-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GtbllEMLgb3665y7q2SRRyPSc7ifzKdP9E6K7Kd0IGB8pzUi5A3eFL4t/itP35IU isigrWU4sM3jxFKth6FIVA== 0000950123-96-007169.txt : 19961206 0000950123-96-007169.hdr.sgml : 19961206 ACCESSION NUMBER: 0000950123-96-007169 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19961205 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL KNIFE & SAW INC CENTRAL INDEX KEY: 0001027909 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 570697252 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-17305 FILM NUMBER: 96676290 BUSINESS ADDRESS: STREET 1: 1299 COX AVENUE CITY: ERLANGER STATE: KY ZIP: 41018 BUSINESS PHONE: 6063710333 MAIL ADDRESS: STREET 1: 1299 COX AVENUE CITY: ERLANGER STATE: KY ZIP: 41018 S-4 1 S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1996 REGISTRATION NO. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ INTERNATIONAL KNIFE & SAW, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3428 57-0697252 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
------------------------ 1299 COX AVENUE ERLANGER, KENTUCKY 41018 (606) 371-0333 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ WILLIAM M. SCHULT VICE PRESIDENT-FINANCE, CHIEF FINANCIAL OFFICER AND SECRETARY INTERNATIONAL KNIFE & SAW, INC. 1299 COX AVENUE ERLANGER, KENTUCKY 41018 (606) 371-0333 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ WITH COPIES TO: BRUCE B. WOOD, ESQ. DECHERT PRICE & RHOADS 477 MADISON AVENUE NEW YORK, NEW YORK 10022 (212) 326-3500 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ PROPOSED MAXIMUM PROPOSED MAXIMUM AGGREGATE TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------ 11 3/8% Senior Notes due 2006........... $90,000,000 100% $90,000,000 $31,035 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the registration fee ------------------------ 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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INTERNATIONAL KNIFE & SAW, INC. CROSS REFERENCE SHEET PURSUANT TO RULE 404(a) AND ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus.............................. Forepart of the Registration Statement; Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus........................... Inside Front Cover Page; Outside Back Cover Page 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information........... Summary; Risk Factors; Selected Historical and Pro Forma Financial Data 4. Terms of the Transaction.................. The Exchange Offer; Description of the Notes; Certain Federal Income Tax Consequences; Plan of Distribution 5. Pro Forma Financial Information........... Summary; Unaudited Pro Forma Consolidated Financial Information; Selected Historical and Pro Forma Financial Data 6. Material Contracts With the Company Being Acquired................................ Not Applicable 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters...................... Not Applicable 8. Interests of Named Experts and Counsel.... Not Applicable 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities............................. Not Applicable 10. Information With Respect to S-3 Registrants............................. Not Applicable 11. Incorporation of Certain Information by Reference............................... Not Applicable 12. Information With Respect to S-2 or S-3 Registrants............................. Not Applicable 13. Incorporation of Certain Information by Reference............................... Not Applicable 14. Information With Respect to Registrants Other Than S-2 or S-3 Registrants....... Available Information; Summary; Risk Factors; The Transactions; Use of Proceeds; Capitalization; Unaudited Pro Forma Consolidated Financial Information; Selected Historical and Pro Forma Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Stock Ownership; Certain Relationships and Related Transactions; Description of Certain Indebtedness; Description of the Notes; Book Entry; Delivery and Form; Plan of Distribution; Legal Matters; Experts; Consolidated Financial Statements
3 16. Information With Respect to S-2 or S-3 Companies............................... Not Applicable 17. Information With Respect to Companies Other Than S-2 or S-3 Companies......... Not Applicable 18. Information if Proxies, Consents or Authorizations Are to be Solicited...... Not Applicable 19. Information if Proxies, Consents or Authorizations Are Not to be Solicited, or in an Exchange Offer................. The Exchange Offer; Management; Stock Ownership; Certain Relationships and Related Transactions; Description of Certain Indebtedness; Description of the Notes
4 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED DECEMBER 5, 1996 PROSPECTUS OFFER TO EXCHANGE 11 3/8% SENIOR SUBORDINATED NOTES DUE 2006 FOR ALL OUTSTANDING 11 3/8% SENIOR SUBORDINATED NOTES DUE 2006 OF INTERNATIONAL KNIFE & SAW, INC. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 1997, UNLESS EXTENDED International Knife & Saw, Inc., a Delaware corporation (the "Company"), hereby offers to exchange an aggregate principal amount of up to $90,000,000 of its 11 3/8% Senior Subordinated Notes due 2006 (the "New Notes") for a like principal amount of its 11 3/8% Senior Subordinated Notes due 2006 (the "Existing Notes") outstanding on the date hereof upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying letter of transmittal (the "Letter of Transmittal" and, together with this Prospectus, the "Exchange Offer"). The New Notes and the Existing Notes are hereinafter collectively referred to as the "Notes." The terms of the New Notes are identical in all material respects to those of the Existing Notes, except for certain transfer restrictions and registration rights relating to the Existing Notes. The New Notes will be issued pursuant to, and be entitled to the benefits of, the Indenture (as defined) governing the Existing Notes. The New Notes will bear interest from and including the date of consummation of the Exchange Offer. Interest on the New Notes will be payable semi-annually on May 15 and November 15 of each year, commencing May 15, 1997. Additionally, interest on the New Notes will accrue from the last interest payment date on which interest was paid on the Existing Notes surrendered in exchange therefor or, if no interest has been paid on the Existing Notes, from the date of original issue of the Existing Notes. The New Notes will be general unsecured obligations of the Company. The New Notes will be subordinated in right of payment to all existing and future Senior Debt (as defined) and pari passu in right of payment with all other existing and future senior subordinated indebtedness of the Company. Although the Company's U.S. operations are owned directly, its foreign operations are conducted through subsidiaries. The New Notes will be effectively subordinated to all existing and future indebtedness and other obligations of such subsidiaries. As of September 30, 1996, on a pro forma basis after giving effect to the Transactions (as defined), the Company would have had no Senior Debt outstanding (exclusive of unused commitments of $20.0 million) and the Company's subsidiaries would have had approximately $5.5 million of indebtedness outstanding (exclusive of unused commitments of $5.0 million). The Indenture permits the Company and its subsidiaries to incur additional indebtedness, subject to certain limitations. The New Notes are being offered hereunder in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement dated November 6, 1996 (the "Registration Rights Agreement") by and between the Company and Schroder Wertheim & Co. Incorporated and Smith Barney Inc. (the "Initial Purchasers") with respect to the initial sale of the Existing Notes. The Company will not receive any proceeds from the Exchange Offer. The Company will pay all the expenses incident to the Exchange Offer. Tenders of Existing Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date (as defined) for the Exchange Offer. In the event the Company terminates the Exchange Offer and does not accept for exchange any Existing Notes with respect to the Exchange Offer, the Company will promptly return such Existing Notes to the holders thereof. See "The Exchange Offer." Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivery of a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Existing Notes where such Existing Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Prior to the Exchange Offer, there has been no public market for the Existing Notes. If a market for the New Notes should develop, such New Notes could trade at a discount from their principal amount. The Company currently does not intend to list the New Notes on any securities exchange or to seek approval for quotation through any automated quotation system, and no active public market for the New Notes is currently anticipated. There can be no assurance that an active public market for the New Notes will develop. The Exchange Offer is not conditioned upon any minimum principal amount of Existing Notes being tendered for exchange pursuant to the Exchange Offer. ------------------------ SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT HOLDERS OF EXISTING NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this Prospectus is , 1997. 5 AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-4 (the "Exchange Offer Registration Statement," which term shall encompass all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the New Notes being offered hereby. This Prospectus does not contain all the information set forth in the Exchange Offer Registration Statement. For further information with respect to the Company and the Exchange Offer, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Exchange Offer Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Exchange Offer Registration Statement, including the exhibits thereto, can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade Center, Suite 1300, New York, New York 10048 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such Web site is: http://www.sec.gov. As a result of the Exchange Offer, the Company will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will be required to file periodic reports and other information with the Commission. In the event the Company ceases to be subject to the informational requirements of the Exchange Act, the Company will be required under the Indenture, for so long as any of the Notes remain outstanding, to furnish to the holders of the Notes and file with the Commission (unless the Commission will not accept such a filing) (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. This Prospectus includes forward-looking statements which involve risks and uncertainties as to future events. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth under "Risk Factors". i 6 SUMMARY The following summary does not purport to be complete and is qualified in its entirety by the more detailed information and the Company's historical consolidated financial statements and "Unaudited Pro Forma Consolidated Financial Information," and the respective notes thereto, included elsewhere in this Prospectus. Unless otherwise indicated, industry and market data used throughout this Prospectus are based on Company estimates which, while believed by the Company to be reliable, have not been verified by independent sources. Unless otherwise indicated or the context otherwise requires, references to "IKS" or the "Company" are to International Knife & Saw, Inc. and its consolidated subsidiaries. THE COMPANY The Company is a global leader in the manufacturing, servicing and marketing of industrial and commercial machine knives and saws, operating in an estimated worldwide market of $1.0 billion. The Company's products, which are consumed in the normal course of machine operation and need resharpening or replacement many times a year, are mounted in industrial machines and are used in virtually every facet of cutting, slitting, chipping and forming of materials. The Company serves the following major market sectors: (i) Wood (42% of 1995 net sales); (ii) Paper & Packaging (38%); (iii) Metal (14%); and (iv) Plastic & Recycling (6%). The Company believes that it has a leading worldwide market share in each of these market sectors and that it is the only company that serves all four such sectors. The Company believes that it has the most extensive product offering in the industry, selling over 10,000 knife and saw products to a wide range of end-users, from large industrial and consumer product manufacturers to small family-owned print shops. The breadth of the Company's product line is enhanced by the Company's strategic relationships with over 50 finished goods suppliers, offering IKS the flexibility to manufacture or source many of its products. IKS products are used for diverse applications in numerous markets, including the use of circular slitter knives to cut copy paper, long veneer slicer knives to slice thin veneer used in the manufacture of quality furniture and circular metal slitter knives to cut wide coils of steel into narrow strips. Reflecting the Company's broad product range and numerous applications, the Company sells to over 5,000 customers with no customer accounting for more than 3% of the Company's net sales. IKS is the only industrial knife and saw manufacturer with operations in North America, Europe, Asia and Latin America and products sold in more than 75 countries. The Company utilizes its salesforce, the largest direct salesforce in the industry, to focus its efforts on aftermarket sales to end-users, which accounted for 89% of the Company's 1995 net sales. The Company also sells to end-users through Company-owned and independent resharpening service centers, which resharpen both IKS and competitors' knives and saws and also act as distributors of IKS products, as well as through distributors and agents. The Company's remaining sales are to over 300 original equipment manufacturers ("OEMs") of industrial cutting equipment, and the Company believes it is the leading supplier of knife and saw products to OEMs. The Company's sales are principally in North America and Europe, representing 73% and 26% of 1995 net sales, respectively, and the Company believes that significant opportunities exist to expand its share of these two major markets. The Company has also recently expanded its operations into the emerging markets of Asia and Latin America (with sales growing from 1% of fiscal 1995 net sales to 6.8% of net sales for the nine month period ended September 30, 1996). The Company plans to continue its international growth, entering new geographic markets while broadening existing ones. Since 1991, the Company has expanded its domestic and international operations through internal growth, the development of strategic alliances and the acquisition of knife and saw manufacturers and service centers. In addition, to maintain its position as a low cost producer, the Company takes advantage of economies of scale in both manufacturing and purchasing and has improved operating efficiencies. As a result of these actions, during the four 1 7 year period ended December 31, 1995, the Company achieved a net sales compound annual growth rate ("CAGR") of 8.1%, with 1995 net sales of $107 million, and a pro forma EBITDA (as defined herein) CAGR of 12.2%, with 1995 pro forma EBITDA of $15.3 million. For the nine month period ended September 30, 1996, the Company's net sales increased 12.6% over the comparable 1995 period to $89.3 million, and pro forma EBITDA increased 23.8% over the comparable 1995 period to $12.8 million. The Company believes that it can enhance its leading market position through the continued implementation of its business strategy. Key elements of this strategy include (i) maximizing stable, high margin end-user sales; (ii) increasing its global manufacturing, sourcing and marketing capabilities through strategic alliances; (iii) growing its resharpening service center operations, which increases direct access to end-users and enables the Company to capture both resharpening and additional replacement business; (iv) expanding and improving its product offering; (v) maintaining its focus on cost improvement opportunities; and (vi) continuing to evaluate acquisitions in the highly fragmented knife and saw industry. IKS traces it origins to 1814, when Klingelnberg Soehne was founded in Germany as a textile and hardware trading house. Klingelnberg Soehne began manufacturing industrial knives and saws in the early 1900s and by 1940 was serving a variety of product segments. Klingelnberg Soehne expanded its sales into the North American market during the 1960s and subsequently established manufacturing and resharpening operations which were complemented by several strategic acquisitions. The Company was incorporated in 1979, and by 1991 it had acquired the European and North American operations of Klingelnberg Soehne. Since 1991, the Company has expanded its resharpening operations by acquiring and opening 13 service centers, and has recently commenced operations in Asia and Latin America. The principal executive offices of IKS are located at 1299 Cox Avenue in Erlanger, Kentucky and its telephone number is (606) 371-0333. THE TRANSACTIONS The Existing Notes were issued on November 6, 1996 concurrently with the consummation of a recapitalization (the "Recapitalization") of The Klingelnberg Corporation, a Delaware corporation ("IKS Holdings"). Prior to the Recapitalization, all of the issued and outstanding capital stock of IKS Holdings was held by members of the Klingelnberg family and the Company's issued and outstanding capital stock was held approximately 97% by IKS Holdings and approximately 3% by John E. Halloran, Edward J. Brent, Thomas Meyer and Hans Berg, each of whom was an executive officer of the Company (the "Existing Management Investors"). The Recapitalization involved the following transactions: (i) the Existing Management Investors exchanged their holdings of capital stock issued by the Company for capital stock of IKS Holdings, and the Company became a wholly owned subsidiary of IKS Holdings; (ii) IKS Holdings amended its charter to change its corporate name to "IKS Corporation" and to authorize three classes of capital stock, consisting of preferred stock (the "Holdings Preferred Stock"), voting common stock (the "Holdings Class A Stock") and non-voting common stock (the "Holdings Class B Stock" and, together with the Holdings Class A Stock, the "Holdings Common Stock"); (iii) the issued and outstanding capital stock of IKS Holdings was exchanged for a recapitalization distribution (the "Recapitalization Distribution") which consisted of (a) approximately $86.6 million in cash and (b) Junior Subordinated Debentures of IKS Holdings (the "Holdings Debentures"), Holdings Preferred Stock and Holdings Class A Stock with an aggregate value of approximately $9.4 million issued to Arndt Klingelnberg, Diether Klingelnberg and John E. Halloran; (iv) John E. Halloran and Thomas Meyer, together with certain other key employees of the Company who were not Existing Management Investors (the "New Management Investors" and, together with the Existing Management Investors, the "Management Investors"), purchased Holdings Debentures, Holdings Preferred Stock and Holdings Class A Stock from IKS Holdings for approximately $1.3 million in cash; and (v) Citicorp Venture Capital Ltd. ("CVC") purchased Holdings Debentures, Holdings 2 8 Preferred Stock and Holdings Common Stock from IKS Holdings for $14.3 million in cash. See "The Transactions," "Stock Ownership" and "Description of Certain Indebtedness -- Holdings Debentures." In connection with the Recapitalization, the Company repaid approximately $5.2 million of its existing indebtedness and entered into a new $20.0 million revolving credit facility (the "Senior Credit Facility"). In addition, a German subsidiary of the Company repaid approximately $6.2 million of existing indebtedness under its term loan and entered into a new $5.0 million revolving credit facility (the "New German Credit Facility"). For information regarding the Senior Credit Facility and the indebtedness of such subsidiary, see "Description of Certain Indebtedness -- Senior Credit Facility" and "-- Subsidiary Indebtedness." The foregoing transactions, together with the issuance of the Existing Notes, the application of the proceeds therefrom and the payment of related transaction fees and expenses, are collectively referred to herein as the "Transactions". In anticipation of the Recapitalization, on July 25, 1996 the Company acquired certain real property which had previously been under capital lease to the Company for approximately $5.6 million (the "Realty Acquisition"). For additional information concerning the Realty Acquisition, see "Certain Relationships and Related Transactions." 3 9 THE EXCHANGE OFFER Securities Offered......... Up to $90,000,000 aggregate principal amount of 11 3/8% Senior Subordinated Notes due 2006. The terms of the New Notes and Existing Notes are identical in all material respects, except for certain transfer restrictions and registration rights relating to the Existing Notes. The Exchange Offer......... The New Notes are being offered in exchange for a like principal amount of Existing Notes. Existing Notes may be exchanged only in integral multiples of $1,000. The issuance of the New Notes is intended to satisfy obligations of the Company contained in the Registration Rights Agreement. Expiration Date; Withdrawal of Tender................ The Exchange Offer will expire at 5:00 p.m. New York City time, on , 1997, or such later date and time to which it may be extended by the Company. The tender of Existing Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any Existing Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Certain Conditions to the Exchange Offer........... The Company's obligation to accept for exchange, or to issue New Notes in exchange for, any Existing Notes is subject to certain customary conditions relating to compliance with any applicable law, any applicable interpretation by the staff of the Commission or any order of any governmental agency or court of competent jurisdiction, which may be waived by the Company in its reasonable discretion. The Company currently expects that each of the conditions will be satisfied and that no waivers will be necessary. See "The Exchange Offer -- Certain Conditions to the Exchange Offer." Procedures for Tendering Old Notes................ Each holder of Existing Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with such Existing Notes and any other required documentation, to the Exchange Agent (as defined) at the address set forth herein. See "The Exchange Offer -- Procedures for Tendering Existing Notes." Use of Proceeds............ The Company will not receive any proceeds from the Exchange Offer. Exchange Agent............. United States Trust Company of New York (the "Exchange Agent") is serving as the Exchange Agent in connection with the Exchange Offer. Federal Income Tax Consequences............. The exchange of Notes pursuant to the Exchange Offer should not be a taxable event for federal income tax purposes. See "Certain Federal Income Tax Considerations." 4 10 CONSEQUENCES OF EXCHANGING EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER Based on certain interpretive letters issued by the staff of the Commission to third parties in unrelated transactions, the Company is of the view that holders of Existing Notes (other than any holder who is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who exchange their Existing Notes for New Notes pursuant to the Exchange Offer generally may offer such New Notes for resale, resell such New Notes and otherwise transfer such New Notes without compliance with the registration and prospectus delivery provisions of the Securities Act, provided such New Notes are acquired in the ordinary course of the holders' business and such holders have no arrangement with any person to participate in a distribution of such New Notes. Each broker-dealer that receives New Notes for its own account in exchange for Existing Notes must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, if applicable, the New Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or in compliance with an available exemption from registration or qualification. The Company has agreed, pursuant to the Registration Rights Agreement and subject to certain specified limitations therein, to register or qualify the New Notes for offer or sale under the Securities or blue sky laws of such jurisdictions as any holder of the Notes reasonably requests in writing. If a holder of Existing Notes does not exchange such Existing Notes for New Notes pursuant to the Exchange Offer, such Existing Notes will continue to be subject to the restrictions on transfer contained in the legend thereon. In general, the Existing 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. Holders of Existing Notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law in connection with the Exchange Offer. See "The Exchange Offer -- Consequences of Failure to Exchange; Resales of New Notes." The Existing Notes are currently eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. Following commencement of the Exchange Offer but prior to its consummation, the Existing Notes may continue to be traded in the PORTAL market. Following consummation of the Exchange Offer, the New Notes will not be eligible for PORTAL trading. THE NEW NOTES The terms of the New Notes are identical in all material respects to the Existing Notes, except for certain transfer restrictions and registration rights relating to the Existing Notes. Notes Offered.............. $90,000,000 aggregate principal amount of 11 3/8% Senior Subordinated Notes due 2006. Maturity................... November 15, 2006. Interest Payment Dates..... May 15 and November 15 of each year, commencing May 15, 1997. Ranking.................... The New Notes will be general unsecured obligations of the Company. The New Notes will be subordinated in right of payment to all existing and future Senior Debt (as defined) of the Company and will rank pari passu in right of payment with all other existing and future senior subordinated indebtedness of the Company. In addition, the New Notes will be effectively subordinated to all existing and future indebtedness and other obligations of the Company's subsidiaries. As of September 30, 1996, after giving pro forma effect to the Transactions, the Company would have had no Senior Debt outstanding, exclusive of unused commitments of $20.0 million, and the Company's subsidiaries 5 11 would have had approximately $5.5 million of indebtedness outstanding (excluding China joint venture indebtedness of approximately $3.8 million, which is non-recourse to the Company, and excluding unused commitments of $5.0 million). The indenture (the "Indenture") governing the New Notes permit the Company and its subsidiaries to incur additional indebtedness, subject to certain limitations. See "Risk Factors -- Ranking of the Notes; Subsidiary International Operations" and "Description of the Notes -- Subordination." Optional Redemption........ The New Notes (and any outstanding Existing Notes) will be redeemable in cash at the option of the Company, in whole or in part, at any time or from time to time on or after November 15, 2001, at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. In addition, the Company may also redeem Notes in cash at its option at any time prior to November 15, 1999 at 111 3/8% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, with the net proceeds of one or more Public Equity Offerings; provided, however, that at least $60.0 million aggregate principal amount of the Notes must remain outstanding after any such redemption. See "Description of the Notes -- Optional Redemption." Change of Control.......... Upon a Change of Control, the Company will be required to offer to repurchase the Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. See "Description of the Notes -- Change of Control." Certain Covenants.......... The Indenture contains certain covenants with respect to the Company and its Restricted Subsidiaries (as defined), which restrict, among other things, (a) the incurrence of additional indebtedness, (b) the payment of dividends and other restricted payments, (c) the creation of certain liens, (d) the sale of assets, (e) certain payment restrictions affecting subsidiaries, (f) transactions with affiliates and (g) the issuance of capital stock by subsidiaries. The Indenture also restricts the Company's ability to consolidate or merge with or into, or to transfer all or substantially all of its assets to, another person. These restrictions and requirements are subject to a number of important qualifications and exceptions. See "Description of the Notes -- Certain Covenants." RISK FACTORS Holders of Existing Notes should carefully consider all of the information set forth in this Prospectus and, in particular, should evaluate the specific factors under "Risk Factors" beginning on page 9 in connection with the Exchange Offer. 6 12 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA (DOLLARS IN THOUSANDS) The following table contains summary historical and pro forma financial data of the Company for each of the three years in the period ended December 31, 1995 and the nine month periods ended September 30, 1995 and 1996. The summary historical financial data for each of the three years in the period ended December 31, 1995 were derived from the audited consolidated financial statements of the Company included elsewhere in this Prospectus. The summary historical financial data as of September 30, 1996 and for the nine month periods ended September 30, 1995 and 1996 were derived from the unaudited consolidated financial statements of the Company included elsewhere in this Prospectus. In the opinion of management, such unaudited consolidated financial statements include all adjustments necessary for a fair presentation of the financial condition and results of operations of the Company for such periods. The summary pro forma financial data for the year ended December 31, 1995, for the nine month period ended September 30, 1995, and as of and for the nine month period ended September 30, 1996 were derived from the "Unaudited Pro Forma Consolidated Financial Information" included elsewhere in this Prospectus. The summary pro forma financial data for the two year period ended December 31, 1994 were derived from historical financial data, adjusted for the private company expenses referred to in Note 4 below. The pro forma financial data is presented for informational purposes only and does not purport to represent what the Company's financial position or results of operations would actually have been if the Transactions and the Realty Acquisition had occurred on the assumed dates or to project the Company's financial position or results of operations at any future date or for any future periods. The information contained in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Unaudited Pro Forma Consolidated Financial Information" and the Company's historical consolidated financial statements, including the notes thereto, included elsewhere in this Prospectus.
NINE MONTH PERIOD YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, -------------------------------- --------------------- 1993 1994 1995 1995 1996 ------- ------- -------- ------- ------- OPERATING DATA: Net sales......................... $84,964 $92,447 $107,030 $79,238 $89,256 Gross profit...................... 24,573 30,174 30,973 23,191 26,508 Operating income.................. 7,226 11,113 10,021 6,708 8,901 Net income........................ 3,194 5,182 5,248 3,477 4,852 OTHER DATA: EBITDA(1)......................... $10,077 $14,491 $ 14,811 $ 9,872 $12,573 Depreciation and amortization(2)................. 2,813 3,359 3,570 2,445 3,007 Capital expenditures(3)........... 9,112 3,383 4,663 3,421 7,312 Gross margin...................... 28.9% 32.6% 28.9% 29.3% 29.7% EBITDA margin..................... 11.9% 15.7% 13.8% 12.5% 14.1% EBITDA including LIFO charges and credits......................... 10,381 15,043 14,180 9,153 11,908 PRO FORMA DATA: EBITDA(1)(4)...................... $10,320 $14,938 $ 15,348 $10,283 $12,783 Interest expense.................. 10,946 8,328 8,609 EBITDA margin..................... 12.1% 16.2% 14.3% 13.0% 14.3% Ratio of EBITDA to interest expense(5)...................... 1.5x 1.5x Ratio of net debt to EBITDA(6).... 5.9x 5.2x
AT SEPTEMBER 30, 1996 ------------------- PRO ACTUAL FORMA ------- -------- BALANCE SHEET DATA: Working capital.......................................................... $19,827 $ 46,288 Total assets............................................................. 93,411 98,932 Debt (including notes payable and current portion of long-term debt)(7)............................................................... 17,803 95,492 Shareholders' equity..................................................... 41,792 (19,234)
(footnotes on following page) 7 13 - --------------- (1) EBITDA is defined as operating income plus depreciation and amortization adjusted to exclude (i) LIFO charges (credits) of ($304), ($552) and $631 for the years ended December 31, 1993, 1994 and 1995, respectively, and $719 and $665 for the nine month periods ended September 30, 1995 and 1996, respectively, and (ii) other unusual and one time expenses, as follows:
NINE MONTH PERIOD ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------- ----------------- 1993 1994 1995 1995 1996 ----- ----- ---- -------- ---- Asia start-up costs.................................. $ -- $ 225 $419 $ 72 $ -- European facility relocation costs................... 342 246 -- -- -- European sales agency termination costs.............. -- 100 -- -- -- Indonesia management reorganization.................. -- -- 110 -- -- Environmental costs.................................. -- -- 60 -- -- ----- ----- ---- ---- ---- $ 342 $ 571 $589 $ 72 $ -- ===== ===== ===== ==== =====
EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income, net income or cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of the Company's operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (2) Depreciation and amortization as presented will not agree to the consolidated statement of cash flows because of amortization reported below the operating income line. Pro forma depreciation and amortization consists of depreciation and amortization as described in the preceding sentence as adjusted to reflect the elimination of the related party capital leases in connection with the Realty Acquisition. (3) 1993 includes $4,336 of capital expenditures related to the relocation of the Company's German manufacturing facilities. The nine month period ended September 30, 1996 includes $1,205 of capital expenditures related to the consolidation of the Company's west coast operations and the expansion of the Cincinnati facility, $1,801 of capital expenditures related to the expansion of the China joint venture operations, and $5,581 related to the Realty Acquisition. (4) Pro Forma EBITDA includes adjustments for certain private company expenses incurred by the Company, a family-owned business, which will be eliminated following consummation of the Transactions ("Private Company Expenses"). See "Unaudited Pro Forma Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." (5) For purposes of the computation, amortization of debt issuance costs of $500 for the year ended December 31, 1995 and $375 for the nine month period ended September 30, 1996 have been excluded from interest expense. In addition, for the nine month period ended September 30, 1996, the effects of the China joint ventures have been excluded from the computation. (6) For purposes of the computation, net debt is equal to notes payable plus total long-term debt (including the current portion but excluding China joint venture indebtedness of $3,801 as of September 30, 1996 which is non-recourse to the Company) less cash and cash equivalents, and EBITDA for all interim periods presented has been annualized. (7) For purposes of this presentation, debt excludes China joint venture indebtedness of $3,801 which is non-recourse to the Company. 8 14 RISK FACTORS Holders of Existing Notes should carefully consider the specific factors set forth below as well as the other information included in this Prospectus in connection with the Exchange Offer. The risk factors set forth below are generally applicable to the Existing Notes as well as the New Notes. SUBSTANTIAL LEVERAGE AND DEBT SERVICE The Company is highly leveraged. At September 30, 1996, on a pro forma basis after giving effect to the Transactions, the Company's total debt and stockholders' deficit would have been $95.5 million (excluding China joint venture indebtedness of approximately $3.8 million, which is non-recourse to the Company) and $19.2 million, respectively. The Company would also have had borrowing availability under the Senior Credit Facility and the New German Credit Facility of $25.0 million, subject to the borrowing conditions contained therein. For the year ended December 31, 1995 and the nine month period ended September 30, 1996, the ratio of earnings to fixed charges would have been 1.1 to 1.0 and 1.1 to 1.0, respectively, after giving pro forma effect to the Transactions and the Realty Acquisition as if they had occurred on January 1, 1995. The Company's ability to make scheduled payments of the principal of or interest on, or to refinance, its indebtedness (including the Notes) and to make scheduled payments under its operating leases depends on its future performance, which is subject to economic, financial, competitive and other factors beyond its control. The Company's high level of debt and debt service requirements will have several important effects on its future operations, including the following: (i) the Company will have significant cash requirements to service debt, reducing funds available for operations and future business opportunities and increasing the Company's vulnerability to adverse general economic and industry conditions and competition; (ii) the Company's leveraged position will increase its vulnerability to competitive pressures; (iii) the financial covenants and other restrictions contained in agreements relating to the Company's indebtedness and in the Indenture will require the Company to meet certain financial tests and will restrict its ability to borrow additional funds, to dispose of assets or to pay cash dividends on, or repurchase, preferred or common stock and may adversely affect the Company's ability to respond to competitive pressures; and (iv) funds available for working capital, capital expenditures, acquisitions and general corporate purposes will be limited. Any default under the documents governing indebtedness of the Company could have a significant adverse effect on the market value of the Notes. Based upon the current level of operations, the Company believes that its cash flow from operations, together with borrowings under the Senior Credit Facility and its other sources of liquidity, will be adequate to meet its anticipated requirements for working capital, capital expenditures, lease payments, interest payments and scheduled principal payments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels. If the Company is unable to generate sufficient cash flow from operations in the future to service its debt and make necessary capital or other expenditures, or if its future cash flows are insufficient to amortize all required principal payments out of internally generated funds, the Company may be required to refinance all or a portion of its existing debt, sell assets or obtain additional financing. There can be no assurance that any such refinancing or asset sales would be possible or that any additional financing could be obtained. RANKING OF THE NOTES; SUBSIDIARY INTERNATIONAL OPERATIONS The payment of principal, premium, if any, and interest on, and any other amounts owing in respect of, the New Notes, like the Existing Notes, will be subordinated to the prior payment in full of all existing and future Senior Debt, including indebtedness under the Senior Credit Facility. As of September 30, 1996, on a pro forma basis after giving effect to the Transactions, the Company 9 15 would not have had any Senior Debt outstanding, exclusive of unused commitments of $20.0 million which may be borrowed by the Company under the Senior Credit Facility. In the event of the bankruptcy, liquidation, dissolution, reorganization or other winding up of the Company, the assets of the Company will be available to pay obligations on the Notes only after all Senior Debt has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes. In addition, under certain circumstances, the Company may not pay principal of, premium, if any, or interest on, or any other amounts owing in respect of, the Notes, or purchase, redeem or otherwise retire the Notes, if a payment default or a non-payment default exists with respect to certain Senior Debt and, in the case of a non-payment default, a payment blockage notice has been received by the Trustee (as defined). See "Description of the Notes -- Subordination." Although the Company's U.S. operations are owned directly, its foreign operations are conducted through subsidiaries. Such subsidiaries have not guaranteed or otherwise become obligated with respect to the Notes. The Notes will therefore be effectively subordinated to all existing and future liabilities, including indebtedness, of the Company's subsidiaries. As of September 30, 1996, on a pro forma basis after giving effect to the Transactions, the Company's subsidiaries would have had indebtedness of approximately $5.5 million (excluding China joint venture indebtedness of approximately $3.8 million, which is non-recourse to the Company, and excluding unused commitments of $5.0 million) and other liabilities of approximately $7.9 million reflected on the Company's consolidated balance sheet. Claims of creditors of the Company's subsidiaries, including trade creditors, will generally have priority as to the assets of such subsidiaries over the claims of the Company and the holders of the Company's indebtedness, including the Notes. See "Description of the Notes -- Subordination." RESTRICTIVE LOAN COVENANTS The Indenture contains, and other debt instruments of the Company may in the future contain, a number of significant covenants that, among other things, restrict the ability of the Company to dispose of assets, incur additional indebtedness, repay other indebtedness or amend other debt instruments, pay dividends, create liens on assets, enter into investments or acquisitions, engage in mergers or consolidations, make capital expenditures or engage in certain transactions with subsidiaries and affiliates, and otherwise restrict certain corporate activities. The Company's ability to comply with the covenants contained in the Indenture and other debt instruments of the Company may be affected by events beyond its control, including prevailing economic, financial and industry conditions. The breach of any of such covenants or restrictions could result in a default under the Indenture and/or such other debt instruments, which would permit the holders of the Notes or such lenders, as the case may be, to declare all amounts borrowed thereunder to be due and payable, together with accrued and unpaid interest, and the commitments of the senior lenders to make further extensions of credit under such other debt instruments could be terminated. If the Company were unable to repay its indebtedness to its senior lenders, such lenders could proceed against the collateral securing such indebtedness, which collateral consists of accounts receivable and inventory of the Company. DEPENDENCE ON KEY INDIVIDUALS The success of the Company is largely dependent on the experience and knowledge of a few key executive officers. The loss of the services of one or more of these individuals and the Company's inability to attract and retain other key members of the Company's management could have a material adverse effect upon the Company. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS The Company operates manufacturing, sales and service facilities in eight foreign countries and sells its products in more than 75 foreign countries, which accounted for approximately 41% of the 10 16 Company's 1995 net sales (including approximately 11% of 1995 net sales in Canada). As a result, the Company is subject to risks associated with operating in foreign countries, including fluctuations in currency exchange rates, imposition of limitations on conversion of foreign currencies into dollars or remittance of dividends and other payments by foreign subsidiaries, imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries, hyperinflation in certain foreign countries and imposition or increase of investment and other restrictions by foreign governments. Fluctuations in currency exchange rates have had an impact on the Company's operations in the past, and historically the Company has not hedged its foreign currency risks. No assurance can be given that the risks associated with operating in foreign countries will not have a material adverse effect on the Company in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." DEPENDENCE ON TOOL STEEL The principal raw material used by the Company is tool steel. Although the Company maintains inventories of tool steel in excess of normal business practice, any major disruption in the supply of tool steel could have a material adverse effect on the Company's business and financial condition. The steel industry is highly cyclical in nature and steel prices are influenced by numerous factors beyond the control of the Company, including general economic conditions, labor costs, molybdenum and chrome costs, competition, import duties, tariffs and currency exchange rates. This volatility can significantly affect the Company's raw material costs. Competitive conditions determine how much of steel price increases can be passed on to the Company's customers. In 1995, the Company's ability to pass steel price increases on to its customers on a timely basis was limited. If the Company is unable to pass some or all of future steel price increases to its customers, the Company could be materially and adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Raw Materials". COMPETITION The industrial knife and saw market is highly fragmented with numerous participants. Although there is no one company which competes with the Company in all four of the market sectors which the Company serves and there is no one company which is dominant in any of such market sectors, there can be no assurance that the Company's products will be able to compete successfully with those of its competitors. See "Business -- Competition." FRAUDULENT CONVEYANCE CONSIDERATIONS A portion of the proceeds from the sale of the Existing Notes was used by the Company to pay a dividend to IKS Holdings to finance, in part, the cash portion of the Recapitalization Distribution. See "The Transactions." If a court in a lawsuit on behalf of any unpaid creditor of the Company or a representative of the Company's creditors were to find that, at the time the Company issued the Existing Notes, the Company (x) intended to hinder, delay or defraud any existing or future creditor or contemplated insolvency with a design to prefer one or more creditors to the exclusion in whole or in part of others or (y) did not receive fair consideration in good faith or reasonably equivalent value for issuing the Existing Notes and the Company (i) was insolvent, (ii) was rendered insolvent by reason of the incurrence of indebtedness represented by the Existing Notes or such dividend, (iii) was engaged or about to engage in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business, or (iv) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, such court could void the Notes and void such transactions. Alternatively, in such event, claims of the holders of Notes could be subordinated to claims of other creditors of the Company. The Company may be viewed as having been insolvent at the time of or as a result of the Transactions if the fair value of its assets did not exceed its probable liabilities at the time of, or following, the Transactions. 11 17 Based upon financial and other information available to it, management of the Company believes that the Existing Notes were incurred for proper purposes and in good faith. The Company believes that it (i) was solvent immediately prior to and following the issuance of the Existing Notes and the consummation of the other Transactions because the Company believes that the fair value of the Company's assets exceeded its probable liabilities, (ii) had sufficient capital for carrying on its business, and (iii) was able to pay its debts as they matured. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." There can be no assurance, however, that a court would concur with such beliefs and positions. In rendering their opinions in connection with the offer and sale of the Existing Notes, counsel for the Company and counsel for the Initial Purchasers did not express any opinion as to the applicability of Federal or state fraudulent conveyance laws. OWNERSHIP OF IKS HOLDINGS AND THE COMPANY CVC, Arndt Klingelnberg, Diether Klingelnberg and the Management Investors own all of the outstanding voting stock of IKS Holdings, which owns 100% of the outstanding capital stock of the Company. By virtue of such stock ownership, such persons have the power to direct the affairs of the Company and are able to determine the outcome of all matters required to be submitted to stockholders for approval, including the election of a majority of the Company's directors and amendment of the Company's Certificate of Incorporation. See "The Transactions" and "Stock Ownership." PURCHASE OF NOTES UPON A CHANGE OF CONTROL Upon a Change of Control, the Company is required to offer to repurchase all outstanding Notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. The source of funds for any such repurchase will be the Company's available cash or cash generated from operating or other sources, including borrowings, sales of assets, sales of equity or funds provided by a new controlling person. A Change of Control will likely trigger an event of default under other debt instruments of the Company which would permit the acceleration of the debt under such debt instruments. However, there can be no assurance that sufficient funds will be available at the time of any Change of Control to make any required repurchases of Notes tendered and to repay indebtedness under such debt instruments. See "Description of the Notes -- Change of Control." ABSENCE OF A PUBLIC MARKET The Existing Notes currently are eligible for trading in the PORTAL Market. The New Notes are new securities for which there is currently no established market. The Company does not intend to list the New Notes on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. The Initial Purchasers have advised the Company that they currently intend to make a market in the New Notes but that they are not obligated to do so and any such market making may be discontinued at any time. There can be no assurance as to the development of any market or the liquidity of any market that may develop for the New Notes. If an active public market does not develop, the market, price and liquidity of the New Notes may be adversely affected. Future trading prices of the New Notes will depend on prevailing interest rates, the market for similar securities and other factors, including general economic conditions and the financial condition and performance of the Company. Holders of the New Notes should be aware that they may be required to bear the financial risks of their investment for an indefinite period of time. See "Description of the Notes." 12 18 THE TRANSACTIONS The Existing Notes were issued on November 6, 1996 concurrently with the consummation of the Recapitalization of IKS Holdings. Prior to the Recapitalization, all of the issued and outstanding capital stock of IKS Holdings was held by members of the Klingelnberg family and the Company's issued and outstanding capital stock was held approximately 97% by IKS Holdings and approximately 3% by the Existing Management Investors. The Recapitalization was effected pursuant to an Agreement and Plan of Recapitalization dated September 17, 1996 (the "Recapitalization Agreement") among IKS Holdings, the stockholders of IKS Holdings, the Existing Management Investors and CVC, and involved the following transactions: (i) the Existing Management Investors exchanged their holdings of capital stock issued by the Company for capital stock of IKS Holdings, and the Company became a wholly owned subsidiary of IKS Holdings; (ii) IKS Holdings amended its charter to change its corporate name to "IKS Corporation" and to authorize three classes of capital stock, consisting of Holdings Preferred Stock, Holdings Class A Stock and Holdings Class B Stock; (iii) the issued and outstanding capital stock of IKS Holdings was exchanged for the Recapitalization Distribution which, subject to adjustment as described below, consisted of (a) approximately $86.6 million in cash and (b) Holdings Debentures, Holdings Preferred Stock and Holdings Class A Stock with an aggregate value of approximately $9.4 million issued to Arndt Klingelnberg, Diether Klingelnberg and John E. Halloran (the "Rollover Investment"); (iv) John E. Halloran, Thomas Meyer and the New Management Investors purchased Holdings Debentures, Holdings Preferred Stock and Holdings Class A Stock from IKS Holdings for approximately $1.3 million in cash; and (v) CVC purchased Holdings Debentures, Holdings Preferred Stock and Holdings Common Stock from IKS Holdings for $14.3 million in cash. The aggregate investment of $15.6 million made in IKS Holdings by John E. Halloran, Thomas Meyer, the New Management Investors and CVC in connection with the Recapitalization is referred to herein as the "Recapitalization Investment." The gross proceeds to the Company from the sale of the Existing Notes, together with the Recapitalization Investment, were used to (i) finance the cash portion of the Recapitalization Distribution (approximately $86.6 million), (ii) repay approximately $11.4 million of outstanding indebtedness of the Company and (iii) pay approximately $5.0 million of fees and expenses related to the Transactions. As a result of the Recapitalization, the Holdings Debentures, Holdings Preferred Stock and Holdings Common Stock is held as follows: (i) CVC holds approximately $2.8 million of the Holdings Debentures, 91.0% of the Holdings Preferred Stock, 49.0% of the Holdings Class A Stock and 100% of the Holdings Class B Stock; (ii) Arndt and Diether Klingelnberg hold an aggregate of approximately $8.2 million of the Holdings Debentures and 40.4% of the Holdings Class A Stock; and (iii) John E. Halloran, Thomas Meyer and the other Management Investors hold an aggregate of approximately $1.1 million of the Holdings Debentures, 9.0% of the Holdings Preferred Stock and 10.6% of the Holdings Class A Stock. In addition, certain members of management of the Company are expected to participate in an Employee Stock Purchase Plan pursuant to which management will be offered the opportunity to acquire Holdings Class A Stock which would equal in the aggregate up to an additional 10.0% of the Holdings Class A Stock outstanding. See "Stock Ownership" and "Description of Certain Indebtedness -- Holdings Debentures." In connection with the Recapitalization, the Company entered into the Senior Credit Facility and a German subsidiary of the Company entered into the New German Credit Facility. For information regarding the Senior Credit Facility and the indebtedness of such subsidiary, see "Description of Certain Indebtedness -- Senior Credit Facility" and "-- Subsidiary Indebtedness." The Recapitalization Agreement provides that the aggregate value of the Recapitalization Distribution was to equal $110.0 million less the Consolidated Net Debt (as defined in the Recapitalization Agreement) of IKS Holdings. Based on an estimate that IKS Holdings had approximately $14.0 million of Consolidated Net Debt immediately prior to the Recapitalization, the 13 19 Recapitalization Distribution consisted of an aggregate of approximately $86.6 million in cash, $8.6 million of Holdings Debentures, Holdings Preferred Stock having a value of approximately $441,000 and Holdings Class A Stock having a value of approximately $377,000. In the event that IKS Holdings' actual Consolidated Net Debt as of the opening of business on the closing date of the Recapitalization is determined to be less than or greater than $14.0 million, the cash portion of the Recapitalization Distribution, as well as the Holdings Debentures, Holdings Preferred Stock and Holdings Class A Stock distributed to John E. Halloran as part of the Recapitalization Distribution, will be adjusted accordingly. A portion of the Recapitalization Distribution consisting of approximately $4.9 million in cash and securities with an aggregate value of approximately $52,000 consisting of Holdings Preferred Stock and Holdings Class A Stock was deposited in escrow to secure the payment of any amounts owed as a result of any post-closing adjustment to the Recapitalization Distribution as well as certain indemnification obligations under the Recapitalization Agreement. USE OF PROCEEDS The Company will not receive any proceeds from the Exchange Offer. The gross proceeds to the Company from the sale of the Existing Notes, together with the Recapitalization Investment, were used to (i) finance the cash portion of the Recapitalization Distribution (approximately $86.6 million), (ii) repay approximately $11.4 million of outstanding indebtedness of the Company and (iii) pay approximately $5.0 million of fees and expenses related to the Transactions. 14 20 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company at September 30, 1996 after giving effect to the Transactions. This table should be read in conjunction with the Company's historical consolidated financial statements and "Unaudited Pro Forma Financial Information," and the respective notes thereto, included elsewhere in this Prospectus.
AT SEPTEMBER 30, 1996 ---------------------- PRO ACTUAL FORMA ------- -------- (DOLLARS IN THOUSANDS) Long-term debt (including current portion)(1): Term loan................................................. $ 5,000 $ -- Notes payable(2).......................................... 12,803 5,492 New German Credit Facility(3)............................. -- -- Senior Credit Facility(4)................................. -- -- 11 3/8% Senior Subordinated Notes due 2006................ -- 90,000 ------- -------- Total long-term debt.............................. 17,803 95,492 Minority interest........................................... 2,178 2,178 Total stockholders' equity.................................. 41,792 (19,234) ------- -------- Total capitalization........................................ $61,773 $ 78,436 ======= ========
- --------------- (1) For purposes of this presentation, debt excludes China joint venture indebtedness of $3,801 which is non-recourse to the Company. (2) Notes payable under the existing credit facilities in Deutsche Marks with maturities through 2003 and bearing interest at rates of 3.0% to 7.75%. (3) Borrowings of up to $5.0 million under the New German Credit Facility are available to the Company's German subsidiary for working capital and general corporate purposes at alternative rates, at the option of the Company's German subsidiary, including Euro-LIBOR plus 0.5% (currently approximately 3.6%). The Company did not draw upon the New German Credit Facility in connection with the Transactions. See "Description of Certain Indebtedness -- Subsidiary Indebtedness." (4) Borrowings of up to $20.0 million under the Senior Credit Facility are available to the Company for working capital and general corporate purposes at LIBOR plus 1.25% (currently approximately 6.7%). The Company did not draw upon the Senior Credit Facility in connection with the Transactions. See "Description of Certain Indebtedness -- Senior Credit Facility." 15 21 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma consolidated financial information (the "Unaudited Pro Forma Financial Information") has been derived by the application of pro forma adjustments to the Company's consolidated historical financial statements included elsewhere herein. The Unaudited Pro Forma Financial Information gives effect to the Transactions as if such events and transactions had occurred on September 30, 1996 for purposes of the unaudited pro forma consolidated balance sheet and gives effect to the Transactions and the Realty Acquisition as if such events and transactions had occurred on January 1, 1995 for purposes of the unaudited pro forma consolidated statements of operations. The pro forma adjustments are described in the accompanying notes and are based upon available information and certain assumptions that management believes are reasonable. The Unaudited Pro Forma Financial Information is presented for informational purposes only and does not purport to represent what the Company's financial position or results of operations would actually have been if the aforementioned events or transactions had occurred on the dates specified or to project the Company's financial position or results of operations at any future date or for any future periods. The Unaudited Pro Forma Financial Information should be read in conjunction with the Company's consolidated historical financial statements, and the notes thereto, included elsewhere herein. The pro forma adjustments were applied to the respective historical financial statements to reflect and account for the Recapitalization as a recapitalization. Accordingly, the historical basis of the Company's assets and liabilities have not been affected by the Recapitalization. 16 22 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996 ------------------------------------------ HISTORICAL PRO FORMA PRO FORMA IKS ADJUSTMENTS IKS ---------- ----------- --------- (IN THOUSANDS) ASSETS Cash and cash equivalents...................................................... $ 6,544 $ 521(a) $ 7,065 Accounts receivable, net....................................................... 20,647 -- 20,647 Other receivables.............................................................. 906 -- 906 Inventories.................................................................... 30,554 -- 30,554 Prepaid expenses, deferred taxes and sundry.................................... 1,854 500(b) 2,354 ------- ------- -------- Total current assets....................................................... 60,505 1,021 61,526 Other assets................................................................... 4,008 4,500(b) 8,508 Property, plant and equipment Cost......................................................................... 54,467 -- 54,467 Less accumulated depreciation and amortization............................... 25,569 -- 25,569 ------- ------- -------- Property, plant and equipment, net............................................. 28,898 28,898 ------- ------- -------- Total assets.......................................................... $ 93,411 $ 5,521 $ 98,932 ======= ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable.................................................................. $ 8,935 (7,311)(c) $ 1,624 Current portion of long-term debt.............................................. 5,588 (5,000)(c) 588 Accounts and drafts payable.................................................... 6,552 -- 6,552 Accrued and sundry liabilities................................................. 6,474 -- 6,474 Due to parent.................................................................. 11,142 (11,142)(d) -- ------- ------- -------- Total current liabilities.................................................. 38,691 (23,453) 15,238 Long-term debt, less current portion........................................... 3,280 90,000(e) 93,280 Joint venture indebtedness..................................................... 3,801 -- 3,801 Deferred taxes................................................................. 1,842 -- 1,842 Other liabilities.............................................................. 1,827 -- 1,827 Minority interest.............................................................. 2,178 -- 2,178 ------- ------- -------- Total liabilities.......................................................... 51,619 66,547 118,166 Shareholders' equity........................................................... 41,792 (61,026)(f) (19,234 ) ------- ------- -------- Total liabilities and shareholders' equity............................ $ 93,411 $ 5,521 $ 98,932 ======= ======= ========
- --------------- (a) Adjustments to cash include: (i) Adjustment to record the issuance of the Notes, net of underwriter discounts................. $ 87,300 (ii) Adjustment to record the cash distributed to the parent company in connection with the Recapitalization ............................................................................ (61,026) (iii) Adjustment to record the payment of "Due to parent" using proceeds from the issuance of the Notes................................................................................. (11,142) (iv) Adjustment to record the retirement of debt using proceeds from the issuance of the Notes.... (12,311) (v) Transaction fees and expenses................................................................ (2,300) -------- $ 521 ======== (b) Adjustment to record debt issuance costs related to the Notes. (c) Adjustment to record the retirement of the current portion of long-term debt using proceeds from the issuance of the Notes. (d) Adjustment to record the repayment of indebtedness owed to IKS Holdings in connection with the Recapitalization. (e) Adjustments to long-term debt to record the issuance of the Notes. (f) Adjustment to record the cash distributed to IKS Holdings in connection with the Recapitalization.
17 23 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995
HISTORICAL PRO FORMA PRO FORMA IKS ADJUSTMENTS IKS ---------- ----------- --------- (IN THOUSANDS) Net sales.............................................. $ 107,030 $ -- $ 107,030 Cost of sales.......................................... 76,057 (197)(a) 75,860 -------- ------- -------- Gross profit......................................... 30,973 197 31,170 Selling, general and administrative expenses........... 20,363 (541)(b) 19,822 Other.................................................. 589 -- 589 -------- ------- -------- Operating income....................................... 10,021 738 10,759 Other expenses (income): Interest income...................................... (411) 23(c) (388) Interest expense..................................... 1,827 9,119(d) 10,946 Sundry, net.......................................... (249) 46(e) (203) Minority interest.................................... -- -- -- -------- ------- -------- 1,167 9,188 10,355 Income before income taxes............................. 8,854 (8,450) 404 Provision (benefit) for income taxes................... 3,606 (3,127)(f) 479 -------- ------- -------- Net income (loss)...................................... $ 5,248 $(5,323) $ (75) ======== ======= ========
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of Operations. 18 24 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995
HISTORICAL PRO FORMA PRO FORMA IKS ADJUSTMENTS IKS ---------- -------------- --------- (IN THOUSANDS) Net sales............................................ $ 79,238 $ -- $79,238 Cost of sales........................................ 56,047 (141)(a) 55,906 ------- ------- ------- Gross profit....................................... 23,191 141 23,332 Selling, general and administrative expenses......... 16,411 (412)(b) 15,999 Other................................................ 72 -- 72 ------- ------- ------- Operating income..................................... 6,708 553 7,261 Other expense (income): Interest income.................................... (219) 17(c) (202) Interest expense................................... 1,378 6,950(d) 8,328 Sundry, net........................................ (543) 34(e) (509) Minority interest.................................. -- -- -- ------- ------- ------- 616 7,001 7,617 Income before income taxes........................... 6,092 (6,448) (356) Provision (benefit) for income taxes................. 2,615 (2,386)(f) 229 ------- ------- ------- Net income (loss).................................... $ 3,477 $ (4,062) $ (585) ======= ======= =======
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
HISTORICAL PRO FORMA PRO FORMA IKS ADJUSTMENTS IKS ---------- -------------- --------- (IN THOUSANDS) Net sales............................................ $ 89,256 $ -- $89,256 Cost of sales........................................ 62,748 (105)(a) 62,643 ------- ------- ------- Gross profit....................................... 26,508 105 26,613 Selling, general and administrative expenses......... 17,607 (202)(b) 17,405 Other................................................ -- -- -- ------- ------- ------- Operating income..................................... 8,901 307 9,208 Other expense (income): Interest income.................................... (242) 17(c) (225) Interest expense................................... 1,907 6,702(d) 8,609 Sundry, net........................................ 225 23(e) 248 Minority interest.................................. (191) -- (191) ------- ------- ------- 1,699 6,742 8,441 Income before income taxes........................... 7,202 (6,435) 767 Provision (benefit) for income taxes................. 2,350 (2,008) (f) 342 ------- ------- ------- Net income (loss).................................... $ 4,852 $ (4,427) $ 425 ======= ======= =======
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of Operations. 19 25 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED ---------------------- DECEMBER 31, 1995 1995 1996 ----------------- ------ ------- (IN THOUSANDS) (a) Adjustments to cost of sales include: (i) Elimination of executive salaries and expenses not replaced................... $ 36 $ 27 $ 27 (ii) Elimination of interest and amortization in connection with the Realty Acquisition..................... 161 114 78 ---- ---- ---- $ 197 $ 141 $ 105 ==== ==== ==== (b) Adjustments to selling, general, and administrative expenses include: (i) Elimination of executive salaries and expenses not replaced................... $ 501 $ 384 $ 183 (ii) Elimination of amortization in connection with the Realty Acquisition............................ 40 28 19 ---- ---- ---- $ 541 $ 412 $ 202 ==== ==== ====
(c) Adjustment to reduce interest income for the year on cash used as consideration for the Realty Acquisition and to reflect interest income on cash balances. (d) Adjustments to interest expense include:
NINE MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED ---------------------- DECEMBER 31, 1995 1995 1996 ----------------- ------ ------- (IN THOUSANDS) (i) Interest expense on the Notes at 11 3/8%................................. $10,238 $7,678 $ 7,678 (ii) Estimated amortization of debt issuance costs of the Notes..................... 500 375 375 (iii) Estimated reduction of interest expense on debt retired with proceeds from issuance of the Notes.................. (1,168) (787) (1,166) (iv) Elimination of interest in connection with the Realty Acquisition............. (451) (316) (185) ------- ------ ------- $ 9,119 $6,950 $ 6,702 ======= ====== ========
(e) Adjustment to eliminate amortization in connection with the Realty Acquisition. (f) Adjustment to decrease the provision for income taxes as a result of the above adjustments (a) through (e) at an effective U.S. income tax rate of 37.0% for the year ended December 31, 1995 and for the nine month period ended September 30, 1995, and 31.2% for the nine month period ended September 30, 1996. 20 26 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA The following table contains selected historical financial data of the Company as of and for each of the five years in the period ended December 31, 1995 and as of and for the nine month periods ended September 30, 1995 and 1996 and selected pro forma financial data of the Company for the year ended December 31, 1995 and for the nine month periods ended September 30, 1995 and 1996. The selected historical financial data as of and for each of the two years in the period ended December 31, 1992 were derived from the audited consolidated financial statements of the Company. The selected historical financial data as of and for each of the three years in the period ended December 31, 1995 were derived from the audited consolidated financial statements of the Company included elsewhere in this Prospectus. The selected historical financial data as of September 30, 1995 and 1996 and for the nine month periods ended September 30, 1995 and 1996 were derived from the unaudited consolidated financial statements of the Company included elsewhere in this Prospectus. In the opinion of management, such unaudited consolidated financial statements include all adjustments necessary for a fair presentation of the financial condition and results of operations of the Company for such periods. The selected pro forma financial data for the year ended December 31, 1995, the nine month period ended September 30, 1995 and the nine month period ended September 30, 1996 were derived from the "Unaudited Pro Forma Consolidated Financial Information" included elsewhere in this Prospectus. The information contained in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Unaudited Pro Forma Consolidated Financial Information" and the Company's historical consolidated financial statements, including the notes thereto, included elsewhere in this Prospectus. 21 27 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
NINE MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ----------------------------------------------------------- ------------------------------------- PRO PRO PRO FORMA FORMA FORMA 1991 1992 1993 1994 1995 1995 1995 1996 1995 1996 ------- ------- ------- ------- -------- -------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) OPERATING DATA: Net sales.............. $78,318 $81,973 $84,964 $92,447 $107,030 $107,030 $79,238 $89,256 $79,238 $89,256 Cost of sales.......... 55,955 57,554 60,391 62,273 76,057 75,860 56,047 62,748 55,906 62,643 ------- ------- ------- ------- -------- -------- ------- ------- ------- ------- Gross profit......... 22,363 24,419 24,573 30,174 30,973 31,170 23,191 26,508 23,332 26,613 Selling, general and administrative expenses............. 16,409 17,835 17,005 18,490 20,363 19,822 16,411 17,607 15,999 17,405 Other.................. -- -- 342 571 589 589 72 72 ------- ------- ------- ------- -------- -------- ------- ------- ------- ------- Operating income..... 5,954 6,584 7,226 11,113 10,021 10,759 6,708 8,901 7,261 9,208 Interest expense, net.................. 1,790 1,852 1,904 1,727 1,416 10,558 1,159 1,665 8,126 8,384 Other expense (income), net.................. (89) (1,887) 177 541 (249) (203) (543) 34 (543) 26 ------- ------- ------- ------- -------- -------- ------- ------- ------- ------- Income (loss) before income taxes......... 4,253 6,619 5,145 8,845 8,854 404 6,092 7,202 (322) 798 Provision for income taxes................ 1,459 2,445 1,951 3,663 3,606 479 2,615 2,350 242 352 ------- ------- ------- ------- -------- -------- ------- ------- ------- ------- Net income (loss)...... $ 2,794 $ 4,174 $ 3,194 $ 5,182 $ 5,248 $ (75) $ 3,477 $ 4,852 $ (564) $ 446 ======= ======= ======= ======= ======== ======== ======= ======= ======= ======= OTHER DATA: EBITDA(1).............. $ 9,523 $10,030 $10,077 $14,491 $ 14,811 $ 15,348 $ 9,944 $12,573 $10,355 $12,783 Depreciation and amortization(2)...... 3,346 3,297 2,813 3,359 3,570 3,369 2,445 3,007 2,303 2,910 Capital expenditures(3)...... 3,143 2,943 9,112 3,383 4,663 4,663 2,781 7,312 2,781 7,312 Gross margin........... 28.6% 29.8% 28.9% 32.6% 28.9% 29.1% 29.3% 29.7% 29.4% 29.8% EBITDA margin.......... 12.2% 12.2% 11.9% 15.7% 13.8% 14.3% 12.5% 14.1% 13.0% 14.3% Ratio of EBITDA to interest expense(4)........... 4.9x 5.0x 4.6x 7.6x 8.1x 1.5x 7.2x 6.6x 1.2x 1.5x Ratio of net debt to EBITDA (5)........... 1.5x 1.3x 1.4x 0.7x 0.9x 5.9x 1.0x 0.7x 6.6x 5.2x Ratio of earnings to fixed charges(6)..... 3.1x 4.1x 3.3x 5.5x 5.6x 1.1x 5.2x 4.5x 1.0x 1.1x EBITDA including LIFO charges and credits.............. $ 9,300 $ 9,881 $10,381 $15,043 $ 14,180 $ 14,717 $ 9,225 $11,908 $ 9,636 $12,118
AT SEPTEMBER 30, AT DECEMBER 31, ----------------------------------------------- ----------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital................................... $ 8,976 $19,215 $16,268 $30,687 $32,564 $32,749 $19,827 Total assets...................................... 58,311 64,583 71,194 72,641 85,697 83,002 93,411 Debt(7)........................................... 16,982 16,135 19,598 17,055 23,716 22,328 17,803 Shareholders' equity.............................. 21,873 25,103 28,062 34,734 38,029 37,517 41,792
(footnotes on following page) 22 28 - --------------- (1) EBITDA is defined as operating income plus depreciation and amortization adjusted to exclude (i) LIFO charges (credits) of $223, $149, ($304), ($552), and $631 for the years ended December 31, 1991, 1992, 1993, 1994 and 1995, respectively, and $719 and $665 for the nine month periods ended September 30, 1995 and 1996, respectively, and (ii) other unusual and one time expenses, as follows:
YEAR ENDED NINE MONTH PERIOD DECEMBER 31, ENDED SEPTEMBER 30, -------------------------- ------------------- 1993 1994 1995 1995 1996 ---- ---- ---- -------- ---- Asia start-up costs......................... $ -- $225 $419 $ 72 $ -- European facility relocation costs.......... 342 246 -- -- -- European sales agency termination costs..... -- 100 -- -- -- Indonesia management reorganization......... -- -- 110 -- -- Environmental costs......................... -- -- 60 -- -- ---- ---- ---- ---- ---- $342 $571 $589 $ 72 $ -- ==== ==== ==== ==== ====
EBITDA is a widely accepted financial indicator of a company's ability to service debt. However, EBITDA should not be construed as an alternative to operating income, net income or cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indication of the Company's operating performance or as a measure of liquidity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (2) Depreciation and amortization as presented will not agree to the consolidated statement of cash flows because of amortization reported below the operating income line. Pro forma depreciation and amortization consists of depreciation and amortization as described in the preceding sentence as adjusted to reflect the elimination of the related party capital leases in connection with the Realty Acquisition. (3) 1993 includes $4,336 of capital expenditures related to the relocation of the Company's German manufacturing facilities. The nine month period ended September 30, 1996 includes $1,205 of capital expenditures related to the consolidation of the Company's west coast operations and the expansion of the Cincinnati facility, $1,801 of capital expenditures related to the expansion of the China joint venture operations, and $5,581 related to the Realty Acquisition. (4) For purposes of the computation of the pro forma 1995 and 1996 information, amortization of debt issuance costs of $500 for the year ended December 31, 1995 and $375 for the nine months ended September 30, 1995 and 1996 have been excluded from interest expense. In addition, for the nine month period ended September 30, 1996, the effects of the China joint ventures have been excluded from the computation. (5) For purposes of the computation, net debt is equal to notes payable plus total long-term debt (including current portion but excluding China joint venture indebtedness of $3,801 as of September 30, 1996 which is non-recourse to the Company and excluding capital lease obligations) less cash and cash equivalents, and EBITDA for all interim periods presented has been annualized. (6) For purposes of the computation, the ratio of earnings to fixed charges has been calculated by dividing (i) earnings before income taxes and fixed charges by (ii) fixed charges. Fixed charges are equal to interest expense plus one-third of rental expense (the portion deemed representative of the interest factor). (7) Debt includes notes payable and current portion of long-term debt and excludes capital lease obligations. For purposes of this presentation, China joint venture indebtedness of $3,801 which is non-recourse to the Company is excluded at September 30, 1996. 23 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes and the other financial information included in this Prospectus. GENERAL The Company is a global leader in the manufacturing, servicing and marketing of industrial and commercial machine knives and saws. Together with its predecessor, the Company has been manufacturing knives and saws for nearly 100 years, beginning in Europe and expanding its presence to the United States in the 1960s. The Company operates on an international basis with facilities in North America, Europe, Asia and Latin America and products sold in over 75 countries. The Company offers a broad range of products, used for various applications in numerous markets. The Company's sales are principally in North America, which represented 73% of its 1995 net sales. The Company's North American operations have been profitable since its existence. Factors that have contributed to the North American profitability include its significant sales in all four market sectors supported by strong resharpening service center activities, regular introduction of new products, continued upgrading of cutting tool technology, an ability to control production costs, diversified sales network and a broad product offering. The Company's European operations accounted for 26% of 1995 net sales. During the first nine months of 1996, the Company's European operations generated operating income of $949,000, compared to an operating loss of $642,000 during the same period of 1995. The significant improvement was due to the Company beginning to benefit from the restructuring of its European operations to reduce operating costs and redirect its sales efforts in order to improve its competitive position. The restructuring occurred between 1993 and 1995 and included the hiring of a new European Managing Director, relocating the Company's two German manufacturing facilities to improve operating efficiencies, coordinating raw material purchases with North America, restructuring its salesforce to focus on product sectors and expanding its finished goods supplier network. The restructuring of the European operations resulted in expenses of $342,000 and $346,000 in 1993 and 1994, respectively. An increase in raw material prices in 1995 adversely affected European gross margin for that year. The remaining 1% of the Company's 1995 net sales are spread throughout other foreign markets worldwide. Historically, the Company had focused its sales efforts in North America and Europe, only recently establishing itself in other areas of the world and has increased sales in these other markets in the first nine months of 1996 to 6.8% of net sales. During 1994 and 1995, the Company entered into joint ventures to establish itself in emerging markets. These ventures, including the China joint ventures, incurred start-up expenses of $225,000 and $529,000 in 1994 and 1995, respectively, and the Company believes that no significant start-up expenses remain for these ventures. Its 51% owned China joint ventures began operating in December of 1995 and contributed $4.4 million to the Company's net sales for the first nine months of 1996. The Company's operating results are subject to fluctuations in foreign currency exchange rates as well as the currency translation of its foreign operations into U.S. dollars. The Company manufactures products in the U.S., Germany, Canada and China and exports products to more than 75 countries. The Company's foreign sales, the majority of which occur in European countries, are subject to exchange rate volatility. In addition, the Company consolidates German, Canadian and China operations and changes in exchange rates relative to the U.S. dollar have impacted financial results. As a result, a decline in the value of the dollar relative to these other currencies can have a favorable effect on the profitability of the Company and an increase in the value of the dollar relative to these other currencies can have a negative effect on the profitability of the Company. The Company has not historically hedged its foreign currency risk. 24 30 In 1995, the entire knife industry experienced a highly unusual and unexpected increase in raw material costs, which contributed to the Company's gross margin decline from 1994 levels. This raw material price increase was due to a reduction in tool steel production as a major German steel mill closed operations and a Latin American and European supplier consolidated. Additionally, as IKS sells primarily to end-users which require prompt and timely delivery, the Company was forced to purchase expensive substitutes. Due to the sudden nature of the price increase, the Company was not able to pass along this increase to its customers on a timely basis. The Company is taking measures to prevent such a reoccurrence including negotiating a 90-day fixed price term into most of its sales contracts as opposed to the previous one-year term, increasing prices on a more regular basis and expanding the number of its steel suppliers. Prior to the consummation of the Transactions, the Company was a family-owned business and incurred Private Company Expenses. These Private Company Expenses included executive overlaps, premium salaries and expenses and other marketing arrangements. Private Company Expenses totaled $243,000, $447,000, $537,000, $411,000 and $210,000 during the three years ended December 31, 1993, 1994 and 1995 and the nine month periods ended September 30, 1995 and 1996, respectively. Private Company Expenses have been eliminated in connection with the consummation of the Transactions. RESULTS OF OPERATIONS The following table sets forth the items in the Company's consolidated statements of income as percentages of its net sales for the periods indicated:
NINE MONTHS ENDED SEPTEMBER YEAR ENDED DECEMBER 31, 30, ---------------------------- ----------------- 1993 1994 1995 1995 1996 ------ ------ ------ ------ ------ Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales...................... (71.1)% (67.4)% (71.1)% 70.7% 70.3% ----- ----- ----- ----- ----- Gross profit............. 28.9% 32.6% 28.9% 29.3% 29.7% Selling, general and administrative expenses......................... (20.0)% (20.0)% (19.0)% (20.8)% 19.7% Other.............................. (0.4)% (0.6)% (0.6)% ----- ----- ----- ----- ----- Operating income......... 8.5% 12.0% 9.4% 8.5% 10.0% Interest expense, net.............. (2.2)% (1.9)% (1.3)% (1.5)% (1.9)% Other expense (income), net........ 0.2% 0.6% (0.2)% (0.7)% % ----- ----- ----- ----- ----- Income before income taxes.................. 6.1% 9.6% 8.3% 7.7% 8.1% Provision for income taxes......... (2.3)% (4.0)% (3.4)% (3.3)% (2.7)% ----- ----- ----- ----- ----- Net income............... 3.8% 5.6% 4.9% 4.4% 5.4% ===== ===== ===== ===== =====
NINE MONTHS ENDED SEPTEMBER 30,1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 Net Sales: Net sales increased 12.6% to $89.3 million for the first nine months of 1996 from $79.2 million for the same period in 1995, as the Company experienced sales improvements in all three of its major geographical marketing areas. Net sales for North America grew 6.7% to $62.4 million during the first nine month period of 1996 from $58.5 million in the comparable 1995 period. The growth in North America is due to the addition of new products, the increase in product sales by its service centers and the acquisition of a service center in July, 1995. Net sales for Europe grew 5.2% to $20.8 million from $19.7 million primarily due to improvements in the German economy and the implementation of many of the Company's North American programs in Europe. Net sales in the Company's other foreign markets increased to $6.1 million from $1.0 million as the majority of these operations were not in operation during the first nine months of 1995. Contributing significantly were 25 31 the Company's new China joint ventures, which had net sales of $4.3 million for the nine month period ended September 30, 1996. Gross Profit: Gross profit increased 14.3% to $26.5 million for the first nine months of 1996, up from $23.2 million for the same period of 1995. Gross margin increased slightly to 29.7% in the first nine months of 1996 compared to 29.3% for the comparable 1995 period. Gross profit in North America increased to $19.5 million from $18.5 million, although gross margin declined to 31.3% from 31.7%. The gross margin decline was a result of the increase in raw material pricing in the second half of 1995 which continued to affect the Company in the first nine months of 1996. A substantial portion of the raw material price increase has since been passed on to the Company's customers. In addition, gross margin was affected by the incurrence of costs for new products to be introduced in the second half of 1996. Gross profit in Europe increased 25.7% to $5.7 million, up from $4.5 million, and gross margin increased to 27.2% up from 22.8%. The improvement in gross margin was due to new sourcing arrangements at attractive margins. Selling, General and Administrative Expenses: Selling, general and administrative ("SG&A") expenses were $17.6 million for the first nine months of 1996 as compared to $16.5 million in the comparable 1995 period and decreased to 19.7% of sales from 20.8% of sales in the comparable 1995 period, primarily as a result of partially consolidating certain administrative functions and an overall increase in sales without adding additional sales expense. Operating Income: Operating income increased 32.7% to $8.9 million in the first nine months of 1996 from $6.7 million for the same period of 1995. Operating income as a percentage of net sales increased to 10.0% during the first half of 1996 up from 8.5% for the comparable 1995 period. Operating income in North America increased 6.7% to $8.1 million from $7.6 million. This was a result of the increase in net sales being offset by the increase in raw material costs, which have since been substantially passed on to the Company's customers, and the cost of three new product lines to be introduced in the second half of 1996. Operating income in Europe increased to $870,000 from a loss of $642,000 due to the Company beginning to benefit from the restructuring of its European operations. Interest Expense, net: Net interest expense increased to $1.7 million for the first nine months of 1996 from $1.2 million for the same period of 1995 due to an increase in borrowings primarily related to the Company's investment in the China joint ventures as well as the borrowings of the China joint ventures which is non-recourse to the Company. A slight rise in interest rates also contributed to the increased interest expense. Income Taxes: Although pre-tax income was up in the first nine months of 1996, the provision for income taxes decreased to $2.4 million down from $2.6 million for the same period of 1995. The Company's effective tax rate decreased to 32.6% for the first nine months of 1996 from 42.9% for the 1995 period. The Company's 1996 effective tax rate was favorably affected by increased profits in the Company's European operations for which no tax provision was recorded because of the availability of a net operating loss carry forward. Net Income: Net income increased to $4.9 million for the first nine months of 1996 from $3.5 million for the same period of 1995, as a result of the factors discussed above. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Net Sales: Net sales increased 15.8% to $107.0 million in 1995 from $92.4 million in 1994. The increase is attributable to volume increases from all geographical markets served by the Company. In North America, net sales grew 8.2% to $78.5 million from $72.5 million in 1994, primarily a result of: (i) continued effects of a new North American sales strategy, implemented in 1994, organized by geographic teams, (ii) increased prices, (iii) introduction of new products, including wide band saws, (iv) and an increase in the Company's wood cutting product lines, driven by service center acquisitions in 1994 and 1995. Net sales in Europe increased 36.6% to $27.2 million in 1995 from 26 32 $19.9 million in 1994 as volume increased and US$/DM exchange rates improved, slightly offset by price discounting. Gross Profit: Gross profit increased to $31.0 million in 1995 from $30.2 million in 1994, although gross margin declined to 28.9% in 1995 compared to 32.6% in 1994. Gross margin in North America was 31.6% in 1995, down from 32.9% in 1994 with the decline attributable to the unexpected loss of a finished goods supplier and a significant increase in the Company's overall raw material costs. Gross margin was down significantly in Europe to 21.8% in 1995 from 31.7% in 1994. This decline was due to price discounting of certain product lines to increase market share in Europe, currency differentials negatively affecting exports from Germany, an increase in labor rates affecting a portion of the Company's German operations and the increased raw material costs discussed above. Selling, General and Administrative Expenses: SG&A expense as a percentage of net sales decreased to 19.0% in 1995 down from 20.0% in 1994, largely as a result of the Company's strategy of controlling SG&A expenses in a period of sales growth. SG&A expense increased to $20.4 million in 1995 from $18.5 million in 1994 primarily as a result of the sales increase. Other Expense: The Company incurred an increase of $304,000 in start-up costs relating to its Asian operations, primarily relating to the joint ventures in China and the opening of a sales office in Singapore. Offsetting this increase was a $346,000 decrease in expenses relating to the restructuring of the Company's European operations, including the moving of facilities within Germany and the restructuring of its sales and distribution network, which was substantially completed by the end of 1994. Operating Income: Operating income decreased 9.8% to $10.0 million in 1995 from $11.1 million in 1994. Operating income decreased to 9.4% of net sales in 1995 from 12.0% of net sales in 1994 largely due to a drop in the gross margin as described above. Excluding one-time start-up costs of the Company's Asian operations and the 1994 restructuring costs of its German operations, the Company's operating income would have been $10.6 million in 1995 and $11.7 million in 1994 and operating margins would have been 9.9% in 1995 and 12.6% in 1994. Interest Expense, net: Net interest expense decreased to $1.4 million in 1995 from $1.7 million in 1994 primarily due to higher amounts of interest bearing funds coupled with higher interest rates on those funds. Income Taxes: The provision for income taxes was stable at $3.6 million in 1995 and $3.7 million in 1994. The Company's effective tax rate remained relatively stable at 40.7% of income in 1995 as compared to 41.4% of income in 1994. Net Income: Net income remained stable at $5.2 million in 1995, as a result of the factors discussed above. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 Net Sales: Net sales increased 8.8% to $92.4 million in 1994 from $85.0 million in 1993. Net sales in North America grew 11.9% to $72.5 million in 1994 from $64.8 million in 1993, as a result of a service center acquisition, continued success in gaining market share of wood, plastic and metal products in North America and the addition of a large customer in Canada. Net sales in Europe declined 1.3% to $19.9 million from $20.2 million due to a sluggish European economy partially offset by price increases. Gross Profit: Gross profit increased 22.8% to $30.2 million in 1994 from $24.6 million in 1993. Gross margin was 32.6% in 1994 compared to 28.9% in 1993, up substantially as a result of the implementation of cost cutting efforts throughout the Company and the increased sales volume. In North America gross margin improved to 32.9% in 1994, up from 31.8% in 1993 substantially due to the Company implementing a program designed to reduce operating costs, which included 27 33 improvements in manufacturing efficiency. Further improving North American gross margin were price increases in Canada. In Europe, gross margin increased to 31.7% in 1994 from 19.5% in 1993 due to increasing prices and improved product mix. In addition, 1993 European gross profit was negatively affected by significant productivity losses during the relocation of a major facility in connection with the Company's European restructuring. Selling, General and Administrative Expenses: SG&A expenses increased to $18.5 million in 1994 from $17.0 million in 1993, remaining stable at 20.0% of net sales. The increase in SG&A is primarily a result of a significant increase in Private Company Expenses, somewhat offset by the overall sales volume increase. In North America, SG&A expenses decreased to 18.6% of net sales in 1994 from 19.6% of net sales in 1993, as the Company controlled expenses as sales grew and consolidated administrative functions of the Canadian operations which outweighed the increase in Private Company Expenses in North America. In Europe, SG&A expenses increased to 26.3% of net sales in 1994 from 21.2% of net sales in 1993 primarily due to an increase in Private Company Expenses. Excluding Private Company Expenses in 1994, the Company's SG&A expenses were $18.0 million or 19.5% of net sales in 1994, and remained relatively stable at 19.7% of net sales in 1993. Other Expense: The Company incurred charges relating to the restructuring of its European operations in both 1994 and 1993 of $346,000 and $342,000, respectively. The Company also incurred start-up expenses of approximately $225,000 in 1994, primarily related to the China joint ventures and expansion in Asia. Operating Income: Operating income increased 53.8% to $11.1 million in 1994 from $7.2 million in 1993, and as a percentage of net sales, operating income increased to 12.0% in 1994 up from 8.5% in 1993. The improvement in operating income was primarily due to the higher sales volume and gross margin improvement in North America more than offsetting the higher Private Company Expenses, as discussed above. Excluding Private Company Expenses in 1994, the restructuring of its European operations in 1994 and 1993 and the start-up expenses in Asia in 1994, the Company's operating income would have been $12.1 million or 13.1% of net sales in 1994, up from $7.8 million or 9.2% of net sales in 1993. Interest Expense, net: Net interest expense decreased to $1.7 million in 1994 from $1.9 million in 1993 primarily due to reduced borrowings. Income Taxes: The provision for income taxes was $3.7 million in 1994 compared to $2.0 million in 1993. Income tax expense, as a percentage of income before taxes, was 41.4% in 1994 and 37.9% in 1993. Net Income: Net income increased 62.2% to $5.2 million in 1994 as compared to $3.2 million in 1993, as a result of the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company's principal capital requirements are to fund working capital needs, to meet required debt payments, and to complete planned maintenance and expansion expenditures. The Company anticipates that its operating cash flow, together with available borrowings under the Senior Credit Facility and the New German Credit Facility will be sufficient to meet its working capital requirements, capital expenditure requirements and interest service requirements on its debt obligations. As of September 30, 1996, on a pro forma basis after giving effect to the Transactions, the Company's total debt and stockholders' deficit would have been $95.5 million (excluding China joint venture indebtedness of approximately $3.8 million, which is non-recourse to the Company) and $19.2 million, respectively. The Company would also have had borrowing availability of $25.0 million for working capital and capital expenditure requirements under the Senior Credit Facility and the New German Credit Facility. 28 34 Net cash flow from operations aggregated $4.2 million for the nine month period ended September 30, 1996 as compared to $436,600 for the same period in the prior year. The increase was primarily attributable to a $1.4 million increase in net income and a $2.4 million reduction in working capital needs. Net cash flow from operating activities totaled $3.0 million for the year ended December 31, 1995 as compared to $6.9 million for the prior year. The decrease in operating cash flow in 1995 compared to 1994 was primarily attributable to a $4.6 million increase in working capital needs. The Company currently expects that its annual capital expenditures will be approximately $4.0 million to $5.0 million for the foreseeable future, including maintenance capital expenditures of approximately $2.5 million each year. However, the Company's capital expenditures will be affected by, and may be greater than currently anticipated depending upon, the size and nature of new business opportunities. Cash used in investing activities for the nine month period ended September 30, 1996 was $7.2 million as compared to $367,000 for the same period in the prior year. Major investment projects in the first nine months of 1996 included $5.6 million for the Realty Acquisition, $974,000 for the construction of a facility in Oregon and $231,000 for the expansion of the Kentucky facility to accommodate a heat treatment furnace. Cash used in investing activities in the year ended December 31, 1995 was $3.8 million, compared with $2.3 million in 1994 and $13.3 million in 1993. Investing activities in 1995 included the acquisition of two service centers. In 1995, cash used in investing activities was offset by a $2.3 million decrease in notes and other receivables. Major investment projects for 1993 and 1994 included $4.3 million and $283,000 relating to the acquisition and relocation of facilities in Germany as part of the Company's European restructuring. Cash used by financing activities for the nine month period ended September 30, 1996 was $690,000 as compared to $2.3 million cash provided for the same period in the prior year. The decrease in cash provided by financing activities primarily represents an increase of $7.9 million in amounts due to parent and affiliates, which amounts were repaid in connection with the Transactions, and a decrease in notes payable and long term debt of $10.9 million. The Company paid dividends of $1.2 million in each of the nine month periods ended September 30, 1995 and 1996. Cash provided by financing activities for the years ended December 31, 1995, 1994, and 1993 totalled $4.5 million, $764,000 and $4.6 million, respectively, and consisted primarily of long-term borrowings and amounts due to parent and affiliates, offset by dividends paid in 1995 of $2.4 million. The Company's ability to pay dividends is restricted under the terms of the Indenture following consummation of the Transactions. Concurrent with the Transactions the Company entered into the $20.0 million Senior Credit Facility and its German subsidiary entered into the $5.0 million New German Credit Facility. The Senior Credit Facility bears interest at LIBOR plus 1.25% (currently approximately 6.7%) and the New German Credit Facility bears interest at alternative rates, at the option of the Company's German subsidiary, including Euro-LIBOR plus 0.5% (currently approximately 3.6%). The Company did not draw upon these facilities in connection with the Transactions. The Notes impose, and other debt instruments of the Company may impose, various restrictions and covenants on the Company which could potentially limit the Company's ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities. 29 35 THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING EXISTING NOTES Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), the Company will accept for exchange Existing Notes which are properly tendered on or prior to the Expiration Date and not withdrawn as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City time, on , 1997; provided, however, that if the Company has extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which the Exchange Offer is extended. As of the date of this Prospectus, $90.0 million aggregate principal amount of the Existing Notes are outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about , 1997 to all holders of Existing Notes known to the Company. The Company's obligation to accept Existing Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth under "-- Certain Conditions to the Exchange Offer" below. The Company expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for any exchange of any Existing Notes, by giving notice of such extension to the holders thereof. During any such extension, all Existing Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by the Company. Any Existing Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Existing Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified below under "-- Certain Conditions to the Exchange Offer." The Company will give notice of any extension, amendment, non-acceptance or termination to the holders of the Existing Notes as promptly as practicable, such notice in the case of any extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Holders of Existing Notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law in connection with the Exchange Offer. PROCEDURES FOR TENDERING EXISTING NOTES The tender to the Company of Existing Notes by a holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a holder who wishes to tender Existing Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to United States Trust Company of New York at one of the addresses set forth below under "Exchange Agent" on or prior to the Expiration Date. In addition, either (i) certificates for such Existing Notes must be received by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Existing 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, or the holder must comply with the guaranteed delivery procedure described below. THE METHOD OF DELIVERY OF EXISTING NOTES, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. 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 30 36 SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR EXISTING NOTES SHOULD BE SENT TO THE COMPANY. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Existing Notes surrendered for exchange pursuant thereto are tendered (i) by a registered holder of the Existing Notes who has not completed the box entitled "Special Issuance Instruction" or "Special Delivery Instruction" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined below). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States (collectively, "Eligible Institutions"). If Existing Notes are registered in the name of a person other than a signer of the Letter of Transmittal, the Existing Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by, the registered holder with the signature thereon guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Existing Notes tendered for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Existing Notes not properly tendered or to not accept any particular Existing Notes which acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Existing Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Existing Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Existing Notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Existing Notes for exchange must be cured within such reasonable period of 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 any defect or irregularity with respect to any tender of Existing Notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal or any Existing Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should 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. By tendering, each broker-dealer holder will represent to the Company that, among other things, the New Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the holder and any beneficial holder, that neither the holder nor any such beneficial holder has an arrangement or understanding with any person to participate in the distribution of such New Notes and that neither the holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company. If the holder is not a broker-dealer, the holder must represent that it is not engaged in nor does it intend to engage in a distribution of the New Notes. ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES For each Existing Note accepted for exchange, the holder of such Existing Note will receive a New Note having a principal amount equal to that of the surrendered Existing Note. For purposes of the Exchange Offer, the Company shall be deemed to have accepted properly tendered Existing 31 37 Notes for exchange when, as and if the Company has given oral and written notice thereof to the Exchange Agent. In all cases, issuance of New Notes for Existing Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Existing Notes or a timely Book-Entry Confirmation of such Existing Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Existing Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Existing Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Existing Notes will be returned without expense to the tendering holder thereof (or, in the case of Existing 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 described below, such non-exchanged Existing Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration of the Exchange Offer. BOOK-ENTRY TRANSFER Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Existing Notes by causing the Book-Entry Transfer Facility to transfer such Existing 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 Existing Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof with any required signature guarantees and any other required documents must, in any case, be transmitted to and received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. GUARANTEED DELIVERY PROCEDURES If a registered holder of the Existing Notes desires to tender such Existing Notes and the Existing Notes are not immediately available, or time will not permit such holder's Existing Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent received from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Existing Notes and the amount of Existing Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Existing 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 (iii) the certificates for all physically tendered Existing 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 five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of Existing Notes may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Existing Notes to be withdrawn, identify the 32 38 Existing Notes to be withdrawn (including the principal amount of such Existing Notes), and (where certificates for Existing Notes have been transmitted) specify the name in which such Existing Notes are registered, if different from that of the withdrawing holder. If certificates for Existing Notes have been delivered or otherwise identified to the Exchange Agent then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Existing Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Existing Notes and otherwise comply with the procedures of such facility. 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 Existing Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Existing Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Existing 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 described above, such Existing Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Existing Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Existing Notes may be retendered by following one of the procedures described under "-- Procedures for Tendering Existing Notes" above at any time on or prior to the Expiration Date. CERTAIN CONDITIONS TO THE EXCHANGE OFFER 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 Existing Notes and may terminate or amend the Exchange Offer if at any time before the acceptance of such Existing Notes for exchange or the exchange of New Notes for such Existing Notes, 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 reasonable discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of 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 Existing Notes tendered, and no New Notes will be issued in exchange for any such Existing 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 "Trust Indenture Act"). In any such event the Company is required to use every reasonable effort to obtain the withdrawal of any stop order at the earliest possible time. EXCHANGE AGENT United States Trust Company of New York has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at one of the addresses set forth below. Questions and requests for assistance, requests for additional 33 39 copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Hand: By Registered or Certified Mail: By Overnight Courier: United States Trust Company United States Trust Company of United States Trust Company of New York New York of New York 111 Broadway P.O. Box 844 770 Broadway Lower Level Cooper Station New York, New York 10003 Corporate Trust Window New York, New York Attn: Corporate Trust New York, New York 10006 10276-0844 By Facsimile: United States Trust Company of New York (212) 420-6152 Attn: Corporate Trust Confirm by Telephone: (800) 548-6565
Delivery other than as set forth above will not constitute a valid delivery. FEES AND EXPENSES The Company will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The principal solicitation is being made by mail; however, additional solicitations may be made in person or by telephone by officers and employees of the Company. The expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. ACCOUNTING TREATMENT The New Notes will be recorded at the same carrying value as the Existing Notes, which is the principal amount as reflected in the Company's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized. The debt issuance costs will be capitalized for accounting purposes. TRANSFER TAXES Holders who tender their Existing Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register New Notes in the name of, or request that Existing Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES Holders of Existing Notes who do not exchange their Existing Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Existing Notes as set forth in the legend thereon as a consequence of the issuance of the Existing Notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of, the Securities Act and applicable state securities laws. Existing Notes not exchanged pursuant to the 34 40 Exchange Offer will continue to accrue interest at 11 3/8% per annum and will otherwise remain outstanding in accordance with their terms. Holders of Existing Notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law in connection with the Exchange Offer. In general, the Existing 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 Existing Notes under the Securities Act. However, (i) if the Initial Purchasers so request with respect to Existing Notes not eligible to be exchanged for New Notes in the Exchange Offer and held by them following consummation of the Exchange Offer or (ii) if any holder of Existing Notes is not eligible to participate in the Exchange Offer or, in the case of any holder of Existing Notes that participates in the Exchange Offer, does not receive freely tradable New Notes in exchange for Existing Notes, the Company is obligated to file a registration statement on the appropriate form under the Securities Act relating to the Existing Notes held by such persons. Based on certain interpretive letters issued by the staff of the Commission to third parties in unrelated transactions, the Company is of the view that New Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by holders thereof (other than (i) any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or (ii) any broker-dealer that purchases Notes from the Company to resell pursuant to Rule 144A or any other available exemption) 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 holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such New Notes. If any holder has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. A broker-dealer who holds Existing Notes that were acquired for its own account as a result of market-making or other trading activities may be deemed to be an "underwriter" within the meaning of the Securities Act and must, therefore, deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of New Notes. Each such broker-dealer that receives New Notes for its own account in exchange for Existing Notes, where such Existing Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge in the Letter of Transmittal that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, if applicable, the New Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or an exemption from registration or qualification is available and is complied with. The Company has agreed, pursuant to the Registration Rights Agreement and subject to certain specified limitations therein, to register or qualify the New Notes for offer or sale under the securities or blue sky laws of such jurisdictions as any holder of the Notes reasonably requests in writing. 35 41 BUSINESS The Company is a global leader in the manufacturing, servicing and marketing of industrial and commercial machine knives and saws, operating in an estimated worldwide market of $1.0 billion. The Company's products, which are consumed in the normal course of machine operation and need resharpening or replacement many times a year, are mounted in industrial machines and are used in virtually every facet of cutting, slitting, chipping and forming of materials. The Company serves the following major market sectors: (i) Wood (42% of 1995 net sales); (ii) Paper & Packaging (38%); (iii) Metal (14%); and (iv) Plastic & Recycling (6%). The Company believes that it has a leading worldwide market share in each of these market sectors and that there is no other company that serves all four such sectors. The Company believes that it has the most extensive product offering in the industry, selling over 10,000 knife and saw products to a wide range of end-users, from large industrial and consumer product manufacturers to small family-owned print shops. The breadth of the Company's product line is enhanced by the Company's strategic relationships with over 50 finished goods suppliers, offering IKS the flexibility to manufacture or source many of its products. IKS' products are used for diverse applications in numerous markets, including the use of circular slitter knives to cut copy paper, long veneer slicer knives to slice thin veneer used in the manufacture of quality furniture and circular metal slitter knives to cut wide coils of steel into narrow strips. Reflecting the Company's broad product range and numerous applications, the Company sells to over 5,000 customers with no customer accounting for more than 3% of the Company's net sales. IKS is the only industrial knife and saw manufacturer with operations in North America, Europe, Asia and Latin America and products sold in more than 75 countries. The Company utilizes its salesforce, the largest direct salesforce in the industry, to focus its efforts on aftermarket sales to end-users, which accounted for 89% of the Company's 1995 net sales. The Company also sells to end-users through Company-owned and independent resharpening service centers, which resharpen both IKS and competitors' knives and saws and also act as distributors of IKS products, as well as through distributors and agents. The Company's remaining sales are to over 300 OEMs of industrial cutting equipment, and the Company believes it is the leading supplier of knife and saw products to OEMs. The Company's sales are principally to customers in North America and Europe, representing 73% and 26% of 1995 net sales, respectively. The Company believes that there are significant opportunities to expand its share of these two major markets through the introduction of new products, increased participation in existing markets and the extension of its existing marketing, sales and distribution capabilities. In addition, the Company is planning to strategically expand its existing resharpening service center base, which allows IKS to capture both resharpening and additional replacement business. The Company has also recently expanded its operations into the emerging markets of Latin America and Asia (with sales increasing from 1% of fiscal 1995 net sales to 6.8% of net sales for the nine month period ended September 30, 1996) and plans to continue its international growth, entering new geographic markets while broadening existing ones. Since 1991, the Company has expanded its domestic and international operations through internal growth, the development of strategic alliances and the acquisition of knife and saw manufacturers and service centers. In addition, to maintain its position as a low cost producer, the Company takes advantage of economies of scale in both manufacturing and purchasing and has improved operating efficiencies. As a result of these actions, during the four year period ended December 31, 1995 the Company achieved a net sales CAGR of 8.1%, with 1995 net sales of $107 million, and a pro forma EBITDA (as defined herein) CAGR of 12.2%, with 1995 pro forma EBITDA of $15.3 million. For the nine month period ended September 30, 1996, the Company's net sales increased 12.6% over the comparable 1995 period to $89.3 million, and pro forma EBITDA increased 23.8% over the comparable 1995 period to $12.8 million. 36 42 BUSINESS STRATEGY The Company's business objectives include maximizing its end-user sales and increasing its leading position in the worldwide market for industrial knives and saws by continuing to expand its strategic alliances, service center operations and broad product offering and focusing on its low cost position and strategic acquisitions. Maximize End-User Sales. The Company is focused on maximizing its aftermarket sales to end-users, which typically offer a stable revenue base and high margins because replacement knives and saws are required by end-users in their normal operation. As sharp cutting edges are necessary for proper machine operation, knife and saw resharpening and replacement cannot be postponed. Moreover, the increased efficiency of an improved cutting edge offsets the cost of knife and saw resharpening and replacement. An integral component of the Company's successful sales strategy is its knowledgeable worldwide salesforce of 103 people and 17 product managers, the largest direct salesforce concentrated on industrial knives and saws. The Company's salesforce develops close working relationships with end-users, continually providing customers with direct technical support, offering advice about the types of knives and saws, materials and specifications which would be appropriate for their specific machines. As a result of these relationships, the Company also receives from its customers specific application criteria which enable the Company to improve product quality. The Company's distributor network, which includes distributors, agents and Company-owned and independent resharpening centers, complements its sales force by providing the opportunity to access niche markets and expand its sales reach. In addition, the Company believes that placing its knives and saws in the original industrial cutting equipment of over 300 OEMs leads to a competitive advantage in capturing the resultant end-user replacement sales. Continued Development of Strategic Alliances. The Company continually explores opportunities to expand its manufacturing, marketing and distribution capabilities through strategic alliances. The Company's strategic alliances include over 50 business relationships with suppliers of finished industrial knives and saws throughout the world, four joint ventures and several strategic relationships with independent resharpening centers. These alliances allow the Company to expand its international presence, further diversify its customer base in all industries, extend its product offerings and provide an alternative low-cost source of products for resale. The Company's relationships with finished goods suppliers allow it the flexibility to manufacture or source a product based on cost and delivery time, the quality of product needed, the region to be supplied and the material to be used. The Company purchases finished goods from these suppliers and then resells these products at attractive margins often using the Company's trademarks and tradenames. The more significant of these relationships provide IKS with the exclusive or semi-exclusive rights to market certain of its partners' products within the Company's markets. The Company seeks to enter into joint venture arrangements in foreign markets where local market expertise is typically needed. The Company has recently expanded its international presence through joint ventures in Asia and Latin America. These include controlling interests in two manufacturing facilities with the leading producer of paper cutting machinery in China, an interest in a distributor and service center in Chile and a distributor in the Philippines. The China joint ventures not only export product, but also provide a distribution network for the Company to import its products from North America and Europe into the rapidly developing Chinese market. Expand Service Center Operations. A key component of the Company's strategy is to expand its service center operations to maximize both resharpening and replacement sales through additional direct access to end-users. Industrial knives and saws generally need resharpening at least once per week and as often as 50 times over the life of a product. Accordingly, resharpening revenues can be significantly in excess of the cost of the product. For example, circular slitter knives used to cut paper have a sale price of approximately $17 per knife but can be resharpened more 37 43 than 30 times over the life of the product generating resharpening revenues of over $130 per knife. In addition to capturing resharpening revenues, directly servicing the end-users of both its own and its competitors' products through service centers creates closer customer relationships which better position the Company's products to be the first choice of the end-user when a replacement is needed. As resharpening service centers also act as distributors, selling replacements for worn knives and saws, the Company's strategy is to expand Company-owned service center operations to geographically complement its existing service centers and strategic resharpening partners that are currently distributors of IKS products. Since 1991, the Company has acquired or opened 13 service centers and resharpening revenues from Company-owned service centers have grown to $6.8 million in 1995. Independent service centers are typically distributors for numerous knife and saw manufacturers. By acquiring these centers, the Company can replace competitors' products with IKS products, and add IKS products that the service center did not previously offer. The Company believes that the number of service center users will continue to increase as a result of an emerging trend toward outsourcing resharpening operations. This outsourcing trend results from end-users implementing overhead reductions and requiring expertise in resharpening knives and saws that are increasingly more sophisticated in materials and design. Continued Expansion of Broad Product Offering and End Markets Served. With over 10,000 industrial knife and saw products, the Company believes that it sells the most extensive variety of industrial knives and saws in the world. The Company strives, through both new product development and acquisitions, to further expand its product applications and the variety of industries it serves. As a result of the Company's broad product range and the numerous applications for its products, no customer accounts for more than 3% of the Company's net sales. The Company also develops specialized products to meet the unique needs of its individual customers and continually introduces new products as customer needs change and market expansion opportunities arise. The Company believes it will benefit as certain customers demand more sophisticated knives made of higher grade materials and designs, as many of its smaller competitors will lack sufficient capital and technical expertise to meet these demands. The Company's recent product introductions include corrugated box knives for the packaging industry, diamond core saws for the concrete cutting industry and Stellite(TM) tipped band saws for cutting logs. Low Cost Structure. The Company continues to focus on being a low cost producer of industrial knives and saws. The Company benefits from economies of scale in both manufacturing and purchasing, such as buying steel direct from the mills instead of from distributors, which many of the Company's smaller competitors cannot achieve. The Company's global operations allow it to manufacture each of its products or perform certain manufacturing processes at the most cost efficient location given the timing constraints of purchase orders. In addition, the Company is able to augment its own manufacturing operations by sourcing low cost, privately labeled products through its strategic alliances and relationships with finished goods suppliers. Focusing on cost reductions, the Company recently restructured a portion of its European operations by relocating certain facilities, coordinating raw material purchases with the North American operations, reorganizing its sales efforts and expanding its strategic sourcing alliances. This restructuring has led to an improvement in the Company's European gross and operating margins from 19.5% and (3.4)%, respectively, in 1993 to 23.4% and 3.3%, respectively, for the nine month period ended September 30, 1996. The Company believes there is still substantial opportunity for margin improvement in its European operations and is currently evaluating additional cost saving options. Continued Acquisitions. The highly fragmented knife and saw industry includes many potential acquisition candidates, both domestic and worldwide. Since 1991, IKS has completed six acquisitions, which include both manufacturers of knives and saws as well as service center 38 44 operations, and the Company believes that a variety of acquisition opportunities continue to exist. The Company is presently evaluating potential acquisition opportunities and as part of its strategy will continue to do so in the future. There can be no assurance that the Company will consummate any such acquisitions or, if consummated, the timing thereof. PRODUCTS AND MARKETS The Company manufactures and sells its products in four major market sectors including (i) Wood (42% of 1995 net sales); (ii) Paper & Packaging (38%); (iii) Metal (14%); and (iv) Plastic & Recycling (6%). IKS offers an extensive variety of knives and saws which are mounted in industrial machines and are sold across a wide customer base and over numerous industries throughout the world. The Company's knives and saws are consumed in the normal course of machine operation and need resharpening or replacement many times per year. Wood IKS believes it is the largest manufacturer of industrial wood knives and saws with 1995 net sales of approximately $45 million. Industrial wood knives and saws are utilized in applications by companies such as Weyerhauser Co. and Louisiana Pacific Corp. for sawing and chipping of lumber into specific dimensional sizes for use in the housing industry; by companies such as Georgia Pacific Corp. and Boise Cascade Corp. for peeling large diameter logs into veneer for use in the production of plywood, panelling and furniture; and by companies such as Scott Paper Co., Inc. and International Paper Co., Inc. for the production of wood chips used in their pulp mills to produce fine paper, newsprint and craft paper. In addition, the Company's knives are used to cut wood into chips, used for fuel by wood and coal burning power plants as well as generating power and steam for large paper and pulp mills worldwide. The Company manufactures products for many aspects of wood converting in a price range from $10 to $2,000, with an average price of approximately $30. Industrial wood cutting knives and saws are consumed in the normal course of operation and due to their rough service applications generally need resharpening as often as every six to eight hours and 50 times over the life of the product. Wood circular and band saws are generally resharpened and retensioned every two weeks and replaced after two years. As wood becomes more expensive, the industry is increasingly cognizant of the need for more effective tree utilization and reducing material lost to inefficient sawing. Two examples demonstrating solutions to these concerns are the introduction of Stellite(TM) tipped band saws which minimize the kerf (the amount of wood lost to saw dust in the cut) while providing a longer lasting saw blade and the increased use of waferizer and flaker knives. Whereas in the past, band saws were only resharpened a limited number of times, the use of Stellite(TM) tips greatly extends the life of the product, and increases the number of times the band saw can be resharpened. Since the Company is one of a select few manufacturers producing such saws, the Company believes that it is well positioned to benefit as demand for this product increases over time. In addition, the industry is trending toward engineered and composite materials made from specially sized wood chips leading to increased sales of waferizer and flaker knives, and wear parts. In the past, plywood was typically used in favor of engineered and composite materials. However, plywood requires the use of large diameter logs as raw material, leaving considerable waste on the forest floor, whereas wafer board and oriented strand board use tighter tolerance waferizer and flaker knives to reduce smaller, less expensive raw material logs into specifically sized and shaped wood chips. The chips are then assembled with synthetic binders into boards, sheets and specialty profiles, having properties superior to plywood or solid wood predecessors. The Company believes that it is the leading North American manufacturer of these specialty knives and has the ability to grow with this rapidly increasing market. The Company is also a leader in the manufacture of long wood-peeling and slicing veneer knives. Veneer knives are among the more difficult industrial knives to manufacture due to their 39 45 length (up to six meters) and quality requirements. IKS is one of only a limited number of manufacturers which can produce such a knife. As the market demands higher quality veneer knives, the Company believes that its expertise in the design and manufacture of such knives gives it a competitive advantage. The market for wood cutting knives and saws is growing in Asia and other underdeveloped regions as many of the nations in these regions begin to export products further along the production cycle. As the Company expands in these regions, it believes that it will benefit from the increased exportation of finished products. The Company is also using its service center operations to increase its sales, as more wood cutting operations are outsourcing their knife and saw servicing needs. Paper & Packaging The Company believes it is the largest manufacturer of industrial paper & packaging knives with 1995 net sales of approximately $41 million. Among the Company's four major markets, the paper & packaging knife market is the largest and most diverse, with the widest variety of cutting methods. These knives are used in applications by companies such as Kimberly-Clark Corp. and Proctor & Gamble Co. for cutting and perforating tissue paper and paper towels and the production of disposable diapers; by companies such as Frito-Lay, Inc. and M&M Mars, Inc. which utilize Zig Zag knives to cut the top and bottom of snack food, salt and pepper and candy packages sold by convenience stores and fast food chains; and by companies such as Quebecor Corp., Champion International Corp. and RR Donnelly & Sons Co., Inc. for cutting and trimming paper in the production of copy paper, books and business forms. As a result of their many uses, paper & packaging knives represent the largest category of the Company's approximately 10,000 products with more than 2,500 paper & packaging knife products relating to every aspect of paper & packaging manufacturing and converting. The Company's paper & packaging products range in price from $50 to $1,000, with an average price of approximately $200. Paper knives are made from a wide range of steel grades, from inlaid carbon steels to carbide. Recent trends in the paper industry, including an increase in the use of recycled fiber and a change in paper chemistry to more abrasive alkaline additives, have required upgrades by paper producers to higher quality, more expensive knife materials and designs which are better suited for more sophisticated and diverse cutting applications. As a result, the market for industrial paper knives is experiencing price and margin expansion as higher-end knives are increasing in demand. The Company has developed an expertise in the manufacture of these more sophisticated cutting tools which allow the paper converter to run longer and produce better quality cuts. The Company believes that few of its competitors have the expertise to manufacture machine knives out of the more expensive materials, which gives IKS a competitive edge and positions it to offer the most complete package of new knife products and services in the world paper market. Industrial paper knives are generally consumed rapidly in the normal course of operation and can need resharpening as often as once per week and 50 times over the life of the product. The Company has a strong presence in the knife servicing market in North America, capitalizing on the preference of users of paper knives to outsource their knife servicing needs rather than resharpen their knives themselves. Customers often find that the performance of these tools can be better maintained if the sharpening is outsourced to professional service shops having more specialized equipment and technically trained personnel. The Company believes that it has the largest network of Company-owned, strategically located service shops equipped with the IKS Hyperhone system, which system maintains new knife performance throughout the life of a tool and is not available at most other independent or in-house grinding shops. The Company is continuously expanding its paper knife servicing business by educating paper mills on the benefits of outsourcing their knife resharpening needs to the Company's service centers. 40 46 The Company believes that the market for paper & packaging knives is strong worldwide and is growing in Europe, Asia and Latin America. The Company believes this market is growing most quickly in Asia as countries in that region move from exporting raw lumber to exporting paper pulp and, in some cases, finished paper products. The Company's expansion into Asia through its China joint ventures has been based, in part, on its desire to increase its presence in the paper knife market. The Company should also benefit in Asia and Latin America as consumer markets in those regions emerge and the use of packaged consumer products rapidly increases. The Company feels that, through its continued emphasis on providing specialized technical assistance, it will continue to grow in these markets. Metal The Company believes it is the second largest manufacturer of metal knives with 1995 net sales of approximately $15 million. The Company's metal knives are used by steel processing facilities such as Heyco Corp., Edgecomb Metals Co. and Allegheny Ludlum Corp. and metal products manufacturers such as Deere & Co. Inc., Caterpillar, Inc. and Steelcase Corp.; in the cutting, shearing and chopping of steel being produced in steel mills used by companies such as Bethlehem Steel Corp., Rouge Steel Co. and USX Corp.; and in cutting metal sheets and slitting strips from rolls of sheet steel processed by companies such as California Steel Corp. and Joseph T. Ryerson & Son, Inc. The Company manufactures knives for many aspects of metal converting ranging in price from $4 to $9,000, with an average price of approximately $75. Steel circular slitter knives are highly accurate, requiring tolerances of up to 40 millionths of an inch for a high degree of precision and customization. There is a trend toward increased tensile strengths of metals and maximizing the efficiency of metal slitting machines. This trend requires tool technology that extends the normal resharpening cycle. The Company is a leader in this field, utilizing fine-grained raw materials and triple-tempered vacuum heat treatment procedures to produce finely lapped surfaces which enable this degree of precision. In setting up their steel slitting lines, the Company's customers order knives specifically designed for the particular demands and characteristics of each production line. IKS offers expert technical and computer software assistance to companies setting up such a line. The Company has developed a proprietary software package, Slitter Assembly Program (SLAP), which assists customers in choosing and setting up metal slitting knives. The IKS (SLAP) technology makes use of custom computer software to guide the personnel setting up the arbor in the selection of the individual slitter knife and spacer combination to an exact thickness, assuring that, as the arbor is loaded, the accumulated error is maintained near zero. The accuracy of this knife clearance directly affects the cut edge quality of the steel strip. By offering this technology, as well as personal technical assistance, the Company is an integral part of the steel slitting knife purchasing process, which the Company believes increases the likelihood that a customer will choose an IKS product. Another method the Company utilizes to maintain its position with its customers of steel slitting knives is its focus on metal knife resharpening centers. Metal knives are consumable and generally need resharpening as often as once per week and as often as 100 times over the life of a product. Although most users of metal knives have expertise in metalworking and typically resharpen their own knives, there is a trend among steel mills in the United States to outsource their resharpening requirements due to the increasing sophistication and tolerance required of metal knives. IKS is capitalizing on this opportunity. The market for industrial metal knives is dependent upon the steel usage by numerous industries including the automotive industry and metal and consumer products manufacturers, such as aluminum can and appliance manufacturers. Plastic & Recycling The Company believes it is the largest manufacturer of industrial plastic & recycling knives with 1995 net sales of approximately $6 million. Industrial plastic granulator knives are used for the 41 47 manufacture of plastic, typically by companies such as Mobil Chemical Corp. and I.C.I. Americas, Inc. where pelletizing knives are used to cut plastic into small, precise pieces for processing; by companies such as E.I. DuPont de Nemours & Co. for cutting artificial fibers; by companies such as Wellman Inc. for recycling plastic containers; and by companies such as Waste Recovery Corp for the environmental recycling of styrofoam, rubber and glass. The Company manufactures knives for all of these uses, as well as related knives used to cut computer tape, foil and film by companies such as Alcoa Aluminum Co. of America, Inc. and Eastman Kodak Co. and household products produced by Hasbro Corp. and Rubbermaid Inc. The Company sells products in this sector in a price range from $1 to $250, with an average price of approximately $50. IKS is North America's largest manufacturer of plastic granulator knives and is also a leader in the manufacture of such knives in Europe. Although the current market for plastic granulator knives is relatively small, the Company believes it will grow rapidly as the machinery that uses plastic cutting knives is adapted for an increasing number of cutting and recycling-related applications. The market for industrial plastic granulator knives is currently strong in Europe as a result of government mandated recycling programs and is also growing in North America due to the increased focus on the environment and recycling. There is a growing emphasis on recycling with respect to reclaiming the reusable value of material in plastic, rubber, glass and metal products, as well as with respect to easing the disposal of urban waste, medical waste, aluminum cans and soda bottles in accordance with environmental regulations. The Company is also is a leader in the development and production of knives used in the size reduction and recycling of automobile tires and glass. The Company believes the use of tire granulating knives will continue to increase as new uses are developed for the reprocessed material. The Company believes that the recycling of copper and aluminum cable and wires will also increase as fiber optic and satellite communication technologies become more widespread. The Company manufactures the knives which are used in the granulator systems used in recycling these materials and is thus well positioned to benefit as demand for these products increases. Industrial plastic granulator knives are consumed in the normal course of machine operation and need resharpening as often as once per month and as many a 15 times over the life of a product. Most users of industrial plastic granulator knives do not service their own knives and the servicing of such knives is also an important area for the potential expansion of the Company's customer base. MARKETING AND DISTRIBUTION The Company is the only industrial knife and saw manufacturer with operations in North America, Europe, Asia and Latin America and products sold in more than 75 countries. Historically, the Company's sales have been principally in North America and Europe. However the Company has recently expanded operations into the emerging markets of Asia and Latin America, and plans to continue its international growth, entering new geographic markets while broadening existing ones. The Company has a salesforce of 103 people, the largest direct salesforce focused on industrial knives and saws. Complementing the Company's knowledgeable worldwide salesforce, the Company has 17 product managers who are experts in their respective fields and are responsible for product coordination among the Company's salespeople, customers and manufacturing operations. The Company concentrates its sales efforts on end-users, which represent 89% of 1995 net sales, through its direct sales force, distributors, agents and Company-owned and independent resharpening service centers. The remaining 11% of the Company's net sales are to OEM manufacturers of cutting machines through its direct sales force. In order to better serve its customers, the Company strategically places its inventory around the world to best suit geographical and customer needs. This results in the Company being able to ship 42 48 most products to the end-users more rapidly than many of its competitors and as a result the Company is often able to command a premium price for its products. End-users -- Direct Salesforce and Company-Owned Service Centers. Approximately 65% of the Company's 1995 net sales are direct to end-users through the Company's salesforce and Company-owned service centers, representing approximately 5,000 customer accounts. The Company believes that it has been successful in selling to end-users because of its large and knowledgeable salesforce, broad product offering, customer service, the strategic placement of its inventory and its relationships with OEMs. The Company's salesforce develops close working relationships with end-users, continually providing customers with direct technical support, offering advice about the types of knives, materials and specifications which would be appropriate for their specific machines. The Company is afforded additional direct access to end-users by providing resharpening services to end-users of both its own and its competitors' products through its 14 service centers, ten in the United States, three in Canada, and one in Chile. This enables the Company to create even closer customer relationships which better position it to be the first choice of the end-user when a replacement is needed. Since industrial knives and saws are consumable, and generally need resharpening at least once per week and as often as 50 times over the life of a product, resharpening revenues can be significantly in excess of the cost of the product. The resharpening service centers also act as distributors as they sell replacement knives and saws. By owning and operating these service centers, the Company can replace competitors' products with IKS products, including IKS products that the service center may not have previously sold. The Company believes that the number of service center users will continue to increase as a result of an emerging trend toward outsourcing resharpening operations. This outsourcing trend results from end-users implementing overhead reductions and requiring expertise in resharpening blades that are increasingly more sophisticated in materials and design. Such sales are typically high margin sales since end-users will pay a higher price for the Company's technical support resulting in greater satisfaction. In 1995, the Company had approximately $6.8 million in net sales from its resharpening operations. End-users -- Distributors and Independent Service Centers. The Company sells approximately 24% of its net sales to end-users through distributors and independent resharpening service centers. The Company's long term relationships with these distributors, agents and independent resharpening service centers complements its salesforce by providing the opportunity to access additional niche markets. The Company will continue to utilize its distribution network to expand its sales reach and carry the IKS products in their inventory, ready to be sold to end-users. OEMs. Approximately 11% of IKS' 1995 net sales were directly to a variety of OEM manufacturers. The Company believes it is the leading supplier to the OEM market, placing the original knife or saw in the OEM machine, and has a close relationship with many of the major cutting machine manufacturers worldwide. The Company has developed and maintains these close relationships by providing advice to OEM manufacturers about the types of knives, materials and specifications which would be appropriate for their particular machines. In supplying over 300 OEMs, the Company's market managers have an enhanced ability to identify the needs of its customers and to coordinate the Company's technical capabilities with those needs. As a result, the Company believes that it has greater opportunities to place its products into OEM machines and by doing so provides itself with a competitive advantage in capturing the resultant end-user replacement sales. STRATEGIC ALLIANCES The Company's strategic alliances include over 50 business relationships with suppliers of finished industrial knives and saws throughout the world, four joint ventures and several strategic relationships with independent resharpening centers. These alliances enable the Company to 43 49 expand its international presence, increase its product offerings and align itself with local entrepreneurs in international markets where local market expertise is needed while broadening its customer base with limited additional investment. Finished Goods Suppliers. The Company's relationships with suppliers of finished goods are typically with small manufacturers throughout the world. The Company's relationships with finished goods suppliers allow it the flexibility to manufacture or source a product based upon cost and delivery time, the quality of product needed, the region to be supplied and the material to be used. The more significant of these relationships provide the Company with the exclusive or semi-exclusive rights to market certain of its partners' products within the Company's markets and allow the Company to purchase finished goods for a relatively low cost and then resell these products at attractive margins often using the Company's trademarks and tradenames. The Company generally has at least two suppliers for most of the products it sources. In addition, the loss of any particular supplier would not have a material effect upon the Company, since the Company is able to manufacture substantially all of the products it sources. Joint Ventures. The Company recently expanded its international presence through joint ventures in Asia and Latin America. These include two joint ventures which commenced operations in September, 1995 with the leading industrial paper cutting machinery manufacturer in China. The Company has a 51% interest in both ventures, which had total net sales of $4.4 million for the nine month period ended September 30, 1996. The Company's partner in the China joint ventures is Shanghai Printing and Packaging Machinery General Corporation, which currently has approximately an 80% share of the paper knife machine market in China, manufacturing cutting equipment which consumes the Company's paper knives. These joint ventures sell products domestically within China and IKS exclusively exports these products to the rest of the world, providing the Company with a relatively low cost source of supply for resale to its customers. These joint ventures will also provide a distribution network for the Company to import its products from North America and Europe into the rapidly developing market in China as the economy expands and demands a greater variety of cutting tool products. The Company's other joint venture interests are a 42.5% interest in a distributor and service center in Chile which had net sales of approximately $1.0 million in 1995 and $763,000 for the nine month period ended September 30, 1996 and a 30% interest in a distributor in the Philippines which had net sales of approximately $730,000 in 1995 and $801,000 for the nine month period ended September 30, 1996. RAW MATERIALS The Company has numerous suppliers of raw materials, including over 20 raw material suppliers of steel. IKS's steel purchase volume is typically large enough to allow the Company to purchase steel directly from steel mills, which results in reduced raw material costs. The Company believes that its relationships with all of its steel vendors are good. The Company is not dependent on any one of its suppliers for all of its raw materials. In 1995, the Company experienced an unexpected increase in the price of tool steel because of an unusual general market price increase which affected the knife industry worldwide. This price escalation is attributable to a major reduction in specialty tool steel production resulting from the closing of a major German steel mill and the consolidation of steel producers in Latin America and Europe coupled with a strong demand for raw materials in North America and Europe. The resultant shortage in tool steel caused deliveries from suppliers to be extended from nine months to fourteen months. As the Company sells primarily to end-users which requires prompt and timely delivery, the Company was forced to purchase expensive substitutes. Due to the unexpected nature of the price increase, the Company was not able to pass along this increase to its customers on a timely basis. The Company has taken measures to prevent such a reoccurrence by negotiating a 90-day fixed price term into most of its sales contracts as opposed to the previous one year term, increasing prices on a more regular basis and expanding the number of its steel suppliers. 44 50 COMPETITION The industrial knife and saw market is highly fragmented with numerous participants. The Company competes principally on the basis of price, service, delivery, quality and technical expertise. The Company's competitors vary in each of the market sectors that the Company serves. There is no one company which competes with the Company in all four of the market sectors which the Company serves and there is no one company which is dominant in any of such market sectors. The Company believes that the reputation it has established over its long history for quality products, sales and service network and its in-depth product knowledge provide it with a competitive advantage in all the market sectors it serves. TRADEMARKS AND TRADENAMES The Company markets its products under certain trademarks, including "IKS(TM)," "IKS Klingelnberg," "Chromavan," "Chromalit," "Compaflex," "Compalloy," "Durapid," "Duritan," "Dynabloc(TM)," "Dynapren," "Dynatherm," "Klirit," "KSFmicroplan," "Novacrom(TM)," "Novador," "QCP," "Quality Cut Knife Maintenance Program and Design," "Slap," "Stop," "Surekut(TM)," "Tecalloy(TM)," "Tecnolite(TM)," "Ultrid," and "Workalit." In addition, the Company uses the following tradenames: American Custom Metals; Ban-Carb; Canadian Knife & Saw; Durakut; Econokut; Hannaco; Hyperhone; IKS de Mexico; IKS Shanghai; Kodiak; SPS; Tuff-Tip; and Ultrakut. LITIGATION The Company is from time to time involved in legal proceedings arising in the ordinary course of business. The Company believes there is no outstanding litigation which could have a material impact on its operations. PROPERTIES The Company is headquartered in Erlanger, Kentucky, located a few miles south of Cincinnati, Ohio. The Company currently owns or leases 20 facilities in North America, Europe and Asia, which are used for manufacturing, distribution, sales, warehousing and service center activity. 45 51 The following table sets forth the location, square footage and principal functions of each of the Company's facilities.
LOCATION APPROX. SQ. FT. USE - -------------------------------- --------------- --------------------------------------- North American Facilities Florence, SC.................. 106,600 Manufacturing/Service Center/Distribution/Sales Erlanger, KY (corporate 99,700 Manufacturing/Service headquarters).............. Center/Distribution/Sales Camden, AL.................... 44,700 Manufacturing/Service Center/Distribution/Sales McMinnville, OR............... 34,000 Manufacturing/Service Center/Distribution/Sales Granby, Quebec*............... 20,000 Manufacturing/Service Center/Distribution/Sales Langley, British Columbia..... 19,200 Manufacturing/Service Center/Distribution/Sales Gary, IN*..................... 18,500 Service Center/Distribution/Sales Bangor, ME.................... 12,400 Service Center/Distribution/Sales Mississauga, Ontario*......... 11,800 Service Center/Distribution/Sales West Monroe, LA............... 7,500 Service Center/Distribution/Sales Chesterfield, VA 7,400 Service Center/Distribution/Sales (Richmond)*................ Langley, British Columbia*.... 5,000 Service Center Kent, WA*..................... 4,000 Service Center/Sales Mexico City, Mexico*.......... 3,500 Distribution/Sales Statesboro, GA*............... 2,700 Service Center European Facilities Bergisch Born, Germany........ 56,000 Manufacturing/Distribution/Sales Geringswalde, Germany......... 30,700 Manufacturing Asian Facilities Jakarta, Indonesia*........... 2,700 Distribution/Sales Singapore*.................... 1,000 Distribution/Sales Joint Venture Facilities Shanghai, China** (51%)....... 32,000 Manufacturing/Distribution/Sales Concepcion, Chile* (42.5%).... 3,500 Service Center/Distribution/Sales Manila, Philippines (30%)..... 2,500 Distribution/Sales
- --------------- * Leased. ** Facility owned, land leased. The Company believes that its facilities are suitable for its operations and provide sufficient capacity to meet the Company's requirements for the foreseeable future. The Company places a strong emphasis on producing high quality products. The Company's European facility located in Bergisch Born, Germany has been awarded ISO 9001 certification, indicating that the Company has achieved and sustained a high degree of quality and consistency with respect to its products. The Company is currently working toward receiving ISO 9002 certification for its facility in Erlanger, Kentucky. The Company believes that ISO certification is an increasingly important selling feature both domestically and internationally, as it provides evidence to purchasers that the specified product quality has been achieved and is being sustained. 46 52 ENVIRONMENTAL AND REGULATORY MATTERS As with most industrial companies, the Company's facilities and operations are required to comply with and are subject to a wide variety of federal, state, local and foreign environmental and worker health and safety laws, regulations and ordinances, including those related to air emissions, wastewater discharges and chemical and hazardous waste management and disposal ("Environmental Laws"). Certain of these Environmental Laws hold owners or operators of land or businesses liable for their own and for previous owners' or operators' releases of hazardous or toxic substances, materials or wastes, pollutants or contaminants, including petroleum and petroleum products. Compliance with Environmental Laws also may require the acquisition of permits or other authorizations for certain activities and compliance with various standards or procedural requirements. The nature of the Company's operations, the long history of industrial uses at some of its current or former facilities, and the operations of predecessor owners or operators of certain of the businesses expose the Company to risk of liabilities or claims with respect to environmental and worker health and safety matters. There can be no assurance that material costs or liabilities will not be incurred in connection with such liabilities or claims. In connection with the Recapitalization, the Company obtained an indemnity for fines and penalties for violations of Environmental Laws and for losses suffered by the Company with respect to certain environmental conditions occurring prior to the Recapitalization. The environmental indemnities are subject to certain time limitations depending on the nature of the environmental claim, a $15.0 million cap and, except for fines and penalties for violations of Environmental Laws, a $2.5 million deductible. Based on the Company's experience to date and the indemnities obtained in connection with the Recapitalization, the Company believes that the future cost of compliance with existing Environmental Laws (or liability for known environmental liabilities or claims) should not have a material adverse effect on the Company's business, financial condition or results of operations. However, future events, such as changes in existing laws and regulations or their interpretation, may give rise to additional compliance costs or liabilities that could have a material adverse effect on the Company's business, financial condition or results of operations. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of regulatory agencies or stricter or different interpretations of existing laws, may require additional expenditures by the Company that may be material. EMPLOYEES At September 30, 1996, the Company had 1,178 full-time employees. Of such employees, 661 were located in North America, 180 were located in Europe and 337 were located in Asia. The Company considers its relations with its employees to be good. The Company's employees are primarily non-union. The Company's Bergisch Born, Germany facility and China facilities (operated in connection with its joint venture arrangements) are the only facilities which employ union workers. The Company estimates that 48 of its 180 German employees are union members. The majority of the 324 employees at the facilities of the two China joint ventures are part of a governmental bargaining unit. The Company considers its relations with the unions to be good. 47 53 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information with respect to the persons who are members of the Board of Directors, executive officers or key employees of the Company. Directors serve for a term of one year or until their successors are elected and qualified; officers serve at the discretion of the Board of Directors.
NAME AGE POSITION - ------------------------------------------- --- ------------------------------------------- John E. Halloran........................... 51 President, Chief Executive Officer and Director Thomas W. G. Meyer......................... 40 Executive Vice President -- Europe and Asia William M. Schult.......................... 35 Vice President -- Finance, Chief Financial Officer and Secretary Jeffrey Hansel............................. 41 Vice President -- Sales and Marketing, North America James A. Rich.............................. 48 Vice President -- Management Information Systems, North America William R. Underhill....................... 47 Vice President -- Operations W. Raymond Connell......................... 56 Vice President -- Service and Sales Director, North America Klaus Schmidt.............................. 53 Vice President, German subsidiary Heinrich Ankermann......................... 55 Vice President, German subsidiary Heinz Gamerschlag.......................... 45 Controller, German subsidiary Manfred Herrmann........................... 52 Plant Manager, German subsidiary Bernhard Keil.............................. 44 Logistics and Procurement Manager, German subsidiary Thomas Huhn................................ 32 Market Manager, German subsidiary Ronald G. Weaver........................... 58 Deputy General Manager, China joint ventures Diether Klingelnberg....................... 52 Director Michael A. Delaney......................... 42 Director James A. Urry.............................. 42 Director
- --------------- John E. Halloran, President, Chief Executive Officer and Director. Mr. Halloran has been President and Chief Executive Officer since May 1996 and had served as Executive Vice President since joining the Company in 1992. Mr. Halloran served as Executive Vice President of Operations at Simonds Industries from 1989 to 1992 and as President of Michigan Knife Company from the time it was founded by Mr. Halloran in 1974 until it was acquired by Simonds Industries in 1989. Thomas W. G. Meyer, Executive Vice President -- Europe and Asia. Mr. Meyer has served as Executive Vice President since he joined the Company in 1993. Prior thereto, Mr. Meyer worked in the textile industry for ten years, including service as the head of marketing for Barmag AG from 1988 until 1991 and as a director of A. Monforts GmbH & Co., from 1991 until 1992. William M. Schult, Vice President -- Finance, Chief Financial Officer and Secretary. Mr. Schult joined the Company as Vice President -- Finance in July 1996. Prior to joining the Company, he served as Controller of IKS Holdings since 1995 and in several capacities at Siemens Corporation from 1987 until 1995, most recently as Controller of the Pelton & Crane division. Prior to that, Mr. Schult held various accounting and auditing positions with the Allen Group, Salomon Brothers and Coopers & Lybrand. 48 54 Jeffrey Hansel, Vice President -- Sales and Marketing, North America. Mr. Hansel joined the Company in 1985 as a paper knife market manager. Mr. Hansel became Vice President -- Sales and Marketing in 1991. Prior to joining the Company, from 1981 to 1985 Mr. Hansel was President of General Metals Technologies Corp., a subsidiary of C.B. Manufacturing with which he was employed from 1979 to 1981 as a sales manager. James A. Rich, Vice President -- Management Information Systems, North America. Mr. Rich joined the Company in 1988. Prior to joining the Company, Mr. Rich had 12 years of experience in public accounting, including five years as an independent consultant and two years with Deloitte & Touche LLP. William R. Underhill, Vice President -- Operations. Mr. Underhill joined the Company in 1977 as Product Manager. Mr. Underhill served in various capacities, including purchasing agent and sales manager, from 1977 to 1990, and became Vice President -- Operations in 1996. W. Raymond Connell, Vice President, Service and Sales Director, North America. Mr. Connell joined the Company in 1991 as Vice President -- Service and Sales Director. From 1990 to 1991, Mr. Connell was the owner of Connell Distribution and prior to that was the part owner of Austin Saw and Knife, which the Company acquired in 1991. Between 1974 and 1990, Mr. Connell was the Company's sales manager. Klaus Schmidt, Vice President, German subsidiary. Mr. Schmidt joined the Company in 1979, as a sales representative, and is currently responsible for sales and marketing for the Company's European operations. Prior to joining the Company, Mr. Schmidt worked for Klingelnberg Soehne in various sales positions beginning in 1960. Heinrich Ankermann, Vice President, German subsidiary. Mr. Ankermann joined the Company in 1976 as a Plant Manager and was promoted in 1991 to Vice President of the Company's German subsidiary. Prior to joining the Company, Mr. Ankermann worked at Neuenkamp, where he was responsible for production. Heinz Gamerschlag, Controller, German subsidiary. Mr. Gamerschlag joined the Company in 1981 as a Controller and has continued to serve in such position for the Company's German subsidiary. Manfred Herrmann, Plant Manager, German subsidiary. Mr. Herrmann joined the Company in 1991 and currently serves as the Plant Manager of the Geringswalde, Germany facility. From 1981 to 1991, he worked as director of production at Vereinigte Werkzeugfabrik, a manufacturer of metal slitter knives and machine arbors which was acquired by IKS. Bernhard Keil, Logistics and Procurement Manager, German subsidiary. Mr. Keil joined the Company in 1981 as a salesman and was promoted to Logistics and Procurement Manager for the Company's German subsidiary in 1993. Prior to joining the Company, he was a salesman for The Klingelnberg Corporation. Thomas Huhn, Market Manager, German subsidiary. Mr. Huhn joined the Company in 1994 as a Market Manager for the Company's German subsidiary. From 1984 to 1994, Mr. Huhn worked for Fassbender & Co., a paper knife manufacturer, in various capacities including purchasing manager. Ronald G. Weaver, Deputy General Manager, China joint ventures. Mr. Weaver joined the Company in October 1995 as Deputy General Manager in charge of China operations. Prior to joining the Company, Mr. Weaver worked for Thermcraft during 1995 and was Director of Operations of the Turbine Support Division of Chromally Gas Turbine Corporation from 1991 until 1994. Diether Klingelnberg, Director. Mr. Klingelnberg served as Chief Executive Officer of the Company until March 1996. In addition, he served as Chairman of the Board and Chief Executive Officer of IKS Holdings from its formation until consummation of the Transactions. Mr. Klingelnberg 49 55 has been Managing Partner of Klingelnberg Soehne since 1969 and is a director of Eummoco Hasenklever GmbH, Honsel AG and the Alfred H. Schutte Company. Michael A. Delaney, Director. Mr. Delaney has been a Vice President of CVC since 1989. From 1986 through 1989, he was Vice President of Citicorp Mergers and Acquisitions. Mr. Delaney is a director of Aetna Industries, Inc., AmeriSource Health Corporation, Cort Business Services Corporation, Delco Remy International, Inc., Enterprise Media Inc., FF Holdings Corporation, GVC Holdings, JAC Holdings, Palomar Technologies, Inc., SC Processing, Inc., Sybron Chemicals, Inc. and Triumph Holdings, Inc. James A. Urry, Director. Mr. Urry has been with Citibank, N.A. since 1981, serving as a Vice President since 1986. He has been a Vice President of CVC since 1989. He is a director of AmeriSource Health Corporation, Cort Business Services Corporation, FF Holdings Corporation, Hancor Holding Corporation and York International Corporation. In addition, CVC has the contractual right to designate an independent director to the Company's Board of Directors, subject to the right of the holders of a majority of the outstanding shares of Holdings Class A Stock to veto the election of such director. See "Stock Ownership -- Stockholders' Agreement." DIRECTOR COMPENSATION AND ARRANGEMENTS It is not currently anticipated that directors of the Company will receive compensation for their services as directors. Members of the Board of Directors are elected pursuant to certain voting agreements among IKS Holdings and its stockholders. See "Stock Ownership -- Stockholders' Agreement." EXECUTIVE COMPENSATION The following table sets forth certain information concerning the compensation received by the five most highly compensated officers of the Company for services rendered in 1995. In May 1996, John E. Halloran succeeded Diether Klingelnberg as President and Chief Executive Officer of the Company. Upon consummation of the Transactions, Edward Brent retired as Chief Financial Officer of the Company and was succeeded in such capacity by William M. Schult. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ---------------------------------- ALL OTHER SALARY BONUS OTHER COMPENSATION NAME AND PRINCIPAL POSITION ($) ($) ($) ($) - ----------------------------------------- -------- -------- -------- ------------ Diether Klingelnberg..................... $220,000 $219,967(1) $417,596(2) $ 11,642(3) President and Chief Executive Officer John E. Halloran......................... 160,000 77,634 25,903(4) 11,642(3) Executive Vice President Thomas Meyer............................. 195,531 107,080 34,814(5) -- Executive Vice President -- Europe and Asia Edward Brent............................. 160,000 83,977(1) 37,723(6) 20,304(7) Chief Financial Officer and Treasurer William R. Underhill..................... 96,500 30,826 --(8) 9,806(9) Vice President -- Operations
- --------------- (1) Bonuses were paid by IKS Holdings. (2) Includes $393,206 in stock dividends resulting from the dissolution of a limited partnership owned by IKS with the balance attributable to rent for a corporate apartment and country club dues. (3) Includes $3,000 in Company 401(k) contributions, $8,181 in Company Profit Sharing Plan contributions and $461 in group term life insurance premiums. (footnotes continued on following page) 50 56 (4) Includes $25,000 in stock dividends with the balance attributable to use of a Company-owned automobile. (5) Includes $25,000 in stock dividends and $9,814 attributable to the use of a Company-owned automobile. (6) Includes $25,000 in stock dividends with the balance attributable to dividends resulting from the dissolution of a limited partnership owned by IKS, the use of a Company-owned automobile and country club dues. (7) Includes $3,000 in Company 401(k) contributions, $8,181 in Company Profit Sharing Plan contributions, $1,123 in group term life insurance premiums and $8,000 as a directors fee which was paid by IKS Holdings. (8) The Company provides the use of a Company-owned automobile. The aggregate cost of such benefit was not in excess of the lesser of $50,000 or 10% of the named executive's cash compensation. (9) Includes $2,587 in Company 401(k) contributions, $7,055 in Company Profit Sharing Plan contributions and $164 in group term life insurance. EMPLOYMENT ARRANGEMENTS AND DEFERRED COMPENSATION AGREEMENTS John E. Halloran has been employed by the Company pursuant to an Employment Agreement dated June 1, 1992. This agreement is terminable by either party upon 90 days prior written notice and currently provides for a base salary of $200,000 per year plus 0.8% of the Company's net profits (before taxes and certain other adjustments). In addition, the Agreement provides for the receipt by Mr. Halloran of standard Company benefits. Upon Mr. Halloran's election as President of the Company in May 1996, the Company and Mr. Halloran conducted discussions concerning the amendment of the terms of the agreement. Concurrent with the consummation of the Transactions, such contract was terminated in favor of Mr. Halloran's continued employment at will. Thomas Meyer was hired by IKS Klingelnberg GmbH as its Chief Executive Officer pursuant to an Employment Agreement effective January 1, 1993 which, following an automatic extension thereof, expires on December 31, 2000. As compensation, Mr. Meyer receives an annual salary of 280,000 DM. In addition, he receives an annual profit sharing bonus equal to 3.0% of the income before taxes of IKS Klingelnberg GmbH plus 0.65% of the Company's income before taxes. He is also eligible for certain incentive bonuses based on sales, and receives certain fringe benefits including an automobile and insurance coverage. Following any termination of Mr. Meyer's employment, Mr. Meyer will be subject to a non-competition covenant for up to two years, in exchange for payment in each year of an amount equal to one-half of Mr. Meyer's most recently agreed upon annual compensation. The Company has entered into deferred compensation and supplemental retirement agreements with Edward J. Brent and Diether Klingelnberg dated November 23, 1981. The agreements provide for a supplemental retirement benefit payable at age 65 equal to $250,000 payable in monthly installments over a period of ten years with any remaining payments to become immediately due and payable upon the death of the employee. Mr. Brent becomes fully vested and may take early retirement without a reduction in benefits at age 62. Mr. Klingelnberg may take early retirement without a reduction in benefits at age 60. In addition, Mr. Klingelnberg is entitled to a reduced benefit of $12,500 per year (beginning at age 60) if his employment is terminated by the Company prior to his reaching age 60. In both cases, if the employee dies while employed by the Company, his designated beneficiary will be entitled to a death benefit of $25,000 per year for ten years. In lieu of the benefits described above the Company may at its sole discretion accelerate the payment of benefits to an employee or the employee's beneficiary, if applicable. All benefits under the agreements are forfeited if it is determined that (i) the employee engaged in activity adversely affecting the interests of the Company, or (ii) the employee rendered services to any competitor of the Company. 51 57 Upon consummation of the Transactions, Diether Klingelnberg waived the benefits provided to him under his deferred compensation and supplemental retirement agreement in exchange for an assignment of a life insurance policy maintained by the Company insuring his life. Such policy had a cash surrender value of approximately $70,000. In addition, Mr. Brent retired as Chief Financial Officer of the Company upon consummation of the Transactions, and the Company retained Mr. Brent as a part-time employee through September 1997 and agreed to pay him a salary of $5,000 per month in connection with services rendered in such capacity. 401(k) RETIREMENT PLAN IKS Holdings maintains a defined contribution 401(k) retirement plan. All of the Company's non-unionized employees are eligible to participate after completing one year of service and attaining age 20 1/2. Subject to certain statutory limitations, employees may contribute up to 15 percent of their compensation to the plan on a pre-tax basis. The Company may make discretionary matching contributions equal to a percentage of the employees' pre-tax contributions. However, in determining the amount of matching contributions, only employee pre-tax contributions up to four percent of compensation are taken into account. For allocation purposes, the compensation of any employee in excess of $150,000 is disregarded. Employees are fully vested in their benefits under the plan after two years of service. PROFIT SHARING PLAN The Company maintains a tax-qualified profit sharing plan. All of the Company's domestic non-unionized employees are eligible to participate after attaining age 20 1/2. The plan is completely funded by Company discretionary contributions. Company contributions are allocated to the accounts of the eligible employees in the same ratio that each eligible employee's compensation for the year bears to the total compensation of all eligible employees for the year. For allocation purposes, the compensation of any employee in excess of $150,000 is disregarded. Employees are fully vested in their benefits under the plan after five years of service. An employee may not receive a distribution of his benefits under the plan until following his termination of employment. 52 58 STOCK OWNERSHIP All of the outstanding capital stock of the Company is currently owned by IKS Holdings. The following table sets forth certain information with respect to the beneficial ownership of the Holdings Preferred Stock and Holdings Common Stock by (i) each person or entity who owns five percent or more thereof, (ii) each director of the Company who is a stockholder, (iii) the Chief Executive Officer of the Company and the other executive officers named in the "Summary Compensation Table" above who are stockholders, and (iv) the directors and officers of the Company as a group. Unless otherwise specified, all shares are directly held.
NUMBER AND PERCENT OF SHARES ---------------------------------------------------------------- HOLDINGS PREFERRED HOLDINGS CLASS A HOLDINGS CLASS B STOCK STOCK(1) STOCK(2) ------------------ ------------------ ------------------ NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT - ---------------------------------- ------ ------- ------ ------- ------ ------- Citicorp Venture Capital Ltd...... 10,920 91.0% 41,315 49.0% 15,685 100.0% 399 Park Avenue New York, New York 10043 Arndt Klingelnberg................ -- -- 17,000 20.2% -- -- IKS Corporation 1299 Cox Avenue Erlanger, KY 41018 Diether Klingelnberg.............. -- -- 17,000 20.2% -- -- IKS Corporation 1299 Cox Avenue Erlanger, KY 41018 John E. Halloran(3)(4)............ 600 5.0% 5,000 5.9% -- -- IKS Corporation 1299 Cox Avenue Erlanger, KY 41018 Thomas Meyer(4)................... 240 2.0% 2,000 2.4% -- -- William R. Underhill.............. 24 0.2% 200 0.2% -- -- All directors and officers as a group (14 persons)(3)(4)... 1,080 9.0% 26,000 30.8%
- --------------- (1) Does not include shares of Holdings Class A Stock issuable upon conversion of Holdings Class B Stock. See "-- Holdings Common Stock." (2) Does not include shares of Holdings Class B Stock issuable upon conversion of Holdings Class A Stock. See "-- Holdings Common Stock." (3) The Holdings Preferred Stock and Holdings Class A Stock distributed to John E. Halloran as part of the Recapitalization Distribution is subject to post-closing adjustments, if any, to the Recapitalization Distribution pursuant to the provisions of the Recapitalization Agreement. See "The Transactions." (4) Certain members of management of the Company are expected to participate in an Employee Stock Purchase Plan pursuant to which management will be offered the opportunity to acquire Holdings Class A Stock which would equal in the aggregate up to an additional 10.0% of the Holdings Class A Stock outstanding. See "-- Employee Stock Purchase Plan." The table does not include shares or options that may be acquired by such individuals pursuant to such Plan. 53 59 HOLDINGS PREFERRED STOCK The IKS Holdings Certificate of Incorporation provides that IKS Holdings may issue 12,000,000 shares of Holdings Preferred Stock, all of which are designated as Series A Cumulative Compounding Preferred Stock. Holdings Preferred Stock has a stated value of $1,000 per share and is entitled to annual dividends when, as and if declared, which dividends will be cumulative, whether or not earned or declared, and will accrue at a rate of 12.0%, compounding. The vote of a majority of the outstanding shares of the Holdings Preferred Stock, voting as a separate class, is required to (i) create, authorize or issue any other class or series of stock entitled to a preference prior to the Holdings Preferred Stock upon any dividend or distribution or any liquidation, distribution of assets, dissolution or winding up of IKS Holdings, or increase the authorized amount of any such other class or series, or (ii) amend IKS Holdings' Certificate of Incorporation if such amendment would adversely affect the relative rights and preferences of the holders of the Holdings Preferred Stock. Except as described in the immediately preceding sentence or as otherwise required by law, the Holdings Preferred Stock is not entitled to vote. IKS Holdings may not pay any dividend upon (except for a dividend payable in Junior Stock, as defined below), or redeem or otherwise acquire shares of, capital stock junior to the Holdings Preferred Stock (including the Holdings Common Stock) ("Junior Stock") unless all cumulative dividends on the Holdings Preferred Stock have been paid in full. Upon a liquidation, dissolution or winding up of IKS Holdings, holders of Holdings Preferred Stock are entitled to receive out of the legally available assets of IKS Holdings, before any amount shall be paid to holders of Junior Stock, an amount equal to $1,000 per share of Holdings Preferred Stock, plus all accrued and unpaid dividends to the date of final distribution. If such available assets are insufficient to pay the holders of the outstanding shares of Holdings Preferred Stock in full, such assets, or the proceeds thereof, will be distributed ratably among such holders. The Holdings Preferred Stock is not mandatorily redeemable prior to the maturity of the Notes. IKS Holdings may optionally redeem, in whole or in part, the Holdings Preferred Stock at any time at a price per share of $1,000, plus accrued and unpaid dividends to the date of redemption. HOLDINGS COMMON STOCK The Certificate of Incorporation of IKS Holdings provides that IKS Holdings may issue 400,000 shares of Holdings Common Stock, divided into two classes consisting of 200,000 shares of Holdings Class A Stock and 200,000 shares of Holdings Class B Stock. The holders of Holdings Class A Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Except as required by law, the holders of Holdings Class B Stock have no voting rights. Under the Certificate of Incorporation of IKS Holdings, a holder of either class of Holdings Common Stock may convert any or all of his shares into an equal number of shares of the other class of Holdings Common Stock; provided that in the case of a conversion from Holdings Class B Stock, which is nonvoting, into Holdings Class A Stock, which is voting, the holder of shares to be converted would be permitted under applicable law to hold the total number of shares of Holdings Class A Stock which would be held after giving effect to the conversion. STOCKHOLDERS' AGREEMENT In connection with the Recapitalization, the stockholders of IKS Holdings entered into a Securities Purchase and Holders Agreement (the "Stockholders' Agreement") containing certain agreements among such stockholders with respect to the capital stock and corporate governance of IKS Holdings and the Company. The following is a summary description of the principal terms of the Stockholders' Agreement and is subject to and qualified in its entirety by reference to the definitive Stockholders' Agreement, copies of which are available upon request to the Company. Pursuant to the Stockholders' Agreement, the Board of Directors of IKS Holdings and the Company is composed at all times of five directors as follows: John E. Halloran (so long as he continues to serve as President of the Company); one individual designated by Diether Klingelnberg; two individuals designated by CVC; and one independent director who shall be 54 60 designated by CVC, subject to the right of holders of the majority of the outstanding shares of Holdings Class A Stock to veto the election of any such independent director. The Stockholders' Agreement contains certain provisions which, with certain exceptions, restrict the ability of the stockholders from transferring any Holdings Common Stock, Holdings Preferred Stock or Holdings Debentures except pursuant to the terms of the Stockholders' Agreement. If holders of more than 50% of the Holdings Common Stock approve the sale of the Company (an "Approved Sale"), each stockholder has agreed to consent to such sale and, if such sale includes the sale of stock, each stockholder has agreed to sell all of such stockholder's Holdings Common Stock on the terms and conditions approved by holders of a majority of the Holdings Common Stock then outstanding. In the event IKS Holdings proposes to issue and sell (other than in a public offering pursuant to a registration statement) any shares of Holdings Common Stock or any securities containing options or rights to acquire any shares of Holdings Common Stock or any securities convertible into Holdings Common Stock to CVC or its affiliates, IKS Holdings must first offer to each of the other shareholders a pro rata portion of such shares. Such preemptive rights are not applicable to the issuance of shares of Holdings Common Stock upon the conversion of shares of one class of Holdings Common Stock into shares of the other class. The Stockholders' Agreement also provides for certain additional restrictions on transfer of shares acquired by members of management pursuant to an Employee Stock Purchase Plan (the "Plan") ("Incentive Shares"), including the right of IKS Holdings to repurchase Incentive Shares held by a member of management (a "Participant") upon termination of such Participant's employment prior to 2001, at a formula price, and the grant of a right of first refusal in favor of IKS Holdings in the event a Participant elects to transfer such Incentive Shares of Holdings Common Stock. REGISTRATION RIGHTS AGREEMENT In connection with their entry into the Stockholders' Agreement, IKS Holdings, CVC and certain other stockholders of IKS Holdings entered into a Registration Rights Agreement (the "Holdings Registration Rights Agreement"). Pursuant to the Holdings Registration Rights Agreement, upon the written request of CVC, IKS Holdings has agreed to prepare and file a registration statement with the Commission concerning the distribution of all or part of the shares held by CVC and use its best efforts to cause such registration statement to become effective. If at any time IKS Holdings files a registration statement for the Holdings Common Stock pursuant to a request by CVC or otherwise (other than a registration statement on Form S-8, Form S-4 or any similar form, a registration statement filed in connection with a share exchange or an offering solely to IKS Holdings' employees or existing stockholders, or a registration statement registering a unit offering) (a "Qualifying Offering"), IKS Holdings will use its best efforts to allow the other parties to the Holdings Registration Rights Agreement to have their shares of Holdings Common Stock (or a portion of their shares under certain circumstances) included in such offering of Holdings Common Stock if the registration form proposed to be used may be used to register such shares. Registration expenses of the selling stockholders (other than underwriting fees, brokerage fees and transfer taxes applicable to the shares sold by such stockholders or the fees and expenses of any accountants or other representatives retained by a selling stockholder) are to be paid by IKS Holdings. EMPLOYEE STOCK PURCHASE PLAN It is currently contemplated that IKS Holdings will adopt the Plan, pursuant to which Participants will be offered the opportunity to purchase Holdings Class A Stock. The Participants will be given the opportunity to acquire or be granted options to acquire an aggregate of up to 10% of the Holdings Class A Stock outstanding on a fully-diluted basis. 55 61 In addition, upon the Participants' purchase of Holdings Class A Stock or the acquisition of options to purchase such stock, the Participants will become subject to the terms and conditions of the Stockholders' Agreement. See "-- Stockholders' Agreement." In addition to the restrictions set forth above, the Stockholders' Agreement also provides the following restrictions with respect to the Participants: (i) the Incentive Shares acquired by a Participant will be subject to repurchase by IKS Holdings or its designee if such Participant's employment with the Company is terminated within five years after the closing of the management offering at formula prices which will vary based upon the time and circumstance of such termination, (ii) IKS Holdings will receive a right of first refusal through the fifth anniversary of the closing of the management offering on all common stock acquired by a Participant pursuant to the Plan and (iii) if holders of a majority of Holdings Class A Stock approve a sale of IKS Holdings, Participants will consent to such sale. OTHER In connection with the Recapitalization, Arndt Klingelnberg, Diether Klingelnberg and CVC entered into an agreement pursuant to which their ownership percentages of the Holdings Preferred Stock and the Holdings Debentures may be adjusted. Upon the occurrence of certain events, their respective ownership percentages of Holdings Preferred Stock and Holdings Debentures will be adjusted so that they will be pro rata with their respective ownership percentages of Holdings Common Stock. 56 62 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On July 25, 1996, in connection with the Realty Acquisition, the Company purchased all of the general and limited partnership interests of a limited partnership controlled by members of the Klingelnberg family for an aggregate of approximately $5.6 million. As a result of such transaction, the Company became the sole remaining partner of the limited partnership and the limited partnership was dissolved. In winding up the affairs of the limited partnership, the Company conveyed, for no consideration, all of the property owned by the limited partnership to itself individually. Such property consisted primarily of real property located in the states of Alabama, Kentucky, Louisiana, Maine and South Carolina which had previously been under capital lease to the Company. Prior to the Realty Acquisition, the Company leased such property from the limited partnership. Such lease payments aggregated approximately $662,000 for the year ended December 31, 1995. From time to time the Company or its affiliates have made loans to certain of the Company's officers and directors. Diether Klingelnberg, President and Chief Executive Officer during 1995, has been indebted to the Company or an affiliate of the Company in the amount of $100,000 since July 1981. Such indebtedness is evidenced by a promissory note bearing interest at a rate of 5.05% per annum. On April 11, 1996, the Company also advanced to Mr. Klingelnberg an additional $50,000 at a quarterly interest rate of 5.33%. In April and June, 1996, the Company also paid a total of $48,500 of taxes on behalf of Mr. Klingelnberg, with such amount to be repaid at a quarterly interest rate of approximately 5.5%. On September 1, 1996, Mr. Klingelnberg paid in full all amounts due and owing to the Company. In addition, on March 1, 1996, the Company loaned to Edward Brent, the former Chief Financial Officer of the Company, $135,000 in aggregate principal amount evidenced by a three year promissory note bearing interest at a rate of 5.05% per annum. The loan was repaid in full upon consummation of the Transactions. In connection with the Recapitalization, IKS Holdings entered into a letter agreement with Mr. Halloran pursuant to which the Company agreed to loan to Mr. Halloran an amount equal to the income taxes which were incurred by him in respect of the securities received by him as a part of the Recapitalization Distribution. The loan is secured by a pledge of the securities and the recourse to the Company for repayment of the loan is limited to the securities. The loan bears interest at the "applicable federal rate" under the Internal Revenue Code of 1986, as amended, and the Company will make payments to Mr. Halloran in amounts sufficient to permit him to pay such interest payments. The Company previously borrowed certain funds from IKS Holdings from time to time on a demand basis. Immediately prior to the consummation of the Transactions, the Company was indebted to IKS Holdings in the amount of approximately $11.0 million, which amount bore interest at a rate of 6.9% per annum, adjusted from time to time to reflect market conditions. Such loan was repaid in connection with the Transactions. See "The Transactions" and "Use of Proceeds." 57 63 DESCRIPTION OF CERTAIN INDEBTEDNESS The following is a summary of certain indebtedness of the Company, a subsidiary of the Company and IKS Holdings. To the extent such summary contains descriptions of the Senior Credit Facility and other loan documents, such descriptions do not purport to be complete and are qualified in their entirety by reference to such documents, which are available upon request from the Company. SENIOR CREDIT FACILITY In connection with the Transactions, Deutsche Bank (the "Bank") provided a revolving credit facility (the "Senior Credit Facility") to the Company for up to $20.0 million of revolving loans. Borrowings under the Senior Credit Facility are available for working capital and general corporate purposes, including letters of credit. The Senior Credit Facility is secured by first priority liens on all accounts receivable and inventory of the Company and, in the event certain financial ratios are not met, certain designated fixed assets. The Company did not draw upon the Senior Credit Facility in connection with the Transactions. The Senior Credit Facility expires on December 31, 2000, unless extended. The interest rate per annum applicable to the Senior Credit Facility is LIBOR plus 1.25%. The Senior Credit Facility permits the Company to prepay loans and to permanently reduce revolving credit commitments or letters of credit, in whole or in part, at any time in certain minimum amounts. The Company is required to pay certain fees in connection with the Senior Credit Facility, including a commitment fee of 0.25% on the undrawn portion of the revolving credit commitments. The Senior Credit Facility contains certain other terms and conditions, covenants and events of default. SUBSIDIARY INDEBTEDNESS The following discussion assumes a conversion rate from deutsche marks to dollars of 1.5. The Bank and a Bank sponsored government program ("KfW") have made available to the Company's wholly owned subsidiary, IKS Klingelnberg GmbH ("GmbH"), a term loan (the "Existing German Credit Facility"), of which $5.5 million was outstanding upon consummation of the Transactions. The Existing German Credit Facility is comprised of four separate commitments with maturities through 2003 at variable rates of interest from 3.9% to 6.25%. The Existing German Credit Facility is secured by, among other things, liens on the real property of GmbH and its subsidiary. The Existing German Credit Facility also contains certain other terms and conditions, covenants and events of default. In connection with the Transactions, the Bank and KfW provided a new credit facility to GmbH (the "New German Credit Facility" and, together with the Existing German Credit Facility, the "German Subsidiary Facilities") which consists of a $5.0 million senior secured revolving credit facility which may be used for working capital purposes. The New German Credit Facility bears interest at the option of GmbH at a per annum rate equal to, either Euro-LIBOR (presently 3.1%) plus 0.50% per annum, the "Bill Credit Rate" (presently 2.5%) plus 0.50% per annum or the "Regular Overdraft Rate" (presently 6.5%) and has a final maturity date of December 31, 2000, unless extended. The obligations of the Company under the New German Credit Facility are secured by a first priority lien on the real property owned by the Company in Bergisch Born, Germany. The New German Credit Facility contains certain other terms and conditions, covenants and events of default, including the maintenance of a minimum equity of 30% of total German asset value and the maintenance of positive cash flow. HOLDINGS DEBENTURES In connection with the Recapitalization, IKS Holdings issued an aggregate of $12.0 million original principal amount of Holdings Debentures, designated as Junior Subordinated Notes. The 58 64 Holdings Debentures bear interest at a rate of 12.0% per annum and all interest due on the Holdings Debentures prior to their maturity shall be paid by adding such interest to the then outstanding principal amount of such notes. Such amount shall accrue interest as a portion of the principal amount of the Holdings Debentures from the applicable interest payment date. The Holdings Debentures contain certain covenants by IKS Holdings in favor of the holders of the Holdings Debentures (the "Holdings Debenture Holders") including, but not limited to: (i) restrictions on the payment by IKS Holdings of dividends and the purchase, redemption or prepayment by IKS Holdings and its subsidiaries of its capital stock or indebtedness which is, by its terms or by operation of law, junior in right of payment to the Holdings Debentures, and (ii) restrictions on subsidiaries entering into agreements restricting their ability to pay dividends or make certain other distributions to IKS Holdings or any subsidiary of IKS Holdings. The Holdings Debentures are subordinated to IKS Holdings' obligations (including guarantees, if any, from time to time) under the Senior Credit Facility, the Notes and any other indebtedness of IKS Holdings, other than indebtedness which by its terms is pari passu or junior in right of payment to the Holdings Debentures (the "Holdings Senior Debt"). Until such Holdings Senior Debt is paid in full, IKS Holdings may not make any payment of principal or interest to the Holdings Debenture Holders: (i) following the maturity of any Holdings Senior Debt (either by lapse, acceleration or otherwise), (ii) following a payment default on Holdings Senior Debt or (iii) following a nonpayment default on Holdings Senior Debt (until such non-payment default shall have been cured or waived). Except for certain events of bankruptcy, the consent of Holdings Debenture Holders holding a majority in principal amount of the Holdings Debentures is required to accelerate the payment of principal upon an event of default. If any Holdings Senior Debt is outstanding at the time of an acceleration of the Holdings Debentures, the Holdings Debentures will become due and payable upon the earlier of acceleration of such Holdings Senior Debt and thirty days following notice of acceleration of the Holdings Debentures being given to the agent for Holdings Senior Debt holders. An event of default under the Holdings Debentures will include, among other things, a "change in control", provided that the holders of the Holdings Debentures may not accelerate or exercise any other remedy with respect to the Holdings Debentures in the event of a change in control so long as any amounts remain outstanding under the Senior Credit Facility or the Notes. 59 65 DESCRIPTION OF THE NOTES GENERAL The Existing Notes were issued under the Indenture, dated as of November 6, 1996, by and between the Company and United States Trust Company of New York, as trustee (the "Trustee"). The terms of the Indenture apply to the Existing Notes and to the New Notes to be issued in exchange therefor pursuant to the Exchange Offer (all such Notes being referred to herein collectively as the "Notes"). Upon the issuance of the New Notes, if any, or the effectiveness of a Shelf Registration Statement (as defined below), the Indenture will be subject to and governed by the Trust Indenture Act. As used in this "Description of the Notes" section, references to the "Company" means International Knife & Saw, Inc., but not any of its subsidiaries (unless the context otherwise requires). The following is a summary of the material provisions of the Indenture. This summary does not purport to be complete and is subject to the detailed provisions of, and is qualified in its entirety by reference to, the Trust Indenture Act, the Notes and the Indenture, including the definitions of certain terms contained therein and including those terms made part of the Indenture by reference to the Trust Indenture Act. A copy of the form of Indenture may be obtained from the Company. The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." 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. MATURITY AND INTEREST The Notes are unsecured senior subordinated obligations of the Company limited in aggregate principal amount to $90,000,000. The Notes mature on November 15, 2006. Interest on the Notes accrues at the rate of 11 3/8% per annum and is payable semi-annually in arrears on May 15 and November 15 in each year, commencing on May 15, 1997, to holders of record on the immediately preceding May 1 and November 1, respectively. Interest on the Notes accrues from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Notes (the "Issue Date"). Interest is computed on the basis of a 360-day year comprised of twelve 30-day months. Principal of, premium, if any, and interest on the Notes is payable at the office or agency of the Company maintained for such purpose in The City of New York or, at the option of the Company, payment of interest may be made by check mailed to the holders of the Notes at their respective addresses as set forth in the register of holders of Notes. Until otherwise designated by the Company, the Company's office or agency in The City of New York will be the office of the Trustee maintained for such purpose. The Notes are issued in fully registered form, without coupons, and in denominations of $1,000 and integral multiples thereof. No service charge will be made for any transfer, exchange or redemption of Notes, except in certain circumstances for any tax or other governmental charge that may be imposed in connection therewith. REDEMPTION Mandatory Redemption. The Notes are not subject to any mandatory sinking fund redemption prior to maturity. Optional Redemption. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after November 15, 2001 at the redemption prices (expressed as percentages of the principal amount of the Notes) set forth below plus in each case accrued and 60 66 unpaid interest, if any, to the date of redemption, if redeemed during the twelve-month period beginning on November 15 of the years indicated below:
YEAR PERCENTAGE --------------------------------------------------------------- ---------- 2001........................................................... 105.688% 2002........................................................... 103.792% 2003........................................................... 101.896% 2004 and thereafter............................................ 100.000%
In addition, at any time or from time to time on or prior to November 15, 1999, the Company may, at its option, redeem up to $30 million aggregate principal amount of the Notes with the net proceeds of one or more Public Equity Offerings, at a redemption price equal to 111 3/8% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of redemption; provided, however, that (x) not less than $60 million aggregate principal amount of the Notes is outstanding immediately after giving effect to any such redemption (other than any Notes owned by the Company or any of its Affiliates) and (y) such redemption is effected within 90 days after the consummation of any such Public Equity Offering. "Public Equity Offering" means an underwritten public offering of Capital Stock (other than Disqualified Capital Stock) of the Company or IKS Holdings pursuant to an effective registration statement filed under the Securities Act; provided, however, that in the event of a Public Equity Offering by IKS Holdings, IKS Holdings shall contribute to the capital of the Company the portion of the net cash proceeds of such Public Equity Offering necessary to pay the aggregate redemption price, plus accrued and unpaid interest, if any, to the redemption date, of the Notes to be redeemed pursuant to the preceding paragraph. Selection and Notice. If less than all of the Notes are to be redeemed at any time, selection of the Notes to be redeemed will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a securities exchange, on a pro rata basis or by lot or any other method as the Trustee shall deem fair and appropriate; provided, however, that Notes redeemed in part shall only be redeemed in integral multiples of $1,000; provided, further, that any such redemption pursuant to the provisions relating to a Public Equity Offering shall be made on a pro rata basis or on as nearly a pro rata basis as practicable (subject to the procedures of The Depository Trust Company or any other depositary), unless such method is otherwise prohibited. Notices of any optional or mandatory redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at such holder's registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed, and the Trustee shall authenticate and mail to the holder of the original Note a new Note in principal amount equal to the unredeemed portion of the original Note promptly after the original Note has been canceled. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption. SUBORDINATION The payment of the principal of, premium, if any, and interest on, or Liquidated Damages, if any, with respect to, the Notes is subordinated, as set forth in the Indenture, in right of payment to the prior payment in full of all existing and future Senior Debt (including the indebtedness under the Senior Credit Facility). The Notes are senior subordinated indebtedness of the Company ranking pari passu with all other existing and future senior subordinated indebtedness of the Company. Upon any payment or distribution of cash, securities or other property of the Company to creditors upon any liquidation, dissolution or winding up of the Company, or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property or securities, an assignment for the benefit of creditors or any marshalling of the 61 67 Company's assets or liabilities, the holders of any Senior Debt of the Company will be entitled to receive payment in full, in cash or Cash Equivalents, of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the agreements governing such Senior Debt) before the holders of the Notes or the Trustee on behalf of such holders will be entitled to receive any payment or distribution with respect to the Notes. The Company also may not make any payment upon or in respect of the Notes (except from the trust described under "-- Defeasance" below) if (i) a default in the payment of the principal of, premium, if any, or interest on any Designated Senior Debt occurs and is continuing, whether at maturity or on a date fixed for prepayment or by declaration of acceleration or otherwise, or (ii) the Trustee has received written notice ("Payment Blockage Notice") from the representative of any holders of Designated Senior Debt that a nonpayment default has occurred and is continuing with respect to such Designated Senior Debt that permits such holders to accelerate the maturity of such Designated Senior Debt. Payments on the Notes shall resume (and all past due amounts on the Notes, with interest thereon as specified in the Indenture, shall be paid) (i) in the case of a payment default in respect of any Designated Senior Debt, on the date on which such default is cured or waived or otherwise ceases to exist; and (ii) in the case of a nonpayment default in respect of any Designated Senior Debt, on the earlier of (a) the date on which such nonpayment default is cured or waived, or (b) 179 days after the date on which the Payment Blockage Notice with respect to such default was received by the Trustee, in each case, unless the maturity of any Designated Senior Debt has been accelerated and the Company has defaulted with respect to the payment of such Designated Senior Debt, or (c) the date on which such Payment Blockage Period (as defined below) shall have been terminated by written notice to the Company or the Trustee from the representative of the holders of Designated Senior Debt initiating such Payment Blockage Period. During any consecutive 365-day period, the aggregate number of days in which payments due on the Notes may not be made as a result of nonpayment defaults on Designated Senior Debt (a "Payment Blockage Period") shall not exceed 179 days, and there shall be a period of at least 186 consecutive days in each consecutive 365-day period during which no Payment Blockage Period is in effect. No event or circumstance that creates a nonpayment default under any Designated Senior Debt that (i) gives rise to the commencement of a Payment Blockage Period or (ii) exists at the commencement of or during any Payment Blockage Period shall be made the basis for the commencement of any subsequent Payment Blockage Period unless such default has been cured or waived for a period of not less than 90 consecutive days. As a result of the subordination provisions described above, holders of Notes may recover less ratably than creditors holding Senior Debt of the Company. In such circumstances, funds which would otherwise be payable to the holders of the Notes will be paid to the holders of the Senior Debt to the extent necessary to pay the Senior Debt in full in cash or Cash Equivalents, and the Company may be unable to meet its obligations fully with respect to the Notes. If the Company fails to make any payment on the Notes when due or within any applicable grace period, whether or not on account of the payment blockage provisions referred to above, 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." As of September 30, 1996, on a pro forma basis after giving effect to Transactions, there would have been no Senior Debt of the Company outstanding, exclusive of unused commitments of $20.0 million that may be borrowed by the Company under the Senior Credit Facility. The Notes are also effectively subordinated to all existing and future liabilities, including indebtedness, of the Company's Subsidiaries. As of September 30, 1996, on a pro forma basis after giving effect to the Transactions, the Company's Subsidiaries would have had indebtedness of approximately $5.5 million (excluding China joint venture indebtedness of approximately $3.8 million, which is non-recourse to the Company, and excluding unused commitments of $5.0 million) and other liabilities of approximately $7.9 million reflected on the Company's 62 68 consolidated balance sheet. Claims of creditors of the Company's Subsidiaries, including trade creditors, will generally have priority as to the assets of such Subsidiaries over the claims of the Company and the holders of the Company's indebtedness, including the Notes. CHANGE OF CONTROL In the event of a Change of Control, each holder of Notes will have the right, unless the Company has given a notice of redemption, subject to the terms and conditions of the Indenture, to require the Company to offer to purchase all or any portion (equal to $1,000 or an integral multiple thereof) of such holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, in accordance with the terms set forth below (a "Change of Control Offer"). Other debt instruments of the Company may in the future restrict the Company's ability to purchase Notes pursuant to a Change of Control Offer. Moreover, such debt instruments may contain a "change of control" provision that is similar to the provision in the Indenture relating to a Change of Control, and the occurrence of such a "change of control" would constitute a default under such debt instruments. The Company's obligations under such debt instruments may represent obligations senior in right of payment to the Notes, and such debt instruments may not permit the purchase of the Notes absent consent of the lenders thereunder in the event of a Change of Control. Notwithstanding the foregoing, the failure of the Company to effect a Change of Control Offer would constitute an Event of Default under the Indenture. If the Company is unable to obtain the requisite consents and/or repay all indebtedness which restricts the Company's ability to repurchase the Notes upon the occurrence of a Change of Control, the Company may not be able to commence a Change of Control Offer to purchase the Notes within 30 days of the occurrence of the Change of Control. Such failure would constitute an Event of Default under the Indenture. If a Change of Control were to occur, there can be no assurance that the Company would have sufficient assets to first satisfy its obligations under any other agreements relating to indebtedness, if accelerated, and then to purchase all of the Notes that might be delivered by holders seeking to accept a Change of Control Offer. On or before the 30th day following the occurrence of any Change of Control, the Company shall mail to each holder of Notes at such holder's registered address a notice stating: (i) that a Change of Control has occurred and that such holder has the right to require the Company to purchase all or a portion (equal to $1,000 or an integral multiple thereof) of such holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (the "Change of Control Purchase Date"), which shall be a business day, specified in such notice, that is not earlier than 30 days or later than 60 days from the date such notice is mailed, (ii) the amount of accrued and unpaid interest, if any, as of the Change of Control Purchase Date, (iii) that any Note not tendered will continue to accrue interest, (iv) that, unless the Company defaults in the payment of the purchase price for the Notes payable pursuant to the Change of Control Offer, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on the Change of Control Purchase Date, (v) the procedures, consistent with the Indenture, to be followed by a holder of Notes in order to accept a Change of Control Offer or to withdraw such acceptance, and (vi) such other information as may be required by the Indenture and applicable laws and regulations. On the Change of Control Purchase Date, the Company will (x) accept for payment all Notes or portions thereof tendered pursuant to the Change of Control Offer, (y) deposit with the Paying Agent the aggregate purchase price of all Notes or portions thereof accepted for payment, and (z) deliver or cause to be delivered to the Trustee all Notes tendered pursuant to the Change of Control Offer. The Paying Agent shall promptly mail to each holder of Notes or portions thereof accepted for payment an amount equal to the purchase price for such Notes plus accrued and unpaid interest, if any, thereon, and the Trustee shall promptly authenticate and mail to each holder 63 69 of Notes accepted for payment in part a new Note equal in principal amount to any unpurchased portion of the Notes, and any Note not accepted for payment in whole or in part shall be promptly returned to the holder of such Note. On and after a Change of Control Purchase Date, interest will cease to accrue on the Notes or portions thereof accepted for payment, unless the Company defaults in the payment of the purchase price therefor. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Purchase Date. The Company will comply with the applicable tender offer rules, including the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all other applicable securities laws and regulations in connection with any Change of Control Offer and will be deemed not to be in violation of any of the covenants under the Indenture to the extent such compliance is in conflict with such covenants. CERTAIN COVENANTS Limitation on Incurrence of Indebtedness. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, create, incur, issue, assume or directly or indirectly guarantee or in any other manner become directly or indirectly liable for ("incur") any Indebtedness (including Acquired Debt), except that the Company may incur Indebtedness (including Acquired Debt) if, at the time of, and immediately after giving pro forma effect to, such incurrence of Indebtedness, the Consolidated Cash Flow Coverage Ratio of the Company for the most recently ended four fiscal quarters would be at least 2.0 to 1.0 if incurred during the period from the Issue Date through November 15, 1998, and 2.25 to 1.0 if incurred thereafter. The foregoing limitations do not apply to the incurrence of any of the following (collectively, "Permitted Indebtedness"), each of which are given independent effect: (i) Indebtedness of the Company arising under the Senior Credit Facility and Indebtedness of IKS Klingelnberg GmbH and its Subsidiaries arising under the German Subsidiary Facilities, in an aggregate principal amount not to exceed at any time outstanding the greater of (x) $30.0 million, less any permanent reduction in commitments thereunder, and (y) the sum, at such time, of (I) 85% of the consolidated book value of net accounts receivable of the Company and the Restricted Subsidiaries and (II) 60% of the consolidated book value of inventory of the Company and the Restricted Subsidiaries; (ii) Indebtedness of the Company represented by the Notes and the Exchange Notes; (iii) Indebtedness of the Company or any Restricted Subsidiary not covered by any other clause of this paragraph which is outstanding on the Issue Date ("Existing Indebtedness"), including certain Indebtedness of IKS Klingelnberg GmbH under the German Subsidiary Facilities outstanding on the Issue Date; (iv) Indebtedness owed by any Restricted Subsidiary to the Company or to another Restricted Subsidiary, or owed by the Company to any Restricted Subsidiary; provided, however, that any such Indebtedness shall at all times be held by a Person which is either the Company or a Restricted Subsidiary; provided, further, however, that upon either (a) the transfer or other disposition of any such Indebtedness to a Person other than the Company or another Restricted Subsidiary or (b) the sale, transfer or other disposition of shares of Capital Stock (including by consolidation or merger) of any such Restricted Subsidiary to a Person other than the Company or another Restricted Subsidiary, the incurrence of such Indebtedness shall be deemed to be an incurrence that is not permitted by this clause (iv); (v) Indebtedness of the Company or any Restricted Subsidiary arising with respect to Interest Rate Agreement Obligations and Currency Agreement Obligations incurred for the purpose of fixing or hedging interest rate risk or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding or 64 70 with respect to any receivable or liability the payment of which is determined by reference to a foreign currency; (vi) Indebtedness represented by performance, completion, guarantee, surety and similar bonds provided by the Company or any Restricted Subsidiary in the ordinary course of business consistent with past practice; (vii) Any Indebtedness incurred in connection with or given in exchange for the renewal, extension, substitution, refunding, defeasance, refinancing or replacement, in whole or in part, (a "refinancing") of any Indebtedness incurred as permitted under the first paragraph of this covenant or any Indebtedness described in clauses (ii) or (iii) above and this clause (vii) ("Refinancing Indebtedness"); provided, however, that (a) the principal amount of such Refinancing Indebtedness shall not exceed the principal amount (or accreted amount, if less) of the Indebtedness so refinanced (plus the premiums and reasonable expenses to be paid in connection therewith, which, with respect to such premiums, shall not exceed the stated amount of any premium or other payment required to be paid in connection with such a refinancing pursuant to the terms of the Indebtedness being refinanced); (b) if the Weighted Average Life to Maturity of the Indebtedness being refinanced is equal to or greater than the Weighted Average Life to Maturity of the Notes, the Refinancing Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being refinanced; (c) with respect to Refinancing Indebtedness other than Senior Debt incurred by the Company, such Refinancing Indebtedness shall rank no more senior than, and, if applicable, shall be at least as subordinated in right of payment to the Notes as, the Indebtedness being refinanced; and (d) the obligor on such Refinancing Indebtedness shall be the obligor on the Indebtedness being refinanced or the Company; (viii) Indebtedness of the Company or any Restricted Subsidiary (a) representing Capitalized Lease Obligations and any refinancings thereof and/or (b) in respect of Purchase Money Obligations for property acquired, constructed or improved in the ordinary course of business and any refinancings thereof, which taken together in the aggregate do not exceed $5 million at any time outstanding; (ix) commodity agreements entered into in the ordinary course of business to protect against fluctuations in the prices of raw materials and not for speculative purposes; (x) Indebtedness incurred by the Company or any Restricted Subsidiary constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims or self-insurance; (xi) (a) Guarantees by the Company of Indebtedness of a Restricted Subsidiary permitted to be incurred under the Indenture, (b) Guarantees by any Restricted Subsidiary in accordance with the covenant entitled "-- Guarantees" below and (c) Guarantees by any Restricted Subsidiary of Senior Debt so long as such Restricted Subsidiary executes a Guarantee of the Notes on a senior subordinated basis; (xii) Indebtedness of the Company or any Restricted Subsidiary arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, in each case incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than Guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided that the maximum liability in respect of such Indebtedness shall not exceed the gross proceeds actually received by the Company and its Restricted Subsidiaries in connection with such disposition; and 65 71 (xiii) Indebtedness of the Company or any Restricted Subsidiary in addition to that described in clauses (i) through (xii) above, and any renewals, extensions, substitutions, refinancings or replacements of such Indebtedness, so long as the aggregate principal amount of all such Indebtedness incurred pursuant to this clause (xiii) does not exceed $5.0 million at any one time outstanding (which may be, but shall not be required to be, incurred, in whole or in part, under the Senior Credit Facility or the German Subsidiary Facilities). For purposes of determining any particular amount of Indebtedness under this covenant, Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included. Indebtedness of any Person which is outstanding at the time such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Company or a Restricted Subsidiary shall be deemed to have been incurred at the time such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Company or a Restricted Subsidiary, and Indebtedness which is assumed at the time of the acquisition of any asset shall be deemed to have been incurred at the time of such acquisition. Limitation on Restricted Payments. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, make any Restricted Payment, unless at the time of and immediately after giving effect to the proposed Restricted Payment (with the value of any such Restricted Payment, if other than cash, to be determined reasonably and in good faith by the Board of Directors of the Company): (i) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (ii) the Company could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Incurrence of Indebtedness"; and (iii) the aggregate amount of all Restricted Payments made after the Issue Date shall not exceed the sum of: (a) an amount equal to 50% of the Company's aggregate cumulative Consolidated Net Income accrued on a cumulative basis during the period (treated as one accounting period) beginning on the Issue Date and ending on the date of such proposed Restricted Payment (or, if such aggregate cumulative Consolidated Net Income for such period shall be a deficit, minus 100% of such deficit); plus (b) the aggregate amount of all net cash proceeds received since the Issue Date by the Company from the issuance and sale (other than to a Restricted Subsidiary) of, or equity contribution with respect to, Capital Stock (other than Disqualified Stock) and the principal amount of Indebtedness of the Company or any Restricted Subsidiary that has been converted into or exchanged for Capital Stock (other than Disqualified Stock), in any such case to the extent that such proceeds are not used (x) to redeem, repurchase, retire or otherwise acquire Capital Stock or any Indebtedness of the Company or any Restricted Subsidiary pursuant to clause (ii) of the next paragraph or (y) to make any Restricted Investment pursuant to clause (iv) of the next paragraph; plus (c) the amount of the net reduction in Investments in Unrestricted Subsidiaries resulting from (x) the payment of dividends or the repayment in cash of the principal of loans or the cash return on any Investment, in each case to the extent received by the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, (y) the release or extinguishment of any guarantee of Indebtedness of any Unrestricted Subsidiary, and (z) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued as provided in the definition of "Investment"), such aggregate amount of the net reduction in 66 72 Investments not to exceed in the case of any Unrestricted Subsidiary the amount of Restricted Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was included in the calculation of the amount of Restricted Payments; plus (d) to the extent that any Restricted Investment that was made after the Issue Date is sold for cash or otherwise liquidated or repaid for cash, the amount of cash proceeds received with respect to such Restricted Investment, net of taxes and the cost of disposition, not to exceed the amount of Restricted Investments made after the Issue Date. The foregoing provisions do not prohibit the following actions (collectively, "Permitted Payments"): (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such declaration date such payment would have been permitted under the Indenture (which payment shall be deemed to have been paid on such date of declaration for purposes of clause (iii) of the preceding paragraph); (ii) the redemption, repurchase, retirement or other acquisition of any Capital Stock or any Indebtedness of the Company or any Restricted Subsidiary in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Restricted Subsidiary) of, or equity contribution with respect to, Capital Stock of the Company (other than any Disqualified Stock); (iii) any purchase or defeasance of Subordinated Indebtedness to the extent required upon a Change of Control or Asset Sale (as defined therein) by the indenture or other agreement or instrument pursuant to which such Subordinated Indebtedness was issued, but only if the Company (x) in the case of a Change of Control, has complied with its obligations under the provisions described under "-- Change of Control" or (y) in the case of an Asset Sale, has applied the Net Proceeds from such Asset Sale in accordance with the provisions described under "-- Limitation on Asset Sales"; (iv) any Restricted Investment the sole consideration for which consists of, or is made with the proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary) of, or equity contribution with respect to, Capital Stock of the Company (other than any Disqualified Stock); (v) the making of payments by the Company to IKS Holdings in an amount not in excess of the income tax liability that the Company and its Subsidiaries would have been liable for if the Company and its Subsidiaries had filed consolidated tax returns on a stand-alone basis; (vi) distributions, loans or advances to IKS Holdings in an aggregate amount not to exceed $50,000 per annum sufficient to permit IKS Holdings to pay the ordinary operating expenses of IKS Holdings (including, without limitation, reasonable directors' fees and expenses, indemnification obligations and professional fees and expenses) directly related to IKS Holdings' ownership of Capital Stock of the Company (other than any expenses of CVC or any of its Affiliates); (vii) payments to IKS Holdings in amounts and at times necessary to permit the repurchase of Holdings Common Stock, Holdings Preferred Stock and Holdings Debentures from directors, officers and employees of the Company and its Subsidiaries who have died or whose employment has been terminated; provided that such payments shall not exceed $500,000 in any fiscal year plus any amount available for such payments hereunder since the Issue Date which have not been used for such purpose; provided, further, that in no event shall such payments exceed $2.0 million in any fiscal year; (viii) loans or advances to employees of the Company or any of its Subsidiaries which loans or advances exist on the Issue Date, a loan to John E. Halloran, the Company's President 67 73 and Chief Executive Officer, to pay income taxes which will be incurred by him in connection with the Recapitalization not to exceed $250,000 and other loans or advances to employees of the Company or any Subsidiary to pay reasonable relocation expenses; and (ix) Restricted Investments in an amount such that the sum of the aggregate amount of Restricted Investments made pursuant to this clause (ix) after the Issue Date does not exceed $2.0 million at any one time outstanding; provided, however, that in the case of clauses (iii), (vii), (viii) and (ix) of this paragraph, no Default or Event of Default shall have occurred and be continuing. For purposes of clause (iii) of the first paragraph of this covenant, the Permitted Payments referred to in clauses (i), (vii) and (ix) above shall be included in the aggregate amount of Restricted Payments made since the Issue Date, and any other Permitted Payments described above shall be excluded. Limitation on Asset Sales. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or other property sold or disposed of in the Asset Sale and (ii) at least 75% of such consideration consists of either cash or Cash Equivalents; provided, however, that for purposes of this covenant, "cash" shall include (x) the amount of any Indebtedness (other than any Indebtedness that is by its terms subordinated to the Notes) of the Company or such Restricted Subsidiary as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or in the notes thereto that is assumed by the transferee of any such assets or other property in such Asset Sale (and excluding any liabilities that are incurred in connection with or in anticipation of such Asset Sale), but only to the extent that such assumption is effected on a basis such that there is no further recourse to the Company or any of the Restricted Subsidiaries with respect to such liabilities and (y) any notes, obligations or securities received by the Company or such Restricted Subsidiary from such transferee that are converted within 60 days by the Company or such Restricted Subsidiary into cash (to the extent of the cash received). Within 270 days after any Asset Sale, the Company or the applicable Restricted Subsidiary may elect to apply the Net Proceeds from such Asset Sale to (a) permanently reduce any Senior Debt of the Company or any Indebtedness of the applicable Restricted Subsidiary and/or (b) make an investment in, or acquire assets and properties that will be used in, the business of the Company and the Restricted Subsidiaries existing on the Issue Date or in businesses reasonably related thereto. Pending the final application of any such Net Proceeds, the Company or any Restricted Subsidiary may temporarily reduce Indebtedness of the Company under the Senior Credit Facility or temporarily invest such Net Proceeds in any Investments described under clauses (i) through (iii) of the definition of Permitted Investments. Any Net Proceeds from an Asset Sale not applied or invested as provided in the first sentence of this paragraph within 270 days of such Asset Sale will be deemed to constitute "Excess Proceeds." Each date that the aggregate amount of Excess Proceeds in respect of which an Asset Sale Offer (as defined below) has not been made exceeds $5.0 million shall be deemed an "Asset Sale Offer Trigger Date." As soon as practicable, but in no event later than 20 business days after each Asset Sale Offer Trigger Date, the Company shall commence an offer (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds. Any Notes to be purchased pursuant to an Asset Sale Offer shall be purchased pro rata based on the aggregate principal amount of Notes outstanding, and all Notes shall be purchased at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. To the extent that any Excess Proceeds remain after completion of an Asset Sale Offer, the Company may use the remaining amount for general corporate purposes otherwise permitted by the Indenture. In the event that the Company is 68 74 prohibited under the terms of any agreement governing outstanding Senior Debt of the Company from repurchasing Notes with Excess Proceeds pursuant to an Asset Sale Offer as set forth in the first sentence of this paragraph, the Company shall promptly use all Excess Proceeds to permanently reduce such outstanding Senior Debt of the Company. Upon the consummation of any Asset Sale Offer, the amount of Excess Proceeds shall be deemed to be reset to zero. Notice of an Asset Sale Offer shall be mailed by the Company not later than the 20th business day after the related Asset Sale Offer Trigger Date to each holder of Notes at such holder's registered address, stating: (i) that an Asset Sale Offer Trigger Date has occurred and that the Company is offering to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds (to the extent provided in the immediately preceding paragraph), at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of the purchase (the "Asset Sale Offer Purchase Date"), which shall be a business day, specified in such notice, that is not earlier than 30 days or later than 60 days from the date such notice is mailed, (ii) the amount of accrued and unpaid interest, if any, as of the Asset Sale Offer Purchase Date, (iii) that any Note not tendered will continue to accrue interest, (iv) that, unless the Company defaults in the payment of the purchase price for the Notes payable pursuant to the Asset Sale Offer, any Notes accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Asset Sale Offer Purchase Date, (v) the procedures, consistent with the Indenture, to be followed by a holder of Notes in order to accept an Asset Sale Offer or to withdraw such acceptance, and (vi) such other information as may be required by the Indenture and applicable laws and regulations. On the Asset Sale Offer Purchase Date, the Company will (i) accept for payment the maximum principal amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer that can be purchased out of Excess Proceeds from such Asset Sale that are to be applied to an Asset Sale Offer, (ii) deposit with the Paying Agent the aggregate purchase price of all Notes or portions thereof accepted for payment, and (iii) deliver or cause to be delivered to the Trustee all Notes tendered pursuant to the Asset Sale Offer. If less than all Notes tendered pursuant to the Asset Sale Offer are accepted for payment by the Company for any reason consistent with the Indenture, selection of the Notes to be purchased by the Company shall be in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis or by lot; provided, however, that Notes accepted for payment in part shall only be purchased in integral multiples of $1,000. The Paying Agent shall promptly mail to each holder of Notes or portions thereof accepted for payment an amount equal to the purchase price for such Notes plus accrued and unpaid interest, if any, thereon, and the Trustee shall promptly authenticate and mail to such holder of Notes accepted for payment in part a new Note equal in principal amount to any unpurchased portion of the Notes, and any Note not accepted for payment in whole or in part shall be promptly returned to the holder of such Note. On and after an Asset Sale Offer Purchase Date, interest will cease to accrue on the Notes or portions thereof accepted for payment, unless the Company defaults in the payment of the purchase price therefor. The Company will publicly announce the results of the Asset Sale Offer on or as soon as practicable after the Asset Sale Offer Purchase Date. The foregoing provisions do not apply to a transaction consummated in compliance with the provisions of the Indenture described under "-- Merger, Consolidation and Sale of Assets" below. The Company will comply with the applicable tender offer rules, including the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all other applicable securities laws and regulations in connection with any Asset Sale Offer and will be deemed not to be in violation of any of the covenants under the Indenture to the extent such compliance is in conflict with such covenants. Limitation on Liens. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness that is pari passu with or subordinated in right of payment to the Notes 69 75 (other than Permitted Liens) on any asset now owned or hereafter acquired, or any income or profits therefrom, or assign or convey any right to receive income therefrom to secure any such Indebtedness, unless (i) if such 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 (ii) if such Lien secures Indebtedness which is subordinated to the Notes, any such Lien shall be subordinated to a Lien granted to the holders of the Notes in the same collateral as that securing such Lien to the same extent as such subordinated Indebtedness is subordinated to the Notes. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause to become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions to the Company or any other Restricted Subsidiary on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (ii) make loans or advances to, or issue Guarantees for the benefit of, the Company or any other Restricted Subsidiary or (iii) transfer any of its properties or assets to the Company or any other Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of (a) the Senior Credit Facility, (b) any German Subsidiary Facility, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of an Acquired Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition); provided, however, that no such encumbrance or restriction is applicable to any Person, or the properties or assets of any Person, other than the Acquired Person, (e) by reason of customary non-assignment, subletting or net worth provisions in leases or other agreements entered into the ordinary course of business and consistent with past practices, (f) Purchase Money Indebtedness for property acquired in the ordinary course of business that impose restrictions only on the property so acquired, (g) an agreement for the sale or disposition of assets or the Capital Stock of a Restricted Subsidiary; provided, however, that such restriction or encumbrance is only applicable to such Restricted Subsidiary or assets, as applicable, and such sale or disposition otherwise is permitted by the provisions described under "-- Limitation on Asset Sales"; provided, further, however, that such restriction or encumbrance shall be effective only for a period from the execution and delivery of such agreement through a termination date not later than 270 days after such execution and delivery, (h) the Indenture and the Notes, (i) Indebtedness (including Refinancing Indebtedness) permitted to be incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under "-- Limitation on Incurrence of Indebtedness"; provided, however, that any such restrictions are ordinary and customary with respect to the type of Indebtedness being incurred, (j) encumbrances and restrictions imposed by Liens incurred in accordance with the covenant described under "-- Limitation on Liens", (k) customary provisions in joint venture agreements and other similar agreements, and (l) encumbrances and restrictions imposed by amendments, restatements, renewals, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (a) through (k) above; provided that such encumbrances and restrictions are, in the good faith judgment of the Company's Board of Directors, no more restrictive, in any material respect, than those contained in such contracts, instruments or obligations immediately prior to such amendment, restatement, renewal, replacement or refinancing. Limitation on Transactions with Affiliates. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate of the Company unless (1) such transaction or series of transactions is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could reasonably be obtainable at such time in a comparable transaction in arm's-length dealings with an unrelated third party, and 70 76 (2) the Company delivers to the Trustee (a) with respect to any transaction or series of transactions involving aggregate payments in excess of $500,000, an Officers' Certificate certifying that such transaction or series of related transactions complies with clause (1) above and (b) with respect to any transaction or series of transactions involving aggregate payments in excess of $2.0 million, an Officers' Certificate certifying that such transaction or series of related transactions has been approved by a majority of the members of the Board of Directors of the Company (and approved by a majority of the Independent Directors or, in the event there is only one Independent Director, by such Independent Director), and (c) with respect to any transaction or series of transactions involving aggregate payments in excess of $5.0 million, an opinion as to the fairness to the Company from a financial point of view issued by an investment banking firm of national standing. Notwithstanding the foregoing, this covenant will not apply to (i) employment agreements or compensation or employee benefit arrangements with any officer, director or employee of the Company or any of its Restricted Subsidiaries entered into in the ordinary course of business (including customary benefits thereunder and including reimbursement or advancement of out-of-pocket expenses, and director's and officer's liability insurance), (ii) any transaction entered into by or among the Company or one of its Restricted Subsidiaries with one or more Restricted Subsidiaries of the Company, (iii) any transaction permitted by the second paragraph under "-- Limitation on Restricted Payments", (iv) transactions permitted by, and complying with, the provisions described under "-- Merger, Consolidation and Sale of Assets" and (v) transactions with suppliers or other purchases or sales of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the Indenture which, in the reasonable determination of the Board of Directors of the Company, are on terms no less favorable to the Company or its Restricted Subsidiaries than those that could reasonably have been obtained at such time from an unaffiliated party. Limitation on Designation of Unrestricted Subsidiaries. The Indenture provides that the Company will not designate any Subsidiary of the Company (other than a newly created Subsidiary in which no Investment has previously been made) as an "Unrestricted Subsidiary" under the Indenture (a "Designation") unless: (a) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (b) immediately after giving effect to such Designation, the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the covenant described under "-- Limitation on Incurrence of Indebtedness"; and (c) the Company would not be prohibited under the Indenture from making an Investment at the time of Designation in an amount (the "Designation Amount") equal to the greater of (x) the book value of such Restricted Subsidiary on such date and (y) the Fair Market Value of such Restricted Subsidiary on such date. In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to the covenant described under "-- Limitation on Restricted Payments" for all purposes of the Indenture in an amount equal to the Designation Amount. The Indenture further provides that the Company will not designate an Unrestricted Subsidiary as a Restricted Subsidiary (a "Redesignation"), unless: (a) no Default shall have occurred and be continuing at the time of and after giving effect to such Redesignation; and (b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Redesignation shall be deemed to have been incurred at such time and shall have been permitted to be incurred for all purposes of the Indenture. 71 77 An Unrestricted Subsidiary shall be deemed to be redesignated as a Restricted Subsidiary at any time if (a) the Company or any other Restricted Subsidiary (i) provides credit support for, or a guarantee of, any Indebtedness of such Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of such Unrestricted Subsidiary or (b) a default with respect to any Indebtedness of such Unrestricted Subsidiary (including any right which the holders thereof may have to take enforcement action against it) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity, except in the case of clause (a) to the extent permitted under the covenant described above under the caption " -- Limitation on Restricted Payments." The Company's Subsidiaries in China were designated Unrestricted Subsidiaries as of the Issue Date. All Designations (other than with respect to the Company's Subsidiaries in China) and Redesignations must be evidenced by Board Resolutions delivered to the Trustee certifying compliance with the foregoing provisions. Subsidiaries that are not designated by the Board of Directors as Restricted or Unrestricted Subsidiaries will be deemed to be Restricted Subsidiaries. The Designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be deemed a Designation of all of the Subsidiaries of such Unrestricted Subsidiary as Unrestricted Subsidiaries. Limitation on Incurrence of Senior Subordinated Indebtedness. The Company shall not, directly or indirectly, incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinated or junior in right of payment to any Senior Debt of the Company and senior in any respect in right of payment to the Notes. For purposes of this provision, no Indebtedness shall be deemed to be subordinated in right of payment to any other Indebtedness by reason of the fact that such other Indebtedness is secured by any Lien or is subject to a Guarantee. Guarantees. If the Company or any of its Restricted Subsidiaries transfers or causes to be transferred, in one transaction or a series of related transactions, any property (other than cash) to any Restricted Subsidiary that is not a Foreign Subsidiary, or if the Company or any of its Restricted Subsidiaries shall organize, acquire or otherwise invest in another Restricted Subsidiary that is not a Foreign Subsidiary, then such transferee or acquired or other Restricted Subsidiary shall (i) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee on a senior subordinated basis all of the Company's obligations under the Notes and the Indenture and (ii) deliver to the Trustee an opinion of counsel that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Subsidiary. The Indebtedness represented by any such Guarantee will be subordinated on the same basis to senior Indebtedness of the guarantor thereof as the Notes are subordinated to Senior Debt. The obligations of each guarantor will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such guarantor, result in the obligations of such guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Any such Guarantee will be released upon the sale of all of the Capital Stock, or all or substantially all of the assets, of the applicable guarantor if such sale is made in compliance with the Indenture. Provision of Financial Statements and Information. The Indenture provides that, following effectiveness of the Exchange Offer, whether or not the Company is then subject to Section 13(a) or 15(d) of the Exchange Act, the Company will file with the Commission so long as any Notes are outstanding, the annual reports, quarterly reports and other periodic reports which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) if the Company were so subject, and such documents shall be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been 72 78 required so to file such documents if the Company were so subject; provided the Commission will accept such filings. The Company will also in any event (i) within 15 days of each Required Filing Date, file with the Trustee, and supply the Trustee with copies for delivery to the holders of the Notes, the annual reports, quarterly reports and other periodic reports which the Company would have been required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were subject to such Sections and (ii) if the Commission will not accept the filing of such documents promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective holder of the Notes. The Company shall provide to any holder or any beneficial owner of Notes any information reasonably requested by such holder or such beneficial owner concerning the Company and its Subsidiaries (including financial statements) necessary in order to permit such holder or such beneficial owner to sell or transfer Notes in compliance with Rule 144A under the Securities Act. Additional Covenants. The Indenture also contains covenants with respect to the following matters: (i) payment of principal, premium and interest; (ii) maintenance of an office or agency in The City of New York; (iii) maintenance of corporate existence; (iv) payment of taxes and other claims; (v) maintenance of properties; and (vi) maintenance of insurance. MERGER, CONSOLIDATION AND SALE OF ASSETS The Indenture provides that the Company shall not, in any single transaction or series of related transactions, consolidate or merge with or into (whether or not the Company is the Surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) in one or more related transactions to, another Person, and the Company will not permit any Restricted Subsidiary to enter into any such transaction or series of related transactions if such transaction or series of related transactions, in the aggregate, would result in a sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the properties and assets of the Company and the Restricted Subsidiaries, taken as a whole, to another Person, unless (i) the Surviving Person is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Surviving Person (if other than the Company) assumes all the obligations of the Company under the Notes, the Indenture and, if then in effect, the Registration Rights Agreement pursuant to a supplemental indenture or other written agreement, as the case may be, in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction, no Default or Event of Default shall have occurred and be continuing; (iv) immediately after giving effect to such transaction or series of related transactions, (A) in the case of a transaction involving the Company, the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction or series of related transactions or (B) in the case of a transaction involving a Restricted Subsidiary of the Company, the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of such Restricted Subsidiary immediately prior to such transaction or series of related transactions; and (v) after giving pro forma effect to such transaction, the Surviving Person would be permitted to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Incurrence of Indebtedness." Notwithstanding clauses (iii), (iv) and (v) above, any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company or another Restricted Subsidiary. In the event of any transaction (other than a lease) described in and complying with the conditions listed in the immediately preceding paragraph in which the Company is not the Surviving Person, such Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of, the Company, and the Company shall be discharged from its obligations under, the Indenture, the Notes and the Registration Rights Agreement. 73 79 EVENTS OF DEFAULT The Indenture provides that each of the following constitutes an Event of Default: (i) a default for 30 days in the payment when due of interest on, or Liquidated Damages (if any) with respect to, any Note (whether or not prohibited by the subordination provisions of the Indenture); (ii) a default in the payment when due of principal on any Note (whether or not prohibited by the subordination provisions of the Indenture), whether upon maturity, acceleration, optional or mandatory redemption, required repurchase or otherwise; (iii) failure to perform or comply with any covenant, agreement or warranty in the Indenture (other than the defaults specified in clauses (i) and (ii) above) which failure continues for 60 days after written notice thereof has been given to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the then outstanding Notes; (iv) the occurrence of one or more defaults under any agreements, indentures or instruments under which the Company or any Restricted Subsidiary then has outstanding Indebtedness in excess of $5.0 million in the aggregate and, if not already matured at its final maturity in accordance with its terms, such Indebtedness shall have been accelerated and such acceleration is not rescinded, annulled or cured within 10 days thereafter; (v) one or more judgments, orders or decrees for the payment of money in excess of $5.0 million, either individually or in the aggregate, shall be entered against the Company or any Restricted Subsidiary or any of their respective properties and which judgments, orders or decrees are not paid, discharged, bonded or stayed or stayed pending appeal for a period of 60 days after their entry; or (vi) certain events of bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary. If any Event of Default (other than as specified in clause (vi) of the preceding paragraph with respect to the Company) occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes may, and the Trustee at the request of such holders shall, declare all the Notes to be due and payable immediately by notice in writing to the Company, and to the Company and the Trustee if by the holders, specifying the respective Event of Default and that such notice is a "notice of acceleration," and the Notes shall become immediately due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from the events specified in clause (vi) of the preceding paragraph with respect to the Company, the principal of, premium, if any, and any accrued interest on all outstanding Notes shall ipso facto become immediately due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except (i) a continuing Default or Event of Default in the payment of the principal of, or premium, if any, or interest on, the Notes (which may be waived only with the consent of each holder of Notes affected), or (ii) in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each Note outstanding. 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 of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, premium or interest) if it determines that withholding notice is in their interest. 74 80 The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS The Indenture provides that no recourse for the payment of the principal of, premium, if any, interest on or Liquidated Damages, if any, with respect to 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 the Indenture, or in any of the Notes or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator, shareholder, officer, director, employee or controlling person of the Company or of any successor Person thereof. Each Holder, by accepting the Notes, waives and releases all such liability. DEFEASANCE The Company may, at its option and at any time, elect to have the obligations of the Company discharged with respect to the outstanding Notes ("defeasance"). Such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes and to have satisfied all other obligations under the Notes and the Indenture except for (i) the rights of holders of the outstanding Notes to receive, solely from the trust fund described below, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and the maintenance of an office or agency for payment, (iii) the rights, powers, trusts, duties and immunities of the Trustee under the Indenture, and (iv) the defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("covenant defeasance") and any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Notes. In the event that a covenant defeasance occurs, certain events (not including non-payment, bankruptcy and insolvency events) described under "-- Events of Default" will no longer constitute Events of Default with respect to the Notes. In order to exercise either defeasance or covenant defeasance, (i) the Company shall irrevocably deposit with the Trustee, as trust funds in trust, for the benefit of the holders of the Notes, cash in United States dollars, U.S. Government Obligations (as defined in the Indenture), or a combination thereof, in such amounts as will be sufficient, in the report of a nationally recognized firm of independent public accountants or a nationally recognized investment banking firm, to pay and discharge the principal of, premium, if any, and interest on the outstanding Notes to redemption or maturity; (ii) the Company shall have delivered to the Trustee an opinion of counsel in the United States to the effect that the holders of the outstanding Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance or covenant defeasance, as the case may be, and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance, as the case may be, had not occurred (in the case of defeasance, such opinion must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable Federal income tax laws); (iii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as clause (vi) under the first paragraph under "-- Events of Default" is concerned, at any time during the period ending on the 91st day after the date of deposit; (iv) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Company is a party or by which it is bound; (v) the Company shall have delivered to the Trustee an opinion of counsel to the effect that (A) the trust funds will not be subject to any rights of holders of Indebtedness (other than holders of the Notes) and (B) after the 91st day following the deposit, the trust funds will not be subject to the effect of 75 81 any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (vi) the Company shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent under the Indenture to either defeasance or covenant defeasance, as the case may be, have been complied with and that no violations under agreements governing any other outstanding Indebtedness of the Company would result therefrom. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation or (b) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee an amount in United States dollars sufficient to pay and discharge the entire indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for the principal of, premium, if any, and interest to the date of deposit; (ii) the Company has paid or caused to be paid all other sums payable under the Indenture by the Company; and (iii) the Company has delivered to the Trustee an Officers' Certificate and an opinion of counsel each stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two paragraphs, the Indenture or the Notes may be amended or supplemented with the written consent of the holders of at least a majority in aggregate principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Without the consent of each holder affected, an amendment or waiver shall not: (i) reduce the principal amount of the Notes whose holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note, or alter or waive the provisions with respect to the redemption of the Notes in a manner adverse to the holders of the Notes other than with respect to a Change of Control Offer or an Asset Sale Offer, (iii) reduce the rate of or change the time for payment of interest on any Notes, (iv) waive a Default or Event of Default in the payment of principal of, premium, if any, or interest on the Notes (except that holders of at least a majority in aggregate principal amount of the then outstanding Notes may (a) rescind an acceleration of the Notes that resulted from a non-payment default, and (b) waive the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or Events of Default or the rights of holders of Notes to receive payments of principal of, or premium, if any, or interest on, the Notes, (vii) following the occurrence of a Change of Control, amend, change or modify the Company's obligation to make and consummate a Change of Control Offer in the event of a Change of Control or modify any of the provisions or definitions with respect thereto in a manner adverse to the holders of the Notes, or following the occurrence of an Asset Sale, amend, change or modify the Company's obligation to make and consummate an Asset Sale Offer or modify any of the provisions or definitions with respect thereto in a manner adverse to the holders of the Notes, or (viii) modify or change any of the provisions of the Indenture relating to the subordination of the Notes in a manner adverse to the holders of the Notes. Notwithstanding the foregoing, without the consent of any holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes (i) to cure any ambiguity, defect or inconsistency, (ii) to provide for uncertificated Notes in addition to or in place of certificated 76 82 Notes, (iii) to provide for the assumption of the Company's obligations to holders of the Notes in the event of any Disposition involving the Company in which the Company is not the Surviving Person, (iv) to make any change that would provide any additional rights or benefits to the holders of the Notes or that does not adversely affect the rights of any such holder, (v) to release any Guarantee permitted to be released under the Indenture, or (vi) to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. TRANSFER AND EXCHANGE The registered holder of a Note will be treated as the owner of it for all purposes. A holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a holder among other things, to furnish appropriate endorsements and transfer documents and the Company may require a holder to pay any taxes and fees required by law or permitted by the Indenture. Neither the Company nor the Registrar shall be required to issue, register the transfer of or exchange any Note (i) during a period beginning at the opening of business on the day that the Trustee receives notice of any redemption from the Company and ending at the close of business on the day the notice of redemption is sent to holders, (ii) selected for redemption, in whole or in part, except the unredeemed portion of any Note being redeemed in part may be transferred or exchanged, and (iii) during a Change of Control Offer or an Asset Sale Offer if such Note is tendered pursuant to such Change of Control Offer or Asset Sale Offer and not withdrawn. THE TRUSTEE United States Trust Company of New York is the Trustee under the Indenture and has been appointed by the Company as Registrar and Paying Agent with regard to the Notes. The Indenture (including the provisions of the Trust Indenture Act incorporated by reference therein) contains limitations on the rights of the Trustee thereunder, 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, however, if it acquires any conflicting interest (as defined in the Trust Indenture Act) it must eliminate such conflict or resign. GOVERNING LAW The Indenture and the Notes are governed by the laws of the State of New York, without regard to the principles of conflicts of law. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for the definition of all other terms used in the Indenture. "Acquired Debt" means, with respect to any specified Person, Indebtedness of any other Person (the "Acquired Person") existing at the time the Acquired Person merges with or into, or becomes a Restricted Subsidiary of, such specified Person, including Indebtedness incurred in connection with, or in contemplation of, the Acquired Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; provided, however, that Indebtedness of such Acquired Person which is redeemed, defeased, retired or otherwise repaid at the time of or immediately upon consummation of the transactions by which such Acquired Person merges with or into or becomes a Restricted Subsidiary of such specified Person shall not be Acquired Debt. "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms 77 83 "controlling," "controlled by" and "under common control with") of any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Asset Sale" means (i) any sale, lease, conveyance or other disposition by the Company or any Restricted Subsidiary of any assets (including by way of a sale-and-leaseback) other than in the ordinary course of business, or (ii) the issuance or sale of Capital Stock of any Restricted Subsidiary, in the case of each of (i) and (ii), whether in a single transaction or a series of related transactions, to any Person (other than to the Company or a Restricted Subsidiary and other than directors' qualifying shares) for Net Proceeds in excess of $250,000. "Capital Lease Obligation" of any Person means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease for property leased by such Person that would at such time be required to be capitalized on the balance sheet of such Person in accordance with GAAP. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock or other equity participations, including partnership interests, whether general or limited, of such Person, including any Preferred Stock. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Rating Services or Moody's Investors Service, Inc.; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Rating Services or at least P-1 from Moody's Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances (or, with respect to foreign banks, similar instruments) maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any member of the European Economic Community or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $200 million; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Cash Flow" means, with respect to any period, Consolidated Net Income for such period, plus, to the extent deducted in computing such Consolidated Net Income: (i) extraordinary net losses, plus (ii) provision for taxes based on income or profits and any provision for taxes utilized in computing the extraordinary net losses under clause (i) hereof, plus (iii) Consolidated Interest Expense, plus (iv) depreciation, amortization and all other non-cash charges (including amortization of goodwill and other intangibles and any last-in, first-out (LIFO) provisions). "Change of Control" means the occurrence of any of the following events after the Issue Date: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) (other than one or more Permitted Holders) is or becomes (including by merger, consolidation or otherwise) 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 shares 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 50% or more of the voting power of the total outstanding Voting Stock 78 84 of the Company or IKS Holdings; (ii) after the consummation of an initial public offering of any class of common stock of the Company or IKS Holdings, during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors who have been appointed by CVC, Citicorp N.A. or any Affiliate of CVC, or any new directors whose election to such Board of Directors, or whose nomination for election by the stockholders of the Company, was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of such Board of Directors of the Company then in office; (iii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the terms of the Indenture); or (iv) the sale or other disposition (including by merger, consolidation or otherwise) of all or substantially all of the Capital Stock or assets of the Company to any Person or group (as defined in Rule 13d-5 of the Exchange Act) (other than to one or more of the Permitted Holders) as an entirety or substantially as an entirety in one transaction or a series of related transactions. "Consolidated Cash Flow Coverage Ratio" means, for any period, the ratio of (i) the aggregate amount of Cash Flow for such period, to (ii) Consolidated Interest Expense for such period, determined on a pro forma basis after giving pro forma effect to (i) the incurrence of the Indebtedness giving rise to the calculation of the Consolidated Cash Flow Coverage Ratio and (if applicable) the application of the net proceeds therefrom, including to refinance other Indebtedness, as if such Indebtedness was incurred, and the application of such proceeds occurred, at the beginning of such period; (ii) the incurrence, repayment or retirement of any other Indebtedness by the Company and its Restricted Subsidiaries since the first day of such period as if such Indebtedness was incurred, repaid or retired at the beginning of such period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility shall be computed based upon the average balance of such Indebtedness at the end of each month during such period); (iii) in the case of Acquired Debt, the related acquisition as if such acquisition had occurred at the beginning of such period; and (iv) any acquisition or disposition by the Company and its Restricted Subsidiaries of any company or any business or any assets out of the ordinary course of business, or any related repayment of Indebtedness, in each case since the first day of such period, assuming such acquisition or disposition had been consummated on the first day of such period. "Consolidated Interest Expense" means, with respect to any period, the sum of (i) the interest expense of the Company and its Restricted Subsidiaries for such period, including, without limitation, (a) amortization of debt discount, (b) the net payments, if any, under interest rate contracts (including amortization of discounts), (c) the interest portion of any deferred payment obligation and (d) accrued interest, plus (ii) the interest component of the Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and its Restricted Subsidiaries during such period, and all capitalized interest of the Company and its Restricted Subsidiaries, plus (iii) all dividends paid during such period by the Company and its Restricted Subsidiaries with respect to any Disqualified Stock (other than by any Restricted Subsidiary to the Company or any other Restricted Subsidiary and other than any dividend paid in Capital Stock (other than Disqualified Stock)), in each case, as determined on a consolidated basis in accordance with GAAP consistently applied. "Consolidated Net Income" means, with respect to any period, the net income (or loss) of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP consistently applied, adjusted to the extent included in calculating such net income (or loss), by excluding, without duplication, (i) all extraordinary gains and losses (less all fees and expenses relating thereto), (ii) the portion of net income (or loss) of the Company and its Restricted Subsidiaries allocable to interests in unconsolidated Persons or Unrestricted Subsidiaries, except to the extent of the amount of dividends or distributions actually paid to the 79 85 Company or its Restricted Subsidiaries by such other Person during such period, (iii) for purposes of the covenant entitled " -- Limitation on Restricted Payments", net income (or loss) of any Person combined with the Company or any of its Restricted Subsidiaries on a "pooling-of-interests" basis attributable to any period prior to the date of combination, (iv) net gains and losses (less all fees and expenses relating thereto) in respect of disposition of assets (including, without limitation, pursuant to sale and leaseback transactions) other than in the ordinary course of business, (v) the net income of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income to the Company is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, or (vi) the cumulative non-cash effect of any change in accounting principle. "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Stock of such Person. "Currency Agreement Obligations" means the obligations of any person under a foreign exchange contract, currency swap agreement or other similar agreement or arrangement to protect such person against fluctuations in currency values. "Default" means any event that is, or after the giving of notice or passage of time or both would be, an Event of Default. "Designated Senior Debt" means (i) the Indebtedness under the Senior Credit Facility, and (ii) any other Senior Debt of the Company permitted to be incurred under the Indenture the principal amount of which is $25 million or more at the time of the designation of such Senior Debt as "Designated Senior Debt" by the Company in a written instrument delivered to the Trustee. "Disposition" means, with respect to any Person, any merger, consolidation or other business combination involving such Person (whether or not such Person is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of such Person's assets. "Disqualified Stock" means (i) any Preferred Stock of any Restricted Subsidiary and (ii) that portion of any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof (other than upon a change of control of the Company in circumstances where the holders of the Notes would have similar rights), in whole or in part on or prior to the stated maturity of the Notes. "Dollars" and "$" means lawful money of the United States of America. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. "Foreign Subsidiary" means a Restricted Subsidiary not organized under the laws of the United States or any political subdivision thereof and the operations of which are located entirely outside the United States. "GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a 80 86 significant segment of the accounting profession in the United States of America, which are applicable as of the Issue Date and consistently applied. "German Subsidiary Facilities" means one or more credit facilities of IKS Klingelnberg GmbH, as the same may be amended, modified, renewed, refunded, replaced or refinanced from time to time, including (i) any related notes, letters of credit, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time, and (ii) any notes, guarantees, collateral documents, instruments and agreements executed in connection with any such amendment, modification, renewal, refunding, replacement or refinancing. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection or deposit in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Indebtedness" means, with respect to any Person, without duplication, and whether or not contingent, (i) all indebtedness of such Person for borrowed money or which is evidenced by a note, bond, debenture or similar instrument, (ii) all obligations of such Person to pay the deferred or unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such service, (iii) all Capital Lease Obligations of such Person, (iv) all obligations of such Person in respect of letters of credit or bankers' acceptances issued or created for the account of such Person, (v) to the extent not otherwise included in this definition, all net obligations of such Person under Interest Rate Agreement Obligations or Currency Agreement Obligations of such Person, (vi) all liabilities of others of the kind described in the preceding clause (i), (ii) or (iii) secured by any Lien on any property owned by such Person; provided, however, if the obligations secured by a Lien (other than a Permitted Lien not securing any liability that would itself constitute Indebtedness) on any assets or property have not been assumed by such Person in full or are not such Person's legal liability in full, the amount of such Indebtedness for purposes of this definition shall be limited to the lesser of the amount of Indebtedness secured by such Lien and the Fair Market Value of the property subject to such Lien, (vii) all Disqualified Stock issued by such Person and all Preferred Stock issued by a Subsidiary of such Person, and (viii) to the extent not otherwise included, any guarantee by such Person of any other Person's indebtedness or other obligations described in clauses (i) through (vii) above. "Indebtedness" of the Company and the Restricted Subsidiaries shall not include current trade payables incurred in the ordinary course of business and payable in accordance with customary practices, and non-interest bearing installment obligations and accrued liabilities incurred in the ordinary course of business which are not more than 90 days past due. The principal amount outstanding of any Indebtedness issued with original issue discount is the accreted value of such Indebtedness. Notwithstanding the foregoing, Indebtedness shall not include Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within 3 business days of the incurrence thereof. "Independent Director" means a director of the Company other than a director (i) who (apart from being a director of the Company or any Subsidiary of the Company) is an employee, associate or Affiliate of the Company or a Subsidiary of the Company, or (ii) who is a director, employee, associate or Affiliate of another party (other than the Company or any of its Subsidiaries) to the transaction in question. "Interest Rate Agreement Obligations" means, with respect to any Person, the Obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. 81 87 "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude travel and similar advances to officers and employees of the Company in the ordinary course of business and extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. For the purposes of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include and be valued at the Fair Market Value of the net assets of any Restricted Subsidiary (to the extent of the Company's equity interest in such Restricted Subsidiary) at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the Fair Market Value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided, however, that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, greater than 50% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means the date on which the Notes are first issued under the Indenture. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in any asset and any filing of, or agreement to give, any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Liquidated Damages" means all liquidated damages owing under the Registration Rights Agreement. "Net Proceeds" means, with respect to any Asset Sale by any Person, the aggregate cash or Cash Equivalent proceeds received by such Person and/or its Affiliates in respect of such Asset Sale, which amount is equal to the excess, if any, of (i) the cash or Cash Equivalent received by such Person and/or its Affiliates (including any cash payments received by way of deferred payment pursuant to, or monetization of, a note or installment receivable or otherwise, but only as and when received) in connection with such Asset Sale, over (ii) the sum of (a) the amount of any Indebtedness that is secured by such asset and which is required to be repaid by such Person in connection with such Asset Sale, plus (b) all fees, commissions and other expenses incurred by such Person in connection with such Asset Sale, plus (c) provision for taxes, including income taxes, directly attributable to the Asset Sale or to required prepayments or repayments of Indebtedness with the proceeds of such Asset Sale, plus (d) if such Person is a Restricted Subsidiary, any dividends or distributions payable to holders of minority interests in such Restricted Subsidiary from the proceeds of such Asset Sale, plus (e) appropriate amounts to be provided by the Company or any Restricted Subsidiary as a reserve against any liabilities associated with such 82 88 Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale; provided that upon the release of any such reserves, such amounts shall constitute "Net Proceeds" hereunder. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursement obligations, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Holders" means (i) CVC, (ii) Citicorp, N.A. or any other Affiliate of CVC, (iii) any officer, employee or director of CVC, (iv) the Management Investors and (v) in the case of any natural person specified in the foregoing clauses, any spouse or lineal descendant (including by adoption) of such person; provided, however, that in no event shall the persons specified in clauses (iii) through (v) be deemed "Permitted Holders" with respect to more than 30% of the voting power of the total outstanding Voting Stock of the Company or IKS Holdings in the aggregate. "Permitted Investments" means (i) any Investment in the Company or any Wholly-Owned Restricted Subsidiary (other than a Foreign Subsidiary) and any Investment (other than a transfer of property (excluding cash)) in a Foreign Subsidiary that is a Wholly-Owned Restricted Subsidiary; (ii) any investment in cash or Cash Equivalents; (iii) any Investment in a Person (an "Acquired Person") if, as a result of such Investment, (a) the Acquired Person becomes a Wholly-Owned Restricted Subsidiary, or (b) the Acquired Person either (1) is merged, consolidated or amalgamated with or into the Company or one of its Wholly-Owned Restricted Subsidiaries and the Company or such Wholly-Owned Restricted Subsidiary is the Surviving Person, or (2) transfers or conveys substantially all of its assets to, or is liquidated into, the Company or one of its Wholly-Owned Restricted Subsidiaries; provided that any Investment pursuant to this clause (iii) in a Person that is or becomes a Foreign Subsidiary shall not constitute the transfer of property (other than cash); (iv) Investments in accounts and notes receivable acquired in the ordinary course of business; (v) any notes, obligations or other securities received in connection with an Asset Sale that complies with the covenant described under "Limitations on Asset Sales" or any other disposition not constituting an "Asset Sale"; (vi) Interest Rate Obligations and Currency Agreement Obligations permitted pursuant to the second paragraph of the covenant described under "Limitation on Incurrence of Indebtedness" above; and (vii) investments in or acquisitions of Capital Stock or similar interests in Persons (other than Affiliates of the Company) received in the bankruptcy or reorganization of or by such Person or any exchange of such investment with the issuer thereof or taken in settlement of or other resolution of claims or disputes. "Permitted Liens" means (i) Liens on assets or property of the Company that secure Senior Debt of the Company and Liens on assets or property of a Restricted Subsidiary that secure Indebtedness of such Restricted Subsidiary; (ii) Liens securing Indebtedness of a Person existing at the time that such Person is merged into or consolidated with the Company or a Restricted Subsidiary; provided, however, that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of such Person; (iii) Liens on property acquired by the Company or a Restricted Subsidiary; provided, however, that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any other property; (iv) Liens in respect of Interest Rate Obligations and Currency Agreement Obligations permitted under the Indenture; (v) Liens in favor of the Company or any Restricted Subsidiary; (vi) Liens existing or created on the Issue Date; and (vii) Liens securing the Notes or the obligations of the Company to the Trustee under the Indenture. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or 83 89 distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over Capital Stock of any other class of such Person. "Purchase Money Obligation" means any Indebtedness secured by a Lien on assets related to the business of the Company or the Restricted Subsidiaries, and any additions and accessions thereto, which are purchased, constructed or improved by the Company or any Restricted Subsidiary at any time after the Issue Date; provided, however, that (i) any security agreement or conditional sales or other title retention contract pursuant to which the Lien on such assets is created (collectively, a "Security Agreement") shall be entered into within 90 days after the purchase or substantial completion of the construction or improvement of such assets and shall at all times be confined solely to the assets so purchased, constructed or improved, any additions and accessions thereto and any proceeds therefrom, (ii) at no time shall the aggregate principal amount of the outstanding Indebtedness secured thereby be increased, except in connection with the purchase of additions and accessions thereto and except in respect of fees and other obligations in respect of such Indebtedness and (iii) (A) the aggregate outstanding principal amount of Indebtedness secured thereby (determined on a per asset basis in the case of any additions and accessions) shall not at the time such Security Agreement is entered into exceed 100% of the purchase price or cost of construction or improvement to the Company or any Restricted Subsidiary of the assets subject thereto or (B) the Indebtedness secured thereby shall be with recourse solely to the assets so purchased, constructed or improved, any additions and accessions thereto and any proceeds therefrom. "Recapitalization Dividend" means the payment by the Company to IKS Holdings on the Issue Date of amounts necessary to consummate the Recapitalization. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Payment" means (i) any dividend or other distribution declared or paid on any Capital Stock of the Company (other than (A) dividends or distributions payable solely in Capital Stock (other than Disqualified Stock) of the Company, (B) dividends or distributions payable to the Company or any Restricted Subsidiary or (C) the Recapitalization Dividend); (ii) any payment to purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company (other than the Recapitalization Dividend); (iii) any payment to purchase, redeem, defease or otherwise acquire or retire for value, prior to any scheduled maturity, repayment or sinking fund payment, any Subordinated Indebtedness other than the Recapitalization Dividend or a purchase, redemption, defeasance or other acquisition or retirement for value that is paid for with the proceeds of Refinancing Indebtedness that is permitted under the covenant described under "-- Certain Covenants -- Limitation on Incurrence of Indebtedness"; or (iv) any Restricted Investment. "Restricted Subsidiary" means each direct or indirect Subsidiary of the Company other than an Unrestricted Subsidiary. "Senior Credit Facility" means the Senior Credit Facility, entered into on the Issue Date between the Company and the lenders named therein as the same may be amended, modified, renewed, refunded, replaced or refinanced from time to time, including (i) any related notes, letters of credit, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time, and (ii) any notes, guarantees, collateral documents, instruments and agreements executed in connection with any such amendment, modification, renewal, refunding, replacement or refinancing. "Senior Debt" means the principal of and interest (including post-petition interest) on, and all other amounts owing in respect of, (x) the Senior Credit Facility and (y) any other Indebtedness incurred by the Company (including, but not limited to, reasonable fees and expenses of counsel and all other charges, fees and expenses incurred in connection with such Indebtedness), unless the instrument creating or evidencing such Indebtedness or pursuant to which such Indebtedness is outstanding expressly provides that such Indebtedness is on a parity with or subordinated in right of 84 90 payment to the Notes. Notwithstanding the foregoing, Senior Debt shall not include (i) any Indebtedness for federal, state, local or other taxes, (ii) any Indebtedness of the Company to any of its Subsidiaries or any of its Affiliates, (iii) any Indebtedness incurred for the purchase of goods or materials, or for services obtained, in the ordinary course of business or any obligations in respect of any such Indebtedness, (iv) any Indebtedness that is incurred in violation of the Indenture, (v) Indebtedness evidenced by the Notes or (vi) Indebtedness of the Company that is expressly subordinate or junior in right of payment (other than as a result of the Indebtedness being unsecured) to any other Indebtedness of the Company. "Significant Subsidiary" means any Restricted Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X promulgated pursuant to the Securities Act, as such Regulation S-X is in effect on the Issue Date. "Subordinated Indebtedness" means Indebtedness of the Company subordinated in right of payment to the Notes. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding voting power of the Voting Stock of which is owned or controlled, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person, or by such Person and one or more other Subsidiaries thereof, or (ii) any limited partnership of which such Person or any Subsidiary of such Person is a general partner, or (iii) any other Person (other than a corporation or limited partnership) in which such Person or one or more other Subsidiaries of such Person, or such Person and one or more other Subsidiaries thereof, directly or indirectly, has more than 50% of the outstanding ownership or similar interests or has the power, by contract or otherwise, to direct or cause the direction of the policies, management and affairs thereof. "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. "Unrestricted Subsidiary" means (i) Shanghai IKS Mechanical Blade Company, Ltd., (ii) Shanghai IKS Lida Mechanical Blade Company, Ltd. and (iii) any other Subsidiary of the Company designated as such pursuant to and in compliance with the covenant described under "-- Limitation on Designations of Unrestricted Subsidiaries" and not redesignated a Restricted Subsidiary in compliance with such covenant. "Voting Stock" of a Person means Capital Stock of such Person of the class or classes 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 such 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 (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required scheduled payment of principal, including payment at final maturity, in respect thereof, with (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding aggregate principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary with respect to which all of the outstanding voting securities (other than directors' qualifying shares) of which are owned, directly or indirectly, by the Company or a Surviving Person of any Disposition involving the Company, as the case may be. 85 91 BOOK-ENTRY; DELIVERY AND FORM Except as set forth below, the New Notes will initially be issued in the form of one or more registered notes in global form without coupons (each, a "Global Note"). Upon issuance, each Global Note will be deposited with, or on behalf of, the Depository Trust Company (the "Depository") and registered in the name of Cede & Co., as nominee of the Depository. If a holder tendering Existing notes so requests, such holder's New Notes will be issued as described below under "Certificated Securities" in registered form without coupons (the "Certificated Securities"). The Depository has advised the Company that it is (i) a limited purpose trust company organized under the laws of the State of New York, (ii) a member of the Federal Reserve System, (iii) a "clearing corporation" within the meaning of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to Section 17A of the Exchange Act. The Depository was created to hold securities for its participants (collectively, the "Participants") and facilitates the clearance and settlement of securities transactions between Participants through electronic book-entry changes to the accounts of its Participants, thereby eliminating the need for physical transfer and delivery of certificates. The Depository's Participants include securities brokers and dealers (including the Initial Purchaser), banks and trust companies, clearing corporations and certain other organizations. Access to the Depository's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. The Company expects that pursuant to procedures established by the Depository (i) upon deposit of the Global Notes, the Depository will credit the accounts of Participants who elect to exchange Existing Notes with an interest in the Global Note and (ii) ownership of the New Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depository (with respect to the interest of Participants), the Participants and the Indirect Participants. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own and that security interests in negotiable instruments can only be perfected by delivery of certificates representing the instruments. So long as the Depository or its nominee is the registered owner of a Global Note, the Depository or such nominee, as the case may be, will be considered the sole owner or holder of the New Notes represented by the Global Note for all purposes under the Indenture. Except as provided below, owners of beneficial interests in a Global Note will not be entitled to have New Notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of Certificated Securities, and will not be considered the owners or holders thereof under the Indenture for any purpose, including with respect to the giving of any directions, instruction or approval to the Trustee thereunder. As a result, the ability of a person having a beneficial interest in New Notes represented by a Global Note to pledge such interest to persons or entities that do not participate in the Depository's system, or to otherwise take action with respect to such interest, may be affected by the lack of a physical certificate evidencing such interest. The Company understands that under existing industry practice, in the event the Company requests any action of holders or an owner of a beneficial interest in a Global Note desires to take any action that the Depository, as the holder of such Global Note, is entitled to take, the Depository would authorize the Participants to take such action and the Participant would authorize persons owning through such Participants to take such action or would otherwise act upon the instruction of such persons. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of New Notes by the Depository, or for maintaining, supervising or reviewing any records of the Depository relating to such New Notes. Payments with respect to the principal of, premium, if any, and interest on any New Notes represented by a Global Note registered in the name of the Depository or its nominee on the 86 92 applicable record date will be payable by the Trustee to or at the direction of the Depository or its nominee in its capacity as the registered holder of the Global Note representing such New Notes under the Indenture. Under the terms of the Indenture, the Company and the Trustee may treat the persons in whose names the New Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payment and for any and all other purposes whatsoever. Consequently, neither the Company nor the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of New Notes (including principal, premium, if any, and interest), or to immediately credit the accounts of the relevant Participants with such payment, in amounts proportionate to their respective holdings in principal amount of beneficial interest in the Global Note as shown on the records of the Depository. Payments by the Participants and the Indirect Participants to the beneficial owners of New Notes will be governed by standing instructions and customary practice and will be the responsibility of the Participants or the Indirect Participants. CERTIFICATED SECURITIES If (i) the Company notifies the Trustee in writing that the Depository is no longer willing or able to act as a depository and the Company is unable to locate a qualified successor within 90 days or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in definitive form under the Indenture, then, upon surrender by the Depository of its Global Notes, Certificated Securities will be issued to each person that the Depository identifies as the beneficial owner of the New Notes represented by the Global Note. In addition, any person having a beneficial interest in a Global Note or any holder of Existing Notes whose Existing Notes have been accepted for exchange may, upon request to the Trustee or the Exchange Agent, as the case may be, exchange such beneficial interest or Existing Notes for Certificated Securities. Upon any such issuance, the Trustee is required to register such Certificated Securities in the name of such person or persons (or the nominee of any thereof), and cause the same to be delivered thereto. Neither the Company nor the Trustee shall be liable for any delay by the Depository or any Participant or Indirect Participant in identifying the beneficial owners of the related New Notes and each such person may conclusively rely on, and shall be protected in relying on, instructions from the Depository for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the New Notes to be issued). CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following discussion summarizes the material United States federal income tax consequences of the Exchange Offer to a holder of Existing Notes that is an individual citizen or resident of the United States or a United States corporation that purchased the Existing Notes pursuant to their original issue (a "U.S. Holder"). It is based on the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), existing and proposed Treasury regulations, and judicial and administrative determinations, all of which are subject to change at any time, possibly on a retroactive basis. The following relates only to the Existing Notes, and the New Notes received therefor, that are held as "capital assets" within the meaning of Section 1221 of the Code by U.S. Holders. It does not discuss state, local, or foreign tax consequences, nor does it discuss tax consequences to subsequent purchasers (persons who did not purchase the Existing Notes pursuant to their original issue), or to categories of holders that are subject to special rules, such as foreign persons, tax-exempt organizations, insurance companies, banks, and dealers in stocks and securities. Tax consequences may vary depending on the particular status of an investor. No rulings will be sought from the Internal Revenue Service with respect to the federal income tax consequences of the Exchange Offer. THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE OLD 87 93 NOTES FOR NEW NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE OLD NOTES FOR NEW NOTES. THE EXCHANGE OFFER The exchange of Existing Notes pursuant to the Exchange Offer should be treated as a continuation of the corresponding Existing Notes because the terms of the New Notes are not materially different from the terms of the Existing Notes. Accordingly, such exchange should not constitute a taxable event to U.S. Holders and, therefore, (i) no gain or loss should be realized by a U.S. Holders upon receipt of a New Note, (ii) the holding period of the New Note should include the holding period of the Old Note exchanged therefor and (iii) the adjusted tax basis of the New Note should be the same as the adjusted tax basis of the Old Note exchanged therefor immediately before the exchange. STATED INTEREST Stated interest on a Note will be taxable to a U.S. Holder as ordinary interest income at the time that such interest accrues or is received, in accordance with the U.S. Holder's regular method of accounting for federal income tax purposes. The Notes are not considered to have been issued with original issue discount for federal income tax purposes. SALE, EXCHANGE OR RETIREMENT OF THE NOTES A U.S. Holder's tax basis in a Note generally will be its cost. A U.S. Holder generally will recognize gain or loss on the sale, exchange or retirement of a Note in an amount equal to the difference between the amount realized on the sale, exchange or retirement and the tax basis of the Note. Gain or loss recognized on the sale, exchange or retirement of a Note (excluding amounts received in respect of accrued interest, which will be taxable as ordinary interest income) generally will be capital gain or loss and will be long-term capital gain or loss if the Note was held for more than one year. BACKUP WITHHOLDING Under certain circumstances, a U.S. Holder of a Note may be subject to "backup withholding" at a 31% rate with respect to payments of interest thereon or the gross proceeds from the disposition thereof. This withholding generally applies if the U.S. Holder fails to furnish his or her social security number or other taxpayer identification number in the specified manner and in certain other circumstances. Any amount withheld from a payment to a U.S. Holder under the backup withholding rules is allowable as a credit against such U.S. Holder's federal income tax liability, provided that the required information is furnished to the IRS. Corporations and certain other entities described in the Code and Treasury regulations are exempt from backup withholding if their exempt status is properly established. 88 94 PLAN OF DISTRIBUTION Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Existing Notes where such Existing Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Effective Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 1997 (90 days after the date of this Prospectus), 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 price 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 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. For a period of 180 days after the Expiration Date, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the holders of the Existing Notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the Existing Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the New Notes offered hereby will be passed upon for the Company by Dechert Price & Rhoads, New York, New York. EXPERTS The consolidated financial statements of the Company as of December 31, 1994 and 1995, and for each of the three years in the period ended December 31, 1995, included in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as stated in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 89 95 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors....................................................... F-2 Consolidated Balance Sheets as of December 31, 1994 and 1995......................... F-3 Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995................................................... F-4 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1993, 1994 and 1995................................................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995................................................... F-6 Notes to Consolidated Financial Statements........................................... F-7 Consolidated Balance Sheet as of September 30, 1996 (unaudited)...................... F-17 Consolidated Statements of Income for the nine month periods ended September 30, 1995 and 1996 (unaudited)............................................................... F-18 Consolidated Statement of Changes in Shareholders' Equity for the nine month period ended September 30, 1996 (unaudited)............................................... F-19 Consolidated Statements of Cash Flows for the nine month periods ended September 30, 1995 and 1996 (unaudited).......................................................... F-20 Note to Consolidated Financial Statements (unaudited)................................ F-21
F-1 96 REPORT OF INDEPENDENT AUDITORS Board of Directors International Knife & Saw, Inc. We have audited the accompanying consolidated balance sheets of International Knife & Saw, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity, cash flows and schedule for each of the three years in the period ended December 31, 1995. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Knife & Saw, Inc. and Subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Cincinnati, Ohio September 12, 1996, except for Note 17, as to which the date is November 6, 1996 F-2 97 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------- 1994 1995 ------- ------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents............................................ $ 6,574 $10,273 Accounts receivable, trade, less allowances for doubtful accounts of $2,084 and $1,105................................................. 16,468 18,644 Notes receivable (Note 12)........................................... 1,483 -- Other receivables.................................................... 854 851 Inventories (Note 3)................................................. 21,765 29,036 Prepaid expenses, deferred taxes and sundry.......................... 1,135 978 ------- ------- Total current assets................................................... 48,279 59,782 Other assets: Cash value of life insurance (Note 4)................................ 350 375 Notes receivable (Note 12)........................................... 1,093 235 Advances and investments (Note 15)................................... 376 1,158 Cost in excess of net assets acquired................................ 742 1,272 Deposits, deferred charges and sundry................................ 97 148 ------- ------- 2,658 3,188 Property, plant and equipment (Notes 6 and 8): Cost................................................................. 43,077 47,042 Less accumulated depreciation and amortization....................... 21,373 24,315 ------- ------- Property, plant and equipment, net..................................... 21,704 22,727 ------- ------- Total assets........................................................... $72,641 $85,697 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable (Note 7)............................................... $ 4,359 $10,270 Current portion of long-term debt (Note 7)........................... 609 699 Current portion -- capitalized lease obligation (Note 8)............. 140 128 Accounts and drafts payable.......................................... 5,858 7,402 Accrued and sundry liabilities (Note 9).............................. 3,980 4,765 Due to parent........................................................ 2,646 3,954 ------- ------- Total current liabilities.............................................. 17,592 27,218 Long-term debt, less current portion (Note 7).......................... 12,087 12,747 Capitalized lease, less current portion (Note 8)....................... 4,566 3,512 Deferred taxes......................................................... 1,625 1,852 Deferred income (Note 8)............................................... 576 580 Other liabilities (Note 5)............................................. 1,461 1,759 Shareholders' equity (Note 2): Common stock, no par value -- authorized-580,000 shares; issued -- 526,904 shares; outstanding -- 481,971 shares..................... 5 5 Additional paid-in capital........................................... 8,125 8,125 Retained earnings.................................................... 29,719 32,557 Cumulative foreign currency translation adjustment................... 317 774 Treasury stock, at cost.............................................. (3,432) (3,432) ------- ------- Total shareholders' equity............................................. 34,734 38,029 ------- ------- Total liabilities and shareholders' equity............................. $72,641 $85,697 ======= =======
See accompanying notes. F-3 98 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, -------------------------------- 1993 1994 1995 ------- ------- -------- (IN THOUSANDS) Net sales.................................................. $84,964 $92,447 $107,030 Cost of sales.............................................. 60,391 62,273 76,057 ------- ------- -------- 24,573 30,174 30,973 Selling, general and administrative expenses............... 17,005 18,490 20,363 Other...................................................... 342 571 589 ------- ------- -------- 7,226 11,113 10,021 Other expenses (income): Interest income.......................................... (270) (179) (411) Interest expense......................................... 2,174 1,906 1,827 Sundry, net.............................................. 177 541 (249) ------- ------- -------- 2,081 2,268 1,167 ------- ------- -------- Income before income taxes................................. 5,145 8,845 8,854 Provision for income taxes (Note 10)....................... 1,951 3,663 3,606 ------- ------- -------- Net income....................................... $ 3,194 $ 5,182 $ 5,248 ======= ======= ========
See accompanying notes. F-4 99 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CUMULATIVE FOREIGN ADDITIONAL CURRENCY TOTAL COMMON PAID-IN RETAINED TRANSLATION TREASURY SHAREHOLDERS' STOCK CAPITAL EARNINGS ADJUSTMENT STOCK EQUITY ------ ---------- -------- ----------- -------- ------------- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) Balance at January 1, 1993....... $5 $7,771 $ 21,343 $ 60 $ (4,077) $25,102 Net income..................... 3,194 3,194 Foreign currency translation adjustment.................. (234) (234) -- ---------- -------- ----------- -------- ------------- Balance at December 31, 1993..... 5 7,771 24,537 (174) (4,077) 28,062 Net income..................... 5,182 5,182 Foreign currency translation adjustment.................. 491 491 Sale of 15,500 treasury shares...................... 354 645 999 -- ---------- -------- ----------- -------- ------------- Balance at December 31, 1994..... 5 8,125 29,719 317 (3,432) 34,734 Net income..................... 5,248 5,248 Foreign currency translation adjustment.................. 457 457 Cash dividends................. (2,410) (2,410) -- ---------- -------- ----------- -------- ------------- Balance at December 31, 1995..... $5 $8,125 $ 32,557 $ 774 $ (3,432) $38,029 ======= ======== ======== ========= ======== ===========
See accompanying notes. F-5 100 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, -------------------------------- 1993 1994 1995 -------- ------- ------- (IN THOUSANDS) OPERATING ACTIVITIES Net income.................................................. $ 3,194 $ 5,182 $ 5,248 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization............................. 3,169 3,522 3,786 Deferred income taxes..................................... 160 88 387 (Gain) loss on sale of fixed assets....................... (192) (124) 4 Changes in operating assets and liabilities net of effects from purchases of operations: Accounts receivable.................................... (387) (2,142) (2,176) Inventories............................................ 942 (938) (7,271) Prepaid and sundry..................................... 780 269 (53) Accounts and drafts payable............................ 1,006 753 1,544 Accrued and sundry liabilities......................... (1,818) 205 1,083 Other, net............................................. (70) 58 436 -------- ------- ------- Net cash provided by operating activities................... 6,784 6,873 2,988 INVESTING ACTIVITIES Purchases of operations, net of cash acquired............... (1,046) -- (1,488) Purchases of fixed assets................................... (9,112) (3,383) (4,663) Proceeds from sale of fixed assets.......................... 362 1,153 24 Decrease (increase) in notes and other receivables.......... (3,468) (21) 2,344 -------- ------- ------- Net cash used in investing activities....................... (13,264) (2,251) (3,783) FINANCING ACTIVITIES Increase (decrease) in amounts due to parent and affiliates................................................ 1,526 (1,626) 1,308 Increase in notes payable and long-term debt................ 3,114 1,875 5,596 Cash received on sale of treasury stock..................... -- 515 -- Dividends paid.............................................. -- -- (2,410) -------- ------- ------- Net cash provided by financing activities................... 4,640 764 4,494 -------- ------- ------- Increase (decrease) in cash and cash equivalents............ (1,840) 5,386 3,699 Cash and cash equivalents at beginning of period................................................. 3,028 1,188 6,574 -------- ------- ------- Cash and cash equivalents at end of period.................. $ 1,188 $ 6,574 $10,273 ======== ======= =======
See accompanying notes. F-6 101 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) 1. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of International Knife & Saw, Inc. ("IKS") and its consolidated subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Inventories Inventories are stated at the lower of cost or market. Cost in the United States is determined principally by use of the last-in, first-out method. Subsidiaries use the first-in, first-out method. Depreciation Depreciation is computed by the straight-line method based on the estimated useful lives of the assets. Depreciation expense includes amortization of assets recorded under capitalized leases. Amortization of Intangibles The excess of cost over net assets acquired is being amortized over 10 years by the straight-line method. Income Taxes Deferred taxes are provided for accumulated temporary differences due to basis differences for assets and liabilities for financial reporting and income tax purposes. The Company's temporary differences are due to accelerated depreciation, allowances for doubtful accounts, expenses not currently deductible, and income not currently taxable. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. 2. PARENT AND SUBSIDIARIES The Company is a majority-owned subsidiary of The Klingelnberg Corporation ("TKC"). As of December 31, 1993, 1994 and 1995, the Company owned 100% of the outstanding common stock of IKS Canadian Knife & Saw Ltd. ("CKS"), a Canadian corporation. As of December 31, 1993, 1994 and 1995 the Company owned 100% of the common shares of IKS Klingelnberg GmbH ("IKG") and its wholly-owned subsidiary IKS Messerfabrik Geringswalde GmbH ("IGG"), and as of December 31, 1994 and 1995 its wholly-owned subsidiaries IKS Klingelnberg FAR EAST GmbH ("IFE"), and IKS Klingelnberg ASIA Pte. Ltd. ("IKA"). Their results of operations are included in the Company's consolidated financial statements. During 1995, the F-7 102 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS) Company increased its investment in PT Bevenmas Jaya (PTB), an Indonesian corporation, thereby owning a 100% interest at December 31, 1995. In prior years, the investment was recorded using the equity method of accounting. PTB's financial statements are not material to the results of operations and financial position of the Company's consolidated financial statements. The Company maintains the accounting records and prepares the financial statements of its subsidiaries in their respective functional currencies. The accompanying financial statements, which include the effect of the consolidated results of operations of these companies, are expressed in U.S. dollar equivalents in accordance with generally accepted accounting principles. It should not be construed that the assets and liabilities included at U.S. dollar equivalents can actually be realized in or extinguished by U.S. dollars at the exchange rates used in translation. 3. INVENTORIES
DECEMBER 31, ------------------- 1994 1995 ------- ------- Purchased finished goods............................... $ 6,444 $ 9,806 Manufactured finished goods............................ 6,433 7,640 Work in process........................................ 4,190 5,307 Raw materials.......................................... 4,156 5,563 Supplies............................................... 542 720 ------- ------- $21,765 $29,036 ======= =======
Inventories include approximately $12,949 in 1994 and $16,216 in 1995 determined by the LIFO method. If the cost of LIFO inventories had been determined by the FIFO method for financial reporting, they would have been approximately $2,400 and $3,030 higher than the amounts reported at December 31, 1994, and 1995, respectively. 4. LIFE INSURANCE The Company is the beneficiary under life insurance policies with a total face amount of $4,400 at December 31, 1995 covering the lives of certain of its officers and former officers. The policies have total cash values of $350 and $375 at December 31, 1994 and 1995, respectively. 5. OTHER LIABILITIES Included in other liabilities are amounts for deferred compensation plans for certain officers and former officers of $482 and $499 at December 31, 1994 and 1995, respectively. The plans provide for a maximum payment of $25 annually to each officer or beneficiary for a period of ten years commencing at retirement or death. IKG has a pension plan covering a majority of German employees who qualify as to age and length of service. Entrance into the plan is at age 30 with defined benefits payable at age 65. Vesting requirements vary dependent upon employment category, contracts and years of service requirements which range from five to fifteen years. Benefits are paid directly by IKG and are not separately funded. The accrued liability at December 31, 1994 and 1995 amounted to $978 and $1,259, respectively, which represented the actuarial computation for the future liability. F-8 103 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS) 6. PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31, ------------------- 1994 1995 ------- ------- Capitalized leases -- land and buildings....................... $ 5,371 $ 4,341 Land and land improvements..................................... 2,046 2,090 Buildings and leasehold improvements........................... 5,803 6,255 Machinery and equipment........................................ 25,226 28,896 Furniture and fixtures......................................... 2,613 3,036 Motor vehicles................................................. 2,018 2,424 ------- ------- $43,077 $47,042 ======= =======
Amortization expense on assets recorded under capitalized leases is included with depreciation expense. Accumulated amortization on assets recorded under capitalized leases was $1,390 and $1,386 at December 31, 1994 and 1995, respectively. 7. NOTES PAYABLE AND LONG-TERM DEBT
DECEMBER 31, ------------------- 1994 1995 ------- ------- Notes payable: Notes payable on demand in Deutsche Marks to German banks, issued under revolving credit agreements, interest payable quarterly................................................. $ 4,359 $ 9,467 Note payable related to acquisition.......................... -- 803 ------- ------- $ 4,359 $10,270 ======= ======= Long-term debt: Term loan payable in U.S. dollars to a German bank........... $ 5,000 $ 5,000 Note payable in Deutsche Marks to a U.S. bank................ 3,226 3,478 Notes payable in Deutsche Marks to a German bank............. 4,173 4,688 Other........................................................ 297 280 ------- ------- 12,696 13,446 Less current portion........................................... 609 699 ------- ------- $12,087 $12,747 ======= =======
Current agreements with banks provide for lines of credit under revolving credit agreements and long-term loans payable up to $20,155 of which $17,633 is outstanding at December 31, 1995. The agreements contain certain restrictive covenants that the Company has complied with at December 31, 1995. The interest rates under the lines of credit are variable (3.5% to 6.1325% at December 31, 1995), being based on, among other things, the prevailing prime rate and the source of borrowed funds, whether from the domestic money supply, Deutsche Marks, or from Eurodollars. The note payable of $803 is payable in a single payment in 1996. Interest is due at time note matures at an annual rate of 6.5%. The term loan of $5,000 is payable in a single payment in 1997. Interest is paid semi-annually at 6.9%. F-9 104 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS) The note payable of $3,478 is payable in a single payment of 5,000 Deutsche Marks on January 1, 1997. Interest is paid semi-annually at 5.75%. The notes payable of $4,688 are payable in 6,739 Deutsche Marks, with maturities that extend to 2004 at rates of 5.75% to 7.75%. Land and building in Germany having a net book value of $4,537 are pledged as collateral for the German revolving credit agreements and the German bank notes payable. At December 31, 1995, the fair value of the Company's outstanding debt approximates its carrying value. At December 31, 1995, the total amounts due each year as minimum payments under long-term debt were as follows: 1996...................................................... $ 699 1997...................................................... 9,468 1998...................................................... 709 1999...................................................... 640 2000...................................................... 619 Thereafter................................................ 1,311 ------- $13,446 =======
8. CAPITALIZED LEASES The Company leases land and buildings from related parties under agreements accounted for as capital leases. The leases have primary terms ranging from two to five years and generally contain renewal options. Accordingly, the Company has recorded the land and buildings under the lease agreements as property, plant and equipment and the corresponding indebtedness is recorded as a liability. Certain of the land and buildings had been previously owned by the Company prior to their sale to and subsequent leaseback from the related parties. The price for the properties and the rental amounts were based upon appraisals by independent real estate appraisers. The Company's gain on these sales is being amortized over the remaining lives of the buildings, which ranged from 15 to 30 years. During 1994, the Company entered into a capital lease in the amount of $288 with a related party for land and buildings. During 1995, a $1,030 capital lease for land and building with a related party was terminated. On July 25, 1996, the Company purchased the land and buildings formerly under the capital lease with related parties for $5,600. The price was based upon appraisals by independent real estate appraisers. No gain or loss was recognized by the Company on this transaction. F-10 105 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS) At December 31, 1995, the total amounts due each year as minimum payments under capitalized leases were as follows: 1996........................................................ $ 494 1997........................................................ 494 1998........................................................ 494 1999........................................................ 494 2000........................................................ 494 Thereafter.................................................. 5,918 ------ 8,388 Less interest............................................... 4,748 ------ Present value of minimum debt payments...................... $3,640 ======
9. ACCRUED AND SUNDRY LIABILITIES
DECEMBER 31, ----------------- 1994 1995 ------ ------ Salaries, wages and bonuses..................................... $ 970 $ 970 Profit sharing and 401(k) plans................................. 795 809 Commissions..................................................... 500 471 Interest........................................................ 163 181 Taxes, other than income taxes.................................. 88 199 Withholdings.................................................... 469 227 Medical insurance............................................... 351 596 Professional fees............................................... 27 56 Customer payment advances and credits........................... 99 317 Accrued warranties.............................................. 308 382 Accrued indemnity............................................... 55 203 Sundry.......................................................... 155 354 ------ ------ $3,980 $4,765 ====== ======
10. INCOME TAXES TKC files a consolidated Federal income tax return which includes the Company. The current and deferred tax expense and benefit for the Company are recorded as if it files on a stand-alone basis. All participants in the consolidated income tax return are separately liable for the full amount of the taxes, including penalties and interest, if any, which may be assessed against the consolidated group. The current provision for United States income taxes is recorded to the intercompany account with TKC. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income F-11 106 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS) tax purposes. The significant components of the Company's deferred tax assets and liabilities as of December 31, 1994 and 1995 are as follows: COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES
DECEMBER 31, ----------------- 1994 1995 ------ ------ Current deferred tax assets (liabilities): Reserve for inventory obsolescence............................. $ 373 $ 385 Reserve for bad debts.......................................... 250 109 Prepaid insurance.............................................. (140) (157) Other.......................................................... 166 152 ------ ------ Total current deferred tax assets...................... $ 649 $ 489 ------ ------ Noncurrent deferred tax (assets) liabilities: Property, plant, and equipment, primarily differences in depreciation methods........................................ $2,255 $2,466 Deferred compensation.......................................... (183) (189) Deferred gain on sale of building.............................. (220) (201) Capital leases................................................. (227) ------ ------ Total noncurrent deferred tax liabilities.............. $1,625 $1,852 ------ ------ Net deferred tax liability............................. $ 976 $1,363 ====== ======
Summarized in the following tables are the Company's provision for income taxes, the components of the provision for deferred income taxes and a reconciliation of the U.S. statutory rate to the tax provision rate. PROVISION FOR INCOME TAXES
YEAR ENDED DECEMBER 31, ---------------------------- 1993 1994 1995 ------ ------ ------ Current provision Federal...................................... $2,337 $3,016 $2,771 State and local.............................. 360 450 426 Foreign...................................... (906) 109 22 ------ ------ ------ 1,791 3,575 3,219 ------ ------ ------ Deferred provision Federal...................................... (140) -- 235 Foreign...................................... 300 88 152 ------ ------ ------ 160 88 387 ------ ------ ------ $1,951 $3,663 $3,606 ====== ====== ======
F-12 107 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS) The differences between the provision and the amount computed by applying the statutory Federal income tax rate are as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 1993 1994 1995 ------ ------ ------ Income before income taxes............................. $5,145 $8,845 $8,854 ====== ====== ====== Tax on above amount at 34%............................. $1,749 $3,007 $3,010 State income taxes..................................... 238 298 281 Foreign tax rates in excess of U.S. statutory rate..... (30) 130 67 Foreign losses without tax benefit..................... -- 106 338 Other, net............................................. (6) 122 (90) ------ ------ ------ Provision for income taxes............................. $1,951 $3,663 $3,606 ====== ====== ======
In 1995, CKS utilized a net loss carryforward to offset current tax payable of approximately $210. At December 31, 1995, the Company's subsidiaries had net operating loss carryforwards aggregating approximately $1,600, substantially all of which have no expiration dates. Undistributed earnings of foreign subsidiaries which are intended to be indefinitely reinvested aggregated approximately $1,231 at the end of 1995. In the event these earnings were to be repatriated, foreign income tax credits and deductions under existing U.S. federal income tax laws would offset a portion of any additional U.S. tax liability. 11. EMPLOYEE BENEFIT PLANS IKS and CKS have profit sharing plans for their employees. Annual contributions are determined annually by their Boards of Directors. Expense for these plans was $421 in 1993, $837 in 1994 and $818 in 1995. IKS participates in a 401(k) plan covering substantially all of its domestic employees. Company contributions are determined annually by the Board of Directors. The plan provides that IKS contribute one-half of employee contributions, up to a maximum of 2% of an employee's annual compensation. The Company's contributions to the plan amounted to $162 in 1993, $179 in 1994 and $202 in 1995. See IKG pension plan (Note 5). 12. RELATED PARTIES The consolidated financial statements include the following transactions and balances, other than as indicated elsewhere in these financial statements, with companies under common controlling ownership with the Company:
DECEMBER 31, -------------------------- 1993 1994 1995 ------ ------ ------ Notes (payable to) receivable from affiliated companies.............................................. $ -- $ 758 $ (280) Notes receivable from shareholders and officers.......... -- 1,818 235 Other receivables from (payables to) affiliated companies.............................................. -- (456) (423) Net interest expense..................................... 718 276 158 Purchased administrative and manufacturing services...... 1,100 1,309 1,473 Rental Payments to related parties under capital lease... 664 698 662
F-13 108 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS) 13. OPERATING LEASES Future minimum rentals required under operating leases are as follows:
YEAR ENDING DECEMBER 31, BUILDINGS OTHER TOTAL -------------------------------------------------- --------- ----- ----- 1996.............................................. $ 392 $21 $ 413 1997.............................................. 249 1 250 1998.............................................. 97 -- 97 1999.............................................. 7 -- 7 ---- --- ---- $ 745 $22 $ 767 ==== === ====
Consolidated rent expense was $311 for 1993, $335 for 1994, and $323 for 1995. 14. ORGANIZATION The Company manufactures, markets and services primarily industrial knives and saws internationally, and its customers include distributors, original equipment manufacturers and customers purchasing replacement parts and services. The Company has a leading market share in each of the major sectors it serves: Paper & Packaging; Wood; Metal; and Plastic & Recycling. The Company's sales are principally in North America and Europe, representing 73% and 26% of 1995 net sales, respectively. The Company has recently expanded its operations into Latin America and Asia, and plans to continue its international growth. As a result of the Company's broad product range and numerous applications, no customer accounts for more than 3% of net sales. The Company performs periodic credit evaluations of its customers and generally does not require collateral. The following table summarizes the company's North American and European operations. Sales of North American operations include export sales of $2,818 in 1993, $3,850 in 1994, and $3,517 in 1995. Total sales of the Company's operations to unaffiliated customers outside North America were $24,902 in 1993, $27,170 in 1994, and $31,978 in 1995, respectively. F-14 109 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------- 1993 1994 1995 ------- ------- ------- North American Operations Sales to unaffiliated companies........................... $64,803 $72,541 $78,470 Operating income.......................................... 7,906 10,399 10,372 Assets.................................................... 52,787 52,826 58,957 Capital expenditures...................................... 3,414 2,222 4,002 Depreciation and amortization............................. 2,609 2,760 2,943 European Operations Sales to unaffiliated companies........................... 20,161 19,906 27,193 Operating income.......................................... (680) 714 (19) Assets.................................................... 18,407 19,815 25,537 Capital expenditures...................................... 5,699 1,160 634 Depreciation and amortization............................. 561 762 828 Other Operations Sales to unaffiliated companies........................... -- -- 1,367 Operating income.......................................... -- -- (332) Assets.................................................... -- -- 1,203 Capital expenditures...................................... -- -- 27 Depreciation and amortization............................. -- -- 15
15. CHINA INVESTMENT Effective January 1, 1996, the Company acquired a 51% interest in two China companies, Shanghai IKS Lida Mechanical Blade Co. Ltd. and Shanghai IKS Mechanical Blade Co. Ltd. for $2.8 million. 16. OPERATING RESULTS BY QUARTER (UNAUDITED)
1994 ------------------------------------------- QTR 1 QTR 2 QTR 3 QTR 4 ------- ------- ------- ------- Net sales................................ $22,659 $22,865 $23,818 $23,105 Gross profit............................. 7,164 6,595 7,348 9,067 Net income............................... 1,102 1,150 1,706 1,224 1995 ------------------------------------------- QTR 1 QTR 2 QTR 3 QTR 4 ------- ------- ------- ------- Net sales................................ $26,182 $25,437 $28,409 $27,002 Gross profit............................. 7,994 7,734 7,083 8,162 Net income............................... 1,544 1,133 1,574 997
F-15 110 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS) 17. RECAPITALIZATION TRANSACTION On November 6, 1996, TKC ("IKS Holdings") completed a recapitalization. IKS Holdings amended its charter to authorize two new classes of common stock, consisting of voting common stock (the "Holdings Class A Stock") and non-voting common stock (the "Holdings Class B Stock" and, together with the Holdings Class A Stock, the "Holdings Common Stock") and a new class of preferred stock (the "Holdings Preferred Stock"). The issued and outstanding capital stock of IKS Holdings was exchanged for a Recapitalization Distribution which consisted of (1) approximately $86,600 in cash and (2) Junior Subordinated Debentures of IKS Holdings (the "Holdings Debentures"), Holdings Preferred Stock and Holdings Class A Stock with an aggregate value of approximately $9,400. Certain key employees of the Company purchased Holdings Debentures, Holdings Preferred Stock and Holdings Class A Stock from IKS Holdings for approximately $1,300 in cash. Citicorp Venture Capital Ltd. ("CVC") purchased Holdings Debentures, Holdings Preferred Stock, Holdings Class A Stock and Holdings Class B Stock for approximately $14,300 in cash. In connection with this recapitalization IKS issued $90,000 of Senior Subordinated Notes, the proceeds of which were used to pay a cash dividend to IKS Holdings, pay amounts due to IKS Holdings and retire other notes payable and long-term debt. In addition, the Company entered into new revolving credit facilities totalling $25,000. F-16 111 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1996 ------------------ (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents............................................... $ 6,544 Accounts receivable, trade, less allowances for doubtful accounts of $1,428............................................................ 20,647 Other receivables....................................................... 906 Inventories............................................................. 30,554 Prepaid expenses, deferred taxes and sundry............................. 1,854 ------- Total current assets...................................................... 60,505 Other assets: Cash value of life insurance............................................ 414 Notes receivable........................................................ 215 Advances and investments................................................ 364 Cost in excess of net assets acquired................................... 2,012 Deposits, deferred charges and sundry................................... 1,003 ------- 4,008 Property, plant and equipment: Cost.................................................................... 54,467 Less accumulated depreciation and amortization.......................... 25,569 ------- Property, plant and equipment, net........................................ 28,898 ------- Total assets.............................................................. $ 93,411 ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable........................................................... 8,935 Current portion of long-term debt....................................... 5,588 Accounts and drafts payable............................................. 6,552 Accrued and sundry liabilities.......................................... 6,474 Due to parent........................................................... 11,142 ------- Total current liabilities................................................. 38,691 Long-term debt, less current portion...................................... 3,280 Joint venture indebtedness................................................ 3,801 Deferred taxes............................................................ 1,842 Other liabilities......................................................... 1,827 Minority interest......................................................... 2,178 Shareholders' equity: Common stock, no par value -- authorized -- 580,000 shares; issued -- 526,904 shares; outstanding -- 481,971 shares........................ 5 Additional paid-in capital.............................................. 8,125 Retained earnings....................................................... 36,204 Cumulative foreign currency translation adjustment...................... 890 Treasury stock, at cost................................................. (3,432) ------- Total shareholders' equity................................................ 41,792 ------- Total liabilities and shareholders' equity................................ $ 93,411 =======
See accompanying note. F-17 112 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTH PERIODS ENDED SEPTEMBER 30, ------------------- 1995 1996 ------- ------- (IN THOUSANDS) Net sales.............................................................. $79,238 $89,256 Cost of sales.......................................................... 56,047 62,748 ------- ------- 23,191 26,508 Selling, general and administrative expenses........................... 16,411 17,607 Other.................................................................. 72 -- ------- ------- 6,708 8,901 Other expenses (income): Interest income...................................................... (219) (242) Interest expense..................................................... 1,378 1,907 Sundry, net.......................................................... (543) 225 Minority interest.................................................... -- (191) ------- ------- 616 1,699 ------- ------- Income before income taxes............................................. 6,092 7,202 Provision for income taxes............................................. 2,615 2,350 ------- ------- Net income................................................... $ 3,477 $ 4,852 ======= =======
See accompanying note. F-18 113 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
CUMULATIVE FOREIGN ADDITIONAL CURRENCY TOTAL COMMON PAID-IN RETAINED TRANSLATION TREASURY SHAREHOLDERS' STOCK CAPITAL EARNINGS ADJUSTMENT STOCK EQUITY ------ ---------- -------- ----------- -------- ------------- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) Balance at December 31, 1995..... $5 $8,125 $ 32,557 $ 774 $ (3,432) $38,029 Net income..................... 4,852 4,852 Foreign currency translation adjustment.................. 116 116 Cash dividends................. (1,205) (1,205) -- ---------- -------- ----------- -------- ------------- Balance at September 30, 1996.... $5 $8,125 $ 36,204 $ 890 $ (3,432) $41,792 ======= ======== ======== ========= ======== ===========
See accompanying note. F-19 114 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTH PERIODS ENDED SEPTEMBER 30, ------------------- 1995 1996 ------- ------- (IN THOUSANDS) OPERATING ACTIVITIES Net income............................................................. $ 3,477 $ 4,852 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization........................................ 2,575 3,264 Deferred income taxes................................................ 153 (156) (Gain) loss on sale of fixed assets.................................. (5) (50) Minority interest.................................................... -- (191) Changes in operating assets and liabilities net of effects from purchases of operations: Accounts receivable............................................... (1,700) (1,438) Inventories....................................................... (5,815) (1,049) Prepaid and sundry................................................ 156 (328) Accounts and drafts payable....................................... (23) (1,412) Accrued and sundry liabilities.................................... 1,400 1,599 Other, net........................................................ 218 (908) ------- ------- Net cash provided by operating activities.............................. 436 4,183 INVESTING ACTIVITIES Purchases of operations, net of cash acquired.......................... (702) -- Purchases of fixed assets.............................................. (2,781) (7,312) Proceeds from sale of fixed assets..................................... 21 70 Decrease (increase) in notes and other receivables..................... 3,095 20 ------- ------- Net cash used in investing activities.................................. (367) (7,222) FINANCING ACTIVITIES Increase (decrease) in amounts due to parent and affiliates............ (743) 7,188 Increase (decrease) in notes payable and long-term debt................ 4,235 (6,673) Dividends paid......................................................... (1,205) (1,205) ------- ------- Net cash provided (used) by financing activities....................... 2,287 (690) ------- ------- Increase (decrease) in cash and cash equivalents....................... 2,356 (3,729) Cash and cash equivalents at beginning of year.............................................................. 6,574 10,273 ------- ------- Cash and cash equivalents at end of period............................. $ 8,930 $ 6,544 ======= =======
See accompanying note. F-20 115 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The unaudited interim consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, which are, in the opinion of the management of International Knife & Saw, Inc. and Subsidiaries, (the Company), necessary to present fairly the consolidated financial position of the Company as of September 30, 1996 and the consolidated results of operations and cash flows of the Company for the nine month periods ended September 30, 1995 and 1996, respectively. Results of operations for the periods presented are not necessarily indicative of the results for the full fiscal year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1995. F-21 116 ------------------------------------------------------ ------------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ----- Available Information................. i Summary............................... 1 Risk Factors.......................... 9 The Transactions...................... 13 Use of Proceeds....................... 14 Capitalization........................ 15 Unaudited Pro Forma Consolidated Financial Information............... 16 Selected Historical and Pro Forma Financial Data...................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 24 The Exchange Offer.................... 30 Business.............................. 36 Management............................ 48 Stock Ownership....................... 53 Certain Relationships and Related Transactions........................ 57 Description of Certain Indebtedness... 58 Description of the Notes.............. 60 Book-Entry; Delivery and Form......... 86 Certain Federal Income Tax Consequences........................ 87 Plan of Distribution.................. 89 Legal Matters......................... 89 Experts............................... 89 Index to Financial Statements......... F-1
------------------------ UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THE ORIGINAL 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. ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ---------------- PROSPECTUS ---------------- $90,000,000 [LOGO] INTERNATIONAL KNIFE & SAW, INC. OFFER TO EXCHANGE 11 3/8% SENIOR SUBORDINATED NOTES DUE 2006 FOR ALL OUTSTANDING 11 3/8% SENIOR SUBORDINATED NOTES DUE 2006 , 1997 ------------------------------------------------------ ------------------------------------------------------ 117 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law provides in relevant part that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such 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 such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such 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 such person's conduct was unlawful. In addition, Section 145 provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such 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 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 such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such 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 Delaware 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 Delaware Court of Chancery or such other court shall deem proper. Section 145 further provides that nothing in the above-described provisions shall be deemed exclusive of any other rights to indemnification or advancement of expenses to which any person may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. The By-laws of the Company provide for the indemnification of each director, officer, former director and former officer of the Company, and each person who shall have served at the request of the Company as a director or officer of another corporation in which the Company owns shares of capital stock or of which the Company is a creditor, against expenses actually and necessarily incurred by him or her in connection with the defense of any action, suit or proceeding in which he or she is made a party by reason of his or her being or having been a director or officer of the Company or of such other corporation, except in relation to matters as to which he or she shall be adjudged in such action, suit or proceeding to be liable for gross negligence or misconduct in the performance of duty. The By-laws of the Company also provide that such indemnification shall not be deemed exclusive of any other rights to which those indemnified may be entitled as a matter of law or under any by-law, agreement, vote of stockholders or otherwise. Section 102(b)(7) of the Delaware General Corporation Law provides that a corporation may in its certificate of incorporation eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for II-1 118 liability: for any breach of the director's duty of loyalty to the corporation or its stockholders; for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; under Section 174 of the Delaware General Corporation Law (pertaining to certain prohibited acts including unlawful payment of dividends or unlawful purchase or redemption of the corporation's capital stock); or for any transaction from which the director derived an improper personal benefit. The Certificate of Incorporation of the Company contains a provision so limiting the personal liability of directors of the Company. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits:
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation, as amended, of the Company 3.2 By-laws of the Company 4.1 Indenture dated as of November 6, 1996 between the Company and United States Trust Company of New York, as Trustee 4.2 Registration Rights Agreement dated as of November 6, 1996 among the Company, Schroder Wertheim & Co. Incorporated and Smith Barney Inc. 4.3 Form of 11 3/8% Senior Subordinated Notes due 2006 (included in Exhibit 4.1) 5.1 Opinion of Dechert Price & Rhoads* 10.1 Purchase Agreement dated October 31, 1996 among the Company, Schroder Wertheim & Co. Incorporated and Smith Barney Inc. 10.2 Letter Agreement dated October 8, 1996 between Deutsche Bank and the Company* 10.3 Letter Agreement dated October 8, 1996 between Deutsche Bank and IKS Klingelnberg GmbH* 10.4 Agreement and Plan of Recapitalization dated September 17, 1996 among Citicorp Venture Capital Ltd., The Klingelnberg Corporation ("IKS Holdings"), the stockholders of IKS Holdings and certain stockholders of the Company 12.1 Statement of Ratio of Earnings to Fixed Charges 21.1 Subsidiaries of the Company 23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5.1) 23.2 Consent of Ernst & Young LLP 24 Power of Attorney (included on signature page) 25 Statement of Eligibility and Qualification, Form T-1, of United States Trust Company of New York 27 Financial Data Schedule 99.1 Form of Letter of Transmittal 99.2 Form of Notice of Guaranteed Delivery
- --------------- * To be supplied by amendment. (b) Financial Statement Schedules: Schedule II -- Valuation and Qualifying Accounts and Reserves Schedules not listed above are omitted because of the absence of the conditions under which they are required or because the information required by such omitted schedules is set forth in the financial statements or the notes thereto. II-2 119 ITEM 22. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) 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 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act 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 Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (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-3 120 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Erlanger, State of Kentucky, on the 5th day of December 1996. INTERNATIONAL KNIFE & SAW, INC. By: /s/ JOHN E. HALLORAN ------------------------------------ John E. Halloran President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below appoints John E. Halloran and James A. Urry, any of whom may act without the joinder of the other, 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 sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue thereof. Pursuant to this requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities at the above-named Registrant on December 5th, 1996.
SIGNATURE TITLE - ------------------------------------------ ----------------------------------------------- /s/ JOHN E. HALLORAN President and Chief Executive - ------------------------------------------ Officer and Director (Principal Executive John E. Halloran Officer) /s/ WILLIAM M. SCHULT Chief Financial Officer, Vice - ------------------------------------------ President-Finance, William M. Schult and Secretary (Principal Financial and Accounting Officer) /s/ DIETHER KLINGELNBERG Director - ------------------------------------------ Diether Klingelnberg /s/ JAMES A. URRY Director - ------------------------------------------ James A. Urry
II-4 121 Sheet 1 Exhibit 21b Schedule II International Knife & Saw, Inc. Schedule II - Valuation and Qualifying Accounts and Reserves Years Ended December 31, 1995, 1994, and 1993 (dollars in thousands)
COL. A COL. B COL. C COL. D COL. E - ------------------------------------------------------------------------------------------------------------------------------ -------Additions------- Balance at Charged to Balance Beginning Costs and Other Deductions at End Description Of Period Expenses Describe Describe of Period - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED 1995 Allowance for doubtful accounts 2,084 28 68 (b) 1,185 (c) 1,105 111 (a) Allowance for inventory Obsolescenc 3,395 631 178 (a) 1,371 (c) 2,833 YEAR ENDED 1994 Allowance for doubtful accounts 1,399 790 118 (a) 223 (c) 2,084 Allowances for inventory Obsolescenc 3,216 1,135 223 (a) 1,179 (c) 3,395 YEAR ENDED 1993 Allowance for doubtful accounts 1,187 500 226 (c) 1,399 62 (a) Allowances for inventory Obsolescenc 3,394 702 734 (c) 3,216 145 (a) (a) Represents foreign currency translation adjustments during the year. (b) Consists of reserves of subsidiaries purchased during the year. (c) Represents amounts charged against the reserves during the year.
122 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE - ------- ------------------------------------------------------------------------- ------------ 3.1 Restated Certificate of Incorporation, as amended, of the Company 3.2 By-laws of the Company 4.1 Indenture dated as of November 6, 1996 between the Company and United States Trust Company of New York, as Trustee 4.2 Registration Rights Agreement dated as of November 6, 1996 among the Company, Schroder Wertheim & Co. Incorporated and Smith Barney Inc. 4.3 Form of 11 3/8% Senior Subordinated Notes due 2006 (included in Exhibit 4.1) 5.1 Opinion of Dechert Price & Rhoads* 10.1 Purchase Agreement dated October 31, 1996 among the Company, Schroder Wertheim & Co. Incorporated and Smith Barney Inc. 10.2 Letter Agreement dated October 8, 1996 between Deutsche Bank and the Company* 10.3 Letter Agreement dated October 8, 1996 between Deutsche Bank and IKS Klingelnberg GmbH* 10.4 Agreement and Plan of Recapitalization dated September 17, 1996 among Citicorp Venture Capital Ltd., The Klingelnberg Corporation ("IKS Holdings"), the stockholders of IKS Holdings and certain stockholders of the Company 12.1 Statement of Ratio of Earnings to Fixed Charges 21.1 Subsidiaries of the Company 23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5.1) 23.2 Consent of Ernst & Young LLP 24 Power of Attorney (included on signature page) 25 Statement of Eligibility and Qualification, Form T-1, of United States Trust Company of New York 27 Financial Data Schedule 99.1 Form of Letter of Transmittal 99.2 Form of Notice of Guaranteed Delivery
- --------------- * To be supplied by amendment. EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 State of Delaware PAGE 1 Office of the Secretary of State EXHIBIT 3.1 I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF "IKS, INC.", CHANGING ITS NAME FROM "IKS, INC." TO "INTERNATIONAL KNIFE & SAW, INC.", FILED IN THIS OFFICE ON THE THIRTIETH DAY OF SEPTEMBER, A.D. 1985, AT 9 O'CLOCK A.M. [SEAL] /s/Edward J. Freel ----------------------------------- Edward J. Freel, Secretary of State 0882218 8100 AUTHENTICATION: 8099805 960251564 DATE: 09-11-96 2 RESTATED CERTIFICATE OF INCORPORATION OF IKS, INC. Under Sections 242 and 245 or the Delaware General Corporation Law * * * * * * The undersigned, being the Chairman and the Secretary of IKS, Inc., a corporation existing under the laws of the State of Delaware, do hereby certify as follows: First: That the name of the corporation is IKS, Inc. Second: That the original Certificate of Incorporation of the corporation was filed with the Secretary of State of Delaware on November 14, 1979. Third: The amendment to the Certificate of Incorporation effected by this Restated Certificate of Incorporation is to change the name of the corporation from IKS, Inc. to International Knife & Saw, Inc. Fourth: The amendment and this Restated Certificate of Incorporation have been duly adopted in accordance with the provisions of Sections 242 and 245 of the Delaware General Corporation Law by the written consent of the holders of a majority of the outstanding stock of the corporation. Fifth: The text of the Certificate of Incorporation of the corporation, as amended, and as further amended by this Restated Certificate of Incorporation, is as follows: 3 CERTIFICATE OF INCORPORATION OF INTERNATIONAL KNIFE & SAW, INC. First: The name of the corporation (hereinafter called the "corporation") is: INTERNATIONAL KNIFE & SAW, INC. Second: The address, including street, number, city, and county, of the registered office of the corporation in the State of Delaware is 229 South State Street, City of Dover, County of Kent, and the name of the registered agent of the corporation in the State of Delaware at such address is The Prentice-Hall Corporation System, Inc. Third: The nature of the business and of the purposes to be conducted and promoted by the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. Fourth: The total number of shares of stock which the corporation shall have authority to issue is 580,000, all of which are common stock, without par value. Fifth: The corporation is to have perpetual existence. Sixth: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the 4 creditors or class of creditors, and/or on all the stockholders or class of stockholders of this corporation, as the case may be, and also on this corporation. Seventh: In furtherance and not in limitation of the powers conferred upon the stockholders by statute, the Board of Directors may adopt, amend or repeal the By-Laws of the corporation. Eighth: Election of directors need not be by written ballot. Ninth: From time to time any of the provisions of this certificate of incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this certificate of incorporation are granted subject to the provisions of this Article Ninth. IN WITNESS WHEREOF, said IKS, Inc. , has caused this Restated Certificate of Incorporation to be signed by J.L. Hanna, its Chairman, and attested by Edward J. Brent, its Secretary, and its corporate seal affixed, this 13th day of September, 1985. IKS, INC. [SEAL] By /s/J.L. Hanna ------------------------------ J.L. Hanna, Chairman ATTEST: By /s/Edward J. Brent -------------------------------- Edward J. Brent, Secretary 5 STATE OF DELAWARE PAGE 1 OFFICE OF THE SECRETARY OF STATE I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "INTERNATIONAL KNIFE & SAW, INC.", FILED IN THIS OFFICE ON THE NINETEENTH DAY OF DECEMBER, A.D. 1985, AT 9 O'CLOCK A.M. [SEAL] /s/Edward J. Freel ----------------------------------- Edward J. Freel, Secretary of State 0882218 8100 AUTHENTICATION: 8099804 960251564 DATE: 09-11-96 6 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF INTERNATIONAL KNIFE & SAW, INC. International Knife & Saw, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: 1. That the board of directors of said corporation at a meeting duly convened and held, adopted a resolution proposing and declaring advisable the following amendment to the Restated Certificate of Incorporation of said corporation; RESOLVED, that the Restated Certificate of Incorporation of the corporation be amended by adding Article Tenth thereto to read as follows: TENTH: A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director in connection with any act or omission of the director occurring on or after the effective date of this article; provided, however, that this article does not eliminate or limit the liability of a director of the corporation (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 law, (iii) under section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. 2. That at a meeting of shareholders duly called and convened a majority of the outstanding stock of the corporation entitled to vote thereon approved the adoption of the aforesaid amendment. 7 3. That the aforesaid amendment was duly adopted in accordance with the applicable provisions of section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by its president and its secretary, this 18th day of November, 1986. (Corporate Seal) /s/ James R. Reed ---------------------------- James R. Reed, President ATTEST: /s/ Edward J. Brent - ------------------------------- Edward J. Brent, Secretary EX-3.2 3 BY-LAWS OF THE COMPANY 1 EXHIBIT 3.2 BY-LAWS OF IKS, INC. (A Delaware Corporation) ARTICLE I STOCKHOLDERS 1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of, the corporation by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation certifying the number of shares owned by him in the corporation. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Whenever the corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock and whenever the corporation shall issue any shares of its stock as partly paid stock, the certificate representing shares of any such class or series or of any such partly paid stock shall set forth thereon the statements prescribed by the General Corporation Law. Any restrictions on the transfer or registration of transfer of any shares of stock of any class or series shall be noted conspicuously on the certificate representing such shares. The corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the Board of Directors may require the owner of any lost, stolen, or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify the corporation against any 2 claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of any such new certificate. 2. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be required to, issue fractions of a share. If the corporation does not issue fractions of a share, it shall (1) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose. 3. STOCK TRANSFERS. Upon compliance with provisions restricting the transfer or registration of transfer of shares of stock, if any, transfers or registration of transfers of shares of stock of the corporation shall be made only on the stock ledger of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon. 4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or the allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the 2 3 date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 5. MEANING OF CERTAIN TERMS. As used herein in respect of the right to notice of a meeting of stockholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "share of stock" or "shares of stock" or "stockholder" or "stockholders" refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the corporation is authorized to issue only one class of shares of stock, and said reference is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the certificate of incorporation confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the certificate of incorporation may provide for more than one class or series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such rights shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the certificate of incorporation. 6. STOCKHOLDER MEETINGS. - TIME. The annual meeting shall be held on the date and at the time fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the corpora- 3 4 tion, and each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors. - PLACE. Annual meetings and special meetings shall be held at such place, within or without the State of Delaware, as the directors may, from time to time, fix. Whenever the directors shall fail to fix such place, the meeting shall be held at the registered office of the corporation in the State of Delaware. - CALL. Annual meetings and special meetings may be called by the directors or by any officer instructed by the directors to call the meeting. - NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be given, stating the place, date, and hour of the meeting and stating the place within the city or other municipality or community at which the list of stockholders of the corporation may be examined. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting, and shall, (if any other action which could be taken at a special meeting is to be taken at such annual meeting) state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. Except as otherwise provided by the General Corporation Law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, unless the lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address which he may have furnished by request in writing to the Secretary of the corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States Mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given to any stockholder who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of a stockholder at a meeting of stockholders shall 4 5 constitute a waiver of notice of such meeting, except when the stockholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. - STOCKHOLDER LIST. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city or other municipality or community where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote at any meeting of stockholders. - CONDUCT OF MEETING. Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the Chairman of the meeting shall appoint a secretary of the meeting. - PROXY REPRESENTATION. Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be 5 6 irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. - INSPECTORS. The directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by him or them and execute a certificate of any fact found by him or them. - QUORUM. The holders of a majority of the outstanding shares of stock shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum. - VOTING. Each share of stock shall entitle the holder thereof to one vote. In the election of directors, a plurality of the votes cast shall elect. Any other action shall be authorized by a majority of the votes cast except where the General Corporation Law prescribes a different percentage of votes and/or a different exercise of voting power, and except as may be otherwise prescribed by the provisions of the certificate of incorporation or these By-Laws. In the election of directors, and for any other action, voting need not be by ballot. 6 7 7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the General Corporation Law to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE II DIRECTORS 1. FUNCTIONS AND DEFINITION. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors of the corporation. The Board of Directors shall have the authority to fix the compensation of the members thereof. The use of the phrase "whole board" herein refers to the total number of directors which the corporation would have if there were no vacancies. 2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The initial Board of Directors shall consist of four (4) persons. Except for the first Board of Directors, the number of directors may be fixed from time to time by action of the stockholders or of the directors, or, if the number is not fixed, the number shall be three. The number of directors may be increased or decreased by action of the stockholders or of the directors. 3. ELECTION AND TERM. The first Board of Directors, unless the members thereof shall have been named in the certificate of incorporation, shall be elected by the incorporator or incorporators and shall hold office until the first annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon written notice to the 7 8 corporation. Thereafter directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. In the interim between annual meetings of stockholders or of special meetings of stockholders called for the election of directors and/or for the removal of one or more directors and for the filling of any vacancies in that connection, newly created directorships and any vacancies in the Board of Directors, including unfilled vacancies resulting from the removal of directors for cause or without cause, may be filled by the vote of a majority of the remaining directors then in office although less than a quorum, or by the sole remaining director. 4. MEETINGS. - TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. - PLACE. Meetings shall be held at such place within or without the State of Delaware as shall be fixed by the Board. - CALL. No call shall be required for regular meetings for which the time and place have been fixed. Special meetings may be called by or at the direction of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of the President, or of a majority of the directors in office. - NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for regular meetings for which the time and place have been fixed. Written, oral, or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice. 8 9 - QUORUM AND ACTION. A majority of the whole Board shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in Office shall constitute a quorum, provided, that such majority shall constitute at least one-third of the whole Board. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, and except as otherwise provided by the General Corporation Law, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. The quorum and voting provisions herein stated shall not be construed as conflicting with any provisions of the General Corporation Law and these ByLaws which govern a meeting of directors held to fill vacancies and newly created directorships in the Board or action of disinterested directors. Any member or members of the Board of Directors or of any committee designated by the Board, may participate in a meeting of the Board, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. - CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the Board, if any and if present and acting, or the President, if present and acting, or any other director chosen by the Board, shall preside. 5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the General Corporation Law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. 6. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of any such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of 9 10 any such absent or disqualified member, Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation with the exception of any authority the delegation of which is prohibited by Section 141 of the General Corporation Law, and may authorize the seal of the corporation to be affixed to all papers which may require it. 7. WRITTEN ACTION. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. ARTICLE III OFFICERS The officers of the corporation shall consist of a President, a Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive Vice-President, one or more other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers with such titles as the resolution of the Board of Directors choosing them shall designate. Except as may otherwise be provided in the resolution of the Board of Directors choosing him, no officer other than the Chairman or Vice- Chairman of the Board, if any, need be a director. Any number of offices may be held by the same person. Unless otherwise provided in the resolution choosing him, each officer shall be chosen for a term which shall continue until the meeting of the Board of Directors following the next annual meeting of stockholders and until his successor shall have been chosen and qualified. All officers of the corporation shall have such authority and perform such duties in the management and operation of the corporation as shall be prescribed in the resolutions of the Board of Directors designating and choosing such officers and prescribing their authority and duties, and shall have such additional authority and duties as are incident to their office except to the extent that such resolutions may be inconsistent therewith. The Secretary or an Assistant Secretary of the cor- 10 11 poration shall record all of the proceedings of all meetings and actions in writing of stockholders, directors, and committees of directors, and shall exercise such additional authority and perform such additional duties as the Board shall assign to him. Any officer may be removed, with or without cause, by the Board of Directors. Any vacancy in any office may be filled by the Board of Directors. ARTICLE IV CORPORATE SEAL The corporate seal shall be in such form as the Board of Directors shall prescribe. ARTICLE V FISCAL YEAR The fiscal year of the corporation shall be fixed, and shall be subject to change, by the Board of Directors. ARTICLE VI CONTROL OVER BY-LAWS Subject to the provisions of the certificate of incorporation and the provisions of the General Corporation Law, the power to amend, alter or repeal these By-Laws and to adopt new By-Laws may be exercised by the Board of Directors or by the stockholders. 11 12 ARTICLE VII INDEMNIFICATION Each director, each officer, each former director and each former officer of the Corporation, and each person who shall have served at the request of the Corporation as a director or officer of another corporation in which it owns shares of capital stock or of which it is a creditor, shall be indemnified by the Corporation against the expenses actually and necessarily incurred by him or her in connection with the defense of any action, suit or proceeding in which he or she is made a party be reason of his or her being or having been a director or officer of the Corporation, or of such other corporation, except in relation to matters as to which he or she shall be adjudged in such action, suit or proceeding to be liable for gross negligence or misconduct in the performance of duty. Each person who shall serve as a director or officer of the Corporation, or of such other corporation, shall be deemed to be doing so in reliance upon such indemnification. Such indemnification shall not be deemed exclusive of any other rights to which those indemnified may be entitled as a matter of law or under any by-law, agreement, vote or stockholders or otherwise. The Board of Directors acting at a meeting at which a majority of the quorum is unaffected by self-interest (notwithstanding that other members of the quorum present but not voting may be so affected) shall determine the propriety of the expenses (including counsel fees) incurred by any person who claims indemnity hereunder, and such determination shall be final and conclusive. If, however, a majority of a quorum of the Board of Directors which is unaffected by self-interest and willing to act is not obtainable, the Board of Directors in its discretion may either (a) appoint from among the stockholders who are not directors or officers of the Corporation a committee of two (2) or more persons to consider and determine any such question or (b) cause any such question to be submitted to arbitration in the manner provided by the laws of the State of Delaware for the arbitration of a controversy; and the determination of such committee, or the decision rendered upon such arbitration, shall be final and conclusive. None of the provisions hereof shall be construed as a limitation upon the right of the Corporation to exercise its general power to enter into a contract or undertaking of indemnity with any director, officer, agent or employee in any proper case not provided for herein. 12 EX-4.1 4 INDENTURE DATED 11-06-96 1 EXHIBIT 4.1 =============================================================== INTERNATIONAL KNIFE & SAW, INC. and UNITED STATES TRUST COMPANY OF NEW YORK as Trustee -------------------- INDENTURE Dated as of November 6, 1996 -------------------- $90,000,000 11-3/8% Senior Subordinated Notes due 2006 Series B 11-3/8% Senior Subordinated Notes due 2006 =============================================================== 2 CROSS-REFERENCE TABLE
TIA Indenture Section Section_ 310(a)(1) .......................................... 7.10 (a)(2) .......................................... 7.10 (a)(3) .......................................... N.A. (a)(4) .......................................... N.A. (a)(5) .......................................... 7.08; 7.10 (b) ............................................. 7.08; 7.10; 11.02 (c) ............................................. N.A. 311(a) ............................................. 7.11 (b) ............................................. 7.11 (c) ............................................. N.A. 312(a) ............................................. 2.05 (b) ............................................. 11.03 (c) ............................................. 11.03 313(a) ............................................. 7.06 (b)(1) .......................................... N.A. (b)(2) .......................................... 7.06 (c) ............................................. 7.06; 11.02 (d) ............................................. 7.06 314(a) ............................................. 4.06; 4.09; 11.02 (b) ............................................. N.A. (c)(1) .......................................... 11.04 (c)(2) .......................................... 11.04 (c)(3) .......................................... N.A. (d) ............................................. N.A. (e) ............................................. 11.05 (f) ............................................. N.A. 315(a) ............................................. 7.01(b) (b) ............................................. 7.05; 11.02 (c) ............................................. 7.01(a) (d) ............................................. 7.01(c) (e) ............................................. 6.11 316(a)(last sentence) .............................. 2.09 (a)(1)(A) ....................................... 6.05 (a)(1)(B) ....................................... 6.04 (a)(2) .......................................... N.A. (b) ............................................. 6.07 (c) ............................................. 9.04 317(a)(1) .......................................... 6.08 (a)(2) .......................................... 6.09 (b) ............................................. 2.04 318(a) ............................................. 11.01 (c) ............................................. 11.01
- ------------------------- N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of this Indenture. 3 TABLE OF CONTENTS
Page ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions ...................................... 1 Section 1.02 Incorporation by Reference of TIA ................ 22 Section 1.03 Rules of Construction ............................ 23 ARTICLE TWO THE NOTES Section 2.01 Form and Dating .................................. 24 Section 2.02 Execution and Authentication; Aggregate Principal Amount...................... 25 Section 2.03 Registrar and Paying Agent ....................... 26 Section 2.04 Paying Agent To Hold Assets in Trust........................................... 27 Section 2.05 Noteholder Lists ................................. 27 Section 2.06 Transfer and Exchange ............................ 27 Section 2.07 Replacement Notes ................................ 28 Section 2.08 Outstanding Notes ................................ 29 Section 2.09 Treasury Notes ................................... 29 Section 2.10 Temporary Notes .................................. 30 Section 2.11 Cancellation ..................................... 30 Section 2.12 Defaulted Interest ............................... 30 Section 2.13 CUSIP Number ..................................... 31 Section 2.14 Deposit of Monies ................................ 31 Section 2.15 Restrictive Legends .............................. 32 Section 2.16 Book-Entry Provisions for Global Security........................................ 34 Section 2.17 Special Transfer Provisions ...................... 36 Section 2.18 Liquidated Damages Under Registra- tion Rights Agreement........................... 39 ARTICLE THREE REDEMPTION Section 3.01 Notices to Trustee ............................... 39 Section 3.02 Selection of Notes To Be Redeemed ................ 39 Section 3.03 Notice of Redemption ............................. 40 Section 3.04 Effect of Notice of Redemption ................... 41 Section 3.05 Deposit of Redemption Price ...................... 41 Section 3.06 Notes Redeemed in Part ........................... 42
4 ARTICLE FOUR COVENANTS Section 4.01 Payment of Notes ................................. 42 Section 4.02 Maintenance of Office or Agency .................. 43 Section 4.03 Corporate Existence .............................. 43 Section 4.04 Payment of Taxes and Other Claims ................ 43 Section 4.05 Maintenance of Properties and Insurance....................................... 44 Section 4.06 Compliance Certificate; Notice of Default......................................... 44 Section 4.07 Compliance with Laws ............................. 45 Section 4.08 Waiver of Stay, Extension or Usury Laws............................................ 45 Section 4.09 Provision of Financial Statements and Information................................. 45 Section 4.10 Limitation on Incurrence of Indebtedness.................................... 46 Section 4.11 Limitation on Restricted Payments ................ 50 Section 4.12 Limitation on Liens .............................. 54 Section 4.13 Limitation on Dividends and Other Payment Restrictions Affecting.................. Restricted Subsidiaries......................... 54 Section 4.14 Limitation on Transactions with Affiliates...................................... 56 Section 4.15 Change of Control ................................ 57 Section 4.16 Limitation on Asset Sales ........................ 59 Section 4.17 Limitation on Designation of Unre- stricted Subsidiaries........................... 62 Section 4.18 Limitation on Incurrence of Senior Subordinated Indebtedness....................... 64 Section 4.19 Guarantees ....................................... 64 ARTICLE FIVE SUCCESSOR CORPORATION Section 5.01 Merger, Consolidation and Sale of Assets.......................................... 65 Section 5.02 Successor Corporation Substituted ................ 67 ARTICLE SIX DEFAULT AND REMEDIES Section 6.01 Events of Default ................................ 67 Section 6.02 Acceleration ..................................... 69 Section 6.03 Other Remedies ................................... 70 Section 6.04 Waiver of Past Defaults .......................... 70 Section 6.05 Control by Majority .............................. 71 Section 6.06 Limitation on Suits .............................. 71 Section 6.07 Rights of Holders To Receive Payment......................................... 72
5 Section 6.08 Collection Suit by Trustee ....................... 72 Section 6.09 Trustee May File Proofs of Claim ................. 72 Section 6.10 Priorities ....................................... 73 Section 6.11 Undertaking for Costs ............................ 74 ARTICLE SEVEN TRUSTEE Section 7.01 Duties of Trustee ................................ 74 Section 7.02 Rights of Trustee ................................ 75 Section 7.03 Individual Rights of Trustee ..................... 77 Section 7.04 Trustee's Disclaimer ............................. 77 Section 7.05 Notice of Default ................................ 78 Section 7.06 Reports by Trustee to Holders .................... 78 Section 7.07 Compensation and Indemnity ....................... 78 Section 7.08 Replacement of Trustee ........................... 80 Section 7.09 Successor Trustee by Merger, Etc ................. 81 Section 7.10 Eligibility; Disqualification .................... 81 Section 7.11 Preferential Collection of Claims Against Company 81 ARTICLE EIGHT SATISFACTION AND DISCHARGE; DEFEASANCE Section 8.01 Satisfaction and Discharge of Indenture 82 Section 8.02 Defeasance or Covenant Defeasance ................ 83 Section 8.03 Application of Trust Money ....................... 86 Section 8.04 Repayment to the Company ......................... 86 Section 8.05 Reinstatement .................................... 87 Section 8.06 Acknowledgment of Discharge by Trustee......................................... 87 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.01 Without Consent of Holders ....................... 88 Section 9.02 With Consent of Holders .......................... 89 Section 9.03 Compliance with TIA .............................. 90 Section 9.04 Revocation and Effect of Consents ................ 91 Section 9.05 Notation on or Exchange of Notes ................. 92 Section 9.06 Trustee To Sign Amendments, Etc .................. 92 ARTICLE TEN SUBORDINATION OF SECURITIES Section 10.01 Notes Subordinate to Senior Debt ................. 92 Section 10.02 Payment Over of Proceeds Upon Dis- solution, Etc................................... 93
6 Section 10.03 Suspension of Payment When Desig- nated Senior Debt in Default 94 Section 10.04 Payment Permitted if No Default .................. 96 Section 10.05 Subrogation to Rights of Holders of Senior Debt 96 Section 10.06 Provisions Solely to Define Rela- tive Rights 96 Section 10.07 Trustee to Effectuate Subordination .............. 97 Section 10.08 No Waiver of Subordination Provi- sions 97 Section 10.09 Notice to Trustee ................................ 98 Section 10.10 Reliance on Judicial Order or Cer- tificate of Liquidating Agent 99 Section 10.11 Rights of Trustee as a Holder of Senior Debt; Preservation of Trustee's Rights 99 Section 10.12 Article Applicable to Paying Agents .............. 100 Section 10.13 No Suspension of Remedies ........................ 100 Section 10.14 Trustee's Relation to Holders of Senior Debt..................................... 100 ARTICLE ELEVEN MISCELLANEOUS Section 11.01 TIA Controls ..................................... 101 Section 11.02 Notices .......................................... 101 Section 11.03 Communications by Holders with Other Holders 102 Section 11.04 Certificate and Opinion as to Con- ditions Precedent 103 Section 11.05 Statements Required in Certificate or Opinion 103 Section 11.06 Rules by Trustee, Paying Agent, Registrar 103 Section 11.07 Legal Holidays ................................... 103 Section 11.08 Governing Law .................................... 104 Section 11.09 No Adverse Interpretation of Other Agreements 104 Section 11.10 No Recourse Against Others ....................... 104 Section 11.11 Successors ....................................... 104 Section 11.12 Duplicate Originals .............................. 104 Section 11.13 Severability ..................................... 104 Section 11.14 Independence of Covenants ........................ 105 Signatures Exhibit A - Form of Initial Note ............................. A-1 Exhibit B - Form of Exchange Note ............................ B-1 Exhibit C - Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors............................ C-1
7 Exhibit D - Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S..................................... D-1
Note: This Table of Contents shall not, for any purpose, be deemed to be part of this Indenture. 8 INDENTURE, dated as of November 6, 1996, between International Knife & Saw, Inc., a Delaware corporation (the "Company"), and United States Trust Company of New York, a New York banking corporation, as Trustee (the "Trustee"). The Company has duly authorized the creation of an issue of 11-3/8% Senior Subordinated Notes due 2006 (the "Initial Notes") and Series B 11-3/8% Senior Subordinated Notes due 2006 to be issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement (the "Exchange Notes" and, together with the Initial Notes, the "Notes") and, to provide therefor, the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Notes, when duly issued and executed by the Company, and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid and binding agreement of the Company, have been done. Each party hereto agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Notes: ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "Accredited Investor" means an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Acquired Debt" means, with respect to any specified Person, Indebtedness of any other Person (the "Acquired Person") existing at the time the Acquired Person merges with or into, or becomes a Restricted Subsidiary of, such specified Person, including Indebtedness incurred in connection with, or in contemplation of, the Acquired Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; provided, however, that Indebtedness of such Acquired Person which is redeemed, defeased, retired or otherwise repaid at the time of or immediately upon consummation of the transactions by which such Acquired Person merges with or into or becomes a Restricted Subsidiary of such specified Person shall not be Acquired Debt. "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or 9 controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with") of any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Agent" means any Registrar, Paying Agent or co-Registrar. "Agent Members" has the meaning provided in Section 2.16(a). "Asset Sale" means (i) any sale, lease, conveyance or other disposition by the Company or any Restricted Subsidiary of any assets (including by way of a sale-and-leaseback) other than in the ordinary course of business, or (ii) the issuance or sale of Capital Stock of any Restricted Subsidiary, in the case of each of (i) and (ii), whether in a single transaction or a series of related transactions, to any Person (other than to the Company or a Restricted Subsidiary and other than directors' qualifying shares) for Net Proceeds in excess of $250,000. "Asset Sale Offer" has the meaning provided in Section 4.16(c). "Asset Sale Offer Purchase Date" has the meaning provided in Section 4.16(d). "Asset Sale Offer Trigger Date" has the meaning provided in Section 4.16(c). "Authenticating Agent" has the meaning provided in Section 2.02. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Board of Directors" means, as to (a) any corporate Person, the board of directors of such Person or any duly authorized committee thereof, (b) any partnership, limited liability company or comparably organized Person which is ultimately controlled by a corporate general partner, managing member or other corporation, the "Board of Directors" of such corporation as specified in clause (a) of this definition and (c) any partnership, limited liability company or comparably organized Person which is ultimately controlled by individuals, such controlling individuals. 10 "Board Resolution" means, with respect to any Person, a duly adopted resolution of the Board of Directors. "Business Day" means a day that is not a Legal Holiday. "Capital Lease Obligation" of any Person means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease for property leased by such Person that would at such time be required to be capitalized on the balance sheet of such Person in accordance with GAAP. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock or other equity participations, including partnership interests, whether general or limited, of such Person, including any Preferred Stock. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Rating Services or Moody's Investors Service, Inc.; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Rating Services or at least P-1 from Moody's Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances (or, with respect to foreign banks, similar instruments) maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any member of the European Economic Community or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $200 million; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Cash Flow" means, with respect to any period, Consolidated Net Income for such period, plus, to the extent deducted in computing such Consolidated Net Income: (i) extra- 11 ordinary net losses, plus (ii) provision for taxes based on income or profits and any provision for taxes utilized in computing the extraordinary net losses under clause (i) hereof, plus (iii) Consolidated Interest Expense, plus (iv) depreciation, amortization and all other non-cash charges (including amortization of goodwill and other intangibles and any last-in, first-out (LIFO) provisions). "Change of Control" means the occurrence of any of the following events after the Issue Date: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) (other than one or more Permitted Holders) is or becomes (including by merger, consolidation or otherwise) 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 shares 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 50% or more of the voting power of the total outstanding Voting Stock of the Company or IKS Holdings; (ii) after the consummation of an initial public offering of any class of common stock of the Company or IKS Holdings, during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors who have been appointed by CVC, Citicorp N.A. or any Affiliate of CVC, or any new directors whose election to such Board of Directors, or whose nomination for election by the stockholders of the Company, was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of such Board of Directors of the Company then in office; (iii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the terms of this Indenture); or (iv) the sale or other disposition (including by merger, consolidation or otherwise) of all or substantially all of the Capital Stock or assets of the Company to any Person or group (as defined in Rule 13d-5 of the Exchange Act) (other than to one or more of the Permitted Holders) as an entirety or substantially as an entirety in one transaction or a series of related transactions. "Change of Control Offer" has the meaning provided in Section 4.15(a). "Change of Control Purchase Date" has the meaning provided in Section 4.15(b). "Commission" means the Securities and Exchange Commission, as from time to time constituted or, if at any time after the execution of this Indenture such Commission is not 12 existing and performing the duties now assigned to it under the TIA, then the body performing such duties at such time. "Common Stock" of any Person means any and all shares, interests, participations, or other equivalents (however designated) of such Person's common stock whether now outstanding or issued after the Issue Date. "Company" means the party named as such in the first paragraph of this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor. "Consolidated Cash Flow Coverage Ratio" means, for any period, the ratio of (i) the aggregate amount of Cash Flow for such period, to (ii) Consolidated Interest Expense for such period, determined on a pro forma basis after giving pro forma effect to (i) the incurrence of the Indebtedness giving rise to the calculation of the Consolidated Cash Flow Coverage Ratio and (if applicable) the application of the net proceeds therefrom, including to refinance other Indebtedness, as if such Indebtedness was incurred, and the application of such proceeds occurred, at the beginning of such period; (ii) the incurrence, repayment or retirement of any other Indebtedness by the Company and its Restricted Subsidiaries since the first day of such period as if such Indebtedness was incurred, repaid or retired at the beginning of such period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility shall be computed based upon the average balance of such Indebtedness at the end of each month during such period); (iii) in the case of Acquired Debt, the related acquisition as if such acquisition had occurred at the beginning of such period; and (iv) any acquisition or disposition by the Company and its Restricted Subsidiaries of any company or any business or any assets out of the ordinary course of business, or any related repayment of Indebtedness, in each case since the first day of such period, assuming such acquisition or disposition had been consummated on the first day of such period. "Consolidated Interest Expense" means, with respect to any period, the sum of (i) the interest expense of the Company and its Restricted Subsidiaries for such period, including, without limitation, (a) amortization of debt discount, (b) the net payments, if any, under interest rate contracts (including amortization of discounts), (c) the interest portion of any deferred payment obligation and (d) accrued interest, plus (ii) the interest component of the Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and its Restricted Subsidiaries during such period, and all capitalized interest of the Company and its Restricted Subsidiaries, plus (iii) all dividends paid during such period by the Company and its Restricted Subsidiaries with respect to any Disqualified Stock (other than by any Restricted Subsidiary to the Company or any other Restricted Subsidiary and other 13 than any dividend paid in Capital Stock (other than Disqualified Stock)), in each case, as determined on a consolidated basis in accordance with GAAP consistently applied. "Consolidated Net Income" means, with respect to any period, the net income (or loss) of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP consistently applied, adjusted to the extent included in calculating such net income (or loss), by excluding, without duplication, (i) all extraordinary gains and losses (less all fees and expenses relating thereto), (ii) the portion of net income (or loss) of the Company and its Restricted Subsidiaries allocable to interests in unconsolidated Persons or Unrestricted Subsidiaries, except to the extent of the amount of dividends or distributions actually paid to the Company or its Restricted Subsidiaries by such other Person during such period, (iii) for purposes of Section 4.11, net income (or loss) of any Person combined with the Company or any of its Restricted Subsidiaries on a "pooling-of-interests" basis attributable to any period prior to the date of combination, (iv) net gains and losses (less all fees and expenses relating thereto) in respect of disposition of assets (including, without limitation, pursuant to sale and leaseback transactions) other than in the ordinary course of business, (v) the net income of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income to the Company is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, or (vi) the cumulative non-cash effect of any change in accounting principle. "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Stock of such Person. "covenant defeasance" has the meaning provided in Section 8.02(b). "Currency Agreement Obligations" means the obligations of any person under a foreign exchange contract, currency swap agreement or other similar agreement or arrangement to protect such person against fluctuations in currency values. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "CVC" means Citicorp Venture Capital Ltd., a New York corporation. 14 "Default" means any event that is, or after the giving of notice or passage of time or both would be, an Event of Default. "Default Interest Payment Date" has the meaning provided in Section 2.12. "defeasance" has the meaning provided in Section 8.02(a). "Designated Senior Debt" means (i) the Indebtedness under the Senior Credit Facility, and (ii) any other Senior Debt of the Company permitted to be incurred under this Indenture the principal amount of which is $25 million or more at the time of the designation of such Senior Debt as "Designated Senior Debt" by the Company in a written instrument delivered to the Trustee. "Designation" has the meaning provided in Section 4.17(a). "Designation Amount" has the meaning provided in Section 4.17(a). "Disposition" means, with respect to any Person, any merger, consolidation or other business combination involving such Person (whether or not such Person is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of such Person's assets. "Disqualified Stock" means (i) any Preferred Stock of any Restricted Subsidiary and (ii) that portion of any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof (other than upon a change of control of the Company in circumstances where the Holders of the Notes would have similar rights), in whole or in part on or prior to the stated maturity of the Notes. "Dollars" and "$" means lawful money of the United States of America. "DTC" means The Depository Trust Company, its nominees and successors. "Event of Default" has the meaning provided in Section 6.01. "Excess Proceeds" has the meaning provided in Section 4.16(b). 15 "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" has the meaning provided in the preamble to this Indenture. "Existing Indebtedness" has the meaning provided in Section 4.10(b)(iii). "Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. "Foreign Subsidiary" means a Restricted Subsidiary not organized under the laws of the United States or any political subdivision thereof and the operations of which are located entirely outside the United States. "GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession in the United States of America, which are applicable as of the Issue Date and consistently applied. "German Subsidiary Facilities" means one or more credit facilities of IKS Klingelnberg GmbH, as the same may be amended, modified, renewed, refunded, replaced or refinanced from time to time, including (i) any related notes, letters of credit, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time, and (ii) any notes, guarantees, collateral documents, instruments and agreements executed in connection with any such amendment, modification, renewal, refunding, replacement or refinancing. "Global Note" has the meaning provided in Section 2.01. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection or deposit in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Holder" means the Person in whose name a Note is registered on the Registrar's books. 16 "IKS Holdings" means The Klingelnberg Corporation, a Delaware corporation, and its successors. "incur" has the meaning provided in Section 4.10(a). "Indebtedness" means, with respect to any Person, without duplication, and whether or not contingent, (i) all indebtedness of such Person for borrowed money or which is evidenced by a note, bond, debenture or similar instrument, (ii) all obligations of such Person to pay the deferred or unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such service, (iii) all Capital Lease Obligations of such Person, (iv) all obligations of such Person in respect of letters of credit or bankers' acceptances issued or created for the account of such Person, (v) to the extent not otherwise included in this definition, all net obligations of such Person under Interest Rate Agreement Obligations or Currency Agreement Obligations of such Person, (vi) all liabilities of others of the kind described in the preceding clause (i), (ii) or (iii) secured by any Lien on any property owned by such Person; provided, however, if the obligations secured by a Lien (other than a Permitted Lien not securing any liability that would itself constitute Indebtedness) on any assets or property have not been assumed by such Person in full or are not such Person's legal liability in full, the amount of such Indebtedness for purposes of this definition shall be limited to the lesser of the amount of Indebtedness secured by such Lien and the Fair Market Value of the property subject to such Lien, (vii) all Disqualified Stock issued by such Person and all Preferred Stock issued by a Subsidiary of such Person, and (viii) to the extent not otherwise included, any guarantee by such Person of any other Person's indebtedness or other obligations described in clauses (i) through (vii) above. "Indebtedness" of the Company and the Restricted Subsidiaries shall not include current trade payables incurred in the ordinary course of business and payable in accordance with customary practices, and non-interest bearing installment obligations and accrued liabilities incurred in the ordinary course of business which are not more than 90 days past due. The principal amount outstanding of any Indebtedness issued with original issue discount is the accreted value of such Indebtedness. Notwithstanding the foregoing, Indebtedness shall not include Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within 3 Business Days of the incurrence thereof. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. 17 "Independent Director" means a director of the Company other than a director (i) who (apart from being a director of the Company or any Subsidiary of the Company) is an employee, associate or Affiliate of the Company or a Subsidiary of the Company, or (ii) who is a director, employee, associate or Affiliate of another party (other than the Company or any of its Subsidiaries) to the transaction in question. "Initial Notes" has the meaning provided in the preamble to this Indenture. "Initial Purchasers" means Schroder Wertheim & Co. Incorporated and Smith Barney Inc. "interest" on the Notes means interest (including Liquidated Damages) on the Notes. "Interest Payment Date" means the stated maturity of an installment of interest on the Notes. "Interest Rate Agreement Obligations" means, with respect to any Person, the Obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, to the date hereof and from time to time hereafter. "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude travel and similar advances to officers and employees of the Company in the ordinary course of business and extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. For the purposes of Section 4.11, (i) "Investment" shall include and be valued at the Fair Market Value of the net assets of any Restricted Subsidiary (to the extent of the Company's equity interest in such Restricted Subsidiary) at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the Fair Market Value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any Investment shall be the original cost of such Investment plus 18 the cost of all additional Investments by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided, however, that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, greater than 50% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means November 6, 1996, the date the Notes are originally issued under this Indenture. "Legal Holiday" has the meaning provided in Section 11.07. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in any asset and any filing of, or agreement to give, any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Liquidated Damages" means all liquidated damages owing under the Registration Rights Agreement. "Management Investors" means the management investors listed on Schedule I to the Securities Purchase and Holders Agreement dated the Issue Date among IKS Holdings, CVC, Diether Klingelnberg, Arndt Klingelnberg and such management investors. "Maturity Date" means November 15, 2006. "Net Proceeds" means, with respect to any Asset Sale by any Person, the aggregate cash or Cash Equivalent proceeds received by such Person and/or its Affiliates in respect of such Asset Sale, which amount is equal to the excess, if any, of (i) the cash or Cash Equivalent received by such Person and/or its Affiliates (including any cash payments received by 19 way of deferred payment pursuant to, or monetization of, a note or installment receivable or otherwise, but only as and when received) in connection with such Asset Sale, over (ii) the sum of (a) the amount of any Indebtedness that is secured by such asset and which is required to be repaid by such Person in connection with such Asset Sale, plus (b) all fees, commissions and other expenses incurred by such Person in connection with such Asset Sale, plus (c) provision for taxes, including income taxes, directly attributable to the Asset Sale or to required prepayments or repayments of Indebtedness with the proceeds of such Asset Sale, plus (d) if such Person is a Restricted Subsidiary, any dividends or distributions payable to holders of minority interests in such Restricted Subsidiary from the proceeds of such Asset Sale, plus (e) appropriate amounts to be provided by the Company or any Restricted Subsidiary as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale; provided that upon the release of any such reserves, such amounts shall constitute "Net Proceeds" hereunder. "Nonpayment Default" means any default (other than any Payment Default) under any agreement governing Designated Senior Debt, beyond the applicable grace period with respect thereto. "Non-U.S. Person" means a person who is not a U.S. person, as defined in Regulation S. "Notes" mean the Initial Notes and the Exchange Notes treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursement obligations, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering Memorandum" means the Offering Memorandum dated October 31, 1996 of the Company relating to the offering of the Notes. "Officer" means, with respect to any Person, the Chairman of the Board of Directors, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of such Person, or any other officer designated by the Board of Directors serving in a similar capacity. "Officers' Certificate" means, with respect to any Person, a certificate signed by two Officers or by an Officer 20 and either an Assistant Treasurer or an Assistant Secretary of such Person and otherwise complying with the requirements of Sections 11.04 and 11.05, as they relate to the making of an Officers' Certificate. "Offshore Physical Notes" has the meaning provided in Section 2.01. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 11.04 and 11.05, as they relate to the giving of an Opinion of Counsel. "Paying Agent" has the meaning provided in Section 2.03. "Payment Blockage Notice" has the meaning provided in Section 10.03. "Payment Blockage Period" has the meaning provided in Section 10.03. "Payment Default" means any default in the payment of principal of or interest on any Designated Senior Debt, beyond the applicable grace period with respect thereto. "Permitted Holders" means (i) CVC, (ii) Citicorp, N.A. or any other Affiliate of CVC, (iii) any officer, employee or director of CVC, (iv) the Management Investors and (v) in the case of any natural person specified in the foregoing clauses, any spouse or lineal descendant (including by adoption) of such person; provided, however, that in no event shall the persons specified in clauses (iii) through (v) be deemed "Permitted Holders" with respect to more than 30% of the voting power of the total outstanding Voting Stock of the Company or IKS Holdings in the aggregate. "Permitted Indebtedness" has the meaning provided in Section 4.10(b). "Permitted Investments" means (i) any Investment in the Company or any Wholly-Owned Restricted Subsidiary (other than a Foreign Subsidiary) and any Investment (other than a transfer of property (excluding cash)) in a Foreign Subsidiary that is a Wholly-Owned Restricted Subsidiary; (ii) any investment in cash or Cash Equivalents; (iii) any Investment in a Person (an "Acquired Person") if, as a result of such Investment, (a) the Acquired Person becomes a Wholly-Owned Restricted Subsidiary, or (b) the Acquired Person either (1) is merged, consolidated or amalgamated with or into the Company or one of its Wholly-Owned Restricted Subsidiaries and the Company or such Wholly-Owned Restricted Subsidiary is the Surviving Person, or (2) transfers or conveys substantially all of its assets to, or is liquidated into, the Company or one of its 21 Wholly-Owned Restricted Subsidiaries; provided that any Investment pursuant to this clause (iii) in a Person that is or becomes a Foreign Subsidiary shall not constitute the transfer of property (other than cash); (iv) Investments in accounts and notes receivable acquired in the ordinary course of business; (v) any notes, obligations or other securities received in connection with an Asset Sale that complies with Section 4.16 or any other disposition not constituting an "Asset Sale"; (vi) Interest Rate Obligations and Currency Agreement Obligations permitted pursuant to Section 4.10(b)(v); and (vii) investments in or acquisitions of Capital Stock or similar interests in Persons (other than Affiliates of the Company) received in the bankruptcy or reorganization of or by such Person or any exchange of such investment with the issuer thereof or taken in settlement of or other resolution of claims or disputes. "Permitted Junior Securities" means any securities of the Company or any other corporation that are equity securities or are subordinated in right of payment to all Senior Debt that may at the time be outstanding to substantially the same extent as, or to a greater extent than, the Notes are so subordinated as provided in this Indenture. "Permitted Liens" means (i) Liens on assets or property of the Company that secure Senior Debt of the Company and Liens on assets or property of a Restricted Subsidiary that secure Indebtedness of such Restricted Subsidiary; (ii) Liens securing Indebtedness of a Person existing at the time that such Person is merged into or consolidated with the Company or a Restricted Subsidiary; provided, however, that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of such Person; (iii) Liens on property acquired by the Company or a Restricted Subsidiary; provided, however, that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any other property; (iv) Liens in respect of Interest Rate Obligations and Currency Agreement Obligations permitted under this Indenture; (v) Liens in favor of the Company or any Restricted Subsidiary; (vi) Liens existing or created on the Issue Date; and (vii) Liens securing the Notes or the obligations of the Company to the Trustee hereunder. "Permitted Payments" has the meaning provided in Section 4.11(b). "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Physical Notes" has the meaning provided in Section 2.01. 22 "Preferred Stock" as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over Capital Stock of any other class of such Person. "principal" of any Indebtedness (including the Notes) means the principal amount of such Indebtedness plus the premium, if any, on such Indebtedness. "Private Placement Legend" means the legend initially set forth on the Notes in the form set forth in Section 2.15. "Public Equity Offering" means an underwritten public offering of Capital Stock (other than Disqualified Capital Stock) of the Company or IKS Holdings pursuant to an effective registration statement filed under the Securities Act; provided, however, that in the event of a Public Equity Offering by IKS Holdings, IKS Holdings shall contribute to the capital of the Company the portion of the net cash proceeds of such Public Equity Offering necessary to pay the aggregate redemption price, plus accrued and unpaid interest, if any, to the redemption date, of the Notes to be redeemed pursuant to Paragraph 6(b) of the Notes. "Purchase Money Obligation" means any Indebtedness secured by a Lien on assets related to the business of the Company or the Restricted Subsidiaries, and any additions and accessions thereto, which are purchased, constructed or improved by the Company or any Restricted Subsidiary at any time after the Issue Date; provided, however, that (i) any security agreement or conditional sales or other title retention contract pursuant to which the Lien on such assets is created (collectively, a "Security Agreement") shall be entered into within 90 days after the purchase or substantial completion of the construction or improvement of such assets and shall at all times be confined solely to the assets so purchased, constructed or improved, any additions and accessions thereto and any proceeds therefrom, (ii) at no time shall the aggregate principal amount of the outstanding Indebtedness secured thereby be increased, except in connection with the purchase of additions and accessions thereto and except in respect of fees and other obligations in respect of such Indebtedness and (iii) (A) the aggregate outstanding principal amount of Indebtedness secured thereby (determined on a per asset basis in the case of any additions and accessions) shall not at the time such Security Agreement is entered into exceed 100% of the purchase price or cost of construction or improvement to the Company or any Restricted Subsidiary of the assets subject thereto or (B) the Indebtedness secured thereby shall be with recourse solely to the assets so purchased, constructed 23 or improved, any additions and accessions thereto and any proceeds therefrom. "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A under the Securities Act. "Recapitalization" means the recapitalization of the Company pursuant to that certain Agreement and Plan of Recapitalization dated September 17, 1996 by and among IKS Holdings, CVC, certain stockholders of IKS Holdings and certain stockholders of the Company. "Recapitalization Dividend" means the payment by the Company to IKS Holdings on the Issue Date of amounts necessary to consummate the Recapitalization. "Record Date" means the Record Dates specified in the Notes; provided, however, that if any such date is a Legal Holiday, the Record Date shall be the first day immediately preceding such specified day that is not a Legal Holiday. "Redemption Date," when used with respect to any Note to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Notes. "Redemption Price," when used with respect to any Note to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Notes. "Redesignation" has the meaning provided in Section 4.17(b). "refinancing" has the meaning provided in Section 4.10(b)(vii). "Refinancing Indebtedness" has the meaning provided in Section 4.10(b)(vii). "Registrar" has the meaning provided in Section 2.03. "Registration Rights Agreement" means the Registration Rights Agreement dated on or about the Issue Date between the Company and the Initial Purchasers for the benefit of themselves and the Holders as the same may be amended from time to time in accordance with the terms thereof. "Regulation S" means Regulation S under the Securities Act. "Required Filing Dates" has the meaning provided in Section 4.09(a). "Restricted Investment" means an Investment other than a Permitted Investment. 24 "Restricted Payment" means (i) any dividend or other distribution declared or paid on any Capital Stock of the Company (other than (A) dividends or distributions payable solely in Capital Stock (other than Disqualified Stock) of the Company, (B) dividends or distributions payable to the Company or any Restricted Subsidiary or (C) the Recapitalization Dividend); (ii) any payment to purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company (other than the Recapitalization Dividend); (iii) any payment to purchase, redeem, defease or otherwise acquire or retire for value, prior to any scheduled maturity, repayment or sinking fund payment, any Subordinated Indebtedness other than the Recapitalization Dividend or a purchase, redemption, defeasance or other acquisition or retirement for value that is paid for with the proceeds of Refinancing Indebtedness that is permitted under Section 4.10(b)(vii); or (iv) any Restricted Investment. "Restricted Security" has the meaning assigned to such term in Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Note constitutes a Restricted Security. "Restricted Subsidiary" means each direct or indirect Subsidiary of the Company other than an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Senior Credit Facility" means the Senior Credit Facility, entered into on the Issue Date between the Company and the lenders named therein as the same may be amended, modified, renewed, refunded, replaced or refinanced from time to time, including (i) any related notes, letters of credit, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time, and (ii) any notes, guarantees, collateral documents, instruments and agreements executed in connection with any such amendment, modification, renewal, refunding, replacement or refinancing. "Senior Debt" means the principal of and interest (including post-petition interest) on, and all other amounts owing in respect of, (x) the Senior Credit Facility and (y) any other Indebtedness incurred by the Company (including, but not limited to, reasonable fees and expenses of counsel and all other charges, fees and expenses incurred in connection with such Indebtedness), unless the instrument creating or evidencing such Indebtedness or pursuant to which such Indebtedness is 25 outstanding expressly provides that such Indebtedness is on a parity with or subordinated in right of payment to the Notes. Notwithstanding the foregoing, Senior Debt shall not include (i) any Indebtedness for federal, state, local or other taxes, (ii) any Indebtedness of the Company to any of its Subsidiaries or any of its Affiliates, (iii) any Indebtedness incurred for the purchase of goods or materials, or for services obtained, in the ordinary course of business or any obligations in respect of any such Indebtedness, (iv) any Indebtedness that is incurred in violation of this Indenture, (v) Indebtedness evidenced by the Notes or (vi) Indebtedness of the Company that is expressly subordinate or junior in right of payment (other than as a result of the Indebtedness being unsecured) to any other Indebtedness of the Company. "Senior Representative" means the agent bank under the Senior Credit Facility or any other representatives of the holders of Designated Senior Debt, as the case may be. "Significant Subsidiary" means any Restricted Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X promulgated pursuant to the Securities Act, as such Regulation S-X is in effect on the Issue Date. "Subordinated Indebtedness" means Indebtedness of the Company subordinated in right of payment to the Notes. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding voting power of the Voting Stock of which is owned or controlled, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person, or by such Person and one or more other Subsidiaries thereof, or (ii) any limited partnership of which such Person or any Subsidiary of such Person is a general partner, or (iii) any other Person (other than a corporation or limited partnership) in which such Person or one or more other Subsidiaries of such Person, or such Person and one or more other Subsidiaries thereof, directly or indirectly, has more than 50% of the outstanding ownership or similar interests or has the power, by contract or otherwise, to direct or cause the direction of the policies, management and affairs thereof. "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. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. {{77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as otherwise provided in Section 9.03. 26 "Trust Officer" means any officer or assistant officer of the Trustee assigned by the Trustee to administer this Indenture or any part thereof, or in the case of a successor trustee, an officer assigned to the department, division or group performing the corporation trust work of such successor and assigned to administer this Indenture. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Unrestricted Subsidiary" means (i) Shanghai IKS Mechanical Blade Company, Ltd., (ii) Shanghai IKS Lida Mechanical Blade Company, Ltd. and (iii) any other Subsidiary of the Company designated as such pursuant to and in compliance with Section 4.17 and not redesignated a Restricted Subsidiary in compliance with such covenant. "U.S. Government Obligations" mean direct obligations of, and obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "U.S. Physical Notes" has the meaning provided in Section 2.01. "Voting Stock" of a Person means Capital Stock of such Person of the class or classes 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 such 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 (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required scheduled payment of principal, including payment at final maturity, in respect thereof, with (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding aggregate principal amount of such Indebtedness. "Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary with respect to which all of the outstanding voting securities (other than directors' qualifying 27 shares) of which are owned, directly or indirectly, by the Company or a Surviving Person of any Disposition involving the Company, as the case may be. SECTION 1.02. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes. "indenture security holder" means a Holder or a 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 TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: 1. a term has the meaning assigned to it; 2. an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP as in effect on the date hereof; 3. "or" is not exclusive; 4. words in the singular include the plural, and words in the plural include the singular; 5. a reference to a Section or Article shall be to a Section or Article of this Indenture; 6. "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and 7. any reference to a statute, law or regulation means that statute, law or regulation as amended and in effect from time to time and includes any successor 28 statute, law or regulation; provided, however, that any reference to the Bankruptcy Law shall mean the Bankruptcy Law as applicable to the relevant case. ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating. The Initial Notes and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit A hereto. The Exchange Notes and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit B hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or depository rule or usage. The Company and the Trustee shall approve the form of the Notes and any notation, legend or endorsement on them. Each Note shall be dated the date of its issuance and shall show the date of its authentication. The terms and provisions contained in the Notes, annexed hereto as Exhibits A and B, shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes offered and sold to Accredited Investors or in reliance on Rule 144A shall be issued initially in the form of one or more permanent global Notes in registered form, substantially in the form set forth in Exhibit A (the "Global Note"), deposited with the Trustee, as custodian for DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth in Section 2.15(a) and (b). The aggregate principal amount of the Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC, as hereinafter provided. Notes offered and sold in offshore transactions in reliance on Regulation S shall be issued in the form of permanent certificated Notes in registered form in substantially the form set forth in Exhibit A (the "Offshore Physical Notes"), duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth in Section 2.15(a). Notes offered and sold to Accredited Investors or in reliance on Rule 144A may be issued, in the form of permanent certificated Notes in registered form, in substantially the form set forth in Exhibit A (the "U.S. Physical Notes"), duly executed by the Company and authenticated by the 29 Trustee as hereinafter provided and shall bear the legend set forth in Section 2.15(a). The Offshore Physical Notes and the U.S. Physical Notes are sometimes collectively herein referred to as the "Physical Notes." SECTION 2.02. Execution and Authentication; Aggregate Principal Amount.__ Two Officers, or an Officer and an Assistant Secretary, shall sign, or one Officer shall sign and one Officer or an Assistant Secretary (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. If an Officer or Assistant Secretary whose signature is on a Note was an Officer or Assistant Secretary at the time of such execution but no longer holds that office or position at the time the Trustee authenticates the Note, the Note shall nevertheless be valid. A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall authenticate (i) Initial Notes for original issue in the aggregate principal amount not to exceed $90,000,000 and (ii) Exchange Notes from time to time for issue only in exchange for a like principal amount of Initial Notes, in each case upon a written order of the Company. Such order shall specify the amount of Notes to be authenticated and the date on which the Notes are to be authenticated, whether the Notes are to be Initial Notes or Exchange Notes and whether the Notes are to be issued as Physical Notes or a Global Note or such other information as the Trustee may reasonably request. The aggregate principal amount of Notes outstanding at any time may not exceed $90,000,000, except as provided in Section 2.07. The Trustee may appoint an authenticating agent (the "Authenticating Agent") reasonably acceptable to the Company to authenticate Notes. Unless otherwise provided in the appointment, an Authenticating Agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such Authenticating Agent. An Authenticating Agent has the same rights as an Agent to deal with the Company or with any Affiliate of the Company. The Notes shall be issuable in fully registered form only, without coupons, in denominations of $1,000 and any integral multiple thereof. 30 The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Note is registered as the owner of such Note for the purpose of receiving payment of principal of and (subject to the provisions of this Indenture and the Notes with respect to record dates) interest on such Note, whether or not such Note is overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice of the contrary. SECTION 2.03. 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 (a) Notes may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Notes may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon the Company 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, upon prior written notice to the Trustee, may have one or more co-Registrars and one or more additional Paying Agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional Paying Agent. The Company may act as its own Paying Agent, except that for the purposes of payments on the Notes pursuant to Sections 4.15 and 4.16, neither the Company nor any Affiliate of the Company may act as Paying Agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall incorporate the provisions of the TIA and implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee, in advance, 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. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of demands and notices in connection with the Notes, until such time as the Trustee has resigned or a successor has been appointed. Any of the Registrar, the Paying Agent or any other agent may resign upon 30 days' notice to the Company. SECTION 2.04. Paying Agent To Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Notes (whether such assets have been distributed 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 31 obligor on the Notes) in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. SECTION 2.05. 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 Holders. If the Trustee is not the Registrar, the Company shall furnish or cause the Registrar to furnish to the Trustee before each Record Date and at such other times as the Trustee may request in writing a list as of such date and in such form as the Trustee may reasonably require of the names and addresses of the Holders, which list may be conclusively relied upon by the Trustee. SECTION 2.06. Transfer and Exchange. When Notes are presented to the Registrar or a co-Registrar with a request to register the transfer of such Notes or to exchange such Notes for an equal principal amount of Notes of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company or the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Notes at the Registrar's or co-Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges (without transfer to another Person) pursuant to Sections 2.02, 2.10, 3.06, 4.15, 4.16 or 9.05, in which event the Company shall be responsible for the payment of such taxes). The Registrar or co-Registrar shall not be required to register the transfer of or exchange of any Note (i) during a period beginning at the close of business on the day the Trustee receives notice of any redemption of Notes and ending at the close of business on the day such notice of redemption is mailed to the Holders, (ii) selected for redemption in whole 32 or in part pursuant to Article Three, except the unredeemed portion of any Note being redeemed in part and (iii) during a Change of Control Offer or an Asset Sale Offer if such Note is tendered pursuant to such Change of Control Offer or Asset Sale Offer and not withdrawn. Any Holder of the Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Notes may be effected only through a book-entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book-entry system. SECTION 2.07. Replacement Notes. If a mutilated Note is surrendered to 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 Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an indemnity bond or other indemnity of reasonable tenor, sufficient in the reasonable judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Note is replaced. Every replacement Note shall constitute an additional obligation of the Company. SECTION 2.08. Outstanding Notes. Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to the provisions of Section 2.09, a Note does not cease to be outstanding because the Company or any of its Affiliates holds the Note. If a Note is replaced pursuant to Section 2.07 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.07. If on a Redemption Date or the Maturity Date the Paying Agent (other than the Company) holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on 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. 33 SECTION 2.09. Treasury Notes. In determining (x) whether the Holders of the required principal amount of Notes have concurred in any direction, waiver, consent or notice or (y) how much principal amount of Notes remains outstanding after a redemption under Paragraph 6(b) of the Notes, Notes owned by the Company or an Affiliate shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent under clause (x) above, only Notes which a Trust Officer of the Trustee actually knows are so owned shall be so considered. The Company shall notify the Trustee, in writing, when it or, to the Company's knowledge, any of its Affiliates purchases or otherwise acquires Notes, of the aggregate principal amount of such Notes so purchased or otherwise acquired. SECTION 2.10. Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes upon receipt of a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of temporary Notes to be authenticated and the date on which the temporary Notes are to be authenticated. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company considers appropriate for temporary Notes and so indicates in the Officers' Certificate. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate upon receipt of a written order of the Company pursuant to Section 2.02 definitive Notes in exchange for temporary Notes. SECTION 2.11. 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 transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel and, at the written direction of the Company, shall dispose, in its customary manner, of all Notes surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.07, the Company may not issue new Notes to replace Notes that it has paid or delivered to the Trustee for cancellation. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. 34 SECTION 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest to the Persons who are Holders on a subsequent special record date, which special record date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment (a "Default Interest Payment Date"), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such defaulted interest as provided in this Section; provided, however, that in no event shall the Company deposit monies proposed to be paid in respect of defaulted interest later than 11:00 a.m. of the proposed Default Interest Payment Date. At least 15 days before the subsequent special record date, the Company shall mail (or cause to be mailed) to each Holder, as of a recent date selected by the Company, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. Notwithstanding the foregoing, any interest which is paid prior to the expiration of the 30-day period set forth in Section 6.01(i) shall be paid to Holders as of the regular record date for the Interest Payment Date for which interest has not been paid. Notwithstanding the foregoing, the Company may make payment of any defaulted interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange. SECTION 2.13. CUSIP Number. The Company in issuing the Notes may use a "CUSIP" number, and, if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided, however, that no representation is hereby deemed to be made by the Trustee 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 change in the CUSIP number. 35 SECTION 2.14. Deposit of Monies. Prior to 11:00 a.m. New York City time on each Interest Payment Date, Maturity Date, Redemption Date, Change of Control Purchase Date and Asset Sale Offer Purchase 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, Maturity Date, Redemption Date, Change of Control Purchase Date and Asset Sale Offer Purchase Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control Purchase Date and Asset Sale Offer Purchase Date, as the case may be. SECTION 2.15. Restrictive Legends. (a) Each Global Note and Physical Note that constitutes a Restricted Security shall bear the following legend (the "Private Placement Legend") on the face thereof until after the third anniversary of the Issue Date, unless otherwise agreed by the Company and the Holder thereof: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFF-SHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY, EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR 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 SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF 36 AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER 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 "OFF-SHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. EACH PURCHASER BY ITS PURCHASE OF THIS SECURITY SHALL BE DEEMED TO HAVE REPRESENTED AND COVENANTED THAT EITHER (I) IT IS NOT ACQUIRING THE SECURITY FOR OR ON BEHALF OF ANY PENSION OR WELFARE PLAN (AS DEFINED IN SECTION 3 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 ("ERISA")) OR (II) IF IT IS ACQUIRING THE SECURITY FOR OR ON BEHALF OF A PENSION OR WELFARE PLAN, THE APPLICABLE CONDITIONS OF PROHIBITED TRANSACTION EXEMPTION 91-38, 90-1, 84-14 OR 95-60 ISSUED BY THE DEPARTMENT OF LABOR HAVE BEEN SATISFIED OR THE PLAN IS A GOVERNMENTAL PLAN THAT IS NOT SUBJECT TO TITLE I OF ERISA OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. (b) Each Global Note shall also bear the following legend on the face thereof: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, 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 SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR 37 TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE. SECTION 2.16. Book-Entry Provisions for Global Security. (a) The Global Note initially shall (i) be registered in the name of DTC or the nominee of such DTC, (ii) be delivered to the Trustee as custodian for such DTC and (iii) bear legends as set forth in Section 2.15. Members of, or participants in, DTC ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by DTC, or the Trustee as its custodian, or under the Global Note, and DTC may be treated by the Company, the Trustee and any Agent 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 from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note. (b) Transfers of the Global Note shall be limited to transfers in whole, but not in part, to DTC, its successors or their respective nominees. Interests of beneficial owners in the Global Note may be transferred or exchanged for Physical Notes in accordance with the rules and procedures of DTC and the provisions of Section 2.17. In addition, Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in the Global Note if (i) DTC notifies the Company that it is unwilling or unable to continue as DTC for the Global Note and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from DTC to issue Physical Notes. (c) In connection with any transfer or exchange of a portion of the beneficial interest in the Global Note to beneficial owners pursuant to paragraph (b), the Registrar shall 38 (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 authenticate and deliver, one or more Physical Notes of like tenor and amount. (d) In connection with the transfer of the entire Global Note to beneficial owners pursuant to paragraph (b), the Global Note 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 DTC in exchange for its beneficial interest in the Global Note, an equal aggregate principal amount of Physical Notes of authorized denominations. (e) Any Physical Note constituting a Restricted Security delivered in exchange for an interest in the Global Note pursuant to paragraph (b) or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section 2.17, bear the legend regarding transfer restrictions applicable to the Physical Notes set forth in Section 2.15. (f) The Holder of the 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-U.S. Persons. The following provisions shall apply with respect to the registration of any proposed transfer of a Note constituting a Restricted Security to any Non-U.S. Person: (i) the Registrar shall register the transfer of any Note constituting a Restricted Security, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after the third anniversary of the Issue Date (provided, however, that neither the Company nor any Affiliate of the Company has held any beneficial interest in such Note, or portion thereof, at any time on or prior to the third anniversary of the Issue Date) or (y) the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto; and (ii) if the proposed transferor is an Agent Member holding a beneficial interest in the Global Note, upon receipt by the Registrar of the certificate, if any, required by paragraph (i) above and written instructions given in accordance with the procedures of DTC and the 39 Registrar, then (x) 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 the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and (y) the Company shall execute and the Trustee shall authenticate and deliver one or more Physical Notes of like tenor and amount. (b) Transfers to Accredited Investors. The following provisions shall apply with respect to any proposed transfer of a Note constituting a Restricted Security to any Accredited Investor that is not a QIB: (i) the Registrar shall register the transfer of any Note constituting a Restricted Security, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after the third anniversary of the Issue Date (provided, however, that neither the Company nor any Affiliate of the Company has held any beneficial interest in such Note, or portion thereof, at any time on or prior to the third anniversary of the Issue Date) or (y) the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto; 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 written instructions given in accordance with DTC'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 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) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Note constituting a Restricted Security 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 the form of 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 the form of 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 40 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 written instructions given in accordance with DTC'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 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. (d) Private Placement Legend. Upon the 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 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) the requested transfer is after the third anniversary of the Issue Date (provided, however, that neither the Company nor any Affiliate of the Company has held any beneficial interest in such Note, or portion thereof, at any time prior to or on the third anniversary of the Issue Date), or (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. (e) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a 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 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 during the Registrar's normal business hours upon the giving of reasonable written notice to the Registrar. 41 (f) Transfers of Notes Held by Affiliates. Any certificate (i) evidencing a Note that has been transferred to an Affiliate of the Company within three years after the Issue Date, as evidenced by a notation on the Assignment Form for such transfer or in the representation letter delivered in respect thereof, for so long as such Note is held by such Affiliate, or (ii) evidencing a Note that has been acquired from an Affiliate (other than by an Affiliate) in a transaction or a chain of transactions not involving any public offering, shall, until three years after the last date on which the Company or any Affiliate of the Company was an owner of such Note, in each case, bear the legend in substantially the form set forth in Section 2.15(a), unless otherwise agreed by the Company (with written notice thereof to the Trustee). SECTION 2.18. Liquidated Damages Under Registration Rights Agreement. Under certain circumstances, the Company shall be obligated to pay certain liquidated damages to the Holders, all as set forth in Section 4 of the Registration Rights Agreement. The terms thereof are hereby incorporated herein by reference. ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee. If the Company elects to redeem Notes pursuant to Paragraph 6 of the Notes, it shall notify the Trustee and the Paying Agent in writing of the Redemption Date and the principal amount of the Notes to be redeemed. The Company shall give each notice provided for in this Section 3.01 at least 60 days before the Redemption Date (unless a shorter notice period shall be satisfactory to the Trustee, as evidenced in a writing signed on behalf of the Trustee), together with an Officers' Certificate stating that such redemption shall comply with the conditions contained herein and in the Notes. SECTION 3.02. Selection of Notes To Be Redeemed. If fewer than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that if the Notes are redeemed pursuant to Paragraph 6(b) of the Notes, the Notes shall be 42 redeemed solely on a pro rata basis or on as nearly a pro rata basis as practicable (subject to the procedures of DTC or any other depositary), unless such method is otherwise prohibited. If the Notes are listed on any national securities exchange, the Company shall notify the Trustee of the requirements of such exchange in respect of any redemption. The Trustee shall make the selection from the Notes outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes in denominations of $1,000 may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Notes that have denominations larger than $1,000. 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 but not 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 whose Notes are to be redeemed, with a copy to the Trustee and any Paying Agent. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. The Company shall provide such notices of redemption to the Trustee at least five Business Days before the intended mailing date. Each notice for redemption shall identify (including the CUSIP number) the Notes to be redeemed and shall state: 1. the Redemption Date; 2. the Redemption Price and the amount of accrued interest, if any, to be paid; 3. the name and address of the Paying Agent; 4. the subparagraph of the Notes pursuant to which such redemption is being made; 5. that Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price plus accrued interest, if any; 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 of such Notes is to receive payment of the Redemption Price plus accrued interest, if any, upon surrender to the Paying Agent of the Notes redeemed; 43 7. 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 the aggregate principal amount equal to the unredeemed portion thereof will be issued; and 8. if fewer than all the Notes are to be redeemed, the identification of the particular Notes (or portion thereof) to be redeemed, as well as the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price plus accrued interest, if any. Upon surrender to the Trustee or Paying Agent, such Notes called for redemption shall be paid at the Redemption Price plus accrued interest thereon to the Redemption Date, but installments of interest, the maturity of which is on or prior to the Redemption Date, shall be payable to Holders of record at the close of business on the relevant record dates referred to in the Notes. SECTION 3.05. Deposit of Redemption Price. On or before the Redemption Date and in accordance with Section 2.14 hereof, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price plus accrued interest, if any, of all Notes to be redeemed on that date. The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose, except with respect to monies owed as obligations to the Trustee pursuant to Article Seven. If the Company complies with the preceding paragraph, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, interest on the Notes to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Notes are presented for payment. SECTION 3.06. Notes Redeemed in Part. Upon surrender of a Note that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Note or Notes equal in principal amount to the unredeemed portion of the Note surrendered. 44 ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes. (a) The Company shall pay the principal of and interest on the Notes on the dates and in the manner provided in the Notes and in this Indenture. (b) An installment of principal of or interest on the Notes shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or any of its Affiliates) holds, prior to 11:00 a.m. New York City time on that date, U.S. Legal Tender designated for and sufficient to pay the installment in full and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture or the Notes. (c) The Company shall pay, to the extent such payments are lawful, interest on overdue principal and on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate borne by the Notes. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. (d) Notwithstanding anything to the contrary contained in this Indenture, the Company may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal or interest payments hereunder. SECTION 4.02. Maintenance of Office or Agency. The Company shall maintain the office or agency required under Section 2.03. The Company shall give prior written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02. SECTION 4.03. Corporate Existence. Except as otherwise permitted by Article Five or by Section 4.16, the Company shall do or cause to be done, at its own cost and expense, all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each of the Subsidiaries in accordance with the respective organizational documents of each such Subsidiary and the material rights (charter and statutory) and franchises 45 of the Company and each such Subsidiary; provided, however, that the Company shall not be required to preserve, with respect to itself, any material right or franchise and, with respect to any Subsidiary, any such existence, material right or franchise, if the Board of Directors of the Company shall determine in good faith that the preservation thereof is no longer desirable in the conduct of the business of the Company and the Subsidiaries, taken as a whole. SECTION 4.04. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any Subsidiary or properties of it or any Subsidiary and (ii) all material lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate negotiations or proceedings properly instituted and diligently conducted for which adequate reserves, to the extent required under GAAP, have been taken. SECTION 4.05. Maintenance of Properties and Insurance. (a) The Company shall, and shall cause each Restricted Subsidiary to, maintain all properties used or useful in the conduct of its business in good working order and condition (subject to ordinary wear and tear) and make all necessary repairs, renewals, replacements, additions, betterments and improvements thereto; provided, however, that nothing in this Section 4.05 shall prevent the Company or any Restricted Subsidiary from discontinuing the operation and maintenance of any of its properties, if such discontinuance is (i) in the ordinary course of business pursuant to customary business terms or (ii) in the good faith judgment of the Board of Directors or other governing body of the Company or the Restricted Subsidiary, as the case may be, desirable in the conduct of their respective businesses and is not disadvantageous in any material respect to the Holders. (b) The Company shall provide or cause to be provided, for itself and each Restricted Subsidiary, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the good faith judgment of the Company, are adequate and appropriate for the conduct of the business of the Company and such Restricted Subsidiary in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in 46 such amounts, with such deductibles, and by such methods as shall be customary, in the good faith judgment of the Company, for companies similarly situated in the industry and owning like properties. SECTION 4.06. Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee, within 105 days after the end of the Company's fiscal year, a certificate signed by the Chairman of the Board of Directors, the Chief Executive Officer, the President or any Vice President and by the Chief Financial Officer, Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Company (provided, however, that one of such signatories shall be the Company's principal executive officer, principal financial officer or principal accounting officer), as to such Officers' knowledge of the Company's compliance with all conditions and covenants under this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and in the event any Default exists, such Officers shall specify the nature of such Default. (b) (i) If any Default or Event of Default has occurred and is continuing or (ii) if any Holder seeks to exercise any remedy hereunder with respect to a claimed Default under this Indenture or the Notes, the Company shall deliver to the Trustee, at its address set forth in Section 11.02, by registered or certified mail or by facsimile transmission followed by hard copy by registered or certified mail an Officers' Certificate specifying such event, notice or other action within five Business Days of its becoming aware of such occurrence. SECTION 4.07. Compliance with Laws. The Company shall comply, and shall cause each Subsidiary to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as would not singly or in the aggregate have a material adverse effect on the financial condition, business or results of operations of the Company and the Subsidiaries, taken as a whole. SECTION 4.08. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other 47 law that would prohibit or forgive the Company from paying all or any portion of the principal of 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 4.09. Provision of Financial Statements and Information. (a) Following effectiveness of the Exchange Offer (as defined in the Registration Rights Agreement), whether or not the Company is then subject to Section 13(a) or 15(d) of the Exchange Act, the Company will file with the Commission, so long as any Notes are outstanding, the annual reports, quarterly reports and other periodic reports which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) if the Company were so subject, and such documents shall be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject; provided the Commission will accept such filings. Upon qualification of this Indenture under the TIA, the Company shall also comply with the provisions of TIA { 314(a). (b) The Company will also in any event (i) within 15 days of each Required Filing Date, file with the Trustee, and supply the Trustee with copies for delivery to the Holders of the Notes, the annual reports, quarterly reports and other periodic reports which the Company would have been required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were subject to such Sections and (ii) if the Commission will not accept the filing of such documents promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective Holder of the Notes. (c) Until the Company is subject to Section 13 or 15(d) of the Exchange Act, the Company shall provide to any Holder or any beneficial owner of Notes any information reasonably requested by such Holder or such beneficial owner concerning the Company and its Subsidiaries (including financial statements) necessary in order to permit such Holder or such beneficial owner to sell or transfer Notes in compliance with Rule 144A under the Securities Act. 48 SECTION 4.10. Limitation on Incurrence of Indebtedness.___________ (a) The Company shall not, and shall not permit any Restricted Subsidiary to, create, incur, issue, assume or directly or indirectly guarantee or in any other manner become directly or indirectly liable for ("incur") any Indebtedness (including Acquired Debt), except that the Company may incur Indebtedness (including Acquired Debt) if, at the time of, and immediately after giving pro forma effect to, such incurrence of Indebtedness, the Consolidated Cash Flow Coverage Ratio of the Company for the most recently ended four fiscal quarters would be at least 2.0 to 1.0 if incurred during the period from the Issue Date through November 15, 1998, and 2.25 to 1.0 if incurred thereafter. (b) The foregoing limitations will not apply to the incurrence of any of the following (collectively, "Permitted Indebtedness"), each of which shall be given independent effect: (i) Indebtedness of the Company arising under the Senior Credit Facility and Indebtedness of IKS Klingelnberg GmbH and its Subsidiaries arising under the German Subsidiary Facilities, in an aggregate principal amount not to exceed at any time outstanding the greater of (x) $30.0 million, less any permanent reduction in commitments thereunder, and (y) the sum, at such time, of (I) 85% of the consolidated book value of net accounts receivable of the Company and the Restricted Subsidiaries and (II) 60% of the consolidated book value of inventory of the Company and the Restricted Subsidiaries; (ii) Indebtedness of the Company represented by the Initial Notes and the Exchange Notes; (iii) Indebtedness of the Company or any Restricted Subsidiary not covered by any other clause of this paragraph which is outstanding on the Issue Date ("Existing Indebtedness"), including certain Indebtedness of IKS Klingelnberg GmbH under the German Subsidiary Facilities outstanding on the Issue Date; (iv) Indebtedness owed by any Restricted Subsidiary to the Company or to another Restricted Subsidiary, or owed by the Company to any Restricted Subsidiary; provided, however, that any such Indebtedness shall at all times be held by a Person which is either the Company or a Restricted Subsidiary; provided, further, however, that upon either (a) the transfer or other disposition of any such Indebtedness to a Person other than the Company or another Restricted Subsidiary or (b) the sale, transfer or other disposition of shares of Capital Stock (including by consolidation or merger) of any such Restricted Subsidiary 49 to a Person other than the Company or another Restricted Subsidiary, the incurrence of such Indebtedness shall be deemed to be an incurrence that is not permitted by this clause (iv); (v) Indebtedness of the Company or any Restricted Subsidiary arising with respect to Interest Rate Agreement Obligations and Currency Agreement Obligations incurred for the purpose of fixing or hedging interest rate risk or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding or with respect to any receivable or liability the payment of which is determined by reference to a foreign currency; (vi) Indebtedness represented by performance, completion, guarantee, surety and similar bonds provided by the Company or any Restricted Subsidiary in the ordinary course of business consistent with past practice; (vii) Any Indebtedness incurred in connection with or given in exchange for the renewal, extension, substitution, refunding, defeasance, refinancing or replacement, in whole or in part, (a "refinancing") of any Indebtedness incurred as permitted under Section 4.10(a) or any Indebtedness described in clauses (ii) or (iii) above and this clause (vii) ("Refinancing Indebtedness"); provided, however, that (a) the principal amount of such Refinancing Indebtedness shall not exceed the principal amount (or accreted amount, if less) of the Indebtedness so refinanced (plus the premiums and reasonable expenses to be paid in connection therewith, which, with respect to such premiums, shall not exceed the stated amount of any premium or other payment required to be paid in connection with such a refinancing pursuant to the terms of the Indebtedness being refinanced); (b) if the Weighted Average Life to Maturity of the Indebtedness being refinanced is equal to or greater than the Weighted Average Life to Maturity of the Notes, the Refinancing Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being refinanced; (c) with respect to Refinancing Indebtedness other than Senior Debt incurred by the Company, such Refinancing Indebtedness shall rank no more senior than, and, if applicable, shall be at least as subordinated in right of payment to the Notes as, the Indebtedness being refinanced; and (d) the obligor on such Refinancing Indebtedness shall be the obligor on the Indebtedness being refinanced or the Company; (viii) Indebtedness of the Company or any Restricted Subsidiary (a) representing Capitalized Lease Obligations and any refinancings thereof and/or (b) in respect of Purchase Money Obligations for property acquired, constructed 50 or improved in the ordinary course of business and any refinancings thereof, which taken together in the aggregate do not exceed $5.0 million at any time outstanding; (ix) commodity agreements entered into in the ordinary course of business to protect against fluctuations in the prices of raw materials and not for speculative purposes; (x) Indebtedness incurred by the Company or any Restricted Subsidiary constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims or self-insurance; (xi) (a) Guarantees by the Company of Indebtedness of a Restricted Subsidiary permitted to be incurred under this Indenture, (b) Guarantees by any Restricted Subsidiary in accordance with Section 4.19 and (c) Guarantees by any Restricted Subsidiary of Senior Debt so long as such Restricted Subsidiary executes a Guarantee of the Notes on a senior subordinated basis; (xii) Indebtedness of the Company or any Restricted Subsidiary arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, in each case incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than Guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided that the maximum liability in respect of such Indebtedness shall not exceed the gross proceeds actually received by the Company and its Restricted Subsidiaries in connection with such disposition; and (xiii) Indebtedness of the Company or any Restricted Subsidiary in addition to that described in clauses (i) through (xii) above, and any renewals, extensions, substitutions, refinancings or replacements of such Indebtedness, so long as the aggregate principal amount of all such Indebtedness incurred pursuant to this clause (xiii) does not exceed $5.0 million at any one time outstanding (which may be, but shall not be required to be, incurred, in whole or in part, under the Senior Credit Facility or the German Subsidiary Facilities). (c) For purposes of determining any particular amount of Indebtedness under this Section 4.10, Guarantees, Liens or obligations with respect to letters of credit 51 supporting Indebtedness otherwise included in the determination of such particular amount shall not be included. (d) Indebtedness of any Person which is outstanding at the time such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Company or a Restricted Subsidiary shall be deemed to have been incurred at the time such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Company or a Restricted Subsidiary, and Indebtedness which is assumed at the time of the acquisition of any asset shall be deemed to have been incurred at the time of such acquisition. SECTION 4.11. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, make any Restricted Payment, unless at the time of and immediately after giving effect to the proposed Restricted Payment (with the value of any such Restricted Payment, if other than cash, to be determined reasonably and in good faith by the Board of Directors of the Company): (i) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (ii) the Company could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.10(a); and (iii) the aggregate amount of all Restricted Payments made after the Issue Date shall not exceed the sum of: (a) an amount equal to 50% of the Company's aggregate cumulative Consolidated Net Income accrued on a cumulative basis during the period (treated as one accounting period) beginning on the Issue Date and ending on the date of such proposed Restricted Payment (or, if such aggregate cumulative Consolidated Net Income for such period shall be a deficit, minus 100% of such deficit); plus (b) the aggregate amount of all net cash proceeds received since the Issue Date by the Company from the issuance and sale (other than to a Restricted Subsidiary) of, or equity contribution with respect to, Capital Stock (other than Disqualified Stock) and the principal amount of Indebtedness of the Company or any Restricted Subsidiary that has been converted into or exchanged for Capital Stock (other than Disqualified Stock), in any such case to the extent that such proceeds are not used (x) to redeem, repurchase, retire or otherwise acquire 52 Capital Stock or any Indebtedness of the Company or any Restricted Subsidiary pursuant to clause (ii) of the next paragraph or (y) to make any Restricted Investment pursuant to clause (iv) of the next paragraph; plus (c) the amount of the net reduction in Investments in Unrestricted Subsidiaries resulting from (x) the payment of dividends or the repayment in cash of the principal of loans or the cash return on any Investment, in each case to the extent received by the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, (y) the release or extinguishment of any guarantee of Indebtedness of any Unrestricted Subsidiary, and (z) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued as provided in the definition of "Investment"), such aggregate amount of the net reduction in Investments not to exceed in the case of any Unrestricted Subsidiary the amount of Restricted Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was included in the calculation of the amount of Restricted Payments; plus (d) to the extent that any Restricted Investment that was made after the Issue Date is sold for cash or otherwise liquidated or repaid for cash, the amount of cash proceeds received with respect to such Restricted Investment, net of taxes and the cost of disposition, not to exceed the amount of Restricted Investments made after the Issue Date. (b) Section 4.11(a) shall not prohibit the following actions (collectively, "Permitted Payments"): (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such declaration date such payment would have been permitted under this Indenture (which payment shall be deemed to have been paid on such date of declaration for purposes of Section 4.11(a)(iii)); (ii) the redemption, repurchase, retirement or other acquisition of any Capital Stock or any Indebtedness of the Company or any Restricted Subsidiary in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Restricted Subsidiary) of, or equity contribution with respect to, Capital Stock of the Company (other than any Disqualified Stock); (iii) any purchase or defeasance of Subordinated Indebtedness to the extent required upon a Change of Control or Asset Sale (as defined therein) by the indenture 53 or other agreement or instrument pursuant to which such Subordinated Indebtedness was issued, but only if the Company (x) in the case of a Change of Control, has complied with its obligations under Section 4.15 or (y) in the case of an Asset Sale, has applied the Net Proceeds from such Asset Sale in accordance with Section 4.16; (iv) any Restricted Investment the sole consideration for which consists of, or is made with the proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary) of, or equity contribution with respect to, Capital Stock of the Company (other than any Disqualified Stock); (v) the making of payments by the Company to IKS Holdings in an amount not in excess of the income tax liability that the Company and its Subsidiaries would have been liable for if the Company and its Subsidiaries had filed consolidated tax returns on a stand-alone basis; (vi) distributions, loans or advances to IKS Holdings in an aggregate amount not to exceed $50,000 per annum sufficient to permit IKS Holdings to pay the ordinary operating expenses of IKS Holdings (including, without limitation, reasonable directors' fees and expenses, indemnification obligations and professional fees and expenses) directly related to IKS Holdings' ownership of Capital Stock of the Company (other than any expenses of CVC or any of its Affiliates); (vii) payments to IKS Holdings in amounts and at times necessary to permit the repurchase of Holdings Common Stock, Holdings Preferred Stock and Holdings Debentures from directors, officers and employees of the Company and its Subsidiaries who have died or whose employment has been terminated; provided that such payments shall not exceed $500,000 in any fiscal year plus any amount available for such payments hereunder since the Issue Date which have not been used for such purpose; provided, further, that in no event shall such payments exceed $2.0 million in any fiscal year; (viii) loans or advances to employees of the Company or any of its Subsidiaries which loans or advances exist on the Issue Date, a loan to John E. Halloran, the Company's President and Chief Executive Officer, to pay income taxes which will be incurred by him in connection with the Recapitalization not to exceed $250,000 and other loans or advances to employees of the Company or any Subsidiary to pay reasonable relocation expenses; and (ix) Restricted Investments in an amount such that the sum of the aggregate amount of Restricted Investments 54 made pursuant to this clause (ix) after the Issue Date does not exceed $2.0 million at any one time outstanding; provided, however, that in the case of clauses (iii), (vii), (viii) and (ix) of this Section 4.11(b), no Default or Event of Default shall have occurred and be continuing. (c) For purposes of Section 4.11(a)(iii), the Permitted Payments referred to in clauses (i), (vii) and (ix) of Section 4.11(b) shall be included in the aggregate amount of Restricted Payments made since the Issue Date, and any other Permitted Payments described above shall be excluded. (d) Not later than thirty (30) days after the end of any fiscal quarter of the Company during which any Restricted Payment or Restricted Investment has been made, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment or Restricted Investment complies with this Indenture and setting forth in reasonable detail the basis upon which the required calculations were computed, which calculations may be based upon the Company's latest available internal quarterly financial statements. SECTION 4.12. Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness that is pari passu with or subordinated in right of payment to the Notes (other than Permitted Liens) on any asset now owned or hereafter acquired, or any income or profits therefrom, or assign or convey any right to receive income therefrom to secure any such Indebtedness, unless (i) if such 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 (ii) if such Lien secures Indebtedness which is subordinated to the Notes, any such Lien shall be subordinated to a Lien granted to the Holders of the Notes in the same collateral as that securing such Lien to the same extent as such subordinated Indebtedness is subordinated to the Notes. SECTION 4.13. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries.______ The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause to become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions to the Company or any other Restricted Subsidiary on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed 55 to the Company or any other Restricted Subsidiary, (ii) make loans or advances to, or issue Guarantees for the benefit of, the Company or any other Restricted Subsidiary or (iii) transfer any of its properties or assets to the Company or any other Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of: (a) the Senior Credit Facility; (b) any German Subsidiary Facility; (c) applicable law; (d) any instrument governing Indebtedness or Capital Stock of an Acquired Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition); provided, however, that no such encumbrance or restriction is applicable to any Person, or the properties or assets of any Person, other than the Acquired Person; (e) by reason of customary non-assignment, subletting or net worth provisions in leases or other agreements entered into the ordinary course of business and consistent with past practices; (f) Purchase Money Indebtedness for property acquired in the ordinary course of business that impose restrictions only on the property so acquired; (g) an agreement for the sale or disposition of assets or the Capital Stock of a Restricted Subsidiary; provided, however, that such restriction or encumbrance is only applicable to such Restricted Subsidiary or assets, as applicable, and such sale or disposition otherwise is permitted by Section 4.16; provided, further, however, that such restriction or encumbrance shall be effective only for a period from the execution and delivery of such agreement through a termination date not later than 270 days after such execution and delivery; (h) this Indenture and the Notes; (i) Indebtedness (including Refinancing Indebtedness) permitted to be incurred subsequent to the Issue Date pursuant to Section 4.10; provided, however, that any such restrictions are ordinary and customary with respect to the type of Indebtedness being incurred; (j) encumbrances and restrictions imposed by Liens incurred in accordance with Section 4.12; 56 (k) customary provisions in joint venture agreements and other similar agreements; and (l) encumbrances and restrictions imposed by amendments, restatements, renewals, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (a) through (k) above; provided that such encumbrances and restrictions are, in the good faith judgment of the Company's Board of Directors, no more restrictive, in any material respect, than those contained in such contracts, instruments or obligations immediately prior to such amendment, restatement, renewal, replacement or refinancing. SECTION 4.14. Limitation on Transactions with Affiliates.__________ (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate of the Company unless (1) such transaction or series of transactions is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could reasonably be obtainable at such time in a comparable transaction in arm's-length dealings with an unrelated third party, and (2) the Company delivers to the Trustee (a) with respect to any transaction or series of transactions involving aggregate payments in excess of $500,000, an Officers' Certificate certifying that such transaction or series of related transactions complies with clause (1) above and (b) with respect to any transaction or series of transactions involving aggregate payments in excess of $2.0 million, an Officers' Certificate certifying that such transaction or series of related transactions has been approved by a majority of the members of the Board of Directors of the Company (and approved by a majority of the Independent Directors or, in the event there is only one Independent Director, by such Independent Director), and (c) with respect to any transaction or series of transactions involving aggregate payments in excess of $5.0 million, an opinion as to the fairness to the Company from a financial point of view issued by an investment banking firm of national standing. (b) Section 4.14(a) will not apply to (i) employment agreements or compensation or employee benefit arrangements with any officer, director or employee of the Company or any of its Restricted Subsidiaries entered into in the ordinary course of business (including customary benefits thereunder and including reimbursement or advancement of out-of-pocket expenses, and director's and officer's liability insurance); (ii) any transaction entered into by or among the Company or one of its Restricted Subsidiaries with one or more Restricted 57 Subsidiaries of the Company; (iii) any transaction permitted by Section 4.11(b); (iv) transactions permitted by, and complying with, Article Five; and (v) transactions with suppliers or other purchases or sales of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Indenture which, in the reasonable determination of the Board of Directors of the Company, are on terms no less favorable to the Company or its Restricted Subsidiaries than those that could reasonably have been obtained at such time from an unaffiliated party. SECTION 4.15. Change of Control. (a) In the event of a Change of Control, each Holder shall have the right, unless the Company has given a notice of redemption, subject to the terms and conditions of this Indenture, to require the Company to offer to purchase all or any portion (equal to $1,000 or an integral multiple thereof) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, in accordance with the terms set forth below (a "Change of Control Offer"). In the event of any Change of Control, the Company shall not, and shall not cause or permit any of the Subsidiaries to, purchase, redeem or otherwise acquire or retire any Indebtedness of the Company ranking junior or subordinate to the Notes pursuant to any analogous provisions relating to such Indebtedness until after the 91st day after the Change of Control Purchase Date (as such date may be extended). (b) On or before the 30th day following the occurrence of any Change of Control, the Company shall mail, by first-class mail (with a copy to the Trustee), to each Holder at such Holder's registered address a notice stating: (i) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase all or a portion (equal to $1,000 or an integral multiple thereof) of such Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (the "Change of Control Purchase Date"), which shall be a business day, specified in such notice, that is not earlier than 30 days or later than 60 days from the date such notice is mailed; (ii) the amount of accrued and unpaid interest, if any, as of the Change of Control Purchase Date; (iii) that any Note not tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the purchase price for the Notes payable pursuant to the Change of Control Offer, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on the Change of Control Purchase Date; (v) that Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to 58 surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the second Business Day prior to the Change of Control Purchase Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the second Business Day prior to the Change of Control Purchase Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; (vii) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the unpurchased portion of the Notes surrendered; provided, however, that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof; (viii) the circumstances and relevant facts regarding such Change of Control; and (ix) such other information as may be required by applicable laws and regulations. (c) On the Change of Control Purchase Date, the Company will (x) accept for payment all Notes or portions thereof tendered pursuant to the Change of Control Offer, (y) deposit with the Paying Agent U.S. Legal Tender Sufficient to pay the aggregate purchase price of all Notes or portions thereof accepted for payment, and (z) deliver or cause to be delivered to the Trustee all Notes tendered pursuant to the Change of Control Offer. The Paying Agent shall promptly mail to each Holder of Notes or portions thereof accepted for payment an amount equal to the purchase price for such Notes plus accrued and unpaid interest, if any, thereon, and the Trustee shall promptly authenticate and mail to each Holder of Notes accepted for payment in part a new Note equal in principal amount to any unpurchased portion of the Notes, and any Note not accepted for payment in whole or in part shall be promptly returned to the Holder of such Note. On and after a Change of Control Purchase Date, interest will cease to accrue on the Notes or portions thereof accepted for payment, unless the Company defaults in the payment of the purchase price therefor. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Purchase Date. (d) The Company will comply with the applicable tender offer rules, including the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all other applicable securities laws and regulations in connection with any Change of Control Offer and will be deemed not to be in violation of any of the covenants under this Indenture to the extent such compliance is in conflict with such covenants. 59 SECTION 4.16. Limitation on Asset Sales. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or other property sold or disposed of in the Asset Sale and (ii) at least 75% of such consideration consists of either cash or Cash Equivalents; provided, however, that for purposes of this Section 4.16, "cash" shall include (x) the amount of any Indebtedness (other than any Indebtedness that is by its terms subordinated to the Notes) of the Company or such Restricted Subsidiary as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or in the notes thereto that is assumed by the transferee of any such assets or other property in such Asset Sale (and excluding any liabilities that are incurred in connection with or in anticipation of such Asset Sale), but only to the extent that such assumption is effected on a basis such that there is no further recourse to the Company or any of the Restricted Subsidiaries with respect to such liabilities and (y) any notes, obligations or securities received by the Company or such Restricted Subsidiary from such transferee that are converted within 60 days by the Company or such Restricted Subsidiary into cash (to the extent of the cash received). (b) Within 270 days after any Asset Sale, the Company or the applicable Restricted Subsidiary may elect to apply the Net Proceeds from such Asset Sale to (a) permanently reduce any Senior Debt of the Company or any Indebtedness of the applicable Restricted Subsidiary and/or (b) make an investment in, or acquire assets and properties that will be used in, the business of the Company and the Restricted Subsidiaries existing on the Issue Date or in businesses reasonably related thereto. Pending the final application of any such Net Proceeds, the Company or any Restricted Subsidiary may temporarily reduce Indebtedness of the Company under the Senior Credit Facility or temporarily invest such Net Proceeds in any Investments described under clauses (i) through (iii) of the definition of Permitted Investments. Any Net Proceeds from an Asset Sale not applied or invested as provided in the first sentence of this Section 4.16(b) within 270 days of such Asset Sale will be deemed to constitute "Excess Proceeds." (c) Each date that the aggregate amount of Excess Proceeds in respect of which an Asset Sale Offer (as defined below) has not been made exceeds $5.0 million shall be deemed an "Asset Sale Offer Trigger Date." As soon as practicable, but in no event later than 20 business days after each Asset Sale Offer Trigger Date, the Company shall commence an offer (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds. Any 60 Notes to be purchased pursuant to an Asset Sale Offer shall be purchased pro rata based on the aggregate principal amount of Notes outstanding, and all Notes shall be purchased at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. To the extent that any Excess Proceeds remain after completion of an Asset Sale Offer, the Company may use the remaining amount for general corporate purposes otherwise permitted by this Indenture. In the event that the Company is prohibited under the terms of any agreement governing outstanding Senior Debt of the Company from repurchasing Notes with Excess Proceeds pursuant to an Asset Sale Offer as set forth in the first sentence of this Section 4.16(c), the Company shall promptly use all Excess Proceeds to permanently reduce such outstanding Senior Debt of the Company. Upon the consummation of any Asset Sale Offer, the amount of Excess Proceeds shall be deemed to be reset to zero. (d) Notice of an Asset Sale Offer shall be mailed, by first-class mail (with a copy to the Trustee), by the Company not later than the 20th business day after the related Asset Sale Offer Trigger Date to each Holder of Notes at such Holder's registered address, stating: (i) that an Asset Sale Offer Trigger Date has occurred and that the Company is offering to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds (to the extent provided in the immediately preceding paragraph), at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of the purchase (the "Asset Sale Offer Purchase Date"), which shall be a business day, specified in such notice, that is not earlier than 30 days or later than 60 days from the date such notice is mailed, (ii) the amount of accrued and unpaid interest, if any, as of the Asset Sale Offer Purchase Date, (iii) that any Note not tendered will continue to accrue interest, (iv) that, unless the Company defaults in the payment of the purchase price for the Notes payable pursuant to the Asset Sale Offer, any Notes accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Asset Sale Offer Purchase Date, (v) that Holders electing to have a Note purchased pursuant to a Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Asset Sale Offer Purchase Date, (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the second Business Day prior to the Asset Sale Offer Purchase Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased, (vii) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the 61 unpurchased portion of the Notes surrendered; provided, however, that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof, and (viii) such other information as may be required by applicable laws and regulations. (e) On the Asset Sale Offer Purchase Date, the Company will (i) accept for payment the maximum principal amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer that can be purchased out of Excess Proceeds from such Asset Sale that are to be applied to an Asset Sale Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the aggregate purchase price of all Notes or portions thereof accepted for payment, and (iii) deliver or cause to be delivered to the Trustee all Notes tendered pursuant to the Asset Sale Offer. If less than all Notes tendered pursuant to the Asset Sale Offer are accepted for payment by the Company for any reason consistent with this Indenture, selection of the Notes to be purchased by the Company shall be in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis or by lot; provided, however, that Notes accepted for payment in part shall only be purchased in integral multiples of $1,000. The Paying Agent shall promptly mail to each Holder of Notes or portions thereof accepted for payment an amount equal to the purchase price for such Notes plus accrued and unpaid interest, if any, thereon, and the Trustee shall promptly authenticate and mail to such Holder of Notes accepted for payment in part a new Note equal in principal amount to any unpurchased portion of the Notes, and any Note not accepted for payment in whole or in part shall be promptly returned to the Holder of such Note. On and after an Asset Sale Offer Purchase Date, interest will cease to accrue on the Notes or portions thereof accepted for payment, unless the Company defaults in the payment of the purchase price therefor. The Company will publicly announce the results of the Asset Sale Offer on or as soon as practicable after the Asset Sale Offer Purchase Date. (f) This Section 4.16 will not apply to a transaction consummated in compliance with Article Five. (g) The Company will comply with the applicable tender offer rules, including the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all other applicable securities laws and regulations in connection with any Asset Sale Offer and will be deemed not to be in violation of any of the covenants under this Indenture to the extent such compliance is in conflict with such covenants. 62 SECTION 4.17. Limitation on Designation of Unrestricted Subsidiaries.__ (a) The Company shall not designate any Subsidiary of the Company (other than a newly created Subsidiary in which no Investment has previously been made) as an "Unrestricted Subsidiary" under this Indenture (a "Designation") unless: (i) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (ii) immediately after giving effect to such Designation, the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 4.10(a); and (iii) the Company would not be prohibited under this Indenture from making an Investment at the time of Designation in an amount (the "Designation Amount") equal to the greater of (x) the book value of such Restricted Subsidiary on such date and (y) the Fair Market Value of such Restricted Subsidiary on such date. In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to Section 4.11 for all purposes of this Indenture in an amount equal to the Designation Amount. (b) The Company shall not designate an Unrestricted Subsidiary as a Restricted Subsidiary (a "Redesignation"), unless: (i) no Default shall have occurred and be continuing at the time of and after giving effect to such Redesignation; and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Redesignation shall be deemed to have been incurred at such time and shall have been permitted to be incurred for all purposes of this Indenture. An Unrestricted Subsidiary shall be deemed to be redesignated as a Restricted Subsidiary at any time if (a) the Company or any other Restricted Subsidiary (i) provides credit support for, or a guarantee of, any Indebtedness of such Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of such Unrestricted Subsidiary or (b) a default with respect to any Indebtedness of such Unrestricted Subsidiary (including any right which the holders thereof may have to take enforcement action against it) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted 63 Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity, except in the case of clause (a) to the extent permitted under Section 4.11. (c) All Designations (other than with respect to the Company's Subsidiaries in China) and Redesignations shall be evidenced by Board Resolutions delivered to the Trustee certifying compliance with the foregoing provisions. Subsidiaries that are not designated by the Board of Directors as Restricted or Unrestricted Subsidiaries will be deemed to be Restricted Subsidiaries. The Designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be deemed a Designation of all of the Subsidiaries of such Unrestricted Subsidiary as Unrestricted Subsidiaries. SECTION 4.18. Limitation on Incurrence of Senior Subordinated Indebtedness.________ The Company shall not, directly or indirectly, incur any Indebtedness that is subordinated or junior in right of payment to any Senior Debt of the Company and senior in any respect in right of payment to the Notes. For purposes of this Section 4.18, no Indebtedness shall be deemed to be subordinated in right of payment to any other Indebtedness by reason of the fact that such other Indebtedness is secured by any Lien or is subject to a Guarantee. SECTION 4.19. Guarantees. If the Company or any of its Restricted Subsidiaries transfers or causes to be transferred, in one transaction or a series of related transactions, any property (other than cash) to any Restricted Subsidiary that is not a Foreign Subsidiary, or if the Company or any of its Restricted Subsidiaries shall organize, acquire or otherwise invest in another Restricted Subsidiary that is not a Foreign Subsidiary, then such transferee or acquired or other Restricted Subsidiary shall (i) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee on a senior subordinated basis all of the Company's obligations under the Notes and this Indenture and (ii) deliver to the Trustee an Opinion of Counsel that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Subsidiary. The Indebtedness represented by any such Guarantee will be subordinated on the same basis to senior Indebtedness of the guarantor thereof as the Notes are subordinated to Senior Debt. The obligations of each guarantor will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such guarantor, result in the obligations of such guarantor under the Guarantee not constituting a 64 fraudulent conveyance or fraudulent transfer under federal or state law. Any such Guarantee will be released upon the sale of all of the Capital Stock, or all or substantially all of the assets, of the applicable guarantor if such sale is made in compliance with this Indenture. ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets. (a) The Company shall not, in any single transaction or series of related transactions, consolidate or merge with or into (whether or not the Company is the Surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) in one or more related transactions to, another Person, and the Company will not permit any Restricted Subsidiary to enter into any such transaction or series of related transactions if such transaction or series of related transactions, in the aggregate, would result in a sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the properties and assets of the Company and the Restricted Subsidiaries, taken as a whole, to another Person, unless (i) the Surviving Person is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Surviving Person (if other than the Company) assumes all the obligations of the Company under the Notes, this Indenture and, if then in effect, the Registration Rights Agreement pursuant to a supplemental indenture or other written agreement, as the case may be, in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction, no Default or Event of Default shall have occurred and be continuing; (iv) immediately after giving effect to such transaction or series of related transactions, (A) in the case of a transaction involving the Company, the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction or series of related transactions or (B) in the case of a transaction involving a Restricted Subsidiary of the Company, the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of such Restricted Subsidiary immediately prior to such transaction or series of related transactions; and (v) after giving pro forma effect to such transaction, the Surviving Person would be permitted to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.10(a). Notwithstanding clauses (iii), (iv) and (v) above, any Restricted Subsidiary 65 may consolidate with, merge into or transfer all or part of its properties and assets to the Company or another Restricted Subsidiary. In the event of any transaction (other than a lease) described in and complying with the conditions listed in the immediately preceding paragraph in which the Company is not the Surviving Person, such Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of, the Company, and the Company shall be discharged from its obligations under, this Indenture, the Notes and the Registration Rights Agreement. (b) In connection with any such consolidation, merger, amalgamation, transfer, lease or disposition, the Company or such Person shall have delivered to the Trustee (i) an Officers' Certificate and an Opinion of Counsel, each in form and substance reasonably satisfactory to the Trustee, stating that such consolidation, amalgamation, merger, sale, assignment, conveyance, transfer, lease or disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Indenture and that all conditions precedent therein provided for relating to such transaction have been complied with, and (ii) if a supplemental indenture is required in connection with such transaction, an Opinion of Counsel, in form and substance reasonably satisfactory to the Trustee, that such supplemental indenture constitutes the legal, valid, binding and enforceable obligation of the Surviving Person. (c) 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 Subsidiaries, 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 Corporation Substituted. Upon any consolidation, amalgamation or merger, or any sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Company in accordance with Section 5.01, the Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of the Company under this Indenture, with the same effect as if such successor had been named as the Company in this Indenture; and thereafter, except in the case of a lease, the Company shall be discharged from all obligations and covenants under this Indenture and the Notes. 66 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default. "Events of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) a default for 30 days in the payment when due of interest on, or Liquidated Damages (if any) with respect to any Note, (whether or not prohibited by Article Ten); (ii) a default in the payment when due of principal on any Note (whether or not prohibited by Article Ten), whether upon maturity, acceleration, optional or mandatory redemption, required repurchase or otherwise; (iii) failure to perform or comply with any covenant, agreement or warranty in this Indenture (other than the defaults specified in clauses (i) and (ii) above) which failure continues for 60 days after written notice thereof has been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the then outstanding Notes; (iv) the occurrence of one or more defaults under any agreements, indentures or instruments under which the Company or any Restricted Subsidiary then has outstanding Indebtedness in excess of $5.0 million in the aggregate and, if not already matured at its final maturity in accordance with its terms, such Indebtedness shall have been accelerated and such acceleration is not rescinded, annulled or cured within 10 days thereafter; (v) one or more judgments, orders or decrees for the payment of money in excess of $5.0 million, either individually or in the aggregate, shall be entered against the Company or any Restricted Subsidiary or any of their respective properties and which judgments, orders or decrees are not paid, discharged, bonded or stayed or stayed pending appeal for a period of 60 days after their entry; or (vi) the Company or any Significant Subsidiary shall (A) commence a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consent to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy 67 Law, (C) consent to the appointment of a Custodian of it or for substantially all of its property, (D) consent to or acquiesce in the institution of a bankruptcy or an insolvency proceeding against it, (E) make a general assignment for the benefit of its creditors, (F) admit in writing its inability to pay its debts as they become due, or (G) take any corporate action to authorize or effect any of the foregoing; or (vii) a court of competent jurisdiction shall enter a judgment, decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any Bankruptcy Law which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company or any Significant Subsidiary, (B) appoint a Custodian of the Company or any Significant Subsidiary or for substantially all of its property or (C) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days. The Company shall provide an Officers' Certificate to the Trustee within five days of the occurrence of any Default or Event of Default (provided, however, that pursuant to Section 4.06 hereof the Company shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. SECTION 6.02. Acceleration. (a) If any Event of Default (other than as specified in clause (vi) or (vii) of Section 6.01 with respect to the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may, and the Trustee at the request of such Holders shall, declare all the Notes to be due and payable immediately by notice in writing to the Company, and to the Company and the Trustee if by the Holders, specifying the respective Event of Default and that such notice is a "notice of acceleration," and the Notes shall become immediately due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from the events specified in clause (vi) or (vii) of Section 6.01 with respect to the Company, the principal of, premium, if any, and any accrued interest on all outstanding Notes shall ipso facto become immediately due and payable without further action or notice. (b) At any time after a declaration of acceleration, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the Holders of a majority in principal amount of the Notes outstanding, by written notice to 68 the Company and the Trustee, may rescind and annul such declaration and its consequences if (i) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all sums paid or advanced by the Trustee and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (B) all overdue interest (including any interest accrued subsequent to an Event of Default specified in clause (vi) or (vii) of Section 6.01 hereof) on all Notes, (C) the principal of and premium, if any, on any Notes which have become due otherwise than by such declaration or occurrence of acceleration and interest thereon at the rate borne by the Notes, and (D) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Notes; and (ii) all Events of Default, other than the non-payment of principal of Notes which have become due solely by such declaration or occurrence of acceleration, have been cured or waived; and (iii) the rescission would not conflict with any judgment, order or decree of any court of competent jurisdiction. (c) The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may, on behalf of the Holders of all of the Notes, waive any existing Default or Event of Default and its consequences under this Indenture except (i) a continuing Default or Event of Default in the payment of the principal of, or premium, if any, or interest on, the Notes (which may be waived only with the consent of each Holder of Notes affected), or (ii) in respect of a covenant or provision which under this Indenture cannot be modified or amended without the consent of the Holder of each Note outstanding. 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 the principal of or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04. Waiver of Past Defaults. Subject to Sections 2.09, 6.07 and 9.02, prior to the declaration of acceleration of the Notes, the Holders of not less than a majority in principal amount of the outstanding 69 Notes by written notice to the Trustee may on behalf of all of the Holders waive any past Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Note as specified in clauses (i) and (ii) of Section 6.01 or a Default in respect of any term or provision of this Indenture that may not be modified or amended without the consent of each Holder affected as provided in Section 9.02. In case of any such waiver, the Company, the Trustee and the Holders shall be restored to their former positions and rights hereunder and under the Notes, respectively. This paragraph of this Section 6.04 shall be in lieu of {316(a)(1)(B) of the TIA and such {316(a)(1)(B) of the TIA is hereby expressly excluded from this Indenture and the Notes, as permitted by the TIA. Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, 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 and the Notes, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. SECTION 6.05. Control by Majority. Subject to Section 2.09, the Holders of a majority in principal amount of the outstanding Notes 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 it, including, without limitation, any remedies provided for in Section 6.03; provided, however, that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Subject to Section 7.01, however, the Trustee may refuse to follow any direction that the Trustee reasonably believes conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Holder or that exposes the Trustee to personal liability. This Section 6.05 shall be in lieu of { 316(a)(1)(A) of the TIA, and such {316(a)(1)(A) of the TIA is hereby expressly excluded from this Indenture and the Notes, as permitted by the TIA. SECTION 6.06. Limitation on Suits. No Holder shall have any right to institute any proceeding, judicial or otherwise with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in principal amount of the outstanding Notes shall have made written 70 request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee; (c) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the outstanding Notes. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 6.07. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture or of the Notes, the right of any Holder to receive payment of the principal of and interest on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the express prior written consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (i) or (ii) of Section 6.01 of this Indenture 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 other obligor on the Notes for the whole amount of the 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 as set forth in Section 4.01 and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agents and counsel) and the 71 Holders allowed in any judicial proceedings relating to the Company or any other obligor upon the Notes, any of their respective creditors or any of their respective 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, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.07. The Company's payment obligations under this Section 6.09 shall be secured in accordance with the provisions of Section 7.07 hereunder. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money or property 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; Second: if the Holders are forced to proceed against the Company directly without the Trustee, to Holders for their collection costs; Third: subject to Article Ten, to Holders for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and Fourth: to the Company or any other obligor on the Notes, as their interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its 72 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 and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.06, or a suit by a Holder or group of Holders of more than 10% in principal amount of the outstanding Notes. ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture that are adverse to the Trustee; and (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. However, in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) Notwithstanding anything to the contrary herein contained, 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; 73 (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (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 Section 6.02, 6.04 or 6.05. (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 duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01 and Section 7.02. (f) The Trustee shall not be liable for interest on any money or assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets of the Trustee except to the extent required by law. SECTION 7.02. Rights of Trustee. Subject to Section 7.01: (a) The Trustee may rely and shall be fully protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel of its selection and may require an Officers' Certificate or an Opinion of Counsel, or both, which shall conform to Sections 11.04 and 11.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel or upon the advice of counsel. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it 74 reasonably believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, upon reasonable notice to the Company, to examine the books, records, and premises of the Company, personally or by agent or attorney and to consult with the officers and representatives of the Company, including the Company's accountants and attorneys. (f) The Trustee shall not be deemed to have knowledge of any Default or Event of Default (except default in the payment of moneys which are required by a provision hereof to be paid to the Trustee or in the delivery of any certificate, opinion or other document required to be delivered to the Trustee by any provision hereof) unless the Trustee shall receive from the Company or any Holder notice stating that a Default or Event of Default has occurred and specifying the same. (g) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which may be incurred by it in compliance with such request, order or direction. (h) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. (i) Delivery of reports, information and documents to the Trustee under Section 4.09 hereof is for informational purposes only and the Trustee's receipt of the foregoing shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). 75 SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, any Subsidiary, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11 hereof. SECTION 7.04. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Notes, and it shall not be accountable for the Company's use of the proceeds from the Notes, and it shall not be responsible for any statement of the Company in this Indenture or the Notes other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Default. If a Default or an Event of Default occurs and is continuing and if a Trust Officer has knowledge thereof (within the meaning of paragraph (f) of Section 7.02), the Trustee shall mail to each Holder notice of the uncured Default or Event of Default within 90 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of principal of, or interest on, any Note, including an accelerated payment, a Default in payment on the Change of Control Payment Date pursuant to a Change of Control Offer or on the Asset Sale Offer Purchase Date pursuant to an Asset Sale Offer or a Default in compliance with Article Five hereof, the Trustee may withhold the notice if and so long as its Board of Directors, the executive committee of its Board of Directors or a committee of its directors and/or Trust Officers in good faith determines that withholding the notice is in the interest of the Holders. The foregoing sentence of this Section 7.05 shall be in lieu of the proviso to { 315(b) of the TIA and such proviso to { 315(b) of the TIA is hereby expressly excluded from this Indenture and the Notes, as permitted by the TIA. SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each May 15 of each year beginning with 1997, the Trustee shall, to the extent that any of the events described in TIA {313(a) occurred within the previous twelve months, but not otherwise, mail to each Holder a brief report dated as of such date that complies with TIA {313(a). The Trustee also shall comply with TIA {{ 313(b), (c) and (d). A copy of each report at the time of its mailing to Holders shall be mailed to the Company and filed with the 76 Commission and each stock exchange, if any, on which the Notes are listed. The Company shall promptly notify the Trustee if the Notes become listed on any stock exchange and the Trustee shall comply with TIA { 313(d). SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it in connection with the performance of its duties under this Indenture. Such expenses shall include the reasonable fees and expenses of the Trustee's agents and counsel. The Company shall indemnify each of the Trustee (or any predecessor Trustee) and its agents, employees, stockholders, Affiliates and directors and officers for, and hold them harmless against, any and all loss, liability, damage, claim or expense (including reasonable fees and expenses of counsel), including taxes (other than taxes based on the income of the Trustee) incurred by them except for such actions to the extent caused by any negligence, bad faith or willful misconduct on their part, arising out of or in connection with the acceptance or administration of this trust including the reasonable costs and expenses of defending themselves against any claim (whether made by the Company, any Holder or any other Person) or liability in connection with the exercise or performance of any of their rights, powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. At the Trustee's sole discretion, the Company shall defend the claim and the Trustee shall cooperate and may participate in the defense; provided, however, that any settlement of a claim shall be approved in writing by the Trustee. Alternatively, the Trustee may at its option have separate counsel of its own choosing and the Company shall pay the reasonable fees and expenses of such counsel. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Notes on all assets or money held or collected by the Trustee, in its capacity as Trustee, except assets or money held in trust to pay principal of or interest on particular Notes. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(vi) or (vii) occurs, such expenses and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law. 77 The provisions of this Section 7.07 shall survive the termination of this Indenture. SECTION 7.08. Replacement of Trustee. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Company and the Trustee and may appoint a successor Trustee. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged bankrupt or insolvent; (c) a receiver or other public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.07, 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 Holder. 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 at least 10% in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding any resignation or replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee, and the Company shall pay to any such 78 replaced or removed Trustee all amounts owed under Section 7.07 upon such replacement or removal. SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee; provided, however, that such corporation 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 requirement of TIA {{ 310(a)(1), (2) and (5). The Trustee (or, in the case of a corporation included in a bank holding company system, the related bank holding company) shall have a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. In addition, if the Trustee is a corporation included in a bank holding company system, the Trustee, independently of such bank holding company, shall meet the capital requirements of TIA { 310(a)(2). The Trustee shall comply with TIA { 310(b); provided, however, that there shall be excluded from the operation of TIA { 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA { 310(b)(1) are met. The provisions of TIA { 310 shall apply to the Company, as obligor of the Notes. SECTION 7.11. Preferential Collection of Claims Against Company.___ The Trustee shall comply with TIA { 311(a), excluding any creditor relationship listed in TIA { 311(b). A Trustee who has resigned or been removed shall be subject to TIA { 311(a) to the extent indicated therein. The provisions of TIA { 311 shall apply to the Company, as obligor on the Notes. ARTICLE EIGHT SATISFACTION AND DISCHARGE; DEFEASANCE SECTION 8.01. Satisfaction and Discharge of Indenture.____________ (a) This Indenture shall be discharged and shall cease to be of further effect (except as to surviving rights of 79 registration of transfer or exchange of Notes herein expressly provided for) as to all outstanding Notes and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when: (i) either (1) all Notes theretofore authenticated and delivered (other than (x) Notes which have been lost, stolen or destroyed and which have been replaced or paid as provided in Section 2.07 hereof and (y) Notes for whose payment money has theretofore been deposited in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation; or (2) all Notes not theretofore delivered to the Trustee for cancellation (other than (x) Notes which have been lost, stolen or destroyed and which have been replaced or paid as provided in Section 2.07 hereof and (y) Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been called for redemption pursuant to the terms of this Indenture or have otherwise become due and payable, and the Company, in each case, has irrevocably deposited or caused to be deposited with the Trustee in trust for the purpose U.S. Legal Tender sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for the principal of, premium, if any, and interest to the date of such deposit; (ii) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. (b) Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 7.07 hereof shall survive and, if money shall have been deposited with the Trustee pursuant to clause (a)(i)(2) of this Section 8.01, the obligations of the Trustee under Sections 8.03 and 8.04 shall survive. 80 SECTION 8.02. Defeasance or Covenant Defeasance. (a) Subject to the satisfaction of the conditions in Section 8.02(c) hereof, the Company may, at its option by Board Resolution, at any time, with respect to the Notes, elect to have the obligations of the Company discharged with respect to the outstanding Notes ("defeasance"). Upon such defeasance, the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.04 hereof and the other Sections of and matters under this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Notes and this Indenture, except for the following, which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of Notes to receive solely from the trust fund described in Section 8.02(c) 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, (ii) the Company's obligations under Sections 2.03, 2.05, 2.06, 2.07 and 4.02, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 7.07, and (iv) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.02(a) notwithstanding the prior exercise of its option under Section 8.02(b) with respect to the Notes. (b) Subject to the satisfaction of the conditions in Section 8.02(c) hereof, the Company may, at its option by Board Resolution, at any time, elect to effect covenant defeasance ("covenant defeasance"). On and after the date such conditions are satisfied, (i) the Company shall be released from its obligations under any covenant or provision contained in Sections 4.04, 4.05, 4.06(a), 4.07 and 4.09 through 4.19, (ii) clauses (iii) through (vi) of Section 6.01 hereof shall not apply, and (iii) the provisions of Articles Five, Ten and Eleven shall not apply, and the Notes shall thereafter be deemed to be not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants and the provisions of Articles Five, Ten and Eleven, but shall continue to be deemed "outstanding" for all other purposes hereunder and subject to any mandatory requirements of the TIA. For this purpose, such covenant defeasance means that, with respect to the Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or Article, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or Article or by reason of any reference in any such Section or Article to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under clauses (iii) through 81 (vi) of Section 6.01 hereof, but, except as specified above, the remainder of this Indenture shall be unaffected thereby. (c) In order to effect defeasance or covenant defeasance, the following conditions must be satisfied: (i) the Company shall have irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10 hereof who agrees to comply with the provisions of this Article Eight applicable to it), as trust funds in trust, for the benefit of the Holders of such Notes, U.S. Legal Tender, U.S. Government Obligations or a combination thereof, in such amounts as will be sufficient (in the opinion of a nationally recognized firm of independent public accountants or a nationally recognized investment banking firm, as evidenced by a written report), without consideration of reinvestment of interest of such U.S. Government Obligations, to pay the principal of, premium, if any, and interest on the outstanding Notes (except lost, stolen or destroyed Notes which have been replaced or paid) to maturity or redemption, as the case may be, and the Company shall have irrevocably instructed the Trustee (or such other trustee) to apply such U.S. Legal Tender or U.S. Government Obligations to said payments in respect of the Notes; (ii) the Company shall have delivered to the Trustee one or more Opinions of Counsel in the United States (which counsel or counsels shall be independent of the Company) to the effect that: (A) the Holders of the outstanding Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance or covenant defeasance, as the case may be, and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance, as the case may be, had not occurred (which opinion, in the case of defeasance, shall be based upon a ruling of the Internal Revenue Service or a change in applicable Federal income tax law occurring after the Issue Date); (B) the trust funds will not be subject to any rights of holders of Indebtedness of the Company (other than Holders of the Notes); and (C) assuming no bankruptcy of the Company occurs between the date of deposit and the 91st day following the deposit, after the 91st day following the deposit the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, 82 reorganization or similar laws affecting creditors' rights generally; (iii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or, in the case of Section 6.01(vi) or (vii), at any time during the period ending on the 91st day after the date of such deposit; (iv) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other material agreement or instrument to which the Company is a party or by which it is bound; (v) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (vi) no event or condition shall exist that would prevent the Company from making payments of the principal of and interest on the Notes on the date of such deposit or at any time during the period ending on the 91st day after the date of such deposit; and (vii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent (other than conditions requiring the passage of time) to either defeasance or covenant defeasance, as the case may be, have been complied with and that no violations under agreements governing any other outstanding Indebtedness of the Company would result therefrom. Opinions required to be delivered under this Section may have qualifications customary for opinions of the type required. SECTION 8.03. Application of Trust Money. The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or U.S. Government Obligations deposited with it pursuant to Section 8.01 or 8.02, and shall apply the deposited U.S. Legal Tender and the money from U.S. Government Obligations in accordance with this Indenture to the payment of the principal of and interest on the Notes. The Trustee shall be under no obligation to invest said U.S. Legal Tender or U.S. Government Obligations except as it may agree in writing with the Company. The Company shall pay, and indemnify the Trustee against, any tax, fee or other charge imposed on or assessed against the Legal Tender or U.S. Government Obligations 83 deposited pursuant to Section 8.01 or 8.02 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of outstanding Notes. SECTION 8.04. Repayment to the Company. Subject to Sections 8.01 and 8.02, the Trustee and the Paying Agent shall promptly pay to the Company upon request any excess U.S. Legal Tender or U.S. Government Obligations held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for one year; provided, however, that the Trustee or such Paying Agent, before being required to make any payment, may at the expense of the Company cause to be published once in a newspaper of general circulation in the City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein which shall be at least 30 days from the date of such publication or mailing any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another Person. SECTION 8.05. Reinstatement. If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender or U.S. Government Obligations in accordance with Section 8.01 or 8.02 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 Section 8.01 or 8.02, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in accordance with Section 8.01 or 8.02, as the case may be; provided, however, that if the Company has made any payment of interest on or principal of any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or Paying Agent. SECTION 8.06. Acknowledgment of Discharge by Trustee. After (i) the conditions of Section 8.01 or 8.02(a) have been satisfied, (ii) the Company has paid or caused to be paid all other sums payable hereunder by the Company and (iii) the Company has delivered to the Trustee an Officers' 84 Certificate and an Opinion of Counsel, each stating that all conditions precedent referred to in clause (i), above, relating to the satisfaction and discharge or defeasance of this Indenture have been complied with, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified in Section 8.01 or 8.02, as the case may be. ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders. The Company, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Notes without notice to or consent of any Holder: (i) to cure any ambiguity, defect or inconsistency; provided, however, that such amendment or supplement does not adversely affect the rights of any Holder; (ii) to effect the assumption by a successor Person of all obligations of the Company under the Notes, this Indenture and, if still in effect, the Registration Rights Agreement in the event of any Disposition involving the Company in which the Company is not the Surviving Person; (iii) to provide for uncertificated Notes in addition to or in place of certificated Notes; (iv) to comply with any requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; (v) to make any change that would provide any additional benefit or rights to the Holders; (vi) to provide for issuance of the Exchange Notes (which will have terms substantially identical in all material respects to the Initial Notes except that the transfer restrictions contained in the Initial Notes will be modified or eliminated, as appropriate), and which will be treated together with any outstanding Initial Notes, as a single issue of securities; (vii) to make any other change that does not adversely affect the rights of any Holder under this Indenture; or (viii) to release any Guarantee delivered pursuant to Section 4.19 that is permitted to be released under this Indenture; 85 provided, however, that the Company has delivered to the Trustee an Opinion of Counsel stating that such amendment or supplement complies with the provisions of this Section 9.01. SECTION 9.02. With Consent of Holders. (a) Subject to Section 6.07, the Company, when authorized by a Board Resolution, and the Trustee, together, with the written consent of the Holder or Holders of not less than a majority in aggregate principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes), may amend or supplement this Indenture or the Notes without notice to any other Holder. Subject to Section 6.02 and 6.07, the Holder or Holders of not less than a majority in aggregate principal amount of the then outstanding Notes may waive compliance by the Company with any provision of this Indenture or the Notes without notice to any other Holder. (b) Notwithstanding Section 9.02(a) hereof, no amendment, supplement or waiver, including a waiver pursuant to Section 6.04, shall, without the prior written consent of each Holder of each Note affected thereby: (i) reduce the principal amount of the Notes whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Note, or alter or waive the provisions with respect to the redemption of the Notes in a manner adverse to the Holders of the Notes other than with respect to a Change of Control Offer or an Asset Sale Offer; (iii) reduce the rate of or change the time for payment of interest on any Notes; (iv) waive a Default or Event of Default in the payment of principal of, premium, if any, or interest on the Notes (except that Holders of at least a majority in aggregate principal amount of the then outstanding Notes may (a) rescind an acceleration of the Notes that resulted from a non-payment default and (b) waive the payment default that resulted from such acceleration); (v) make any Note payable in money other than that stated in the Notes; (vi) make any change in the provisions of this Indenture relating to waivers of past Defaults or Events of Default or the rights of Holders to receive payments of principal of, or premium, if any, or interest on, the Notes; 86 (vii) following the occurrence of a Change of Control, amend, change or modify the Company's obligation to make and consummate a Change of Control Offer in the event of a Change of Control or modify any of the provisions or definitions with respect thereto in a manner adverse to the Holders, or following the occurrence of an Asset Sale, amend, change or modify the Company's obligation to make and consummate an Asset Sale Offer or modify any of the provisions or definitions with respect thereto in a manner adverse to the Holders; or (viii) modify or change any of the provisions of this Indenture relating to the subordination of the Notes in a manner adverse to the Holders. (c) 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. (d) After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 9.03. Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Notes shall comply with the TIA as then in effect; provided, however, that this Section 9.03 shall not of itself require that this Indenture or the Trustee be qualified under the TIA or constitute any admission or acknowledgment by any party hereto that any such qualification is required prior to the time this Indenture and the Trustee are required by the TIA to be so qualified. SECTION 9.04. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. 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. An amendment, supplement or waiver becomes 87 effective upon receipt by the Trustee of such Officers' Certificate and evidence of consent by the Holders of the requisite percentage in principal amount of outstanding Notes. 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, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the second sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled 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. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes any change described in Section 9.02(b), in which case, the amendment, supplement or waiver shall bind only 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; provided, however, that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. SECTION 9.05. Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder of such Note to deliver it to the Trustee. The Trustee may 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. SECTION 9.06. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided, however, that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate each stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. 88 Such Opinion of Counsel shall not be an expense of the Trustee or the Holders. ARTICLE TEN SUBORDINATION OF SECURITIES SECTION 10.01. Notes Subordinate to Senior Debt.__________________ The Company covenants and agrees, and each Holder, by acceptance of a Note likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article Ten, the Indebtedness represented by the Notes and the payment of the principal of and interest on each and all of the Notes are hereby expressly made subordinate and subject in right of payment as provided in this Article Ten to the prior payment in full of all Senior Debt. This Article Ten shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of or continue to hold Senior Debt; and such provisions are made for the benefit of the holders of Senior Debt; and such holders are made obligees hereunder and they or each of them may enforce such provisions. The provisions of this Article Ten shall not be applicable from and after the date of an effective defeasance or covenant defeasance pursuant to Section 8.02(a) or 8.02(b), respectively, of this Indenture. SECTION 10.02. Payment Over of Proceeds upon Dissolution, Etc.____ In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshaling of assets or liabilities of the Company, then and in any such event: (i) the holders of Senior Debt shall be entitled to receive payment in full of all amounts due on or in respect of all Senior Debt, or provision shall be made for such payment, before the Holders are entitled to receive any payment or distribution of any kind or character (other than in Permitted Junior Securities) on account of principal of or interest on the Notes; and 89 (ii) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (excluding Permitted Junior Securities), by set-off or otherwise, to which the Holders or the Trustee would be entitled but for the provisions of this Article Ten shall be paid by the Custodian making such payment or distribution directly to the holders of Senior Debt or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Debt may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Debt held or represented by each, to the extent necessary to make payment in full of all Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Debt; and (iii) in the event that, notwithstanding the foregoing provisions of this Section 10.02, the Trustee or any Holder shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, in respect of principal of or interest on the Notes before all Senior Debt is paid in full or payment thereof provided for, then and in such event such payment or distribution (excluding Permitted Junior Securities) shall be paid over or delivered forthwith to the Custodian making payment or distribution of assets of the Company for application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay all Senior Debt in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. The consolidation of the Company with, or the merger of the Company with or into, another Person or the liquidation or dissolution of the Company following the 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 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 Section 10.02 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. SECTION 10.03. Suspension of Payment When Designated Senior Debt in Default.______________ The Company shall not make any payment upon or in respect of the Notes (except from the trust created pursuant to 90 Section 8.02) if (i) a default in the payment of the principal of, premium, if any, or interest on any Designated Senior Debt occurs and is continuing, whether at maturity or on a date fixed for prepayment or by declaration of acceleration or otherwise, or (ii) the Trustee has received written notice ("Payment Blockage Notice") from the representative of any holders of Designated Senior Debt that a Nonpayment Default has occurred and is continuing with respect to such Designated Senior Debt that permits such holders to accelerate the maturity of such Designated Senior Debt. Payments on the Notes shall resume (and all past due amounts on the Notes, with interest thereon, shall be paid) (i) in the case of a Payment Default in respect of any Designated Senior Debt, on the date on which such Payment Default is cured or waived or otherwise ceases to exist; and (ii) in the case of a Nonpayment Default in respect of any Designated Senior Debt, on the earlier of (a) the date on which such Nonpayment Default is cured or waived, or (b) 179 days after the date on which the Payment Blockage Notice with respect to such Nonpayment Default was received by the Trustee, in each case, unless the maturity of any Designated Senior Debt has been accelerated and the Company has defaulted with respect to the payment of such Designated Senior Debt, or (c) the date on which such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the representative of the holders of Designated Senior Debt initiating such Payment Blockage Period. During any consecutive 365-day period, the aggregate number of days in which payments due on the Notes may not be made as a result of nonpayment defaults on Designated Senior Debt (a "Payment Blockage Period") shall not exceed 179 days, and there shall be a period of at least 186 consecutive days in each consecutive 365-day period during which no Payment Blockage Period is in effect. No event or circumstance that creates a Nonpayment Default under any Designated Senior Debt that (i) gives rise to the commencement of a Payment Blockage Period or (ii) exists at the commencement of or during any Payment Blockage Period shall be made the basis for the commencement of any subsequent Payment Blockage Period unless such default has been cured or waived for a period of not less than 90 consecutive days. In no event shall a Payment Blockage Period extend beyond 179 days from the date of the receipt of the notice referred to in clause (2) of this Section 10.03(b). Any number of notices of a Nonpayment Default may be given during a Payment Blockage Period; provided, however, that no such notice shall extend such Payment Blockage Period beyond the 179-day limit. (a) In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or any Holder prohibited by the foregoing provisions of this Section 10.03, then and in such event such payment shall be paid over and delivered forthwith to the Senior Representative or other representative of the holders of the Designated Senior Debt or the holders of Senior Debt, as applicable, or as a court of competent jurisdiction shall direct. 91 SECTION 10.04. Payment Permitted if No Default. Nothing contained in this Article Ten, elsewhere in this Indenture or in any of the Notes shall prevent the Company, at any time except during the pendency of 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 10.02 or under the conditions described in Section 10.03, from making payments at any time of principal of or interest on the Notes. SECTION 10.05. Subrogation to Rights of Holders of Senior Debt.___ Subject to the payment in full of all Senior Debt, the Holders of the Notes shall be subrogated to the rights of the holders of such Senior Debt to receive payments and distributions of cash, property and securities applicable to the Senior Debt until the principal of and interest on the Notes shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of Senior Debt of any cash, property or securities to which the Holders or the Trustee would be entitled except for the provisions of this Article Ten, and no payments over pursuant to the provisions of this Article Ten to the holders of Senior Debt by Holders or the Trustee shall, as among the Company, its creditors other than holders of Senior Debt and the Holders, be deemed to be a payment or distribution by the Company to or on account of the Senior Debt. SECTION 10.06. Provisions Solely to Define Relative Rights.______ The provisions of this Article Ten are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Senior Debt 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 the Company, its creditors other than holders of Senior Debt and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of 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 Debt; or (c) prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon Default under this Indenture, subject to the rights, if any, under this Article Ten of the holders of Senior Debt (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 10.02, to receive, pursuant to and in accordance with such Section, cash, property and securities 92 otherwise payable or deliverable to the Trustee or such Holder, or (2) under the conditions specified in Section 10.03, to prevent any payment prohibited by such Section or enforce their rights pursuant to Section 10.03(c). SECTION 10.07. Trustee to Effectuate Subordination. Each Holder by acceptance of a Note authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Ten and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding up, liquidation or reorganization of the Company whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely filing of a claim for the unpaid balance of the indebtedness of the Company owing to such Holder in the form required in such proceedings and the causing of such claim to be approved. SECTION 10.08. No Waiver of Subordination Provisions._____________ (a) No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of Section 10.08(a), the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders, without incurring responsibility to the Holders and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders to the holders of Senior Debt, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (3) release any Person liable in any manner for the collection or payment of Senior Debt; and (4) exercise or refrain from exercising any rights against the Company and any other Person; provided, however, that in no event shall any such actions limit the right of the Holders of the Notes to take any action to accelerate the maturity of the Notes pursuant to Article Six of this Indenture 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 Article Ten. 93 SECTION 10.09. Notice to Trustee. (a) The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Notes. Notwithstanding the provisions of this Article or any 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 Debt or from any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 10.09 at least three Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of 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 Debt or any trustee, fiduciary or agent therefor, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within three Business Days prior to such date; nor shall the Trustee be charged with knowledge of the curing of any such default or the elimination of the act or condition preventing any such payment unless and until the Trustee shall have received an Officers' Certificate to such effect. (b) The Trustee shall be entitled to rely on the delivery to it of a written notice to the Trustee and the Company by a Person representing himself to be a holder of Senior Debt (or a trustee, fiduciary or agent therefor) to establish that such notice has been given by a holder of Senior Debt (or a trustee, fiduciary or agent therefor); provided, however, that failure to give such notice to the Company shall not affect in any way the ability of the Trustee to rely on such notice. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. 94 SECTION 10.10. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee and the Holders of the Notes shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the Custodian making such payment or distribution, delivered to the Trustee or to the Holders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Ten; provided, however, that the foregoing shall apply only if such court has been fully apprised of the provisions of this Article Ten. SECTION 10.11. Rights of Trustee as a Holder of Senior Debt; Preservation of Trustee's Rights.______________ The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article Ten with respect to any Senior Debt which may at any time be held by it, to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article Ten shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. SECTION 10.12. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting under this Indenture, the term "Trustee" as used in this Article Ten 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 in addition to or in place of the Trustee; provided, however, that Section 10.11 hereof shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. SECTION 10.13. No Suspension of Remedies. Nothing continued in this Article Ten shall limit the right of the Trustee or the Holders to take any action to accelerate the maturity of the Notes pursuant to Article Six of this Indenture or to pursue any rights or remedies hereunder or 95 under applicable law, subject to the rights, if any, under this Article Ten of the holders, from time to time, of Senior Debt. SECTION 10.14. Trustee's Relation to Holders of Senior Debt.______ With respect to the holders of Senior Debt, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Ten, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Article against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and the Trustee shall not be liable to any holder of Senior Debt if it shall mistakenly pay over or deliver to Holders, the Company or any other Person moneys or assets to which any holder of Senior Debt shall be entitled by virtue of this Article or otherwise. ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. TIA 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; provided, however, that this Section 11.01 shall not of itself require that this Indenture or the Trustee be qualified under the TIA or constitute any admission or acknowledgment by any party hereto that any such qualification is required prior to the time this Indenture and the Trustee are required by the TIA to be so qualified. SECTION 11.02. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company: International Knife & Saw, Inc. P.O. Box 752006 Cincinnati, OH 45275-2006 Telecopier No.: (606) 283-7209 Attn: Chief Executive Officer 96 if to the Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Division Telecopier Number: (212) 852-1625/1626 Each of the Company and the Trustee by written notice to the other may designate additional or different addresses for notices to such Person. Any notice or communication to the Company or the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if faxed; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 11.03. Communications by Holders with Other Holders. Holders may communicate pursuant to TIA { 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA {312(c). SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate, in form and substance satisfactory to the Trustee, stating that, in the opinion of the signers, all conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with; and 97 (b) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with. SECTION 11.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.06 shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with. SECTION 11.06. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules in accordance with the Trustee's customary practices for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 11.07. Legal Holidays. A "Legal Holiday" as used with respect to a particular place of payment, is a Saturday, a Sunday or a day on which banking institutions in New York, New York or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 11.08. Governing Law. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, 98 AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture. SECTION 11.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of the Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.10. No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of the Company or of the Trustee shall not have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creations. Each Holder by accepting a Note waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Notes. SECTION 11.11. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. SECTION 11.13. Severability. In case any one or more of the provisions in this Indenture or in the Notes shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. SECTION 11.14. Independence of Covenants. All covenants and agreements in this Indenture and the Notes shall be given independent effect so that if any particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception 99 to, or otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. [Remainder of Page Intentionally Left Blank] 100 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. INTERNATIONAL KNIFE & SAW, INC. By: Name: Title: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: Name: Title: 101 EXHIBIT A INTERNATIONAL KNIFE & SAW, INC. 11-3/8% SENIOR SUBORDINATED NOTE DUE 2006 CUSIP No.: 459733 AA 9 No. $ INTERNATIONAL KNIFE & SAW, INC., a Delaware corporation (the "Company", which term includes any successor entity), for value received promises to pay to or registered assigns, the principal sum of Dollars, on November 6, 2006. Interest Payment Dates: May 15 and November 15, commencing on May 15, 1997 Record Dates: May 1 and November 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. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. INTERNATIONAL KNIFE & SAW, INC. By: Name: Title: By: Name: Title: Certificate of Authentication This is one of the 11-3/8% Senior Subordinated Notes due 2006 referred to in the within-mentioned Indenture. UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: Authorized Signatory Date of Authentication: 102 (REVERSE OF SECURITY) 11-3/8% Senior Subordinated Note due 2006 1. Interest. INTERNATIONAL KNIFE & SAW, INC., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from November 6, 1996. The Company will pay interest semi-annually in arrears on each Interest Payment Date. 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 installments of interest (without regard to any applicable grace periods) to the extent lawful, from time to time on demand at the rate borne by the Notes. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, United States Trust Company of New York (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. 4. Indenture. The Company issued the Notes under an Indenture, dated as of November 6, 1996 (the "Indenture"), between the Company and the Trustee. This Note is one of a duly authorized issue of Initial Notes of the Company designated as its 11-3/8% Senior Subordinated Notes due 2006 (the "Initial Notes"). The Notes are limited in aggregate principal amount to $90,000,000. The Notes include the Initial Notes and the Exchange Notes, as defined below, issued in exchange for the Initial Notes pursuant to the Indenture. The Initial Notes and the Exchange Notes are treated as a single class of securities under the Indenture. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. 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 {{ 77aaa-77bbbb) (the 103 "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of them. The Notes are general unsecured obligations of the Company. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time in accordance with its terms. 5. Subordination. The Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of all Senior Debt of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by his acceptance hereof 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 his attorney-in-fact for such purposes. 6. Redemption. (a) Optional Redemption. The Notes are redeemable, at the Company's option, in whole or in part, at any time on and after November 15, 2001 at the redemption prices (expressed as percentages of the principal amount of the Notes) if redeemed during the twelve-month period commencing on November 15 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the Redemption Date: Year Percentage 2001............................. 105.688% 2002............................. 103.792 2003............................. 101.896 2004 and thereafter.............. 100.000 (b) Optional Redemption Upon Public Equity Offerings. At any time or from time to time on or prior to November 15, 1999, the Company may, at its option, redeem up to $30 million aggregate principal amount of the Notes with the net proceeds of one or more Public Equity Offerings, at a redemption price equal to 111-3/8% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of redemption; provided, however, that (x) not less than $60 million aggregate principal amount of the Notes is outstanding immediately after giving effect to any such redemption (other than any Notes owned by the Company or any of its Affiliates) and (y) such redemption is effected within 90 days after the consummation of any such Public Equity Offering. The Notes are not entitled to the benefit of any sinking fund. 104 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 such Holder's registered address. Notes in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued interest, if any. 8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, after certain Asset Sales (as defined in the Indenture) and upon the occurrence of a Change of Control (as defined in the Indenture), and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. 9. Registration Rights. Pursuant to the Registration Rights Agreement dated as of the date of the Indenture, among the Company and Schroder Wertheim & Co. Incorporated and Smith Barney Inc., as initial purchasers of the Initial Notes, the Company is obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for the Company's Series B 11-3/8% Senior Subordinated Notes due 2006 (the "Exchange Notes"), which shall have been registered under the Securities Act, in like principal amount and having terms identical in all material respects as the Initial Notes. The Holders of the Initial Notes 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, and in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of 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 certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption. 11. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes, 105 subject to the provisions of the Indenture with respect to record dates for the payment of interest. 12. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for one year, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 13. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain covenants, but excluding its obligation to pay the principal of and interest on the Notes). 14. Amendment; Supplement; Waiver. Subject to certain exceptions set forth in the Indenture, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding, and any past Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, or comply with Article Five of the Indenture or make any other change that does not adversely affect the rights of any Holder of a Note. 15. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and the Subsidiaries to, among other things, incur additional Indebtedness, make Restricted Payments or Restricted Investments, create or incur Liens, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Subsidiaries and issue Preferred Stock of Subsidiaries, and on the ability of the Company and the Subsidiaries to merge or consolidate with any other Person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company and the Subsidiaries. Such limitations are subject to a number of important qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the Company must annually report to the Trustee on compliance with such limitations. 16. Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its 106 predecessor under the Notes and the Indenture, the predecessor, subject to certain exceptions, will be released from those obligations. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal or interest when due, for any reason or a Default in compliance with Article Five of the Indenture) if it determines that withholding notice is in their interest. 18. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, the Subsidiaries or their respective Affiliates as if it were not the Trustee. 19. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note 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. 20. Authentication. This Note shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on this Note. 21. Governing Law. This Note and the Indenture 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. 22. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 107 23. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture, which has the text of this Note in larger type. Requests may be made to: International Knife & Saw, Inc., P.O. Box 752006, Cincinnati, OH 45275-2006, Attn: Chief Executive Officer. 108 ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: - --------------------------------------------------------------- - --------------------------------------------------------------- - --------------------------------------------------------------- (Print or type name, address and zip code and social security or tax ID number 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. Dated: Signed: ------------------ ---------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ---------------------------- (Signature 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 Exchange Act.) In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering resales of this Note (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) November 6, 1999, the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer: 109 [Check One] (1) __ to the Company or a subsidiary thereof; or (2) __ pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended ("Rule 144A"); or (3) __ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter is attached to the Indenture as Exhibit C and can be obtained from the Trustee); or (4) __ outside the United States to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act of 1933, as amended; or (5) __ pursuant to the exemption from registration provided by Rule 144 under the Securities Act of 1933, as amended, if available; or (6) __ pursuant to an effective registration statement under the Securities Act of 1933, as amended; or (7) __ pursuant to another available exemption from the registration requirements of the Securities Act of 1933, as amended. and unless the box below is checked, the undersigned confirms that such Note is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): /__/ The transferee is an Affiliate of the Company. Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if box (3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Notes, in its sole discretion, such written legal opinions, certifications (including an investment letter in the case of box (3) or (4)) and other information as the Trustee or the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. 110 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 Section 2.17 of the Indenture shall have been satisfied. Dated: Signed: ------------------ ---------------------------- (Sign exactly as name appears on the other side of this Security) Signature Guarantee: TO BE COMPLETED BY PURCHASER IF (2) 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 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 111 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $ ------------------- Dated: ------------------ ------------------------------------- NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed. Signature Guarantee: ----------------------------------------- (Signature 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 Exchange Act.) 112 EXHIBIT B INTERNATIONAL KNIFE & SAW, INC. SERIES B 11-3/8% SENIOR SUBORDINATED NOTE DUE 2006 CUSIP No.: No. $ INTERNATIONAL KNIFE & SAW, INC., a Delaware corporation (the "Company", which term includes any successor entity), for value received promises to pay to or registered assigns, the principal sum of Dollars, on November 6, 2006. Interest Payment Dates: May 15 and November 15, commencing on May 15, 1997 Record Dates: May 1 and November 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. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. INTERNATIONAL KNIFE & SAW, INC. By: Name: Title: By: Name: Title: Certificate of Authentication This is one of the Series B 11-3/8% Senior Subordinated Notes due 2006 referred to in the within-mentioned Indenture. UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: Authorized Signatory Date of Authentication: 113 (REVERSE OF SECURITY) Series B 11-3/8% Senior Subordinated Note due 2006 1. Interest. INTERNATIONAL KNIFE & SAW, INC., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from November 6, 1996. The Company will pay interest semi-annually in arrears on each Interest Payment Date. 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 installments of interest (without regard to any applicable grace periods) to the extent lawful, from time to time on demand at the rate borne by the Notes. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, United States Trust Company of New York (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. 4. Indenture. The Company issued the Notes under an Indenture, dated as of November 6, 1996 (the "Indenture"), between the Company and the Trustee. This Note is one of a duly authorized issue of Exchange Notes of the Company designated as its Series B 11-3/8% Senior Subordinated Notes due 2006 (the "Exchange Notes"). The Notes are limited in aggregate principal amount to $90,000,000. The Notes include the Exchange Notes and the Initial Notes in exchange for which the Exchange Notes were issued pursuant to the Indenture. The Initial Notes and the Exchange Notes are treated as a single class of securities under the Indenture. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. 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 {{ 77aaa-77bbbb) 114 (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of them. The Notes are general unsecured obligations of the Company. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time in accordance with its terms. 5. Subordination. The Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of all Senior Debt of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by his acceptance hereof 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 his attorney-in-fact for such purposes. 6. Redemption. (a) Optional Redemption. The Notes are redeemable, at the Company's option, in whole or in part, at any time on and after November 15, 2001 at the redemption prices (expressed as percentages of the principal amount of the Notes) if redeemed during the twelve-month period commencing on November 15 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the Redemption Date: Year Percentage 2001............................. 105.688% 2002............................. 103.792 2003............................. 101.896 2004 and thereafter.............. 100.000 (b) Optional Redemption Upon Public Equity Offerings. At any time or from time to time on or prior to November 15, 1999, the Company may, at its option, redeem up to $30 million aggregate principal amount of the Notes with the net proceeds of one or more Public Equity Offerings, at a redemption price equal to 111-3/8% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of redemption; provided, however, that (x) not less than $60 million aggregate principal amount of the Notes is outstanding immediately after giving effect to any such redemption (other than any Notes owned by the Company or any of its Affiliates) and (y) such redemption is effected within 90 days after the consummation of any such Public Equity Offering. The Notes are not entitled to the benefit of any sinking fund. 115 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 such Holder's registered address. Notes in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued interest, if any. 8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, after certain Asset Sales (as defined in the Indenture) and upon the occurrence of a Change of Control (as defined in the Indenture), and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. 9. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, and in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of 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 certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption. 10. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes, subject to the provisions of the Indenture with respect to record dates for the payment of interest. 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for one year, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or matur- ity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain 116 covenants, but excluding its obligation to pay the principal of and interest on the Notes). 13. Amendment; Supplement; Waiver. Subject to certain exceptions set forth in the Indenture, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding, and any past Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, or comply with Article Five of the Indenture or make any other change that does not adversely affect the rights of any Holder of a Note. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and the Subsidiaries to, among other things, incur additional Indebtedness, make Restricted Payments or Restricted Investments, create or incur Liens, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Subsidiaries and issue Preferred Stock of Subsidiaries, and on the ability of the Company and the Subsidiaries to merge or consolidate with any other Person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company and the Subsidiaries. Such limitations are subject to a number of important qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the Company must annually report to the Trustee on compliance with such limitations. 15. Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor, subject to certain exceptions, will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default 117 (except a Default in payment of principal or interest when due, for any reason or a Default in compliance with Article Five of the Indenture) if it determines that withholding notice is in their interest. 17. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, the Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note 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. Authentication. This Note shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on this Note. 20. Governing Law. This Note and the Indenture 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. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture, which has the text of this Note in larger type. Requests may be made to: International Knife & Saw, Inc., P.O. Box 752006, Cincinnati, OH 45275-2006, Attn: Chief Executive Officer. 118 ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: - --------------------------------------------------------------- - --------------------------------------------------------------- - --------------------------------------------------------------- (Print or type name, address and zip code and social security or tax ID number 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. Dated: Signed: ------------------ ------------------------- (Sign exactly as name appears on the other side of this Note) Signature Guarantee: (Signature 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 Exchange Act.) 119 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $ ------------------- Dated: ----------------- ------------------------------------- NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed. Signature Guarantee: (Signature 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 Exchange Act.) 120 EXHIBIT C Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors -----------, ---- United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Division Re: International Knife & Saw, Inc. (the "Company") 11-3/8% Senior Subordinated Notes due 2006 (the "Notes") Ladies and Gentlemen: In connection with our proposed purchase of $_______ aggregate principal amount of the Notes, we confirm that: 1. We have received a copy of the Offering Memorandum (the "Offering Memorandum"), dated October 31, 1996, relating to the Notes and such other information as we deem necessary in order to make our investment decision. We acknowledge that we have read and agreed to the matters stated in the section entitled "Notice to Investors" of the Offering Memorandum. 2. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture dated as of November 6, 1996 relating to the Notes (the "Indenture") and the undersigned agrees 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"). 3. We understand that the Notes have not been registered under the Securities Act, and that the Notes may not be offered or sold 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 within three years after the original issuance of the Notes, we will do so only (A) to the Company or any subsidiary thereof, (B) inside the United States in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) inside the United States to an institutional "accredited investor" (as defined in 121 Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you a signed letter substantially in the form of this letter, (D) outside the United States in accordance with Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (F) pursuant to an effective registration statement under the Securities Act, and 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. 4. We understand that, on any proposed resale of any Notes, we will be required to furnish to you and the Company such certification, written 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. 5. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and 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 are each able to bear the economic risk of our or its investment, as the case may be. 6. We are acquiring the Notes purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. 122 You, the Company and counsel for the Company 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. Very truly yours, [Name of Transferee] By: Authorized Signature 123 EXHIBIT D Form of Certificate To Be Delivered in Connection with Transfers ______Pursuant to Regulation S_____ --------------, ---- United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Division Re: International Knife & Saw, Inc. (the "Company") 11-3/8% Senior Subordinated Notes due 2006 (the "Notes") Ladies and Gentlemen: 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 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 903(b) or Rule 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and 124 (5) we have advised the transferee of the transfer restrictions applicable to the Notes. You, the Company and counsel for the Company 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 Transferor] By: Authorized Signature EX-4.2 5 REGISTRATION RIGHTS AGREEMENT DATED 11-06-96 1 EXHIBIT 4.2 --------------------------------------------------------------- --------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT Dated as of November 6, 1996 By and Between INTERNATIONAL KNIFE & SAW, INC. and SCHRODER WERTHEIM & CO. INCORPORATED and SMITH BARNEY INC., as Initial Purchasers 11-3/8% Senior Subordinated Notes due 2006 --------------------------------------------------------------- --------------------------------------------------------------- 2 TABLE OF CONTENTS Page 1. Definitions................................................. 1 2. Exchange Offer.............................................. 5 3. Shelf Registration.......................................... 10 4. Additional Interest......................................... 12 5. Registration Procedures..................................... 14 6. Registration Expenses....................................... 25 7. Indemnification............................................. 26 8. Rules 144 and 144A.......................................... 30 9. Underwritten Registrations.................................. 31 10. Miscellaneous............................................... 31 (a) No Inconsistent Agreements............................ 31 (b) Adjustments Affecting Registrable Notes............................................... 31 (c) Amendments and Waivers................................ 32 (d) Notices............................................... 32 (e) Successors and Assigns................................ 33 (f) Counterparts.......................................... 33 (g) Headings.............................................. 33 (h) Governing Law; Jurisdiction........................... 33 (i) Severability.......................................... 34 (j) Securities Held by the Company or Its Affiliates...................................... 34 (k) Third Party Beneficiaries............................. 34 (l) Attorneys' Fees....................................... 34 (m) Entire Agreement...................................... 34
3 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is dated as of November 6, 1996, by and between INTERNATIONAL KNIFE & SAW, INC., a Delaware corporation (the "Company"), on the one hand, and SCHRODER WERTHEIM & CO. INCORPORATED and SMITH BARNEY INC. (the "Initial Purchasers"), on the other hand. This Agreement is entered into in connection with the Purchase Agreement, dated as of October 31, 1996, between the Company and the Initial Purchasers (the "Purchase Agreement"), which provides for the sale by the Company to the Initial Purchasers of $90,000,000 aggregate principal amount of the Company's 11-3/8% Senior Subordinated Notes due 2006 (the "Notes"). 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 for the benefit of the Initial Purchasers and any subsequent holder or holders of the Notes. 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: Section 1. Definitions As used in this Agreement, the following terms shall have the following meanings: "Additional Interest" shall have the meaning set forth in Section 4 hereof. "Advice" shall have the meaning set forth in Section 5 hereof. "Agreement" shall have the meaning set forth in the introductory paragraphs hereto. "Applicable Period" shall have the meaning set forth in Section 2 hereof. "Business Day" shall mean a day that is not a Legal Holiday. "Company" shall have the meaning set forth in the preamble of this Agreement and shall also include the Company's permitted successors and assigns. "Commission" shall mean the Securities and Exchange Commission. 4 "Effectiveness Date" shall mean, (i) with respect to the Exchange Offer Registration Statement, the 150th day after the Issue Date and (ii) with respect to any other Registration Statement, the 120th day after the Filing Date with respect thereto. "Effectiveness Period" shall have the meaning set forth in Section 3 hereof. "Event Date" shall have the meaning set forth in Section 4 hereof. "Exchange Act" shall mean Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Exchange Notes" shall have the meaning set forth in Section 2 hereof. "Exchange Offer" shall have the meaning set forth in Section 2 hereof. "Exchange Offer Registration Statement" shall have the meaning set forth in Section 2 hereof. "Filing Date" shall mean, (A) if no Registration Statement has been filed by the Company pursuant to this Agreement, the 30th day after the Issue Date; provided, however, that if a Shelf Filing Event shall have occurred within 10 days of the Filing Date, then the Filing Date with respect to the Initial Shelf Registration shall be the 15th calendar day after the occurrence of the Shelf Filing Event; and (B) in each other case (which may be applicable notwithstanding the consummation of the Exchange Offer), the 30th day after the occurrence of the Shelf Filing Event. "Holder" shall mean any holder of a Registrable Note or Registrable Notes. "Indemnified Person" shall have the meaning set forth in Section 7(c) hereof. "Indemnifying Person" shall have the meaning set forth in Section 7(c) hereof. "Indenture" shall mean the Indenture, dated as of November 6, 1996, by and between the Company and United States Trust Company of New York, as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms thereof. "Initial Purchasers" shall have the meaning set forth in the preamble hereof. 5 "Initial Shelf Registration" shall have the meaning set forth in Section 3(a) hereof. "Inspectors" shall have the meaning set forth in Section 5(o) hereof. "Issue Date" shall mean November 6, 1996, the date of original issuance of the Notes. "Legal Holiday" shall mean a Saturday, a Sunday or a day on which banking institutions in New York, New York are required by law, regulation or executive order to remain closed. "NASD" shall have the meaning set forth in Section 5(t) hereof. "Participant" shall have the meaning set forth in Section 7(a) hereof. "Participating Broker-Dealer" shall mean any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer or any other person with similar prospectus delivery requirements for use in connection with any resale of Exchange Notes. "Person" shall mean an individual, trustee, corporation, partnership, joint stock company, trust, unincorporated association, union, business association, firm, government or agency or political subdivision thereofor other legal entity. "Private Exchange" shall have the meaning set forth in Section 2 hereof. "Private Exchange Notes" shall have the meaning set forth in Section 2 hereof. "Prospectus" shall mean the prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Purchase Agreement" shall have the meaning set forth in the introductory paragraphs hereof. 6 "Records" shall have the meaning set forth in Section 5(o) hereof. "Registrable Notes" shall mean each Note upon its original issuance and at all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until (i) a Registration Statement (other than, with respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the Exchange Offer Registration Statement) covering such Note, Exchange Note or Private Exchange Note has been declared effective by the Commission and such Note, Exchange Note or such Private Exchange Note, as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange Notes that may be resold without restriction under state and federal securities laws, or (iii) such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture. "Registration Statement" shall mean any appropriate registration statement of the Company covering any of the Registrable Notes pursuant to the provisions of this Agreement, including, but not limited to, the Exchange Offer Registration Statement, filed with the Commission under the Securities Act, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Rule 144" shall mean 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 Commission 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" shall mean 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 Commission. "Rule 415" shall mean 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 Commission. 7 "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Shelf Filing Event" shall have the meaning set forth in Section 2 hereof. "Shelf Registration" shall have the meaning set forth in Section 3(b) hereof. "Subsequent Shelf Registration" shall have the meaning set forth in Section 3(b) hereof. "TIA" shall mean the Trust Indenture Act of 1939, as amended. "Trustee" shall mean the trustee under the Indenture and the trustee (if any) under any indenture governing the Exchange Notes and Private Exchange Notes. "Underwritten registration or underwritten offering" shall mean a registration in which securities of the Company are sold to an underwriter for reoffering to the public. Section 2. Exchange Offer (a) The Company shall file with the Commission, no later than the Filing Date, a Registration Statement (the "Exchange Offer Registration Statement") on an appropriate registration form with respect to a registered offer (the "Exchange Offer") to exchange any and all of the Registrable Notes for a like aggregate principal amount of notes (the "Exchange Notes") of the Company that are identical in all material respects to the Notes except that the Exchange Notes shall contain no restrictive legend thereon. The Exchange Offer shall comply with all applicable tender offer rules and regulations under the Exchange Act and other applicable law. The Company shall use its best efforts to (x) cause the Exchange Offer Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for at least 20 Business Days (or longer if required by applicable law) after the date on which the Exchange Offer Registration Statement is declared effective; and (z) on or prior to the 45th day following the date on which the Exchange Offer Registration Statement is declared effective by the Commission, issue Exchange Notes for Notes tendered in the Exchange Offer. For purposes of this Section 2(a) only, if after the Exchange Offer Registration Statement is initially declared effective by the Commission, the Exchange Offer or the issuance of the Exchange Notes thereunder is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, the Exchange Offer Registration 8 Statement shall be deemed not to have become effective for purposes of this Agreement. Each Holder that participates in the Exchange Offer will be required to represent to the Company in writing that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (ii) 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, (iii) that such Holder is not an affiliate of the Company within the meaning of the Securities Act or, if such Holder is such an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act applicable to it, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes and (v) if such Holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Notes that were accquired as a result of market-making or other trading activities, that it will deliver a prospectus in connection with any resale of such Exchange Notes. Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable Notes that are Private Exchange Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange Notes held by Participating Broker-Dealers (as defined), and the Company shall have no further obligation to register Registrable Notes (other than Private Exchange Notes and other than in respect of any Exchange Notes as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof. No securities other than the Exchange Notes shall be included in the Exchange Offer Registration Statement. (b) The Company and the Initial Purchasers acknowledge that the staff of the Commission has taken the position that any broker-dealer that elects to exchange Notes that were acquired by such broker-dealer for its own account as a result of market-making or other trading activities for Exchange Notes in the Exchange Offer (a "Participating Broker-Dealer") may be deemed to be an "underwriter" within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes (other than a resale of an unsold allotment resulting from the original offering of the Notes). The Company and the Initial Purchasers also acknowledge that it is the SEC staff's position that if the Prospectus contained in the Exchange Offer Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which 9 Participating Broker-Dealers may resell the Exchange Notes, without naming the Participating Broker-Dealers or specifying the amount of Exchange Notes owned by them, such Prospectus may be delivered by Participating Broker-Dealers to satisfy their prospectus delivery obligations under the Securities Act in connection with resales of Exchange Notes for their own accounts, so long as the Prospectus otherwise meets the requirements of the Securities Act. In light of the foregoing, if requested by a Participating Broker-Dealer (a "Requesting Participating Broker-Dealer"), the Company agrees to use its best efforts to keep the Exchange Offer Registration Statement continuously effective for a period of up to 180 days after the date on which the Exchange Registration Statement is declared effective, or such longer period if extended pursuant to the last paragraph of Section 5 hereof (such period, the "Applicable Period"), or such earlier date as each Requesting Participating Broker-Dealer shall have notified the Company in writing that such Requesting Participating Broker-Dealer has resold all Exchange Notes acquired in the Exchange Offer. The Company shall include a plan of distribution in such Exchange Offer Registration Statement that meets the requirements set forth in the preceding paragraph. If, prior to consummation of the Exchange Offer, any Holder holds any Notes acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in an initial distribution, or if any Holder is not entitled to participate in the Exchange Offer, the Company upon the request of any such Holder shall simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to any such Holder, in exchange (the "Private Exchange") for such Notes held by any such Holder, a like principal amount of notes (the "Private Exchange Notes") of the Company that are identical in all material respects to the Exchange Notes. The Private Exchange Notes shall be issued pursuant to the same indenture as the Exchange Notes and bear the same CUSIP number as the Exchange Notes. In connection with the Exchange Offer, the Company shall: (1) mail to each Holder entitled to participate in the Exchange Offer a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (2) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; 10 (3) 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; and (4) otherwise comply in all material respects with all applicable laws, rules and regulations. As soon as practicable after the close of the Exchange Offer and the Private Exchange, if any, the Company shall: (1) accept for exchange all Notes validly tendered and not validly withdrawn pursuant to the Exchange Offer and the Private Exchange; (2) deliver to the Trustee for cancellation all Notes so accepted for exchange; and (3) 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 Offer and the Private Exchange shall not be subject to any conditions, other than that (i) the Exchange Offer or Private Exchange, as the case may be, does not violate applicable law or any applicable interpretation of the staff of the Commission, (ii) no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair the ability of the Company to proceed with the Exchange Offer or the Private Exchange, and no material adverse development shall have occurred in any existing action or proceeding with respect to the Company and (iii) all governmental approvals shall have been obtained, which approvals the Company deems necessary for the consummation of the Exchange Offer or Private Exchange. The Exchange Notes and the Private Exchange Notes shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture (in either case, with such changes as are necessary to comply with any requirements of the Commission to effect or maintain the qualification thereof under the TIA) and which, in either case, has been qualified under the TIA and shall provide that the Exchange Notes shall not be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes will have the right to vote or consent as a separate class on any matter. 11 (c) If, (i) because of any applicable interpretations of the staff of the Commission, the Company is not permitted to effect the Exchange Offer, (ii) the Exchange Offer is not consummated within 180 days of the Issue Date, (iii) any of the Initial Purchasers so requests with respect to Notes not eligible to be exchanged for Exchange Notes in the Exchange Offer, or (iv) any Holder is not eligible to participate in the Exchange Offer or does not receive Exchange Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of any of the Company within the meaning of the Securities Act) (each such event referred to in clauses (i) through (iv) of this sentence, a "Shelf Filing Event"), then the Company (x) shall promptly deliver to the Holders and the Trustee written notice thereof in the case of clause (i) or (ii) and (y) shall file a Shelf Registration pursuant to Section 3 hereof. Section 3. Shelf Registration If at any time a Shelf Filing Event shall occur, then: (a) Shelf Registration. The Company shall file with the Commission a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes not exchanged in the Exchange Offer, Private Exchange Notes and Exchange Notes as to which Section 2(c)(iv) is applicable (the "Initial Shelf Registration"). The Company shall use its best efforts to file with the Commission the Initial Shelf Registration as promptly as practicable. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Notes for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company shall not permit any securities other than the Registrable Notes to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below). The Company shall use its best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date and to keep the Initial Shelf Registration continuously effective under the Securities Act for the period ending on the date which is three years from the Issue Date, subject to extension pursuant to the last paragraph of Section 5 hereof (the "Effectiveness Period"), or such shorter period ending when (i) all Registrable Notes covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration has 12 been declared effective under the Securities Act; provided, however, that the Effectiveness Period in respect of the Initial Shelf Registration shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the Securities Act and as otherwise provided herein; provided, further, that the Company may suspend the effectiveness of a Shelf Registration Statement by written notice to the Holders for a period not to exceed 45 days in any calendar year if, (i) an event occurs and is continuing as a result of which the Shelf Registration Statement would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading and (ii) (a) the Company determines in good faith that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company and its subsidiaries, taken as a whole, or (b) the disclosure otherwise relates to a previously undisclosed pending material business transaction, the disclosure of which would impede the Company's ability to consummate such transaction. (b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Company shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall as soon as practicable after such cessation amend the Initial Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration (each, a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use its best efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such Registration Statement continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. (c) Supplements and Amendments. The Company shall promptly supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the 13 Registrable Notes covered by such Registration Statement or by any underwriter of such Registrable Notes. Section 4. Additional Interest (a) The Company and the Initial Purchasers agree that the Holders 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 (each of which shall be given independent effect): (i) if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration has been filed on or prior to the applicable Filing Date or (B) notwithstanding that the Company has consummated or will consummate the Exchange Offer, the Company is required to file a Shelf Registration and such Shelf Registration is not filed on or prior to the Filing Date applicable thereto, then, commencing on the day after any such Filing Date, Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days immediately following each such Filing Date, and such Additional Interest rate shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period; or (ii) if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration is declared effective by the Commission on or prior to the relevant Effectiveness Date or (B) notwithstanding that the Company has consummated or will consummate the Exchange Offer, the Company is required to file a Shelf Registration and such Shelf Registration is not declared effective by the Commission on or prior to the Effectiveness Date in respect of such Shelf Registration, then, commencing on the day after such Effectiveness Date, Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days immediately following the day after such Effectiveness Date, and such Additional Interest rate shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period; or (iii) if (A) the Company has not exchanged Exchange Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to the 180th day following the Issue Date or (B) the Exchange Offer Registration Statement or the Shelf Registration is declared effective but thereafter ceases to be effective at any time during the Effectiveness Period (except as 14 permitted by Section 10(a) hereof) for a period of 15 consecutive days without being succeeded immediately by an additional Exchange Offer Registration Statement or Shelf Registration Statement, as the case may be, filed and declared effective, then Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days commencing on the (x) 181st day after the Issue Date, in the case of (A) above, or (y) the 16th day after such Shelf Registration ceases to be effective in the case of (B) above, and such Additional Interest rate shall increase by an additional 0.25% per annum at the beginning of each such subsequent 90-day period; provided, however, that the Additional Interest rate on the Notes may not exceed at any one time in the aggregate 1.0% per annum; provided, further, however, that (1) upon the filing of the applicable Exchange Offer Registration Statement or the applicable Shelf Registration as required hereunder (in the case of clause (i) above of this Section 4), (2) upon the effectiveness of the Exchange Offer Registration Statement or the applicable Shelf Registration Statement as required hereunder (in the case of clause (ii) of this Section 4), or (3) upon the exchange of the applicable Exchange Notes for all Notes tendered (in the case of clause (iii)(A) of this Section 4), or upon the effectiveness of the applicable Exchange Offer Registration Statement or Shelf Registration Statement which had ceased to remain effective (in the case of (iii)(B) of this Section 4), Additional Interest on the Notes in respect of which such events relate as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. (b) 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 (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in cash semi-annually on the interest payment dates specified in the Indenture (to the holders of record as specified in the Indenture), commencing with the first such interest payment date occurring after any such Additional Interest commences to accrue. 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. 15 Section 5. Registration Procedures In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Company shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Company hereunder the Company shall: (a) Prepare and file with the Commission prior to the applicable Filing Date, a Registration Statement or Registration Statements as prescribed by Sections 2 or 3 hereof, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to and afford the Holders of the Registrable Notes covered by such Registration Statement or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five Business Days prior to such filing). The Company shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Registration Statement, or any such Participating Broker-Dealer, as the case may be, their counsel, or the managing underwriters, if any, shall reasonably object. (b) Prepare and file with the Commission 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) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to each of them with respect to the disposition of all securities 16 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, in each case, in accordance with the intended methods of distribution set forth in such Registration Statement or Prospectus, as so amended. The Company shall be deemed not to have used its best efforts to keep a Registration Statement effective during the Effective Period or the Applicable Period, as the case may be, relating thereto if the Company voluntarily takes any action that would result in selling Holders of the Registrable Notes covered thereby 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. (c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto, notify the selling Holders of Registrable Notes, or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, as promptly as possible, and, if requested by any such Person, confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Company, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the Commission 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(m) hereof cease to be true and correct in all material respects, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of a 17 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, the existence of any condition or any information becoming known to the Company that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Company's determination that a post-effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its 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 best efforts to obtain the withdrawal of any such order at the earliest practicable moment. (e) If a Shelf Registration is filed pursuant to Section 3 and if requested by the managing underwriter or underwriters (if any), the Holders of a majority in aggregate principal amount of the Registrable Notes being sold in connection with an underwritten offering or any Participating Broker-Dealer, (i) promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders or any Participating Broker-Dealer (based upon advice of counsel) determine is reasonably necessary to be included therein, (ii) make all required filings of such prospectus supplement or such post- 18 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; provided, however, that the Company shall not be required to take any action hereunder that would, in the written opinion of counsel to the Company, violate applicable laws, and (iii) supplement or make amendments to such Registration Statement (based upon advice of counsel). (f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each selling Holder of Registrable Notes and to each such Participating Broker-Dealer who so requests and to counsel and each managing underwriter, if any, at the sole expense of the Company, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange 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 respective counsel, and the underwriters, if any, at the sole expense of the Company, 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 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 19 Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its best efforts to register or qualify, and to cooperate with the selling 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 (or exemption from such registration or qualification) of, 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 reasonably request; provided, however, 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 the Company's counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or the Registrable Notes covered by the applicable Registration Statement; provided, however, that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (i) If a Shelf Registration is filed pursuant to Section 3 hereof, 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 request at least two Business Days prior to any sale of such Registrable Notes. (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 reasonably necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of 20 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 reasonable respects with the filing of such Registration Statement and the granting of such approvals. (k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the Commission, at the sole expense of the Company, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable 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 the light of the circumstances under which they were made, not misleading. (l) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with certificates for the Registrable Notes in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes. (m) In connection with any underwritten offering of Registrable Notes pursuant to a Shelf Registration, 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 reasonably requested by the managing underwriter or underwriters 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, and covenants with, the underwriters with respect to the business of the Company and its subsidiaries (including any acquired business, properties or entity, if applicable) and 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 21 Notes, and confirm the same in writing if and when requested; (ii) use its best efforts to obtain the written opinions of counsel to the Company and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by the managing underwriter or underwriters; (iii) use its best efforts to obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings; 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. (n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange 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, any underwriter 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, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and instruments of the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the 22 officers, directors and employees of the Company and its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement and Prospectus. Each Inspector shall agree in writing that it will not disclose any records that the Company determines, in good faith, to be confidential and that it notifies the Inspectors in writing are confidential unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement or Prospectus, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) disclosure of such information is necessary or advisable in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, relating to, or involving this Agreement or the Purchase Agreement, or any transactions contemplated hereby or thereby or arising hereunder or thereunder, or (iv) the information in such Records has been made generally available to the public; provided, however, that such Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information (if practicable) to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of the Holder or any Inspector. (o) 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) hereof, as the case may be, to be qualified under the TIA not later than the effective date of 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 Commission to enable such indenture to be so qualified in a timely manner. (p) Comply with all applicable rules and regulations of the Commission 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 23 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. (q) Upon consummation of the Exchange Offer or a Private Exchange, use its best efforts to obtain an opinion of counsel to the Company, in a form customary for underwritten transactions, 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, that the Exchange Notes or Private Exchange Notes, as the case may be, and the related indenture constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its respective terms, subject to customary exceptions and qualifications. (r) If the 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, mark, or cause to be marked, on such Registrable Notes that such Registrable Notes are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall such Registrable Notes be marked as paid or otherwise satisfied. (s) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, 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"). (t) Use its best efforts to take all other steps necessary or advisable to effect the registration of the Exchange Notes and/or Registrable Notes covered by a Registration Statement contemplated hereby. The Company may require each seller of Registrable Notes as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Notes as the Company may, from time to time, reasonably request. The Company may exclude from such registration the Registrable Notes of any seller so long as such seller fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected agrees to 24 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. If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. 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 actual receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable 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) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event that 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 Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y) the Advice. Section 6. Registration Expenses All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company, whether or not the Exchange Offer Registration Statement or any Shelf Registration is filed or becomes 25 effective or the Exchange Offer is consummated, 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 (x) where the holders of Registrable Notes are located, in the case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, 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 Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount of the Registrable Notes included in any Registration Statement or in respect of Registrable Notes or Exchange Notes to be sold by any Participating Broker-Dealer during the Applicable Period, as the case may be, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and reasonable fees and disbursements of one special counsel for all of the sellers of Registrable Notes (exclusive of any counsel retained pursuant to Section 7 hereof), (v) fees and disbursements of all independent certified public accountants referred to in Section 5(n)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) Securities Act liability insurance, if the Company desires such insurance, (vii) fees and expenses of all other Persons retained by the Company, (viii) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (ix) the expense of any annual audit, (x) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, and the obtaining of a rating of the securities, in each case, if applicable, and (xi) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, indentures and any other documents necessary in order to comply with this Agreement. Notwithstanding the foregoing or anything to the contrary, each Holder shall pay all underwriting discounts and commissions of any underwriters with respect to any Registrable Notes sold by or on behalf of it. 26 Section 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 the case of the Prospectus 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 furnished to the Company in writing by or on behalf of such Participant expressly for use therein; provided, however, that the foregoing indemnity with respect to any preliminary prospectus shall not inure to the benefit of any Participant from whom the Person asserting such losses, claims, damages or liabilities purchased Registrable Notes if (x) it is established in the related proceeding that such Participant failed to send or give a copy of the Prospectus (as amended or supplemented if such amendment or supplement was furnished to such Participant prior to the written confirmation of such sale) to such Person with or prior to the written confirmation of such sale, if required by applicable law, and (y) the untrue statement or omission or alleged untrue statement or omission was completely corrected in the Prospectus (as amended or supplemented if amended or supplemented as aforesaid) and such Prospectus does not contain any other untrue statement or omission or alleged untrue statement or omission that was the subject matter of the related proceeding. (b) Each Participant agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers 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 (but on a several, and not joint, basis) as the foregoing indemnity from the Company to each Participant, but only with reference to information relating to such Participant furnished to the 27 Company in writing by such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. (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 Persons against whom such indemnity may be sought (the "Indemnifying Persons") in writing, and the Indemnifying Persons, 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 Persons may reasonably designate in such proceeding and shall pay the fees and expenses actually incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Persons shall not relieve any of them of any obligation or liability which any of them may have hereunder or otherwise. 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 Persons and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Persons shall have failed within a reasonable period of time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both any Indemnifying Person and the Indemnified Person or any affiliate thereof and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that, unless there exists a conflict among Indemnified Persons, the Indemnifying Persons 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, 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 in interest of Registrable Notes and Exchange Notes sold by all such Participants and shall be reasonably acceptable to the Company and any such separate firm for the Company, their respective directors, their respective officers and such control Persons of the Company shall be designated in writing by the Company and shall be reasonably acceptable to the Holders. The Indemnifying Persons 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 judgment for the plaintiff for which the 28 Indemnified Person is entitled to indemnification pursuant to this Agreement, each of the Indemnifying Persons agrees to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Persons (which consent shall not be unreasonably withheld or delayed), 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 and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of such Indemnified Person. (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 Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other from the offering of the 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 benefits received by the Company on the one hand and the Participants on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of discounts and commissions but before deducting expenses) of the Notes received by the Company bears to the total proceeds received by such Participant from the sale of Registrable Notes or Exchange Notes, as the case may be. 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 29 prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable 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) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 7 shall be paid by the Indemnifying Party to the Indemnified Party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Holder or any person who controls a Holder, any Company, their respective directors or officers or any person controlling any Company, and (ii) any termination of this Agreement. (g) 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. Section 8. Rules 144 and 144A The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if 30 at any time the Company is not required to file such reports, it will, upon the request of any Holder or beneficial owner of Registrable Notes, make available such information necessary to permit sales pursuant to Rule 144A under the Securities Act. The Company further covenants that it will take such further action as any Holder of Registrable Notes may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Notes without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. Section 9. Underwritten Registrations If any of the Registrable Notes covered by any Shelf Registration 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 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 required under the terms of such underwriting arrangements. Section 10. Miscellaneous (a) 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 rights granted to the Holders hereunder do not conflict with and are not inconsistent with, in any material respect, the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. The Company has not entered and will not enter into any agreement with respect to any of its securities which will grant to any Person piggy-back registration rights with respect to any Registration Statement. 31 (b) 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. (c) 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 except pursuant to a written agreement duly signed and delivered by (I) the Company and (II)(A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Notes and (B) in circumstances that would 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(c) may not be amended, modified or supplemented except pursuant to a written agreement duly signed and delivered by 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) affected by any such amendment, modification or supplement. 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 in aggregate principal amount of the Registrable Notes being sold pursuant to such Registration Statement. (d) Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or telecopier: (i) 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, set forth on the records of the registrar under the Indenture. 32 (ii) if to the Company, at the address as follows: P.O. Box 752006 Cincinnati, OH 45275-2006 Facsimile No.: (606) 283-7209 Attention: Chief Executive Officer (iii) if to the Initial Purchasers, as provided in the Purchase Agreement. 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; when receipt is acknowledged by the recipient's telecopier machine, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in such Indenture. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, the Holders and the Participating Broker-Dealers; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign holds Registrable Notes. (f) 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. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. (i) 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 33 or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Securities Held by the Company or their 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 any of 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. (k) Third Party Beneficiaries. Holders and beneficial owners of Registrable Notes and Participating Broker-Dealers are intended third party beneficiaries of this Agreement, and this Agreement may be enforced by such Persons. (l) Attorneys' Fees. As between the parties to this Agreement, in any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. (m) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders on the one hand and the Company on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. 34 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. INTERNATIONAL KNIFE & SAW, INC. By: Name: Title: SCHRODER WERTHEIM & CO. INCORPORATED By: Name: Title: SMITH BARNEY INC. By: Name: Title: EX-10.1 6 PURCHASE AGREEMENT DATED 10-31-96 1 EXHIBIT 10.1 INTERNATIONAL KNIFE & SAW, INC. $90,000,000 Aggregate Principal Amount of 11-3/8% Senior Subordinated Notes due 2006 PURCHASE AGREEMENT New York, New York October 31, 1996 SCHRODER WERTHEIM & CO. INCORPORATED SMITH BARNEY INC. c/o SCHRODER WERTHEIM & CO. INCORPORATED Equitable Center 787 Seventh Avenue New York, New York 10019-6016 Ladies and Gentlemen: International Knife & Saw, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to you (the "Initial Purchasers") $90,000,000 aggregate principal amount of 11-3/8% Senior Subordinated Notes due 2006 (the "Notes"), to be issued pursuant to the provisions of an Indenture (the "Indenture") to be entered into between the Company and United States Trust Company of New York, as trustee (the "Trustee"). The Notes will be offered without being registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance on exemptions therefrom provided by Section 4(2) of the Securities Act and Rule 144A promulgated thereunder. In connection with the offering and sale of the Notes (the "Offering"), the Company has prepared a preliminary offering memorandum (the "Preliminary Offering Memorandum") and will prepare a final offering memorandum (the "Final Offering Memorandum" and, together with the Preliminary Offering Memorandum, each a "Memorandum") setting forth or including a description of the terms of the Notes, the terms of the Offering, a description of the Company and any material developments relating to the Company occurring after the date of the most recent financial statements included therein. 2 You and your direct and indirect transferees will be entitled to the benefits of a Registration Rights Agreement to be entered into between the Company and the Initial Purchasers substantially in the form attached hereto as Exhibit A (the "Registration Rights Agreement"), pursuant to which the Company will agree to use its best efforts to file and have declared effective a registration statement (an "Exchange Offer Registration Statement") with the Securities and Exchange Commission (the "Commission") registering the offer and sale of the Notes, Private Exchange Notes or the Exchange Notes (each as defined in the Registration Rights Agreement) under the Securities Act. This Agreement, the Notes, the Indenture and the Registration Rights Agreement are referred to herein as the "Offering Documents." The Offering is being made in connection with a recapitalization of the Company (the "Recapitalization") under that certain Agreement and Plan of Recapitalization dated September 17, 1996 (the "Recapitalization Agreement") by and among Citicorp Venture Capital Ltd., The Klingelnberg Corporation ("IKS Holdings") and certain stockholders of IKS Holdings and of the Company. In connection with the Offering and the Recapitalization, the Company will repay approximately $5.3 million of its existing indebtedness and enter into a new $20.0 million revolving credit facility, and a German subsidiary of the Company will repay approximately $9.3 million of its existing indebtedness and enter into a new $5.0 million revolving credit facility (together, the "New Credit Facilities"). The Recapitalization Agreement (including the agreements attached as exhibits thereto), the agreements evidencing the New Credit Facilities and the Offering Documents are referred to herein as the "Transaction Documents." The Offering and the application of the proceeds therefrom, the Recapitalization and the entering into the New Credit Facilities are referred to herein as the "Transactions". This is to confirm the agreement concerning the purchase by you of the Notes from the Company. 1. The Company represents and warrants to and agrees with you that: (a) The Preliminary Offering Memorandum, as of its date, did not contain any untrue statement of a material fact or omit to state a material fact (except for pricing terms and other financial terms intentionally left blank) necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and the Final Offering Memorandum, as of its date did not, and as of the Delivery Date will not, 3 contain any untrue statement of a material fact or omit to state a material fact necessary, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 1(a) do not apply to statements or omissions contained in any Memorandum made in reliance upon and in conformity with information relating to the Initial Purchasers furnished by the Initial Purchasers to the Company in writing expressly for use in either Memorandum or any amendment or supplement thereto. (b) Neither the Company nor any of the Subsidiaries (as defined below) has sustained, since the date of the most recent financial statements included in the Final Offering Memorandum, any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, which loss or interference is material to the Company and the Subsidiaries, taken as a whole. Since the respective dates as of which information is given in the Final Offering Memorandum there has not been any change in the capital stock or short-term debt (other than in the ordinary course of business) or long-term debt of the Company or any of the Subsidiaries, or any change or development which could reasonably be expected to have a material adverse effect upon the business, operations, assets, condition (financial or otherwise) or prospects of the Company and the Subsidiaries, taken as a whole, or an adverse effect on the ability of the Company to perform its obligations under the Offering Documents (a "Material Adverse Effect"), otherwise than as set forth or contemplated in the Final Offering Memorandum. (c) The Company and the Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case, free and clear of all liens, adverse claims, encumbrances, security interests (collectively, "Liens") and defects except those that are described or contemplated by the Final Offering Memorandum or those that do not materially affect the value of such property and do not interfere with the use made or proposed to be made (as described in the Final Offering Memorandum) of such property by the Company and the Subsidiaries. Any real property and buildings held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made or proposed to be made (as described in the Final Offering Memorandum) of such real property and buildings by the Company and the Subsidiaries. 4 (d) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with all necessary corporate power and authority to own its properties and to conduct its business as described in the Final Offering Memorandum. The Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases property, or conducts any business, so as to require such qualification (except where the failure to so qualify, singly or in the aggregate with all other such failures, would not have a Material Adverse Effect). Each of the Company's subsidiaries (the "Subsidiaries") is listed on Schedule I hereto. Except as described in the Final Offering Memorandum, each of the Subsidiaries is wholly owned directly or indirectly by the Company. Each of the Subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, with all necessary corporate power and authority to own its properties and conduct its business as described in the Final Offering Memorandum. (e) The Company had at the date indicated in the Final Offering Memorandum the capitalization set forth in the column entitled "Actual" under the caption "Capitalization" as set forth in the Final Offering Memorandum and, based on the assumptions stated in the Final Offering Memorandum, the Company would have had on the date indicated the adjusted capitalization as set forth in the column entitled "Pro Forma" under the caption "Capitalization" as set forth in the Final Offering Memorandum. Except as described in the Final Offering Memorandum, all of the issued and outstanding shares of capital stock of each Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable and are owned by the Company free and clear of all Liens. There are no outstanding options, warrants or other rights to acquire, or instruments convertible into or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock of any Subsidiary. (f) This Agreement has been duly authorized, executed and delivered by the Company. (g) The Indenture has been duly authorized by the Company and, when executed and delivered by the Company on the Delivery Date (assuming due authorization, execution and delivery by, and enforceability against, the Trustee), will be a legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except that (i) the enforceability thereof 5 may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability (regardless of whether in a proceeding in equity or at law). The Indenture will conform in all material respects to the description thereof in the Final Offering Memorandum. (h) The Notes have been duly and validly authorized by the Company, and, when executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will be legally valid and binding obligations of the Company, entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except that (i) the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability (regardless of whether considered in a proceeding in equity or at law). The Notes will conform in all material respects to the description thereof contained in the Final Offering Memorandum. (i) The Exchange Notes and the Private Exchange Notes have been duly and validly authorized by the Company, and, when executed, authenticated and delivered in accordance with the terms of the Indenture and the Registration Rights Agreement, will be legally valid and binding obligations of the Company, entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except that (i) the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability (regardless of whether considered in a proceeding in equity or at law). (j) The Registration Rights Agreement has been duly and validly authorized by the Company and, when executed and delivered by the Company on the Delivery Date (assuming due authorization, execution and delivery by, and enforceability against, the Initial Purchasers), will be a legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except that (i) the enforceability thereof may be 6 limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting creditors' rights generally, (ii) the availability of equitable remedies may be limited by equitable principles of general applicability (regardless of whether considered in a proceeding in equity or at law) and (iii) rights to indemnity may be limited by state or federal laws relating to securities or by policies underlying such laws. The Registration Rights Agreement will conform in all material respects to the description thereof contained in the Final Offering Memorandum. (k) The Recapitalization Agreement has been duly and validly authorized by each of the parties thereto and is a legally valid and binding agreement of each such party, enforceable against each such party in accordance with its terms, except that (i) the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability (regardless of whether in a proceeding in equity or at law). The representations and warranties set forth in Article II of the Recapitalization Agreement are true and correct in all material respects as of the date of such agreement and will be true and correct in all material respects on the Delivery Date. (l) The execution, delivery and performance by the Company of the Offering Documents and the consummation of the Transactions and the other transactions contemplated thereby will not (i) conflict with, or result in a breach or violation of, any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, license, permit, loan agreement, lease or other material agreement or instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties or assets is bound or or is subject, (ii) violate any provision of the certificate of incorporation or the by-laws of the Company or any of the Subsidiaries or any material statute or any material order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries or any of their properties or assets, or (iii) result in or require the creation or imposition of any Lien, upon or with respect to any of the properties of the Company or any of the Subsidiaries, except as permitted by the terms of the Indenture. No consent, approval, authorization, order, registration or qualification of or with any court of governmental agency or body is required for the issue and sale of the Notes or the consummation of the other 7 Transactions, except such consents, approvals, authorizations, registrations or qualifications as (x) may be required under state securities or Blue Sky laws in connection with the offer and sale of the Notes, (y) have been obtained and are in full force and effect or (z) as may be required by the National Association of Securities Dealers, Inc. (m) Except as set forth in the Final Offering Memorandum, there are no legal or governmental proceedings pending to which the Company or any of the Subsidiaries is a party or of which any of their respective properties or assets is the subject which, if determined adversely, would singly or in the aggregate have a Material Adverse Effect. To the Company's best knowledge, no such proceedings are threatened or contemplated by any governmental agency or body or any other person. (n) The Company and the Subsidiaries have all material licenses, permits and other approvals or authorizations of and from governmental agencies and bodies ("Permits") as are necessary under applicable law to own their respective properties and to conduct their respective businesses in the manner now being conducted as described in the Final Offering Memorandum. The Company and the Subsidiaries have fulfilled and performed in all material respects all of their respective obligations with respect to such material Permits, and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or result in any other material impairment of the rights of the holder of any such material Permits. (o) Ernst & Young LLP, who have certified certain financial statements of the Company, are independent public accountants under rule 101 of AICPA's Code of Professional Conduct and its interpretation and rulings. (p) The consolidated financial statements of the Company and the Subsidiaries included in the Final Offering Memorandum present fairly the financial condition, the results of operations and the cash flows of the Company and the Subsidiaries as of the dates and for the periods therein specified in conformity with generally accepted accounting principles consistently applied throughout the periods involved, except as otherwise stated therein. The unaudited pro forma financial statements included in the Final Offering Memorandum have been prepared in accordance with the rules and guidelines of the Commission with respect to pro forma financial statements and in the Company's opinion, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. 8 (q) Except as set forth in the Final Offering Memorandum, there is no presently existing dispute or controversy between the Company or any of the Subsidiaries and any of their respective employees which has had or is likely to have, and the Company has no reason to believe that the relationship of the Company and the Subsidiaries with their unions or employees is likely to have, a Material Adverse Effect. (r) To the Company's best knowledge, the Company and the Subsidiaries own or possess adequate patents, patent rights, inventions, trademarks, service marks, trade names and copyrights necessary to conduct their business as presently conducted as described in the Final Offering Memorandum. Neither the Company nor any of the Subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any material patent, patent rights, inventions, trademarks, service marks, trade names or copyrights. (s) Neither the Company nor any of the Subsidiaries is in violation of any provision of their respective certificate of incorporation or by-laws. Except as described in the Final Offering Memorandum, the Company and each of the Subsidiaries is in compliance with all laws, rules, regulations, orders, judgments, writs and decrees applicable to them other than those which, singly or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (t) No default exists, and no event has occurred which with notice or lapse of time, or both, would constitute a default in the due performance and observance of any term, covenant or condition of any indenture, mortgage, deed of trust, license, permit, loan agreement, lease or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties or assets is bound or is subject, which default, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (u) The Company and the Subsidiaries have timely filed all federal income and other material tax returns and notices. The Company has no knowledge of any tax deficiencies which would have a Material Adverse Effect. The Company and its Subsidiaries have paid all federal, state, local and foreign taxes of any nature which are shown on its returns to be due, in each case except as may be set forth or adequately reserved for in the financial statements included in the Final Offering Memorandum in accordance with GAAP. The amounts currently set up as provisions for taxes or otherwise by the Company and the Subsidiaries on their books and records are sufficient for 9 the payment of all their unpaid federal, foreign, state, county and local taxes accrued through the dates as of which they relate, and for which the Company and the Subsidiaries may be liable in their own right, or as a transferee of the assets of, or as successor to any other corporation, association, partnership, joint venture or other entity. (v) Since the date as of which information is given in the Preliminary Offering Memorandum through the date hereof, and except as may otherwise be disclosed in the Final Offering Memorandum, neither the Company nor any of the Subsidiaries has sold or otherwise disposed of any capital stock of the Company or the Subsidiaries, directly or indirectly. (w) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (x) The Company, immediately before and after the consummation of the Transactions, will be Solvent. As used herein, the term "Solvent" means, with respect to any such entity on a particular date (i) the fair market value of the assets of such entity is greater than the total amount of liabilities (including contingent liabilities) of such entity, (ii) the present fair saleable value of the assets of such entity is greater than the amount that will be required to pay the probable liabilities of such entity on its debts as they become absolute and matured, (iii) such entity is able to realize upon its assets and pay its debts and other liabilities, including contingent obligations, as they mature and (iv) such entity does not have an unreasonably small capital. (y) Neither the Company nor any of its affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act, an "Affiliate") has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Notes in a manner that would require the registration under the Securities Act of the Notes or (ii) engaged in any form of general 10 solicitation or general advertising in connection with the offering of the Notes (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (z) Neither the Company nor any of the Subsidiaries is, or will be after giving effect to the Offering and the application of the proceeds therefrom and the other transactions contemplated by the Documents, an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"). (aa) Assuming the representations and warranties of the Initial Purchasers are true and correct, it is not necessary in connection with the offer, sale and delivery of the Notes to the Initial Purchasers in the manner contemplated by this Agreement to register the Notes under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended. (bb) The Company and the Subsidiaries (i) are in compliance with all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not individually or in the aggregate result in a Material Adverse Effect. (cc) When the Notes are issued and delivered pursuant to this Agreement, the Notes will not be of the same class (within the meaning of Rule 144A under the Securities Act) as securities of the Company which are listed on a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder (collectively, the "Exchange Act"), or quoted in a U.S. automated interdealer quotation system. (dd) The Company and each of its subsidiaries maintains insurance covering their properties, operations, personnel and businesses. Such insurance insures against such losses and risks as are adequate in accordance with 11 customary industry practice to protect the Company and the Subsidiaries and their businesses. 2. On the basis of the representations and warranties contained in this Agreement, and subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the several Initial Purchasers, and the Initial Purchasers agree, severally, to purchase from the Company, at a purchase price of 97.0% of the principal amount thereof, (i) $54,000,000 aggregate principal amount of Notes, in the case of Schroder Wertheim & Co. Incorporated, and (ii) $36,000,000 aggregate principal amount of Notes, in the case of Smith Barney Inc. 3. Certificates in definitive form for the Notes to be purchased by you hereunder shall be delivered by or on behalf of the Company to you for your account against payment by you of the purchase price therefor by wire transfer of immediately available funds to an account specified by the Company by written notice to the Initial Purchasers (given at least two business days prior to the Delivery Date), for the purchase price of the Notes being sold by the Company in New York, New York, at 9:30 A.M., New York City time, on November 6, 1996, or at such other time, date and place as you and the Company may agree upon in writing, such time and date being herein called the "Delivery Date." Certificates for the Notes so to be delivered will be in good delivery form, and in such denominations and registered in such names as you may request not less than 48 hours prior to the Delivery Date. Such certificates will be made available for checking and packaging in New York, New York, at least 24 hours prior to the Delivery Date. 4. The Initial Purchasers acknowledge that the Notes have not been registered under the Securities Act and may not be sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or pursuant to an effective registration statement under the Securities Act. Accordingly, the Initial Purchasers propose to offer the Notes for resale only to certain investors (as further described in subparagraph (a) of this Paragraph 4) upon the terms and conditions set forth in this Agreement and the Final Offering Memorandum at the purchase price initially set forth on the cover page of the Final Offering Memorandum. Each of the Initial Purchasers hereby severally represents and warrants to, and agrees with the Company, that: (a) It is an institutional "accredited investor" (as defined in 501(a)(1), (2), (3) or (7) under the Securities Act) and will offer or sell the Notes only (i) inside the United States, to persons who it reasonably believes are "qualified institutional buyers" within the meaning of 12 Rule 144A in transactions meeting the requirements of Rule 144A and (ii) inside the United States, to a limited number of institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that, prior to their purchase of the Notes, deliver to the Initial Purchasers and the Company a letter substantially in the form attached to each Memorandum as Annex A; and (b) It has not and will not offer or sell the Notes by any form of general solicitation or general advertising, including but not limited to, the methods described in Rule 502(c) under the Securities Act. 5. In consideration of the agreements of the several Initial Purchasers contained in this Agreement, the Company covenants and agrees as follows: (a) The Company will furnish to you, without charge, as many copies of the Final Offering Memorandum and any supplements and amendments thereto as you may reasonably request. (b) Before amending or supplementing the Final Offering Memorandum subsequent to the execution of this Agreement, the Company will furnish to you a copy of each such proposed amendment or supplement and not to use any such proposed amendment or supplement to which you reasonably object. (c) If, at any time prior to the completion of the distribution of the Notes to persons that are not your affiliates (as determined by you), any event occurs as a result of which the Final Offering Memorandum as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Final Offering Memorandum to comply with applicable law, the Company will notify you thereof and will prepare, at the expense of the Company, an amendment or supplement to the Final Offering Memorandum that corrects such statement or omission or effects such compliance. (d) The Company will endeavor to qualify the Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions in the United States as you shall reasonably request; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in 13 respect of doing business in any jurisdiction in which it is not otherwise so subject. The Company will file such statements and reports as may be required by the laws of each jurisdiction in which the Notes have been qualified as above provided. The Company will also supply you with such information as is necessary for the determination of the legality of the Notes in such jurisdictions as you may request. (e) The Company will not, and will not permit any of its Affiliates to, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) which could be integrated with the sale of the Notes in a manner which would require the registration under the Securities Act of the Notes. (f) Except following the effectiveness of the Exchange Offer Registration Statement, the Company will not solicit any offer to buy or offer to sell the Notes by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (g) While any of the Notes remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, to make available, upon request, to any holder or beneficial owner of outstanding Notes the information specified in Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. (h) The Company will use its best efforts to permit the Notes to be designated PORTAL securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. relating to trading in the PORTAL Market and to permit the Notes to be eligible for clearance and settlement through the Depository Trust Company. (i) For a period of five years following the Delivery Date, the Company will furnish to the Initial Purchasers copies of any annual reports, quarterly reports and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the Commission, and such other documents, reports and information as shall be furnished by the Company to the Trustee or to the holders of the Notes pursuant to the Indenture. (j) During the period of three years following the Delivery Date, the Company will not, and will not permit 14 any of its Affiliates to, resell any Notes that have been acquired by any of them, except for any such Note resold in a transaction registered under the Securities Act. (k) The Company will use the proceeds from the sale of the Notes in the manner set forth in the Final Offering Memorandum and in a manner that will not result in the Company becoming an investment company within the meaning of the Investment Company Act, and the rules and regulations of the Commission thereunder. (l) The Company will not, and will cause each of the Subsidiaries not to, offer, sell, contract to sell or grant any option to purchase or otherwise transfer or dispose of any debt security, or any security convertible into or in exchange for, any such debt security of the Company or any such Subsidiary (other than (x) any private loan, credit or financing agreement with a bank or similar institution and (y) the Notes, the Exchange Notes and the Private Exchange Notes), for a period of 180 days after the date of this Agreement, without your prior written consent. 6. The Company covenants and agrees that the Company will pay or cause to be paid: (i) the fees, disbursements and expenses of counsel and accountants for the Company and the Trustee and its counsel, and all other expenses, in connection with the preparation and printing of each Memorandum and amendments and supplements thereto and the furnishing of copies thereof, including charges for mailing, air freight and delivery and counting and packaging thereof to the Initial Purchasers and dealers; (ii) all expenses in connection with the qualification of the Notes for offering and sale under state securities laws as provided in Section 5(d) hereof, including disbursements and expenses for counsel for the Initial Purchasers in connection with such qualification and in connection with Blue Sky surveys; (iii) any fees charged by rating agencies for the rating of the Notes; (iv) the costs and expenses in connection with the preparation and delivery of the Notes; and (v) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section 6, including the fees, if any, incurred in connection with the admission of the Notes for trading in any appropriate market systems, the cost of the Company's personnel and other internal costs, the cost of printing and engraving the certificates representing the Notes and all expenses and property, excise and similar taxes incident to the sale and delivery of the Notes to be sold by the Company to the Initial Purchasers hereunder. 7. Your obligations hereunder shall be subject, in your discretion, to the following additional conditions: 15 (a) The representations and warranties of the Company contained in this Agreement shall be true and correct as of the date hereof and as of the Delivery Date. The Company shall have performed in all material respects all covenants and agreements and satisfied in all material respects all conditions on its part to be performed or satisfied hereunder at or prior to the Delivery Date. (b) The sale of the Notes by the Company hereunder shall not be enjoined (temporarily or permanently) on the Delivery Date. (c) Subsequent to the date as of which information is given in the Final Offering Memorandum, except in each case as described in or as contemplated by the Final Offering Memorandum, the Company and the Subsidiaries shall not have incurred any liabilities or obligations, direct or contingent that are material to the Company and the Subsidiaries taken as a whole or entered into any transactions that are material to the business, condition (financial or other), results of operations or prospects of the Company and the Subsidiaries taken as a whole. (d) Subsequent to the date of this Agreement and prior to the Delivery Date, there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the Company's securities, including the Notes, by any "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Securities Act. (e) You shall have received on the Delivery Date a certificate of the Company dated the Delivery Date and signed by its Chief Executive Officer, President or any Vice President and by the Vice President-Finance, to the effect set forth in clauses (a), (b), (c) and (d) above. (f) Dechert Price & Rhoads, counsel to the Company, shall have furnished to you their written letters, each dated the Delivery Date, in substantially the forms attached hereto as Exhibits B-1 and B-2, respectively. (g) Cahill Gordon & Reindel, counsel to the Initial Purchasers, shall have furnished to the Initial Purchasers a written opinion, dated the Delivery Date, in form and substance satisfactory to you, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon the matters covered by such opinion. 16 (h) You shall have received on each of the date hereof and the Delivery Date a letter, dated the date hereof or the Delivery Date, as the case may be, in form and substance reasonably satisfactory to you, from Ernst & Young LLP, the Company's independent public accountants. (i) (i) Since the date of this Agreement, neither the Company nor any of the Subsidiaries shall have sustained any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree; and (ii) since the respective dates as of which information is given in the Final Offering Memorandum, there shall not have been any change in the capital stock or short-term debt (other than in the ordinary course of business) or long-term debt of the Company or any of the Subsidiaries nor any change which could reasonably be expected to have a Material Adverse Effect otherwise than as set forth or contemplated in the Final Offering Memorandum, the effect of which, in any such case described in clause (i) or (ii), is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the Offering or the delivery of the Notes on the terms and in the manner contemplated in the Final Offering Memorandum. (j) Subsequent to the execution and delivery of this Agreement, (i) there shall have been no declaration of war by the Government of the United States, (ii) there shall not have occurred any material adverse change in the financial or securities markets in the United States or in political, financial or economic conditions in the United States or any outbreak or material escalation of hostilities or other calamity or crisis, the effect of which is such as to make it, in the judgment of the Initial Purchasers, impracticable to market the Notes or to enforce contracts for the resale of Notes and (iii) no event shall have occurred resulting in (A) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market being suspended or limited or minimum or maximum prices being generally established on such exchange or market, or (B) additional material governmental restrictions, not in force on the date of this Agreement, being imposed upon trading in securities generally by such exchange or by order of the Commission or any court or other governmental authority or (C) a general banking moratorium being declared by either Federal or New York authorities. (k) The Company shall have furnished or caused to be furnished to you at the Delivery Date any additional certificates signed by officers of the Company, satisfactory to you as to such matters as you may reasonably request. 17 (l) The Company and the Initial Purchasers shall have entered into the Registration Rights Agreement. (m) All of the Transactions (other than the Offering and the application of the proceeds therefrom) shall have been consummated in accordance with the Transaction Documents. 8. (a) The Company agrees to indemnify and hold harmless the Initial Purchasers against any losses, claims, damages or liabilities ("Losses"), joint or several, to which any of the Initial Purchasers may become subject, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Memorandum, or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse the Initial Purchasers for any legal or other expenses reasonably incurred by the Initial Purchasers in connection with investigating, preparing to defend, defending or appearing as a third-party witness in connection with any such action or claim; provided, however, that the Company shall not be liable to any Initial Purchaser in any such case to the extent that any such Loss arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission relating to such Initial Purchaser made in any Memorandum, or such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Initial Purchaser expressly for use therein; provided, however, that the foregoing indemnity with respect to the Preliminary Offering Memorandum shall not inure to the benefit of any Initial Purchaser from whom the person asserting such losses, claims, damages or liabilities purchased Notes if (x) it is established in the related proceeding that such Initial Purchaser failed to send or give a copy of the Final Offering Memorandum to such person with or prior to the written confirmation of such sale and (y) the untrue statement or omission or alleged untrue statement or omission was completely corrected in the Final Offering Memorandum and the Final Offering Memorandum does not contain any other untrue statement or omission or alleged untrue statement or omission that was the subject matter of the related proceeding. (b) In addition to any obligations of the Company under Section 8(a), the Company agrees that it shall perform its indemnification obligations under Section 8(a) (as modified by the last paragraph of this Section 8(b)), with respect to counsel fees and expenses and other expenses reasonably incurred by making payments within 45 days to the Initial 18 Purchasers in the amount of the statements of the Initial Purchasers' counsel or other statements which shall be forwarded by the Initial Purchasers, and that they shall make such payments notwithstanding the absence of a judicial determination as to the propriety and enforceability of the obligation to reimburse the Initial Purchasers for such expenses and the possibility that such payments might later be held to have been improper by a court and a court orders return of such payments. The indemnity agreement in Section 8(a) shall be in addition to any liability which the Company may otherwise have and shall extend upon the same terms and conditions to each person, if any, who controls any of the Initial Purchasers within the meaning of the Securities Act or the Exchange Act, and to the officers, directors, partners, employees, representatives and agents of any of the Initial Purchasers or any such control person. (c) Each of the Initial Purchasers will, severally and not jointly, indemnify and hold harmless the Company against any Losses to which the Company may become subject, under the Securities Act, the Exchange Act, any federal or state statutory law or regulation, at common law or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Memorandum, or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Memorandum or such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Initial Purchaser relating to such Initial Purchaser expressly for use therein, and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating, preparing to defend, defending or appearing as a third-party witness in connection with any such action or claim. The indemnity agreement in this Section 8(c) shall be in addition to any liability which the Initial Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, and to the officers, directors, partners, employees, representatives and agents of the Company or any such control person. (d) Promptly after receipt by an indemnified party under Section 8(a) or 8(c) of notice of the commencement of any 19 action (including any governmental investigation), such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party under Section 8(a) or 8(c) except to the extent it was unaware of such action and has been prejudiced in any material respect by such failure or from any liability which it may have to any indemnified party otherwise than under such Section 8(a) or 8(c). In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. If, however, (i) the indemnifying party has not authorized the employment of counsel for the indemnified party at the expense of the indemnifying party or (ii) an indemnified party shall have reasonably concluded that representation of such indemnified party and the indemnifying party by the same counsel would be inappropriate under applicable standards of professional conduct due to actual or potential differing interests between them and the indemnified party so notifies the indemnifying party, then the indemnified party shall be entitled to employ counsel different from counsel for the indemnifying party at the expense of the indemnifying party and the indemnifying party shall not have the right to assume the defense of such indemnified party. In no event shall the indemnifying parties be liable for fees and expenses or more than one counsel (in addition to local counsel) for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same set of allegations or circumstances. The counsel with respect to which fees and expenses shall be so reimbursed shall be designated in writing by Schroder Wertheim & Co. Incorporated in the case of parties indemnified pursuant to Section 8(a) and by the Company in the case of parties indemnified pursuant to Section 8(c). The Company shall not be liable for any settlement of any such action or proceeding effected without its prior written consent (not to be unreasonably withheld) and if settled with its written consent or if there is a final judgment for the plaintiff, the Company agrees to indemnify and hold harmless the Initial Purchaser and each other person referred to in Section 8(b) to the extent provided herein. 20 Without limiting the generality of the foregoing, no indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any such indemnified party is or has been threatened to be made a party and to which the indemnity herein is applicable; provided, however, that an indemnifying party may effect such a settlement without the consent of the indemnified party if such settlement includes an unconditional release of such indemnified party from all liability for claims that are the subject matter of such proceeding or the indemnifying party indemnifies the indemnified party in writing and posts a bond for an amount equal to the maximum liability for all such claims as contemplated above. (e) In the event that the indemnity provided by Section 8(a) or 8(c) is unavailable or insufficient to hold harmless an indemnified party for any reason, the Company and the Initial Purchasers, severally and not jointly, shall contribute to the aggregate Losses to which they may be subject as an indemnifying party hereunder (after contribution from others) in such proportion so that the Initial Purchasers are responsible for the portion represented by the percentage that the total discounts and commissions paid to the Initial Purchasers appearing on the cover page of the Final Offering Memorandum bears to the total proceeds to the Company (net of discounts and commissions of the Initial Purchasers) appearing thereon and the Company is responsible for the remaining portion; provided, however, that, in any such case, (x) no Initial Purchaser shall be required to contribute any amount in excess of such Initial Purchaser's discount and commission applicable to the Notes and (y) no person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to a contribution from any person who was not guilty of such fraudulent misrepresentation. The amount paid or payable by the Initial Purchasers as result of this Section 8(e) shall be deemed to include any legal or other expenses reasonably incurred preparing to defend or defending any such claim. 9. The respective indemnities, agreements, representations, warranties and other statements of the Company and the Initial Purchasers, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of the Initial Purchasers or any controlling person of the Initial Purchasers, the Company or an officer or director or controlling person of the Company and shall survive delivery of and payment for the Notes. 10. The obligations of the Initial Purchasers hereunder may be terminated by the Initial Purchasers by notice given to and received by the Company prior to delivery of and 21 payment for the Notes, if, prior to that time, any of the events described in Section 7(d), 7(i), or 7(j) shall have occurred or if the Initial Purchasers shall decline to purchase the Notes for any other reason permitted under this Agreement. 11. If (a) the Company shall fail to tender the Notes for delivery to the Initial Purchasers (other than by reason of a default by the Initial Purchasers) or (b) the Initial Purchasers shall decline to purchase the Notes for any reason permitted under this Agreement (including the termination of this Agreement pursuant to Section 10), the Company shall reimburse the Initial Purchasers for the reasonable fees and expenses of their counsel and for such other reasonable out-of-pocket expenses as shall have been incurred by them in connection with this Agreement and the proposed purchase of the Notes, and upon demand the Company shall pay the full amount thereof to the Initial Purchasers. 12. If either of the Initial Purchasers shall fail to purchase and pay for any of the Notes agreed to be purchased by such Initial Purchaser hereunder and such failure to purchase shall constitute a default in the performance of its obligations under this Agreement, the non-defaulting Initial Purchaser shall be obligated to take up and pay for the Notes which the defaulting Initial Purchaser agreed but failed to purchase; provided, however, that in the event that the aggregate principal amount of Notes which the defaulting Initial Purchaser agreed but failed to purchase shall exceed 10% of the aggregate principal amount of Notes set forth in Section 2 hereof, the non-defaulting Initial Purchaser shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Notes as to which such default occurred, and if such non-defaulting Initial Purchaser does not purchase all the Notes as to which such default occurred, this Agreement will terminate without liability to the non-defaulting Initial Purchaser or the Company. In the event of a default by any Initial Purchaser as set forth in this Section 12, the Delivery Date shall be postponed for such period, not exceeding seven days, as the Initial Purchaser shall determine in order that the required changes in the Final Offering Memorandum or in any other documents or arrangement may be effected. Nothing contained in this Agreement shall relieve any defaulting Initial Purchaser of its liability, if any, to the Company or any non-defaulting Initial Purchaser for damages occasioned by its default hereunder. 13. All statements, requests, notices and agreements hereunder shall be in writing or by written telecommunication, and shall be sufficient in all respects if delivered or sent by registered mail, if to the Initial Purchasers, to Schroder Wertheim & Co. Incorporated at 787 Seventh Avenue, New York, New York 10019, Attention: High Yield Department; and if to the Company to International Knife & Saw, Inc., 1299 Cox 22 Avenue, Erlanger, Kentucky 41018, Attention: Chief Executive Officer. 14. This Agreement shall be binding upon, and inure solely to the benefit of, you, the Company and, to the extent provided in Section 8 hereof, controlling persons, officers, directors, partners, employees, representatives and agents referred to in Section 8, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Notes from the Initial Purchasers shall be deemed a successor or assign by reason merely of such purchase. 15. Time shall be of the essence of this Agreement. 16. This Agreement shall be governed by and construed in accordance with the laws of the State of New York (without giving effect to principles of conflicts of law). 17. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 23 [SIGNATURE PAGE] If the foregoing is in accordance with your understanding, please sign and return to us a counterpart hereof, and upon the acceptance hereof by you, this letter and such acceptance hereof shall constitute a binding agreement between you and the Company. Very truly yours, INTERNATIONAL KNIFE & SAW, INC. By: -------------------------------- Name: Title: Accepted as of the date hereof: SCHRODER WERTHEIM & CO. INCORPORATED By: ---------------------------- Name: Title: SMITH BARNEY INC. By: ---------------------------- Name: Title: EX-10.4 7 AGREEMENT AND PLAN OF RECAPITALIZATION 1 EXHIBIT 10.4 AGREEMENT AND PLAN OF RECAPITALIZATION AMONG CITICORP VENTURE CAPITAL LTD., THE KLINGELNBERG CORPORATION, THE STOCKHOLDERS OF THE KLINGELNBERG CORPORATION AND CERTAIN STOCKHOLDERS OF INTERNATIONAL KNIFE & SAW, INC. DATED SEPTEMBER 17, 1996 2 TABLE OF CONTENTS
ARTICLE I PLAN OF RECAPITALIZATION 1 1.1. Amendment of Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. Exchange of Holding Company Stock; Purchase of Securities by CVC . . . . . . . . . . . . . 2 1.3. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.4. Estimated Net Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.5. Closing Balance Sheet; Adjustment to Recapitalization Distribution . . . . . . . . . . . . 5 1.6. Company Stockholders' Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.7. Default by any Company Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY STOCKHOLDERS 9 2.1. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.2. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.3. IKS Subsidiaries; Chinese Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.5. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.6. Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.7. Real Property; Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.8. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.9. KRELP Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.10. Patents, Trademarks, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.11. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.12. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.13. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.14. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.15. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.16. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.17. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.18. Authority; Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.19. Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.20. Products Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.21. Transactions with Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.22. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.23. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(i) 3 ARTICLE III REPRESENTATIONS AND WARRANTIES OF CVC 30 3.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.2. Corporate Power and Authority; Effect of Agreement . . . . . . . . . . . . . . . . . . . . 30 3.3. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.4. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.5. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.6. Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE IV COVENANTS OF COMPANY STOCKHOLDERS 31 4.1. Cooperation by Company Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 4.2. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 4.3. Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 4.4. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 4.5. Estoppel Certificates and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE V COVENANTS OF CVC AND THE HOLDING COMPANY 33 5.1. Cooperation by CVC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.2. Books and Records; Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.3. Change of Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 5.4. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE VI CONDITIONS TO CVC'S OBLIGATIONS 35 6.1. Representations, Warranties and Covenants of Company Stockholders . . . . . . . . . . . . . 35 6.2. No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.3. Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.4. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.5. Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.6. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.7. Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.8. Exchange of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.9. Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.10. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.11. Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 6.12. FIRPTA Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6.13. Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(ii) 4 ARTICLE VII CONDITIONS TO COMPANY STOCKHOLDERS' OBLIGATIONS 38 7.1. Representations, Warranties and Covenants of CVC . . . . . . . . . . . . . . . . . . . . . 38 7.2. No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.3. Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.4. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.5. Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.6. Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.7. Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.8. Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE VIII TERMINATION PRIOR TO CLOSING 40 8.1. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.2. Effect on Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE IX SURVIVAL 41 9.1. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 9.2. General Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 ARTICLE X MISCELLANEOUS 50 10.1. Interpretive Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 10.2. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 10.3. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 10.4. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 10.5. Modification and Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 10.6. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 10.7. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 10.8. Governing Law; Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . 53 10.9. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 10.10. No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 10.11. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(iii) 5 EXHIBITS 1.1-A Restated Charter 1.1-B Debentures 1.3 Escrow Agreement 6.9 Form of Stockholders Agreement DISCLOSURE SCHEDULES 1.2 Company Stockholders; Exchange of Securities 2.1 Capitalization of the Holding Company and IKS 2.2 Organization 2.3 IKS Subsidiaries 2.4 Unaudited Pro Forma Interim Balance Sheet; Disclosed Liabilities 2.5 Changes or Events Since December 31, 1995 2.6 Real Property; Encumbrances 2.7 Real Property; Plant and Equipment 2.8 Leases 2.9 KRELP Property 2.10 Patent and Trademark Rights 2.11 Commitments 2.12 Litigation 2.13 Compliance with Laws 2.14 Environmental Matters 2.15 Employee Benefit Plans 2.16 Tax Matters 2.17 Required Consents 2.19 Employee Relations 2.20 Products Liability 2.21 Transactions with Related Parties 2.22 Insurance 9.2(a)(v) Certain Environmental Matters (iv) 6 DEFINED TERMS
Page Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Arbiter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Canadian Bank Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 CERCLIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Chinese Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Claim Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Claim Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Company Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Company Stockholders' Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Consolidated Net Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 CVC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Defense Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Dispute Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Environmental Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Environmental Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(v) 7 Estimated Net Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Excess Commitment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Foreign Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 German Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Holding Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Holding Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 IKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 IKS Management Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 IKS Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 IKS Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Indemnitee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Indemnitor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 KRELP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 KRELP Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Leased Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Lessor Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Management Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Money Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 NPL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Owned Real Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Owned U.S Real Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Patent and Trademark Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Permitted Fee Title Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Pre-Closing Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Pro Forma Interim Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Recapitalization Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(vi) 8 Remediation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Response Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Restated Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Retained Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Taxing Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Title Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Title Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Title Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 TKC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 TKC Management Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 TKC Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Voluntary Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Warranty Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(vii) 9 AGREEMENT AND PLAN OF RECAPITALIZATION This Agreement and Plan of Recapitalization is made this 17th day of September, 1996, by and among CITICORP VENTURE CAPITAL LTD., a New York corporation ("CVC"), the undersigned stockholders (the "TKC Stockholders") of THE KLINGELNBERG CORPORATION, a Delaware corporation ("TKC" or the "Holding Company"), and the undersigned stockholders (the "Management Stockholders" and, together with the TKC Stockholders, "Company Stockholders") of INTERNATIONAL KNIFE & SAW, INC., a Delaware corporation ("IKS"; and collectively with TKC and the IKS Subsidiaries, the "Companies"), under the following circumstances: A. The Holding Company has issued and outstanding 90,210 shares of its Common Stock (the "Holding Company Stock"), no par value, all of which are owned by the TKC Stockholders. The Holding Company and the Management Stockholders are the owners of all the issued and outstanding capital stock of IKS. Prior to the Closing (as hereinafter defined), the Management Stockholders will exchange all of the issued and outstanding capital stock of IKS not owned by the Holding Company (the "IKS Management Stock") for 2,997.51 shares of Holding Company Stock (the "TKC Management Stock"). B. The Board of Directors of the Holding Company deems it advisable and in the best interest of the Holding Company, and its stockholders, that the Holding Company adopt a plan of recapitalization pursuant to which the Holding Company will amend its certificate of incorporation, the Company Stockholders will exchange shares of common stock of the Holding Company for cash and certain securities of the Holding Company and CVC will purchase certain securities of the Holding Company, all on the terms and conditions set forth herein. C. It is intended that the transactions contemplated hereby be recorded as a recapitalization for financial reporting purposes. NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants, and agreements, and upon the terms and subject to the conditions, hereinafter set forth, the parties do hereby agree as follows: ARTICLE I PLAN OF RECAPITALIZATION 1.1. Amendment of Certificate of Incorporation. On or prior to the Closing Date (as hereinafter defined), the amended and restated certificate of incorporation of 10 the Holding Company in the form attached hereto as Exhibit 1.1-A (the "Restated Charter") shall have been approved and filed with the Secretary of State of the State of Delaware as required by the Delaware General Corporation Law and the issuance by the Holding Company of $12 million principal amount of Junior Subordinated Debentures substantially in the form attached hereto as Exhibit 1.1-B (the "Debentures") shall have been authorized by the Board of Directors of the Holding Company. The Restated Charter shall, among other things, reflect the change of the name of the Holding Company to "IKS Corporation." 1.2. Exchange of Holding Company Stock; Purchase of Securities by CVC. (a) On the Closing Date, after the Restated Charter has become effective, each Company Stockholder shall exchange such Company Stockholder's shares of Holding Company Stock for such Company Stockholder's (i) Aggregate Cash Payment, if any, (ii) shares of Class A Common Stock of the Holding Company ("Class A Stock"), if any, and shares of Preferred Stock of the Holding Company ("Preferred Stock"), if any, and (iii) the principal amount of Debentures, if any, all as set forth on Schedule 1.2, less the product of Estimated Net Debt and such Company Stockholder's Ownership Percentage set forth on Schedule 1.2. Each Company Stockholder's proportionate amount of Estimated Net Debt (i) shall reduce such Company Stockholder's Aggregate Cash Payment and (ii) to the extent such Company Stockholder's proportionate amount of Estimated Net Debt exceeds such Company Stockholder's Aggregate Cash Payment, shall reduce the number of shares of Class A Stock, shares of Preferred Stock and principal amount of Debentures to be received by such Company Stockholder on a pro rata basis based on a purchase price of $10 per share of Class A Stock, $1,000 per share of Preferred Stock and $1 for each $1 principal amount of the Debentures. The Aggregate Cash Payment, Escrow Share (if cash), shares of Class A Stock, shares of Preferred Stock and principal amount of Debentures set forth on Schedule 1.2 for each Company Stockholder is sometimes referred to herein as such Company Stockholder's "Recapitalization Distribution". The aggregate value of the Recapitalization Distribution to be received by Company Stockholders (assuming a value of $10 per share of Class A Stock, $1,000 per share of Preferred Stock and $1 per $1 principal amount of Debentures) in such exchange shall be equal to $110 million less the Estimated Net Debt. In addition to the adjustment described in this Section 1.2(a), the Recapitalization Distribution shall be subject to adjustment after the Closing in the manner provided in Section 1.5. (b) On the Closing Date, after the Restated Charter has become effective, the Holding Company shall sell and CVC shall purchase 49,000 shares of Class A Stock at a purchase price of $10 per share, 7,000 shares of Class B Common Stock of the Holding Company at a purchase price of $10 per share, 10,800 shares of Preferred 2 11 Stock at a purchase price of $1,000 per share and $2,640,000 principal amount of Debentures at a purchase price equal to the principal amount of such Debentures. 1.3. The Closing. (a) The closing of the transactions contemplated hereby (the "Closing") shall take place at the New York offices of Dechert Price & Rhoads, commencing at 9:00 a.m., local time, on October 31, 1996, or at such other time and/or place and/or on such other date as the parties may mutually agree (the "Closing Date"), which, in any event, shall not be later than November 20, 1996. The effective time of the transactions contemplated hereby shall be deemed to be the opening of business on the Closing Date. (b) At the Closing, Company Stockholders shall deliver certificates representing their shares of Holding Company Stock to the Holding Company, duly endorsed for transfer or accompanied by duly executed stock transfer powers, free and clear of all liens, claims, security interests, pledges, charges, equities, options, restrictions and encumbrances of whatever nature and the Holding Company: (i) shall pay to a commercial bank with a minimum capital and surplus of at least $200 million designated prior to Closing by Company Stockholders' Agent, as escrow agent (the "Escrow Agent"), each Company Stockholders' Escrow Share as set forth opposite such Company Stockholder's name on Schedule 1.2 (which equals $4,948,130.06 in aggregate cash and shares of the Class A Stock and, if necessary, shares of the Preferred Stock with an aggregate value of $51,870.15) to hold in escrow pursuant to an Escrow Agreement in the form of Exhibit 1.3 hereto (the "Escrow Agreement") which shall be executed at the Closing by the Holding Company, Company Stockholders and the Escrow Agent, (ii) shall pay to each Company Stockholder the cash to be received by such Company Stockholder pursuant to Section 1.2, by wire transfer of immediately available funds to an account which shall be designated by each such Company Stockholder to the Holding Company at least three business days prior to the Closing Date, and (iii) shall deliver certificates representing the Class A Stock, Preferred Stock and Debentures to be received by such Company Stockholder pursuant to Section 1.2 (less such Company Stockholder's Escrow Share if such Escrow Share is in stock). (c) At the Closing, the Holding Company will deliver to CVC against payment therefor, certificates representing the Class A Stock, Class B Stock, Preferred Stock and Debentures being purchased by CVC pursuant to Section 1.2(b). 1.4. Estimated Net Debt. At least ten (10) days prior to Closing, Company Stockholders' Agent shall deliver to CVC and the Holding Company a good faith estimate of Consolidated Net Debt as of the Closing Date ("Estimated Net Debt") 3 12 accompanied by a certificate of Company Stockholders' Agent setting forth the calculation of Estimated Net Debt, which estimate shall be reasonably satisfactory to CVC. As used in this Agreement, "Consolidated Net Debt" means the excess of Indebtedness over Cash; "Indebtedness" means (a) all indebtedness of any of the Companies for borrowed money, (b) all obligations of any of the Companies for the deferred purchase price of property or services (including the bonus obligations of the Companies described in item (c) on Schedule 2.5 but excluding the bonus obligations of the Companies described in item (g)(15) on Schedule 2.11 and excluding trade payables incurred in the ordinary course of business), (c) all obligations of any of the Companies evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by any of the Companies (even though 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), (e) all obligations of any of the Companies as lessee under leases that have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, (f) all obligations, contingent or otherwise, of any of the Companies under bankers acceptance, letter of credit or similar facilities (other than the standby letter of credit described in item (a)(16) on Schedule 2.11) but excluding documentary letters of credit issued in connection with the purchase of goods in the ordinary course of business, (g) all obligations of any of the Companies to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of any of the Companies or any warrants, rights or options to acquire such capital stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, but excluding any such obligations to Company Stockholders created by this Agreement, (h) all Indebtedness of the type referred to in clauses (a) through (g) above guaranteed directly or indirectly in any manner by any of the Companies, or in effect guaranteed directly or indirectly by any of the Companies through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, (i) all Indebtedness of the type referred to in clauses (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien on property (including, without limitation, accounts and contract rights) owned by any of the Companies, even though such Company has not assumed or become liable for the 4 13 payment of such Indebtedness, but excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue for more than 90 days, or as to which a dispute exists and adequate reserves in conformity with generally accepted accounting principles have been established on the books of the Companies, (j) all accrued but unpaid interest (or interest equivalent) to the date of determination, and all prepayment premiums or penalties, related to any items of Indebtedness of the type referred to in clauses (a) through (i) above; and (k) any obligations of the Companies in respect of legal fees incurred by any of the Companies or the Company Stockholders in connection with the transactions contemplated by this Agreement; provided, however, that Indebtedness shall not include any Indebtedness incurred in connection with the Financing; and "Cash" means (a) cash and cash equivalents available to the Companies for the repayment of Indebtedness, but shall not include customer deposits or cash or cash equivalents subject to other similar restrictions and (b) the amount of refunds due to the Companies on claims for state Tax refunds with respect to state Tax Returns filed prior to the date hereof with any Taxing Authority (which are estimated to total approximately $100,000), to the extent such refunds have not been paid prior to the Closing Date. The aggregate Recapitalization Distribution shall be decreased by the amount of Consolidated Net Debt and the Recapitalization Distribution made to each Company Stockholder at Closing shall be decreased by an amount equal to the product of the Ownership Percentage set forth opposite such Company Stockholder's name on Schedule 1.2 and Estimated Net Debt. 1.5. Closing Balance Sheet; Adjustment to Recapitalization Distribution. (a) Within 60 days after the Closing Date, Company Stockholders shall cause to be prepared and shall deliver to the Holding Company a pro forma consolidated balance sheet of the Holding Company and its consolidated subsidiaries (including IKS) as of the opening of business on the Closing Date (the "Closing Balance Sheet") and an annex (the "Annex") setting forth in reasonable detail the computation of Consolidated Net Debt. The Closing Balance Sheet shall be accompanied by a written report of Ernst & Young, LLP to the effect that the Closing Balance Sheet and the computation of Consolidated Net Debt as shown on the Annex have been prepared in accordance with the requirements of Section 1.4, Section 1.5(b) and Section 1.5(e) of this Article I (the "Auditor's Report"). (b) The Closing Balance Sheet shall be prepared in accordance with generally accepted accounting principles consistently applied; subject, however, to the same exceptions and using the same accounting methods, policies, practices, and procedures (including, without limitation, pro forma adjustments with respect to TKC), with consistent classification, judgments, and estimation methodology, as have been 5 14 used in preparing the Pro Forma Interim Balance Sheet (as defined in Section 2.4) and as are described in the Notes to the Pro Forma Interim Balance Sheet. The Closing Balance Sheet shall not take into account any changes in circumstances or events occurring after the opening of business on the Closing Date. In preparing the Closing Balance Sheet, the respective amounts included for litigation reserves and for any other reserves which were determined for the Pro Forma Interim Balance Sheet by subjective estimates shall not be reduced from the amounts included in the Pro Forma Interim Balance Sheet except to reflect (i) cash payments made subsequent to the date of the Pro Forma Interim Balance Sheet, and (ii) changes in circumstances or events occurring between the date of the Pro Forma Interim Balance Sheet and the Closing Date, but only if such changes either definitively resolve or otherwise conclusively establish the amount of the liability exposure with respect to which the reserve in question has been established. (c) The Closing Balance Sheet delivered by Company Stockholders to the Holding Company and the calculation of Consolidated Net Debt as shown on the Annex shall be conclusive and binding upon the parties unless the Holding Company, within 15 days after receipt of the Closing Balance Sheet, notifies Company Stockholders' Agent (as hereinafter defined) in writing (a "Dispute Notice") that the Holding Company disputes any of the amounts set forth therein, specifying the nature of the dispute and the basis therefor. The parties shall in good faith attempt to resolve any such dispute and, if the dispute is resolved in such manner, the Closing Balance Sheet and Consolidated Net Debt, as modified to the extent necessary to reflect the resolution of the dispute, shall be conclusive and binding upon the parties. If the parties do not reach agreement resolving the dispute within 10 days after the Dispute Notice is given, the parties shall submit the dispute for resolution to a nationally recognized independent accounting firm mutually agreeable to the parties (the "Arbiter") which has not had a material relationship with Company Stockholders, the Holding Company or IKS or any of their respective affiliates within the two years preceding the appointment. If the parties cannot agree on the selection of the independent accounting firm to act as Arbiter, the parties shall request the Cincinnati, Ohio, office of the American Arbitration Association to appoint such a firm, and such appointment shall be conclusive and binding upon the parties. Promptly, but no later than 20 days after it accepts appointment as Arbiter, the Arbiter shall determine, based solely on presentations by the Holding Company and Company Stockholders and their representatives, and not by independent review, only those issues in dispute and shall render a written report as to the dispute and the resulting computation of the Closing Balance Sheet and the calculation of the Consolidated Net Debt which shall be conclusive and binding upon the parties. In resolving any disputed item, the Arbiter: (x) shall be bound by Section 1.4 and Section 1.5(b), and (y) may not assign a value 6 15 to any item greater than the greatest value for such item claimed by either party or less than the smallest value for such item claimed by either party. The fees, costs, and expenses of the Arbiter (i) shall be borne by the Holding Company in the proportion that the aggregate dollar amount of such disputed items so submitted that are unsuccessfully disputed by the Holding Company (as finally determined by the Arbiter) bears to the aggregate dollar amount of such items so submitted and (ii) shall be borne by Company Stockholders in the proportion that the aggregate dollar amount of such disputed items so submitted that are successfully disputed by the Holding Company (as finally determined by the Arbiter) bears to the aggregate dollar amount of such items so submitted. Whether any dispute is resolved by agreement among the parties or by the Arbiter, changes to the Closing Balance Sheet and the Annex shall be made hereunder only for items as to which the Holding Company has taken exception in the Dispute Notice. (d) If Company Stockholders fail for any reason to deliver the Closing Balance Sheet, the Annex or the Auditor's Report as required by Section 1.5(a), the Holding Company may cause the Closing Balance Sheet, the Annex and the Auditor's Report to be prepared and delivered to Company Stockholders, in which case the Auditor's Report shall be prepared by a nationally-recognized independent accounting firm selected by the Holding Company. The Holding Company shall deliver such Closing Balance Sheet and related materials to Company Stockholders' Representative within 120 days after the Closing Date. The provisions of Section 1.5(c) shall apply to such Closing Balance Sheet, with appropriate adjustments to reflect that the Closing Balance Sheet has been prepared by the Holding Company and that Company Stockholders' Agent shall have the right to object thereto. (e) If Estimated Net Debt is greater than Consolidated Net Debt as calculated from the Closing Balance Sheet which has become conclusive and binding on the parties, the Holding Company shall pay the dollar amount of the difference to Company Stockholders, pro rata to each Company Stockholder in proportion to such Company Stockholder's Ownership Percentage as set forth opposite such Company Stockholder's name on Schedule 1.2, in accordance with Section 1.5(f). If Consolidated Net Debt as so calculated is greater than Estimated Net Debt, Company Stockholders shall pay the dollar amount of the difference to the Holding Company in accordance with Section 1.5(f). (f) The amount of any payment due pursuant to Section 1.5(e) shall bear interest at a fluctuating annual rate equal to the Prime Rate (as reported in the Wall Street Journal "Money Rates") from and including the Closing Date to, but not including, the date of payment and shall be paid by wire transfer of immediately 7 16 available funds to an account designated in writing by the Holding Company or Company Stockholders' Agent, as the case may be, on the third business day following (i) the last day on which the Holding Company may give the Dispute Notice pursuant to Section 1.5(c), if a Dispute Notice was not given in a timely manner (or such earlier date as the Holding Company advises Company Stockholders' Representative of the absence of any dispute), or (ii) the date mutual agreement is reached as to the amount of Consolidated Net Debt, if any, in the event of a dispute that is settled by the parties without resort to the Arbiter, or (iii) the receipt of the report of the Arbiter, in the event of a dispute which is settled by the Arbiter. (g) For purposes of complying with the terms of this Section 1.5, each party shall cooperate with and promptly make available to the other party and its auditors and representatives, all information, records, data, auditors' working papers, and access to its personnel; shall permit access to its facilities; and shall permit the other party and its auditors and representatives to make copies of all information, records, data and auditors' working papers, in each case, as reasonably may be required in connection with the preparation and analysis of the Closing Balance Sheet and related materials required by Section 1.5(a) and the resolution of any disputes under this Section 1.5. 1.6. Company Stockholders' Agent. For all purposes of this Agreement, each of the Company Stockholders hereby constitutes and appoints Diether Klingelnberg as his agent ("Company Stockholders' Agent") to perform all acts and to execute and deliver all writings of every kind that may be necessary or appropriate to effectuate the transactions contemplated by this Agreement, and CVC and the Holding Company are hereby expressly authorized and directed to rely fully and completely upon any act or assurance given by said agent in connection herewith. If the above-named agent is unable to serve in such capacity, Arndt Klingelnberg is hereby designated as his successor for all purposes of this Agreement, and if Arndt Klingelnberg is unable to serve or if Diether Klingelnberg so designates in writing, Jan Klingelnberg is hereby designated as his successor for all purposes of this Agreement, and in the event Jan Klingelnberg is unable to serve, his successor shall be designated by a majority of the Company Stockholders (based on their respective Ownership Percentages as set forth opposite their names on Schedule 1.2). 1.7. Default by any Company Stockholder. If any Company Stockholder fails to deliver to the Holding Company at the Closing any of the Stock to be exchanged by such Company Stockholder hereunder, such failure shall not relieve any other Company Stockholder of any obligation hereunder, and the Holding Company may (a) acquire the remaining shares of Stock; or (b) refuse to make such acquisition and thereby terminate 8 17 all of its obligations hereunder, in either case without prejudice to the Holding Company's rights against such defaulting Company Stockholder. ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY STOCKHOLDERS Company Stockholders represent and warrant to CVC and the Companies as follows: 2.1. Capitalization. The authorized, issued and outstanding capital stock of the Holding Company and IKS is set forth on Schedule 2.1 of the disclosure schedules delivered by Company Stockholders to CVC in connection herewith (the "Disclosure Schedules"). The Holding Company Stock is owned of record and beneficially by the Holding Company Stockholders, and the IKS Management Stock is owned of record and beneficially by the Management Stockholders, in each case, free and clear of all liens, security interests, pledges, equities, proxies, claims, charges, rights of first refusal, preemptive rights, restrictions or other encumbrances. The number of shares of Holding Company Stock and IKS Management Stock so owned by each of the Company Stockholders is set forth opposite that Company Stockholder's name on Schedule 1.2 of this Agreement. The number of shares of Holding Company Stock which will be owned of record and beneficially by each Management Stockholder immediately prior to the Closing is set forth opposite that Management Stockholder's name on Schedule 1.2 of this Agreement. All of the issued and outstanding shares of the common stock of IKS (the "IKS Stock") will be owned of record and beneficially by TKC on the Closing Date free and clear of any liens, security interests, pledges, equities, proxies, claims, charges, rights of first refusal, preemptive rights, restrictions or other encumbrances. All of the outstanding Holding Company Stock and IKS Stock is validly issued, fully paid and non-assessable. There are outstanding no securities convertible into, exchangeable for or carrying the right to acquire equity securities of the Holding Company or IKS, or subscriptions, warrants, options, rights, or other arrangements or commitments obligating the Holding Company or IKS to issue or dispose of any of their respective equity securities or any ownership interest therein. The consummation of the transactions contemplated hereby will not cause any liens, security interests, pledges, equities, proxies, claims, charges, rights of first refusal, preemptive rights, restrictions or other encumbrances to be created or suffered to the Holding Company Stock or the IKS Stock, other than liens, security interests, pledges, equities, proxies, claims, charges, rights of first refusal, preemptive rights, restrictions or other encumbrances created or suffered by CVC. 9 18 2.2. Organization. (a) Each of the Holding Company and IKS is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as it now is being conducted. Each of the Holding Company and IKS is duly qualified to do business and is in good standing as a foreign corporation in all jurisdictions listed in Schedule 2.2 of the Disclosure Schedules, which are the only jurisdictions where the nature of the property owned or leased by it or the nature of the business conducted by it makes such qualification necessary and the absence of such qualification would have a material adverse effect on the business, products, competitive position, operations, condition (financial or otherwise), liabilities or assets of the Companies taken as a whole (a "Material Adverse Effect"). True and complete copies of the Certificate of Incorporation, Bylaws, and corporate proceedings of each of the Holding Company and IKS previously have been made available to CVC. (b) Except as otherwise described on Schedule 2.2 of the Disclosure Schedules, TKC is not the successor (by merger or otherwise) to any other corporation or business entity nor has TKC: (i) owned any assets other than the stock of IKS, (ii) incurred any liabilities or obligations whatsoever, except those directly attributable to its ownership of the stock of IKS, or (iii) engaged in any business activities whatsoever, except for the ownership of the stock of IKS. 2.3. IKS Subsidiaries; Chinese Subsidiaries. (a) TKC has no subsidiary other than IKS. Schedule 2.3 of the Disclosure Schedules contains the name and jurisdiction of organization of each person 50% or more of whose stock or other equity interest is owned of record or beneficially by IKS or by any other IKS Subsidiary (such subsidiaries (other than Shanghai IKS Mechanical Blade Co., Ltd. and Shanghai IKS Lida Mechanical Blade Co., Ltd. (the "Chinese Subsidiaries")) are hereinafter referred to as the "IKS Subsidiaries"). Except as set forth in Schedule 2.3 of the Disclosure Schedules, none of the Companies directly or indirectly owns any stock of, or equity interest in, any other corporation or business entity. Except as otherwise set forth on Schedule 2.3 of the Disclosure Schedules: (i) each of the IKS Subsidiaries is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation or organization, has all requisite power and authority to carry on its business as it now is being conducted and is duly qualified to do business and is in good standing in all jurisdictions indicated on such Schedule, which are the only jurisdictions where the nature of the property owned or leased by it or the nature of the business conducted by it makes such qualification necessary, other than such jurisdictions where the absence of such qualification would not have a Material Adverse Effect, (ii) all outstanding capital stock of each IKS Subsidiary is owned by IKS or another IKS Subsidiary and is validly issued, fully paid, and non-assessable, is not subject to 10 19 preemptive rights, and is owned free and clear of all liens, security interests, pledges, equities, proxies, claims, charges, rights of first refusal, preemptive rights, restrictions, encumbrances, easements, covenants, licenses, options or title defects of any kind whatsoever ("Encumbrances"), and (iii) there are outstanding no securities convertible into, exchangeable for, or carrying the right to acquire, equity securities of any of the IKS Subsidiaries or any subscriptions, warrants, options, rights, or other arrangements or commitments obligating any of the IKS Subsidiaries to issue or dispose of any of their respective equity securities or any ownership interest therein. (b) IKS owns 51% of the outstanding capital stock of each of the Chinese Subsidiaries, free and clear of all liens, security interests, pledges, equities, proxies, claims, charges, rights of first refusal, preemptive rights, restrictions or other encumbrances, except as set forth on Schedule 2.3. To the best of the Company Stockholders' knowledge, the rights of IKS Klingelnberg Far East GmbH under the respective Joint Venture Contracts dated September 24, 1995 (listed in item (f) of Schedule 2.11) with respect to the Chinese Subsidiaries are enforceable in accordance with the terms of such agreements. The Chinese Subsidiaries are duly organized, validly existing and, to the best of the Company Stockholders' knowledge, (i) have good title to the assets that they purport to own, (ii) are being operated in accordance with applicable law, and (iii) have obtained all necessary consents, authorizations and approvals. 2.4. Financial Statements. The books of account and related records of each of the Companies fairly reflect in reasonable detail its assets, liabilities and transactions in accordance with generally accepted accounting principles applied on a consistent basis. The audited consolidated balance sheet of IKS as of December 31, 1995 and the related consolidated statements of income and retained earnings and cash flows for the year then ended previously delivered to CVC were prepared in accordance with generally accepted accounting principles (except as otherwise noted therein) and present fairly, in all material respects, the consolidated financial position, results of operations and cash flow of IKS and its consolidated subsidiaries as of such date and for the periods then ended. The unaudited pro forma consolidated balance sheet of TKC as of March 31, 1996 attached hereto as Schedule 2.4 (the "Pro Forma Interim Balance Sheet") was prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as otherwise noted therein) and presents fairly, in all material respects, the financial position of TKC and IKS and their consolidated subsidiaries as of that date; subject, however, to (i) normal year-end adjustments, (ii) the absence of footnotes, and (iii) the pro forma adjustments and other exceptions set forth in Schedule 2.4. None of the Companies has any liability or obligation of any nature, whether due or to become due, absolute, contingent or otherwise, except (a) to 11 20 the extent reflected as a liability on the Pro Forma Interim Balance Sheet, (b) liabilities incurred in the ordinary course of business since the Balance Sheet Date and fully reflected as liabilities on the Company's books of account, and (c) liabilities disclosed on Schedule 2.4. 2.5. Absence of Certain Changes or Events. Except as set forth in Schedule 2.5 of the Disclosure Schedules, as reflected in the Pro Forma Interim Balance Sheet or, as expressly contemplated by this Agreement with respect to the period from the date hereof to the Closing Date, since December 31, 1995, none of the Companies has (a) suffered any damage, destruction, or casualty loss to its physical properties which reasonably could be expected to have a Material Adverse Effect; (b) incurred or discharged any obligation or liability or entered into any other transaction except in the ordinary course of business and except for obligations, liabilities, and transactions that, individually or in the aggregate, reasonably could not be expected to have a Material Adverse Effect; (c) increased the rate or terms of compensation payable or to become payable by any of the Companies to their respective directors, officers or key employees or increased the rate or terms of any bonus, pension, or other employee benefit plan covering any of their respective directors, officers or key employees, except in each case increases occurring in the ordinary course of business in accordance with its customary practices (including normal periodic performance reviews and related compensation and benefit increases) or as required by any pre-existing Commitment (as defined in Section 2.11); (d) made any change in any method of accounting or keeping its books of account or accounting practices or policies; (e) disposed of or failed to keep in effect any rights in, to or for the use of any patent, trademark, service mark, trade name or copyright or disclosed to any person not an employee any trade secret, process or know-how; (f) suffered any loss or experienced any change that has resulted or reasonably could be expected to result in a Material Adverse Effect; (g) declared, set aside or paid any dividend or other distribution in respect of its stock, or directly or indirectly redeemed, purchased or otherwise acquired any such stock or any rights to purchase such stock or any securities convertible into or exchangeable for such stock; (h) experienced any change or, to the best knowledge of Company Stockholders, any threat of any change in any of its relations with, or any loss or, to the best knowledge of Company Stockholders, threat of loss of, any of the suppliers, clients, distributors, customers or employees of any of them, including any loss or change that may result from the transactions contemplated by this Agreement, which, individually or in the aggregate, has had or reasonably could be expected to have a Material Adverse Effect; (i) incurred any indebtedness for borrowed money or granted any Encumbrance; or (j) conducted its business otherwise than in the usual and ordinary course consistent with past practice. 12 21 2.6. Title to Assets. Each of the Companies has good title to all of the respective assets and properties which such Company purports to own (including, without limitation, those reflected on the Pro Forma Interim Balance Sheet, but excluding any such assets and properties sold, consumed, or otherwise disposed of in the ordinary course of business since the date of the Pro Forma Interim Balance Sheet) free and clear of all Encumbrances, except (a) as set forth on Schedule 2.6 of the Disclosure Schedules, (b) liens for taxes not yet due and payable or which are due but are not delinquent or which are being contested in good faith by appropriate proceedings, and (c) minor imperfections of title, none of which, individually or in the aggregate, materially detracts from the value of the affected properties, or materially impairs the use of the affected properties in the manner such properties currently are being used or materially impairs the operations of any of the Companies. Except as set forth on Schedule 2.6 of the Disclosure Schedules, all significant properties and assets used or useful in the operation of the businesses of any of the Companies, including those reflected on the Pro Forma Interim Balance Sheet, are adequate for the purposes for which they are presently used in the conduct of such businesses. 2.7. Real Property; Plant and Equipment. Except as set forth on Schedule 2.7.1. of the Disclosure Schedules, each of the Companies has (and will continue to have immediately following consummation of the transactions contemplated hereby) good, valid, marketable and indefeasible fee simple title to, and are in actual possession of, all the real properties which it purports to own (such real property is collectively referred to herein as the "Owned Real Properties"), including, without limitation, all the real properties reflected in the Pro Forma Interim Balance Sheet, and all the real properties acquired by the Companies since the date of the Pro Forma Interim Balance Sheet, which subsequently acquired real properties are listed on Schedule 2.7.2. of the Disclosure Schedules. The Company Stockholders have delivered to CVC and the Companies complete copies of all title reports and title insurance policies pertaining to the Owned Real Properties that are known by the Company Stockholders, after reasonable inquiry, to exist and are in the possession or control of the Companies. The Company Stockholders have caused to be provided to CVC copies of legal descriptions for each of the Owned Real Properties that are located in the United States of America (collectively, the "Owned U.S Real Properties"). To the best of the knowledge of the Company Stockholders, each of such legal descriptions is accurate, current and complete. The Company Stockholders have delivered to CVC and the Companies complete copies of all surveys pertaining to the Owned Real Properties that are known by the Company Stockholders, after reasonable inquiry, to exist and are in the possession or control of the Companies and, to the best of the knowledge of the Company Stockholders, all such surveys are accurate in all material respects and no changes or improvements have been made to such properties which would be reflected 13 22 in an updated survey. The Owned Real Properties, are, except as disclosed on the title reports, title insurance policies and surveys delivered to CVC and the Companies by the Company Stockholders as provided in this Section 2.7, free and clear of all Encumbrances, including, without limitation, leases, subleases, rights of occupancy, deed restrictions, chattel mortgages, conditional sales contracts, collateral security arrangements and other title or interest retention arrangements, and are not subject to any rights of way, encroachments, building use restrictions, exceptions, variances or reservations of any nature whatsoever except (collectively, "Permitted Fee Title Exceptions"): (a) encumbrances set forth on Schedule 2.7.1. of the Disclosure Schedules, (b) minor imperfections of title, conditions, easements, covenants or restrictions, if any, none of which is substantial in amount and none of which, individually or in the aggregate, materially detracts from the value of the affected property, or impairs the use of the affected property in the manner such property is currently being used, or impairs the operations of any of the Companies, (c) zoning or land use ordinances, none of which, individually or in the aggregate, to the best of the knowledge of the Company Stockholders, materially detracts from the value of the affected property, impairs the use of the affected property in the manner such property is currently being used or impairs the operations of any of the Companies, and (d) liens for taxes not yet due and payable. None of the Companies, has received written notice of any violation of or nonconformity with any zoning, subdivision, wetlands or other similar law, code, rule, regulation or ordinance from any governmental authority with respect to any of the Owned Real Properties, or of any condemnation action, eminent domain proceeding or other litigation concerning any of the Owned Real Properties. Except as set forth on the title policies and reports and surveys delivered to CVC and the Companies by the Company Stockholders as provided in this Section 2.7, to the best of the knowledge of the Company Stockholders, no portion of any of the improvements erected on the Owned Real Properties encroaches on adjoining property or public streets. None of the companies has received any written notice of the existence of any such encroachment not disclosed by the aforesaid title policies and reports and surveys. No portion of any of the Owned Real Properties is or has been subject to an ad valorem tax valuation such that a change in ownership or use (whether now existing or in the future) has caused or will cause additional ad valorem taxes to be imposed upon the Owned Real Properties (other than additional ad valorem taxes attributable to a revaluation of such property made in the normal course as a result of a transfer and based upon the amount of consideration paid for such transfer). The water, gas, electricity and other utilities serving each of the Owned Real Properties have been and are currently adequate to service the normal operation of each of the Owned Real Properties, as conducted in the past and as currently conducted. 14 23 2.8. Leases. (a) Schedule 2.8.1. of the Disclosure Schedules is an accurate and complete list of all leases or rights or occupancy pursuant to which the Companies (or any of them) lease or sublease any real property or interest therein (collectively, the "Leases"). Except as set forth in said Schedule 2.8.1., one or more of the Companies is the lessee under all Leases, and, to the best of the knowledge of the Company Stockholders, no party other than one or more of the Companies has any right to possession, occupancy or use of any of the properties demised under the Leases (the "Leased Real Property"). A true and correct copy of each Lease has been delivered to CVC, together with all amendments and modifications thereto, and all subordination, non-disturbance and/or attornment agreements related thereto, and no changes have been made thereto since the date of delivery. To the best of the knowledge of the Company Stockholders, each of the Leases is valid and in full force and effect and is binding and enforceable in accordance with its terms. Except as set forth in Schedule 2.8.1. of the Disclosure Schedules, there are, to the best of the knowledge of the Company Stockholders, no existing defaults under any provision of any of the Leases, and, to the best of the knowledge of the Company Stockholders, no event has occurred which (with or without notice, lapse of time or both) would constitute a default thereunder. (b) Except as set forth in Schedule 2.8.1. of the Disclosure Schedules, the Companies are in actual possession of the Leased Real Property. Except as set forth in said Schedule 2.8.1., the Companies have good, valid and indefeasible title to all the leasehold estates conveyed under the Leases free and clear of all Liens, including, without limitation, leases, subleases, rights of occupancy, chattel mortgages, conditional sales contracts, deed restrictions, collateral security arrangements and other title or interest retention arrangements, and are not, with respect to the Leased Real Property, subject to any rights of way, building use restrictions, exceptions, variances, reservations or limitations of any nature whatsoever except: (i) as shown on Schedule 2.8.1. of the Disclosure Schedules, (ii) minor imperfections of title, conditions, easements, covenants or restrictions, if any, none of which is substantial in amount, and none of which, individually or in the aggregate, materially detracts from the value of the affected property, or impairs the use of the affected property in the manner such property is currently being used, or impairs the operations of any of the Companies, or materially detracts from the value of such leasehold, (iii) zoning or land use ordinances, none of which, individually or in the aggregate, to the best of the knowledge of the Company Stockholders, materially detracts from the value of the affected property, impairs the use of the affected property in the manner such property is currently being used, impairs the operations of any of the Companies or materially detracts from the value of such leasehold, and (iv) liens for taxes not yet due and payable. None of the Companies, has received written notice of any violation of or 15 24 nonconformity with any zoning, subdivision, wetlands or other similar law, code, rule, regulation or ordinance from any governmental authority with respect to any of the Leased Real Property, or of any condemnation action, eminent domain proceeding or other litigation concerning any of such properties. To the best of the knowledge of the Company Stockholders, except as disclosed on Schedule 2.8.1. of the Disclosure Schedules, no portion of any of the improvements erected by or under the direction of any of the Companies on the Leased Real Property encroaches on adjoining property or public streets, and no portion of any of the Leased Real Property is or has been subject to an ad valorem tax valuation such that a change in ownership or use (whether now existing or in the future) has caused or will cause additional ad valorem taxes to be imposed upon any of the Leased Real Property (other than additional ad valorem taxes attributable to a revaluation of such property made in the normal course as a result of a transfer and based upon the amount of consideration paid for such transfer). (c) Except as set forth in Schedule 2.8.1. of the Disclosure Schedules, the basic rent and all additional rent payable under the Leases have been paid to date and not more than one month in advance. All work required to be performed under the Leases by the landlords thereunder or by the Company have been performed, and, to the extent that any of the Companies is responsible for payment of such work, has been fully paid for, whether directly to the contractor performing such work or to such landlord as reimbursement therefor, except for items which any of the Companies is disputing in good faith (which items are set forth in said Schedule 2.8.1.). (d) Except as set forth on Schedule 2.8.1. of the Disclosure Schedules, there are no brokerage commissions or finder's fees due from the Company Stockholders or any of the Companies which are unpaid with regard to any of the Leases, or which will become due at any time in the future with regard to the Leases. (e) Except as set forth on Schedule 2.8.1. of the Disclosure Schedules, to the best of the knowledge of the Company Stockholders, there have been no casualties which could result in the termination of any Lease or the application of any buy-out provisions contained in any Lease relative to damage by casualty. (f) Except as set forth on Schedule 2.8.2 of the Disclosure Schedules, no consent of the landlords under any of the Leases are required by reason of the transactions contemplated by this Agreement. 2.9. KRELP Property. (a) IKS purchased all of the partnership interests (the "Partnership Interests") in Klingelnberg Real Estate Limited Partnership ("KRELP"). 16 25 In connection with the winding up of KRELP, certain of the Owned Real Properties (the "KRELP Properties") were conveyed by KRELP to IKS. (b) Except as listed on Schedule 2.9 of the Disclosure Schedules, both at the time of the sale of the Partnership Interests and at the time of the conveyance of the KRELP Properties to IKS, there were no creditors of KRELP and KRELP was not indebted to any person. (c) Except as listed on Schedule 2.9 of the Disclosure Schedules, no transfer tax, conveyance fee or similar tax or fee was or will become due and payable in connection with or as a result of: (i) the sale and assignment of the Partnership Interests (or of any of such interests) to IKS, or (ii) the conveyance of the KRELP Properties (or any of them) to IKS. All forms necessary to exempt the conveyance of any of the KRELP Properties from any such tax or fee have been properly and timely completed and filed, and any requested or claimed exemption from any such tax or fee has been granted by the government authority with jurisdiction. 2.10. Patents, Trademarks, Etc. Schedule 2.10 of the Disclosure Schedules sets forth a list of all United States or foreign patents, trademarks, service marks, trade names, copyrights, and applications therefor owned or used by any of the Companies in, and which are material to, the conduct of their respective businesses (the "Patent and Trademark Rights"). Except as set forth on Schedule 2.10 of the Disclosure Schedules: (a) each of the Companies owns or possesses adequate licenses or other valid rights to use all Patent and Trademark Rights and all know-how, trade secrets (including, without limitation, all results of research and development), product formulas, franchises, inventions, rights-to-use and other industrial and intellectual property rights (together with Patent and Trademark Rights, "Intellectual Property"); (b) to Company Stockholders' knowledge, the conduct of the respective businesses of each of the Companies as now being conducted does not conflict with any Intellectual Property of others in any way which reasonably could be expected to have a Material Adverse Effect; (c) no current or former employee of any of the Companies and no other person owns or has any proprietary, financial or other interest, direct or indirect, in whole or in part, and including any rights to royalties or other compensation, in any of the Intellectual Property; (d) there is no agreement or other contractual restriction affecting the use by any of the Companies of any of the Intellectual Property; and (e) no Company Stockholder is aware of any present infringement or misappropriation of any of the Intellectual Property by any person, and none of the Companies nor any Company Stockholder has asserted or threatened any claim or objection against any person for any such infringement or misappropriation nor, to the best of Company Stockholders' knowledge, is there any basis in fact for any such objection or claim. 17 26 2.11. Commitments. Schedule 2.11 of the Disclosure Schedules contains a list of each contract or agreement (including any and all amendments thereto) to which any of the Companies is a party or by which any of the Companies is bound and which (a) involves the receipt or expenditure of $100,000 or more; (b) involves the sale of any product or service to a governmental or a regulatory body; (c) limits or restrains any of the Companies from engaging or competing in any lines of business or requires any of them to engage in any new line of business; (d) creates or recognizes any Encumbrances with respect to any assets; (e) relates to the borrowing of money or to any guarantee of, or any undertaking in connection with, the borrowing of money by any other person; (f) involves any joint venture, partnership or similar contractual arrangement; (g) involves any commitment to any present or former shareholder, director, officer, employee, partner or consultant of any of the Companies, or with any affiliate of any of the foregoing; (h) permits or requires any of the Companies to acquire legal or beneficial title to any real property; or (i) involves the granting of any power-of-attorney to any person (collectively, the "Commitments"). Except as set forth in Schedule 2.11 of the Disclosure Schedules, none of the Companies is in default under any of the Commitments, which default has a Material Adverse Effect. 2.12. Litigation. Except as set forth in Schedule 2.12 of the Disclosure Schedules, there is no action or proceeding in any court or before any governmental authority ("Litigation") pending or, to Company Stockholders' knowledge, threatened against Company Stockholders or any of the Companies. Except as set forth in Schedule 2.12 of the Disclosure Schedules, none of the Companies is subject to any outstanding orders, rulings, judgments or decrees that (a) reasonably could be expected to have a Material Adverse Effect; or (b) affect the validity of this Agreement or its enforceability against Company Stockholders or the Holding Company, consummation by Company Stockholders or the Holding Company of the transactions contemplated by this Agreement or compliance by Company Stockholders or the Holding Company with the terms of this Agreement. 2.13. Compliance with Laws. Except as set forth in Schedule 2.13 of the Disclosure Schedules and except for any and all Environmental Matters (as defined in Section 2.14), each of the Companies is in compliance with all applicable laws, rules and regulations currently in effect except where the failure to comply therewith reasonably could not be expected to have a Material Adverse Effect. Each of the Companies has all governmental permits, licenses, and authorizations necessary for the conduct of its respective businesses as presently conducted, except as set forth in Schedule 2.13 and except for such other permits, licenses and authorizations the absence of which reasonably could not be expected to have a Material Adverse Effect. Except as set forth in Schedule 2.13 of the Disclosure Schedules, no notice, citation, 18 27 summons or order has been issued, no complaint has been filed and served, no penalty has been assessed and notice thereof given, and to the best knowledge of Company Stockholders, no investigation or review is pending or threatened with respect to any of the Companies, by any governmental authority with respect to any alleged (a) violation by any of the Companies of any law, ordinance, rule, regulation or order; or (b) failure by any of the Companies to have any permit, license or authorization required in connection with the conduct of or otherwise applicable to the businesses conducted by them. 2.14. Environmental Matters. (a) As used in this Agreement, "Hazardous Material" means any hazardous, toxic or polluting substance, waste or contaminant including, without limitation: (i) any "hazardous substance", as defined as of the Closing pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. Section 9601(14); (ii) any "pollutant or contaminant", as defined as of the Closing in 42 U.S.C. Section 9601(33); (iii) any material defined as of the Closing as "hazardous waste" pursuant to 40 C.F.R. pt. 261; (iv) any petroleum, including crude oil and any fraction thereof; (v) any "hazardous chemical" as defined as of the Closing pursuant to 29 C.F.R. pt. 1910; (vii) any polychlorinated biphenyls or isomer of dioxin, or any material or thing containing or composed of such substance or substances; and (viii) any other substance, waste or contaminant defined by or regulated under any other applicable foreign, state or local Environmental Laws (as hereinafter defined). (b) As used in this Agreement, "Released" means released, spilled, leaked, discharged, disposed of, pumped, poured, emitted, emptied, injected, leached, dumped or allowed to escape or threat thereof. (c) Except as set forth on Schedule 2.14 of the Disclosure Schedules, no real property interest owned or leased by any of the Companies or any of their predecessors has been used by any of the Companies, IKS or any of the IKS Subsidiaries or, to the knowledge of Company Stockholders, by any other party for the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Hazardous Material in violation of or which has resulted in a condition which requires Remediation (as hereinafter defined) under applicable Environmental Laws (as hereinafter defined) where such could have a Material Adverse Effect. (d) To the knowledge of Company Stockholders, except as set forth on Schedule 2.14 of the Disclosure Schedules, the Companies are in compliance in all respects with all Environmental Laws and possess and are in compliance in all respects with all permits, licenses, certificates, franchises and other authorizations which are 19 28 required under the Environmental Laws to conduct their respective businesses ("Environmental Permits") except where such noncompliance or the failure to have an Environmental Permit would not have a Material Adverse Effect. To the knowledge of Company Stockholders, all such permits, licenses, certificates, franchises and other authorizations are in full force and effect and are listed on Schedule 2.11. (e) Except as set forth on Schedule 2.14 of the Disclosure Schedules, no claims have been made against any of the Companies during the past five years under the Environmental Laws (except claims which have been resolved without fines or penalties or without the incurrence of any obligations to perform or pay money which could have a Material Adverse Effect), no such claims have been made prior to the past five years which are unresolved, and no presently outstanding citations, notices, summons or orders have been entered or issued against any of the Companies under the Environmental Laws where such citation, notice, summons or order could have a Material Adverse Effect. None of the Companies has been or is subject to any civil, criminal, or administrative action, suit, claim, hearing, notice of violation, investigation, inquiry, or proceeding for failure to comply with, or received notice of any violation or potential liability (including, without limitation, any request for information) under the Environmental Laws where such could have a Material Adverse Effect. (f) Schedule 2.11 identifies all active or, to the knowledge of the Company Stockholders, inactive or closed underground storage tanks on any real property owned or leased by the Holding Company, IKS or any of the IKS Subsidiaries. To the knowledge of Company Stockholders, except as set forth on Schedule 2.11 of the Disclosure Schedules, all underground storage tanks on any real property owned or leased by any of the Companies which have been closed, abandoned or removed were done so in accordance with applicable laws and regulations at the time of such closure. (g) Company Stockholders have made available to CVC copies of the final results of any reports, studies, audits, assessments, analyses, tests, or monitoring available to or in the possession or control of or initiated by any of the Companies with respect to the existence, Management or exposure to Hazardous Material on and any other environmental concerns relating to, any real property owned or leased by them or their predecessors or any activities of the Companies or their predecessors. (h) Except as set forth on Schedule 2.14, to the knowledge of Company Stockholders, no Hazardous Materials Managed by or on behalf of the Holding Company, IKS or any of the IKS Subsidiaries or any of their predecessors has come to be located at any site which is listed or proposed for listing on the National Priorities 20 29 List under CERCLA ("NPL"), the Comprehensive Environmental Response, Compensation and Liability Information System ("CERCLIS"), the Oil Pollution Act of 1990 or any similar foreign, federal, state or local list of sites requiring investigation, remediation or other response action ("Remediation") or which is the subject of foreign, federal, state or local enforcement actions or other investigations which the Company Stockholders believe are reasonably likely to lead to claims against the Holding Company, IKS, any of the IKS Subsidiaries or Buyer for the cost of or liability for Remediation, damages to natural resources or for personal injury claims, including, but not limited to, claims under CERCLA or other similar Environmental Laws. (i) The only representations and warranties of Company Stockholders in this Agreement as to any Environmental Matters are those contained in this Section 2.14. As used herein, "Environmental Matters" means any matter arising out of or relating to the environment, pollution, safety, health, or sanitation or the production, treatment, storage, handling, use, generation, exposure to or Release ("Management" or "Manage") of any Hazardous Material. 2.15. Employee Benefit Plans. (a) Schedule 2.15(a) of the Disclosure Schedules lists all "employee benefit plans," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and all pension, retirement, supplemental retirement, stock, stock option, basic and supplemental accidental death and dismemberment, basic and supplemental life and health insurance, dental, vision, savings, bonus, deferred compensation, incentive compensation, business travel and accident, holiday, vacation, severance pay, salary continuation, sick pay, sick leave, short and long term disability, tuition refund, service award, company car, scholarship, relocation, patent award, fringe benefit and other employee benefit arrangements, plans, contracts, policies, or practices maintained, contributed to, or required to be contributed by any of the Companies or any ERISA Affiliate (as hereinafter defined) (or with respect to which any of the Companies or any ERISA Affiliate may have any liability) within the United States (the "Benefit Plans"). For purposes of this Section 2.15, the term "ERISA Affiliate" means (i) any corporation included with any of the Companies in a controlled group of corporations within the meaning of Section 414(b) of the Code; (ii) any trade or business (whether or not incorporated) which is under common control with any of the Companies within the meaning of Section 414(c) of the Code; (iii) any member of an affiliated service group of which any of the Companies is a member within the meaning of Section 414(m) of the Code; or (iv) any other person or entity treated as an affiliate of any of the Companies under Section 414(o) of the Code. 21 30 (b) As applicable, with respect to each of the Benefit Plans, true and complete copies of (i) all plan documents (including all amendments and modifications thereof) and in the case of an unwritten Benefit Plan, a written description thereof, and in either case all related agreements including, without limitation the trust agreement and amendments thereto, insurance contracts, and investment management agreements; (ii) the last three filed Form 5500 series and all Schedules thereto, as applicable; (iii) the current summary plan descriptions and all material modifications thereto; (iv) the three most recent auditor's reports, annual reports, actuarial reports, financial statements and trustee reports; and (v) copies of any private letter rulings, requests and applications for determination and determination letters issued with respect to the Benefit Plans within the past five years have been delivered to CVC. (c) Each Company and each ERISA Affiliate are in compliance in all material respects with the provisions of ERISA and the Code applicable to the Benefit Plans. Each Benefit Plan has been maintained, operated and administered in compliance in all material respects with its terms and any related documents or agreements and the applicable provisions of ERISA and the Code. (d) No Benefit Plan is (or at any time has been) subject to Title IV of ERISA and no Benefit Plan is (or at any time has been) a "multiemployer plan" as defined in Section 3(37) of ERISA. (e) The Klingelnberg Corporation 401(k) Retirement Plan and Trust and the International Knife & Saw, Inc. Profit Sharing Plan and Trust are the only Benefit Plans which are "employee pension benefit plans" within the meaning of Section 3(2) of ERISA and which are intended to meet the qualification requirements of Section 401(a) of the Code (each a "Pension Plan"). Each Pension Plan meets the qualification requirements of Section 401(a) of the Code and each related trust is exempt from taxation under Section 501(a) of the Code. (f) Each Pension Plan has received determination letters from the IRS to the effect that such Pension Plans are qualified and the related trust are exempt from federal income taxes and no determination letter with respect to any Pension Plan has been revoked nor, is there any reason for such revocation, nor has any Pension Plan been amended since the date of its most recent determination letter in any respect which would adversely affect its qualification. (g) There are no pending audits or investigations by any governmental agency involving the Benefit Plans, and no threatened or pending claims (except for individual claims for benefits payable in the normal operation of the Benefit Plans), 22 31 suits or proceedings involving any Benefit Plan, any fiduciary thereof or service provider thereto, nor to the knowledge of the Company Stockholders is there any reasonable basis for any such claim, suit or proceeding. (h) None of the Companies nor any ERISA Affiliate, employee of any of the Companies or any ERISA Affiliate, or any Company Stockholder has engaged in a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code, nor has any such person breached any duty imposed by Title I of ERISA, with respect to any Benefit Plan. To the knowledge of Company Stockholders, no other person has engaged in such a prohibited transaction or breach. (i) Any insurance premium under any insurance policy related to a Benefit Plan for any period up to and including the Closing Date shall have been paid, or accrued and booked on or before the Closing Date, and, with respect to any such insurance policy or premium payment obligation, none of the Companies shall be subject to a retroactive rate adjustment, loss sharing arrangement or other actual or contingent liability. (j) With respect to each Benefit Plan that is a "group health plan" within the meaning of Section 607 of ERISA and that is subject to Section 4980B of the Code, the Companies and each ERISA Affiliate comply in all material respects with the continuation coverage requirements of the Code and ERISA. (k) Except as set forth in Schedule 2.5(k) of the Disclosure Schedules, no Benefit Plan provides benefits, including, without limitation, death or medical benefits, beyond termination of service or retirement other than (i) coverage mandated by law or (ii) death or retirement benefits under a Benefit Plan qualified under Section 401(a) of the Code. (l) The execution of, and performance of the transactions contemplated by this Agreement will not constitute an event under any Benefit Plan that will result in any payment (whether as severance pay or otherwise), acceleration, vesting or increase in benefits with respect to any employee. No Benefit Plan provides for "parachute payments" within the meaning of Section 280G of the Code. (m) Schedule 2.15(m) of the Disclosure Schedules lists all pension, profit sharing, retirement, supplemental retirement, stock, stock option, basic and supplemental accidental death and dismemberment, basic and supplemental life and health insurance, welfare, dental, vision, savings, bonus, deferred compensation, incentive compensation, business travel and accident, holiday, vacation, severance pay, 23 32 salary continuation, sick pay, sick leave, short and long term disability, tuition refund, service award, company car, scholarship, relocation, patent award, fringe benefit and other employee benefit arrangements, plans, contracts, policies or practices maintained, contributed to, or required to be contributed to by any of the Companies or any ERISA Affiliate (or with respect to which any of the Companies or any ERISA Affiliate may have any liability) outside the United States (the "Foreign Plans"). (n) A true and complete copy of each Foreign Plan including all amendments and modifications thereof (and in the case of an unwritten Foreign Plan, a written description thereof) together with all related agreements including, without limitation, trust agreements, insurance contracts and investment management agreements have been delivered to CVC. (o) Each Foreign Plan has been maintained, operated and administered in compliance in all material respects with its terms and any related documents or agreements and with all applicable laws. 2.16. Taxes. (a) Except as set forth in Schedule 2.16 of the Disclosure Schedules, each of the Companies has timely filed with the appropriate federal, state, local, and foreign governmental entity or other authority (individually or collectively, "Taxing Authority") all Tax Returns (as defined in Section 2.16(b)) required to be filed and has timely paid in full all Taxes (as defined in Section 2.16(b)), if any, shown to be due on such Tax Returns and all other Taxes for which a notice of assessment or demand for payment has been received. All Tax Returns are true, correct and complete; have been prepared in accordance with all applicable laws and requirements; and accurately reflect the taxable income (or other measure of tax) of the corporation filing the tax return. There are no liens for Taxes upon any of the Companies or their respective assets, except liens for current Taxes not yet due. Except as set forth on Schedule 2.16 of the Disclosure Schedules, none of the Companies has granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Taxes. (b) As used in this Agreement: (i) "Tax" means any of the Taxes and "Taxes" means all income taxes (including any tax on or based upon net income, or gross income, or income as specially defined, or earnings, or profits, or selected items of income, earnings, or profits) and all gross receipts, estimated, sales, use, ad valorem, transfer, franchise, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, or windfall profit taxes, environment, alternative, or add-on minimum taxes, custom duties or other taxes, fees, assessments, or charges of any kind whatsoever, together with any interest and any 24 33 penalties, additions to tax or additional amounts imposed by any Taxing Authority on any of the Companies, and (ii) "Tax Return" means any return, report, information return or other document (including any related or supporting information) filed or required to be filed with any Taxing Authority or other authority in connection with the determination, assessment, or collection of any Tax paid or payable by any of the Companies or the administration of any laws, regulations, or administrative requirements relating to any such Tax. (c) Except as set forth on Schedule 2.16 of the Disclosure Schedules, there is no action, suit, proceeding, investigation, audit, claim, assessment or judgment now pending against any of the Companies in respect of any Tax, and no notification of an intention to examine has been received from any Taxing Authority. (d) None of the Companies is a party to any agreement, contract, arrangement or plan that would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code. (e) Except as set forth on Schedule 2.16 of the Disclosure Schedules, none of the Companies nor any predecessor thereto by way of merger, liquidation or similar transaction: (i) has been a member of an affiliated group of corporations (as defined in Section 1504(a) of the Code) other than the group in which the Holding Company is the common parent or (ii) has filed or been required to file or been included in a combined, consolidated, or unitary federal, state, local or foreign income tax return other than with the Holding Company or a member of the affiliated group of the Holding Company. There is no agreement or arrangement with any person or entity pursuant to which any of the Companies would have an obligation with respect to Taxes of another person or entity following the Closing. (f) The accruals for Taxes contained in the Pro Forma Interim Balance Sheet are adequate to cover all liabilities for Taxes of each of the Companies for all periods ending on or before March 31, 1996 (include adequate provision for all deferred Taxes) and nothing has occurred subsequent to March 31, 1996 to make any of such accruals inadequate. Each of the Companies has on a timely basis filed all information returns or reports, including Forms 1099, that are required to be filed and has accurately reported all information required to be included on such returns or reports. (g) True copies of federal, state and foreign income Tax Returns of the Holding Company, IKS and each of the IKS Subsidiaries for each of the fiscal years ending December 31, 1990 through December 31, 1995 have been delivered or made 25 34 available to CVC. Except as disclosed on Schedule 2.16 of the Disclosure Schedules, each Tax Return of each of the Companies has been audited by the relevant Taxing Authority (and all deficiencies or proposed deficiencies resulting from such audits have been paid or are adequately provided for in the Closing Balance Sheet), or the statute of limitations with respect to each Tax Return has expired. No claim has been made by a Taxing Authority in a jurisdiction where any of the Companies does not file Tax Returns that any of the Companies is or may be subject to taxation by that jurisdiction. (h) Except as disclosed on Schedule 2.16 of the Disclosure Schedules, none of the Companies has ever (a) filed any consent agreement under Section 341(f) of the Code, (b) been the subject of a Tax ruling that has continuing effect, (c) been the subject of a closing agreement with any Taxing Authority that has continuing effect, (d) filed or been the subject of an election under Section 338(g) or Section 338(h)(10) of the Code or caused or been the subject of a deemed election under Section 338(e) thereof or (e) granted a power of attorney with respect to any Tax matters that has continuing effect. None of the Companies has agreed to make, nor is any one of them required to make, any adjustment under Section 481 of the Code. (i) Except as disclosed on Schedule 2.16 of the Disclosure Schedules, none of the Companies owns any interest in an entity characterized as a partnership for federal income tax purposes. 2.17. Consents. Except as set forth on Schedule 2.17 of the Disclosure Schedules and those that may be required solely by reason of CVC's (as opposed to any third party's) participation in the transactions contemplated hereby, no consent, approval, or authorization of, or exemption by, or filing with, any governmental authority (including, without limitation, under Environmental Laws) is required to be obtained or made by Company Stockholders or any of the Companies in connection with the execution, delivery, and performance by Company Stockholders or any of the Companies of this Agreement or the taking by Company Stockholders or any of the Companies of any other action contemplated hereby or the continuation by any of the Companies immediately after the Closing of the businesses conducted by them prior to the Closing. 2.18. Authority; Effect of Agreement. The execution, delivery and performance by the Holding Company of this Agreement and the consummation by the Holding Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Holding Company. This Agreement has been duly and validly executed and delivered by the Holding Company and the Company Stockholders and constitutes the valid and binding obligation of each of them, 26 35 enforceable against each of them in accordance with its terms. The execution, delivery and performance by the Holding Company and the Company Stockholders of this Agreement and the consummation by the Holding Company and the Company Stockholders of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, or both, (w) violate any provision of law, rule, or regulation to which any Company Stockholder or any of the Companies is subject, (x) violate any order, judgment, or decree applicable to any Company Stockholder or any of the Companies, (y) violate any provision of any of the charter documents of any of the Companies, (z) violate or result in a breach of or constitute a default (or an event which might, with the passage of time or the giving of notice, or both, constitute a default) under, or require the consent of any third party under, or result in or permit the termination or amendment of any provision of, or result in or permit the acceleration of the maturity or cancellation of performance of any obligation under, or result in the creation or imposition of any Encumbrance of any nature whatsoever upon any assets or property or give to others any interests or rights therein under any indenture, deed of trust, mortgage, loan or credit agreement, license, permit, contract, lease, or other agreement, instrument or commitment to which any Company Stockholder or any of the Companies is a party or by which any of them may be bound or affected, except for any such violations that in the aggregate would not materially hinder or impair the consummation of the transactions contemplated hereby and would not have a Material Adverse Effect. 2.19. Employee Relations. (a) Except as disclosed in Schedule 2.19 of the Disclosure Schedules, none of the Companies is: (i) a party to or otherwise bound by any collective bargaining or other type of union agreement; (ii) a party to, involved in or, to the knowledge of Company Stockholders, threatened by, any labor dispute or unfair labor practice charge; or (iii) currently negotiating any collective bargaining agreement, and none of the Companies has experienced any work stoppage during the last three years. (b) Each of the Companies is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practice. Except as disclosed on Schedule 2.19 of the Disclosure Schedules, there are no outstanding claims against any of the Companies (whether under regulation, contract, policy or otherwise) asserted by or on behalf of any present or former employee or job applicant of such company on account of or for (i) overtime pay, other than overtime pay for work done in the current payroll period, (ii) wages or salary for a period other than the current payroll period, (iii) any amount of vacation pay or pay in lieu of vacation time off, other than vacation time off or pay in lieu thereof earned in or in respect of the current 27 36 fiscal year, (iv) any amount of severance pay or similar benefits, (v) unemployment insurance benefits, (vi) workers' compensation or disability benefits, (vii) any violation of any statute, ordinance, order, rule or regulation relating to plant closings, employment terminations or layoffs, including but not limited to The Workers Adjustment and Retraining Act, (viii) any violation of any statute, ordinance, order, rule or regulation relating to employee "whistleblower" or "right-to-know" rights and protections, (ix) any violation of any statute, ordinance, order, rule or regulations relating to the employment obligations of federal contractors or subcontractors or (x) any violation of any regulation relating to minimum wages or maximum hours of work, and no Company Stockholder is aware of any such claims which have not been asserted. No person (including any governmental body) has asserted or threatened any claims against any of the Companies under or arising out of any regulation relating to discrimination or occupational safety in employment or employment practices. 2.20. Products Liability. Except as disclosed on Schedule 2.20 of the Disclosure Schedules, there are no: (i) liabilities of any of the Companies, fixed or contingent, asserted or, to the best knowledge of any Company Stockholder, unasserted, with respect to any product liability or any similar claim that relates to any product manufactured by any of the Companies on or prior to the Closing Date; or (ii) liabilities of any of the Companies, fixed or contingent, asserted or, to the best knowledge of any Company Stockholder, unasserted, with respect to any claim for the breach of any express or implied product warranty or any other similar claim with respect to any product manufactured by any of the Companies on or prior to the Closing Date, other than standard warranty obligations (to replace, repair or refund) in the ordinary course of the conduct of the businesses of the Companies, none of which individually involves a claim for money, property or services in excess of $5,000.00. 2.21. Transactions with Related Parties. Except as described in Schedule 2.21 of the Disclosure Schedules, since December 31, 1995, no Company Stockholder or other affiliate (which as used in this Agreement means any person who controls, is controlled by or is under common control with the specified person and any member of the specified person's immediate family) of any of the Companies or any Company Stockholder has or has had: (a) borrowed money from or loaned money to any of the Companies for the benefit of their businesses other than loans among the Companies in the ordinary course of business; (b) any contractual or other claims, express or implied, or of any kind whatsoever against any of the Companies; 28 37 (c) any interest in any property or assets used by any of the Companies; (d) engaged in any other transaction with any of the Companies (other than employment relationships at the salaries disclosed in the Disclosure Schedules). 2.22. Insurance. Schedule 2.22 of the Disclosure Schedules contains a complete and correct list of all policies and contracts for property and casualty insurance of which any of the Companies is the owner, insured or beneficiary, or covering any of their respective properties. Schedule 2.22 of the Disclosure Schedules contains a list of any pending claims under the respective insurance policies listed thereon. All such policies are outstanding and in full force and effect. There is no default with respect to any provision contained in any such policy, nor has there been any failure to give any notice or present any claim under any such policy in a timely fashion or in the manner or detail required by the policy. Except as set forth on Schedule 2.22 of the Disclosure Schedules: (a) all of such coverages are provided on an "occurrence" (as opposed to "claims made") basis; (b) there are no outstanding claims under such policies; (c) there are no premiums or claims due under such policies which remain unpaid; (d) in the past two years, no notice of cancellation or non-renewal with respect to, or disallowance (other than reservation of rights by the insurer) of any material claim under, any such policy has been received; and (e) none of the Companies has been refused any property and casualty insurance, nor have any of their respective coverages been limited by any insurance carrier to which any of them has applied for insurance or with which any of them has carried insurance during the last two years. 2.23. Brokers. Other than Schroder Wertheim & Co. Incorporated (whose fees will be paid by Company Stockholders), Company Stockholders have retained no broker, finder or investment banking firm to act on their behalf in connection with the transactions contemplated by this Agreement and, to Company Stockholders' knowledge, no other corporation, firm, or person is entitled to receive any brokerage commission, finder's fee or other similar compensation in connection with the transactions contemplated by this Agreement, except as otherwise described in Section 3.6. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, COMPANY STOCKHOLDERS MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE HOLDING COMPANY, IKS OR ANY OR THE IKS SUBSIDIARIES OR THE ASSETS OR PROPERTIES OF ANY OF THEM OR OTHERWISE IN CONNECTION WITH THE SALE OF SECURITIES OR THE OTHER TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. 29 38 ARTICLE III REPRESENTATIONS AND WARRANTIES OF CVC CVC hereby represents and warrants to Company Stockholders as follows: 3.1. Organization. CVC is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation, and has all requisite corporate power and authority to carry on its business as it is now being conducted, and to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby. 3.2. Corporate Power and Authority; Effect of Agreement. The execution, delivery, and performance by CVC of this Agreement and the consummation by CVC of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of CVC. This Agreement has been duly and validly executed and delivered by CVC and constitutes the valid and binding obligation of CVC, enforceable against CVC in accordance with its terms. The execution, delivery, and performance by CVC of this Agreement and the consummation by CVC of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, or both, (i) violate any provision of law, rule, or regulation to which CVC is subject, (ii) violate any order, judgment, or decree applicable to CVC or (iii) violate any provision of the charter or the by-laws or regulations of CVC; except, in each case, for violations that in the aggregate would not materially hinder or impair the consummation of the transactions contemplated hereby. 3.3. Consents. No consent, approval, or authorization of, or exemption by, or filing with, any governmental authority is required to be obtained or made by CVC in connection with the execution, delivery and performance by CVC of this Agreement or the taking by CVC of any other action contemplated hereby. No statute, rule or regulation, or order of any court or administrative agency prohibits CVC from consummating the transactions contemplated hereby. 3.4. Litigation. There is no Litigation pending or, to the knowledge of CVC, threatened (i) against CVC or any of its affiliates with respect to which there is a reasonable likelihood of a determination that would have a material adverse effect on the ability of CVC to perform its obligations under this Agreement, or (ii) that seeks to enjoin or obtain damages in respect of the consummation of the transactions contemplated hereby. Neither CVC nor any of its affiliates is subject to any 30 39 outstanding orders, rulings, judgments, or decrees that would have a material adverse effect on the ability of CVC to perform its obligations under this Agreement. 3.5. Brokers. CVC has retained no broker, finder or investment banking firm to act on its behalf in connection with the transactions contemplated by this Agreement and, to CVC's knowledge, no other corporation, firm or person is entitled to receive any brokerage commission, finder's fee or other similar compensation in connection with the transactions contemplated by this Agreement, except as otherwise described in Section 2.19. 3.6. Purchase for Investment. CVC is purchasing the securities being purchased by it pursuant to Section 1.2(b) for investment and not with a view to any public resale or other distribution thereof, except in compliance with applicable securities laws. CVC hereby acknowledges receipt of the Disclosure Schedules referred to in this Agreement. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, CVC MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IN CONNECTION WITH THE PURCHASE OF SECURITIES OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. ARTICLE IV COVENANTS OF COMPANY STOCKHOLDERS Company Stockholders hereby covenant and agree with CVC and the Companies as follows: 4.1. Cooperation by Company Stockholders. From the date hereof and prior to the Closing, Company Stockholders will use their reasonable efforts, and will cooperate with CVC, to secure all necessary consents, approvals, authorizations, exemptions, and waivers from third parties (including any required pursuant to the Hart-Scott-Rodino Antitrust Improvements act of 1974, as amended (the "HSR Act"), German Act Against Restraints of Competition (Gesetz gegen Wettbewerbsbeschrankungen) (the "German Act") and the Canadian Bank Act ("Canadian Bank Act") as shall be required in order to enable the Holding Company and Company Stockholders to effect the transactions contemplated hereby, and will otherwise use their reasonable efforts to cause the consummation of such transactions, in accordance with the terms and conditions hereof. 31 40 4.2. Conduct of Business. Except as expressly contemplated by this Agreement or the Disclosure Schedules or except as CVC otherwise may consent to in writing (which consent shall not be unreasonably withheld), from the date hereof and prior to the Closing, Company Stockholders shall cause the Companies: (A) to (i) in all material respects, operate their respective businesses only in the ordinary course; (ii) use all reasonable efforts to preserve intact their respective business organizations; (iii) maintain their respective properties, machinery, and equipment in sufficient operating condition and repair to enable them to operate their respective businesses in all material respects in the manner in which the businesses are currently operated, except for maintenance required by reason of fire, flood, earthquake, or other acts of God; (iv) use all reasonable efforts to continue all material existing insurance policies (or comparable insurance) in full force and effect; (v) use all reasonable efforts to keep available until the Closing the services of their respective present officers, key employees, and key agents; and (vi) use all reasonable efforts to preserve their relationships with their respective material lenders, suppliers, customers, licensors, and licensees such that their respective businesses will not be materially impaired; and (B) not to (i) issue, sell or otherwise dispose of any of its capital stock, or create, sell or otherwise dispose of any options, rights, conversion rights or other agreements or commitments of any kind relating to the issuance, sale or disposition of any of its capital stock; (ii) reclassify, split up or otherwise change its capital stock; (iii) amend any of its charter documents or bylaws; (iv) be a party to a merger, consolidation or other business combination; (v) sell, lease, license or otherwise dispose of any of its assets, except in the ordinary course of business; (vi) organize any subsidiary or acquire any equity securities of any person or any equity or ownership interest in any business; (vii) enter into any agreement that materially restricts any of the Companies from carrying on the businesses currently conducted by it; (viii) cancel any material debts of others or waive any material claims or rights; or (ix) take or omit to take any action which if taken or omitted prior to the date hereof would constitute or result in a breach of any representations and warranties contained in Article II of this Agreement; provided, however, that nothing in this Section 4.2 shall prohibit the repayment by Edward J. Brent of his loans from IKS in the approximate amount of $135,000.00 and the purchase for $1 by Diether Klingelnberg of the accounts receivable in the approximate amount of $40,000 due to the Holding Company from Lamont Gear. 4.3. Access. From the date hereof and prior to the Closing, Company Stockholders shall provide CVC with such information as CVC from time to time reasonably may request with respect to the Companies and shall cause the Companies to provide CVC and its representatives such reasonable access during regular business hours and upon reasonable notice to their respective properties, books and records as CVC from time to time reasonably may request. All such information and access shall 32 41 be subject to the terms and conditions of the letter agreements dated April 23, 1996 and August 22, 1996 (collectively, the "Confidentiality Agreement"). 4.4. Resignations. At the Closing, Company Stockholders will cause to be delivered to the Holding Company written resignations of each officer or director of the Companies as to which such resignation has been requested by CVC. 4.5. Estoppel Certificates and Consents. Immediately upon its execution of this Agreement, the Holding Company and the Company Stockholders shall cause the Companies to exercise their commercially reasonable efforts to obtain and deliver to CVC at the Closing (a) estoppel certificates and lessor waivers (such consents not to be conditioned on any increased rental, other payment, reduced term, or other change of lease terms), in a form acceptable to CVC (the "Estoppel Certificates"), from each real property lessor listed on Schedule 2.8.1 of the Disclosure Schedules and (b) landlord consents in a form acceptable to CVC from each real property lessor set forth on Schedule 2.8.2 of the Disclosure Schedules (the "Lessor Consents"). ARTICLE V COVENANTS OF CVC AND THE HOLDING COMPANY 5.1. Cooperation by CVC. From the date hereof and prior to the Closing, CVC shall use its reasonable efforts, and shall cooperate with Company Stockholders, to secure all necessary consents, approvals, authorizations, exemptions, and waivers from third parties as shall be required in order to enable CVC to effect the transactions contemplated hereby, and will otherwise use its reasonable efforts to cause the consummation of such transactions in accordance with the terms and conditions hereof. 5.2. Books and Records; Personnel. For a period of five years from and after the Closing Date: (a) The Holding Company shall not, and shall cause each of the Companies not to, dispose of or destroy any of their respective books and records relating to periods prior to the Closing ("Books and Records") without first offering to turn over possession thereof to Company Stockholders by written notice given to Company Stockholders at least 30 days prior to the proposed date of such disposition or destruction. 33 42 (b) The Holding Company shall, and shall cause each of the Companies to, allow Company Stockholders and their agents access to all Books and Records (to the extent that they relate to periods prior to the Closing) during normal working hours at the principal place of business of the Holding Company or, at the Holding Company's option, at any location where any such Books and Records are stored, and Company Stockholders shall have the right, at their own expense, to make copies of any Books and Records (to the extent that they relate to periods prior to the Closing); provided, however, that any such access or copying shall be had or done in such a manner so as not to interfere unreasonably with the normal conduct of the business of the Holding Company or any of the Companies. (c) The Holding Company shall, and shall cause the Companies to, make available to Company Stockholders upon written request: (i) copies of any Books and Records (to the extent that they relate to periods prior to the Closing), (ii) such personnel of the Companies as are reasonably required to assist Company Stockholders in locating and obtaining any such Books and Records, and (iii) any personnel of the Companies whose assistance or participation is reasonably required by Company Stockholders or any of their representatives in anticipation of, or preparation for, existing or future Litigation, tax returns, or other matters in which Company Stockholders or any of their affiliates are involved; provided that such requests shall not interfere with the ability of such personnel to perform services for any of the Companies. Company Stockholders shall reimburse the Companies for the reasonable out-of-pocket expenses incurred by any of them in performing the covenants contained in this Section 5.2(c). 5.3. Change of Name. The Holding Company shall by appropriate corporate actions cause the name of each of the Companies in the corporate name of which the name "Klingelnberg" appears to be changed to a name not including the name "Klingelnberg" or any derivation thereof as soon as reasonably practicable after the Closing Date. After the date by which such corporate names are required to be changed, none of the Companies shall use, directly or indirectly, the name "Klingelnberg" or any derivation thereof except in conjunction with the initials "IKS" under the same circumstances in which such name or derivation and such initials are being used as of the date of this Agreement; provided, however, that no such use of the name "Klingelnberg" or any derivation thereof shall occur following the fifth anniversary of the Closing Date. 5.4. Financing. CVC shall use all reasonable efforts to obtain the financing required to effect the transactions contemplated by this Agreement and to pay related fees and expenses (the "Financing") and, in the event that any portion of the Financing 34 43 becomes unavailable, for reasons other than a material breach of this Agreement by the Holding Company or the Company Stockholders, CVC shall use all reasonable efforts to obtain alternative financing from other sources. Company Stockholders and the Holding Company covenant that they shall cause the Companies to cooperate with CVC with respect to the Financing and to take all actions and do all things reasonably necessary, proper or advisable to assist CVC in securing the Financing. ARTICLE VI CONDITIONS TO CVC'S OBLIGATIONS The obligation of CVC to consummate the transactions contemplated hereby at the Closing shall be subject to the satisfaction (or waiver) on or prior to the Closing Date of all of the following conditions: 6.1. Representations, Warranties and Covenants of Company Stockholders. Company Stockholders shall have performed the agreements and covenants contained in this Agreement and shall have caused the Holding Company to perform the agreements and covenants contained in this Agreement which are to be performed by Company Stockholders and the Holding Company on or prior to the Closing Date, and the representations and warranties made by Company Stockholders in this Agreement (without giving effect to any amendment to the Disclosure Schedules permitted by Section 10.5) shall be true and correct in all material respects on the date of this Agreement and on and as of the Closing Date with the same effect as though made on and as of the Closing Date, except to the extent that any such representations and warranties were made as of a specified date and as to such representations and warranties the same (without giving effect to any amendment to the Disclosure Schedules permitted by Section 10.5) shall continue on the Closing Date to have been true and correct in all material respects as of the specified date. 6.2. No Prohibition. No statute, rule or regulation, or order of any court or administrative agency shall be in effect that prohibits CVC from consummating the transactions contemplated hereby or the ability of any of the Companies to conduct their respective businesses substantially in the manner that such businesses were being conducted prior to the Closing. 6.3. Third Party Consents. Company Stockholders shall have received the consents from third parties, if any, set forth on Schedule 2.17 of the Disclosure Schedules in form reasonably acceptable to CVC. 35 44 6.4. Governmental Consents. The waiting period under the HSR Act, the German Act and the Canadian Banking Act, if applicable, shall have expired or been terminated and all other consents, approvals, authorizations, exemptions, and waivers from governmental agencies that shall be required in order to consummate the transactions contemplated hereby, shall have been obtained (except for such consents, approvals, authorizations, exemptions, and waivers, the absence of which would not prohibit the consummation of the transactions contemplated hereby or render such transactions illegal). 6.5. Proceedings. No action or proceeding shall be pending or threatened to restrain or prevent the consummation of the transactions contemplated hereby or that substantially interferes with the ability of any of the Companies to conduct their respective businesses substantially in the manner that such businesses were being conducted prior to the Closing. 6.6. Financing. The Holding Company shall have received the proceeds of the Financing. 6.7. Opinion. CVC shall have received a written opinion, dated the Closing Date, of Thompson Hine & Flory P.L.L., in a form to be mutually agreed upon by the parties. 6.8. Exchange of Stock. Management Stockholders shall have exchanged all of their shares of IKS Management Stock for the shares of TKC Management Stock. 6.9. Stockholders Agreement. Each Company Stockholder who acquires shares of Class A Stock pursuant to this Agreement shall have entered into a Stockholders Agreement, dated as of the Closing Date, substantially in the form of Exhibit 6.9. 6.10. Estoppel Certificates. CVC shall have received the duly executed Estoppel Certificates and a written waiver of lien from the landlords under each of the Real Property Leases, dated no more than ten days prior to the Closing, and shall have received the Lessor Consents. 6.11. Title Insurance. (a) The Company Stockholders shall have delivered to CVC and the Companies good and valid, irrevocable ALTA title insurance binders or commitments (collectively, the "Title Commitments," and each a "Title Commitment"), in final form, from one or more title insurance companies reasonably acceptable to CVC (collectively, the "Title Company"), subject only to such requirements relating to the issuance of a final policy of title insurance as are reasonably acceptable to CVC, 36 45 committing the Title Company to insure that each of the Owned U.S. Real Properties are free and clear of all Encumbrances, except Permitted Fee Title Exceptions. Each of the Title Commitments shall be effective as of a date occurring not earlier than the date of this Agreement and, if required by and at the expense of CVC, the effective dates of each of the Title Commitments shall be brought down to the close of business on the Closing Date. Each such Title Commitment shall include such endorsements thereto as may reasonably be requested by CVC. On or prior to the Closing Date, and as a condition precedent to the obligations of CVC hereunder, the Company Stockholders shall execute and deliver, or cause to be executed and delivered, to the Title Company any affidavits reasonably requested by the Title Company or CVC in connection with the issuance of the Title Commitments in form and substance as required hereunder. The Title Commitments shall be delivered to CVC and the Companies at the sole cost and expense of the Company Stockholders, provided that any and all Title Company fees, charges, costs and expenses in excess of $1,500.00 ("Excess Commitment Fees") shall be borne and paid by the Holding Company, except to the extent that such Excess Commitment Fees are attributable to title defects giving rise to (i) title exceptions which are not Permitted Fee Title Exceptions, or (ii) requirements to the issuance of a final title policy which are not reasonably satisfactory to CVC. (b) Should any Title Commitment contain any exception which is not a Permitted Fee Title Exception or be subject to any requirement relating to the issuance of a final title policy which is not reasonably satisfactory to CVC, then as soon as practicable, but in no event later than five (5) business days after CVC's receipt of such Title Commitment, and when circumstances permit, no later than the fifth (5th) business day before the Closing Date, CVC shall notify the Company Stockholders' Agent of the existence of such exception or requirement, but the failure of CVC to give such notice within such time period shall not relieve the Company Stockholders of their obligations under this Section, except to the extent that they are prejudiced thereby. The Company Stockholders shall use all commercially reasonable efforts to cure the title defect giving rise to such exception or requirement or, if reasonably acceptable to CVC, to have the same insured over, and shall have such exception or requirement removed from the Title Commitment or insured over, as applicable. If such cannot be or is not so cured or insured over prior to the Closing, then CVC may terminate this Agreement as provided in Section 8.1(c) hereof; provided that if CVC does not so terminate this Agreement, then CVC shall be conclusively deemed to have waived any claim against the Company Stockholders with respect to such title defect, except for any claim for indemnification or defense relating to such title defect which may be made under Section 9.2 of this Agreement. 37 46 6.12. FIRPTA Certificate. Company Stockholders shall have delivered to CVC a certificate of the Holding Company prepared in accordance with Treasury regulations sections 1.1445-2(c)(3) promulgated under the Code and dated as of the Closing Date that the Holding Company Stock is not a U.S. real property interest as defined in section 897(c) of the Code. 6.13. Affiliate Agreements. The agreements listed in items (a)(21), (a)(22) and (a)(25) of Schedule 2.11 shall have been amended to provide that the Companies shall continue to have the right to receive the services being provided by certain affiliates of Diether Klingelnberg other than the Companies thereunder on the current pricing terms provided that the Companies and such affiliates may terminate such agreements on reasonable notice without any penalties, retroactive fee adjustments or other charges. Diether Klingelnberg shall have purchased the insurance on his life held by the Holding Company from the Holding Company in exchange for the obligation of the Holding Company to Diether Klingelnberg under the Deferred Compensation Agreement listed in item (g)(1) of Schedule 2.11. The Amended Stockholders' Agreement listed in item (g)(9) of Schedule 2.11 shall have been terminated and the parties thereto shall have waived any and all rights thereunder. ARTICLE VII CONDITIONS TO COMPANY STOCKHOLDERS' OBLIGATIONS The obligations of Company Stockholders to consummate the transactions contemplated hereby at the Closing shall be subject to the satisfaction (or waiver) on or prior to the Closing Date of all of the following conditions: 7.1. Representations, Warranties and Covenants of CVC. CVC shall have performed the agreements and covenants contained in this Agreement which are to be performed by CVC on or prior to the Closing Date, and the representations and warranties made by CVC in this Agreement shall be true and correct in all material respects on the date of this Agreement and on and as of the Closing Date with the same effect as though made on and as of the Closing Date, except (a) as otherwise contemplated hereby, and (b) to the extent that any such representations and warranties were made as of a specified date and as to such representations and warranties the same shall continue on the Closing Date to have been true and correct in all material respects as of the specified date. 38 47 7.2. No Prohibition. No statute, rule or regulation, or order of any court or administrative agency shall be in effect that prohibits Company Stockholders from consummating the transactions contemplated hereby. 7.3. Third Party Consents. Company Stockholders shall have received the consents from third parties set forth on Schedule 2.17 of the Disclosure Schedules in form reasonably acceptable to Company Stockholders. 7.4. Governmental Consents. The waiting period under the HSR Act and the German Act, if applicable, shall have expired or been terminated and all consents, approvals, authorizations, exemptions, and their waivers from governmental agencies that shall be required in order to consummate the transactions contemplated hereby, if any, shall have been obtained (except for such consents, approvals, authorizations, exemptions, and waivers, the absence of which would not prohibit the consummation of the transactions contemplated hereby or render such transactions illegal). 7.5. Proceedings. No action or proceeding shall be pending or threatened to restrain or prevent the consummation of the transactions contemplated hereby. 7.6. Opinion. Company Stockholders shall have received a written opinion, dated the Closing Date, of Dechert Price & Rhoads, in a form to be mutually agreed upon by the parties. 7.7. Stockholders Agreement. CVC shall have entered into a Stockholders Agreement, dated as of the Closing Date, substantially in the form of Exhibit 6.9. 7.8. Affiliate Agreements. The agreements listed in items (a)(21), (a)(22) and (a)(25) of Schedule 2.11 shall have been amended to provide that the Companies shall continue to have the right to receive the services being provided by certain affiliates of Diether Klingelnberg other than the Companies thereunder on the current pricing terms provided that the Companies and such affiliates may terminate such agreements on reasonable notice without any penalties, retroactive fee adjustments or other charges. Diether Klingelnberg shall have purchased the insurance on his life held by the Holding Company from the Holding Company in exchange for the obligation of the Holding Company to Diether Klingelnberg under the Deferred Compensation Agreement listed in item (g)(1) of Schedule 2.11. The Amended Stockholders' Agreement listed in item (g)(9) of Schedule 2.11 shall have been terminated and the parties thereto shall have waived any and all rights thereunder. 39 48 ARTICLE VIII TERMINATION PRIOR TO CLOSING 8.1. Termination. This Agreement may be terminated at any time prior to the Closing: (a) By the mutual written consent of CVC and Company Stockholders' Agent; or (b) By either Company Stockholders' Agent or CVC by written notice given to the other, if the Closing has not occurred on or before November 20, 1996; or (c) By either Company Stockholders' Agent or CVC by written notice given to the other, if there has been a material breach by the other party of any of the representations, warranties, covenants or agreements made by such other party in this Agreement and such breach results in a failure to satisfy a condition to the terminating party's obligation to consummate the transactions provided herein. 8.2. Effect on Obligations. Termination of this Agreement pursuant to Section 8.1 shall terminate all obligations of the parties hereunder, except for their obligations under Section 10.9 and under the Confidentiality Agreement; provided, however, that termination pursuant to Section 8.1(c) by reason of a breach of any covenant or agreement shall not relieve the breaching party (whether or not it is the terminating party) from any liability to the other party hereto arising from or related to such breach. ARTICLE IX SURVIVAL AND INDEMNIFICATION 9.1. Survival. Except as otherwise set forth in this Section 9.1, the representations and warranties made by the parties in this Agreement shall survive the Closing until April 15, 1998 regardless of any investigation made or information or knowledge obtained by or on behalf of any party, as applicable, at any time, and thereupon shall expire (together with any right to indemnification or other recovery for 40 49 any breach or inaccuracy thereof), except to the extent that a Claim Notice (as defined in Section 9.2) is given to the party that made such representation or warranty (or to the Company Stockholders' Agent in the case of representations and warranties made by any Company Stockholder) prior to such date, in which case the representation and warranty shall survive, to the extent of the claim described in the Claim Notice only, until such claim is resolved, but only if: (i) in the case of a claim made by any party by reason of a third party claim, the Claim Notice is accompanied by a copy of any written notice of the third party claimant, and (ii) in the case of any other claim, either the party making such claim has incurred damages or expenses in good faith at or prior to the date on which the Claim Notice is given or such claim represents a claim for potential or contingent claims or demands and the party making such indemnification claim has reasonable grounds to believe that such potential or contingent claim or demand may be made; and provided that any Claim Notice with respect to any breach of the representations in Section 2.14 with respect to any Environmental Matters (an "Environmental Breach") shall not be effective unless accompanied by (a) written notice from the applicable regulatory authority, or, if there has been a claim made against any of the Companies by a third party, the written notice of the third party claimant, alleging the existence of the conditions as to which the Environmental Breach is claimed or (b) a written report from a reputable environmental consulting firm, the fees and expenses of which firm shall be borne solely by the Holding Company, confirming, in reasonable detail, the existence of the conditions as to which an Environmental Breach is claimed. Notwithstanding the foregoing: (i) the representations and warranties made by Company Stockholders in Sections 2.1, 2.18 and 2.23 of this Agreement shall survive the Closing indefinitely; (ii) the representations and warranties made by Company Stockholders under Section 2.14 shall survive the Closing until the fifth anniversary of the Closing Date; (iii) the representations and warranties made by Company Stockholders in Section 2.15, insofar as they relate to compliance with ERISA, or any comparable statute or regulation applicable to employee benefit plans maintained in foreign countries, shall survive the Closing until the date that is 30 days following the expiration of any applicable statute of limitations plus extensions or waivers thereof; and (iv) the representations and warranties made by Company Stockholders with respect to Taxes under Section 2.16 shall survive the Closing until the date that is 30 days following the expiration of any applicable statute of limitations plus any waivers or extensions thereof. 9.2. General Indemnification. (a) Following the Closing, Company Stockholders, jointly and severally, shall indemnify and defend each of the Companies and shall hold each of them harmless from and against all Losses (as hereinafter defined) that are incurred or suffered by any of them: 41 50 (i) By reason of any misrepresentation or breach of any representation or warranty made by Company Stockholders in this Agreement or in any Disclosure Schedule or certificate required to be furnished to CVC pursuant hereto ("Warranty Losses"); (ii) By reason of any breach of any covenant made by Company Stockholders in this Agreement or in any Disclosure Schedule or certificate required to be furnished to CVC pursuant hereto, whether such covenant requires performance prior to or after the Closing; (iii) On account of any Retained Liabilities (as hereinafter defined); (iv) On account of (A) any Taxes of any of the Companies with respect to any taxable period that ends on or before the Closing Date, except to the extent that such Taxes are reflected as a current liability on the Closing Balance Sheet; (B) any Taxes of any of the Companies with respect to any taxable period that begins before, but ends after the Closing Date to the extent such Taxes are allocable to the portion of the taxable period up to and including the Closing Date ("Pre-Closing Taxes"), except to the extent such Taxes are reflected as a current liability on the Closing Balance Sheet; (C) any liability for Taxes pursuant to Treasury regulations section 1.1502-6 (or analogous state, local or foreign tax provision) of any consolidated, combined or unitary group of which any of the Companies was a member on or before the Closing Date, to the extent such liability is not attributable to the income or operations of a Company; and (D) any liability resulting from any of the Companies being liable for the Taxes of another person pursuant with an agreement with any person entered into before the Closing Date (for purposes of determining Pre-Closing Taxes, personal property, real property and other ad valorem Taxes shall be apportioned on a per diem basis, income taxes for a taxable period that includes but does not end on the Closing Date shall be allocated on the basis of taxable income allocable to the pre-Closing and post-Closing periods on an interim closing of the books basis, and all other Taxes shall be apportioned on the basis of an interim closing of the books as of the end of the Closing Date). (Notwithstanding the foregoing provisions of this Section 9.2(iv), if there is an adjustment to an item of income or deduction with respect to a Tax return of the Companies and, if in connection therewith, there is an increase in the share of the Tax liability that would be borne by the Company Stockholders under this section for a taxable period (or portion thereof) prior to the Closing and a decrease in the Tax liability that would be borne by the Companies for a taxable period (or portion thereof) following the Closing, or if in connection therewith there is an increase in Tax liability that would be borne by the Companies for a taxable period (or portion thereof) following the Closing and a decrease in the Tax liability that 42 51 would be borne by the Company Stockholders under this section for a taxable period (or portion thereof) prior to the Closing, then the party that realizes a Tax benefit shall pay to the party that realizes the Tax detriment the amount of the Tax benefit actually received within 15 days following the date on which the Tax benefit is actually received provided that the amount payable by the party realizing the Tax benefit shall not exceed the Tax detriment arising from such adjustment.); or (v) Arising from, relating to or in connection with any of the following: (1) the presence, Management or Release of Hazardous Materials first occurring or existing prior to the Closing (a) at, on, under or from any property previously (but not as of the date of the Closing) owned, operated or leased by any of the Companies or any of their predecessors, whether into the air, soil, ground or surface waters on-site or off-site or (b) arising from the off-site transportation, storage, treatment, recycling or disposal of Hazardous Materials by or on behalf of any of the Companies or any of their predecessors; or (2) fines, penalties (criminal and civil) and administrative assessments arising from or related to any violations of Environmental Laws existing prior to the Closing and during such reasonable time after Closing for the Companies to attain compliance with such Environmental Laws; or (3) relating to, arising from or in connection with the matters, site conditions or activities identified on Schedule 9.2(a)(v) and disclosed by the environmental reports listed on such Schedule; or (4) any Losses suffered by any of the Companies (other than IKS Klingelnberg Far East GmbH) on account of any environmental condition or violation of Environmental Laws at the facility of the Chinese Subsidiaries located in Shanghai other than diminution or loss of the value of such Company's investment in IKS Klingelnberg Far East GmbH or the Chinese Subsidiaries operating such Shanghai facility (currently approximately $2.8 million); regardless of whether any of the foregoing environmental conditions or violations of Environmental Law are disclosed in any Disclosure Schedule to this Agreement or otherwise disclosed to CVC. Notwithstanding the foregoing, (a) Company Stockholders shall not be obligated to provide any such indemnification for Warranty Losses or indemnification pursuant to Section 9.2(a)(v)(1), (3) or (4) unless the aggregate amount that the Companies are entitled to recover in respect of all such claims exceeds $2,500,000 (the "Deductible"), and then only to the extent that such amount exceeds the Deductible; and, in any event, the maximum aggregate obligation of Company Stockholders hereunder for Warranty Losses and indemnification pursuant to Section 9.2(a)(v) shall not exceed $15,000,000; (b) the maximum aggregate obligation of each Management Stockholder hereunder for indemnification in respect of Losses shall not exceed an amount equal to the product of $15,000,000 and the Ownership Percentage set forth opposite such Management Stockholder's name on Schedule 1.2; (c) each Management Stockholder's 43 52 obligation for indemnification in respect of any Loss shall not exceed an amount equal to the aggregate amount of such Loss multiplied by such Company Stockholder's Ownership Percentage set forth opposite such Management Stockholder's name on Schedule 1.2; and (d) Management Stockholders shall have no liability for indemnification in respect of any of the Retained Liabilities. In addition to the indemnification to the Companies, Company Stockholders, jointly and severally, shall indemnify and defend CVC and shall hold CVC harmless from and against all Losses that are incurred or suffered by CVC for breaches of the representation and warranties in Section 2.1. (b) Following the Closing, each of the Companies jointly and severally shall indemnify Company Stockholders and their affiliates and hold each of them harmless from and against all Losses (as hereinafter defined) that are incurred or suffered by any of them: (i) By reason of any misrepresentation or breach of any representation or warranty made by CVC in this Agreement or in any schedule, statement, document or certificate furnished or required to be furnished to Company Stockholders pursuant to this Agreement; (ii) By reason of any breach of any covenant made by CVC in this Agreement or in any schedule, statement, document or certificate furnished or required to be furnished to Company Stockholders pursuant hereto, or by reason of any breach of any covenant made by the Holding Company in this Agreement or in any schedule, statement, document or certificate furnished or required to be furnished to Company Stockholders pursuant hereto, which covenant of the Holding Company requires performance after the Closing; (iii) On account of the Assumed Liabilities (as hereinafter defined); or (iv) Arising from or related to any of the following first occurring after the Closing: (1) environmental conditions, including without limitation, the presence of Hazardous Substances at, on, under or from any property owned, operated or leased by the any of the Companies, or the Release or threat of Release of Hazardous Substances at, on, under or from any property owned, operated or leased by any of the Companies whether into the air, soil, ground or surface waters on-site or off-site or arising from the off-site transportation, storage, treatment, recycling or disposal of Hazardous Substances generated by or on behalf of any of the Companies after the 44 53 Closing at or from any property owned or leased by any of the Companies, or (2) the violation of any Environmental Law. (c) Notwithstanding anything in this Agreement to the contrary, CVC and the Companies shall have no right to any indemnification under this Section 9.2 for any matter to the extent and in the dollar amount that such matter was included in Consolidated Net Debt. (d) (i) In the event that any party incurs or suffers any Losses with respect to which indemnification may be sought by such party pursuant to this Section 9.2, the party seeking indemnification (the "Indemnitee") must assert the claim by giving written notice (a "Claim Notice") to the party from whom indemnification is sought (or, in the case of a claim against the Company Stockholders, to Company Stockholder' Agent) (the "Indemnitor"). The Claim Notice must state the nature and basis of the claim in reasonable detail based on the information available to the Indemnitee and, if the Claim Notice is being given with respect to a third party claim or an Environmental Breach, must be accompanied by any documentation described in Section 9.1. If the Claim Notice is being given by reason of any third party claim, it shall be given within 30 days after the filing or other written assertion of any such claim against the Indemnitee, but the failure of the Indemnitee to give the Claim Notice within such time period shall not relieve the Indemnitor of any liability for indemnification under this Section 9.2, except to the extent that the Indemnitor is prejudiced thereby. Each Indemnitor to whom a Claim Notice is given shall respond to any Indemnitee that has given a Claim Notice (a "Claim Response") within 30 days (the "Response Period") after the date that the Claim Notice is given. Any Claim Response shall specify whether or not the Indemnitor given the Claim Response disputes the claim described in the Claim Notice. If any Indemnitor fails to give a Claim Response within the Response Period, such Indemnitor shall be deemed not to dispute the claim described in the related Claim Notice. If any Indemnitor elects not to dispute a claim described in a Claim Notice, whether by failing to give a timely Claim Response or otherwise, than the amount of such claim shall be conclusively deemed to be an obligation of such Indemnitor. If any Indemnitor shall be obligated to indemnify an Indemnitee hereunder, such Indemnitor shall pay to such Indemnitee within 30 days after the last day of the applicable Response Period the amount to which such Indemnitee shall be entitled. If there shall be a dispute as to the amount or manner of indemnification under this Agreement, the Indemnitor and the Indemnitee shall seek to resolve such dispute through negotiations and, if such dispute is not resolved within 20 days, the Indemnitee may pursue whatever legal remedies may be available for the recovery of the Losses claimed from any Indemnitor. If any Indemnitor fails to pay all or any part of any indemnification obligation on or before 45 54 the later to occur of (y) 30 days after the last day of the applicable Response Period, and (z) if the Claim Notice relates to Losses that have not been liquidated as of the date of the Claim Notice, the date on which all or any part of such Losses shall have become liquidated and determined, then the Indemnitor shall also be obligated to pay to the Indemnitee interest on the unpaid amount for each day during which the obligation remains unpaid at an annual rate established in the manner described in Section 1.5(f). (ii) The Indemnitee shall provide to the Indemnitor on request all information and documentation reasonably necessary to support and verify any Losses that the Indemnitee believes give rise to the claim for indemnification hereunder and shall give the Indemnitor reasonable access to all books, records, and personnel in the possession or under the control of the Indemnitee that would have bearing on such claim. (iii) Except as hereinafter provided, in the case of third party claims for which indemnification is sought, the Indemnitor shall have the option: (x) to conduct any proceedings or negotiations in connection therewith, (y) to take all other steps to settle or defend any such claim (provided that the Indemnitor shall not settle any such claim without the consent of the Indemnitee (which consent shall not be unreasonably withheld, it being understood that it shall not be unreasonable for the Indemnitee to withhold its consent from any settlement which (1) commits the Indemnitee to take, or to forbear to take, any action, or (2) does not provide for a complete release of the Indemnitee by such third party)), and (z) to employ counsel to contest any such claim or liability in the name of the Indemnitee or otherwise. In any event, the Indemnitee shall be entitled to participate at its own expense and by its own counsel (a "Voluntary Participation") in any proceedings relating to any third party claim. The Indemnitor shall, within 45 days of receipt of the Claim Notice, notify the Indemnitee of its intention to assume the defense of the claim (a "Defense Notice"). Until the Indemnitee has received the Defense Notice, the Indemnitee shall take reasonable steps to defend (but may not settle) the claim. If the Indemnitor declines to assume the defense of any such claim or fails to give a Defense Notice within 45 days after receipt of the Claim Notice, the Indemnitee shall defend against the claim but shall not settle such claim without the consent of the Indemnitor (which consent shall not be unreasonably withheld). The expenses of all proceedings, contests or lawsuits (other than those incurred in a Voluntary Participation) with respect to claims as to which a party is entitled to indemnification under this Section 9.2. shall represent indemnifiable Losses under this Agreement. Regardless of which party shall assume the defense of the claim, the parties shall cooperate fully with one another in connection therewith. Notwithstanding the foregoing, the Indemnitor shall not be entitled (except with the 46 55 consent of the Indemnitee) to take any of the actions referred to in clauses (x), (y) or (z) of the first sentence of this subparagraph unless: (a) the third party claim involves solely monetary damages; (b) the Indemnitor shall have expressly agreed in writing that, as between the Indemnitor and the Indemnitee, the Indemnitor shall be solely obligated to satisfy and discharge such third party claim; and (c) if reasonably requested to do so by the Indemnitee, the Indemnitor shall have made reasonably adequate provision to ensure the Indemnitee of the financial ability of the Indemnitor to satisfy the full amount of any adverse monetary judgment that may result from such third party claim. (e) The indemnification provided in this Section 9.2 shall be the sole and exclusive remedy for any inaccuracy or breach of any representation or warranty in connection with the transactions contemplated by this Agreement or otherwise including, without limitation, any liability arising under Section 10 of the Securities and Exchange Act of 1934, as amended, or Rule 10b-5 thereunder. All amounts payable with respect to indemnification shall be considered an adjustment to the Recapitalization Distribution. (f) For purposes of determining under Section 9.2 if any representation or warranty in this Agreement has been breached, and for purposes of determining the amount of Warranty Losses, all references to materiality and to the requirement for an event or matter having a Material Adverse Effect shall be disregarded; provided however that the failure of the Company Stockholders to list any contract or agreement on Schedule 2.11 because such contract or agreement does not meet the dollar thresholds for inclusion contained in Section 2.11 shall not be considered a breach of Section 2.11. (g) The rights to indemnification under this Section 9.2 are the sole and exclusive remedies of CVC and the Companies against Company Stockholders and of the Company Stockholders against CVC and the Companies, with respect to any Environmental Matters whatsoever. CVC and the Holding Company, each on its own behalf and on behalf of its affiliates (including, without limitation, each of the Companies) and the successors and assigns of any of the foregoing, hereby waive any right to seek contribution or other recovery from Company Stockholders or any of their affiliates that any of them may now or in the future ever have under CERCLA, the Hazardous Material Transportation Act (49 U.S.C. Section 801 et seq.), the Clean Water Act (33 U.S.C. Section 1251 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. Section Section 11001 et seq.), the Safe Drinking Water Act (42 U.S.C. Section Section 300f et. seq.), the Toxic Substances 47 56 Control Act, as amended (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.) or any other federal, state, local or foreign law relating to Environmental Matters, the rules and regulations promulgated under any thereof and any provisions of common law providing for any remedy or right of recovery with respect to Environmental Matters (collectively, "Environmental Laws") except to the extent such matters constitute Retained Liabilities. The Company Stockholders, on their own behalf and on behalf of their affiliates, and the successors and assigns of any of the foregoing, hereby waive any right to seek contribution or other recovery from CVC or any of the Companies or any of their affiliates that any of them may now or in the future ever have under Environmental Laws except to the extent such matters constitute Assumed Liabilities. Each of CVC and the Holding Company, on its own behalf and on behalf of its affiliates (including, without limitation, each of the Companies) and their affiliates, and the corporate successors and assigns of any of the foregoing on the one hand, and the Company Stockholders on their own behalf and on behalf of their affiliates, and the corporate successors and assigns of any of the foregoing on the other hand, hereby further unconditionally releases the other from any and all claims, demands and causes of action that any of them may now or in the future ever have against each other for recovery under CERCLA or under any other Environmental Laws. (h) Upon making any payment to an Indemnitee for any indemnification claim pursuant to this Section 9.2, the Indemnitor shall be subrogated, to the extent of such payment, to any rights that the Indemnitee may have against any other parties with respect to the subject matter underlying such indemnification claim. (i) As used in this Agreement: (i) "Losses" shall mean any and all losses, liabilities, damages, penalties, obligations, awards, fines, deficiencies, interest, claims (including third party claims, whether or not meritorious), costs and expenses whatsoever (including reasonable attorneys', consultants' and other professional fees and disbursements of every kind, nature and description) resulting from, arising out of or incident to (y) any matter for which indemnification is provided under this Agreement, or (z) the enforcement by an indemnified party of its rights to indemnification under this Agreement. Notwithstanding the foregoing definition, Losses shall not include amounts recoverable solely as lost profits or other consequential damages (other than those required to be paid to a third party); provided, however, that CVC and the Companies and their affiliates shall in all events be entitled to recover, and Losses shall include in each such case, amounts representing the difference in the value between (a) the 48 57 Companies as they were represented to exist (after giving effect to any adjustments to the Recapitalization Distribution pursuant to Section 1.5) and (b) the Companies as they actually existed on the Closing Date. (ii) "Assumed Liabilities" shall mean any liabilities, claims, commitments, demands or obligations of any of the Companies other than (a) the Retained Liabilities and (b) matters subject to indemnification under Section 9.2(a)(v). (iii) "Retained Liabilities" shall mean all liabilities, claims, commitments, demands or obligations of any of the Companies existing, or arising out of any fact or set of operative facts existing, on or prior to the Closing Date to the extent any such liabilities, claims, commitments, demands or obligations arise out of or relate to (A) the operation by any of the Companies or any predecessor of any of the Companies of any business other than the business of IKS and the IKS Subsidiaries as described in the Confidential Offering Memorandum of IKS dated March 1996 furnished by Schroder Wertheim & Co. to CVC or (B) the ownership by the Holding Company or any predecessor of the Holding Company of any assets other than the stock of IKS, including but not limited to any matter set forth on Schedule 2.2. (j) Notwithstanding anything to the contrary in this Section 9.2, no limitation or condition of liability provided in this Article IX (including, without limitation, the time limitations set forth in Section 9.1 and the monetary limitations and conditions set forth in Section 9.2(a)) shall apply to the breach of any of the representations and warranties contained herein if such representation or warranty was made with actual knowledge that it contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements or facts therein not misleading. ARTICLE X MISCELLANEOUS 10.1. Interpretive Provisions. (a) Whenever used in this Agreement, (i) "to Company Stockholders' knowledge" or "to the knowledge of Company Stockholders" shall mean the actual knowledge of Company Stockholders' Agent and the Management Stockholders, after due inquiry, and "to CVC's knowledge" or "to the knowledge of CVC" shall mean the actual knowledge of the executive officers of CVC, after due inquiry, (ii) "including" (or any variation thereof) means including without limitation; (iii) "person" includes any individual, corporation, partnership, association, 49 58 governmental authority, trust or other entity or organization; and (iv) any reference to gender shall include all genders. (b) For purposes of this Agreement, the Companies shall be deemed to be affiliates of Company Stockholders prior to the Closing and affiliates of CVC after the Closing. (c) Any matter disclosed by Company Stockholders to CVC and the Holding Company in any Schedule included in the Disclosure Schedules shall be deemed to be disclosed with respect to any other schedule so long as the relevance of the matter to such other schedule is readily apparent from the disclosure of the matter that appears in the Schedule where it is disclosed. 10.2. Entire Agreement. This Agreement (including the Disclosure Schedules and the Exhibits hereto) constitutes the sole understanding of the parties with respect to the subject matter hereof. 10.3. Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto; provided however, that this Agreement may not be assigned by any Company Stockholder without the prior written consent of CVC or be assigned by CVC without the prior written consent of Company Stockholders, except that (i) CVC may, at its election, assign this Agreement to any direct or indirect wholly owned subsidiary so long as (a) the representations and warranties of CVC made herein are equally true of such assignee and (b) such assignment does not have any adverse consequences to Company Stockholders (including, without limitation, any adverse tax consequences or any adverse effect on the ability of CVC to consummate on a timely basis the transactions contemplated hereby), and (c) such assignee shall execute a counterpart of this Agreement agreeing to be bound by the provisions hereof as "CVC," and agreeing to be jointly and severally liable with the assignor and any other assignee for all of the obligations of the assignor hereunder; and (ii) CVC or any such assignee may make a collateral assignment of its rights (but not its obligations) under this Agreement to any institutional lender providing financing to CVC or any Company after the Closing; provided, however, in no event shall any such assignment of this Agreement or any of the rights or obligations of a party hereunder relieve the assignor of its obligations under this Agreement. 10.4. Headings. The headings of the Articles, Sections, and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. 50 59 10.5. Modification and Waiver. No amendment, modification, or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the parties hereto, except that any of the terms or provisions of this Agreement may be waived in writing at any time by the party that is entitled to the benefits of such waived terms or provisions. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar). No delay on the part of any party in exercising any right, power, or privilege hereunder shall operate as a waiver thereof. At any time prior to Closing, Company Stockholders shall have the right to amend any of the Disclosure Schedules to this Agreement to reflect any matter that occurs or is discovered by Company Stockholders subsequent to the date of this Agreement. 10.6. Expenses. Except as otherwise provided herein, Company Stockholders and CVC each shall pay all costs and expenses incurred by them or it or on their or its behalf in connection with this Agreement and the transactions contemplated hereby, including, without limiting the generality of the foregoing, fees and expenses of their or its own financial consultants, accountants and counsel; provided, however, that the fees and expenses of Thompson Hine & Flory P.L.L., as counsel to the Company Stockholders, shall be paid by IKS; provided, further, however, that such fees and expenses shall be accrued as a liability on the Closing Balance Sheet. In the event the Closing does not occur other than as a result of a material breach of this Agreement by the Holding Company or Company Stockholders, CVC shall pay the costs and expenses incurred by the Companies in connection with the procurement of the Financing, including the costs and expenses of Ernst & Young, LLP in relation thereto. 10.7. Notices. Any notice, request, instruction, or other document to be given hereunder by any party hereto to any other party shall be in writing and shall be given (and will be deemed to have been duly given upon receipt) by delivery in person, by electronic facsimile transmission, cable, telegram, telex, or other standard forms of written telecommunications, by overnight courier or by registered or certified mail, postage prepaid, if to Company Stockholders to: c/o Mr. Diether Klingelnberg, as Agent Lichtenbuscher Str. 47 B-4732 Eynatten Belgium Telecopy: 32-87-85-39-28 51 60 with a copy to: Thompson Hine & Flory P.L.L. 312 Walnut Street, Suite 1400 Cincinnati, Ohio 45202 Attention: Michael R. Oestreicher, Esq. Telecopy: (513) 241-4771 if to CVC to: Citicorp Venture Capital Ltd. 399 Park Avenue, 14th Floor New York, New York 10043 Attention: Michael A. Delaney and James A. Urry Telecopy: (212) 888-2940 with a copy to: Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia PA 19103-2793 Attention: G. Daniel O'Donnell, Esq. Telecopy: (215) 994-2222 or at such other address for a party as shall be specified by like notice. 10.8. Governing Law; Consent to Jurisdiction. This Agreement shall be construed in accordance with and governed by the laws of the State of New York applicable to agreements made and to be performed wholly within that jurisdiction. Each party hereto, for itself and its successors and assigns, irrevocably agrees that any suit, action or proceeding arising out of or relating to this Agreement shall be instituted only in the United States District Court for the Southern District of New York, United States of America or in the absence of jurisdiction, the Supreme Court of New York located in New York City and generally and unconditionally accepts and irrevocably submits to the exclusive jurisdiction of the aforesaid courts and irrevocably agrees to be bound by any final judgment rendered thereby from which no appeal has been taken or is available in connection with this Agreement. Each party, for itself and its successors and assigns, irrevocably waives any objection it may have now or hereafter to the laying of the venue of any such suit, action or proceeding, including, without 52 61 limitation, any objection based on the grounds of forum non conveniens, in the aforesaid courts. Each of the parties, for itself and its successors and assigns, irrevocably agrees that all process in any such proceedings in any such court may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to it at its address set forth in Section 10.7 or at such other address of which the other parties shall have been notified in accordance with the provisions of Section 10.7, such service being hereby acknowledged by the parties to be effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law. 10.9. Public Announcements. Neither Company Stockholders nor CVC shall make any public statements, including, without limitation, any press releases, with respect to this Agreement and the transactions contemplated hereby without the prior written consent of the other party (which consent shall not be unreasonably withheld) except as may be required by law. If a public statement is required to be made by law, the parties shall consult with each other in advance as to the contents and timing thereof. 10.10. No Third Party Beneficiaries. This Agreement is intended and agreed to be solely for the benefit of the parties hereto, and no other party shall be entitled to rely on this Agreement or accrue any benefit, claim, or right of any kind whatsoever pursuant to, under, by, or through this Agreement. 10.11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. 53 62 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf as of the date first above written. CITICORP VENTURE CAPITAL LTD. By: ---------------------------- Name: Title: "Holding Company" THE KLINGELNBERG CORPORATION By: ---------------------------- Name: Title: "Company Stockholders" Name and Signature "TKC Stockholders": - ------------------------ Diether Klingelnberg - ------------------------ Arndt Klingelnberg - ------------------------ William T. Holloran, Trustee under Voting Trust Agreement dated 11/19/86 - ------------------------ Jan Klingelnberg, Beneficiary under Voting Trust Agreement dated 11/19/86 "Management Stockholders": - ------------------------ John E. Halloran 54 63 - ------------------------ Edward J. Brent - ------------------------ Amy K. Brent - ------------------------ Thomas Meyer - ------------------------ Hans Berg 55 EX-12.1 8 STATEMENT OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 INTERNATIONAL KNIFE & SAW, INC. CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES (dollars in thousands) (Unaudited)
YEAR ENDED DECEMBER 31, Nine Months Ended September, ------------------------------------------------------- ----------------------------------- Pro Forma Pro Forma Pro Forma 1991 1992 1993 1994 1995 1995 1995 1995 1996 1996 ------ ------ ------ ------- ------- ------- ------ ------ ------ ------ EARNINGS Income before taxes $4,253 $6,619 $5,145 $ 8,845 $ 8,854 $ 667 $6,092 $ (322) $7,202 $ 798 Add fixed charges (see below) 2,028 2,103 2,278 1,985 1,935 10,591 1,459 8,409 1,988 8,690 Other adjustments (a) (191) (191) ------ ------ ------ ------- ------- ------- ------ ------ ------ ------ Earnings as defined $6,281 $8,722 $7,423 $10,830 $10,789 $11,258 $7,551 $8,087 $8,999 $9,297 ====== ====== ====== ======= ======= ======= ====== ====== ====== ====== FIXED CHARGES: Interest expense $1,957 $2,007 $2,174 $ 1,906 $ 1,827 $10,483 $1,378 $8,328 $1,907 $8,609 Other adjustments (a) $ 71 96 104 79 108 108 81 81 81 81 ------ ------ ------ ------- ------- ------- ------ ------ ------ ------ Fixed Charges as defined $2,028 $2,103 $2,278 $ 1,985 $ 1,935 $10,591 $1,459 $8,409 $1,988 $8,690 ====== ====== ====== ======= ======= ======= ====== ====== ====== ====== Ratio of earnings to fixed charges 3.1 4.1 3.3 5.5 5.6 1.1 5.2 1.0 4.5 1.1
(a) Other adjustments in the earnings computation represents minority interest in loss of subsidiary. Other adjustments in the Fixed Charges computation represents a portion of rental expense representative of an interest factor. NOTE: The ratio of earnings to fixed charges is calculated by dividing fixed charges into the sum of income before taxes and fixed charges. Fixed charges consist of interest expense and a portion of rental expense representative of an interest factor. EX-21.1 9 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 Subsidiaries
Name Jurisdiction ---- ------------ Hannaco Knives & Saws, Inc. Delaware IKS Canadian Knife & Saw Ltd. Canada IKS Klingelnberg GmbH Germany IKS Klingelnberg Asia Pte. Ltd. Singapore IKS Klingelnberg Far East GmbH Germany Shanghai IKS Lida Mechanical Blade Co. Ltd. China Shanghai IKS Mechanical Blade Co. Ltd. China IKS Messerfabrik Geringswalde GmbH Germany IKS Mexican Holdings S.A. de C.V. Mexico International Knife and Saw de Mexico S.A. de C.V. Mexico International Knife & Saw Trading Corporation U.S. Virgin Islands P.T. Bevenmas Jaya Indonesia
EX-23.2 10 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated September 12, 1996, except for Note 17, as to which the date is November 6, 1996, in the Registration Statement (Form S-4) and related Prospectus of International Knife & Saw, Inc. for the registration of $90,000,000 of its 11-3/8% Senior Subordinated Notes due 2006. /s/ Ernst & Young LLP Cincinnati, Ohio December 5, 1996 EX-25 11 STATEMENT OF ELIGIBILITY AND QUALIFICATION 1 EXHIBIT 25 FORM T-1 ======================================= SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE --------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) ----- --------------- UNITED STATES TRUST COMPANY OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-3818954 (Jurisdiction of incorporation (I.R.S. employer if not a U.S. national bank) identification No.) 114 West 47th Street 10036-1532 New York, NY (Zip Code) (Address of principal executive offices)
--------------- International Knife & Saw, Inc. (Exact name of obligor as specified in its charter) Delaware 57-069-7252 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) P.O. Box 752006 45275-2006 Cincinnati, OH (Zip Code) (Address of principal executive offices)
--------------- 11-3/8% Senior Subordinated Notes Due 2006 (Title of the indenture securities) ======================================= 2 -2- GENERAL 1. GENERAL INFORMATION Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York (2nd District), New York, New York (Board of Governors of the Federal Reserve System) Federal Deposit Insurance Corporation, Washington, D.C. New York State Banking Department, Albany, New York (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. 2. AFFILIATIONS WITH THE OBLIGOR If the obligor is an affiliate of the trustee, describe each such affiliation. None 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15: International Knife & Saw, Inc. currently is not in default under any of its outstanding securities for which United States Trust Company of New York is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1 are not required under General Instruction B. 16. LIST OF EXHIBITS T-1.1 -- Organization Certificate, as amended, issued by the State of New York Banking Department to transact business as a Trust Company, is incorporated by reference to Exhibit T-1.1 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.2 -- Included in Exhibit T-1.1. T-1.3 -- Included in Exhibit T-1.1. 3 16. LIST OF EXHIBITS (cont'd.) T-1.4 -- The By-Laws of United States Trust Company of New York, as amended, is incorporated by reference to Exhibit T-1.4 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.6 -- The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990. T-1.7 -- A copy of the latest report of condition of the trustee pursuant to law or the requirements of its supervising or examining authority. NOTE As of December 5, 1996, the trustee had 2,999,020 shares of Common Stock outstanding, all of which are owned by its parent company, U.S. Trust Corporation. The term "trustee" in Item 2, refers to each of United States Trust Company of New York and its parent company, U.S. Trust Corporation. In answering Item 2 in this statement of eligibility as to matters peculiarly within the knowledge of the obligor or its directors, the trustee has relied upon information furnished to it by the obligor and will rely on information to be furnished by the obligor and the trustee disclaims responsibility for the accuracy or completeness of such information. --------------- Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, United States Trust Company of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 5th day of December, 1996. UNITED STATES TRUST COMPANY OF NEW YORK, Trustee By: /s/ Illegible --------------------------------- 4 Exhibit T-1.6 The consent of the trustee required by Section 321(b) of the Act. United States Trust Company of New York 114 West 47th Street New York, NY 10036 September 1, 1995 Securities and Exchange Commission 450 5th Street, N.W. Washington, DC 20549 Gentlemen: Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the limitations set forth therein, United States Trust Company of New York ("U.S. Trust") hereby consents that reports of examinations of U.S. Trust by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Very truly yours, UNITED STATES TRUST COMPANY OF NEW YORK By: s/ Gerard F. Ganey ------------------------------- Senior Vice President 5 EXHIBIT T-1.7 UNITED STATES TRUST COMPANY OF NEW YORK CONSOLIDATED STATEMENT OF CONDITION SEPTEMBER 30, 1996 (IN THOUSANDS) ASSETS Cash and Due from Banks $ 38,257 Short-Term Investments 82,377 Securities Available for Sale 861,975 Loans 1,404,930 Less: Allowance for Credit Losses 13,048 ---------- Net Loans 1,391,882 Premises and Equipment 60,012 Other Assets 133,673 ---------- TOTAL ASSETS $2,568,176 ========== LIABILITIES Deposits: Non-Interest Bearing $ 466,849 Interest Bearing 1,433,894 ---------- Total Deposits 1,900,743 Short-Term Credit Facilities 369,045 Accounts Payable and Accrued Liabilities 143,604 ---------- TOTAL LIABILITIES $2,413,392 ========== STOCKHOLDERS' EQUITY Common Stock 14,995 Capital Surplus 42,394 Retained Earnings 98,402 Unrealized Gains (Losses) on Securities Available for Sale, Net of Taxes (1,007) ---------- TOTAL STOCKHOLDER'S EQUITY 154,784 ---------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $2,568,176 ==========
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank do hereby declare that this Statement of Condition has been prepared in conformance with the instructions issued by the appropriate regulatory authority and is true to the best of my knowledge and belief. Richard E. Brinkman, SVP & Controller October 24, 1996 EX-27 12 FINANCIAL DATA SCHEDULE
5 9-MOS 12-MOS DEC-31-1996 DEC-31-1995 JAN-01-1996 JAN-01-1995 SEP-30-1996 DEC-31-1995 6,544,000 10,273,000 0 0 22,075,000 20,728,000 1,428,000 2,084,000 30,554,000 29,036,000 60,505,000 59,782,000 54,467,000 47,042,000 25,569,000 24,315,000 93,411,000 85,697,000 38,691,000 27,218,000 21,604,000 27,356,000 0 0 0 0 5,000 5,000 41,787,000 38,024,000 93,411,000 85,697,000 89,256,000 107,030,000 89,256,000 107,030,000 62,748,000 76,057,000 62,748,000 76,057,000 0 589,000 0 0 1,907,000 1,827,000 7,202,000 8,854,000 2,350,000 3,606,000 4,852,000 5,248,000 0 0 0 0 0 0 4,852,000 5,248,000 10.07 10.89 10.07 10.89
EX-99.1 13 FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF EXISTING NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE. INTERNATIONAL KNIFE & SAW, INC. LETTER OF TRANSMITTAL 11 3/8% SENIOR SUBORDINATED NOTES DUE 2006 TO: UNITED STATES TRUST COMPANY OF NEW YORK, THE EXCHANGE AGENT By Registered or Certified Mail: By Overnight Courier: United States Trust Company of New York United States Trust Company of New York P.O. Box 844 770 Broadway Cooper Station New York, New York 10003 New York, New York 10276-0844 Attn: Corporate Trust By Hand: By Facsimile: United States Trust Company of New York United States Trust Company of New York 111 Broadway (212) 420-6152 Lower Level Attn: Corporate Trust Corporate Trust Winnow New York, New York 10006 Confirm by telephone: (800) 548-6525
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR EXISTING NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. The undersigned acknowledges receipt of the Prospectus dated , 1997 (the "Prospectus") of INTERNATIONAL KNIFE & SAW, INC. (the "Company") and this Letter of Transmittal (the "Letter of Transmittal"), which together constitute the Company's Offer to Exchange (the "Exchange Offer") $1,000 principal amount of its 11 3/8% Senior Subordinated Notes due 2006 (the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which the Prospectus is a part, for each $1,000 principal amount of its outstanding 11 3/8% Senior Subordinated Notes due 2006 (the "Existing Notes"), of which $90,000,000 principal amount is outstanding, upon the terms and conditions set forth in the Prospectus. Other capitalized terms used but not defined herein have the meaning given to them in the Prospectus. 2 For each Existing Note accepted for exchange, the holder of such Existing Note will receive a New Note having a principal amount equal to that of the surrendered Existing Note. Interest on the New Notes will accrue from the last interest payment date on which interest was paid on the Existing Notes surrendered in exchange therefor or, if no interest has been paid on the Existing Notes, from the date of original issue of the Existing Notes. Holders of Existing Notes accepted for exchange will be deemed to have waived the right to receive any other payments or accrued interest on the Existing Notes. The Company reserves the right, at any time or from time to time, to extend the Exchange Offer at its discretion, in which event the term "Expiration Date" shall mean the latest time and date to which the Exchange Offer is extended. The Company shall notify holders of the Existing Notes of any extension 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. This Letter of Transmittal is to be used by Holders if: (i) certificates representing Existing Notes are to be physically delivered to the Exchange Agent herewith by Holders; (ii) tender of Existing Notes is to be made by book-entry transfer to the Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to the procedures set forth in the Prospectus under "The Exchange Offer -- Procedures for Tendering Existing Notes" by any financial institution that is a participant in DTC and whose name appears on a security position listing as the owner of Existing Notes or (iii) tender of Existing Notes is to be made according to the guaranteed delivery procedures set forth in the prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures." DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. The term "Holder" with respect to the Exchange Offer means any person: (i) in whose name Existing Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered Holder; or (ii) whose Existing Notes are held of record by DTC who desires to deliver such Existing Notes by book-entry transfer at DTC. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. 3 The instructions included with this Letter of Transmittal must be followed. Questions and requests for assistance or for additional copies of the Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Exchange Agent. See Instruction 10 herein. HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR EXISTING NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE CHECKING ANY BOX BELOW - -------------------------------------------------------------------------------- DESCRIPTION OF 11 3/8% SENIOR SUBORDINATED NOTES DUE 2006 (EXISTING NOTES) - ------------------------------------------------------------------------------------------------------------------------------ AGGREGATE PRINCIPAL PRINCIPAL AMOUNT NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT REPRESENTED BY TENDERED (IF LESS THAN (PLEASE FILL IN, IF BLANK) NUMBER(S)* CERTIFICATE(S) ALL)** ------------------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer. ** Unless indicated in the column labeled "Principal Amount Tendered," any tendering Holder of Existing Notes will be deemed to have tendered the entire aggregate principal amount represented by the column labeled "Aggregate Principal Amount Represented by Certificate(s)." If the space provided above is inadequate, list the certificate numbers and principal amounts on a separate signed schedule and affix the list to this Letter of Transmittal. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4 The minimum permitted tender is $1,000 in principal amount of Existing Notes. All other tenders must be integral multiples of $1,000. ------------------------------------------------------------ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 4, 5 AND 6) To be completed ONLY if certificates for Existing Notes in a principal amount not tendered or not accepted for exchange, or New Notes issued in exchange for Existing Notes accepted for exchange, are to be issued in the name of someone other than the undersigned, or if the Existing Notes tendered by book-entry transfer that are not accepted for exchange are to be credited to an account maintained by DTC. Issue certificate(s) to: Name: --------------------------------------------------- Address: ------------------------------------------------- ------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------ (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) ------------------------------------------------------------ ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4, 5 AND 6) To be accepted ONLY if certificates for Existing Notes in a principal amount not tendered or not accepted for exchange, are to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown above. Mail to: Name: --------------------------------------------------- Address: ------------------------------------------------- ------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------ (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) ------------------------------------------------------------ 5 [ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution: ----------------------------------------------------------------------------- DTC Book-Entry Account No.: ----------------------------------------------------------------------------- Transaction Code No.: ----------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED EXISTING 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: ----------------------------------------------------------------- IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING: Account Number: --------------------------- Transaction Code Number: ---------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ----------------------------------------------------------------------------- Address: ----------------------------------------------------------------------------- 6 Ladies and Gentlemen: Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to the Company the principal amount of Existing Notes indicated above. Subject to and effective upon the acceptance for exchange of the principal amount of Existing Notes tendered in accordance with this Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Existing Notes tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company and as Trustee under the indenture for the Existing Notes and New Notes) with respect to the tendered Existing Notes with full power of substitution to (i) deliver certificates for such Existing Notes to the Company, or transfer ownership of such Existing Notes on the account books maintained by DTC and deliver all accompanying evidence of transfer and authenticity to, or upon the order of, the Company and (ii) present such Existing Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Existing Notes, all in accordance with the terms and subject to the conditions of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed irrevocable and coupled with an interest. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Existing Notes tendered hereby and that 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 acquired by the Company. The undersigned hereby further represents that any New Notes acquired in exchange for Existing Notes tendered hereby will have been acquired in the ordinary course of business of the Holder receiving such New Notes, whether or not such person is the Holder, that neither the Holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such New Notes and that neither the Holder nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company or any of its subsidiaries. The undersigned also acknowledges that this Exchange Offer is being made in reliance on an interpretation by the staff of the Securities and Exchange Commission (the "SEC") that the New Notes issued in exchange for the Existing Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangements with any person to participate in the distribution of such New Notes. 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 Existing Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the assignment, transfer and purchase of the Existing Notes tendered hereby. All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, personal representatives, successors and assigns, trustees in bankruptcy or other legal representatives of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in "The Exchange Offer -- Withdrawal Rights" section of the Prospectus. For purposes of the Exchange Offer, the Company shall be deemed to have accepted validly tendered Existing Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. 7 If any tendered Existing Notes are not accepted for exchange pursuant to the Exchange Offer for any reason, certificates for any such unaccepted Existing Notes will be returned (except as noted below with respect to tenders through DTC), without expense, to the undersigned at the address shown below or at a different address as may be indicated under Special Delivery Instructions" as promptly as practicable after the Expiration Date. The undersigned understands that tenders of Existing Notes pursuant to the procedures described under the caption "The Exchange Offer -- Procedures for Tendering Existing Notes" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. Unless otherwise indicated under "Special Payment Instructions," please issue the certificates representing the New Notes issued in exchange for the Existing Notes accepted for exchange and return any Existing Notes not tendered or not exchanged in the name(s) of the undersigned (or in either such event in the case of the Existing Notes tendered through DTC, by credit to the undersigned's account, at DTC). Similarly, unless otherwise indicated under "Special Delivery Instructions," please send the certificates representing the New Notes issued in exchange for the Existing Notes accepted for exchange and any certificates for Existing Notes not tendered or not exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s), unless, in either event, tender is being made through DTC. In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the certificates representing the New Notes issued in exchange for the Existing Notes accepted for exchange and return any Existing Notes not tendered or not exchanged in the name(s) of, and send said certificates to, the person(s) so indicated. The undersigned recognizes that the Company has no obligation pursuant to the "Special Payment Instructions" and "Special Delivery Instructions" to transfer any Existing Notes from the name of the registered Holder(s) thereof if the Company does not accept for exchange any of the Existing Notes so tendered. Holders of Existing Notes who wish to tender their Existing Notes and (i) whose Existing Notes are not immediately available or (ii) who cannot deliver their Existing Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent, or cannot complete the procedure for book-entry transfer, prior to the Expiration Date, may tender their Existing Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 1 regarding the completion of the Letter of Transmittal printed below. 8 PLEASE SIGN HERE WHETHER OR NOT EXISTING NOTES ARE BEING PHYSICALLY TENDERED HEREBY X ___________________________________________________ Date _____________________________ X ___________________________________________________ Date _____________________________ Signature(s) of Registered Holder(s) Or Authorized Signatory Area Code and Telephone Number: ___________________________________________
The above lines must be signed by the registered Holder(s) of Existing Notes as their name(s) appear(s) on the Existing Notes or, if the Existing Notes are tendered by a participant in DTC, as such participant's name appears on a security position listing as the owner of Existing Notes, or by person(s) authorized to become registered Holder(s) by a properly completed bond power from the registered Holder(s), a copy of which must be transmitted with this Letter of Transmittal. If Existing Notes to which this Letter of Transmittal relates are held of record by two or more joint Holders, then all such holders must sign this Letter of Transmittal. If signature is 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 must (i) set forth his or her full title below and (ii) unless waived by the Company, submit evidence satisfactory to the Company of such person's authority to act. See Instruction 4 regarding the completion of this Letter of Transmittal printed below. Name(s): ______________________________________________________________________ (Please Print) Capacity:______________________________________________________________________ Address: ______________________________________________________________________ (Include Zip Code) Signature(s) Guaranteed by an Eligible Institution: (If required by Instruction 4) _______________________________________________________________________________ (Authorized Signature) _______________________________________________________________________________ (Title) _______________________________________________________________________________ (Name of Firm) Dated: ______________________________, 1996 9 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER AND EXISTING NOTES; GUARANTEED DELIVERY PROCEDURES. This Letter is to be completed by noteholders, 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 Existing 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. Existing Notes tendered hereby must be in denominations of principal amount of maturity of $1,000 and any integral multiple thereof. Noteholders whose certificates for Existing 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 Existing 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 (as defined in Instruction 4 below), (ii) prior to the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Letter (or facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Existing Notes and the amount of Existing Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Existing Notes, or a Book-Entry Confirmation, 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 Existing Notes, in proper form for transfer, or Book-Entry Confirmation, as the case may be, and all other documents required by this Letter, are received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. The method of delivery of this Letter, the Existing Notes and all other required documents is at the election and risk of the tendering holders, but the delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If Existing Notes are sent by mail, it is suggested that the mailing be made sufficiently in advance of the Expiration Date to permit the delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer" section in the Prospectus. 2. TENDER BY HOLDER. Only a holder of Existing Notes may tender such Existing Notes in the Exchange Offer. Any beneficial holder of Existing Notes who is not the registered holder and who wishes to tender should arrange with the registered holder to execute and deliver this Letter on his or her behalf or must, prior to completing and executing this Letter and delivering his or her Existing Notes, either make appropriate arrangements to register ownership of the Existing Notes in such holder's name or obtain a properly completed bond power form the registered holder. 3. PARTIAL TENDERS. Tenders of Existing Notes will be accepted only in integral multiples of $1,000. If less than the entire principal amount of any Existing Notes is tendered, the tendering holder should fill in the principal amount tendered in the fourth column of the box entitled "Description of 11 3/8% Senior Subordinated Notes due 2006 (Existing Notes)" above. The entire principal amount of Existing Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Existing Notes is not tendered, then Existing Notes for the principal amount of Existing Notes not tendered and a certificate or certificates representing New Notes issued in exchange for any Existing Notes accepted will be sent to the Holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter promptly after the Existing Notes are accepted for exchange. 4. SIGNATURES ON THIS LETTER; POWERS OF ATTORNEY AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the registered holder of the Existing Notes tendered hereby, the signature must correspond exactly with the name as written on the face of the certificates without any change whatsoever. 10 If any tendered Existing Notes are owned of record by two or more joint owners, all such owners must sign this Letter. If any tendered Existing 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 Existing Notes specified herein and tendered hereby, no endorsements of certificates or separate powers of attorney are required. If, however, the New Notes are to be issued, or any untendered Existing Notes are to be reissued, to a person other than the registered holder, then endorsements of any certificates transmitted hereby or separate powers of attorney 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 powers of attorney, in either case signed exactly as the name or names on 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 powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should 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 Existing Notes or signatures on powers of attorney required by this Instruction 4 must be guaranteed by a firm which is a participant in a recognized signature guarantee medallion program ("Eligible Institutions"). Signatures on this Letter must be guaranteed by an Eligible Institution unless the Existing Notes are tendered (i) by a registered holder of Existing Notes (which term, for purposes of the Exchange Offer, includes any participant in the Book-Entry Transfer Facility system whose name appears on a security position listing as the holder of such Existing Notes) who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter, or (ii) for the account of an Eligible Institution. 5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the applicable box or boxes, the name and address to which New Notes or substitute Existing Notes for principal amounts not tendered or not accepted for exchange are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal (or in the case of tender of Existing Notes through DTC, if different from DTC). In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. Noteholders tendering Existing Notes by book-entry transfer may request that Existing Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such noteholder may designate hereon. If no such instructions are given, such Existing Notes not exchanged will be returned to the name and address of the person signing this Letter. 6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder whose offered Existing Notes are accepted for exchange must provide the Company (as payer) with his, her or its correct Taxpayer Identification Number ("TIN"), which, in the case of an exchanging holder who is an individual, is his or her social security number. If the Company is not provided with the correct TIN or an adequate basis for exemption, such holder may be subject to a $50 penalty imposed by the Internal Revenue Service (the "IRS"), and payments made with respect to Existing Notes purchased pursuant to the Exchange Offer may be subject to backup withholding at a 31% rate. If withholding results in an overpayment of taxes, a refund may be obtained. Exempt holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9." 11 To prevent backup withholding, each exchanging holder must provide his, her or its correct TIN by completing the Substitute Form W-9 enclosed herewith, certifying that the TIN provided is correct (or that such Holder is awaiting a TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder has been notified by the IRS that he, she or it is subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has notified the holder that he, she or it is no longer subject to backup withholding. In order to satisfy the Exchange Agent that a foreign individual qualifies as an exempt recipient, such holder must submit a statement signed under penalty of perjury attesting to such exempt status. Such statements may be obtained from the Exchange Agent. If the Existing Notes are in more than one name or are not in the name of the actual owner, consult the Substitute Form W-9 for information on which TIN to report. If you do not provide your TIN to the Company within 60 days, backup withholding will begin and continue until you furnish your TIN to the Company. 7. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the exchange of Existing Notes pursuant to the Exchange Offer. If, however, certificates representing New Notes or Existing Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Existing Notes tendered hereby, or if tendered Existing 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 exchange of Existing Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on 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 7, it will not be necessary for transfer tax stamps to be affixed to the Existing Notes listed in this Letter. 8. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend, waive or modify specified conditions in the Exchange Offer in the case of any Existing Notes tendered. 9. NO CONDITIONAL TRANSFERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Existing Notes, by execution of this Letter, shall waive any right to receive notice of the acceptance of their Existing 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 Existing Notes nor shall any of them incur any liability for failure to give any such notice. 10. MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES. Any tendering holder whose Existing Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance for additional copies of the Prospectus, this Letter and the Notice of Guaranteed Delivery may be directed to the Exchange Agent at the address specified in the Prospectus. (DO NOT WRITE IN THE SPACE BELOW)
CERTIFICATE EXISTING NOTES EXISTING NOTES SURRENDERED TENDERED ACCEPTED - ------------------ ------------------ ------------------ - ------------------ ------------------ ------------------ - ------------------ ------------------ ------------------ - ------------------ ------------------ ------------------
Delivery Prepared by --------------- Checked By --------------- Date --------------- 12 - ---------------------------------------------------------------------------------------------------------- PAYER'S NAME: INTERNATIONAL KNIFE & SAW, INC. - ---------------------------------------------------------------------------------------------------------- Name (if joint names, list first and circle the name of the person or SUBSTITUTE entity whose number you enter in Part 1 below. See instructions if your FORM W-9 name has changed.) DEPARTMENT OF THE TREASURY --------------------------------------------------------------------------- INTERNAL REVENUE SERVICE Address PAYER'S REQUEST FOR TIN --------------------------------------------------------------------------- City, state and ZIP code --------------------------------------------------------------------------- List account number(s) here (optional) --------------------------------------------------------------------------- ---------------------------------------------------------------------------- Part 1--PLEASE PROVIDE YOUR TAXPAYER Social security number IDENTIFICATION NUMBER ("TIN") IN THE BOX AT or TIN RIGHT AND CERTIFY BY SIGNING AND DATING ------------------------------ BELOW. ---------------------------------------------------------------------------- Part 2--Check the box if you are NOT subject to backup withholding under the provisions of section 3408(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup withholding. CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE. ---------------------------------------------------------------------------- Signature _________________ Date PART 3--AWAITING TIN [ ] - ----------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OR SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 13 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. - --------------------------------------------------------- GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF-- - --------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner of (joint account) the account or, if combined funds, any one of the individuals(1) 3. Husband and wife The actual owner of (joint account) the account or, if joint funds, either person(1) 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor The adult or, if (joint account) the minor is the only contributor, the minor(1) 6. Account in the name of guardian The ward, minor, or or committee for a designated incompetent ward, minor, or incompetent person(3) person 7. a. The usual revocable savings The grantor- trust account (grantor is trustee(1) also trustee) b. So-called trust account that The actual owner(1) is not a legal or valid trust under State law 8. Sole proprietorship account The Owner(4) - --------------------------------------------------------- - --------------------------------------------------------- GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF-- - --------------------------------------------------------- 9. A valid trust, estate, or Legal entity (Do pension trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in the The partnership name of the business 13. Association, club, or other The organization tax-exempt organization 15. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - ---------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 14 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a), or an individual retirement plan. - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency, or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. Or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a). - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1941. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid n money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and in paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to non-resident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give tax-payer identification numbers to payers who must report for payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1994, payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under-payment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.2 14 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR 11 3/8% SENIOR SUBORDINATED NOTES DUE 2006 INTERNATIONAL KNIFE & SAW, INC. As set forth in the Prospectus dated , 1997 (the "Prospectus"), of INTERNATIONAL KNIFE & SAW, INC., (the "Company") and in the accompanying Letter of Transmittal and instructions thereto (the "Letter of Transmittal"), this form or one substantially equivalent hereto must be used to accept the Company's offer to exchange (the "Exchange Offer") all of its outstanding 11 3/8% Senior Subordinated Notes due 2006 (the "Existing Notes") for its 11 3/8% Senior Subordinated Notes due 2006, which have been registered under the Securities Act of 1933, as amended, if certificates for the Existing Notes are not immediately available or if the Existing Notes, the Letter of Transmittal or any other documents required thereby cannot be delivered to the Exchange Agent, or the procedure for book-entry transfer cannot be completed, prior to 5:00 P.M., New York City time, on the Expiration Date (as defined in the Prospectus), this form may be delivered by an Eligible Institution by hand or transmitted by facsimile transmission, overnight courier or mail to the Exchange Agent as set forth below. Capitalized terms used but not defined herein have the meaning given to them in the Prospectus. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON 1997, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF EXISTING NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE BUSINESS DAY PRIOR TO THE EXPIRATION DATE. TO: UNITED STATES TRUST COMPANY OF NEW YORK, THE EXCHANGE AGENT By Registered or Certified Mail: By Overnight Courier: United States Trust Company of New York United States Trust Company of New York P.O. Box 844 770 Broadway Cooper Station New York, New York 10003 New York, New York 10276-0844 Attention: Corporate Trust By Hand: By Facsimile: United States Trust Company of New York United States Trust Company of New York 111 Broadway (212) 420-6152 Lower Level Attention: Corporate Trust Corporate Trust Window New York, New York 10006 Confirm by telephone: (800) 548-6565
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal to be used to tender Existing Notes is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the Letter of Transmittal. 2 Ladies and Gentlemen: The undersigned hereby tenders to INTERNATIONAL KNIFE & SAW, INC., a Delaware corporation (the "Company"), upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which is hereby acknowledged, (number of Existing Notes) Existing Notes pursuant to the guaranteed delivery procedures set forth in Instruction 1 of the Letter of Transmittal. The undersigned understands that tenders of Existing Notes will be accepted only in principal amounts equal to $1,000 or integral multiples thereof. The undersigned understand that tenders of Existing Notes pursuant to the Exchange Offer may not be withdrawn after 5:00 p.m., New York City time, on the business day prior to the Expiration Date. All authority herein conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death, incapacity or dissolution of the undersigned and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned. NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW. Certificate No(s). for Existing Notes (if available) Name(s) of Record Holder(s) - ------------------------------------------------- ------------------------------------------------- - ------------------------------------------------- ------------------------------------------------- PLEASE PRINT OR TYPE Principal Amount of Existing Notes Address ------------------------------------------------- - ------------------------------------------------- ------------------------------------------------- Area Code and Tel. No. ------------------------------------------------- Signature(s) ------------------------------------------------- Dated: ------------------------------------------------- If Existing Notes will be delivered by book-entry transfer at the Depository Trust Company, Depository Account No. -------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the registered holder(s) of Existing Notes exactly as its (their) name(s) appear on certificates for Existing Notes or on a security position listing as the owner of Existing Notes, or by person(s) authorized to become registered holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information: PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): - -------------------------------------------------------------------------------- Capacity: - -------------------------------------------------------------------------------- Address(es): - -------------------------------------------------------------------------------- 3 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., or 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 (the "Exchange Act"), hereby (a) represents that the above named person(s) "own(s)" the Existing Notes tendered hereby within the meaning of Rule 14e-4 under the Exchange Act, (b) represents that such tender of Existing Notes complies with Rule 14e-4 under the Exchange Act and (c) guarantees that delivery to the Exchange Agent of certificates for the Existing Notes tendered hereby, in proper form for transfer (or confirmation of the book-entry transfer of such Existing Notes into the Exchange Agent's Account at the Depository Trust Company, pursuant to the procedures for book- entry transfer set forth in the Prospectus), with delivery of a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signatures and any other required documents, will he received by the Exchange Agent at one of its addresses set forth above within five business days after the Expiration Date. THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL AND Existing Notes TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD SET FORTH AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE UNDERSIGNED. Name of Firm - ------------------------------------------- -------------------------------------- Authorized Signature Address - ------------------------------------------------- Name -------------------------------------- Please Print or Type - ------------------------------------------------------------ Title -------------------------------------- Zip Code Area Code and Tel. No. - ------------------------------- Date -------------------------------------- Dated: - ------------------, 1997 NOTE: DO NOT SEND EXISTING NOTES WITH THIS FORM; EXISTING NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE AGENT WITHIN FIVE BUSINESS DAYS AFTER THE EXPIRATION DATE. -----END PRIVACY-ENHANCED MESSAGE-----