America and the rules, regulations and
requirements of the SEC in respect of any thereof, (b) the securities or Blue
Sky laws of any state or other governmental subdivision of the United States of
America and (c) the securities or similar applicable laws of Canada, England
and any other foreign jurisdiction; and the undersigned does hereby ratify and
confirm as his own acts and deeds all that such attorneys-in-fact and agents,
and each of them, shall do or cause to be done by virtue hereof. Each one of
such attorneys-in-fact and agents shall have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
this power of attorney this 7th day of June, 1999.
/s/ W.B. Lechman
----------------
W.B. Lechman
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned, a Director of Fairfield Manufacturing
Company, Inc. (the "Company"), does hereby constitute and appoint Stephen K.
Clough and Richard A. Bush, and each of them, as 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 execute and deliver in his name and on his behalf:
(a) one or more Registration Statements on Form S-4 or any
other appropriate form (each, a "Registration Statement") of the
Company to be filed by the Company with the Securities and Exchange
Commission ("SEC") (including, without limitation, Registration
Statements filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Securities Act")) for the purpose of offering
to exchange (the "Exchange Offer") up to $100 million aggregate
principal amount of the Company's 9 5/8% Senior Subordinated Notes due
2008 (the "New Notes") for a like principal amount of the Company's
issued and outstanding 9 5/8% Senior Subordinated Notes due 2008 (the
"Old Notes"); and
(b) any and all supplements and amendments (including,
without limitation, post-effective amendments) to such Registration
Statements;
and any and all other documents and instruments in connection with the Exchange
Offers which such attorneys-in-fact and agents, or any one of them, deem
necessary or advisable to enable the Company to comply with (a) the Securities
Act, the Securities Exchange Act of 1934, as amended, and the other federal
securities laws of the United States of America and the rules, regulations and
requirements of the SEC in respect of any thereof, (b) the securities or Blue
Sky laws of any state or other governmental subdivision of the United States of
America and (c) the securities or similar applicable laws of Canada, England
and any other foreign jurisdiction; and the undersigned does hereby ratify and
confirm as his own acts and deeds all that such attorneys-in-fact and agents,
and each of them, shall do or cause to be done by virtue hereof. Each one of
such attorneys-in-fact and agents shall have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
this power of attorney this 7th day of June, 1999.
/s/ Jess C . Ball
---------------------------
Jess C. Ball
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned, a Director of Fairfield Manufacturing
Company, Inc. (the "Company"), does hereby constitute and appoint Stephen K.
Clough and Richard A. Bush, and each of them, as 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 execute and deliver in his name and on his behalf:
(a) one or more Registration Statements on Form S-4 or any
other appropriate form (each, a "Registration Statement") of the
Company to be filed by the Company with the Securities and Exchange
Commission ("SEC") (including, without limitation, Registration
Statements filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Securities Act")) for the purpose of offering
to exchange (the "Exchange Offer") up to $100 million aggregate
principal amount of the Company's 9 5/8% Senior Subordinated Notes due
2008 (the "New Notes") for a like principal amount of the Company's
issued and outstanding 9 5/8% Senior Subordinated Notes due 2008 (the
"Old Notes"); and
(b) any and all supplements and amendments (including,
without limitation, post-effective amendments) to such Registration
Statements;
and any and all other documents and instruments in connection with the Exchange
Offers which such attorneys-in-fact and agents, or any one of them, deem
necessary or advisable to enable the Company to comply with (a) the Securities
Act, the Securities Exchange Act of 1934, as amended, and the other federal
securities laws of the United States of America and the rules, regulations and
requirements of the SEC in respect of any thereof, (b) the securities or Blue
Sky laws of any state or other governmental subdivision of the United States of
America and (c) the securities or similar applicable laws of Canada, England
and any other foreign jurisdiction; and the undersigned does hereby ratify and
confirm as his own acts and deeds all that such attorneys-in-fact and agents,
and each of them, shall do or cause to be done by virtue hereof. Each one of
such attorneys-in-fact and agents shall have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed
this power of attorney this 7th day of June, 1999.
/s/ Andrew R. Heyer
-------------------
Andrew R. Heyer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FAIRFIELD
MANUFACTURING CO., INC'S 1998 FORM 10-K AND 1999 FIRST QUARTER 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K AND 10-Q FILINGS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 2,822 1,188
<SECURITIES> 0 0
<RECEIVABLES> 28,068 27,601
<ALLOWANCES> (700) (700)
<INVENTORY> 25,519 26,280
<CURRENT-ASSETS> 56,078 54,746
<PP&E> 163,195 165,572
<DEPRECIATION> (94,956) (97,015)
<TOTAL-ASSETS> 175,118 173,550
<CURRENT-LIABILITIES> 40,208 40,037
<BONDS> 112,150 109,150
48,042 48,090
0 0
<COMMON> 85 86
<OTHER-SE> (49,105) (46,185)
<TOTAL-LIABILITY-AND-EQUITY> 175,118 173,550
<SALES> 220,316 60,399
<TOTAL-REVENUES> 220,316 60,399
<CGS> 178,933 47,341
<TOTAL-COSTS> 195,749 51,680
<OTHER-EXPENSES> 70 2
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,697 2,825
<INCOME-PRETAX> 11,800 5,892
<INCOME-TAX> 5,300 2,657
<INCOME-CONTINUING> 6,500 3,235
<DISCONTINUED> 0 0
<EXTRAORDINARY> (426) 0
<CHANGES> 0 0
<NET-INCOME> 6,074 3,235
<EPS-BASIC> .03 .21
<EPS-DILUTED> .03 .21
</TABLE>
<PAGE>
Exhibit 99.01
LETTER OF TRANSMITTAL
FAIRFIELD MANUFACTURING COMPANY, INC.
Offer to Exchange all Outstanding
95/8% Senior Subordinated Notes Due 2008
for
95/8% Senior Subordinated Notes Due 2008
which Have Been Registered Under
the Securities Act of 1933
Pursuant to the Prospectus, dated , 1999
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON _______ __, 1999 UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE EXPIRATION DATE.
Delivery To: First Union National Bank, Exchange Agent
By Mail, Hand Delivery or For Information Call:
Overnight Carrier: (704) 590-7413
First Union National Bank Facsimile Transmission Number:
1525 West W.T. Harris Boulevard (704) 590-7628
Corporate Actions
Charlotte, North Carolina 28288
Attention: Marsha Rice
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, WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX BELOW
<PAGE>
The undersigned acknowledges that he, she or it has received and reviewed
this Letter of Transmittal (the "Letter") and the Prospectus, dated ________ __,
1999 (the "Prospectus"), of Fairfield Manufacturing Company, Inc., a corporation
organized under the laws of the State of Delaware (the "Company" or the
"Issuer"), relating to its offer to exchange up to $100,000,000 aggregate
principal amount of its 95/8% Senior Subordinated Notes Due 2008 (the "New
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for a like principal amount of its issued and
outstanding 95/8% Senior Notes Due 2008 (the "Old Notes") from the registered
holders thereof (the "Holders"). The Prospectus and this Letter of Transmittal
(this "Letter") together constitute the Company's offer to exchange (the
"Exchange Offer") its New Notes for a like principal amount of its Old Notes
from the Holders.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from May 19, 1999. Accordingly, registered holders of New Notes on
the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from May 19, 1999. Old Notes accepted for exchange will cease to accrue interest
from and after the date of consummation of the Exchange Offer. Holders of Old
Notes whose Old Notes are accepted for exchange will not receive any payment in
respect of accrued interest on such Old Notes.
This Letter is to be completed by a Holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at DTC (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in "The Exchange Offer--Book-Entry
Transfer" section of the Prospectus. Holders of Old Notes whose certificates are
not immediately available, or who are unable to deliver their certificates or
confirmation of the book-entry tender of their Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
Holders of Old Notes that are tendering by book-entry transfer to the
Exchange Agent's account at DTC can execute the tender through the DTC Automated
Tender Offer Program ("ATOP") for which the transaction will be eligible. DTC
participants should transmit their acceptance to DTC which will verify the
acceptance and execute a book-entry delivery to the Exchange Agent's account at
DTC. DTC will then send an Agent's Message (as defined in the Prospectus) to the
Exchange Agent for its acceptance. DTC participants may also accept the Exchange
Offer by submitting a notice of guaranteed delivery through ATOP.
2
<PAGE>
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES 1 2 3
- -----------------------------------------------------------------------------------------
Aggregate
Name(s) and Address(es) of Registered Principal Principal
Holder(s) Certificate Amount of Amount
(Please fill in, if blank) Number(s)* Old Note(s) Tendered**
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Total
- -----------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
/_/ CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
------------------------------------------
Account Number Transaction Code
-----------------------------------------
Number
-----------------------------------------------------------------
/_/ CHECK HERE IF TENDERED OLD NOTES 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 Institution Which Guaranteed Delivery
--------------------------
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number Transaction Code
-----------------------------------------
Number
-----------------------------------------------------------------
3
<PAGE>
/_/ CHECK HERE IF YOU ARE A BROKER-DEALER ENTITLED, PURSUANT TO THE TERMS
OF THE REGISTRATION RIGHTS AGREEMENT REFERRED TO IN THE PROSPECTUS, TO
RECEIVE, AND WISH TO RECEIVE, 10 ADDITIONAL COPIES OF THE PROSPECTUS
AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO WITHIN 90 DAYS
AFTER THE EXPIRATION DATE.
Name:
---------------------------------------------------------------------------
Address:
--------------------------------------------------------------------
--------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges and
represents that it will deliver a prospectus meeting the requirements of the
Securities Act, in connection with any resale of such New Notes; however, by so
acknowledging and representing and by delivering such a prospectus the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. If the undersigned is a broker-dealer that will
receive New Notes, it represents that the Old Notes to be exchanged for the New
Notes were acquired as a result of market-making activities or other trading
activities. In addition, such broker-dealer represents that it is not acting on
behalf of any person who could not truthfully make the foregoing
representations.
4
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as the undersigned's true and lawful agent and attorney-in-fact
with respect to such tendered Old Notes, with full power of substitution, among
other things, to cause the Old Notes to be assigned, transferred and exchanged.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Notes, and to
acquire New Notes issuable upon the exchange of such tendered Old Notes, and
that, when such Old Notes are accepted for exchange, the Company 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 Company. The undersigned hereby further represents and warrants
that any New Notes acquired in exchange for Old Notes tendered hereby will have
been acquired in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the undersigned, that neither the
Holder of such Old Notes nor any such other person is participating in, intends
to participate in or has an arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
Old Notes or New Notes, that neither the Holder of such Old Notes nor any such
other person is an "affiliate," as defined in Rule 405 under the Securities Act,
of the Company, and that neither the Holder of such Old Notes nor such other
person is acting on behalf of any person who could not truthfully make the
foregoing representations and warranties.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for 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 such New Notes are acquired in
the ordinary course of such Holder's business, at the time of commencement of
the Exchange Offer such Holder has no arrangement or understanding with any
person to participate in a distribution of such New Notes, and such Holder is
not engaged in, and does not intend to engage in, a distribution of such New
Notes. However, the SEC has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in other
circumstances. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes and has no arrangement or understanding to participate
in a distribution of New Notes. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes, it represents
that the Old Notes to be exchanged for the New Notes were acquired by it as a
result of market-making activities or other trading activities and acknowledges
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Notes; however, by
5
<PAGE>
so acknowledging and by delivering a prospectus meeting the requirements of the
Securities Act, 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 Notes (other than
a resale of New Notes received in exchange for an unsold allotment from the
original sale of the Old Notes) with the Prospectus. The Prospectus, as it may
be amended or supplemented from time to time, may be used by certain
broker-dealers (as specified in the Registration Rights Agreement referenced in
the Prospectus) ("Participating Broker-Dealers") for a period of time, starting
on the Expiration Date and ending on the close of business 90 days after the
Expiration Date in connection with the sale or transfer of such New Notes. The
Company has agreed that, for such period of time, it will make the Prospectus
(as it may be amended or supplemented) available to such a broker-dealer which
elects to exchange Old Notes, acquired for its own account as a result of market
making or other trading activities, for New Notes pursuant to the Exchange Offer
for use in connection with any resale of such New Notes. By accepting the
Exchange Offer, each broker-dealer that receives New Notes pursuant to the
Exchange Offer acknowledges and agrees to notify the Company prior to using the
Prospectus in connection with the sale or transfer of New Notes and that, upon
receipt of notice from the Company 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
(in light of the circumstances under which they were made) not misleading, such
broker-dealer will suspend use of the Prospectus until (i) the Company 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 the Company 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. 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 Notes. A broker-dealer that acquired Old Notes in a
transaction other than as part of its market-making activities or other trading
activities will not be able to participate in the Exchange Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter 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 Exchange Offer--Withdrawal of Tenders"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
6
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
NOTES AS SET FORTH IN SUCH BOX ABOVE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX BELOW.
7
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
x
----------------------------------------------------------- -----------
, 1999
- -----------------------------------------------------
x
----------------------------------------------------------- -----------
, 1999
- -----------------------------------------------------
Signature(s) of Owner
Date
Area Code and Telephone Number
--------------------------------------------------
If a Holder is tendering an Old Note, this Letter must be signed by the
registered Holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Note or by any person(s) authorized to become registered Holder(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. See Instruction 3.
Name(s)
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Capacity:
-----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:
--------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name and Firm)
Dated: , 1999
-------------------------------------------------------------------
(Please Complete Accompanying Substitute Form W-9 Herein. See Instruction 5.)
8
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3, 4 and 6)
- --------------------------------------------------------------------------------
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be issued in the name of and sent to someone other than the
person or persons whose signature(s) appear(s) on this Letter above, or if Old
Notes delivered by book-entry transfer which are not accepted for exchange are
to be returned by credit to an account maintained at the Book-Entry Transfer
Facility other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s)
-------------------------------------------------------------------------
(Please Type or Print)
- --------------------------------------------------------------------------------
(Please Type or Print)
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
(Complete Substitute Form W-9)
/_/ Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
- --------------------------------------------------------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3, 4 and 6)
- --------------------------------------------------------------------------------
To be completed ONLY if certificates for Old Notes not exchanged and/or
New Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such person or persons at an
address other than shown in the box entitled "Description of Old Notes" on this
Letter above.
Mail: New Notes and/or Old Notes to:
Name(s)
-------------------------------------------------------------------------
(Please Type or Print)
- --------------------------------------------------------------------------------
(Please Type or Print)
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Zip Code)
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS LETTER
OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR OLD NOTES OR A
BOOK-ENTRY CONFIRMATION 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.
9
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer for the
95/8% Senior Subordinated Notes Due 2008
of Fairfield Manufacturing Company, Inc. in Exchange for the
95/8% Senior Subordinated Notes Due 2008
of Fairfield Manufacturing Company, Inc., which Have Been Registered Under the
Securities Act of 1933, As Amended
1. Delivery of this Letter and Notes; Guaranteed Delivery Procedures.
This Letter is to be completed by Holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering Holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution,
(ii) prior to 5:00 P.M., New York City time, on the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter (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 Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically-tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by this Letter will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically-tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter, are received by the Exchange Agent within three NYSE trading days after
the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other
required documents, including delivery through DTC and any acceptance of an
Agent's Message delivered through ATOP, 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 Old Notes are sent by mail, it
is suggested that the mailing be registered mail, properly insured, with return
receipt requested, made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 P.M., New York City time, on the
Expiration Date.
See "The Exchange Offer" section of the Prospectus.
10
<PAGE>
2. Partial Tenders (not applicable to noteholders who tender by book-entry
transfer).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering Holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering Holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. All of the Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
If this Letter is signed by the registered Holder of the Old Notes
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 Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered Holder or Holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered Holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered Holder or
Holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered Holder or Holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 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 Securities Exchange Act of 1934, as
amended (each an "Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Old Notes are tendered: (i) by a registered holder of
Old Notes (which term, for purposes of the Exchange Offer, includes any
participant in the Book-Entry Transfer Facility system whose name appears on a
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<PAGE>
security position listing as the holder of such Old Notes) who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" in this Letter, or (ii) for the account of an Eligible
Institution.
4. Special Issuance and Delivery Instructions.
Tendering Holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. Holders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such Holder may designate hereon. If no such instructions are given,
such Old Notes not exchanged will be returned to the name and address of the
person signing this Letter.
5. Taxpayer Identification Number.
Federal income tax law generally requires that a tendering Holder whose
Old Notes are accepted for exchange must provide the Company (as payor), or the
Paying Agent designated by the Company to act on its behalf, with such Holder's
correct Taxpayer Identification Number ("TIN") on Substitute Form W-9 below,
which in the case of a tendering Holder who is an individual, is his or her
social security number. If the Company is not provided with the current TIN or
an adequate basis for an exemption from backup withholding, such tendering
Holder may be subject to a $50 penalty imposed by the Internal Revenue Service.
In addition, delivery to such tendering Holder of New Notes may result in backup
withholding in an amount equal to 31% of all reportable payments made after the
exchange. If withholding results in an overpayment of taxes, a refund may be
obtained.
Exempt Holders of Old Notes (including, among others, all corporations and
certain foreign individual) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering Holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying, under penalties of perjury, that the TIN provided is correct (or
that such Holder is awaiting a TIN) and that (i) the Holder is exempt from
backup withholding, or (ii) the Holder has not been notified by the Internal
Revenue Service that such Holder is subject to backup withholding as a result of
a failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the Holder that such Holder is no longer subject to backup
withholding. If the tendering Holder of Old Notes is a nonresident alien or
foreign entity not subject to backup withholding, such Holder must give the
Exchange Agent a completed Form W-8, Certificate of Foreign Status. This form
may be obtained from the Exchange Agent. If the Old Notes are in more than one
name or are not in the name of the actual owner, such Holder should consult the
W-9 Guidelines for information on which TIN to report. If such Holder does not
have a TIN, such Holder should consult the W-9 Guidelines for instructions on
applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and write
"applied for" in lieu of its TIN. Note: Checking this box and writing "applied
for" on the form means that such Holder has already applied for a TIN or that
such Holder intends to apply for one in the near future. If such Holder does not
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<PAGE>
provide its TIN to the Issuer within 60 days, backup withholding will begin and
continue until such Holder furnishes its TIN to the Issuer.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Old Notes to it or its order pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Old Notes 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 Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of any person other than the person signing this Letter,
or if a transfer tax is imposed for any reason other than the transfer of Old
Notes to the Company or its order pursuant to the Exchange Offer, the amount of
any such transfer taxes (whether imposed on the registered Holder or any other
persons) 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 Old Notes specified in this Letter.
7. Waiver of Conditions.
The Company 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 Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any Holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. Withdrawal Rights.
Tenders of Old Notes of a series may be withdrawn at any time prior to
5:00 P.M., New York City time, on the Expiration Date with respect to such
series.
For a withdrawal of a tender of Old Notes to be effective, a written
notice of withdrawal must be received by the Exchange Agent at the address set
forth above prior to 5:00 P.M., New York City time, on the Expiration Date with
respect to such series. Any such notice of withdrawal must (i) specify the name
of
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<PAGE>
the person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the principal amount of such
Old Notes), (iii) in the case of Old Notes tendered by book-entry transfer,
specify the number of the account at the Book-Entry Transfer Facility from which
the Old Notes were tendered and specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility, (iv) contain a statement
that such Holder is withdrawing its election to have such Old Notes exchanged,
(v) be signed by the Holder in the same manner as the original signature on the
Letter by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes in the name of
the person withdrawing the tender and (vi) specify the name in which such Old
Notes are registered, if different from that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the Exchange Offer and
no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes that have been tendered for
exchange but which are not exchanged for any reason will be returned to the
tendering Holder thereof without cost to such Holder (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures set
forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus,
such Old Notes will be credited to an account maintained with the Book-Entry
Transfer Facility for the Old Notes) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following the procedures described above at any time
on or prior to 5:00 P.M., New York City time, on the Expiration Date with
respect to such series of Old Notes.
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, and requests for Notices of
Guaranteed Delivery and other related documents may be directed to the Exchange
Agent, at the address and telephone number indicated above.
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<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: FIRST UNION NATIONAL BANK, as Paying Agent
<TABLE>
<CAPTION>
<S> <C> <C>
Part 1--PLEASE PROVIDE
YOUR TIN IN THE BOX AT TIN:
RIGHT AND CERTIFY BY ------------------------------
SUBSTITUTE SIGNING AND DATING BELOW. Social Security Number or
Employer Identification Number
Form W-9 Part 2--TIN Applied for /_/
Department of the Treasury CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Internal Revenue Service
(1) the number shown on this form is my correct Taxpayer Identification
Payor's Request for Number (or I am waiting for a number to be issued to me).
Taxpayer (2) I am not subject to backup withholding either because: (a) I am exempt
Identification Number from backup withholding, or (b) I have not been notified
("TIN") and by the Internal Revenue Service (the "IRS") that I am subject to
Certification backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject
to backup withholding, and
(3) any other information provided on this form is true and correct.
SIGNATURE DATE
---------------------------------- ------------------------
</TABLE>
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 and you have not been notified by
the IRS that you are no longer subject to backup withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
- -------------------------------------------- ------------------------------
Signature Date
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31%
OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE TENDER OFFER AND/OR THE
SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
15
<PAGE>
Exhibit 99.02
NOTICE OF GUARANTEED DELIVERY
FOR
FAIRFIELD MANUFACTURING COMPANY, INC.
9 5/8% SENIOR SUBORDINATED NOTES DUE 2008
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer of Fairfield Manufacturing Company, Inc. (the "Issuer" or the
"Company") made pursuant to the Prospectus, dated ______ __, 1999 (the
"Prospectus"), if certificates (as applicable) for outstanding 9 5/8% Senior
Subordinated Notes Due 2008 (the "Old Notes") of the Issuer are not immediately
available or if the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach First Union
National Bank, as exchange agent (the "Exchange Agent") prior to 5:00 P.M., New
York City time, on the Expiration Date of the Exchange Offer. Such form may be
delivered or transmitted by facsimile transmission, mail or hand delivery to the
Exchange Agent as set forth below. In addition, in order to utilize the
guaranteed delivery procedure to tender Old Notes pursuant to the Exchange
Offer, a completed, signed and dated Letter of Transmittal (or facsimile
thereof) relating to the tender for exchange of Old Notes (the "Letter of
Transmittal") must also be received by the Exchange Agent prior to 5:00 P.M.,
New York City time, on the Expiration Date. Capitalized terms not defined herein
are defined in the Prospectus or the Letter of Transmittal.
Delivery To: First Union National Bank, Exchange Agent
By Mail, Hand Delivery or For Information Call:
Overnight Carrier: (704) 590-7413
First Union National Bank Facsimile Transmission Number:
1525 West W.T. Harris Boulevard (704) 590-7628
Corporate Actions
Charlotte, North Carolina 28288
Attention: Marsha Rice
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
- --------------------------------------------------------------------------------
Certificate Number(s) Aggregate Principal Aggregate Principal
(if known) of Existing Amount Represented Amount Tendered
Notes or Account (if less than all)*
Number at the Book-
Entry Transfer Facility
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Unless otherwise indicated, the Holder will be deemed to have tendered the
full aggregate principal amount represented by such Old Notes.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X -------------------------------- ---------------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:_____________________
Must be signed by the Holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered Holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
2
<PAGE>
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): _______________________________________________________
Capacity: _______________________________________________________
Address(es): _______________________________________________________
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a 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 Securities Exchange Act of 1934, as amended, hereby guarantees that
the certificates representing the principal amount of Old Notes tendered hereby
in proper form for transfer, or timely confirmation of the book-entry transfer
of such Old Notes into the Exchange Agent's account at The Depository Trust
Company pursuant to the procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus, together with any required
signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than three New York Stock Exchange trading days after the date
of execution of this Notice of Guaranteed Delivery.
- ------------------------------------- -----------------------------------
Name of Firm Authorized Signature
- ------------------------------------- -----------------------------------
Address Title
Name:
- ------------------------------------- ------------------------------
Zip Code (Please Type or Print)
Area Code and Tel. No. Dated:
-------------- -----------------------------
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM.
CERTIFICATES FOR OLD NOTES SHOULD BE SENT ONLY WITH A COPY OF
YOUR PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
3
<PAGE>
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 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 of this Notice of Guaranteed Delivery. If this Notice
of Guaranteed Delivery is signed by the registered Holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of Old Notes, the signature must correspond with the name
shown on the security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other
than the registered Holder(s) of any Old Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
Holder(s) appears on the Old Notes or signed as the name of the participant
shown on the Book-Entry Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation,
or other person acting in a fiduciary or representative capacity, such person
should so indicate when signing.
3. Requests for Assistance or Additional Copies. Questions and
requests for assistance and requests for additional copies of the Prospectus may
be directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
4
