-----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, OWb8Vb6QPnyD0uWG3LhmfsaptuURhE7gJMTz5ve/2YO+FqoKLgiLPtxxKUzFtWlQ W0afemnQMXxRFEWj+023vw== 0000950123-97-000512.txt : 19970129 0000950123-97-000512.hdr.sgml : 19970129 ACCESSION NUMBER: 0000950123-97-000512 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19970128 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL KNIFE & SAW INC CENTRAL INDEX KEY: 0001027909 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 570697252 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-17305 FILM NUMBER: 97511966 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/A 1 AMENDMENT NO. 1 TO FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1996 REGISTRATION NO. 333-17305 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO 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 30 ROCKEFELLER PLAZA NEW YORK, NEW YORK 10112 (212) 698-3500 ------------------------ 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 Subordinated Notes due 2006.............................. $90,000,000 100% $90,000,000 $31,035(2) - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the registration fee. (2) Previously paid. ------------------------ 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 15. Information With Respect to S-3 Companies............................... Not Applicable
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 JANUARY 28, 1997 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 ("IKS" or 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). On December 31, 1996, the Company had no Senior Debt outstanding and the Company's subsidiaries had approximately $6.1 million of indebtedness outstanding (exclusive of such unused commitments). 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 net sales increasing from $78 million in 1991 to $107 million in 1995, and a pro forma EBITDA (as defined herein) CAGR of 11.2%, with pro forma EBITDA increasing from $9.7 million in 1991 to $14.8 million in 1995. The annual growth rate of the Company's net sales during these four years was 4.7%, 3.7%, 8.8% and 15.8%, respectively. 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 24.2% 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 2 8 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 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." The gross proceeds to the Company from the sale of the Existing Notes, together with 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, 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 referred to below and (iii) pay approximately $5.0 million of fees and expenses related to the Transactions. See "Use of Proceeds." 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, including 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 Existing 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). On December 31, 1996, the Company had no Senior Debt outstanding and the Company's subsidiaries had approximately $6.1 million of indebtedness outstanding (exclusive of unused commitments and the China joint venture indebtedness). The indenture (the "Indenture") governing the New Notes permits 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)......................... $ 9,735 $13,920 $ 14,222 $ 9,872 $12,573 Depreciation and 2,813 3,359 3,570 2,445 3,007 amortization(2)................. 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..................... 11.5% 15.1% 13.3% 12.5% 14.1% EBITDA including LIFO charges and 10,039 14,472 13,591 9,153 11,908 credits......................... PRO FORMA DATA: EBITDA(1)(4)...................... $ 9,978 $14,367 $ 14,759 $10,283 $12,783 Interest expense.................. 10,946 8,328 8,609 EBITDA margin..................... 11.7% 15.5% 13.8% 13.0% 14.3% Ratio of EBITDA to interest 1.3x 1.5x expense(5)...................... Ratio of net debt to EBITDA(6).... 6.1x 5.2x Ratio of earnings to fixed 1.1x 1.1x charges(7)......................
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 17,803 95,492 debt)(8)............................................................... 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 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. EBITDA has not been adjusted to exclude other unusual and one time expenses incurred by the Company, as follows:
NINE MONTH YEAR ENDED DECEMBER PERIOD ENDED 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, adjusted to exclude these expenses, would have been $10,077, $14,491 and $14,811 for the years ended December 31, 1993, 1994 and 1995, respectively, and $9,944 and $12,573 for the nine month periods ended September 30, 1995 and 1996, respectively. 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." The EBITDA measure presented by the Company may not be comparable to similarly titled measures reported by other companies. (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 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). (8) 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. GOVERNMENT REGULATION 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. 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. See "Business -- Environmental and Regulatory Matters." 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 12 18 debt instruments. Such debt instruments may prohibit the repurchase of the Notes by the Company in the event of a Change of Control, unless and until such time as the indebtedness under such debt instruments is repaid in full. There can be no assurance that sufficient funds will be available at the time of any Change of Control to repay indebtedness under such debt instruments and to make any required repurchases of Notes tendered. 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." 13 19 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 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. No stock options had been granted by the Company or IKS Holdings prior to the consummation of the Transactions. 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 14 20 approximately $14.0 million of Consolidated Net Debt immediately prior to the Recapitalization, the 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 Recapitalization Distribution will be adjusted upwards or downwards, as appropriate, on a dollar-for-dollar basis. 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 which may be owed to IKS Holdings 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 finance the cash portion of the Recapitalization Distribution, repay certain indebtedness of the Company and pay certain fees and expenses related to the Transactions. The following table illustrates the sources and uses of funds utilized to consummate the Transactions. In connection with the Recapitalization, Arndt Klingelnberg, Diether Klingelnberg and John E. Halloran elected to receive Holdings Debentures, Holdings Preferred Stock and Holdings Class A Stock valued at approximately $9.4 million as part of the Recapitalization Distribution. Therefore, the following table includes such Rollover Investment as both a source and a use.
AMOUNT ---------- (DOLLARS IN THOUSANDS) SOURCES OF FUNDS: 11 3/8% Senior Subordinated Notes due 2006.................. $ 90,000 Recapitalization Investment by CVC(1)....................... 14,300 Rollover Investment by the Klingelnbergs(2)................. 8,500 Recapitalization Investment by Management(1)................ 1,300 Rollover Investment by Management(2)........................ 900 --------- Total Sources..................................... $ 115,000 ========= USES OF FUNDS: Cash portion of Recapitalization Distribution(3)............ $ 86,600 Repayment of certain indebtedness(4)........................ 11,400 Rollover Investment(2)...................................... 9,400 Transaction fees and expenses............................... 5,000 Working capital............................................. 2,600 --------- Total Uses........................................ $ 115,000 =========
- --------------- (1) The Recapitalization Investment consisted of Holdings Debentures, Holdings Preferred Stock and Holdings Common Stock having an aggregate value of $15.6 million issued by IKS Holdings in connection with the Recapitalization, See "The Transactions," "Stock Ownership" and "Description of Certain Indebtedness -- Holdings Debentures." (2) The Rollover Investment consisted of Holdings Debentures, Holdings Preferred Stock and Holdings Class A Stock having an aggregate value of $9.4 million issued by IKS Holdings to Arndt Klingelnberg, Diether Klingelnberg and John E. Halloran as part of the Recapitalization (footnotes continued on following page) 15 21 Distribution. See "The Transactions," "Stock Ownership" and "Description of Certain Indebtedness -- Holdings Debentures." (3) Approximately $11.0 million was distributed as repayment of indebtedness owed to IKS Holdings and the balance was distributed in the form of a dividend. (4) The indebtedness repaid consisted of a term loan which was to mature on July 17, 1997 and which bore interest at 6.9% and certain notes payable with maturities through 2003 bearing interest at rates of 3.0% to 7.75%. Following the repayment of such indebtedness, the Company had approximately $5.5 million of indebtedness outstanding (excluding China joint venture indebtedness of approximately $3.6 million, which is non-recourse to the Company). 16 22 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." 17 23 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. 18 24 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............................................... $ 90,000 (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, including underwriter discounts............................... (5,000) -------- $ 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.
19 25 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. 20 26 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. 21 27 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. 22 28 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. 23 29 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
YEAR ENDED DECEMBER 31, NINE MONTH PERIOD ENDED SEPTEMBER 30, ----------------------------------------------------------- ------------------------------------- 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 (509) 57 ------- ------- ------- ------- -------- -------- ------- ------- ------- ------- Income (loss) before income taxes......... 4,253 6,619 5,145 8,845 8,854 404 6,092 7,202 (356) 767 Provision for income taxes................ 1,459 2,445 1,951 3,663 3,606 479 2,615 2,350 229 342 ------- ------- ------- ------- -------- -------- ------- ------- ------- ------- Net income (loss)...... $ 2,794 $ 4,174 $ 3,194 $ 5,182 $ 5,248 $ (75) $ 3,477 $ 4,852 $ (585) $ 425 ======= ======= ======= ======= ======== ======== ======= ======= ======= ======= OTHER DATA: EBITDA(1).............. $ 9,523 $10,030 $ 9,735 $13,920 $ 14,222 $ 14,759 $ 9,872 $12,573 $10,283 $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% 11.5% 15.1% 13.3% 13.8% 12.5% 14.1% 13.0% 14.3% Ratio of EBITDA to interest expense(4)........... 4.9x 5.0x 4.5x 7.3x 7.8x 1.3x 7.2x 6.6x 1.2x 1.5x Ratio of net debt to EBITDA (5)........... 1.5x 1.3x 1.9x 0.8x 0.9x 6.1x 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 $10,039 $14,472 $ 13,591 $ 14,128 $ 9,153 $11,908 $ 9,564 $12,118
AT DECEMBER 31, AT SEPTEMBER 30, ----------------------------------------------- ----------------- 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)........................................... 16,881 16,025 19,474 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) 24 30 - --------------- (1) EBITDA is defined as operating income plus depreciation and amortization adjusted to exclude 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. EBITDA has not been adjusted to exclude other unusual and one time expenses incurred by the Company, 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, adjusted to exclude these expenses, would have been $10,077, $14,491 and $14,811 for the years ended December 31, 1993, 1994 and 1995, respectively, and $9,944 and $12,573 for the nine month periods ended September 30, 1995 and 1996, respectively. 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." The EBITDA measure presented by the Company may not be comparable to similarly titled measures reported by other companies. (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. 25 31 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. 26 32 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 and premium salaries and expenses. 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 27 33 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 28 34 $19.9 million in 1994 as volume increased and US$/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 29 35 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. 30 36 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. 31 37 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. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of notice to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. 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 32 38 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 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 holder of Existing Notes 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. 33 39 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 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. 34 40 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 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. 35 41 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 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 of New York New York 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 36 42 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 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." The Company has not requested the staff of the Commission to consider the Exchange Offer in the context of a no-action letter, and there can be no assurance that the staff would take positions similar to those taken in the interpretive letters referred to above if the Company were to make such a no-action request. 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. 37 43 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 net sales increasing from $78 million in 1991 to $107 million in 1995, and a pro forma EBITDA (as defined herein) CAGR of 11.2%, with pro forma EBITDA increasing from $9.7 million in 1991 to $14.8 million in 1995. The annual growth rate of the Company's net sales during these four years was 4.7%, 3.7%, 8.8% and 15.8%, respectively. For the nine month period ended September 30, 1996, the Company's net sales 38 44 increased 12.6% over the comparable 1995 period to $89.3 million, and pro forma EBITDA increased 24.2% over the comparable 1995 period to $12.8 million. 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 39 45 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 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. 40 46 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 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. 41 47 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 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. 42 48 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 43 49 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 44 50 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 45 51 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. 46 52 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. 47 53 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. 48 54 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 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. 49 55 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, Treasurer and Secretary Jeffrey Hansel............................. 41 Vice President -- Sales and Marketing, North America James A. Rich.............................. 49 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 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 March 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, Treasurer 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. 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 50 56 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. 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 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. 51 57 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 for services rendered in 1996 by (i) each person who served as the Company's Chief Executive Officer during 1996, (ii) the four most highly compensated executive officers of the Company (other than the individuals who served as the Company's Chief Executive Officer) in office on December 31, 1996 and (iii) one additional individual who would have been included in the category of persons referred to in clause (ii) above but for the fact that such individual was not serving as an executive officer of the Company on December 31, 1996. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ---------------------------------- ALL OTHER SALARY BONUS(1) OTHER COMPENSATION NAME AND PRINCIPAL POSITION ($) ($) ($) ($) - ----------------------------------------- -------- -------- -------- ------------ Diether Klingelnberg..................... $186,718 $ -- $ -- $ 4,833(3) President and Chief Executive Officer(2) John E. Halloran......................... 200,000 55,000 -- 213,711(4) President and Chief Executive Officer(2) Thomas W.G. Meyer........................ 185,923 -- -- -- Executive Vice President -- Europe and Asia William M. Schult........................ 120,000 10,000 14,971(6) 33,356(7) Vice President -- Finance, Chief Financial Officer, Treasurer and Secretary(5) William R. Underhill..................... 101,000 18,041 -- 10,224(8) Vice President -- Operations James A. Rich............................ 98,100 9,130 -- 35,186(9) Vice President -- Management Information Systems, North America Edward Brent............................. 145,000 74,444(10) -- 114,209(11) Chief Financial Officer and Treasurer(5)
- --------------- (1) Does not include a supplemental bonus payable to Messrs. Klingelnberg, Halloran, Meyer, Schult and Underhill, the amount of which has not been determined. The supplemental bonus to be paid to Mr. Klingelnberg will be paid by IKS Holdings. (2) In March 1996, Diether Klingelnberg was succeeded as President and Chief Executive Officer by John E. Halloran. Mr. Halloran had previously served as Executive Vice President of the Company. (footnotes continued on following page) 52 58 (3) Includes $1,304 in Company 401(k) contributions and $3,529 in Company Profit Sharing Plan contributions. (4) Includes $200,000 paid in connection with the consummation of the Transactions, $3,000 in Company 401(k) contributions, $8,250 in Company Profit Sharing Plan contributions, $461 in group term life insurance premiums and $2,000 as a directors fee which was paid by IKS Holdings. (5) Upon consummation of the Transactions, Edward Brent retired as Chief Financial Officer and Treasurer of the Company and was succeeded in such capacities by William M. Schult. Mr. Schult continues to serve as Vice President -- Finance and Secretary. (6) Represents reimbursement of relocation expenses. (7) Includes $25,000 paid in connection with the consummation of the Transactions, $8,250 in Company Profit Sharing Plan contributions and $106 in group term life insurance premiums. (8) Includes $2,647 in Company 401(k) contributions, $7,400 in Company Profit Sharing Plan contributions and $177 in group term life insurance premiums. (9) Includes $25,000 paid in connection with the consummation of the Transactions, $2,645 in Company 401(k) contributions, $7,370 in Company Profit Sharing Plan contributions and $171 in group term life insurance premiums. (10) Paid by IKS Holdings. (11) Includes $100,000 paid in connection with the consummation of the Transactions, $3,000 in Company 401(k) contributions, $8,250 in Company Profit Sharing Plan contributions, $959 in group term life insurance premiums and $2,000 as a directors fee which was paid by IKS Holdings. 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 March 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 53 59 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. 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. 54 60 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 W.G. Meyer(4).............. 240 2.0% 2,000 2.4% -- -- William M. Schult(4).............. 48 0.4% 400 0.5% -- -- James A. Rich(4).................. 48 0.4% 400 0.5% -- -- William R. Underhill.............. 24 0.2% 200 0.2% -- -- All directors and officers as a group (16 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. 55 61 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 56 62 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. 57 63 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. 58 64 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 IKS Holdings loaned 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." 59 65 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. 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 Holdings Debentures bear interest at a rate of 12.0% per annum and all interest due on the Holdings 60 66 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. 61 67 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 62 68 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 63 69 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 64 70 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 65 71 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 66 72 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 67 73 (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 68 74 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 69 75 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 70 76 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 71 77 (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 72 78 (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. 73 79 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 74 80 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. 75 81 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. 76 82 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 77 83 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 78 84 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 79 85 "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 80 86 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 81 87 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 82 88 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. 83 89 "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 84 90 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 85 91 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 86 92 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. 87 93 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 88 94 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 In the opinion of Dechert Price & Rhoads, counsel to the Company, 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. 89 95 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 EXISTING 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 EXISTING 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 Existing Note exchanged therefor and (iii) the adjusted tax basis of the New Note should be the same as the adjusted tax basis of the Existing 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. 90 96 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. 91 97 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 98 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. ERNST & YOUNG LLP Cincinnati, Ohio September 12, 1996, except for Note 17, as to which the date is November 6, 1996 F-2 99 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-3 100 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-4 101 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-5 102 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-6 103 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. Revenue Recognition Revenue from product sales is recognized when the product is shipped and revenue from services is recognized as the services are performed. Revenue is reduced for estimated customer returns and allowances. 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. F-7 104 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS) 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 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-8 105 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. Depreciation and amortization are provided for on the straight-line method over the following estimated useful lives: Capitalized leases - land and buildings: 15 to 40 years Land improvements: 15 years Buildings and leasehold improvements: 15 to 40 years Machinery and equipment: five to 10 years Furniture and fixtures: 10 years Motor vehicles: three years 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. F-9 106 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS) 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%. 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 =======
Cash paid for interest amounted to $2,287, $1,874 and $1,809 in the years ended December 31, 1993, 1994 and 1995, respectively. 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. F-10 107 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS) 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. 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. F-11 108 INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN THOUSANDS) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. 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) (224) ------ ------ 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-12 109 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-13 110 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-14 111 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-15 112 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-16 113 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-17 114 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-18 115 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-19 116 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-20 117 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-21 118 ------------------------------------------------------ ------------------------------------------------------ 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...................... 14 Use of Proceeds....................... 15 Capitalization........................ 17 Unaudited Pro Forma Consolidated Financial Information............... 18 Selected Historical and Pro Forma Financial Data...................... 23 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 26 The Exchange Offer.................... 32 Business.............................. 38 Management............................ 50 Stock Ownership....................... 55 Certain Relationships and Related Transactions........................ 59 Description of Certain Indebtedness... 60 Description of the Notes.............. 62 Book-Entry; Delivery and Form......... 88 Certain Federal Income Tax Considerations...................... 89 Plan of Distribution.................. 91 Legal Matters......................... 91 Experts............................... 91 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 ------------------------------------------------------ ------------------------------------------------------ 119 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-1 120 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 8.1 Opinion of Dechert Price & Rhoads regarding tax matters 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+ 10.5 Commercial Lease Contract dated March 1, 1992 between Howard & Howard Real Estate Partnership and IKS Service, Inc., as amended 10.6 Lease dated June 5, 1996 between Century Development Co. and the Company 10.7 Lease dated July 21, 1995 between 1st American Management Co., Inc. and the Company 10.8 Lease Agreement dated April 17, 1991 between Tate Engineering, Inc. and IKS Eastern Services, Inc., as amended 10.9 Offer to Lease dated October 25, 1995 between Sigma Enterprises Ltd. and IKS Canadian Knife & Saw Ltd. 10.10 Industrial Multiple Tenancy Lease dated June 14, 1995 between Geary Investments Limited "in Trust" and IKS Canadian Knife & Saw Ltd. 10.11 Lease dated March 12, 1992 between Gestion W. & L. Choiniere Inc. and IKS Canadian Knife & Saw Ltd., as amended 10.12 Joint Venture Company Contract dated September 24, 1995 between IKS Klingelnberg Far East GmbH and Shanghai Printing & Packaging Machinery General Corporation* 10.13 Joint Venture Company Contract dated September 24, 1995 between IKS Klingelnberg Far East GmbH and Shanghai Printing & Packaging Machinery General Corporation* 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 Exhibits 5.1 and 8.1) 23.2 Consent of Ernst & Young LLP 24 Power of Attorney+
II-2 121
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------- 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. + Previously filed. (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. 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 II-3 122 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-4 123 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Erlanger, State of Kentucky, on the 27th day of January 1997. INTERNATIONAL KNIFE & SAW, INC. By: /s/ JOHN E. HALLORAN ----------------------------------- John E. Halloran President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities indicated on January 27, 1997.
SIGNATURE TITLE - ------------------------------------------ ----------------------------------------------- /s/ JOHN E. HALLORAN President, Chief Executive - ------------------------------------------ Officer and Director (Principal Executive John E. Halloran Officer) /s/ WILLIAM M. SCHULT Vice President-Finance, Chief Financial - ------------------------------------------ Officer, Treasurer and Secretary William M. Schult (Principal Financial and Accounting Officer) * Director - ------------------------------------------ Diether Klingelnberg * Director - ------------------------------------------ James A. Urry *By: /s/ JOHN E. HALLORAN - ------------------------------------------ John E. Halloran Attorney-in-fact
II-5 124 SHEET 1 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. C --------------------- COL. B ADDITIONS COL. E ---------- --------------------- COL. D --------- COL. A 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 Obsolescence... 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 Obsolescence.. 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 Obsolescence.. 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. S-1 125 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 8.1 Opinion of Dechert Price & Rhoads regarding tax matters 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+ 10.5 Commercial Lease Contract dated March 1, 1992 between Howard & Howard Real Estate Partnership and IKS Service, Inc., as amended 10.6 Lease dated June 5, 1996 between Century Development Co. and the Company 10.7 Lease dated July 21, 1995 between 1st American Management Co., Inc. and the Company 10.8 Lease Agreement dated April 17, 1991 between Tate Engineering, Inc. and IKS Eastern Services, Inc., as amended 10.9 Offer to Lease dated October 25, 1995 between Sigma Enterprises Ltd. and IKS Canadian Knife & Saw Ltd. 10.10 Industrial Multiple Tenancy Lease dated June 14, 1995 between Geary Investments Limited "in Trust" and IKS Canadian Knife & Saw Ltd. 10.11 Lease dated March 12, 1992 between Gestion W. & L. Choiniere Inc. and IKS Canadian Knife & Saw Ltd., as amended 10.12 Joint Venture Company Contract dated September 24, 1995 between IKS Klingelnberg Far East GmbH and Shanghai Printing & Packaging Machinery General Corporation* 10.13 Joint Venture Company Contract dated September 24, 1995 between IKS Klingelnberg Far East GmbH and Shanghai Printing & Packaging Machinery General Corporation* 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 Exhibits 5.1 and 8.1) 23.2 Consent of Ernst & Young LLP 24 Power of Attorney+ 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. + Previously filed. EX-5.1 2 OPINION OF DECHERT PRICE & RHOADS 1 Exhibit 5.1 [LETTERHEAD OF DECHERT PRICE & RHOADS] January 27, 1997 International Knife & Saw, Inc. 1299 Cox Avenue Erlanger, Kentucky 41018 International Knife & Saw, Inc. 11 3/8% Senior Subordinated Notes due 2006 Dear Sirs: We have acted as counsel for International Knife & Saw, Inc., a Delaware corporation (the "Issuer"), in connection with the filing by the Issuer of a Registration Statement on Form S-4, Registration No. 333-17305 (the "Registration Statement"), with the Securities and Exchange Commission for the purpose of registering up to $90 million aggregate principal amount of the Issuer's 11 3/8% Senior Subordinated Notes Due 2006 (the "New Notes") under the Securities Act of 1933, as amended (the "Act"). The New Notes are to be issued in exchange for an equal aggregate principal amount of the Issuer's outstanding 11 3/8% Senior Subordinated Notes due 2006 (the "Existing Notes") pursuant to the Registration Rights Agreement among the Issuer and Schroder Wertheim & Co. Incorporated and Smith Barney Inc. filed as Exhibit 4.2 to the Registration Statement. The New Notes are to be issued pursuant to the terms of the indenture (the "Indenture") between the Issuer and United States Trust Company of New York, as trustee (the "Trustee"), filed as Exhibit 4.1 to the Registration Statement. The Indenture is to be qualified under the Trust Indenture Act of 1939, as amended (the "TIA"). In connection with the foregoing, we have reviewed such records, documents, agreements and certificates, and examined such questions of law, as we have considered necessary or appropriate 2 International Knife & Saw, Inc. January 27, 1997 Page 2 for the purpose of this opinion. In making our examination of records, documents, agreements and certificates, we have assumed the authenticity of the same, the correctness of the information contained therein, the genuineness of all signatures, the authority of all persons entering and maintaining records or executing documents, agreements and certificates (other than persons executing documents, agreements and certificates on behalf of the Issuer), and the conformity to authentic originals of all items submitted to us as copies (whether certified, conformed, photostatic or by other electronic means) of records, documents, agreements or certificates. In rendering our opinion, we have relied as to factual matters upon certificates of public officials and certificates and representations of officers of the Issuer. We have assumed that the Indenture has been duly authorized, executed and delivered by the Trustee and constitutes a legal, valid and binding agreement of the Trustee. In addition, we have assumed that there will be no changes in applicable law between the date of this opinion and the date of issuance and delivery of the New Notes. Based upon the foregoing and having regard for such legal considerations as we deem relevant, we are of the opinion that (i) the New Notes have been duly authorized by the Issuer and (ii) when the Registration Statement has been declared effective, when the Indenture has been duly qualified under the TIA, when the New Notes have been duly executed by the Issuer and when the New Notes have been duly authenticated by the Trustee in accordance with the terms of the Indenture and issued and delivered against exchange of the Existing Notes in accordance with the terms set forth in the prospectus which is included in the Registration Statement, the New Notes will be valid and binding obligations of the Issuer. This opinion is rendered to the Issuer in connection with the filing of the Registration Statement and for no other purpose. We are members of the Bar of the State of New York, and we express no opinion as to the laws of any jurisdiction other than the laws of the United States of America, the State of New York and, to the extent necessary to render this opinion, the General Corporation Law of the State of Delaware. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the use of our name under the caption "Legal Matters" in the prospectus which is included in the Registration Statement. In giving the foregoing consent, we do not admit that we come within the category of persons whose consent is required by the Act or the rules and regulations promulgated thereunder. Very truly yours, /s/ DECHERT PRICE & RHOADS EX-8.1 3 OPINION OF DECHERT PRICE & RHOADS RE: TAX MATTERS 1 Exhibit 8.1 [LETTERHEAD OF DECHERT PRICE & RHOADS] January 27, 1997 International Knife & Saw, Inc. 1299 Cox Avenue Erlanger, Kentucky 41018 Re: 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. Ladies and Gentlemen: We have acted as counsel for International Knife & Saw, Inc., a Delaware corporation having its principal office in Erlanger, Kentucky (the "Company"). We are giving this opinion in connection with the filing by the Company of a Registration Statement on Form S-4, Registration No. 333-17305 (the "Registration Statement") with respect to the Exchange Offer.(1) In arriving at our opinion we have examined and relied upon the following documents: the Registration Statement; the Existing Notes and the form of New Notes to be issued; the Indenture dated as of November 6, 1996, by and between the Company and United States Trust Company of New York, as trustee; and the Registration Rights Agreement. We have also read and relied upon such records of the Company as we have deemed appropriate. For purposes of this opinion, we have assumed the authenticity of original documents, the accuracy of copies and the genuineness of signatures. We understand and assume that (i) each agreement identified herein represents and will represent the valid and binding obligation of the respective parties thereto, enforceable in accordance with its respective terms, and the entire agreement between the parties with respect to the subject matter thereof, (ii) the parties to each agreement have complied, and will comply, with all of their respective covenants, agreements and undertakings contained therein and (iii) the transactions provided for by each agreement were and will be carried out in accordance with their terms. Our opinion is based upon our analysis and interpretation of the Internal Revenue Code of 1986, as amended (the "Code"), as well as upon court decisions, regulations, and other administrative - -------- (1) All capitalized terms used herein that are not otherwise defined have the same meaning as set forth in the Registration Statement. 2 interpretations of such statutes as of the date hereof. For purposes of this opinion, we assume that there will be no changes in applicable law between the date hereof and the date of issuance of the New Notes. The statutory provisions, regulations, and interpretations upon which our opinion is based are subject to change, and such changes could apply retroactively. In addition, our opinion has no binding effect on the Internal Revenue Service or on any court and only represents our professional judgment. Thus, there can be no assurance that positions contrary to those stated in our opinion may not be asserted by the Internal Revenue Service or another taxing authority. In our opinion, the description of the material United States federal income tax consequences to a U.S. Holder that appears in the Registration Statement under the caption "Certain Federal Income Tax Considerations" is accurate in all material respects. Such description does not discuss state, local or foreign tax consequences, nor does it discuss tax consequences to certain categories of holders and our opinion is limited to those United States tax consequences specifically described therein. This opinion is given to the Company in connection with the filing of the Registration Statement and for no other purpose. In giving the foregoing opinion, we express no opinion other than as to the federal income tax laws of the United States of America. We consent to the filing of this opinion as Exhibit 8.1 to the Registration Statement and to the reference to this opinion in the Registration Statement. This opinion is not to be used or quoted for any other purpose without our prior written approval in each instance. Very truly yours, /s/ DECHERT PRICE & RHOADS EX-10.2 4 LETTER AGREEMENT BETWEEN DEUTSCHE BANK AND COMPANY 1 Exhibit 10.2 October 8, 1996 To International Knife & Saw, Inc. In reference to our conversation of September 15, 1996 at our offices in Wuppertal, for which we would again like to thank you, we are pleased to be able to commit to you, within the framework of our General Conditions (AGB - English language version enclosed), a working capital line of credit in the amount of US$ 20,000,000. Duration: Initially until December 31, 2000. We will discuss an extension at the appropriate time. The draw downs must be made via Euro-Credits in amounts of US $1 million or multiples thereof at a rate of LIBOR + 1.25%. We also charge a commitment fee of 0.25% to be calculated at each quarter end. As collateral for this line of credit, you must pledge to us your receivables and inventories. We will provide more specific details about this at a later date. As part of our commitment we are assuming that your company will be debt free in accordance with the proposed restructuring, with the exception of the $85,000,000 in Senior Subordinated Notes as detailed in the Recapitalization Agreement. The following covenants are the condition for the line of credit: It is agreed, that you will pledge fixed assets as additional collateral, in the event that the result in the consolidated financial statements before interest and taxes (EBIT) is more than 30% under budget (1996: $14,012,000 ; 1997: $17,796,000; 1998: $22,041,000; 1999: $25,098,000). You must provide quarterly financial information and annual financial statements to us. The year end financial statements must be presented to us no later than 4 months after year end. German law governs this agreement: the court of Remscheid Please sign the enclosed copy of this letter to indicate your agreement and send it back to us. We thank you for your trust in us and hope for a smooth and trustworthy relationship. EX-10.3 5 LTR AGRMT BETWEEN DEUTSCHE BANK & IKS KLINGELNBERG 1 Exhibit 10.3 October 8, 1996 Messrs. Meyer and Berg In reference to our offer of September 19, 1996, and to the conversations thereafter, we are pleased to be able to commit to you, within the framework of our General Conditions (AGB), a working capital line of credit in the amount of DM 7,500,000 at the following terms: Duration: Initially until December 31, 2000. We will discuss an extension at the appropriate time. Rate: Your choice of: Overdraft. current rate 6.5% Euro-Credit. LIBOR +0.5% Bill Credit Rate @ bank discount rate ( currently 2.5%) + 0.5% We are legally allowed to change the above interest rates in the event of a change in money market or capital market. The loan will be handled as an overdraft. The calculation of interest occurs at the end of each quarter. The company real estate in Bergisch Born serves as collateral valued at DM5,100,000 for this line of credit, as well as for all other credits as agreed separately. The following covenants are the condition for the line of credit: Through means of equity and shareholder funds, the company will ensure that lines of credit exist only with us. Total equity may not fall below 30% of the total balance sheet, and gross cash flow must be positive. You may not pledge any firm assets to third parties as collateral. You must provide quarterly financial information and annual financial statements to us. The year end financial statements must be presented to us no later than 4 months after year end. As discussed with Mr. Klingelnberg, we will discuss the acquisition financing of Ravne at a later date. Please sign the enclosed copy of this letter to indicate your agreement and send it back to us. We thank you for your trust in us and hope for a smooth and trustworthy relationship. EX-10.5 6 COMMERCIAL LEASE CONTRACT DATED MARCH 1, 1992 1 Exhibit 10.5 STATE OF GEORGIA ] ] COUNTY OF BULLOCH ] COMMERCIAL LEASE CONTRACT THIS LEASE, made effective this 1st day of March, 1992, by and between HOWARD & HOWARD REAL ESTATE PARTNERSHIP, a Georgia general partnership, first party (hereinafter called "Landlord"), and IKS SERVICE, INC., second party (hereinafter called "Tenant"); W I T N E S S E T H: 1. DEFINITIONS. The following terms as defined below, are used generally in this Lease. Additional terms, as employed in the specific Sections hereunder, are defined pursuant to those Sections. Additional Rental is defined in Section 6 of this Lease. Base Rental means the monthly rental calculated and payable pursuant to Section 4 of this Lease. Building means that certain building which is located on Gentilly Run and within the Property. Buildings means Building and any other buildings located on the Property. Demised Premises is defined in Section 2 of this Lease. Landlord is defined in the first paragraph of this Lease. Property means that tract or parcel of land and any improvements thereon as described in the attached Exhibit "A" which is by this reference incorporated in this Lease. Tenant is defined in the first paragraph, of this Lease. Total Rental means Base Rental and Additional Rental as may be due and owing annually to Landlord under this Lease. 2. DEMISED PREMISES. (A) The Landlord, for and in consideration of the rentals, covenants, agreements and stipulations hereinafter mentioned, reserved and contained, to be paid, kept and performed by the Tenant, has leased and rented, and by these presents does lease and rent, unto the Tenant, and the Tenant hereby agrees to lease and take upon the terms and 2 conditions which hereinafter appear, the property described on Exhibit "A" attached hereto (hereinafter called the "Demised Premises"). (B) Landlord, at Landlord's sole expense, shall maintain the road giving ingress and egress to the Demised Premises in an accessible and usable condition suitable for travel and shall maintain the exterior grounds surrounding the Demised Premises, which shall not include landscaping of the property. 3. ADDITIONAL PROPERTY. In the event Lessee desires to expand the Leased Premises, and Lessor desires to lease additional property to Lessee, then Lessor and Lessee agree to execute an amendment to this Lease Agreement to provide for the additional leased property and the additional rental for such property as may be mutually agreed upon by Landlord and Tenant. 4. LEASE TERM. To have and to hold the same for the term to commence on the 1st day of March, 1992, and ending on the 28th day of February, 1997, at midnight, unless sooner terminated as hereinafter provided (hereinafter called "Lease Term"). 5. BASE RENTAL. The Tenant agrees to pay to the Landlord promptly on the first day of each month in advance, during the Lease Term, a monthly base rental of Five Hundred ($500.00) Dollars. The aforesaid payments of rent are to be made payable to Landlord, at such place as Landlord may from time to time designate in writing to Tenant. 6. RENTAL ADJUSTMENT. The Base Rental payable by Tenant during each successive year of the Lease Term, commencing on the first day of the thirteenth (13th) month of the Lease Term, shall be adjusted at that time and every twelve (12) months thereafter (the "adjustment month") for the remainder of the Lease Term and all extensions and renewals thereof by increasing the monthly rental on the first day of each adjustment month by four (4%) percent. Thus, the monthly rental during the term hereof shall be as follows: Year 1 $500.00 per month Year 4 $560.00 per month Year 2 $520.00 per month Year 5 $580.00 per month Year 3 $540.00 per month 7. ADDITIONAL RENTAL. In addition to the Base Rental required to be paid pursuant to the terms of this Lease, Tenant agrees to pay, as additional rent, all sums and other charges required to be paid by Tenant pursuant to other provisions and exhibits to this Lease, whether or not the same be designated "Additional Rent" (hereinafter called "Additional Rental"), 3 and Landlord shall have the same remedies for Tenant's failure to pay same when and as required, as if it constituted Base Rental. 8. CONSTRUCTION OF THIS AGREEMENT. No failure of Landlord to exercise any power given Landlord hereunder, or to insist upon strict compliance by Tenant with its obligation hereunder, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord's right to demand exact compliance with the terms hereof. 9. UTILITIES; ELECTRICITY AND OTHERS. 9.1 Tenant shall be solely responsible for all charges for gas, electricity, telephone and other utility services used, rendered, supplied or imposed upon the Demised Premises regardless of who is the supplier and shall indemnify Landlord and save it harmless against any liability or charges on account thereof. If Tenant does not pay said utility charges when due, Landlord may pay same, and such payment shall be added as Additional Rental hereunder. 9.2 Tenant agrees that it will not install any equipment which will exceed or overload the capacity of any utility facilities, whether or not provided by Tenant or Landlord, and that, if any equipment installed by Tenant shall require additional utility facilities, the same shall be furnished and installed at Tenant's expense in accordance with plans and specifications to be approved in writing by Landlord. 10. USE AND CARE OF PREMISES. The Demised premises shall be used for the purpose of operating a saw shop and any related purposes. The Demised Premises shall not be used for any illegal purposes; nor in any manner to create any nuisance or trespass; nor in any manner to vitiate the insurance or increase the rate of insurance on the Demised Premises, any Buildings or the Property, any hazardous, toxic or flammable materials, contaminants, oil, radioactive or other material the removal of which is required or the maintenance of which is prohibited, regulated or penalized by any local, state or federal agency, authority or governmental unit. If any such materials are brought into the Demised Premises, any Buildings or the Property by Tenant, Tenant shall, at Tenant's sole expense, cause the immediate removal thereof. 11. ABANDONMENT OF THE PREMISES. Tenant agrees not to abandon or vacate the Demised Premises during the period of this Lease and agrees to use the Demised Premises for the purpose herein leased until the expiration hereof. 12. REPAIRS BY LANDLORD. Landlord agrees to keep in good repair the roof (including structure, deck, insulation, flashing and membrane), foundations and exterior walls of the Building and underground utility and sewer pipes 4 outside of the exterior walls of said Building; provided, however, that Landlord shall not be responsible for the repair of glass and exterior doors and any and all repairs rendered necessary by the negligence of Tenant, its agents, employees or invitees. Landlord gives to Tenant exclusive control of the Demised Premises and shall be under no obligation to inspect same. Tenant shall promptly report in writing to Landlord any defective condition known to it which Landlord is required to repair, and failure to so report such defects shall make Tenant responsible to Landlord for any liability incurred by Landlord by reason of such defects. 13. REPAIRS BY TENANT. Tenant accepts the Demised Premises in their present condition and as suited for the uses intended by Tenant. Tenant shall, through the Lease Term and all renewals thereof, at its expense, maintain in good order and repair the Demised Premises, including the Building, heating and air conditioning equipment (including but not limited to replacement of parts, compressors, air handling units and heating unit) and other improvements located thereon, except those repairs expressly required to be made by Landlord. In the event Tenant fails to make said repairs, then Landlord may, but shall not be obligated to, make such repairs in which event Tenant shall promptly reimburse Landlord for all expenses incurred thereby, said expenses constituting Additional Rental hereunder. Tenant agrees to return the Demised Premises to Landlord at the expiration, or prior termination, of this Lease in as good condition and repair as when first received, normal wear and tear, damage by storm, tire, lightning, earthquake or other casualty alone excepted. Aside from the aforesaid repairs, Tenant shall not make any alterations, additions or improvements to the Premises without the prior written consent of Landlord. 14. REAL ESTATE TAXES. Landlord shall be responsible during the Lease Term and any extension or renewal thereof, for all real estate taxes and assessments (including, without limitation, general and special assessments no matter how designated), of every kind and nature, with respect to the Property or the Building or both above. Tenant shall be responsible for all personal property taxes for all personal property located in or on the Demised Premises. 15. INSURANCE Landlord shall be responsible during the Lease Term and any extension or renewal thereof, of all insurance (including, but not limited to, general liability and property damage) on the Demised Premises for each year. Tenant shall be responsible for all insurance on property other than the Demised Premises including but not limited to all personal property located in or on the Demised Premises, as well as workman's compensation for its employees. 5 16. DESTRUCTION OF OR DAMAGE TO PREMISES. If the Demised Premises are totally destroyed by storm, fire, lightning, earthquake or other casualty, this Lease shall terminate as of the date of such destruction, and Total Rental shall be accounted for as between Landlord and Tenant as of that date. If the Demised Premises are damaged but not wholly destroyed by any of such casualties, Base Rental shall abate in such proportion as use of the Demised Premises has been destroyed, and Landlord shall restore same to substantially the same condition as before damage as speedily as practicable, whereupon full Base Rental shall commence. 17. CONDEMNATION. If the whole of the Demised Premises, or such portion thereof as will make same unusable for the purposes herein leased, shall be condemned by any legally constituted authority or taken by private purchase in lieu thereof of any public use or purpose, then in either of said events the Lease Term hereby granted shall cease from the time when possession thereof is taken by public authorities, and Total Rental shall be accounted for as between Landlord and Tenant as of that date. Such termination, however, shall be without prejudice to the rights of either Landlord or Tenant to recover compensation and damage caused by condemnation from the condemnor. It is further understood and agreed that neither the Tenant nor Landlord shall have any rights in any award made to the other by any condemnation authority. 18. ASSIGNMENT AND SUBLETTING. Tenant may not, without the prior written consent of Landlord, assign this Lease or any interest hereunder, or sublease Demised Premises or any part thereof, or permit the use of Demised Premises by any party other than Tenant. Consent to one or more assignments or subleases shall not destroy or waive this provision. Subtenants and assignees shall become directly liable to Landlord for all obligations of Tenant hereunder without relieving Tenant's liability. 19. CANCELLATION OF LEASE BY LANDLORD OR TENANT. (A) It is mutually agreed that in the event Tenant shall default in the payment of Base Rental and/or Additional Rental herein reserved, when due, and fails to cure said default within thirty (30) days after written notice thereof from Landlord; or if Tenant shall be in default in performing any of the terms and provisions of this Lease other than the provision requiring the payment of Total Rental, and fails to cure such default within thirty (30) days after the date of receipt of written notice of default from Landlord; or if Tenant is adjudicated bankrupt; or if a permanent receiver is appointed for Tenant's property and such receiver is not removed within thirty (30) days after written notice from Landlord to Tenant to obtain such removal; or if, whether voluntarily or involuntarily, Tenant takes advantage of any debtor relief proceedings under any present or future law, whereby the Total Rental or any part thereof is, or is proposed to be, reduced or payment thereof deferred; of if Tenant makes an assignment for the benefit of creditors; 6 or if Tenant's effects should be levied upon or attached under process against Tenant, not satisfied or dissolved within thirty (30) days after written notice from Landlord to Tenant to obtain satisfaction thereof; then, and in any of said events Landlord at Landlord's option may at once, or within sixty (60) days thereafter (but only during continuance of such default or condition), terminated this Lease by written Notice to Tenant; whereupon this Lease shall end. After an authorized assignment or subletting of the entire Demised Premises covered by this Lease, the occurring of any of the foregoing defaults or events shall affect this Lease only if caused by, or happening to, the assignee or sublessee. Any notice provided in this Section may be given by Landlord, or its attorney of Agent herein named. Upon such termination by Landlord, Tenant will at once surrender possession of the Demised Premises to Landlord and remove all of Tenant's effects therefrom; and Landlord may forthwith re-enter same and repossess itself thereof, and remove all persons and effects therefrom, using such force as maybe necessary without being guilty of trespass, forcible entry or detainer or other tort. (B) Tenant may cancel Lease should Contractor Agreement be terminated by Company or Contractor according to its terms. 20. RELETTING BY LANDLORD. Landlord, as Tenant's agent, without terminating this Lease, upon Tenant's failure to cure any default within the time permitted as set forth in Section 18 hereof, may at Landlord's option enter upon and rent the Demised Premises at the best price obtainable by reasonable effort, without advertisement and by private negotiations and for any term Landlord deems proper. Tenant shall be liable to Landlord for the deficiency, if any, between Tenant's Total Rental hereunder and the price obtained by Landlord and all other reasonable costs directly related to reletting, including, but not limited to the payment of commissions, the making of alterations, costs of leasing same, costs for any unamortized Tenant improvements and otherwise. 21. EFFECT OF TERMINATION OF LEASE. No termination of this Lease prior to the normal ending thereof, by lapse of time or otherwise, shall affect Landlord's right to collect Base Rental, Additional Rental and any other changes due Landlord by Tenant. 22. NO ESTATE IN LAND. This Lease shall create the relationship of Landlord and Tenant between the parties hereto; no estate shall pass out of Landlord. Tenant has only a usufruct, not subject to levy and sale, and not assignable by Tenant except by Landlord's consent. 23. ATTORNEYS' FEES AND HOMESTEAD. If any rental owing under this Lease is collected by or through an attorney at law, or if Landlord employs an attorney at law to enforce 7 any of the other terms or conditions of this Lease, Tenant agrees to pay or reimburse Landlord for all reasonable associated attorneys' fees, as Additional Rental hereunder. Tenant waives all homestead rights and exemptions which he may have under any law as against any obligation owing under this Lease. Tenant hereby assigns to Landlord Tenant's homestead and exemption. 24. SERVICE OF NOTICE. Tenant hereby appoints as Tenant's agent to receive service of all dispossessory or distraint proceedings and notices hereunder, and all notice required under this Lease, the person in charge of Demised Premises at the time, or occupying same; and if no person is in charge of, or occupying the Demised Premises, then such service of notice may be made by attaching the same on the main entrance to the Demised Premises. A copy of all notices under this Lease shall also be sent to such other address as Tenant may from time to time designate in writing to Landlord. All notices required by law or by this Lease to given Landlord shall be given by depositing same in registered or certified U. S. Mail, postage prepaid, and addressed as follows: For Landlord: C. Arthur Howard Howard & Howard Real Estate Partnership Post Office Box 294 Statesboro, GA 30458 25. QUIET ENJOYMENT. Landlord hereby covenants and agrees to permit Tenant quiet enjoyment of possession of the Demised Premises during the Lease Term, so long as Tenant shall pay the Total Rental aforesaid and carry out all other obligations herein made binding upon the Tenant. 26. INSURANCE. 26.1 Tenant shall at all times during the Lease Term maintain in full force and effect the following insurance in standard form generally in use in Georgia, with insurance companies authorized to do business in said state, which are satisfactory to Landlord: 26.1.1 Comprehensive public liability insurance in the amount of at least Two Hundred Fifty Thousand ($250,000.00) Dollars for any occurrence resulting in bodily or personal injury to or the death of one person and consequential damages arising therefrom, and in the amount of at least Five Hundred Thousand ($500,000.00) Dollars for any occurrence resulting in bodily or personal injury or death to more than one person and consequential damages arising therefrom. 26.1.2 Personal property damage insurance covering liability for damage to all personal property in the amount of the full insurable value thereof. 8 26.1.3 Workmen's Compensation Insurance for its employees as required by law. 26.2 Tenant will furnish to Landlord, at least ten (10) days before Tenant takes occupancy of the Demised Premises, and thirty (30) days before expiration or termination of any such policy, copies of policies or certificates of insurance evidencing coverage required by this Lease. All policies required hereunder shall contain an endorsement providing that the insurer will not cancel or amend the policy or policies without first giving at least ten (10) days' prior written notice thereof to Landlord. 26.3 The insurance required by this Section may be included in policies of "blanket insurance", provided that, in all other respects, each such policy shall comply with the requirements of this Section, and provided that no other loss, which may or may not be also insured thereby, shall in any way affect or limit the coverage and amount of insurance required hereby. 27. SUCCESSORS AND ASSIGNS, GOVERNING LAW AND BINDING EFFECT. "Landlord" as used in this Lease shall include first party, its heirs, representatives, assigns and successors in title to the Property. "Tenant" shall include second party, its heirs and representatives, and if this Lease shall be validly assigned or sublet, shall include also Tenant's assignees or sublessees, as to premises covered by such assignment or sublease. "Landlord" and "Tenant" include male and female, singular and plural, corporation, partnership or individual, as may fit the particular parties. The laws of the State of Georgia shall govern the validity, interpretation, performance and enforcement of this Lease. Except as otherwise provided herein, this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. 28. TIME OF THE ESSENCE. In all instances where Tenant is required by the terms and provisions of this Lease to pay any sum or to do any act at a particular indicated time or within any indicated period, it is understood and agreed that time is of the essence. 29. WAVIER OF CLAIMS. To the extent permitted by law, Landlord and Landlord's agents, employees and contractors shall not be liable for, and Tenant hereby indemnifies, holds harmless and releases Landlord, its agents, employees contractors from and against any and all claims for damage to persons or property sustained by Tenant or any person claiming through Tenant resulting from any fire, accident, occurrence or condition in or upon the Demised Premises or Building of which it shall be a part except where such claims arise solely out of the gross negligence or willful misconduct of Landlord, Landlord's agents, employees or contractors. 9 This Lease contains the entire agreement of the parties hereto and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein unless contained in a modification in writing executed by all of the parties hereto, shall be of any force or effect. IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals the day and year first above written. HOWARD AND HOWARD REAL ESTATE PARTNERSHIP BY: (SEAL) --------------------------- C. ARTHUR HOWARD, General Partner Signed, sealed and delivered as to Landlord in the presence of: - ----------------------------------- Witness - ----------------------------------- Notary Public [NOTARIAL SEAL] IKS SERVICES, INC. BY: (SEAL) ---------------------------- Title: ---------------------------- Signed, sealed and delivered as ATTEST: to Tenant in the presence of: ---------------------------- [CORPORATE SEAL] - ---------------------------- Witness - ---------------------------- Notary Public [NOTARIAL SEAL) 10 EXHIBIT "A" All that certain tract or parcel of land situate, located and being in the 1209th G. M. District of Bulloch County, Georgia, and being more particularly described as Parcel "B" containing 0.44 acres, according to a survey for C. Arthur Howard and Cecil B. Howard. Said parcel begins at a 3/4" rebar set on Gentilly Run being the POINT OF BEGINNING, thence proceeding South 06 degrees 26 minutes 07 seconds West, a distance of 122.80 feet to an iron pin set; thence North 84 degrees 09 minutes 00 seconds West, a distance of 156.10 feet to a 3/4" rebar set; thence proceeding North 04 degrees 25 minutes 25 seconds East, a distance of 121.42 feet to a 3/4" rebar set; thence proceeding South 84 degrees 29 minutes 13 seconds East, a distance of 160.38 feet to the POINT OF BEGINNING. 11 STATE OF GEORGIA ] ] COUNTY OF BULLOCH ] ADDENDUM TO COMMERCIAL LEASE CONTRACT THIS ADDENDUM TO LEASE made effective as of the day of , 1992, by and between HOWARD & HOWARD REAL ESTATE PARTNERSHIP, a Georgia general partnership, first party (hereinafter called "Landlord") and IKS SERVICE, INC., second party (hereinafter called "Tenant"); W I T N E S S E T H: WHEREAS, Landlord and Tenant did enter into that certain Commercial Lease Contract (hereinafter referred to as the "Lease") made effective the first day of March, 1992, for property, including improvements thereon as more particularly described in the attached Exhibit "A"; and WHEREAS, Section 3 of the Lease entitled "Additional Property" provides that in the event Lessee desired to expand the Leased Premises, and Lessor desired to lease additional property to Lessee, then Lessor and Lessee agreed to execute an Amendment to the Lease Agreement to provide for the additional leased property and the additional rental for such property; WHEREAS, Landlord and Tenant do now desire to amend the Lease as provided hereinafter; and NOW, THEREFORE, Landlord and Tenant do hereby amend the Lease as follows: 1. Paragraph 1 of the Lease entitled "Definitions" is hereby amended to define Base Rental as follows: "The monthly rental calculated and payable pursuant to Section 5 of the Lease." 12 2. Section 5 of the Lease entitled "Base Rental" shall be amended to provide that the monthly base rental of $500.00 shall be adjusted to equal $1,035.00 beginning the first day of the month following completion of the addition to the Demised Premises containing approximately 3,000 square foot. 3. Paragraph 6 of the Lease entitled "Rental Adjustment" shall be revised to provide for monthly rentals during the term of the Lease as follows: Year 1 (through the month during which expansion of the demised Premises is completed) $500.00 per month Year 2 (balance of Year 1) $1,035.00 Year 2 $1,080.00 Year 3 $1,225.00 Year 4 $1,270.00 Year 5 $1,315.00 4. Except as heretofore amended, all terms and provisions of the Lease remain in full force and effect as if fully set forth herein. HOWARD & HOWARD REAL ESTATE PARTNERSHIP BY: /s/ C. Arthur Howard (SEAL) ---------------------- C. ARTHUR HOWARD, GENERAL PARTNER Signed, sealed and delivered as to Landlord in the presence of: /s/ Janet E. Owen - ------------------ Witness /s/ Mary Dickerson - ------------------ Notary Public [SIGNATURES CONTINUED ON NEXT PAGE) 13 IKS SERVICE, INC. BY: /s/ Ray Grimes (SEAL) ---------------------------- Title: President ---------------------- ATTEST: /s/ ----------------------- Signed, sealed and delivered as to Tenant in the presence of: /s/ (CORPORATE SEAL) - -------------------------------- Witness /s/ Jay S. Davis - -------------------------------- Notary Public MY COMMISSION EXPIRES JANUARY 21, 1995 14 EXHIBIT "A" All that certain tract or parcel of land situate, located and being in the 1209th G. M. District of Bulloch County, Georgia, and being more particularly described as Parcel "B" containing 0.44 acres, according to a survey for C. Arthur Howard and Cecil B. Howard. Said parcel begins at a 3/4" rebar set on Gentilly Run being the POINT OF BEGINNING, thence proceeding South 06 degrees 26 minutes 07 seconds West, a distance of 122.80 feet to an iron pin set; thence North 84 degrees 09 minutes 00 seconds West, a distance of 156.10 feet to a 3/4" rebar set; thence proceeding North 04 degrees 25 minutes 25 seconds East, a distance of 121.42 feet to a 3/4" rebar set; thence proceeding South 84 degrees 29 minutes 13 seconds East, a distance of 160.38 feet to the POINT OF BEGINNING. 15 [CLAUDE HOWARD LUMBER COMPANY LETTERHEAD] October 9, 1992 Mr. Ray Connell IKS Services Fax: 205-682-4125 Subject: Sav Shop Building Addition Dear Ray: This is a letter to confirm our agreement concerning the new building. I have ordered the building as of today, and we anticipate the building being completed before January 1993. Enclosed is the addendum to the lease contract for your review and approval. I will mail this to you Monday, October 12, 1992, if I do not hear from you regarding any changes in the addendum. Please sign and return to me as soon as possible. Looking forward to continued business and relations with IKS. Sincerely, /s/ C. Arthur Howard Howard and Howard Real Estate Partnership C. Arthur Howard CAH/dmk EX-10.6 7 LEASE DATED JUNE 5, 1996 1 Exhibit 10.6 LEASE This Lease, made in Kent, Washington this 5th day of June, 1996 between Century Development Co., A Partnership hereinafter referred to as "Lessor", and International Knife & Saw, Inc. hereinafter referred to as "Lessee", WITNESSETH: 1. Lessor does hereby lease to Lessee and Lessee does hereby lease from Lessor, those premises situated in the City of Kent, King County, Washington described as follows: Lot 4, Short Plat 78-6, recorded under Auditor's File No. 7812010494, and correction of Auditor's File No. 7808240873, ALL in the N.W. Quarter, of Section 1, Township 22 North, Range 4 East, King County, Washington. Situate in the County of King, State of Washington Commonly known as 7031 S. 196th St., Bay 4, Kent, WA 98032 hereinafter called "Premises". 2. Term. The term of this lease shall be for 364 days (intended to be less than one year) and shall commence on the 1st day of June, 1996 and shall end on the 30th day of May, 1997 inclusive. 3. Rent. Lessee covenants and agrees to pay Lessor as rental for bay 4 consisting of 4000 square feet a monthly rental of $1580.00 in lawful money of the United States in advance of the first day of each calendar month of the lease term, beginning on the 1st day of June, 1996 to Lessor at the place designated in paragraph 16 or at such other place as Lessor may hereafter designate. The rent quoted is exclusive of any sales, franchise, business or occupation or other taxes based on rents and should any such tax apply, or be enacted during the life of this lease, the rent shall be increased by such amount. 3A. Impound Account. The impound account consists of items No. 30 and 31 of this lease. The monthly impound amount is $316.00. If necessary this amount will be adjusted each year in April to reflect any changes in impound expenses. 4. Consideration. As partial consideration for the execution of this lease, the Lessee has this day paid the sum of $1896.00, of which $1580.00 is the first months rent, and $316.00 is payment into the monthly impound account as per items No. 30 and No. 31 of this lease. 5. Security Deposit. Lessee has previously paid to Lessor the amount of $1793.00 as security for the performance by Lessee of every covenant and condition of this lease. This deposit shall not bear interest. If Lessee shall default with respect to any covenant or condition of this lease, including, but not limited to, the payment of rent, Lessor may apply the whole or part of such security deposit to the payment of any other sum which Lessor may be required to spend by reason of Lessee's default. In such event, Lessee shall, immediately upon demand by Lessor, pay to Lessor the amount necessary to restore the full amount of the original security deposit required herein. If Lessee complies with all of the covenants and conditions of this lease, the security deposit or any balance thereof shall be returned to Lessee (or, at the option of Lessor, to the last assignee of Lessee's interest in this lease) within twenty (20) days after the expiration of the lease term. 6. Repairs. The premises have been inspected by Lessee and by entry hereunder Lessee accepts the premises as being in good, sanitary order, condition and repair. Lessee shall, at Lessee's sole cost and expense, at all times keep the premises neat, clean, sanitary, and in a good condition and state of repair. Lessee's duty to repair shall include without limitation the replacement of glass of all windows and doors as may become cracked or broken, and except for reasonable wear and tear and damage by fire or other unavoidable casualty, shall at all times preserve the premises in as good repair as they now are or may hereafter be put. Lessee hereby waives all rights to make any repairs at the expense of Lessor as may be provided by law, statute or ordinance nor or hereafter in effect. Lessee's responsibility to repair shall not include the roof, or the structural portions of exterior walls and foundation, unless the need for repair for these items results or arises from negligence of Lessee, his agents or employees, or as a result of illegal entry by employee's or agents or disgruntled ex-employees of Lessee. It is specifically understood and agreed that Lessor has no obligation and has made no promises to alter, remodel, improve, repair, decorate or paint the premises or any part hereof and that no representations respecting the condition of the premises or the building of which the premises are a part have been made by Lessor to Lessee except as specifically herein set forth. Lessee shall upon the expiration or sooner termination of this Lease, quit and surrender the premises to Lessor without notice in the same condition as when received, ordinary wear and tear excepted, and in a neat, broom-clean condition delivering up to Lessor all keys belonging to said premises. 1 2 7. Utilities. Lessee hereby covenants and agrees to pay all charges for heat, electricity, water, sewer, Metro and garbage, and for all other public utilities which shall be used in or charged against the leased premises during the full term of this lease. Lessee shall keep garbage receptacles inside leased premises except on day of garbage collection. Lessor shall not be liable for the failure of any such services for any reason whatsoever. In the event the leased premises are part of a building or larger premises to which such charges are charged as a whole, with the consent of Lessor, then Lessee agrees to pay upon demand, a proper and fair share of said charges. 8. Accidents. All personal property of said leased premises shall be at the risk of Lessee. Lessor or Lessor's agents shall not be liable for any damage, either to person or property, sustained by Lessee or others, caused by any defects now in said premises or hereafter occuring therein, or due to the building in which the leased premises are situate, or any part or appurtenance thereof, becoming out of repair, or caused by the bursting or leaking of water, gas, sewer or steam pipes, or from any act of negligence of employees, co-tenants or other occupants of said building. Lessee agrees to defend and hold Lessor harmless from any and all claims for damages suffered or alleged to be suffered in or about the leased premises by any person, firm or corporation. 9. Care of Premises. The Lessor shall not be called upon to make any improvements or repairs of any kind whatsoever upon said premises, and said premises shall at all times be kept and used in accordance with the laws of the State of Washington and applicable City and County ordinances, and in accordance with all the directions, rules and regulations of the health officer, fire marshal, building inspector, or their public officials or departments, at the sole cost and expense of said Lessee; Lessee will not overload and will permit no waste, damage or injury to the premises, and at Lessee's own cost and expense will keep all drainage pipes free and open and will protect water, heating and other pipes so that they will not freeze or become clogged, and will repair all leaks, and will also repair all damages caused by leaks or by reason of Lessee's failure to protect and keep free, open and unfrozen any of the pipes and plumbing on said premises. Lessee shall be liable for the removal of ice and snow from the sidewalk in front of and about said premises. 10. Use. The premises are to be used for the purpose of conducting therein cutting tool knife and saw repair and for no other purpose without the written consent of the Lessor. The Lessee shall conduct and carry on in said premises, continuously during each and every business day of the term hereof, the business for which said premises are leased, and shall not use the premises for illegal purposes. The Lessee agrees that no stock of goods will be carried, or anything done in or about the premises which will increase the present rate of insurance. In the event that Lessee's usage shall cause an increase in the rates or rating, then, in that event, the Lessee shall pay for any resulting increase in addition to his pro-rata share of the existing policy. Lessee agrees that it has determined to Lessee's satisfaction that the premises can be used for the purpose for which they are leased and waives any right to terminate this lease in the event the premises cannot be used for such purposes or for any reason may not be used for such purposes during the term of the lease. 11. Liens and Insolvency. Lessee shall keep the leased premises and the property in which the leased premises are situated, free from any liens arising out of any work performed, materials furnished or obligations incurred by Lessee. In the event Lessee becomes insolvent, voluntary or involuntary bankrupt or a receiver assignee, or other liquidating officer is appointed for the business of the Lessee, then the Lessor may cancel this lease at Lessor's option. 12. Assignment and Subletting. Lessee shall not assign this lease in whole or in part, nor sublease all or any part of the premises, nor permit other persons or entities to occupy said premises or any part thereof, nor grant any license or concession for all or any part of the premises, without the prior written consent of Lessor, which consent shall not be unreasonably withheld. However, Lessor may specifically withhold consent if the proposed transferee's projected use of the premises involves the use, storage, generation or disposal of Hazardous Substances as defined in the Hazardous Substances paragraph of this Lease. Any consent by Lessor to an assignment or subletting of this lease shall not constitute a waiver of the necessity of obtaining such consent as to any subsequent assignment. An assignment or transfer for the benefit of Lessee's creditors or otherwise by operation of law shall not be effective to transfer or assign Lessee's interest under this lease unless Lessor shall have first consented thereto in writing. Neither Lessee's interest in this lease, nor any estate created hereby in Lessee nor any interest herein or therein, shall pass to any trustee or receiver or assignee for the benefit of creditors or otherwise by operation of law except as may specifically be provided in the Bankruptcy Code. As applicable, if any of the corporate shares of stock of Lessee are transferred, or if any partnership interests of Lessee are transferred, by sale, assignment, bequest, inheritance, operation of law or otherwise, so as to result In a change of the control, assets, value, ownership or structure of Lessee, the same shall be deemed an assignment for the purposes of this paragraph and shall require Lessor's prior written consent. Lessee shall give thirty (30) days advance written notice to Lessor of any such change or proposed change. 13. Access. Lessee will allow Lessor or Lessor's agents free access at reasonable times to said premises for the purpose of inspections or of making repairs, additions or alterations to 2 3 the premises or any property owned by or under control of Lessor, but this right shall not be construed as an agreement on the part of Lessor to make any repairs, all of such repairs to be made by Lessee as aforesaid. The Lessor shall have the right to place and maintain "For Rent" signs in a conspicuous place on said premises for thirty days prior to the expiration of this lease. 14. Possession. If for any reason, including damage to the leased premises by fire or other casualty, Lessor is unable to deliver possession of said premises to Lessee at the commencement of the lease term, the Lessor shall not be liable for any damage caused thereby to Lessee nor shall this lease thereby become void or voidable nor shall the term of this lease be in any way extended, but in such event Lessee shall not be liable for any rent hereunder until such time as Lessor can deliver possession. If possession is delivered between the beginning and end of a month, the rent, or minimum rent, as the case may be, for said month shall be adjusted proportionately for the days of said month during which Lessee is not in possession. 15. Fire and Other Casualty. In the event the premises are destroyed or damaged by fire, earthquake or other casualty of such an extent as to render the same untenantable in whole or in a substantial part thereof, it shall be optional with the Lessor to rebuild or repair the same; and after the happening of any such contingency the Lessee shall give the Lessor immediate notice thereof. Lessor shall have ninety (90) days after the date of such notification, to notify the Lessee in writing of Lessor's intentions to rebuild or repair said premises, or the part so damaged as aforesaid, and if Lessor elects to rebuild or repair said premises, Lessor shall prosecute the work of such rebuilding or repairing without unnecessary delay, and during such period the rent of said premises shall be abated in the same ratio that the portion of the premises rendered for the time being unfit for occupancy shall bear to the whole of the leased premises. If the Lessor shall fail to give the notice aforesaid, Lessee shall have the right to declare this lease terminated by written notice served upon the Lessor. In the event the building in which the premises hereby leased are located; shall be destroyed or damaged by fire, earthquake, or other casualty (even though the premises hereby leased shall not be damaged thereby) to such an extent that in the opinion of Lessor it shall not be practicable to rebuild or repair, then it shall be optional with the Lessor to terminate this lease by written notice served on Lessee within sixty (60) days after such destruction or damage. 16. Notices. All notices to be given hereunder to either party shall be in writing and shall be either personally delivered to the other party or mailed by first class, registered mail, return receipt requested, postage prepaid, to the other, addressed to the parties as follows: Lessor: Century Development Lessee: International Knife & Saw, Inc. 19637 70th Ave. S. PO Box 752006 Kent, WA 98032-1138 Cincinnati, OH 45275-2006 Any notice (s) or other instruments or documents personally delivered to the other party shall be deemed received on the date of such delivery. Delivery and receipt shall be deemed accomplished If delivery is made to an employee, officer, director or other agent of the other party at the appropriate address set forth hereinabove. Any notice (s) or other instruments or documents sent by mail in accordance with the above provisions shall be conclusively deemed and considered as received by the other party on the third (3rd) day from the date such mailed notice is deposited with the United States postal service. 17. Governmental Fees. All fees, taxes, and other governmental charges payable to the City, County, State or other governmental entity, during the life of this lease shall be paid by Lessee. 18. Signs. Lessee shall not attach to the premises any canopies or awnings of any description whatsoever or inscribe or maintain on the premises any signs, which in the judgement of the Lessor are objectionable; and upon the written direction of Lessor so to do, Lessee shall promptly remove any such objectionable canopies, awnings and signs. Without the written approval of Lessor, no bracket for any such canopies, awnings or signs and no conduits for the same shall be erected, placed or prepared for if the same involves the boring of any holes or any other physical disturbance of the front, ceiling, wails, showcases or floors of said premises. Unless otherwise provided in a rider to this lease, the use of the outside area of the walls and the roof of said premises or the building in which said premises are located, is reserved under Lessor who shall have the right to utilize the same for any purposes desired including sign purposes; provided however, that said reservation shall not extend to the front or fronts of said premises. 19. Alterations and Trade Fixtures. Lessee shall not make any alterations, additions or improvements in said premises without the consent of Lessor in writing first had and obtained, and all alterations, additions, and improvements which shall be made, shall be at the sole cost and expense of Lessee, and shall become the property of the Lessor and shall remain in and be surrendered with the premises as a part thereof at the termination of the lease, without disturbance, molestation, or injury. All alterations, additions, and improvements will be accomplished In a good and workmanlike manner, in conformity with all applicable laws and 3 4 regulations and by a contractor approved by Lessor. Upon the termination of this lease, Lessee shall surrender the premises to Lessor, broom clean and in the same condition as received except for ordinary wear and tear which Lessee was not otherwise obligated to remedy under any provision of this lease. In addition, Lessor may require Lessee to remove any alterations, additions or improvements (whether or not made with Lessor's consent) prior to the termination or this lease and to restore the premises to its prior condition, all at Lessee's expense. Trade fixtures shall not be deemed alterations, additions or improvements unless the removal of the same would do material damage to the premises and if Lessee removes trade fixtures, Lessee shall restore the premises to the original condition. In no event, however, shall Lessee remove any of the following materials or equipment without Lessor's prior written consent; any power wiring or power panels; lighting or lighting fixtures; carpets or other floor coverings; heaters, air conditioners or any other heating or air conditioning equipment; or other similar building operating equipment and decorations. 20. Remedies in Default. Time is of the essence hereof. If any rents above reserved, or any part thereof, shall be arid remain unpaid when the same shall become due, or if Lessee shall violate or default in any of the covenants and agreements herein contained then the Lessor may terminate this lease upon giving the notice required by law, and reenter said premises, but not withstanding such reentry by the Lessor, the liability of the Lessee for the rent provided for herein shall not be extinguished for balance of the term of this lease, and Lessee covenants and agrees to make good to Lessor any deficiency arising from a reentry and reletting of the premises at a lessor rental than hereby agreed to. The Lessee shall pay such deficiency each month as the amount thereof is ascertained by the Lessor. Lessee shall pay to Lessor in the event of such reletting, as soon as ascertained, the costs and expenses incurred by Lessor in such reletting including without limitation advertising costs, prorated share of real estate commissions, completion of construction and tenant improvements necessary for the new lessee or in making such alterations and repairs as to put the premises in as good a leasable condition as when Lessee entered this Lease. Lessor shall have the right, at Lessor's option, to suspend or discontinue any services or obligations otherwise required of Lessor in this Lease, during the continuance of any default or breach and such suspension or discontinuance shall not be deemed or construed to be an eviction or ejection of Lessee. No receipt of money by the Lessor from the Lessee after the termination of the lease in any way, or after giving of any notice, shall reinstate, continue or extend the term of this lease or affect any notice given to the Lessee prior to receipt of such money. The foregoing remedy of the Lessor shall not be exclusive, but shall be cumulative and in addition to all remedies now or hereafter allowed by law or elsewhere provided. 21. Attorney's Fees. Should it be necessary for either party to enforce their rights under this instrument, then in the event of the use of attorneys, whether or not there is a lawsuit, the prevailing party shall be entitled to recover and collect all costs and reasonable attorneys' fees. In the event of litigation all costs and reasonable attorneys' fees shall be determined by the court resolving the litigation. Costs and reasonable attorney's fees shall include without limitation all consultations with attorneys, bankruptcy fees, filing fees, costs of serving all pleadings and documents, copying expenses, costs of depositions (including court reporters fees and transcription costs), discovery, expert witness fees and costs, and all time spent by the prevailing party's attorneys in handling and preparation of the case while pending and for trial, and during any appeals. As used herein, "prevailing party" means the party in whose favor a final Judgment is rendered. Further, after award or judgment is entered the prevailing party shall be fully entitled to recover against the losing party all future costs, attorneys' fees and all expenses which may be incurred in collecting upon and/or enforcing the award or judgment, including without limitation bond costs, sheriff's fees, filing and/or court fees, and all time spent by attorneys on behalf of the prevailing party in handling and pursuing collection/enforcement of the award or judgment. The prevailing party, shall be entitled to provisions in any such award or judgment which set forth the within collection or enforcement rights to future costs and fees. 22. Governing Law/Venue/Jurisdiction. This Lease shall be governed by and construed under the laws of the State of Washington. Further, should civil suit be filed by either party, venue and jurisdiction may lie and be proper in King County, Washington, regardless of business or resident address of the Lessee at the time of filing and regardless of where this document was executed. 23. Advice of Counsel. Lessee acknowledges he has been fully advised that this Lease has been drafted by Lessor and/or its attorney. Further, Lessee acknowledges that he has been given the opportunity to consult with independent counsel as to the meaning and effect of the terms and conditions of this Lease. Lessee has either done so or has chosen not to avail himself of the opportunity and now knowingly enters into this Lease. 24. Non-Waiver of Breach. The failure of the Lessor to insist upon strict performance of any of the covenants and agreements of this lease, or to exercise any option herein conferred in any one or more instances, shall not be construed as a waiver or relinquishment of any such or any other covenant or agreement, but the same shall be and remain in full force and effect 25. Removal of Property. In the event of any entry in, or taking possession of, the 4 5 leased premises as aforesaid, the Lessor shall have the right, but not the obligation, to remove from the leased premises, all personal property located therein, and may place the same in storage at a public warehouse at the expense and risk of the owners thereof. 26. Heirs and Assigns. Subject to the provisions hereof pertaining to assignment and subletting, the covenants and agreements of this lease shall be binding upon the heirs, legal representatives, successors and assigns of any or all the parties hereto. 27. Eminent Domain. Should the demised premises, or a substantial portion of the demised premises, be taken or condemned by any authority, either party hereto, after at least thirty, (30) days written notice to the other, may terminate this lease from the date of such actual taking of possession; but whether the lease be so terminated or not, the entire amount received for such taking, including severance damage, whether by settlement, purchase price in lieu of condemnation, or formal Court action, including severance damages, shall be payable to the Lessor, and the Lessee shall not participate therein. Lessee's liability for rent shall cease as of the date of such taking of the leased premises and the Lessor shall refund the amount of rent paid in advance by the Lessee calculated at the daily rate based upon the monthly rental then in effect. Should both parties hereto elect to continue the lease in effect, despite any such condemnation, the balance of the rent accruing after the date Lessee is deprived of possession (of each installment of such balance) shall be reduced in the proportion that the amount of space taken by any such proceeding bears to the total amount of space covered by this lease. 28. Holdover. If the Lessee shall, without the written consent of Lessor, hold over after the expiration of the term of this lease, such tenancy shall be for an indefinite period of time on a month to month tenancy, which tenancy may be terminated as provided by the laws of the State of Washington. During such tenancy Lessee agrees to pay the Lessor double the rental rate as set forth herein, unless a different rate is agreed upon, and to be bound by all the terms, covenants and conditions as herein specified, so far as applicable. 29. Waiver of Subrogation Rights. The parties hereto do each herewith and hereby release and relieve the other of them from any and all liability for damage to the property of either of them which is or might be incident to or the result of fire or any other casualty (excluding hazardous materials) against which either party is insured, and do hereby waive any and all right of recovery therefore other than for any such losses that may be occasioned by either party's willful, wanton or premeditated conduct. 30. Taxes, Insurance and Maintenance. Property taxes, loss or damage insurance, liability and loss of income insurance and maintenance expenses and costs for the building and its parking lot, sidewalks and other common areas will be prorated and paid by Lessee on the basis of square footage held by the Lessee in relationship to the square footage of the entire building. This will be payable to the Lessor each month as an impound account. Any shortages or overages will be charged or credited each year in April. At this time the impound account will be adjusted if necessary to reflect any increase or decrease in the impound expenses. 31. Utilities and Storm Drain. All utilities, including without limitation, water and sewer costs, City of Kent storm drain charges, and the power for outside security lights, will be prorated over the entire building on the basis of square footage held by the Lessee in relationship to the square footage of the entire building. This will be payable to the Lessor each month as an impound account. Any shortages or overages will be charged or credited each year in April. At this time the impound account will be adjusted if necessary to reflect any increase or decrease in the impound expenses. 32. Subordination, Attornment. This Lease, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust or any other security now or hereafter placed upon the real property and/or improvements of which the premises are a part and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by the Lessor covering the Premises, the Lessee shall attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Lessor under this Lease. The provisions of this Article to the contrary, nevertheless provide so long as the Lessee is not in default hereunder, this Lease shall remain in full force and effect for the full term hereof. Lessee agrees to make reasonable modifications of the Lease provisions as may be requested by lenders with a security interest in the property, provided such modifications do not materially alter the business terms of the Lease and do not negatively impact Lessee's material rights hereunder. 33. Interest and Late Charges. If Lessee shall fail to pay when due and payable any rent or other amounts or charges which Lessee is obligated to pay under the terms of this Lease, such unpaid amounts shall bear interest at the rate of eighteen percent (18%) per annum or the maximum rate allowed in the state where the Premises are located, whichever is greater. In addition to such interest, Lessee acknowledges that the late payment of any monthly installment of Base Rent or Adjusted Base Rent may cause Lessor to incur costs and expenses not contemplated under this Lease, including but not limited to administrative and collection costs, processing and accounting expenses, and late charges which may be imposed on Lessor by any Ground Lease, Mortgage or Trust Deed encumbering the property, the exact amount of 5 6 which is extremely difficult to fix. Therefore, if any such installment is not received by Lessor within fifteen (15) days from the date such installment is due, Lessee shall pay Lessor a late charge equal to ten percent (10%) of such installment. Lessor and Lessee agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Lessor for the loss suffered by such nonpayment by Lessee. Acceptance of any late charge shall not constitute a waiver of Lessee's default with respect to such nonpayment by Lessee nor prevent Lessor from exercising any other rights or remedies available to Lessor under this Lease. 34. Hazardous Substances. If Hazardous Substances are used, stored, generated or disposed of on or in the premises, or if the premises become contaminated in any manner by Lessee, Lessee's agents, employees, contractors or invitees, for which Lessee is legally liable, Lessee shall indemnify and hold harmless the Lessor from any and all claims, damages, fines, judgments, penalties, costs, liabilities or losses (including without limitation a decrease in value of the premises, damages due to loss or restriction of rentable or useable space, or any damages due to adverse impact on marketing of the space, and any and all sums paid for settlement of claims, attorneys' fees, consultant and expert fees) arising during or after the lease term and arising as a result of such contamination by Lessee. This indemnification includes without limitation any and all costs incurred due to any investigation of the site or any cleanup, removal or restoration mandated by a federal, state or local agency or political subdivision. Without limitation of the foregoing, if Lessee causes or permits the presence of any Hazardous Substance on the premises and such results in contamination, Lessee shall immediately notify Lessor of such contamination and at its sole expense, the Lessee shall take any and all necessary actions to return the premises to the condition existing prior to the presence of any such Hazardous Substance on the premises. Lessee shall first obtain Lessor's approval for any such remedial action. Lessee's obligations shall survive the expiration or termination of this Lease. Lessee's breach of this paragraph shall constitute a material default under this lease. As used herein, "Hazardous Substance" means any substance which is toxic, ignitable, reactive, or corrosive and which is regulated by any local government, the State of Washington, or the United States government. Further, "Hazardous Substance" includes any and all material or substances which are defined as "hazardous waste", "extremely hazardous waste" or a "hazardous substance" pursuant to state, federal or local governmental law. "Hazardous substance" includes without limitation asbestos, polychlorobiphenyis ("PCB's") and petroleum. 35. Brokers. Lessee warrants that it has had no dealings with any real estate broker or agents in connection with the negotiation of this Lease excepting only none, and it knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease. 36. Construction of Agreement. In the event of a controversy or dispute, the terms of this Agreement are to be construed in an evenhanded fashion as between the parties hereto in accordance with the laws of the jurisdiction in which the situation forming the basis for the controversy arose. Where the language of this Agreement is deemed to be ambiguous or otherwise unclear, the issue shall be resolved in a manner most consistent with the relevant terms of the Agreement without regard to authorship of the language and without any presumption or arbitrary interpretation or construction in favor of any one of the parties. 37. Severability. In case any one or more of the provisions contained in this Lease shall be held invalid by a court of competent jurisdiction, that shall in no way affect the legality and enforceability of the remaining provisions contained herein. 38. Authority. If Lessee is a corporation, trust or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership. Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 39. Riders. The riders, if any, attached hereto, are made a part of this lease and by this reference incorporated herein. (LESSOR) (LESSEE) Century Development Co., A Partnership International Knife & Saw, Inc. By: Randy Small-Partner By: Signed: Signed: /s/ E.J. BRENT ------------------------------- ----------------------- E.J. Brent, Treasurer Address: 19637 70th Avenue South Home Address: City & State: Kent, WA 98032-1138 City & State: Business Phone: 395-0239 Business Phone: 872-0768 Home Phone: 630-3418 Home Phone: Source: renewal Walter Smith 360-668-2607 6 EX-10.7 8 LEASE DATED JULY 21, 1995 1 Exhibit 10.7 LEASE This Lease entered into this 21st day of July, 1995, by and between 1st American Management Co., Inc., Receiver, pursuant to an Order of the Superior Court of Lake County, Indiana (hereinafter called "Landlord"), and International Knife & Saw, Inc., a Delaware Corporation (hereinafter called "Tenant"). WITNESSETH: 1. PREMISES: Landlord hereby leases to Tenant and Tenant hereby leases from Landlord for the term, at the rental, and upon all of the terms and conditions set forth herein, the tract of land, together with the building and other improvements situated thereon consisting of approximately 18,465 square feet (the "Stipulated Square Footage"), located at 700 Chase Street, Gary, Indiana, and outlined in red on the Site Plan set forth on Exhibit "A" attached hereto and made a part hereof for all purposes ("Site Plan"). The leased premises is part of a building which was formerly known as the Budd Company Building and now commonly known as the Southeast Industrial Center. Said real property and the portion of the building and other improvements thereon are hereinafter referred to as the "Leased Premises". The Landlord shall provide the Tenant with twenty-five (25) exclusive parking spaces as shown on the Site Plan. The Landlord shall have the right to move and relocate said exclusive parking spaces at its sole discretion for comparable spaces. The Landlord 2 shall not be required to police the exclusivity of said parking of the Tenant. 2. TERM OF LEASE: The term of this Lease shall be for three (3) years commencing at 12:01 a.m. on the 1st day of September, 1995, and shall continue until midnight on the 31st day of August, 1998 (the "Initial Term"), unless extended pursuant to the terms herein or unless sooner terminated pursuant to the terms herein. 3. ANNUAL RENT: Tenant shall pay to Landlord in lawful money of the United States at Landlord's address as designated herein, or to such other person and/or addresses as Landlord may from time to time designate in writing the following rent:
Rental Rate Annual Monthly Year From To Per Square Foot Rent* Rent - ---- ---- -- --------------- ----- ---- 1 9/1/95 8/31/96 $ 3.15 $58,164.72 $4,847.06 2 9/1/96 8/31/97 $ 3.31 $61,073.04 $5,089.42 3 9/1/97 8/31/98 $ 3.47 $64,126.68 $5,343.89
- --------- *Based upon 18,465 sq. ft., subject to adjustment per paragraph 3.1 of this Lease. 3.1 Stipulated Square Footage. For the purpose of this Lease, the "Stipulated Square Footage" of the Leased Premises shall be 18,465 square feet. Notwithstanding anything to the contrary contained herein, in the event that the total number of square feet of the Leased Premises actually delivered to Tenant is less than 18,465 square feet or more than said amount, then "Stipulated Square Footage" shall be recomputed to reflect the actual square footage of the Leased Premises, the Rent and monthly installments of Rent specified in each of the above subsections, and all other additional charges 2 3 required to be made by the Tenant to the Landlord as provided for in this Lease, shall be computed or recomputed on the basis of such actual square footage of the Leased Premises, and Tenant shall pay as Annual Rent and its pro rata share of the real estate taxes and other additional charges as provided for in this Lease on the amount of the Stipulated Square Footage as computed or recomputed. 3.2 Time and Place of Payment of Rent. The Annual Rent and Monthly Rent shall be payable in advance on the first day of each calendar month during the term of this Lease in equal monthly installments (the "Monthly Rent"). Annual Rent and Monthly Rent shall be referred to herein as (the "Rent") unless otherwise specified. All Rent shall be payable without notice or demand and without any deduction, offset, or abatement to 1st American Management Co., Inc., Receiver, 450 Vale Park Road, Suite B, P.O. Box 1580, Valparaiso, Indiana 46383, or such other person or entity or at such other places as Landlord may designate in writing to Tenant from time to time. 4. USE AND CONDITION: 4.1 Use. The Leased Premises shall be primarily used and occupied for the grinding and sharpening of industrial knives and saws and related offices required thereof. No act shall be done in or about the Leased Premises that is unlawful or that will increase the rate of insurance for fire and extended coverage on the improvements comprising the Leased 3 4 Premises or on any property in the vicinity of the Leased Premises above that normally incurred by Landlord leasing property to businesses undertaking activities similar to Tenants. No act shall be done and no material shall be used in or about the Leased Premises which interferes with the use of adjacent property. Tenant shall not commit, or allow to be committed, any waste or any public or private nuisance or permit to be stored any environmentally hazardous wastes or radioactive materials, on the Leased Premises. Tenant shall, at Tenant's expense, comply promptly with all applicable federal, state, county and local statutes, ordinances, rules, regulations, orders, and laws, including OSHA, environmental, EPA, and fire-safety requirements and fire underwriting standards, relating to Tenant's use of the Leased Premises and shall keep and observe such reasonable rules and regulations as may be adopted and published by Landlord for the safety, care, cleanliness and benefit of the Leased premises, and for the preservation of good order therein. Tenant shall at all times use adequate ventilation/exhaust equipment and waste disposal equipment and procedures so as to comply with all applicable governmental and safety statutes, rules and regulations, and so as to prevent any interference with the use of property in the vicinity of the Leased Premises. Tenant warrants and represents that it shall not store, generate or dispose any hazardous waste, hazardous substances, toxic substances or related materials in or about the Leased 4 5 Premises, Southeast Industrial Center Common Area or the real property adjacent thereto except in absolute compliance with any and all applicable federal, state, county and local laws, statutes, regulations or other requirements. Landlord shall be provided with copies of any and all letters and documents required of Tenant by virtue of the aforementioned. If Tenant fails to comply with the requirements of this Section 4, Landlord shall be entitled to pursue any of the remedies provided in Section 5.5 or in Section 11. 4.2 Condition of Leased Premises. Tenant has occupied the Premises under a previous Lease dated July 19, 1990, and Tenant hereby accepts the Leased Premises, "AS IS", "WHERE IS" and "WITH ALL FAULTS AND VIRTUES", relying exclusively upon its own inspection of the Leased Premises. Landlord warrants and represents that it is Receiver for the Premises with full right, title and authority to enter into and perform this Lease. Tenant hereby accepts the Leased Premises subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Leased Premises, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Landlord represents and warrants that it has no knowledge and has received no notice of any violation regarding any law governing the use, storage or disposal of any hazardous waste, toxic substance or related materials in the Leased Premises, Southeast Industrial Center Common Area 5 6 or the real property adjacent thereto. Tenant acknowledges that neither Landlord nor Landlord's agent has made by representation or warranty as to the suitability of the Leased Premises for the conduct or operations of Tenant's business. 4.3. Indemnification by Tenant: (i) In no event shall Landlord be responsible to Tenant for any remediation of any Hazardous Substance or other environmental clean-up at the Premises resulting directly from use and occupancy of the Premises by Tenant, its employees, agents, customers, suppliers and the like. (ii) If compliance with any Environmental Law becomes necessary to Premises due to any acts or omissions on the part of Tenant, then Tenant shall comply with such Environmental Law at Tenant's own expense, except to the extent attributable to Landlord or Landlord's employees, agents, customers, suppliers, or the like. (iii} Tenant shall indemnify, defend and hold harmless Landlord from and against all claims, liabilities, losses, damages and costs, foreseen and unforeseen, including without limitation counsel fees, engineering and other professional and expert fees, which Landlord may incur by reason of Tenant's breach of its obligations under this paragraph or breach of Tenant's representations under this paragraph. 6 7 5. MAINTENANCE, REPAIRS AND ALTERATIONS: 5.1 Tenant's Obligations. Except as provided in Sections 5.2 and 5.3 below, Tenant shall, during the term of this Lease, keep in good repair, replacement, maintenance, order and condition, the Leased Premises and every part thereof, including but not limited to the floors, plumbing, water lines, sewer lines, heating, electrical system, electrical substations, fire security system, windows, doors, overhead doors, dock doors, loading docks, fences and signs which are located in the Leased Premises. Landlord shall be responsible for maintaining and repairing the portions of the electrical system, heating system, water system, electrical substations, fences, fire security system, windows and sewer lines located outside the Leased Premises until each such system is modified to independently serve the Leased Premises. Thereafter, Tenant shall have complete responsibility for maintenance, repair and replacement of each such independent system or systems. 5.2 Landlord's Obligations. The Landlord shall keep in good repair and maintenance the foundation, structure and roof of the Leased Premises, except if damage is caused by the negligence of the tenant, its employees, agents, subcontractors and workers. Landlord shall not be obligated to paint any exterior nor shall Landlord be required to maintain the interior surfaces or walls, windows, doors or any plate glass (interior or exterior). Tenant expressly waives 7 8 the benefits of any statute now or hereafter in effect which would otherwise afford Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Leased Premises in good repair, maintenance, order and condition. 5.3 Common Area Maintenance. The "Common Area" includes the real property, together with those portions of the Southeast Industrial Center, designated by Landlord from time to time for the common use of the Tenant with the users of other facilities in the vicinity of or adjacent to the Leased Premises, all of which shall be subject to the Landlord's sole management and control and shall be operated, maintained and repaired in such manner as Landlord, in its discretion, shall determine. Tenant agrees to pay in addition to Rent, Tenant's proportionate share of the cost of operation and administrative expenses as follows:
Year From To Monthly Expense ---- ---- -- --------------- 1 6/1/95 7/31/96 $ 848.16 2 6/1/96 7/31/97 $ 890.57 3 6/1/97 7/31/98 $ 935.09
Such payments shall be made monthly, in advance, and shall be paid in addition to Rent and shall be paid for such Common Area expenses which may be incurred by Landlord in its sole discretion. Tenant's first payment of Common Area costs shall be made on September 1, 1995. 5.4 Surrender. On the last day of the Initial Term or any Option Term hereof, or on any sooner termination, Tenant 8 9 shall surrender the Leased Premises to Landlord in the same good condition as at the commencement of the Lease, broom clean, ordinary wear and tear and loss by fire, casualty, condemnation and acts of God excepted. Tenant shall repair any damage other than ordinary wear and tear to the Leased Premises occasioned by its use thereof, or by the removal of Tenant's additions, improvements, trade fixtures, furnishings and equipment pursuant to Section 5.6(c), which repair shall include the patching and filling of holes and repair of any and all damage caused by removal of same. 5.5 Landlord's Rights. If Tenant fails to perform Tenant's obligations hereunder, Landlord may, but shall not be required to, enter upon the Leased Premises, after ten (10) days' prior written notice to Tenant, and perform the same and the costs thereof, together with interest thereon from the date of payment by Landlord at the lesser of the following: (a) The rate of three (3) points in addition to the prime or corporate rate charged by The First National Bank of Chicago, Chicago, Illinois, to its most credit-worthy corporate customers; or (b) the highest rate then permitted by law. 5.6 Alterations and Additions. (a) Tenant shall not, without Landlord's prior written consent, which consent shall not be unreasonably withheld, make any alterations, improvements, or additions, in, on or about the Leased Premises, except for non-structural alterations not exceeding One thousand 9 10 dollars ($1,000.00) in cost or place any signs on the Leased Premises and the Southeast Industrial Center. As a condition to giving such consent, Landlord may require Tenant to remove any such alterations, improvements, additions, signs or utility installations at the expiration of the term, and to restore the Leased Premises and sign placement areas to their prior condition. If Landlord does not notify Tenant at the time of giving such consent that Tenant will be required to remove such alteration, improvement, signs, addition or utility installation, then Landlord shall be deemed to have waived its right to have Tenant remove the same at the expiration of the term of this Lease. (b) Before commencing any work relating to alterations, additions and improvements affecting the Leased Premises or signs, Tenant shall notify Landlord in writing of the expected date of commencement thereof. Landlord shall then have the right at any time and from time to time to post and maintain on the Leased Premises such notices as Landlord reasonably deems necessary to protect the Leased Premises and Landlord from mechanics' liens, materialmen's liens or any other liens. In any event, Tenant shall pay, when due, all claims for labor or materials furnished to or for Tenant at or for use in the Leased Premises. Tenant shall not permit any mechanics' or materialmen's liens to be levied against 10 11 the Leased Premises for any labor or material furnished to Tenant or claimed to have been furnished to Tenant or to Tenant's agents or contractors in connection with work of any character performed or claimed to have been performed on the Leased Premises by or at the direction of Tenant. (c) All alterations, improvements or additions which may be made on the Leased Premises at the cost of Tenant and Tenant's machinery, equipment and other trade fixtures and signs shall remain the property of Tenant and may be removed by Tenant subject to the provisions of Section 5.4; provided that any alteration, improvement, additions, machinery, equipment or trade fixture or sign not removed on or prior to the last day on which this Lease is in effect shall become part of the Leased Premises and the property of Landlord, subject to the provisions of Section 11.2(c) below. 6. INSURANCE; INDEMNITY: 6.1 Liability. Tenant shall, at Tenant's sole cost and expense, obtain and keep in full force during the term of this Lease a policy of comprehensive general public liability (broad form) insurance issued by a company admitted to do business in the State of Indiana and insuring Tenant and Landlord against any liability arising out of the ownership, use, occupancy or maintenance of the Leased Premises. Such insurance policy shall be in an amount or not less than Six 11 12 million dollars ($6,000,000.00). Landlord reserves the right to require Tenant to increase the limits as reasonably required by Landlord or Landlord's lender, upon thirty (30) days written notice to Tenant. Such insurance policies shall name Landlord as an additional insured and shall provide that they may not be canceled without thirty (30) days prior written notice to Landlord. Landlord, at its option, shall be furnished with copies of such insurance policies or certificates evidencing such insurance at least annually or such earlier time as Landlord may request in writing. If Tenant shall fail to procure and maintain said insurance, Landlord may, but shall not be required to, procure and maintain the same, but at the sole cost and expense of Tenant as additional rent payable monthly pursuant to Section 5.5. 6.2 Property Insurance. Landlord shall obtain and keep in force during the term of this Lease a policy or policies of insurance issued by a company authorized to engage in the insurance business in the State of Indiana, insuring all improvements comprising the Leased Premises and the entire Southeast Industrial Center in the amount for the full replacement value thereof against damage or destruction by any and all insurable perils pursuant to an extended coverage fire and extended insurance policy commonly referred to as an "All Risks" insurance policy. Tenant shall pay during the term of this Lease, in addition to Annual Rent, Tenant's proportionate 12 13 share of the cost of such insurance as provided for in this Section 6.2. For the purpose of this Section 6.2, Tenant's proportionate share of the cost of such insurance shall be calculated by multiplying the total cost of such insurance by a fraction, the numerator of which shall be the Stipulated Square Footage of the Leased Premises and the denominator of which shall be 1,060,000 square feet representing the gross square footage of the Southeast Industrial Center. The cost of such insurance shall include any increased premiums, whether such premium increase shall be the result of the nature of Tenant's occupancy, any act or omission of Tenant, requirements of the holder of a mortgage or deed of trust covering the Leased Premises, increased valuation of the Premises, or any other cause except for increase due directly to other tenant's occupancy, act or omission which shall be paid by such other tenant or Landlord. Tenant shall pay any such premium amounts to Landlord within thirty (30) days after receipt by Tenant of a copy of the premium statement or other satisfactory evidence of the amount due from Tenant. Said insurance shall provide for the payment for loss thereunder to Landlord or the holder of a first mortgage or deed of trust on the Leased Premises and the Southeast Industrial Center. 6.3 Insurance Policies. The Landlord or Tenant as the insuring party and as provided for herein shall deliver prior to possession to the other party copies of policies of such insurance or certificates of insurance evidencing the 13 14 existence and amounts of such insurance with loss payable clauses satisfactory to Landlord. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days' prior written notice to Landlord. If Tenant is the insuring party, Tenant shall, within thirty (30) days prior to the expiration of such policies, furnish Landlord with renewals or "binders" thereof, or Landlord may order such insurance and charge the cost thereof to Tenant, which amount shall be payable by Tenant upon demand. Tenant shall not do or permit to be done anything which shall invalidate the insurance policies referred to in Section 6.3. Notwithstanding anything contained herein to the contrary, the amount and coverage of insurance required pursuant to Sections 6.1 and 6.2 shall be not less than the amount which shall be reasonably required from time to time by the holder of any mortgage or deed of trust to which this Lease is subject. Tenant shall forthwith, upon Landlord's demand, reimburse Landlord for any additional premiums attributable to any act or omission or operation of Tenant causing such increase in the cost of insurance. If Landlord is the insuring party, and if the insurance policies maintained hereunder cover other improvements in addition to the Leased Premises, Landlord shall deliver to Tenant a written statement setting forth the amount of any such insurance cost increase and showing in reasonable detail the manner in which it has been computed. Any insurance required 14 15 pursuant to Section 6 shall be through companies authorized to engage in the insurance business in the State of Indiana. 6.4 Waiver of Subrogation. Tenant and Landlord each waives any and all rights of recovery that such party, or any party claiming by, through or under such party by subrogation or otherwise, may have against the other party, or against the officers, employees, agents and representatives of the other party, for loss of, or damage to, such waiving party or its property or the property of others under its control, as to any such loss or damage which is insured against (or should be insured against pursuant to the terms of this Lease) under any insurance policy in force at the time of such loss or damage. Tenant and Landlord shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 6.5 Hold Harmless. Tenant shall indemnify, defend and hold Landlord harmless from any and all claims arising from Tenant's use of the Leased Premises and Common Area or from the conduct of its business or from any activity, work or things which may arise from or by Tenant or its agents, contractors, employees or invitees in or about the Leased Premises and Common Area and shall further indemnify, defend and hold Landlord harmless from and against any and all claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the 15 16 provision of this Lease or arising from any negligence of Tenant or any of its agents, contractors, employees or invitees and from any and all costs, reasonable attorneys' fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon. Tenant hereby assumes all risk of damage to property or injury to persons in or about the Leased Premises from any cause except to the extent attributable to the intentional misconduct or negligence of Landlord, or any of its agents, contractors, employees or invitees. 6.6. Exemption of Landlord from Liability. Except as provided in Section 6.5 with respect to the intentional misconduct or negligence of the Landlord, or any of its agents, contractors, employees or invitees, Landlord shall not be liable for injury to Tenant's business or for any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Tenant, Tenant's employees, agents, or customers, or any other person in or about the Leased Premises or Common Area; nor shall Landlord be liable for injury to Tenant's employees, agents, customers, or contractors, whether said damage or injury results from conditions arising upon the Leased Premises, Common Area, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible to or under the control of Landlord. Landlord shall not be liable for any damages arising from any 16 17 act or neglect of any other person. Tenant hereby agrees to indemnify, hold harmless, and to defend Landlord from any and all claims which may arise as a result of use of the Common Areas by Tenant, Tenant's employees, agents, invitees, customers and contractors. 7. DAMAGE OR DESTRUCTION: 7.1 Damage. In the event the improvements on the Leased Premises are damaged or destroyed, partially or totally, from any cause whatsoever, whether or not such damage or destruction is covered by any insurance required to be maintained under Section 6, Landlord shall have the following options at Landlord's sole discretion: (a) Landlord may, at Landlord's expense, repair or restore such damage or destruction as soon as reasonably possible and in such event Landlord shall commence repair or restoration within ninety (90) days of the date of such damage or destruction and diligently proceed with such repair or restoration until completed, and this Lease shall continue in full force and effect without any interruption whatsoever; provided that Rent and other amounts payable by Tenant shall proportionately abate until the Leased Premises are repaired or restored; or (b) Landlord may elect not to repair or restore the Leased Premises, in which case this Lease shall automatically terminate. Landlord must give Tenant written notice of its election not to repair or restore 17 18 within forty-five (45) days of the date of damage or destruction and, if not given, Landlord shall be deemed to have elected to repair or restore and in such event shall commence repair or restoration within ninety (90) days of the date of such damage and diligently proceed to completion. In such event, Rent and other amounts payable by Tenant shall proportionately abate until the Leased Premises are repaired or restored. 7.2 Damage Near End of Term. If the Leased Premises are partially destroyed or damaged during the last year of the fourth option term of this Lease, Landlord may, at Landlord's option, cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Tenant of Landlord's election to do so within thirty (30) days after the date of occurrence of such damage. 7.3 Prorations. Upon termination of this Lease pursuant to this Article 7, a pro rata adjustment of rent based upon a thirty (30) day month shall be made. 7.4 Obligation to Restore. Notwithstanding any provision to the contrary in this Lease, if the Leased Premises are damaged or destroyed, in whole or in part, and there are insurance proceeds available to the Landlord for repair or restoration of such damage or destruction, then the Landlord shall within ninety (90) days of such damage or destruction commence any repair or replacement work required as the result of such damage or destruction and shall 18 19 continuously and diligently proceed with such repair or replacement work until completed. 8. REAL PROPERTY TAXES: 8.1 Payment of Taxes. For each Lease Year of the term of this Lease, Tenant shall pay to Landlord Tenant's pro rata share of the Real Estate Taxes on the Southeast Industrial Center and payable in said Lease Year, as additional rent, promptly without demand, in an amount to be estimated by Landlord and, in the event Landlord is required under any mortgage covering part or all of the Leased Premises to escrow real estate taxes, Landlord may use the amount required to be so escrowed as the basis for its estimate, and to be adjusted at the end of each Lease Year based upon Landlord's actual cost. An amount equal to one-twelfth (1/12) of the Landlord's estimate of current Real Estate Taxes shall be paid in advance during the Term of the Lease on the first day of each calendar month and a proportionate sum for the partial month, if any, at the commencement and termination of the Lease Term. The Real Estate Tax payment shall consist of all items of cost and expense for Real Estate Taxes. 8.2 Definition of Real Estate Taxes. As used herein, the term "Real Estate Taxes" shall include any form of special assessments, ad valorem real estate taxes, license fee, sewer tax, utility tax, water tax, trailer tax, levy, or tax related to the Leased Premises or Tenant's use thereof imposed by any authority having the direct or indirect power to tax, 19 20 including any city, county, state or federal government, or any school, lighting, drainage or other improvement district thereof, as against any legal or equitable interest of Landlord in the Leased Premises, Common Area, or in the real property of which the Leased Premises are a part, or as against Landlord's business of leasing the Leased Premises. Excluded from the meaning of Real Estate Taxes are income taxes and franchise taxes. Tenant shall not be responsible for any penalty or interest on the payment of delinquent Real Estate Taxes, except if caused by Tenant's failure to pay said Real Estate Taxes in a timely fashion as required herein. Tenant shall pay any and all charges and fees which may be imposed by the EPA, FDA or other similar government regulations or authorities for general governmental purposes which relate to the Tenant's occupancy and use of the Leased Premises. 8.3 Joint Assessments. If the Leased Premises are not separately assessed, Tenant's liability shall be the Tenant's proportionate share of said Real Estate Taxes. For the purpose of this Section 8.3, Tenant's proportionate share of the Real Estate Taxes shall be calculated by multiplying the total cost of said Real Estate Taxes by a fraction, the numerator of which is the Stipulated Square Footage for the Leased Premises and the denominator of which shall be 1,060,000 square feet representing the gross square footage of the Southeast Industrial Center. Landlord shall provide the 20 21 Tenant, upon the Tenant's written request, with the calculation of the Tenant's proportionate share of said Real Estate Taxes as certified by the Landlord. 8.4 Personal Property Taxes. (a) Tenant shall pay prior to delinquency all taxes assessed against and levied upon leasehold improvements, trade fixtures, furnishings, equipment and all other personal property of Tenant contained in the Leased Premises or elsewhere. Tenant shall cause said leasehold improvements, trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Landlord. (b) If any of Tenant's said personal property shall be assessed with Landlord's real property, Tenant shall pay Landlord the taxes attributable to Tenant within ten (10) days after receipt of a written statement setting forth the taxes applicable to Tenant's property as certified by one of the general partners of the Landlord following reasonable determination by Landlord. 9. UTILITIES: Tenant shall timely pay when due all water, gas, sanitary sewer, heat, light, power, telephone and other utilities and services supplied to the Leased Premises, together with any taxes hereon. Gas and electricity provided to the Leased Premises shall be separately metered. If any other such services are not separately metered to Tenant, Tenant shall pay upon demand a reasonable proportion to be determined by Landlord of all charges 21 22 jointly metered with other premises on a fair and equitable basis. Tenant shall be entitled to a proportionate abatement of Rent to the extent and during the period of any material interruption with Tenant's use of the Leased Premises as a result of the failure of water or sewer service to the Leased Premises, the maintenance of which is not the responsibility of Tenant, which failure occurs for five (5) consecutive days or more. Landlord shall use its best efforts to remedy such material interruptions as quickly as is reasonably possible under the circumstances. Landlord retains an exclusive easement over, across, and under any and all portions of the Leased Premises for the purpose of installing, inspecting, maintaining, repairing, removing, or relocating any new or existing utility service located on or to be located on the Leased Premises. In the event that Landlord causes any work to be performed on utilities services located on the Leased Premises, Landlord will take reasonable steps to minimize interruption of such services and to insure that Tenant's business is not materially interrupted and shall restore any disturbed areas to a condition such that Tenant's use of the Leased Premises is not substantially and materially impaired. Except to the extent caused by act or omission of Tenant, Rent and other amounts payable by Tenant shall abate during the period of and to the extent the Leased Premises are rendered untenantable by any repairs, alterations or improvements made thereto or to the Southeast Industrial Center made by Landlord pursuant to this section. 22 23 10. ASSIGNMENT AND SUBLETTING: 10.1 Landlord's Consent Required. Tenant shall not assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Tenant's interest in this Lease or in the Leased Premises without the prior written consent of the Landlord, which consent shall not be unreasonably withheld if (i) such assignment or transfer is of Tenant's entire interest in the Leased Premises and (ii) Tenant provides to Landlord certification from a national certified public accounting firm (acceptable to Landlord) that the proposed assignee or transferee has a net worth of not less than Ten million dollars ($10,000,000.00). Any attempted assignment, transfer, mortgage, encumbrance or subletting shall be void. A merger or consolidation of Tenant with or into any other corporation shall not be deemed an assignment for purposes of this section. The Tenant shall not mortgage or encumber any part of Tenant's interest in this Lease or in the Leased Premises. 10.2 No Release of Tenant. Regardless of Landlord's consent, no subletting or assignment shall release Tenant from Tenant's obligation to pay the Rent, additional rent, or to perform all other obligations to be performed by Tenant hereunder for the term of this Lease. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one 23 24 assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. 11. DEFAULTS; REMEDIES: 11.1 Defaults. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant: (a) The vacating for a period of forty-five (45) consecutive days or abandonment of the Leased Premises by Tenant. (b) The failure by Tenant to make any payment of Rent, additional rent, or any other payment required to be made by Tenant hereunder, as and when due. Landlord agrees that Tenant shall not be in default under this subparagraph if said Rent is received by Landlord within five (5) days after the due date hereof as provided in this Lease. (c) The failure by Tenant to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Tenant, other than described in paragraph (b) above, where such failure shall continue for a period of twenty (20) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant's default is such that more than twenty (20) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commenced such cure within said twenty 24 25 (20) day period and thereafter diligently prosecutes such cure to completion. (d) (i) The making by Tenant of any general assignment, or general arrangement for the benefit of creditors; (ii) the filing by or against Tenant of a petition to have Tenant adjudged bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty [60]] days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Leased Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within thirty (30) days. 11.2 Remedies in Default. In the event of any such default or breach by Tenant, Landlord may at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such default or breach: (a) Terminate Tenant's right to possession of the Leased Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately 25 26 surrender possession of the Leased Premises to Landlord. Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default including, but not limited to, the cost of recovering possession of the Leased Premises; expenses of reletting, including necessary renovation and alteration of the Leased Premises, reasonable attorneys' fees and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term at the time of such award exceeds the amount of such rental loss for the same period that Tenant proves could be reasonably avoided; and that portion of the leasing commission paid by Landlord applicable to the unexpired term of this Lease. If any installment of rent or other sum is not received by Landlord within five (5) days after the due date thereof as provided in this Lease, it shall bear interest from the date due at the lesser of the following: a) the rate of three (3) points in addition to the existing prime or corporate rate charged by The First National Bank of Chicago, Chicago, Illinois, to its most credit-worthy corporate customers; or b) the highest rate then permitted by law. In the event Tenant shall have abandoned the Leased Premises, Landlord shall have the option of (i) retaking possession of the Leased Premises 26 27 and recovering from Tenant the amounts specified in this Section 11.2(a), or (ii) proceeding under Section 11.2(b). (b) Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant shall have abandoned the Leased Premises. In such event, Landlord shall be entitled to enforce all or Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the State of Indiana. Landlord shall not have the right to enter the Leased Premises upon Tenant's default and prior to termination of this Lease to take possession of any goods, wares, equipment, furniture, machinery, trade fixture, sign, improvement, addition, alteration, or other Personal property of Tenant, but any such personal property not removed from the Leased Premises within twenty (20) days after the last day on which this Lease shall be effective following such default shall be deemed abandoned to Landlord. In the event that an order for relief is entered in any case under Title 11, U.S.C. (the "Bankruptcy Code") in which Tenant is the debtor and: (A) Tenant as debtor in possession, or any trustee who may be appointed in the case 27 28 (the "Trustee") seeks to assume the Lease, then Tenant, or Trustee, if applicable, in addition to providing adequate assurance described in applicable provisions of the Bankruptcy Code, shall provide adequate assurance to Landlord of Tenant's future performance under the Lease by depositing with Landlord a sum equal to the lesser of twenty-five (25%) percent of the Rental and other charges due from the balance of the Lease Term of six (6) month's Rent ("Security"), to be held (without any allowance for interest thereon) to secure Tenant's obligations under the Lease, and (B) Tenant, or Trustee, if applicable, seeks to assign the Lease after assumption of the same, then Tenant, in addition to providing adequate assurance described in applicable provisions of the Bankruptcy Code shall provide adequate assurance to Landlord of the proposed assignee's future performance under the Lease by depositing with Landlord a sum equal to the Security to be held (without any allowance for interest thereon) to secure performance under the Lease. Nothing contained herein expresses or implies, or shall be construed to express or comply, that Landlord is consenting to assumption and/or assignment of the Lease by Tenant, and Landlord expressly reserves all of its rights to object to any assumption and/or assignment of the Lease. Neither Tenant nor any Trustee shall conduct or permit the conduct of any "fire", "bankruptcy", "going out of business" or "auction sale" in or from the Premises. 28 29 11.3 Default by Landlord. Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event later than twenty (20) days after written notice by Tenant to Landlord specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than twenty (20) days are required for performance then Landlord shall not be in default if Landlord commences performance within such twenty (20) day period and thereafter diligently prosecutes the same to completion. 11.4 Late Charges. Tenant hereby acknowledges that late payment by Tenant to Landlord of Annual Rent, additional rent, and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed covering the Leased Premises. Accordingly, if any installment of Rent, additional rent, or any other sum due from Tenant shall not be received by Landlord or Landlord's designee within ten (10) days after written notice from Landlord to Tenant that said amount is past due, then Tenant shall pay to Landlord a late charge equal to five (5%) percent of the overdue amount for each month or portion thereof that said amount is overdue. The 29 30 parties hereby agree that such late charge represents a fair and reasonable estimate of the cost Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder. 12. CONDEMNATION: If the Leased Premises or any portion thereof are taken under the power of eminent domain, or sold by Landlord under the threat of the exercise of said power (all of which is herein referred to as "Condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever occurs first. If more than twenty-five (25%) percent of the floor area of the Leased Premises is taken by Condemnation, either Landlord or Tenant may terminate this Lease as of the date the condemning authority takes title or possession by notice in writing of such election within twenty (20) days after Landlord shall have notified Tenant of the taking or, in the absence of such notice, then within twenty (20) days after the condemning authority shall have taken possession. For the purpose of this Section 12, if all means of ingress and egress to the Leased Premises are permanently taken under the power of eminent domain, then this Lease shall terminate as provided for in this Section 12. If this Lease is not terminated by either Landlord or Tenant then it shall remain in full force and effect as to the portion of 30 31 the Leased Premises remaining, provided the rental shall be reduced in proportion to a fraction, the numerator of which shall be the remaining Stipulated Square Footage of the Leased Premises (after any such taking) and the denominator of which shall be Stipulated Square Footage of the Leased Premises before any such taking. In the event this Lease is not so terminated then Landlord agrees, at Landlord's sole cost, to undertake to restore the Leased Premises to a complete unit of like quality and character as existed prior to the Condemnation within ninety (90) days of the date of the taking and to diligently proceed with such restoration until completed. All awards for the taking of any part of the Leased Premises or any payment made under the threat of the exercise of power of eminent domain shall be the property of Landlord, whether made as compensation for diminution of value of the leasehold or for the taking of the fee or as severance damages; provided, however, that Tenant shall be entitled to any award for loss of or damage to Tenant's trade fixtures and removable personal property, and relocation expenses. 13. STATEMENT OF TENANT: Tenant shall at such times as may be reasonably required and upon not less than ten (10) business days prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (i) certifying, if true, that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent, security deposit and other 31 32 charges are paid in advance, if any, and (ii) acknowledging, if true, that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults, if any, which are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Leased Premises. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one (1) month's installment of Annual Rent has been paid in advance. If Landlord desires to finance or refinance the Leased Premises, or any part thereof, Tenant hereby agrees to deliver to any lender designated by Landlord such financial statements of Tenant as Tenant has available in its normal course of business (to be certified as true, correct and completed by the chief executive officer of Tenant) and as may be reasonably requested by such lender or Landlord. Such statements shall include the past three (3) years' financial statements of Tenant. All such financial statements shall be received by lender or Landlord in confidence and shall be used only for the purposes herein set forth. 14. LANDLORD'S INTERESTS: The term "Landlord" as used herein shall mean 1st American Management Co., Inc., as Receiver, pursuant to Order of the Lake Superior Court, Room Number One, or the owner or owners at the time in question of the fee title. In the event 32 33 of any transfer of such title or interest, Landlord herein named (and in case of any subsequent transfers the then grantor) shall be relieved from and after the date of such transfer of all liability as respects Landlord's obligations thereafter to be performed, provided that any funds in the hands of Landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Landlord shall, subject as aforesaid, be binding on Landlord's successors and assigns, only during their respective period of ownership. 15. SEVERABILITY: The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision herein. 16. SUBORDINATION: This Lease, at Landlord's option, shall be subordinate to any ground lease, mortgage(s), deed(s) of trust or any other hypothecation for security now or hereafter placed upon the real property of which the Leased Premises are a part and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Tenant's right to quiet possession of the Leased Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed or trust or 33 34 ground lease, and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. Tenant agrees to execute any documents required to effectuate such subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be, that contains a non-disturbance clause reasonably satisfactory to Tenant and failure to do so within ten (10) business days after written demand, does hereby make, constitute and irrevocably appoint Landlord as Tenant's attorney in fact and in Tenant's name, place and stead, to do so. 17. COST AND ATTORNEYS' FEES: If either party shall prevail in any action for relief against the other party, declaratory or otherwise, arising out of this Lease, including any suit by Landlord for the recovery of rent or damages or possession of the Leased Premises, the prevailing party shall be entitled to its reasonable attorneys' fees, costs and disbursements. 18. NOTICES: All notices under this Lease shall be in writing and delivered in person to the persons listed below or sent, by registered or certified mail, return receipt requested, or by commercial courier service (return receipt requested), as follows: If to Tenant: International Knife and Saw, Inc. 1299 Cox Avenue Erlanger, Kentucky 41018 34 35 If to Landlord: John R. Marshall 1st American Management Co., Inc. 450 Vale Park Road, Suite B P.O. Box 1580 Valparaiso, Indiana 46383 With copies to: Vaughn Rasmussen First Bank National Association First Bank Place East-NPFE 0909 Minneapolis, Minnesota 55480 19. HOLDING OVER: If Tenant remains in possession of the Leased Premises or any part thereof after the expiration of the term hereof with the express written consent of Landlord, such occupancy shall be a tenancy from month to month at a rental in the amount of all charges, other than Rent, payable hereunder plus two times the last month's Rent and upon the terms hereof applicable to month-to-month tenancy. 20. WAIVERS: No waiver by Landlord of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Tenant of the same or any other provision. Landlord's consent to or approval of any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act by Tenant. The acceptance of rent hereunder by Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 21. LANDLORD'S ACCESS: Landlord and Landlord's agent shall have the right to enter the Leased Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective 35 36 purchasers or lenders, and making such alterations, repairs, improvements or additions to the Leased Premises or to the building of which they are a part as Landlord may deemed necessary or desirable; provided, however, Landlord shall not unreasonably interfere with Tenant's use of the Leased Premises. Except to the extent caused by act or omission of Tenant, Rent and other amounts payable by Tenant shall abate during the period of and to the extent the Leased Premises are rendered untenantable by any repairs, alterations or improvements made thereto or to the Southeast Industrial Center by Landlord pursuant to this section. Landlord may at any time place on or about the Leased Premises any ordinary "For Sale" signs, and Landlord may at any time during the last one hundred twenty (120) days of the term hereof place on or about the Leased Premises any ordinary "For Sale of Lease" signs, all without rebate of rent or liability to Tenant. 22. PERFORMANCE BOND: At any time Tenant either desires to or is required to make any repairs, alterations, additions, improvements or utility installation thereon, pursuant to Section 5 or otherwise, Landlord may at its sole option require Tenant, at Tenant's sole cost and expense, to obtain and provide to Landlord a lien and completion and performance bond in an amount equal to one and one-half (1 1/2) times the estimated cost of such improvements, to insure Landlord against liability for mechanics' and materialmen's liens and to insure completion of the work. The Tenant shall have the right at its sole option to deposit cash in 36 37 lieu of the above-referenced completion and performance bond provided such cash is for the same stated amount. 23. INTEREST ON PAST-DUE OBLIGATIONS: Except as expressly herein provided, any amount due to Landlord not paid when due shall bear interest from the due date at the lesser of the following: (a) The rate of three (3) points in addition to the prime or corporate rate charged by The First National Bank of Chicago, Chicago, Illinois, to its most credit-worthy corporate customers; or (b) The highest rate then permitted by law. Payment of such interest shall not excuse or cure any default by Tenant under this Lease. 24. TIME OF ESSENCE: Time is of the essence. 25. CAPTIONS: Article, section and paragraph captions are not a part hereof. 26. PRIOR AGREEMENTS; AMENDMENTS: This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. 27. CUMULATIVE REMEDIES: No remedy or election hereunder shall be deemed exclusive, but shall wherever possible, be cumulative with all other remedies at law or in equity. 28. COVENANTS AND CONDITIONS: Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition. 37 38 29. BINDING EFFECT; CHOICE OF LAW: Subject to any provisions hereof restricting assignment or subletting by Tenant and subject to the provisions of Section 14, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the state where the Leased Premises are located. 30. MERGER: The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies. 31. CORPORATE AUTHORITY: If Tenant is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the By-Laws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. 32. LIENS: Tenant shall have no authority, express or implied, to suffer, create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind the Leased Premises for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs, and any such claim shall affect, and any 38 39 such lien shall attached, if at all, only to the leasehold interest of the Tenant. 33. SHORT FORM LEASE: This Lease shall not be recorded by Tenant. Tenant shall sign, execute and deliver to Landlord a short form lease of this Lease upon the furnishing of same to Tenant by the Landlord. 34. BROKERAGE COMMISSION: Landlord hereby warrants to Tenant and Tenant hereby warrants to Landlord that no broker's commissions, finder's fees or like charges (hereinafter collectively called "Commissions") have been incurred in connection with this transaction by the parties so warranting herein. Landlord and Tenant further agree to give testimony in accordance with these warranties in case any action or proceeding shall be instituted by any purported broker, licensed or otherwise, or any other person claiming a CommiSSion in connection with this transaction. Landlord and Tenant hereby agree to indemnify and to hold each other harmless from any alleged claim for any Commission that may be claimed by any third-party through either of them against the other party. 35. SECURITY DEPOSIT: Tenant has deposited with the Landlord the sum of Five thousand dollars (55,000.00) to be held by Landlord as security for Tenant's satisfactory performance of the terms, covenants and conditions of this Lease including the payment of Rent and all other amounts due hereunder. As long as the Tenant is not in default hereunder, any and all interest earned on the cash 39 40 deposit referenced above shall inure to the exclusive benefit of the Tenant. Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any Rent and any other sum as to which Tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this Lease including any damages or deficiency in the reletting of the Leased Premises or other re-entry by Landlord. If Landlord uses, applies or retains the whole or any part of the security, Tenant shall replenish the security to its original sum after being notified by the Landlord of the amount due. Tenant shall be in default of this Lease if the amount due is not paid within the required time period. In the event that Tenant shall fully and faithfully comply with all the terms, covenants and conditions of this Lease, any part of the security not used or retained by Landlord shall be returned to Tenant after the termination of the Lease and after delivery of exclusive possession of the Leased Premises to Landlord. 36. QUITE ENJOYMENT: So long as Tenant is not in default hereunder, Tenant shall peacefully and quietly have, hold and enjoy the Leased Premises during the full term of this Lease and any extension of renewal thereof. 40 41 37. TERMINATION OF PRIOR LEASE: Upon the execution of this Lease, any previous Lease entered into by Tenant shall be null and void. 38. LANDLORD'S LIABILITY: If Landlord shall be in default under this Lease, and as a consequence of such default, Tenant shall recover a money judgment against Landlord, such judgment shall be satisfied only out of a right, title and interest of Landlord in either the Southeast Industrial Center as the same may then be encumbered and neither Landlord nor any person or entity comprising Landlord shall be liable for any deficiency. In no event shall Tenant have the right to levy execution against any property of Landlord or any person or entity comprising Landlord other than its interest in the Southeast Industrial Center as herein expressly provided. 39. NO TERMINATION OF LEASE: Rejection of this Lease by the Landlord or any Trustee of the Lessor pursuant to Section 365(h) of the Bankruptcy Code, 11 U.S.C. Section 365(h), shall not terminate this Lease. Tenant hereby waives any right to offset against Rent received which may be conferred under Section 365(h)(2) of the Bankruptcy Code, 11 U.S.C. Section 365(h)(z). If the rights of the Landlord or the Tenant under this Lease are at any time pledged, hypothecated, or otherwise subject to any mortgage, deed of trust, assignment of rents or other security instrument, and if the Landlord or any Trustee of the Landlord shall reject this Lease pursuant to Section 365(h) of the Bankruptcy Code, 11 U.S.C. Section 365(h)(a), the Tenant shall without 41 42 further act or deed be deemed to have elected under Section 365(h)(1) of the Bankruptcy Code, 11 U.S.C. Section 365(h)(1) to remain in possession of the Leased Premises for the balance of the term hereof and shall have the right to exercise any one or more of the extension options provided for herein, and (b) any exercise or attempted exercise by the Tenant of a right to treat this Lease as terminated under Section 365(h)(1) of the Bankruptcy Code shall be void. For the purposes of Section 365(h) of the Bankruptcy Code, 11 U.S.C. Section 365(h), the term "possession" shall mean the right to possession of the Leased Premises granted to Lessee under this Lease whether or not all or part of the Leased Premises has been subleased. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Lease on the date and year first above written. LANDLORD, TENANT, 1st American Management Co., Inc. International Knife & Saw, Inc. By: /s/ John R. Marshall By: /s/ Bruce D. Cameron ------------------------------ ----------------------------- John R. Marshall, President Bruce Cameron, Gen. Mgr. IKS-Chicago Operation 42 EX-10.8 9 LEASE AGREEMENT DATED APRIL 17, 1991 1 Exhibit 10.8 This Lease Agreement, entered into this 17th day of April, 1991, by and between TATE ENGINEERING, INC. herein called "Landlord" or first party, and IKS Eastern Service, Inc. herein called "Tenant" or second party, and MORTON G. THALHIMER, INC., Agent, herein called "Rental Agent"; Witnesseth: That for and in consideration of the rents and covenants hereinafter set forth, Landlord hereby leases to Tenant, and Tenant hereby rents from Landlord, the following described lot, piece or parcel of land, together with all improvements thereon (the said land improvements thereon herein called the "Leased Premises") to-wit: Approximately 600 sq. ft. of office space and approximately 4,200 square feet of warehouse space located at 8131-B Virginia Pine Court in Chesterfield County, Virginia. TO HAVE AND TO HOLD said land and improvements thereon and the privileges and appurtenances there onto belonging unto the Tenant, its successors and assigns, for the term hereinafter provided, and upon the following terms and conditions, to which the parties mutually covenant and agree: Term The original term of this lease shall be for one (1) years seventeen (17) days and shall commence on the 15th day of May, 1991, and shall end on the last day of May 1992 Rent During the original term of this lease Tenant covenants to pay a base annual rental to Landlord of EIGHTEEN THOUSAND AND 00/100 Dollars. ($18,000.00), payable in monthly installments in advance on the first day of each month in the amount of ONE THOUSAND FIVE HUNDRED AND 00/100 Dollars ($1,500.00). An additional rental may be required by attaching hereto an addendum executed by all the parties to this lease agreement. If the original term does not commence on the first day of the Month, Tenant shall pay for the period from the commencement date to the first day of the following calendar month a sum equal to one-thirtieth of the monthly rental due hereunder for each day of such period. All rents thereafter shall be payable in advance on the first day of each month. All rents due Landlord shall be paid when due to Morton G. Thalhimer, Inc., P.O. Box 702, Richmond, Virginia 23206 or to such other place as Landlord may designate in writing to Tenant. Use of Leased Premises Tenant shall use the Leased Premises for business office and manufacturing grind shop. and in strict accordance with all applicable laws and regulations of governmental authorities. Tenant shall use the Leased Premises for no other purpose without the prior written consent of Landlord. Tenant will not use or permit or suffer the use of the Leased Premises for any unlawful or offensive business or purpose. Tenant will not, without the prior written consent of Landlord, use or permit the walls, fences or roof of the Leased Premises to be used for advertising purposes. It is covenanted and agreed as follows: SEE ADDENDUM 1. Condition of Leased Premises Tenant has examined and knows the present condition of the Leased Premises and the equipment thereon, if any. No representation has been made to Tenant, or Tenant's agents, by Landlord, or Landlord's agents, concerning the condition of the Leased Premises (and the equipment thereon, if any) or any particular use that can be made thereof. Neither Landlord nor Rental Agent shall be under any duty to instruct Tenant or others as to the use of any equipment on the Leased Premises. 2 2. Assignment, Subletting and Mortgaging Tenant shall not assign this lease nor sublet the Leased Premises, in whole or in part, without Landlord's prior written consent.* If consent to assign or sublease is obtained, no such assignment or sublease shall in any way release or relieve Tenant from any of its covenants or undertakings contained in this lease agreement, and in all cases under this paragraph, Tenant shall remain liable on this lease during the original and all renewal terms. *unless subleased by IKS, Inc., its parent or subsidiaries. 3. Utilities Tenant shall promptly pay all fuel, water, gas, electricity, sewerage, telephone and other utility bills as the same become due, it being understood and agreed that the Tenant shall promptly make all required deposits for meters and utilities service. Charges for the foregoing shall commence on the date of the commencement of the original term of this lease. Landlord shall not be liable for any interruption or failure in the supply of any utility to the Leased Premises. 4. Insurance and Indemnity Tenant will indemnify and save harmless Landlord and Rental Agent from any and all liability, damage, loss, expense, cause of action, suits, claims, or judgments arising from injury to person or property on the Leased Premises, or upon the adjoining sidewalks, or otherwise resulting from the use of the Leased Premises. Tenant covenants that it will keep in force at its own expense at all times during the original and all renewal terms of this lease in companies and in form acceptable to Landlord with respect to the Leased Premises insurance covering Landlord and Tenant and Rental Agent as named insureds with minimum limits of Five Hundred Thousand Dollars ($500,000.00) on account of bodily injuries to or death of one person and Five Hundred Thousand Dollars ($500,000) on account of bodily injuries to or death of more than one person as the result of any one accident or disaster and property damage insurance with limits of Five Hundred Thousand Dollars ($500,000.00); and Tenant shall deliver to Landlord or Rental Agent upon the request of either a certificate of insurance showing the same to be in force and effect. Unless otherwise indicated by writing endorsed hereon or attached hereto, Tenant shall keep in full force and effect at its own expense during the original and all renewal terms of this lease, replacement value fire and casualty extended coverage insurance with respect to the Leased Premises, and shall cause Landlord and Landlord's mortgagee, if any, to be named insureds on such policy. If Tenant shall not comply with its covenant to maintain insurance as provided herein, Landlord may, at its option, cause insurance as aforesaid to be issued and, in such event, Tenant shall promptly pay when due the premiums for such insurance as additional rent hereunder. Tenant will pay all excess insurance premiums (i.e., premiums in excess of the usual premiums for a non-hazardous risk) required to be paid by Landlord on any buildings on the premises by reason of Tenant's use or occupancy thereof. 5. Taxes and Assessments Tenant agrees that as additional rental for the Leased Premises, it will during each calendar year of the original and all renewal terms, reimburse Landlord for such part of the cost of all real estate taxes, charges and assessments levied or assessed during the original and all renewal terms upon and against the Leased Premises in excess of the cost of such taxes and assessments charged or assessed upon or against the Leased Premises for the year 1991; provided, however, that for the first and final calendar years of the original or renewal terms Tenant shall be liable for the reimbursement of such excess cost only for the proportionate part of such years that it is in possession of the Leased Premises. Tenant further agrees that as additional rental for the Leased Premises, it will for each calendar year of the original and all renewal terms, reimburse Land lord for such portion of the cost to Landlord of all taxes or excises on rents (expressly excluding any federal state or local income taxes) however described, levied, or assessed by any lawful authority against Landlord on account of the rental expressly reserved hereunder. The amount of such additional rentals, if any shall be due and payable thirty (30) days after notification form Landlord or its Agent, of the amount due. Tenant shall promptly pay when due all taxes and assessments levied by public authority on its trade fixtures, equipment and other property of Tenant located on or about the Leased Premises and all other taxes occasioned by its business or use of the Leased Premises. 6. Personal Property Tenant covenants that the furniture, fixtures and all other personal property (except that used to sell in the usual course of trade) which Tenant places on the Leased Premises are owned by Tenant, are fully paid for, and are not encumbered except as expressly disclosed in writing to Landlord prior to the execution of this agreement. Except by sale in the usual course of trade, Tenant shall not remove furniture, fixtures and property from the Leased Premises without first obtaining the consent of Landlord, which consent shall not be unreasonably withheld; and in addition to all the other remedies provided by law, Landlord shall have a lien against all personal property on the Leased Premises, insurance if any collected therefor, as security for the payment of the rent and default in obligations hereunder. Tenant shall repair or reimburse Landlord for the cost of repairing any damages to the Leased Premises resulting from the installation or removal of personal property of Tenant. 7. Repairs and Alterations Tenant shall keep and maintain the Leased Premises in good repair and condition; keep in good running order the heating and air-conditioning systems, electric wiring, toilets, water pipes, water, gas and electric fixtures; replace all locks, trimmings, glass and plate glass broken during the tenancy, regardless of the manner in which same may have been broken; unstop all water fixtures that may become choked and repair all water pipes and plumbing that may burst. If there be any elevators, escalators, lifts, machinery or appliances (herein called "equipment") on the Leased Premises, Tenant shall care for, maintain, and repair same, and shall indemnify and save harmless Landlord from any liability or claims for damages for injuries to persons and property arising therefrom. Tenant shall not make any alterations of, additions to or changes in the Leased Premises or equipment without the prior written consent of Landlord, which consent shall not be unreasonably withheld, and all alterations, changes, and improvements, by whomsoever made, shall be the property of Landlord. Nothing contained in this paragraph shall be construed as requiring Landlord to make any repairs, except repairs of a structural nature. Landlord shall maintain and make all necessary structural repairs to the foundations, load bearing walls, and roofs. Tenant, in complying with all applicable laws and regulations of governmental authorities respecting the use of the Leased Premises, shall at Tenant's expense install all toilets that may be required, and do any work, except repairs of a structural nature, which may be ordered by such governmental authorities; but if Tenant, after notice ordering the work, fails to comply with reasonable promptness, Landlord, without notice to Tenant, may do such work and collect the cost thereof from Tenant as additional rent hereunder. If Landlord is required to abate any nuisance on the Leased Premises, Landlord may do so without notice to Tenant and Tenant shall pay all costs thereof as additional rent hereunder. Tenant shall, on the last day of the original or renewal term, or upon the sooner termination of this lease, peaceably and quietly surrender the Leased Premises and equipment to Landlord, broom-clean, including all improvements, alterations, rebuilds, replacements, changes or additions placed by Tenant thereon, in as good condition and repair as the same were in at the commencement of the original term, normal wear and tear excepted; provided, however, Tenant shall not be required to return the Leased Premises and equipment in as good condition as aforesaid if the same are damaged or destroyed by fire or otherwise, unless caused by Tenant's fault or negligence which is not covered by insurance. 8. Destruction of Leased Premises, Condemnation If the Leased Premises are damaged or destroyed by fire or other casualty covered by insurance, or condemned by public authority, whether by eminent domain or otherwise, then (1) if totally destroyed or condemned so that the Leased Premises are rendered untenantable; this lease shall terminate as of the date of such destruction or condemnation, and Tenant shall be liable for the rent only to the date of such destruction or condemnation, and the entire amount of insurance proceeds and/or condemnation award for the Leased Premises shall belong to and be payable to Landlord; or (2) if only partially destroyed or condemned and still tenantable, Landlord shall, within a reasonable time, repair the Leased Premises with a reasonable reduction of rent from the date of such partial destruction or condemnation until there be again premises substantially similar in value to Tenant as the Leased Premises partially destroyed or condemned. Landlord's obligation to repair or restore the Leased Premises as stated herein is conditioned upon (a) all insurance proceeds and/or condemnation award for the Leased Premises being paid to Landlord, which are sufficient to cover the cost of said repairs and restorations, and (b) there remaining at least twenty-four (24) months in the then existing term of this lease. If Landlord does not repair the Leased Premises because either conditions (a) or (b) are not met, Landlord shall so notify Tenant and this lease shall terminate as of the date of such partial destruction or condemnation and Tenant shall be liable for rent only to the date of such partial destruction or condemnation. As used herein, the date of condemnation and Tenant shall be liable for rent only to the date of such partial destruction or condemnation. As used herein, the date of condemnation shall be the date on which legal title vests in the condemning authority or the date on which Landlord enters into a contract for the sale for public use upon the threat of condemnation, whichever first occur. If the improvement shall be damaged or destroyed by any hazard not covered by insurance, Landlord shall have the option to cancel this lease by giving written notice of such cancellation to Tenant within thirty (30) days after the happening of such damage or destruction, but if such option not be exercised, then Landlord at its own expense shall proceed with due diligence to repair or restore the improvements to their condition as existed before such damage or destruction with rent being reduced pro rata in proportion to the decrease in usefulness of the premises during repair and restoration; provided, however that the cost of repairing to any damage or destruction not covered by insurance which is caused by Tenant's fault or negligence shall forthwith be paid to Landlord by Tenant. 3 Tenant shall give immediate written notice to Landlord, or Rental Agent, of any damage, destruction or condemnation of the leased premises whether it be total or partial. 9. Notices Wherever in this lease it shall be required or permitted that notice or demand be given or served by either party to this lease to or on the other, such notices or demands shall be given or served and shall not be deemed to have been duly given or served unless in writing and forwarded by registered or certified mail addressed as follows: TO LANDLORD: TO TENANT: c/o Demised Premises and c/o Morton G. Thalhimer, Inc. P.O. Box 702 Richmond, Virginia 23206 Such addresses may be changed from time to time by either party by serving notice as above provided. 10. Notice of Termination and Holding Over Should Tenant desire to vacate or should Landlord desire possession of the Leased Premises at the end of the original lease or any extension or renewal thereof, either party shall give the other written notice of such termination at least THREE (3) MONTHS prior to the end of the then existing term of this lease. If notice of termination is given as hereinabove set forth, no holding over by Tenant nor acceptance of rent by Landlord or Rental Agent, shall operate as a renewal or extension of this lease without the written consent of Landlord. In the event no such notice of termination is given, then this lease shall continue in full force and effect from year to year, subject to all the rents, covenants, and conditions herein set forth, except for any such provisions containing obligations of Landlord to make alterations or repairs to the Leased Premises. If Tenant holds over or remains in possession or occupancy of the Leased Premises after the termination of this lease, Tenant's occupancy shall be illegal notwithstanding the fact that Tenant shall be liable to Landlord, so long as Tenant or any of its property remains on the Leased Premises, for all rentals due hereunder together with any damages sustained by Landlord as a result of Tenant's failure to vacate. 11. Inspection by Landlord Tenant shall permit Landlord, its agents, or employees to impact the Leased Premises and all parts thereof during business hours and to enforce and carry out any provision of the lease agreement and for the further purpose of showing the Leased Premises to prospective tenants and purchasers and representatives of lending institutions. During the last three (3) months of the original term and all renewals or extensions thereof, Landlord shall have the right to place "For Rent" signs in conspicuous places on the Leased Premises and to otherwise advertise the Leased Premises for rent, in addition to having the rights of entry and inspection set forth herein. 12. Default by Tenant The happening of any of the following encumbered events shall constitute a default for which Landlord, in addition to other rights or remedies it may have, shall have the immediate right of re-entry without service of notice or resort to legal process and without Landlord being guilty of trespass, or becoming liable for any law or damage which may be occasioned thereby: (a) failure of Tenant to pay any rent due hereunder within thirty (30) days after written notice to Tenant of such failure; (b) vacation of the Leased Premises by Tenant or advertising by Tenant in any manner that would indicate or lead the public to believe that Tenant was going out of business or intending to vacate the Leased Premises; (c) the filing by, on behalf of or against Tenant, of any petition or pleading to declare Tenant insolvent or unable to pay its debts or meet his obligations under the laws of the United States or any state; or a receiver of the property of Tenant is appointed; or the levy of execution or either taking of property, assets or the leasehold interest of Tenant by process of law or otherwise in satisfaction of any judgment, debt or claim against Tenant; or (d) failure of Tenant to perform any of the other terms conditions or covenants of this lease agreement for more than thirty (30) days after written notice of such failure shall have been given to Tenant. Should Landlord elect to re-enter as herein provided, or should Landlord take possession pursuant to legal proceeding or pursuant to any provisions under law, Landlord may either terminate this lease or it may from time to time without terminating this lease, make such alterations and repairs as may be necessary in order to relet the Leased Premises, and relet the Leased Premises or any part thereof for such term or terms (which may be for a term extending beyond the original or renewal terms of this lease) and at such rent and upon such other terms and conditions as Landlord, in its sole discretion, may deem advisable. Upon each such reletting all rent received by Landlord from such reletting shall be applied, first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any costs and expenses for such reletting, including brokerage fees and attorney's fees and costs of alterations and/or repairs; third, to the payment of rent due and unpaid hereunder, and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same may become due and payable hereunder. If the Leased Premises are not relet as aforesaid, or if the rent received from such reletting during any month be less than that to be paid during the month by Tenant hereunder, Tenant shall promptly pay the rental due hereunder or any such deficiency as the case may be to Landlord. Such deficiency shall be calculated and paid monthly. No such re-entry or taking possession of the Leased Premises by the Landlord shall be construed as an election on its part to terminate this lease unless a written notice of such election be given to Tenant or unless the termination be decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination. Landlord may at any time thereafter elect to terminate this lease for such previous breach. Tenant will pay Landlord and Rental Agent respectively all expenditures incurred by them in enforcing the provisions of this lease including reasonable fees of attorneys and others employed by Landlord or Rental Agent. All of the foregoing remedies shall be in addition to any other rights Landlord may have at law or in equity and waiver of one default shall not be deemed to be a waiver of any subsequent default. 13. Rental Agent In consideration of Rental Agent's services in procuring this lease and as a covenant running with the land, Landlord covenants with, and for the benefit of Rental Agent, as follows: Rental Agent is to receive a commission of six per cent (6%) of the rent during the original term and all renewals or extensions thereof or any new lease of the Leased Premises between any person and "Tenant, its successors or assigns"(such phrase used herein to include such entity in which Tenant, its successors or assigns, may have an interest a stockholder, partner, lender of money or otherwise); and no sale, transfer, assignment, cancellation or release including a sale or conveyance to Tenant, its successors or assigns, shall affect Rental Agent's right to such commission which is hereby made a lien on the Leased Premises and all equipment thereon, if any Rental Agent shall have the right to collect all rents due hereunder so that its commission may be paid in installments as the rent is received, and retained by Rental Agent before remitting the rent (less commissions) to Landlord; but if any act be done to deprive Rental Agent of its right to collect the rent, then the whole amount of its commission then unpaid shall, at Rental Agent's option, immediately become due and payable. Landlord further covenants with and for the benefit of Rental Agent as a covenant running with the land, that if Tenant, its successors or assigns, shall at any time during the original term and all renewals or extensions thereof, (during any new lease of the Leased Premises between any person and Tenant, its successors or assigns,) purchase the Leased Premises, then in consideration of Rental Agent's consummating this lease, Rental Agent shall receive on the date the Leased Premises are transferred, a commissions of six percent (6%) of the gross amount of the purchase price. Such a sales commission shall be in addition to the rental commissions provided for in the immediately preceeding paragraph and is hereby made a lien on the Leased Premises and all equipment thereon, if any. Landlord hereby authorizes Rental Agent to institute legal proceedings for the recovery of any rent due under the provisions of this lease agreement and to employ an attorney for that purpose and to charge all costs and fees to Landlord, including a charge of Twenty-Five Dollars ($25.00) by Rental Agent for its services in that regard. In connection with all acts done or suffered by Rental Agent for Landlord concerning the Leased Premises, Landlord further agrees to indemnify and save Rental Agent harmless from all fines, judgments, suits, claims, demands, and actions of any kind (including any costs and attorney's fees), and from liability for injury suffered by an employee or contractor (not in the permanent employ of Rental Agent) engaged by Rental Agent for the benefit of Landlord. 14. Successors and Assigns All parties hereto agree that all of the provisions hereof shall bind and inure to the benefit of the parties hereto, their heirs, legal representatives, successors and assigns. 15. Applicable Law, Construction This lease agreement shall be construed in accordance with the laws of the State of Virginia. Whenever used the singular number shall include the plural, the plural the singular, and the use of any gender shall include all other genders. 16. Final Understanding This lease agreement represents the final understanding between Landlord, Tenant and Rental Agent, and the obligations of each party hereunder cannot be changed or modified unless by writing signed by the parties whose obligations are to be modified and endorsed hereon or attached hereto. 4 WITNESS the following signatures and seals: TATE ENGINEERING, INC. (SEAL) ----------------------------------------- Landlord By: /s/ Charles E. Olinter Sr. V.P. (SEAL) ----------------------------------------- Landlord INTERNATIONAL KNIFE AND SAW, INC. (SEAL) ----------------------------------------- Tenant By: /s/ William Underhill V.P. (SEAL) ----------------------------------------- Tenant MORTON G. THALHIMER, INC. (Rental Agent) By: /s/ AVP ----------------------------- Guaranty In consideration of Landlord agreeing to lease to Tenant the Leased Premises, the undersigned, hereby waiving the obligations of the homestead exemption laws as to this lease agreement, jointly and severally if there be more than one undersigned, guarantee the payment of rent and the performance of all the provisions of this lease agreement by Tenant, its successors and assigns and agree that the mere nonpayment of rent and nonperformance of said provisions by Tenant or its successors and assigns shall create an immediate liability on the part of the undersigned to Landlord and its successors and assigns and to Rental Agent. Landlord and Rental Agent need not first exhaust their legal remedies against Tenant or its successors and assigns before proceeding against the undersigned. Neither Landlord nor Rental Agent is required to notify the undersigned of any default of Tenant under the provisions of this lease agreement. WITNESS the following signatures and seals: /s/ William R. Underhill V.P. (SEAL) ----------------------------------------- Guarantor (SEAL) ----------------------------------------- Guarantor ATTEST: - ----------------------------------------- STATE OF ) ) To-wit: [Landlord] OF ) I, the undersigned, a Notary Public in and for the ------------------- aforesaid in the State of Virginia, do hereby certify that ------------------- and ---------------------, whose names are signed to the foregoing lease bearing date on the ---------------------- day of -------------------------, 19---, have acknowledged the same before me in my ------------------------ and State aforesaid. Given under my hand this ------------------------ day of -----, 19--- My commission expires: --------------------------- STATE OF ) To-wit: [Tenant] ) --------------------------------- OF ) Notary Public I, the undersigned, a Notary Public in and for the ------------------ aforesaid in the State of Virginia, do hereby certify that ------------------- and ---------------------------, whose names are signed to the foregoing lease bearing date on --------------------------- day of ---------------------------, 19---, have acknowledged the same before me in my --------------------------- and State aforesaid. Given under my hand this ------------------------ day of -----, 19--- My commission expires: -------------------------- STATE OF VIRGINIA ) To-wit: [Rental Agent] ) --------------------------------- CITY OF ) Notary Public I, the undersigned, a Notary Public in and for the City aforesaid in the State of Virginia, do hereby certify that ---------------------------, and - --------------------------- Of Morton G. Thalhimer, Inc, whose names are signed to the foregoing lease bearing date on the --------------------------- Day of - ---------------------------, 19---, have acknowledged the same before me in my City and State aforesaid. Given under my hand this ------------------------ Day of -----, 19--- My commission expires: --------------------------- STATE OF ) To-wit: [Guarantors] ) --------------------------------- OF ) Notary Public I the undersigned, a Notary Public in and for the City aforesaid in the State of Virginia, do hereby certify that --------------------------- and - --------------------------- Guarantors, whose names are signed to the foregoing lease bearing date on the --------------------------- day of - ---------------------------, 19---, have acknowledged the same before me in my - --------------------------- and State aforesaid. Given under my hand this ------------------------ day of -----, 19--- My commission expires: --------------------------- --------------------------- Notary Public 5 ADDENDUM ATTACHED HERETO AND MADE A PART HEREOF LEASE DATED APRIL 17, 1991, BY AND BETWEEN TATE ENGINEERING, INC., LANDLORD, AND INTERNATIONAL KNIFE AND SAW, INC., TENANT, ON PREMISES KNOWN AS 8131-B VIRGINIA PINE COURT, CHESTERFIELD, VIRGINIA. - -------------------------------------------------------------------------------- It is covenanted and agreed as follows: 1. Upon signing this Lease, Tenant shall deposit with Landlord an amount equal to one month's rent to be held by Landlord as a security deposit. Said deposit stated above shall not be unreasonably withheld by Landlord, provided, Tenant has faithfully performed all the terms and conditions stated herein. 2. Tenant shall be obligated to obtain Landlord's permission for additional improvements made to the premises through the lease term and any renewals. 3. Tenant must be responsible for its own trash removal. 4. Landlord shall be responsible for warehouse heat and all costs associated with operating the gas space heaters. 5. Landlord, at its expense, shall move warehouse fence to accommodate approximately 4,200 square feet of warehouse area and replace damaged ceiling tiles in the office area. 6. Tenant and Landlord mutually agree to share the truck height dock and drive-in loading dock located on the sides of the building. 7. In the event this lease is renewed at the end of the original lease term, base rent shall increase three percent (3%) per annum. WITNESS the following signatures: TATE ENGINEERING, INC. By: /s/ Charles E. Olinter Sr. V.P. ------------------------------- INTERNATIONAL KNIFE AND SAW, INC. By: /s/ William R. Underhill V.P. ------------------------------- 6 ADDENDUM ATTACHED HERETO AND MADE A PART OF LEASE DATED THE 17TH DAY OF APRIL, 1991 BY AND BETWEEN IKS EASTERN SERVICES, INC., TENANT, AND TATE ENGINEERING, INC., LANDLORD, FOR PREMISES KNOWN AS 8131-B VIRGINIA PINE COURT, CHESTERFIELD COUNTY, VIRGINIA. - ------------------------------------------------------------------------------ IT IS COVENANTED AND AGREED AS FOLLOWS: 1. Landlord and Tenant agree to extend the above referenced lease until May 31, 1997. 2. In consideration of the rents to be paid by Tenant and other covenants of Tenant contained in Lease Agreement, Landlord does hereby lease to Tenant additional space of approximately 2,250 square feet. The total square feet now leased by Tenant shall be approximately 7,399 square feet (together with the right to use the parking area, sidewalks, appurtenances herein called Leased Premises). 3. The monthly rental schedule shall be as follows:
PERIOD RENTAL RATE ------ ----------- June 1, 1995 - May 31, 1997 $2,355.00
4. In addition to the monthly rent, Tenant agrees to pay Landlord $150.00 per month for additional 400 AMP electrical service located in expansion space. Except as hereby amended, all other terms and conditions of the lease shall remain unchanged and are hereby reaffirmed. WITNESS THE FOLLOWING SIGNATURES: TATE ENGINEERING, INC., "Landlord" By: /s/ ----------------------------- Title: Senior Vice President ----------------------------- Date: 1/31/95 ----------------------------- IKS EASTERN SERVICES, INC., "Tenant" By: /s/ Ray Connell ----------------------------- Title: Vice President-Operations ----------------------------- Date: 1-27-95 ----------------------------- EX-10.9 10 OFFER TO LEASE DATED OCTOBER 25, 1995 1 EXHIBIT 10.9 OFFER TO LEASE RE/MAX REAL ESTATE SERVICES #410-650 West 41st Avenue Vancouver, B.C. V5Z 2M9 THIS OFFER TO LEASE IS DATED FOR REFERENCE THIS 25TH DAY OF October, 1995 BETWEEN: Sigma Enterprises Ltd. (Hereinafter called the "Landlord") AND: IKS Canadian Knife & Saw Ltd. (Hereinafter called the "Tenant") ADDRESS OF PREMISES: 211 to 213 - 9780 197B Street, Langley LEGAL Strata Lots 11 to 13, District Lot 122, Group 2, N.W.D., Strata DESCRIPTION: Plan NW2379. DEMISED The Area to be leased by the Tenant from the Landlord shall AREA: contain approximately 4,784 square feet more or less as shown on the attached plan and labelled Exhibit "A". (the "demised premises") OUTSIDE The Tenant acknowledges and agrees that there is to be no STORAGE: outside storage of materials or products. 1 2 USE: The demised premises shall be used for the purpose of storage and manufacturing of circular saws and in a manner not inconsistent with building and/or zoning bylaws. The Tenant also represents and warrants that it is not engaged in any manufacturing or process which involves the use of toxic or contaminant which would affect the building in which the demised premises are located or soils conditions. TERM: The Lease shall be for a term of One (1) year and Three (3) months commencing on the 1st day of November, 1995 and ending on the 31st day of January, 1997. RENT: The Tenant agrees to pay a net basic rent plus applicable Goods and Services Tax for fifteen (15) months. The basic rent for the demised premises shall be $2,193.00 per month. (the "basic rent") The rent shall be payable in advance on the FIRST (1st) day of each and every month for the full term of the Lease ADDITIONAL This Lease shall be net to the Landlord and each and every RENTALS: cost, expense, rate, tax (including, without limitation, GST), or charge in any way related to the demised premises and the Tenant's proportionate share of operating costs, as defined below, shall be borne by the Tenant, without variation, set off or deduction whatsoever, except for such income tax levied on the income of the Landlord and the costs of structural repairs. The Tenant is responsible for paying its proportionate share of all property taxes and operating expenses, including, without limitation, building insurance, common area maintenance, landscaping, general maintenance, structural maintenance (excluding inherent structural defects) and property management fees ("operating costs"). The additional rentals will be estimated and the proportionate share payable by the Tenant shall be that figure which is the direct ratio that the rentable area of the demised premises bears to the total rentable area of the building. The additional rentals for 1995 are estimated to be Eight Hundred Thirty Eight DOLLARS and Twenty Four CENTS ($838.24) per month and are payable monthly at the same time as the basic rent. 2 3 At the end of each accounting year or each TWELVE (12) month period commencing January 1st and ending December 31st, whichever the Landlord shall determine, the Landlord shall reconcile the amount of operating costs. A statement showing these details shall be submitted to the Tenant within a reasonable time of the end of such accounting period stating also the amount of monthly installments for the ensuing accounting year and any required payments or refunds to be made. UTILITIES: The Tenant shall pay for all utilities consumed or used in the demised premises during the term of the Lease and during the period that the demised premises are being occupied for the purpose of performing the Tenant's work, as defined below. The obligation of the Tenant to pay for its share of the utilities shall extend to, but not be limited to payment of heat, gas, water, sewer, electrical light and/or power, and other energy and telephone supplied to or used in the demised premises. INCREASE If the Tenant's use of the demised premises increases building BUILDING insurance, then the Tenant shall be responsible for the said INSURANCE: increase. EXISTING The Landlord shall ensure that all existing mechanical and IMPROVEMENTS: electrical apparatus including but not limited to lighting, lightbulbs, heaters, loading doors, are in normal operating condition upon occupancy. REPAIRS: The Tenant shall at its sole cost and expense keep in good repair and condition all of the demised premises and every part thereof including without limitation all glass within the Leased Premises and all improvements, fixtures and furnishings within. OCCUPANCY: The Tenant will have occupancy of the demised premises on November 1, 1995. OPTION The Tenant when not in default hereunder shall have One (1) TO RENEW: further One (1) year option to renew, under the same terms and conditions as herein contained and at the same base rate of $2,193.00 per month. If the tenant exercises this option to renew, the Tenant shall notify the Landlord in writing at least Three (3) months prior to the expiry of the initial term. If the Tenant does not wish to exercise this option to renew, the Landlord may, during the final Three (3) months of the Lease, place a "FOR LEASE" sign on the property and enter the demised premises with prospective Tenants during reasonable hours for the purpose of inspection, with the prior approval of the Tenant, which approval shall not be unreasonably withheld. LEASE: Upon acceptance of this Offer, the Landlord may provide its lease form which shall include the terms and conditions of this Offer, and the Lease shall be executed by the Landlord and Tenant; otherwise, this Offer to Lease will be the lease document. 3 4 EXTERIOR The Tenant shall have the Landlord's permission to SIGN supply and install sign identification, the design and IDENTIFICATION: location of which shall be subject to the approval of the Landlord, said approval not to be unreasonably withheld, and subject to Municipal Bylaws and Regulations. At the end of the Lease term the Tenant, at the Tenant's expense, shall remove all sign identification, and make good any damage as a result of such removal. SUBORDINATION: This offer and any Agreement or Lease made pursuant hereto and all rights of the Tenant hereunder shall be subject and subordinate to all mortgages or other security taken by lending institutions, now or hereafter existing. PARKING: The Tenant to have exclusive use of six (6) parking stalls for the Tenant's employees and customers as shown in Exhibit "A". ASSIGN OR The Tenant shall not assign or sublet the demised SUBLET: premises or any portion thereof without the Landlord's written approval, such approval not to be unreasonably withheld. TENANTS The Landlord will allow the Tenant to make alterations ALTERATIONS: to the demised premises to the Tenant's mode of business, provided that the Tenant receives the Landlord's prior written approval for said alterations and approval by the Landlord of the Tenant's contractor. Said approval shall not be unreasonably withheld. The Tenant agrees to construct all improvements to typical construction standards in a good and workmanlike fashion and conforming to all applicable and relevant codes and bylaws. The Tenant will allow reasonable access to the Landlord or the Landlord's representative to inspect the work in progress. TENANT'S The Landlord hereby agrees to permit the Tenant to LEASEHOLD carry out, at the Tenant's expense, the following IMPROVEMENTS: Leasehold Improvements: 1) install a pit, 5 feet long X 4.5 feet deep X 16 inches wide, in the warehouse area. At the end of the lease, the pit will be filled in and the concrete floor put back to its original condition. 2) Nil DEPOSIT: Upon one business day of acceptance of this Offer to Lease a rental deposit of Five Thousand Five Hundred Eighty Nine DOLLARS and Ninety Four CENTS ($5,589.94) is payable by certified cheque or bank draft to Re/Max Real Estate Services "in trust". The deposit shall be retained and applied as rent for the FIRST (1st) and LAST months Basic Rent and the FIRST (1st) months Common Area Cost due to under the Lease plus applicable Goods and Services Tax (G.S.T.). If the Tenant fails to execute and deliver the above mentioned Lease within the above mentioned commencement date, the Tenant shall forfeit the deposit as liquidated damages. 4 5 The Deposit is made up as follows: - First (1st) month's rent $2,193.00 - Last month's rent $2,193.00 - First (1st) month's Common Area Costs $ 838.24 - Seven percent (7%) G.S.T. $ 365.70 - TOTAL DEPOSIT $5,589.94 NO Tenant acknowledges that the demised premises are leased REPRESENTATION: accepting all zoning and other land use restrictions, and it is the Tenant's sole obligation to ensure that the intended use is permitted. There have been no representations or Agreements made by the Landlord or the Agent in any respect other than contained in this agreement. TRANSFER This Offer to Lease shall not be assignable or otherwise OF AGREEMENT: transferable by the Tenant. TIME OF Time will be of the essence of the Offer. ESSENCE: OFFER FOR This Offer to Lease, or Counter-Offer, will be open for ACCEPTANCE: acceptance until 4:00 o'clock p.m. on October __, 1995 and upon acceptance of the Offer to Lease, or Counter-Offer, by accepting in writing and notifying the other party of such acceptance there shall be a binding Agreement to Lease on the terms and conditions set forth. If the Tenant fails to take occupancy hereunder, the deposit shall be forfeited, but the Landlord shall also be entitled to sue for damages in connection with any breach by the Tenant. COMMISSION The Landlord hereby agrees to pay its agent, the Listing PAYABLE BY Broker, a commission equal to One (1) month's basic rent along THE with any Applicable Goods and Services Tax (G.S.T.). Upon LANDLORD: the date set for occupancy or upon execution of the Lease, whichever occurs first, the commission and G.S.T. is then due and payable and may be deducted from the deposit, with any remaining balance to be paid forthwith to the Landlord. ACCEPTANCE Acceptance of this Offer may be communicated by facsimile OF OFFER BY transmission of an accepted Offer or by delivery of such FAX: facsimile without limiting other methods of communicating acceptance available to the parties. AGENCY See Exhibit "B". DISCLOSURE: 5 6 DATED AT Langley, B.C. THIS DAY OF October, 1995. ) IKS CANADIAN KNIFE AND SAW LTD. ) ) ) ________________________________) Per:_________________________________ Witness Tenant RECEIPT OF THE ABOVE MENTIONED DEPOSIT IS HEREBY ACKNOWLEDGED BY THE UNDERSIGNED LISTING BROKER: RE/MAX REAL ESTATE SERVICES Per:_________________________________ John H. Lee Listing Broker DATED AT PORT COQUITLAM, B.C. THIS DAY OF October, 1995. ) SIGMA ENTERPRISES LTD. ) ) ) ________________________________) Per:_________________________________ Witness Landlord 7 EXHIBIT "A" ATTACHED HERETO AND FORMING PART OF THE OFFER TO LEASE DATED October 25, 1995 BETWEEN Sigma Enterprises Ltd., AS LANDLORD, AND IKS Canadian Knife and Saw Ltd., AS TENANT. [DIAGRAM] 7 8 EXHIBIT "B" ATTACHED HERETO AND FORMING PART OF THE OFFER TO LEASE DATED October 25, 1995 BETWEEN Sigma Enterprises Ltd., AS LANDLORD, AND IKS Canadian Knife and Saw Ltd., AS TENANT LIMITED DUAL AGENCY AGREEMENT (CONSENT TO AGENT ACTING FOR BOTH TENANT AND LANDLORD AND TO LIMITING THE SCOPE OF THE AGENCY RELATIONSHIP) BETWEEN: RE/MAX REAL ESTATE SERVICES JOHN H. LEE ("AGENT") AND: IKS CANADIAN KNIFE AND SAW LTD. ("TENANT") AND: SIGMA ENTERPRISES LTD. ("LANDLORD") RE: 211 TO 213 9780 197 B STREET, LANGLEY ("PROPERTY") Now therefore in order to facilitate the Lease of the Property the Tenant, the Landlord, and the Agent hereby acknowledge and agree each with the other as follows: 1. The Tenant and the landlord acknowledge and agree that it is not a breach of duty to either of them for the Agent to act as agent for both the Tenant and the Landlord and they hereby authorize and consent to the Agent acting for both the Tenant and the Landlord as a limited dual agent with respect to the purchase and sale of the Property. 2. Any previous agreements entered into between the Agent and either the Tenant or the Landlord and the agency duties created by such agreements are hereby modified by this Agreement and shall continue in full force and effect except as modified herein. In the event of conflict the provisions of this Agreement will apply. 3. The Tenant and the Landlord acknowledge and agree that with respect to the purchase and sale of the Property the Agent and its salespersons will be the agent for both the Tenant and the Landlord and will represent both parties as a limited dual agent with the following changes and limitations to its duties as agent: a) the Agent will deal with the Tenant and the Landlord impartially: b) the Agent will have a duty of disclosure to both the Tenant and the Landlord except that: i) the Agent will not disclose that the Tenant is willing to pay a price or agree to terms other than those contained in the Offer, or that the Landlord is willing to accept a price or terms other than those contained in the Listing; ii) the Agent will not disclose the motivation of the Tenant to buy or the Landlord to sell unless authorized by the Tenant or the Landlord; iii) the Agent will not disclose personal information about either the Tenant or the Landlord unless authorized in writing; c) without limiting 3(b) the Agent will disclose to the Tenant defects about the physical condition of the Property known to the Agent. 4. The Tenant and Landlord have both received and read the Real Estate Board of Greater Vancouver Brochure "Working With an Industrial Commercial Investment Real Estate Agent". SIGNED, SEALED AND DELIVERED THIS __ DAY OF October, 1995 RE/MAX REAL ESTATE SERVICES JOHN H. LEE AGENT PER SALESPERSON IKS CANADIAN KNIFE AND SAW LTD. - ------------------------------ ----------------------------------- TENANT(S) SIGNATURE WITNESS TO TENANT(S) SIGNATURE(S) SIGMA ENTERPRISES LTD. - ------------------------------ ----------------------------------- LANDLORD(S) SIGNATURE WITNESS TO LANDLORD(S) SIGNATURE(S) 8 EX-10.10 11 INDUSTRIAL MULTIPLE TENANCY LEASE 1 Exhibit 10.10 INDUSTRIAL MULTIPLE TENANCY June 1978 THIS INDENTURE made this 14th day of June, 1995 IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT BETWEEN: GEARY INVESTMENTS LIMITED, IN TRUST", a company incorporated under the laws of the Province of Ontario, having its head office at the City of Toronto in the Municipality of Metropolitan Toronto (hereinafter called the "Landlord") OF THE FIRST PART: - and - IKS CANADIAN KNIFE & SAW LTD., a company incorporated under the laws of the Province of Ontario (Hereinafter called the "Tenant") OF THE SECOND PART: WITNESSETH Demise 1(a) That in consideration of the rents, covenants and agreements hereinafter reserved and contained on the part of the Tenant to be paid, observed and performed, the Landlord hereby demises and leases to the Tenant, and the Tenant rents form the landlord, that designated portion, containing approximately 11,840 square feet (outside measurement ) Square feet shown outlined in red on the sketch attached hereto and marked as Schedule "A", of the building (the "Building") erected upon the lands and premises situate, lying and being in the City Of Mississauga in the Regional Municipality of Peel and municipality known as Unit #7, 1090 Aerowood Drive including in the demise of the premises aforesaid, the windows and exterior walls and to the center of the interior walls thereof (the said premises being hereinafter sometimes referred to as the "demised premises", the "premises", or, the "leased premises"). (B) The Tenant shall have the right, at all times, in common with others entitled thereto, to the use of the common driveways, parking areas, entrances and exits, roadways, pedestrian walkways, loading and unloading docks, service areas and all other common areas and facilities of the Building thereinafter referred to as the "common areas and facilities") provided from time to time by the Landlord. Provided the Landlord shall have the right to make all such changes, improvements or alterations at the Landlord may, in its sole discretion, form time to time decide in respect of the common areas and facilities, including, without limitation, the right to change the location and layout of the parking areas in accordance with the provisions of paragraph 29 hereof. The use of all common areas and facilities shall be subject to the provisions of this Lease and to the rules and regulations made by the Landlord with respect thereto from time to time. Term 2(a) TO HAVE AND TO HOLD the demised premises, unless the term hereby demised shall be sooner terminated as hereinafter provided, for and during the term (the "Term") of three (3) years, to be computed from and inclusive of the 1st day of December , 19 95, and thenceforth next ensuing and to be fully complete and ended on the 30th day of November , 19 98. (b) Provided, and it is hereby agreed, that, if due to the failure of the Landlord to complete construction or to make available the services which the Landlord is hereby obligated to furnish, the demised premises or any part thereof are not ready for occupancy by the Tenant on the date of commencement of the Term, no part of the rent or only a proportionate part thereof in the event that the Tenant shall occupy part of the demised premises, shall be payable for the period prior to the date when the entire demised premises are ready for occupancy and the full rent shall accrue only after such aforementioned date, and the Tenant hereby agrees to accept such abatement of rent in full settlement of any and all claims which the tenant may otherwise have by reason of the demised premised not being ready for occupancy on the date of the commencement of the term and in such event, the commencement and expiration dates of the Term shall be extended accordingly.. Provided further, that when the Landlord has completed construction of the premises and made available the aforesaid services, the Tenant shall not be entitled to any abatement of rent for any delay in occupancy due to the Tenant's failure to complete all installations or other work required to be completed by the Tenant in accordance with the provisions hereof or for the purpose of carrying on its business operations in the premises. The decision of the Landlords architect shall be final and binding upon both parties hereto as to whether or not the demised premises are ready for occupancy by the Tenant and, if necessary, as to the proportion of the premises that are available for occupancy. (C) The Tenant shall, upon request of the Landlord execute an acknowledgment of the actual commencement date of the Term no later than the date on which the Tenant commences business in or form the premises. The tenant shall not have any right to occupy any part of the premises prior to the commencement date of the Tern, as aforesaid. Use of Premises 3. The Tenant shall use and occupy the demised premises only for Office, warehousing and wholesale distribution and light manufacturing And for no other purpose; provided the Tenant, in the use and occupation of the demised premises and in the prosecution or conduct of the foregoing business therein, shall comply with all requirements of all laws, ordinances, rules and regulations of the federal, provincial and municipal authorities and with any direction or certificate of occupancy issued pursuant to any laws by any public officer or officers. The Tenant shall not use or permit to be used any part of the demised premises for any dangerous, noxious, or offensive trade or business and will not cause or maintain any nuisance in, at, or, on the demised premises, and will not use any portion of the common areas for the conduct of its business but only for deliveries in the normal course of business and shall not permit any vehicle or object to obstruct same or be parked for any longer period than the Landlord deems reasonable. Rent 4. YIELDING AND PAYING therefor yearly and every year during the Term hereby granted, without any deduction, defalcation or set-off whatsoever, the sum of FORTY- SEVEN THOUSAND, THREE-HUNDRED AND SIXTY DOLLARS ($47,360.00) ---- --------- of lawful money of Canada, to be paid in advance in equal consecutive monthly instalments of THREE THOUSAND, NINE-HUNDRED AND FORTY-SIX DOLLARS AND SIXTY-SEVEN CENTS ($3, 946.67) (payable???) on the first day of each and every month in each year during the term, together with all additional rent hereinafter reserved. If the Term commences on any day other than the first or ends on any day other than the last day of the month, all rents for the fractions of a month at the commencement and expiration of the ........ 2 All payments required to be made by the Tenant under or in respect of this Lease shall be made to the Landlord at the Landlord's office at #510 25 Imperial St. Toronto M5P189 or to such agent or agents of the Landlord or such other place as the Landlord shall hereafter from time to time direct in writing to the Tenant. The Landlord hereby acknowledges receipt from the Tenant of the sum of $86,558.38 be applied (i) on account of all rentals, including all additional rent as herein provided, payable by the Tenant, as security for the due performance by the tenant of all the covenants and obligations on its part herein contained, the Landlord hereby reserving unto itself, at his sole discretion, to apply such sum to any damages resulting from default by the Tenant of any of its covenants and obligations hereto under or towards the payment or reduction of any claim of the Landlord against the Tenant. Any and all sums of money or charges required to be paid by the Tenant under this Lease shall be deemed and paid as additional rent, whether or not the same be designated as "additional rent" hereunder, or whether or not the sums be paid to the Landlord or otherwise, and all such sums shall be payable in lawful money of Canada without any deduction, set-off or balances whatsoever. Any additional rent provided for in this Lease, unless otherwise provided hereto, shall become due with the next installment of the monthly rent. If the Tenant shall fail to pay, when the same is due and payable, any rent or additional rent, such unpaid amount shall accrue interest from the due date thereof to the date of payment at the rate of two percent per month. 8. THE TENANT COVENANTS WITH THE LANDLORD: (a) To pay rent and additional rent in the manner and at the times herein reserved. (b) That in each and every year during the Term, the Tenant shall pay an additional rent and discharge within 10 days after the same becomes due and payable all taxes, rates, duties and assessments and other charges that may be levied, rated, charged or assessed against or in respect of all improvements, equipment and facilities of the Tenant on or in the leased premises and every tax and license fee in respect of any and every business carried on thereon or therein or in respect of the use or occupancy thereof by the Tenant, and any and every subtenant (other than such taxes as corporate income, profits or excess profits taxes assessed upon the Income of the Landlord) whether any such assessment or license fees are charged by any federal, municipal, provincial, school or other bodies during the Term, and the Tenant will indemnify and keep indemnified the Landlord from and against payment for all loss, costs, charges and expenses, occasioned by or arising from any and all such taxes, levies, rates, duties, assessments, license fees and any and all taxes which may in the future be levied in lieu of such taxes and any loss, costs, charges and expenses suffered by the Landlord may be collected by the Landlord as rent with all rights of distress and otherwise as assessed to the Landlord in respect of rent in arrears. The Tenant further so covenants and agrees that upon the request of the Landlord, the Tenant will promptly deliver to the Landlord for inspection receipts for payment of all taxes, rates, duties, assessments and other charges in respect of all improvements, equipment and facilities of the Tenant on or in the leased premises which were due and payable up to one month prior to such request, and will furnish such other information in connection therewith as the Landlord may reasonably require. Provided further, if the Tenant or any subtenant of the Tenant shall elect to have the demised premises or any part thereof assessed for separate school taxes, the Tenant shall pay to the Landlord, as additional rent, as soon as the amount of such separate school taxes is ascertained, any amount by which the amount of separate school taxes exceeds the amount which would have been payable for school taxes had such election not been made by the Tenant. (c)(1) That the Tenant will, as additional rent, in each and every year during the Term and within the time or times hereinafter provided, pay to the Landlord or to the taxing authorities as the Landlord may direct, and discharge, all taxes (including local improvement rates, impose charges or levies), rates, duties and assessments, whether general or special that may be levied, rated, charged or assessed against the leased premises or any part thereof, from time to time by any taxing authority, whether federal, provincial, municipal, school or otherwise and any taxes payable by the Landlord which are imposed in lieu of or as a substitute for any such property taxes. The Tenant agrees to provide the Landlord within ten days after demand therefor by the Landlord with a copy of any separate tax bills, and separate notices of assessment for the leased premises. The Tenant will, upon request, promptly deliver to the Landlord, receipts for payment of all such real property taxes paid to any such taxing authorities, as aforesaid, and will furnish and deliver all such other information in connection therewith as the Landlord may reasonably require. (2) In the event that there shall not be a separate assessment, for real property taxes made against the leased premises, the Tenant shall pay a share of such real property taxes (including local improvement rates) which may be levied or assessed by any lawful authority against the lands, buildings and improvements, including the outside common areas and facilities thereof, forming part of the Building within ten (10) days after demand therefor by the Landlord, as allocated to the leased premises by the Landlord. The Landlord shall allocate all such real property taxes levied or assessed against the lands and buildings comprising the Building of which the demised premises forms a part, firstly as between the premises intended for leasing and the common areas and facilities, and secondly with respect to the real property taxes so allocated to the premises intended for leasing, the Landlord shall make a further allocation of all such taxes as between each of the individual premises intended for leasing on such basis as the Landlord shall in its sole opinion deem applicable, having regard among other things, to the various 3 Payments 5. All payments required to be made by the Tenant under or in respect of this Lease shall be made to the landlord at the Landlord's office at #510 25 Imperial Street, Toronto M5P1B9 or to such agent or agents of the Landlord or such other place as the Landlord shall hereafter form time to time direct in writing to the Tenant. Deposits The Landlord hereby acknowledges receipt from the Tenant of the sum of $ 6,558.38 be applied (I) on account of all rentals including all additional rent as herein provided, payable by the Tenant, as security for the due performance by the tenant of all the covenants and obligations on its part herein contained, the Landlord hereby reserving unto itself, at its sole discretion, to apply such sum to any damages resulting from default by the Tenant of any of its covenants and obligations hereunder or towards the payment or reduction of any claim of the Landlord against the Tenant. Additional Rent 6. Any and all sums of money or charges required to be paid by the Tenant under this Lease shall be deemed and paid as additional rent, whether or not the same be designated as "additional rent" hereunder, or whether or not the same be paid to the landlord or otherwise, and all such sums shall become due with the next instalment of the monthly rent. Rent and Additional past due 7. If the Tenant shall fail to pay , when the same is due and payable, any rent or additional rent, such unpaid amount shall bear interest form the due date thereof to the date of payment at the rate of two percent per month. Tenant's Covenants 8. THE TENANT COVENANTS WITH THE LANDLORD: (a) To pay rent and additional rent in the manner and at the times herein reserved Business Taxes (b) That in each and every year during the Term, the tenant shall pay as additional rent and discharge within 10 days after the same becomes due and payable all taxes, rates, duties and assessments and other charges that may be levied, rated, charged the or assessed against or in respect of all improvements, equipment and facilities of the Tenant on or in the leased premises and against payment for all loss, costs, charges and expenses, occasioned by or arising from any and all such taxes, levies, rates, duties assessments, licences fees and any and all taxes which may in the future be levied in lieu of such taxes and any loss, costs charges and expenses suffered by the Landlord may be collected by Landlord as rent with all rights of distress and otherwise as reserved to the Landlord in respect of rent in arrears. The Tenant further covenants and agrees that upon the request of the Landlord, the Tenant will promptly deliver to the Landlord for inspection receipts for payment of all taxes, rates, duties, assessments and other charges in respect of all improvements, equipment and (facilities?????) of the Tenant on or in the leased premises which were due and payable up to one month prior to such request, and will furnish such other information in connection therewith as the Landlord may reasonably require. Provided further, If the Tenant or any subtenant of the Tenant shall elect to have the demised premises or any part thereof assessed for separate school taxes, the Tenant shall pay to the Landlord, as additional rent, as soon as the amount of such separate school taxes is ascertained, any amount by which the amount of separate school taxes exceeds the amount which would have been payable for school taxes had such election not been made by the Tenant. Realty Taxes (c)(I) that the Tenant will, as additional rent, in each and every year during the Term and within the time or times hereinafter provided, pay to the Landlord or to the taxing authorities as the Landlord may direct, and discharge, all taxes, (including local improvement rates, impost charges or levies), rates, duties and assessments, whether general or special that may be levied, rated, charged or assessed against the leased premises or any part thereof,, form time to time by any taxing authority, whether federal, provincial, municipal, school or otherwise and any taxes payable by the Landlord which are imposed in lieu of or as a substitute for any ( ???) property taxes. The tenant agrees to provide the Landlord within ten days after demand therefor by the Landlord with a copy of any separate tax bills, and separate notices of assessment for the leased premises. The Tenant will, upon request, promptly deliver to the Landlord, receipts for payment of all such real property taxes paid to any such taxing authority, as aforesaid, and will furnish and deliver all such other information in connection therewith as the Landlord may reasonably require. (ii) In the event that there shall not be a separate assessment for real property taxes made against the leased premises, the Tenant shall pay a share of such real property taxes (including local improvement rates) which may be levied or assessed by any lawful authority against the lands, buildings and improvements, including the outside common areas and facilities thereof,, forming part of the building within ten (10) days after demand therefor by the Landlord, as allocated to the leased premises by the Landlord. The Landlord shall allocate all such real property taxes levied or assessed against the lands and buildings comprising the building of which the demised premises forms a part, firstly as between the premises intended for leasing and the common areas and facilities, and secondly with respect tot he real property taxes so allocated to the premises intended for leasing, the Landlord shall make a further allocation of al such taxes as between each of the individual premises intended for leasing on such basis as the Landlord shall in its sole opinion deem equitable, having regard among other things, to the various uses of the premises intended for leasing comprising the Building and/or the cost of original construction of same, and subject at all times tot eh provisions of paragraph 8 (b) hereof. The Tenant shall pay its proportionate share (as hereinafter defined of all real property taxes so allocated to the common areas and facilities in accordance with the provisions of paragraph 9 hereof. Payment of Tenant's Share (iii) the amount payable by the Tenant pursuant to paragraph 8 (C) (ii) above may be estimated by the Landlord its share as so estimated, of such amount in monthly instalments in advance during such period, together with all other rental payments provided for in this Lease. Notwithstanding anything hereinbefore contained, if at the time when payment of the real property taxes (including local improvement rates), whether interim, instalment or final is due, the Landlord shall not have on deposit a sufficient sum to pay the full amount of such real property taxes, the Tenant shall forthwith, upon demand, pay,, as additional rent, its share, determined as aforesaid of the amount of any such deficiency to the Landlord. When the final tax bill in any year has been received, which relates to the period for which such estimated payments have been made by the Tenant, as aforesaid, the parties hereto agree to adjust all payments made by the Tenant on account of real property taxes in accordance with such final tax bill. Utilities (d)(I) That the Tenant shall be solely responsible for and shall promptly pay all charges for water, gas, electricity, telephone and other utilities used or consumed in, or any other charges levied or assessed on or in respect to, the leased premises, and for all fittings, machines, apparatus or other things leased in respect thereof, and for all work or services performed by any corporation or commission in connection with such public utilities Should the Landlord elect to supply water, gas, electricity, and/or sewer services for the building, or any other utility used or consumed, or to be used or consumed , in the leased premises, the Tenant shall purchase and pay for the same as additional rent payable on demand to the Landlord, at rates not in excess of public utility rates for the same service, if applicable In no event shall the Landlord be liable for, nor have any obligation with respect to, an interruption or cessation of, or a failure in the supply of any such utilities, services or systems, including, without limitation, the water and sewage systems, to the building or to the leased premises, whether or not supplied by the Landlord or others. (ii) The Tenant shall be required prior to the commencement of the term to install its own separate meter(s) for the leased premises t its own expense, if so requested by the Landlord. In the event that separate meters are not installed for the leased premises, the Tenant shall pay its share of the total costs incurred by the Landlord in the supply of all utilities and services to the building, as reasonably and equitably determined by the Landlord, having regard, among other thins, to the Tenant's connected load and the then current applicable commercial rates for the municipality in which the leased premises is located, and the Tenant shall pay monthly, in advance with instalments of monthly rent, all such utility charges so applicable to the leased premises. Provided, notwithstanding anything herein contained to the contrary, if at any time during the Term or renewal the Landlord should determine in its sole discretion that the Tenant's use of any utility or service used or consumed on the premises is in any way unusual or of an excessive nature, the Landlord, may, at its option, but at the sole cost and expense of the Tenant, install in the demised premises a separate or submeter with resect to such utility or service, whereupon the tenant's cost in connection with such utility or service shall be determined in accordance with such separate meter or submeter. 4 RIDER #1 (Page 3, clause #8(e) Repairs) Landlord agrees and shall be responsible and liable for and shall repair all structural defects or weaknesses unless such damage has been caused by the Tenant or any other persons affiliated with the Tenant. RIDER #2 (Page 3, clause #8(h) Heat) Notwithstanding any other provision of this lease, the parties thereto agree as follows: - The Tenant shall not be responsible for any major repairs or replacements of a capital nature to the heat exchanger or compressor (considered being major repairs) of the heating and air-conditioning systems. The Tenant is responsible for any other repairs to the said equipment, considered to be minor in nature. Provided that the Tenant enters into and maintains a contract (the "HVAC" Contract) with a licensed and reputable heating and air-conditioning contractor approved by the Landlord, which contract shall be in writing and approved by the Landlord, acting responsibly and shall include, without limitation, a provision requiring the maintenance and periodic inspections of not less than four (4) times per year of the heating and air-conditioning systems in the premises. The Tenant shall submit to the Landlord evidence satisfactory that all repairs recommended after such inspections have been made and that all payments required pursuant to the HVAC Contract have been paid. The Landlord will not be responsible for the replacement of any parts (minor and/or major) if the Tenants type of business and/or manufacturing causes damage to the said equipment. 5 Repairs (e) That the Tenant shall, at its sole cost and expense and at all times, keep and maintain the whole of the leased premises and every part thereof (including, without limitation, all entrances, glass, doors fixtures, equipment and appurtenances and improvements thereto) in good order and first class condition and shall promptly make all needed repairs and replaced thereto (reasonable wear and tear and damage by fire, lightening and tempest only excepted) and, without limiting the ???? of the foregoing, the Tenant shall keep the demised premises well painted, clean and in such condition as would a careful... ***SEE RIDER #!, PAGE 3-A Entry by Landlord (f) That it shall be lawful for the Landlord and its agent(s) at all reasonable times during the Term to enter the demised premises to inspect the condition thereof. Where an inspection reveals the repairs are necessary, the Landlord shall give and in ???? and workmanlike manner and to the satisfaction of the Landlord, so as to complete same within the time or times permitted for in the notice delivered by the Landlord as aforesaid. The failure by the Landlord to give notice shall not relieve the Tenant ???? neglects to repair promptly and to the reasonable satisfaction of the Landlord as required pursuant to the provisions of 8(e), hereof or in accordance with any notice received from the Landlord pursuant to the provisions of this part 8(f), the Landlord may, but shall not be obligated to, make such repairs without liability to the Tenant for any loss or damage which may occur to the Tenant's property or to the Tenant's business by reason thereof, and upon completion, the Tenant shall forthwith pay upon demand the Landlord's cost for making any such repairs plus a sum equal to 15% thereof to ???, as additional rent, in addition to the aforesaid the Tenant shall at its own expense arrange for a qualified service ??? to make annual inspections of the heating system and other mechanical apparatus included in the within lease at the com???? at its own expense and satisfactory evidence of same forwarded to the Landlord. The Tenant acknowledges that the demised premises are in good condition and repair at the date of commencement of the term hereby demised. Leave Premises In good Repair (g) and further, theat the Tenant will, at the expiration or sooner termination of the Term peaceably surrender and yield unto the Landlord the premises with all improvements, erections and appurtenances which at any time or times during the Tenancy shall be made, placed or erected therein or thereon, in good and substantial repair and condition, reasonable wear and tear , damage by fire, lightening and tempest only excepted, and the Tenant shall surrender all keys for the premises to the Landlord at the place then fixed for payment of rent and shall inform the Landlord of all combinations on locks, safes and vaults, ???? in the premises. The Tenant shall, however, if requested by the Landlord remove all improvements, erections, alterations at the cost and expense of the Tenant, and shall repair all damage to the leased premises caused by their installation and/or removal. The Tenant's obligation to observe and perform this covenant shall survive the expiration or sooner determination of the lease or any renewal thereof. Heat (h) To heat the remises in a reasonable manner at its sole cost and expense with heating equipment supplied by the Landlord, and to maintain, keep in good order and repair, and replace, if necessary, at its own expense, the said heating equipment heating of the demised premises shall be maintained by the Tenant so as at all times to protect the demised premises and its contents from damage by cold or frost. ***SEE RIDER #2, PAGE 3-A. Public Orders (I) That the Tenant shall, at its sole cost and expense, comply with all provisions of law, including without limiting ??? generality of the foregoing, all requirements of all federal and provincial legislative enactments, by-laws and other governmental or municipal regulations now or hereafter in force which relate to the premises or to the making of any repairs, replacements, alterations, additions, changes, substitutions or improvements of or to the leased premises, and the Tenant will cooperate with all police, fire and sanitary regulations imposed by any governmental, provincial and municipal authorities or made by fire insurance underwriters and the Tenant shall observe and obey all governmental and municipal regulations and any other requirements governing the conduct of any business in the leased premises. Assignment and Subleasing (j)(i) That the Tenant will not assign this Lease in whole or in art, nor sublet all or any part of the Leased premises, nor mortgage or encumber this Lease or the leased premises of any part thereof, or suffer or permit the occupation of all or any ???? thereof by others, without the prior written consent of the Landlord in each instance, which consent shall not be unreasonably withheld, subject to the provisions of subparagraph (ii) of this paragraph 8. The consent by the Landlord to any assignment or subletting shall not constitute a waiver of the necessity for such consent to any subsequent assignment or subletting. ????? operation of law. If this Lease shall be assigned, or if the leased premises or any part thereof shall be sublet aor occupied by a body other than the Tenant, the Landlord may collect rent form the assignee, subtenant or occupant, and apply the amount collected to the rent herein received, but no such assignment, subletting, occupancy or collection shall be deemed to be a waiver of this covenant or the acceptance of the assignee, subtenant or occupant as Tenant, or a release of the Tenant form the further performance by the Tenant of the covenants on the part of the Tenant herein contained. Notwithstanding an assignment or sublease, the Tenant shall remain jointly and severally liable on this Lease and shall not be relieved from performing any of the terms, covenants and conditions of this Lease. Any assignment of the Lease, if consented to by the Landlord, shall be prepared by the Landlord or its solicitors, and any and all legal costs with respect thereto shall be borne by Tenant. Any consent granted by the Landlord shall be subject to the Tenant causing any such assignee, sublessee or occupant to execute or indenture and covenant directly with the Landlord agreeing to be bound by all of the terms contained in this lease, as if such assignees, sublessee or occupant had originally executed this Lease as Tenant. Landlord's Option (ii) In the event the Tenant desires to assign, sublet or part with possession of all or any part of the lease premises, or transfer this lease in any other manner in whole or in part or any estate or interest therein, then so often as such event shall occur, the Tenant shall give prior written notice to the Landlord or such desire, specifying therein the name of the proposed assignee, transferee or subtenant and such other information as the Landlord may require, and the Landlord shall, within thirty days thereafter, notify the Tenant in written either, that: (I) it consents, or (ii) does not consent, as aforesaid, to the assignment subletting or parting with or sharing possession, as the case may be, or (iii) it elects to cancel this Lease in preference to the giving of such content. In the event, the Landlord elects to cancel this Lease, as aforesaid, the Tenant shall notify the Landlord in writing within 15 days thereafter of the Tenant's intention either to refrain from such assigning or subletting or parting with or sharing possession or to accept the cancellation of this Lease. Should the Tenant fail to deliver such notice within such period of 15 days, this Lease will thereby be terminated upon the expiration of said 15 day period. Corporate Ownership (k) And further, that the Tenant shall not be entitled to transfer or issue by sale, assignment, bequest, inheritance, operation of law, or other disposition or by subscription any party or all or the corporate shares of the Tenant or any associated, affiliate or subsidiary company or the Tenant so as to result in any change in the present effective voting control of the Tenant by party or parties holding such voting control at the date of this Lease, without first obtaining the written consent of the Landlord in each instance, which consent shall not be unreasonably withheld. In the event the Tenant does not obtain the written consent of the Landlord, as aforesaid, the Landlord may re-enter the leased premises at any time after such change in ???? by giving the Tenant 30 days prior written notice of such entry, whereupon the provisions of paragraph 12 hereof shall ????. The Tenant on request will furnish to the Landlord a sworn declaration as to the notice of the officers and directors of the tenant Corporation. Nuisance (l) That the Tenant will not do or omit to do or permit to be done or omitted anything upon or in respect of the demised premises, the doing or omission of which, as the case may be, shall be or result in a nuisance or menace to the Landlord or to the other tenants of the Building of which the demised premises form a part; and that as machinery shall be used on the leased premises which shall cause any undue vibration in or tot he premises, and if the Landlord or any other occupants of the Building shall complain that any machinery or operation thereof in or on the leased premises is a nuisance to it or them, as the case may be, upon receiving notice thereof, the Tenant will immediately abate such nuisance. Insurance (m)(I) That if the Tenant's use and occupation of the premises, whether or not the Landlord has consented to same, cause any increase in premiums for fire and extended coverage insurance, rental, boiler, casualty and other types of Insurance as may be carried by the Landlord form time to time in respect of the Building, the Tenant shall pay any such increase in premiums as additional rent within ten days after bills for such additional premiums shall be rendered by the Landlord. In determining whether such increased premiums are a result of the Tenant's use and occupancy of the leased premises, a schedule issued by the organization making the insurance rates on the Building showing the various components of such rate, shall be conclusive evidence of the several items and charges which make up such rate. The Tenant shall comply promptly with all requirements of the Canadian Underwriters Association or of any insurer, now or hereafter in effect; pertaining to or affecting the leased premises. If any insurance upon the Building or any part thereof, shall be canceled or shall be threatened by the insurer to be canceled, or the coverage thereunder reduced in anyway by the insurer by reason of the use and occupation of the leased premises or any 6 part thereof by the Tenant or by any assignee or subtenant of the Tenant or by anyone permitted by the Tenant to be upon the leased premises, and , if the Tenant fails to remedy the condition ................... provisions of paragraph 12 hereof shall apply or, (ii) enter upon the leased premises and remedy the condition giving rise to such cancellation, threatened cancellation or reduction of the tenant shall forthwith pay the costs thereafter to the Landlord, which costs may be collected by the Landlord as rent and the Landlord shall not be liable for any damage injury caused to any property of the Tenant or of others located on the leased premises as a result of such entry. (ii) The Tenant shall as soon as possible after the execution of this Lease provide the Landlord with a certificate of property damage and public liability insurance covering the Tenant and the Landlord in respect of the premises and its use and occupancy thereof and the common areas and facilities of the Building. Such property damage and public liability insurance policy is to be written on a comprehensive basis with limits of not less than $2 million or bodily injury to any one or more persons or property damages, or at such higher limits as the Landlord may reasonably require from time to time. Owners, ???? Investments Limited, "in Trust", are to be added as named insured (iii) And further, the Tenant convent as and agrees, at its sols cost and expense, to replace any glass or other glass which has been broken or removed during the Term and will at all times keep the plate glass on the remises fully insured, pay the premiums therefor and provide the Landlord with a certificate of such plate glass insurance. Cost of Maintenance 9. (I) In each year of the Term, the Tenant will pay to the Landlord, in addition to the rental specified in paragraph 4 hereof, as further additional rent, its proportionate share (as hereinafter defined) of the Landlord's actual costs and expenses of maintaining and operating the Building and the common areas and facilities, such costs and expenses to include, without limitation: (I) the total annual costs and expenses of insuring the lands, buildings, improvements, equipment and insurance against loss of rental income or the earnings derived from the Building in the full amount of such rental income or earnings, real or anticipated and other property from time to time comprising the building and the common areas and facilities thereof, in such manner and in such companies and form, and with such coverage and in such amounts as the Landlord form time to time shall determine; (ii) real property taxes (including school taxes and local improvement rates) and all business and other taxes, if any, from time to time payable by the Landlord levied or assessed against allocated by the Landlord pursuant to paragraph 8 (c)(ii) hereof, against or in respect of the common areas and facilities or against landlord, on account of its ownership thereof; (iii) the total costs of operating, maintaining, lighting, cleaning (including snow and removal and clearance) supervising, policing, landscaping, repairing and replacing all common areas and facilities, including without limitation, all monies paid to persons, firms or corporations employed by the Landlord to perform same; and (iv) all expenses incurred and paid by the Landlord in connection with the maintenance, repair, replacement, operation and management of the Building and services connected therewith, together with an administrative fee of 9 percent of such total annual costs and expenses, aforesaid. (ii) The term "proportionate share: used in this paragraph 9 shall mean a fraction, the numerator of which is the rentable area of the demised premises (exclusive of any basement area) and the denominator of which is the etoal renaqble area of the buliding being: 1090 Aerowood Drive, Mississauga Ontario, of which the demised premises forms a ?????? (iii) The amount payable by the Tenatnt pursuant to this paragraph 9 may be estimated by the Landlord for such period or perods as the Landlord may determine, and the Tenatn agrees to pay to the Lnadlord its proportionate share as so estimate of such amount sin monthely instalments in advance during such peirod(s) together with all other rental payments provided for in this Lease. Notwithstanding the foregoing, as so as bills for all or any portion of the said amounts so estimated are received, the Landlord may bill the Tenatnt for its proportionate share thereof (less all amounts previously paid by the Tenat on the basis of the Lnadlord's estimate aforesaid which have not already been in applied) and the Tenant shall pay to the Lnadlord such amoutns so billed as addtional rent on demand. At the end of the perioud for which such estaimated payments have been made, the Lnadlord shall deliver to the Tenat a statement of the actual amounts and costs referrred to in this paragraph 9 and the determination of the Tenatn's proportionate hare thereof, and if necessary, an adjustment shallbe made between the parties hereto. If the Tenatn shall have paid in excess of such actual amounts, the excess sahll be refunded by the Lnadlord within a reasoanble period of time after delivery or the said statment if the amoutn the Tenatn has paid is less than such actual amounts, the Tenat agrees to pay to the Landlord any such extra amount or amounts with the next monthly payment of rent. 10. PROVIDED AND IT IS HEREBY EXPRESSLY AGREED: Seizure and Bankruptcy (a) That, in case, without the written consent of Lnadlord, the demised premises shall become and remain vacant or not used for a peirod of ten (10) days whiel the sme is suitable for use bythe Tenatn, or shall be used by any person other than the Tenatn, or in case the Term of any of the goods and chattels of the Tenat shall be at any time seized or taken in execution or in attachment by any creditor of the Tenatnt, or if th eTenatn shall make any assignment for the benefit of creditors or give any bill of sale without complying with The Bulk Sales Act (Ontario) or become bankrupt or insolvent, or take the benefit of any Act now or hereafer in force ofr bankrupt or insolvent debtors or file any proposal or make an asignemtn ofr the benefit of credtiors or if a receiver is appointed for all or a portion of the Tent's property or if any order is made for the winding up of the Tenat, or if the Tenant shall make a sale in bulk, or, if the Tenatn abandons or attempts to abandon the leased premises or to seller dispose of any of the goods and chattels of the tenant or to remove them from the leased premises so that there would not in the event of such sale or disposal be sufficient goods on the leased premises subject to distress to satisfy all rentals due or accruing hereunder, or if the Tenant shall fail to perform any other of the terms, conditions or covenants of this Lease to be observed or performed by the Tenant, or if re-entry is permitted under any other terms of this Lease, then, and in every such case, the then current mont's rent and the next ensuing three months' rent and additional rent shall immediately become due and payable, and , at the option of the Landlord this Lease shall cease and determine and the Term hereby demised shall immediately become forfeited and void, in which event, the Landlord may re-enter and take possession of the demised premises as though the Tenant or any occupant or occupants of the demised premises was or were holding over after the expiration of the Term without any rights whatsoever. No exceptions for distress (b) That, in consideration of the premises and of the leasing and letting by the Landlord to the Tenant of the leased premises for the Term hereby created (and it is upon that express understanding that these present are entered into), and notwithstanding anything continued in Section 30 of Chapter 236 of the Revised Statutes of Ontario, 1970, or any other Statute subsequently passed to take the place of the said Act or to amend the same, none of the goods and chattels of the Tenant at any time during the continuance of the Term on the leased premises shall be exempt form levy by distress form rent in arrears by the Tenant as provided for by an Section or Sections of the said Act or any amendment or amendments thereto and that upon the any claim being made for such exemption by the Tenant or on distress being made by the Landlord, this covenant and agreement may be pleaded as an estoppel against the Tenant in any action brought to test the right to the levying upon any such goods as are named as exempted in said Section or Sections of the said Act or amendment or amendments thereto; the Tenant waiving as it hereby does all and every benefit that could or might have accrued to the Tenant under and by virtue of the said section or Sections of the said Act, or any amendment or amendments thereto but for this covenant. Public Liability (c ) That the Landlord shall not be liable for any death or injury or damage to property of the Tenant or of others located on the leased premises, form any cause whatsoever, whether or not any such damage, loss or injury results form the negligence of the Landlord, its agents, servants or employees or other persons form whom it may be responsible. Without limiting the generality of the foregoing, the Landlord shall not be liable for any injury or damage to persons or property resulting form fire, explosion, falling plaster, steam, gas, electricity, water, rain, snow or leaks form any part of the leased premises or from the pipes, appliances or plumbing works or from the roof, street or subsurface or form any other place or by dampness or by any cause or whatsoever nature. The Landlord shall not be liable for any such damage caused by other tenants or persons in the Building or by occupants of adjacent property thereto, or the public, or caused by operations in construction of any private, public or quasi-public work. All property of the Tenant kept or stored on the leased premises shall be so kept or stored at the risk of the tenant only and the Tenant shall hold the Landlord harmless form and against any claims arising out of damages to the same, including, subrogation claims by the Tenant's insurers. Holding Over (d) That if the Tenant shall continue to occupy the demised premises at the expiration of this Lease with or without the consent of the Landlord, and without any further written agreement, the Tenant shall be a monthly at the monthly rental herein reserved and otherwise on the terms and conditions herein set forth, except as to the length of tenancy. Over- Loading (e) That the Tenant will not bring upon the demised premises or any part thereof, any machinery, equipment, article or thing that by reason of its weight, size, or use might, in the opinion of the Landlord, damage the leased premises and will not at any time, overload the floors of the leased premises and that if any damage is caused to the leased premises, by any machinery, equipment article or thing or by overloading, or by any act, neglect or misuse on the part of the Tenant any of its servants, agents or employees, or any person having business with the Tenant, the Tenant shall forthwith repair the same or pay to the Landlord the cost of making good the same. 7 Overload Facilities ??????????????????? the leased premises and agrees that if any equipment installed by the Tenant shall require additional utility facilities, same shall be installed, if available, at the Tenant's sole cost and expense in accordance with plans and specifications to be approximated by the Landlord. Appliance Facilities (g) That the plumbing facilities (if any) in the leased premises shall not be used for any other purpose than that for which they are constructed, and not foreign substance or any kind shall be thrown therein, and the expense of any breakage, ???? or damage resulting from a violation of this provision shall be borne by the Tenant. Indemni- fication (h) That the Tenant will indemnify the Landlord and save it harmless from and against any and all loss (including ??? rentals payable by the Tenant pursuant to this Lease) claims, actions, damages, liabilities and expenses in connection with loss of life, personal injury or damage to property arising from or out of any occurrence in, upon, or, at the leased premises ????? the occupancy and use by the Tenant of the leased premises, or any part thereof, or occasioned wholly or in part by any act or omission of the Tenant, its agents, contractors, employees, servants, or invites or anyone permitted to be on the premises by the Tenant. In case the Landlord shall, without fault on its part, be made a party to any litigation, commenced by or against the Tenant, then, the Tenant shall protect and hold the Landlord harmless and shall pay all costs, expenses and reasonable legal fees incurred or paid by the Landlord in connection with such litigation. The Tenant shall also pay all costs, expenses and reasonable legal fees that may be incurred or paid by the Landlord in enforcing the covenants and agreements contained in this Lease, unless a Court shall otherwise award. Repair Where Tenant at Fault Fault (I) That in the event the Building, the common areas and facilities thereof, the leased premises, or any equipment, ???? or facilities contained therein, or, any other structural portions thereof require repair or become damaged or destroyed through the negligence, carelessness or misuse of the Tenant, its servants, agents, employees, contractors, or thorough it or in any way, stropping up or injuring the heating apparatus, water pipes, drainage pipes or other equipment or facilities or of the Building, the expenses of all such necessary repairs, replacements or alterations, plus a further 15% of the costs the shall be borne by the Tenant who will pay the same to the Landlord forthwith upon presentation of an account of such expenses incurred by the Landlord as aforesaid. Refuse (j) That the Tenant will not use any outside garbage or other containers or allow any ashes, refuse, garbage or other litter or objectionable material to accumulate in or about the premises, and will at all times keep the said premises in a clean and ???? condition and shall immediately before the termination of the term, wash the floors, windows, doors and woodwork ???? premises, and further that it will not store, or cause to be stored outside of the premises any of its inventory, stock, in ???? or, raw materials. Loading and Unloading (k) That all loading and unloading of merchandise, supplies, materials, garbage and all other chattels shall be effected ???? through or by means of such doorways or corridors as the Landlord shall designate, and shall be subject to all such rules regulations as the landlord shall promulgate in connection therewith from time to time. Draperies (l) That the Tenant will not place or ??? any drapes or other material upon the exterior or interior of the windows in ??? premises, without first obtaining the prior written consent of the Landlord, it being the intention of the Landlord, and the Tenant hereby acknowledges and agrees, that all drapes used by the tenants of the Building are to be of uniform material style and are to be complimentary to each other. Demised Premises (m) That whenever in this Lease reference is made to the leased premises, the premises, or the demised premises, it shall include all structures, improvements, equipment, systems and erections in or upon the demised premises or any part thereof from time to time. Evidence of Payment by the Tenant (n) That the Tenant shall from time to time at the request of the Landlord produce to the Landlord satisfactory evidence of the payment by the Tenant of all payments required to be made by the Tenant under this Lease. Adjustment of Taxes (o) That the taxes and local improvement rates and, where necessary, all other charges payable by the Tenant hereunder with respect of the first and last years of the Term shall be adjusted between the Landlord and the Tenant accordingly. Tenant Shall Discharge All Liens (p) That the Tenant shall promptly pay all its contractor and materialmen and shall do any and all things necessary to minimize the possibilities of a lien attaching to the leased premises or to any or part of the Building and should any such lien be ???? or filed, the Tenant shall discharge the same forthwith (after notice thereof is given to the Tenant) at the Tenant's expense In the event the Tenant shall fail to cause any such lien to be discharged, as aforesaid, then, in addition to any other rights and remedy of the Landlord, the landlord may, but is shall not be obligated, discharged same by paying the amount claimed to be due into Court or directly to any such lien claimant and the amount so paid by the Landlord and all costs and expenses including solicitor's fees ( on a solicitor and his client basis) incurred herein for the discharge of such lien shall be due and payable by the Tenant to the Landlord as additional rent on demand. Fixtures and Removal and Restoration by Tenant 11. All alterations, decoration, additions and improvements made by the Tenant or made by the Landlord on the Tenant's behalf (other than the Tenant's trade fixtures) shall immediately become the property of the Landlord without compensation therefor to the Tenant. Such alterations, decorations, additions or improvements shall not be removed from the leased premises either during or at the expiration of the Term or sooner determination of the Lease, except that: (I) The Tenant may at the end of the Term, if not in default, remove its trade fixtures; (ii) The Tenant shall, at the end of the Term at its own cost remove all alterations, decorations, additions or improvements in or on the leased premises as the Landlord shall, at its option, require to be removed; and (iii) The Tenant may remove its trade fixtures at the end of the Term and also during the Term in the usual normal course of its business, or if such trade fixtures become excess for the Tenant's purposes, or if the Tenant is substituting therefor new and similar trade fixtures, provided the Tenant is not in default and provided the Tenant first notifies the Landlord thereof. The Tenant shall, in the case of every such installation or removal either during or at the end of the Term, make good any damage caused to the leased premises or to the Building by the installation or removal or any such alteration, decoration, addition or improvements. Re-Entry 12. Proviso for re-entry by the Landlord on non-payment or rent or non-performance of covenants. If the Landlord elects to re-enter, as herein provided, or if it takes possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate this Lease or it may from time to time without terminating this lease make such alterations and repairs as may be necessary, in order to relet the leased premises, or any part thereof for such term or terms (which may be for a term or terms extending beyond the Term of this Lease) and at such rental or rentals and upon such other terms and conditions as the Landlord in its sole discretion may deem advisable; upon each such reletting all rental monies received by the Landlord from such reletting shall be applied, first, to the payment of any indebtedness other than rent ???? hereunder from the Tenant to the Landlord; second, to the payment of any costs and expenses of such reletting, including brokerage fees and solicitors fees and of the costs of such alterations and repairs; third, to the payment of all rentals due and unpaid hereunder; and the residue, if any, shall be held by the Landlord and applied in payment of future rent as the same as the same may become due and payable hereunder. If such rentals received from such reletting during any month shall be less than that to be paid during that month by the Tenant hereunder, the Tenant shall pay any such deficiency to the Landlord. Such deficiency shall be calculated and paid monthly. No such re-entry or taking possession of the leased premises by the Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to the Tenant. Notwithstanding any such reletting without termination, the Landlord may at any time thereafter elect to terminate this Lease for such previous breach. Should the Landlord at any time terminate this Lease for any breach, in addition to any other remedies it may have, it may recover from the Tenant all damages it has incurred or may incur by reason of such breach, including the cost of recovering the leased premised, reasonable solicitor's fees, and including the worth at the time of such termination of the excess, if any, of the amount of rent and charges equivalent to the rent reserved in this Lease for the remainder of the stated Term over the then reasonable rental value as determined by the Landlord for the remainder or the stated Term, all of which amounts shall be immediately due and payable from the Tenant to the Landlord. Expenses and Renewal of Chattels 13. (I) In case suit shall be brought for recovery of possession of the leased premises, or, for the recovery of rent or any other amounts due under the provisional of this Lease, or, because of the breach of any other covenants herein contained on the part of the Tenant to be kept or performed, and a breach shall be established, the Tenant shall pay to the Landlord all expenses incurred therefor, including a reasonable solicitor's fee. 8 Follow same for thirty (30 days in the same manner as is provided for in The Landlord and Tenant Act (Ontario). 14. If the Tenant shall fail to pay, when due, any amounts or charges required to be paid pursuant to this Lease, the Landlord, after giving 5 days' notice in writing, to the tenant may, but shall not be obligated to, pay all or any part of the same for the account of the Tenant. If the Tenant shall be obligated to, pay all or any part of the same than payment of rent or other sums required to be paid pursuant to the terms of this Lease), the Landlord may from time to time after the giving of such notice as it shall deem sufficient, (or no notice in the case of an emergency) having regard from time to time after the giving of such notice as it shall deem sufficient, (or no notice in the case of an emergency) having regard to the circumstances applicable, perform or cause to be performed any of such covenants or obligations or any part thereof, and for such purpose may do such things as may be required, including without limitation entering upon the premises and doing such things upon or in respect of the premises or any part thereof as the Landlord may reasonable consider requisite or necessary. All expenses incurred and expenditures made by or on behalf of the Landlord under this paragraph 14, plus a sum equal to 15% thereof shall be additional rent hereunder and shall be paid by the Tenant upon demand. The Landlord shall have no liability to the Tenant for any loss or damage resulting from any such action by the Landlord, and entry by the Landlord under the provisions of this paragraph 14 shall not constitute a breach of the covenant for quiet enjoyment or an eviction. 15. If the Tenant at the expiration or earlier termination of this Lease shall be in default under any covenant or agreement contained herein, the Landlord shall have a lien on all stock-in-trade, inventory, fixtures, equipment and facilities of the Tenant as security against loss or damage resulting from any such default by the Tenant, and the said stock-in-trade, inventory, fixtures, equipment or facilities shall not be removed by the Tenant until such default is cured, or as otherwise directed by the Landlord. 16. If the Tenant shall be in default in the payment of any amounts or charges required to be paid pursuant to the terms of this Lease, they shall, if not paid when due, be collectible as rent with the next installment of rent thereafter falling due hereunder, but nothing herein contained shall be deemed to suspend or delay the payment of any amount of money or charges at the time same becomes due and payable hereunder, or limit any other remedy of the Landlord. The Tenant covenants and agrees that the Landlord may at its option, apply any sums received from or due to the Tenant against any amounts due and payable hereunder in such manner as the Landlord, in its sole discretion sees fit. 17. The Tenant acknowledges and agrees that it is intended that this Lease shall be a completely care-free net lease for the Landlord, and, except as expressly herein set out, that the Landlord shall not be responsible during the Term of the Lease for any costs, charges, expenses and outlays of any nature whatsoever arising from or relating to the leased premises or to the contents thereof, and the Tenant shall pay all charges, impositions, costs and expenses of every nature and kind relating to the leased premises, and the Tenant covenants with the Landlord accordingly. 18. Upon the payment by the tenant of the rents herein provided and upon the observance and performance of all covenants, terms and conditions on the Tenant's part to be observed and performed, the Tenant shall peaceably and quietly hold and enjoy the leased premises for the Term hereby demised without hindrance or interruption by the Landlord, or any other person or persons lawfully claiming by, through or under the Landlord subject, nevertheless, to the terms and conditions of this Lease. 19. The Landlord or its agents shall have the right to enter the demised premises at all times to examine the same, and to show them to prospective purchasers, lessees or mortgages and to make such repairs, alterations, improvements or additions to the leased premises or the Building as the Landlord may deem necessary or desirable, and the Landlord shall be allowed to take all material into and upon the leased premises which may be required therefor without the same constituting an eviction of the Tenant in whole or in part, and the rent received hereunder shall not abate while the said repairs, alterations, improvements or additions are being made due to loss or interruption of the business of the Tenant or otherwise, and the Landlord shall not be liable for any damage, injury or death caused to any person(s) or property of the tenant or others located on the leased premises as a result of such entry. During the six months prior to the expiration of the Term, the Landlord may exhibit the premises to prospective tenants or purchasers and place upon the leased premises the usual notices "To Let" or "For Sale" which notices the Tenant shall permit to remain thereon without molestation If the tenant shall not be personally present to which notices the Tenant shall permit to remain thereon without molestation If the Tenant shall not be personally present to open and permit an entry into the premises at any time when for any reason entry therein shall be necessary or permissible, the Landlord or its agents may enter toe same by a master key, or may forcibly enter the same, without rendering the Landlord or such agents liable therefor, and without in any manner effecting the obligations and covenants of this Lease. Nothing herein contained, however, shall be deemed or construed to impose upon the Landlord any obligation, responsibility or liability whatsoever for the care, maintenance or repair of the premises or any part thereof, except as otherwise herein specifically provided. 20. The Tenant will not make any repairs, alterations, replacements decorations or improvements to any part of the leased premises without first obtaining the Landlord's prior written approval. The Tenant shall submit to the Landlord details of the proposed work, such indemnification against liens, costs, damages and expenses as the landlord shall require and evidence satisfactory to the Landlord that the Tenant has obtained, at its expense, all necessary consents, licenses and inspections from all governmental authorities having jurisdiction. All such repairs, replacements, alterations, decorations or improvements by the Tenant to the leased premises approved of by the Landlord should be at the sole costs of the Tenant, shall be performed by competent workmen in good and workmanlike manner and shall be subject to the reasonable supervision of the Landlord. Any such repairs, replacements, alterations, decorations or improvements made by the Tenant without the prior written consent of the Landlord, or, which are not in accordance with the drawings and specifications approved by the Landlord, as aforesaid, shall, if requested by the Landlord, be promptly removed by the tenant at its expense and the leased premises restored to their previous condition. Provided, notwithstanding anything herein contained, no repair, alteration, addition, or improvement to the leased premises by or on behalf of the Tenant shall be permitted which may weaken or endanger the structure or adversely affect the condition or operation of the leased premises or the Building or diminish the value thereof. 21. Provided, and it is hereby expressly agreed, that if and whenever firing the Term the Building of which the demised premises forms a part shall be destroyed or damaged by fire, lightning or such other perils as are insured against by the Landlord, then and in every such event; (a) If the damage or destruction to the Building renders 75% or more of the Building wholly unfit for occupancy or it is impossible or unsafe to use and occupy it, or if in the opinion of the Landlord the Building is damages or destroyed to such a material extent or the damage or destruction is of such a nature that the Building must be or should be totally or partially demolished, whether to be reconstructed in whole or in part or not, the Landlord may at its option, terminate the lease by giving to the Tenant notice in writing of such termination, in which event this Lease and the Term hereby demised shall cease and be at an end as of the date of such destruction or damage, and the rent and all other payments for which the Tenant is liable under the terms of this Lease shall be appointed and paid in full to the date of such destruction or damage. (b) If the damage or destruction is such that the portion of the Building hereby demised is rendered wholly unfit for occupancy or it is impossible or unsafe to use and occupy it, and if in either event, the damage, in the opinion of the Landlord, to be given to Tenant within ten days of the happening of such damage or destruction, then either the Landlord or the Tenant may within 5 days next succeeding the giving of the Landlord's opinion as aforesaid, terminate this Lease by giving to the other notice in writing of such termination, in which event this Lease and the Term hereby demised shall cease and be at an end as of the date of such destruction or damage and the rent and all other payments for which the Tenant is liable under the terms of this Lease shall be appointed and paid in full to the date of such destruction or damage in the event that neither Landlord or Tenant so terminate this Lease, then, the Landlord shall repair the portion of the Building hereby demised with all reasonable speed and the rent hereby reserved shall abate, to the extent of all Insurance recoveries received by the landlord, from the date of the happening of the damage until the damage shall be made good to the extent of enabling the Tenant to use and occupy the demised premises; (c) If the damage be such that the portion of the Building hereby demised is wholly unfit for occupancy or if it is impossible or unsafe to use or occupy it, but if in either event the damage, in the opinion of the Landlord, to be given to the Tenant within 10 days from the happening of such damage can be repaired with reasonable diligence within 120 days from the happening of such damage, then the rent hereby reserved shall abate, to the extent of all insurance recoveries received by the Landlord, from the date of the happening of such damage until the damage shall be made good to the extent of enabling the Tenant to use and occupy the demised premises and the Landlord shall repair the damage with all reasonable speed. 6 9 (d) If in the opinion of the Landlord the damage in that portion of the Building hereby demised can be made good as a said, within one hundred and twenty days (120) of the happening of such destruction or damage and the damage in that the portion of the Building hereby denied is capable of being partially used for the purposes for which it is her mixed, then until such damage has been repaired the rent shall abase in the proportion that the part of the portion of the ing hereby demised rendered unfit for occupancy bears to the whole of the said portion of the Building hereby demised the Landlord shall repair the damage with all reasonable speed. (e) In the event the Landlord shall elect to repair, reconstruct or rebuild the Building of which the demised premises a part in accordance with the provisions of this paragraph 21, it is acknowledged and agreed by the Tenant that the Landlord shall be entitled in use plans and specifications and working drawings in connection therewith other than those used or original construction of the Building. (f) The decision of the Landlord's architect as to the time within which the Building and/or the leased premises can or not be repaired, the state of tenant ability of the leased premises and/or the Building and as to the date on which the Landlord work of repair is completed, shall be timed and binding on the parties hereto. ASSIGNMENT 22. The Landlord declares that it may assign its rights under BY this Lease to a lending Institution as collateral security loan LANDLORD to the Landlord and in the event that such an assignment is given and executed by the Landlord and notification is given to the Tenant by or on behalf of the Landlord it is expressly agreed between the Landlord and the Tenant that the Lease shall not be canceled or modified for any reason whatsoever except as provided for, anticipated or permitted by the terms of this Institution. The Tenant covenants and agrees with the Landlord that it will, if and whenever reasonably required by the Landlord's consent to and become a party to any instrument relating to this Lease which may be required by or on behalf of any purchase bank or mortgages from time to time of the said premises provided always that the rights of the Tenant as hereinbefore our shall not be altered or varied by the terms of such instrument or document. LIMITATION 23. The terms "Landlord" as used in this Lease shall, so far as OF LANDLORD'S the covenants and obligations on the part of the Landlord LIABILITY concerned, be limited to mean and include only the owner or owners at the time in question of the Building and in the circumstances, the then vendor or transferor, shall be automatically freed and relieved, from and after the date of transfer or circumstance, of all personal liability in respect of the performance of any covenants or obligations on the part of the Landlord contained in this Lease thereafter to be performed, provided that: (a) Any funds in the hands of such Landlord or the then vendor or transferor at the time of such transfer, in which the tenant has an interest, shall be turned over to the purchaser or transferee and any amount then due and payable to the Tenant, the Landlord or the then vendor or transferor under any provision of this Lease shall be paid to the Tenant and, (b) Upon any such transfer, the purchaser or transferee shall be deemed to have assumed, subject to the limitations of paragraph, all of the terms, covenants and conditions in the Lease contained to be performed on the part of the Landlord being intended hereby, that the covenants and obligations contained in the Lease on the part of the Landlord shall, see as aforesaid, be binding upon the Landlord, its successors and assigns, only during and in respect of their respective of ownership. SIGNS 24. The Tenant will not paint, fix, display, or cause to be painted, fixed or displayed, any sign, picture, advertisement notice, lettering or designation on any part of the exterior or the interior of the leased premises without, in each instance, prior written approved of the Landlord. All signs executed by the Tenant with the Landlord's approval, as aforesaid, shall be nevertheless be of uniform size, lettering and location as the signs of all other tenants in the Building. Any such signs or other advertising material, as aforesaid, shall be removed by the Tenant at the termination of this Lease, and the Tenant shall promise to repair any and all damages caused by such removal. Provided, if the Landlord shall, in its sole discretion, desire to establish uniform sign policy to the tenants of The Building, then, the Tenant acknowledges and agrees that the Landlord, at its shall be entitled to erect all signs or other advertising material in or on the Building advertising the respective tenants' business operations therein including the tenant named herein. The cost of such sign and the installation and erection thereof be borne entirely by the Tenant and shall be payable on demand. WAIVER OF 25. The waiver by the Landlord of any breach of any term, BREACH covenant or condition herein contained shall not be deemed be a waiver of such term, covenant or condition or any subsequent breech of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by the Landlord shall not be deemed to be a waiver of any preceding breach by the Tenant of any term, covenant or condition of this Lease, regardless of the Landlord's knowledge of preceding breach at the time of acceptance of such rent. No covenant, term or condition of this Lease shall be deemed to be been waived by the Landlord unless such waiver is in writing and signed by the Landlord. NOTICES 26. Any notice, request or demand herein provided for or given hereunder if given by the Tenant to the Landlord shall sufficiently given if mailed by registered mail in the City of Toronto, Ontario postage prepaid, addressed to the Landlord 25 IMPERIAL STREET, STE. #510, TORONTO ONTARIO M.P. 1B9. Any notice herein provided for or given hereunder if given by Landlord to Tenant shall be sufficiently given if delivered or mailed as aforesaid addressed to Tenant at the demised premises. Any notice mailed as aforesaid shall be conclusively deemed to have been given on the next business day following day on which such notice is mailed as aforesaid. Either the Landlord or Tenant may at any time give notice in writing to other of any change of address of the party giving such notice and from and after the giving of such notice the address there specified shall be deemed to be the address of such party for the giving of such notices thereafter. STATUS 27. Within ten (10) days after written request therefor by the STATEMENT Landlord, or in the event that upon any sale, assignment, lease, or mortgage of the leased premises or the lands thereunder, by the Landlord, a status statement shall be required from the Tenant, the Tenant hereby agrees to deliver in the form supplied by the Landlord a certificate to any proposed mortgages or purchaser or to the Landlord, using (if such be the case) that: (a) This Lease is unmodified and in full force and effect for if there have been any modifications, that this Lease is in full force and effect as modified and identify the modification agreements, if any), or if this Lease is not in full force and effect the certificate shall to state: (b) The date of the commencement of the Term; (c) The date to which the rent has been paid under this Lease; and, (d) Whether or not there is any existing default by the Tenant in the payment of any rent or other sum of money under this Lease, and whether or not there is any other existing default by either party under this Lease with respect to which a of default has been served, and if there is any such default, specifying the nature and extent thereof. SUBORDINATION 28. This Lease and all of the rights of the Tenant hereunder are, and shall at all times, be subject and subordinate to and all mortgages, trust deeds or the charge or lien resulting from any other method of financing or refinancing or any renewals or extensions thereof, now or hereafter in force against the lands, buildings and Improvements comprising the Building upon the request of the Landlord, the Tenant will subordinate this Lease and all of its rights hereunder in such form or as the Landlord may require to any such mortgage or mortgages, trust deeds or the charge or lien resulting from any other method of financing or refinancing and to all advances made or hereafter to be made upon the security thereof, and will, requested, attorn to the holder thereof. No subordination by the Tenant shall have the effect of permitting the holder of mortgage or charge or other security to disturb the occupation and possession by the Tenant of the leased premises so long as the Tenant shall perform all of the terms, covenants, conditions, agreements and provisions contained in this Lease and so long as the Tenant executes contemporaneously, a document of attornment required by any such mortgages or other encumbrances. PARKING 29. Subject to the provisions hereinafter contained, the Tenant shall have the right, at all times, with others entitled thereof to the use of the common driveways and parking areas appurtenant thereto, as more particularly shown on the sketch annex hereto and marked Schedule "A", provided that the Landlord shall have the right at all times: 10 (a) In respect of the common driveways and parking areas, including without limitation, the right to change the location layout of the parking areas; and, (b) To designate such portion or portions of the parking area for utilization by tenants other than the Tenant here time to time. Notwithstanding anything herein contained to the contrary, the Landlord shall be entitled to do and perform all changes, improvements, or alterations in and to the common areas and facilities, including without limitation , the areas as in the use of good business judgment, the Landlord shall from time to time determine to be advisable with and improve the use thereof by the Tenant and other tenants of the Building, and their respective agents, employees and customers. IMPOSSIBILITY 30. It is understood and agreed that whenever and to the extent OF that the Landlord or the Tenant shall be unable to fulfill or PERFORMANCE shall laid or restricted in the fulfillment of any obligation hereunder in respect of the supply or provision of any service or the doing of any work or the making of any repairs by reason of being unable to obtain the material, goods, equipment, service or labour required to enable it to fulfill such obligation, or by reason of any statute, law, order in council, or a stipulation or Order passed or made pursuant thereto or by reason of the Order or Direction of any administrator, comp board, governmental department or officer, or other authority, or by reason of not being able to obtain any permissible authority required thereby, or by reason of any other cause beyond its control, whether of there foregoing character or Landlord or the Tenant, as the case may be, shall be relieved from the fulfillment of such obligation, and the other party shall not be entitled to any compensation for any convenience, nuisance or discomfort thereby occasioned. MISCELLANEOUS 31. The Landlord and tenant agree: SUCCESSORS AND ASSIGNS (a) All rights and liabilities herein given to, or imposed upon, the respective parties hereto shall extend to and bind the general respective permitted heirs, executors, administrators, successors and assigns of the said parties; and if there shall be more than one Tenant, they shall be bound jointly and severely by the terms, covenants and agreements herein. No rights, however shall enure to the benefit of any assignee of the Tenant unless the assignment to such assignee has been approved by the lord in writing as provided in paragraph 8 (j) hereof. ACCORD AND (b) No payment by the tenant or receipt by the Landlord of a SATISFACTION lesser amount than the monthly rent herein stipulated be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any or any letter accompanying any cheque or payment as rent be deemed an accord and satisfaction, and Landlord may such cheque or payment without prejudice to the Landlord's right to recover the balance of such rent or pursue any remedy in this Lease provided. ENTIRE (c) This Lease and the Schedules and Riders, if any, attached AGREEMENT hereto and forming a part hereof, together with the and regulations promulgated by the Landlord, from time to time, set forth all the covenants, promises, agreements, conditions and understandings between the landlord and the Tenant concerning the leased premises and there are no covenants, promised in otherwise provided, no subsequent alteration, amendment, charge or addition to this Lease shall be binding upon the Landlord or the Tenant unless in writing and signed by each of them. CAPTIONS AND (d) The captions, section numbers, article numbers, and Index SECTION appearing in this Lease are inserted only as a matter of NUMBERS convenience and in no way define, limit, construe or describe nor in any way affect this Lease. EXTENDED (e) The word "Tenant" shall be deemed to include the word MEANINGS "lessee" and shall mean each and every person or party mentioned as a Tenant herein, be the same one or more; and if there shall be more than one Tenant herein, be the same one or more; and if there shall be more than one Tenant, any notice required or omitted by the terms of this Lease may be given by or to any one thereof, and shall have the same force and effect as if given or to all thereof. Any reference to "Tenant" shall include, where the context allows, the servants, employees, agents, invitees of the Tenant and all others over whom the Tenant exercises control. Wherever the word Landlord is used in this Lease it shall be deemed to include the word "lessor" and to include the Landlord and its duly authorized representatives. The "hereof", herein", hereunder", and similar expressions used in any section or subsection relate to the whole of this Lease and not to that section or that subsection only, unless otherwise expressly provided. The use of the neuter singular pronoun to refer to the Landlord or the Tenant shall be deemed a proper reference though the Landlord or the Tenant may be an individual, a partnership, a corporation, or a group of two or more individuals or corporations. The necessary grammatical changes required to make the provisions of this Lease apply in the plural where there is more than one Landlord or Tenant and to either corporations, associations, partnerships, or individuals, male or females, shall in all instances be assumed as though in each case fully expressed. PARTIAL (f) In any term, covenant or condition of this Lease or the INVALIDITY application thereof to any person or circumstance shall, to extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to sons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and term, covenant or condition of this Lease shall be valid and enforced to the fullest extent permitted by law. REGISTRATION (g) The Tenant shall not register this Lease without the written consent of the Landlord. However, upon the request either party hereto, the other party shall join in the execution of a memorandum or so-called "short form" of this Lease the purposes of registration. Said memorandum or short form of this Lease shall only describe the parties, the leased premises and the Term of this Lease, and shall be prepared by the Tenant's solicitors, shall be subject to the approval of the Landlord and its solicitors and shall be registered at the Tenant's expense. -8- 11 EXPROPRIATION (h) (I) If the Premises or any part thereof shall be expropriated by any competent authority then, including the case of a sale by the Landlord to an authority with the power to expropriate, then, - A. Landlord and tenant shall co-operate with each other so that Tenant may receive such award to which it is entitled in law for relocation costs, business interruption, and the in law for relocation costs, business interruption, and the value of leasehold improvements paid for by Tenant and the amortized portion, if any, of leasehold improvements paid for by Landlord, and so that Landlord may receive the maximum award to which it may be entitled in law for all other compensation arising fro such expropriation including, without limitation, all compensation for the value of Tenant's leasehold interest in the Premises; B. except for such compensation to which Tenant shall be entitled as aforesaid, all Tenant's other rights in respect of such expropriation are hereby assigned to Landlord, and within ten (10) days after request by Landlord Tenant shall execute such further documents as requested by Landlord to give effect to such assignment, failing which Landlord is hereby irrevocably appointed, pursuant to the Powers of Attorney Act (Ontario) . . . . Tenant's attorney to do so on behalf of Tenant and in its name; and C. Landlord shall have the option, to be exercised by written notice to Tenant, to terminate this Lease, effective on the date the expropriating authority takes possession of the whole or any portion of the Premises. (ii) If the whole or any part of the Project shall be expropriated, then subject to the foregoing provisions respecting expropriation of the Premises; A. All compensation resulting from such expropriation shall be the absolute property of Landlord and all of Tenant's rights, if any, to any such compensation are hereby assigned to Landlord and within ten (10) days after request by Landlord Tenant shall execute such further documents as requested by Landlord to give effect to such assignment, failing which Landlord is hereby irrevocably appointed, pursuant to the Powers of Attorney Act (Ontario), Tenant's attorney to do so on behalf of Tenant and in its name; and B. if the expropriation of part of the Project is such as to render undesirable, in Landlord's reasonable opinion, the continuing operation of the portion of the Project in which the Premises are situate, Landlord shall have the right to terminate this Lease as of the date the expropriating authority takes possession of all or any portion of the Project. -9- 12 GOVERNING (h) This Lease shall be construed and governed by the LAW Province of Ontario. TIME OF (i) Time shall be of the essence of this Lease and of THE part hereof. ESSENCE every POST-DATED (j) The Tenant hereby covenants and agrees to deliver to the CHEQUES Landlord a series of post-dated cheques for the aforesaid rent and other payments herein reserved for the balance of the year and thereafter on or before December 15th in each year for those payments falling due during the following year; it being hereby agreed and understood that the acceptance of such cheques by the Landlord is only to facilitate collection of the said payments and in no way shall be deemed to derogate any rights given to the Landlord hereunder, nor be pleaded as an estoppel to any such rights. IN WITNESS WHEREOF the parties hereto have duly executed these presents this 11th day of August, 1995. GEARY INVESTMENTS LIMITED SIGNED, SEALED AND DELIVERED in the presence of ) ) ) ) per: /s/ Henry G. Goodman ) --------------------------------- ) Henry G. Goodman, President ) ) per: ) --------------------------------- ) LESSOR IN WITNESS WHEREOF the parties hereto have duly executed these presents this ---- day of -------, 19--. SIGNED, SEALED AND DELIVERED in the presence of IKS CANADIAN KNIFE & SAW LTD. ) ) per: /s/ Bernd Esgen, Vice President ) --------------------------------- ) ) ) per: ) --------------------------------- LESSEE 13 1090 AGROWOOD DRIVE, MISSISSAUGA ONTARIO [DIAGRAM] 14 SCHEDULE "B" RULES AND REGULATIONS 1. All garbage and refuse of the Tenant shall be kept inside the demised premises in the kind of containers specified by the Landlord, and shall be prepared and placed for collection in the manner and at the times and places specified by the Landlord. If the Landlord shall provide or designate a service for picking up refuse and garbage, the tenant shall use same at the Tenant's cost. The Tenant shall pay the reasonable cost of removal of any of the tenant's refuse, garbage and other waste material. 2. No pallets or other materials belonging to the Tenant shall be stored outside at any time. Such pallets and materials will be removed by the Landlord at the sole expense of the Tenant. 3. The Tenant and its employees shall not in any way interfere with or annoy any other Tenant or occupant of the building in which the demised premises are situated or those having business with it. 4. No person shall use the demised premises or any part thereof for sleeping quarters and/or for residential apartment or for any immoral or unlawful purpose. 5. No vehicles are to be parked in the front or back of the building after normal working hours. Such parking shall be allowed only if the owner of the vehicle is in its premises. 6. There shall be no animals of any kind in or on the said premises. 15 Exhibit 1 to Industrial Multiple Tenancy Lease ("Lease") made the 14th day of June, 1995 between GEARY INVESTMENTS LIMITED "IN TRUST" ("Landlord") AND IKS CANADIAN KNIFE & SAW LTD. ("Tenant") -------------------------------------------------------------- This Exhibit 1 contains amendments to certain provisions of the aforementioned Lease and form part of the Lease. In the event of any inconsistency between the provisions of the Lease and this Exhibit, the provisions of this Exhibit shall take precedence and govern. (a) Paragraph 8(e) of the Lease is amended by adding the following additional sentence: "Notwithstanding the foregoing, the Tenant shall not be required to effect repairs of a structural nature unless such repairs are occasioned by the negligence or willful misconduct of the Tenant". (b) Paragraph 8(f) of the Lease is amended as follows: (i) The first sentence is deleted and replaced by the following: "That it shall be lawful for the Landlord and its agent(s) at all reasonable times during the Term to enter the demised premises to inspect the condition thereof upon 24 hours' notice to the Tenant except in the case of an emergency in which case short notice or no prior notice shall be necessary provided the Tenant is advised of any such entry as soon as practicable thereafter." (ii) The second to last sentence of paragraph 8(f) of the Lease is deleted and replaced by the following: "Any repairs or replacements called for by such inspections for which the Tenant is responsible shall be carried out by the Tenant at its own expense and satisfactory evidence of same shall be forwarded to the Landlord. If the recommendations of the aforementioned service company as to proper maintenance and operation of the heating system and other mechanical apparatus have been followed by the Tenant, the Tenant shall not be required to replace said system or equipment, should such action become necessary, during the term hereof or upon termination of this lease." (iii) The following additional sentence is added to paragraph 8(f) of the Lease: "Notwithstanding any other provision of this paragraph 8, the Landlord shall be liable to the Tenant for any loss, costs or damage suffered or incurred by the Tenant as a result of the Landlord's negligence or wilful misconduct. The Tenant's liability with respect 16 to the heating equipment shall be as set out above and in paragraph 8(h) below. (c) Paragraph 8(h) of the Lease is amended to provide that the Tenant's obligation to replace heating equipment shall be as set out in paragraph 8(f) of the Lease. (d) Notwithstanding any provision to the contrary in paragraphs 10(c) and 14 of the Lease, the Landlord shall be liable to the Tenant for any loss, costs or damage suffered or incurred by the Tenant as a result of the Landlord's negligence or wilful misconduct. (e) Paragraph 19 of the Lease is amended by adding the words "upon reasonable prior notice" after the word "premises" in line 1. (f) Not withstanding any provision of paragraph 19 of the Lease to the contrary, if, as a result of making any repairs, alterations, improvements or additions the Tenant is only able to use a portion of the demised premises for any period of time, the rent payable hereunder shall abate in substantially the same manner as provided for in paragraph 21(d) of the Lease during such period. (g) Page 2, Section 5 (Deposit) the following is added at the end of Section 5. "Upon termination of this lease, and upon compliance by the Tenant with the covenants herein, the balance of the deposit shall be returned to the tenant." EX-10.11 12 LEASE DATED MARCH 12, 1992 1 Exhibit 10.11 APPEARED: GESTION W. & L. CHOINIERE INC., a corporation legally constituted under Part I a of the Quebec Companies Act, by certificate of Constitution dated the eighteen of September, 1990 _________________ represented by M. LOUIS CHOINIERE, secretary, duly authorized in virtue of By-Law Number 3 of the said Company dated the first day of October 1992 ____________________ a copy of which Resolution remains annexed to these presents; Hereinafter called the "LANDLORD", OF THE FIRST PART; AND IKS CANADIAN KNIFE & SAW LTD, a corporation legally constituted under the Business Corporations Act (Ontario) by certificate of continuance and articles dated June 10, 1987 represented by BERND ESGEN duly authorized by a Resolution of its Board of Directors dated the first day of March 1992 __________________ a copy of which Resolution remains annexed to these presents; Hereinafter called the "TENANT", OF THE SECOND PART; WITNESSETH: 1. DEMISE That in consideration of the rents, covenants and agreements hereinafter reserved and contained on the part of the Tenant to be paid, observed and performed, the Landlord does hereby demise lease unto the Tenant that designated portion of the building erected upon the lands and premises more particularly described in Schedule "A" annexed hereto and being known as 645 Leon Harmel Street, Granby, P.Q. (hereinafter called the "Building"), containing an area of approximately nineteen thousand two hundred square feet (19,200 sq. ft.). 2 The area of the Leased Premises means the area expressed in square feet of all floors in the Leased Premises measured from the exterior face of all exterior walls, doors, and windows, and from the center line of all interior walls separating the Leased Premises from adjacent premises. The Tenant shall have the right in common with others entitled thereto to use the driveways and parking areas appurtenant to the Building, provided the Landlord shall have the right from time to time to make such changes and improvements or alterations as the Landlord may decide in respect of the common outside areas, including the right to change the location and layout of the parking areas. All common outside areas shall be subject to this lease and the reasonable rules and regulations made from time to time by the Landlord. 2. TERMS To have and to hold the Leased Premises for and during the term of three (3) years to be computed from the first day of March, one thousand nine hundred and ninety-two (1992) and from thenceforth next ensuing and fully completed and ended as the last day of February one thousand nine hundred and ninety-five (1995). 3. RENT Yielding and paying therefor yearly and every year during the term hereby granted without any deduction whatsoever an annual minimum rent of: a) for the first year, an annual rent of sixty-six thousand seven hundred and sixty-eight dollars ($66,768.00), payable in equal consecutive monthly instalments of five thousand five hundred and sixty-four dollars ($5,564.00) each; b) for the second year, an annual rent of sixty-nine thousand six hundred and forty-eight dollars ($69,648.00) payable in equal consecutive monthly instalments of five thousand eight hundred and four dollars ($5,804.00) each; c) for the third year, an annual rent of seventy-two thousand five hundred and twenty-eight dollars ($72,528.00) payable in equal consecutive monthly instalments of six thousand and forty-four dollars ($6,044.00) each; 3 Each instalment will be paid on the first day of each month in each year during the term hereby granted, together with additional rent hereinafter reserved. The Tenant shall pay also monthly G.S.T. and all Q.S.T. on those monthly instalments. OPTION The Landlord gives to the Tenant the option to renew, for an additional term of three years beginning the first day of March one thousand nine hundred and ninety-five (1995), the present lease at terms and conditions to be discussed between the parties, provided the Tenant gives at least six months notice prior to the last day of February one thousand nine hundred and ninety-five (1995). If by February 28, 1995 the parties do not agree to such terms and conditions, the present lease will cease as mentioned hereinabove. 4. USE OF PREMISES The Tenant shall use and occupy the Leased Premises only for general offices and industrial purposes, including the manufacture of saw bits and for no other purpose; provided the Tenant in the use and occupation of the Leased Premises and in the prosecution or conduct of any business therein, shall comply with all requirements of all laws, orders, ordinances, rules and regulations of any Federal, provincial or Municipal authorities and with any direction or certificate of occupancy issued pursuant to any law by any public officer or officiers. The Tenant covenants that it will not use or permit to be used any part of the Leased Premises for any dangerous, noxious or offensive trade or business, and will not cause or maintain any nuisance in, at or on the Leased Premises, or cause or permit the Leased Premises to be used for the purpose of any bankrupt, liquidation or auction sale. The Landlord understands and agrees that the manufacture of saw bits gives rise to elevated noise levels. Provided that the noise level respects all the requirements of Municipal and other governmental authorities. If such noise levels contravene such governmental requirements, the Tenant may either (a) arrange, on terms satisfactory to it, to sound proof the Demised Premises so that such governmental requirements are satisfied or (b) terminate this Lease by giving the Landlord notice in writing of such termination in which event this Lease and the term hereby demised shall cease and be at an end as of the date of such notice and the rent and all 4 other payments for which the Tenant is liable under the terms of this Lease shall be apportioned and paid in full to the date of such termination. 5. PAYMENT All payments required to be made by the Tenant under or in respect of this lease shall be made to the Landlord at the Landlord's head office at Granby, P.O., 982 Roger Street (J2G 3A8) or to such agent or agents of the Landlord or at such other place as the Landlord shall hereafter from time to time direct in writing to the Tenant. 6. TENANT'S COVENANTS The Tenant covenants and agrees to and with the Landlord as follows: a) To pay rent as aforesaid; b) TAXES Tenant shall pay to Landlord, on demand, as additional rent, its proportionate share of all insurance and all municipal and school assessments, payable for the Building and the land hereinabove mentioned, all business taxes, if any, from time to time payable by Landlord (or by any corporation that may provide the same) in respect of the parking areas, entrances and exits, pedestrian walkways, roadways, service areas, or any part thereof, from time to time. Tenant shall have the right to inspect Landlord's records pertaining to such business taxes, municipal and school assessments only; the Tenant will only pay its proportionate share based on its space occupancy which is established between the parties at .26843. That proportionate share was established by dividing the rentable area hereinabove mentioned (19,200 sq. ft.) by the total space of the building which is of 71,527 total sq. ft. This additional rent for taxes or insurance will be payable three times a year, thirty (30) days after the Landlord sends a bill for it to the Tenant. c) TENANT'S TAXES Tenant shall pay, in each and every year during the term and discharge within twenty (20) days after same shall become due and payable, all taxes, rates, duties, and assessments and other charges that may be levied, rated, charged or assessed against or in respect of all improvements, equipment and facilities of the Tenant on or in the Demised Premises (whether installed by the Tenant or by the Landlord on behalf of the Tenant) and every 5 tax and licence fee in respect of any and every business carried on thereon or therein in respect of the use or occupancy thereof by the Tenant (and every subtenant or licensee), whether such taxes, rates, duties, assessments and licence fees are charged by any municipal, parliamentary, school or other body during the term hereby demised, and will indemnify and keep indemnified the Landlord from and against payment of all loss, costs, charges and expenses occasioned by, or arising from any and all such taxes, rates, duties, assessments, licence fees and any and all taxes which may in future be levied in lieu of such taxes; and any such loss, costs, charges and expenses suffered by the Landlord may be collected by the Landlord as rent with all rights of distress and otherwise as reserved to the Landlord in respect of rent in arrears. The Tenant further covenants and agrees that upon written request of the Landlord, the Tenant will properly deliver to it for inspection receipts for payment of all taxes, rates, duties, assessments and other charges in respect of all improvements, equipment and facilities of the Tenant on or in the Demised Premises which were due and payable up to one month prior to such request, and in any event will furnish to the Landlord, if requested by the Landlord, evidence of payments satisfactory to the Landlord before the first of April of and in each year covering payments for the preceding year. If the Tenant or any subtenant or licensee of the Tenant shall elect to have the demised premises or any part thereof assessed for separate school taxes, the Tenant shall pay to the Landlord, as additional rent, so soon as the amount of the separate school taxes are ascertained, any amount by which the amount of the separate school taxes exceed the amount which would have been payable for school taxes had such election not been made. d) UTILITIES Tenant shall pay as the same become due respectively all charges for public and private utilities, including without limitation water, gas, electrical power or energy, steam or hot water used upon or in respect of the Demised Premises and for fittings, machines, apparatus, meters or other things leased in respect thereof, and for all work or services performed by any corporation or commission in connection with such utilities. In the same way the Tenant will have to arrange and pay for the snow removal for his part of the Demised Premises. 6 e) APPEAL Tenant shall have the right to contest, by appropriate legal proceedings, at its own expense and so long as the Landlord is not involved in any cost, loss or penalty whatsoever, the validity of any tax, or other charges referred to in paragraphs (b), (c), or (d) hereof. f) REPAIRS Tenant, at its own expense, shall maintain and keep the Demised Premises and every part thereof in good order and condition and promptly make all needed repairs and replacements of a non structural nature including, but not limited to, all fixtures, machinery and equipment which are the property of the Landlord and contained in the Demises Premises (reasonable wear and tear, and damage by fire, lightning and tempest only excepted) and, without limiting the generality of the foregoing, the Tenant shall keep the Demised Premises well painted, clean and in such condition as careful owner would do. g) ENTRY TO VIEW STATE OF REPAIR That it shall be lawful for the Landlord and its agents, at all reasonable times during the said term on prior notice to the Tenant, to enter the Demised Premises to inspect the condition thereof. Where an inspection reveals repairs are necessary, the Landlord shall give to the Tenant notice in writing and thereupon the Tenant will, within sixty (60) days from the date of delivery of the notice, make the necessary repairs in a good and workmanlike manner and at its own expense. h) COMPLIANCE WITH LAWS That it will promptly comply with all requirements of all applicable statutes, laws, by-laws, rules, regulations, ordinances and orders from time to time in force during the term hereof, whether municipal, parliamentary or otherwise, including all lawful requirements of the local Board of Health, Police or Fire Departments and Municipal authorities, and with every applicable regulation, order and requirement of the Canadian Fire Underwriters' Association, or any body having a similar function, or of any liability or fire insurance company by which the Landlord and Tenant of either of them may be insured at any time during the term hereof. 7 i) LEAVE PREMISES IN GOOD REPAIR And further, that the Tenant will, at the expiration or sooner determination of the said term, peaceably surrender and yield up unto the Landlord the said premises hereby demised with the appurtenances, together with all buildings or erections which at any time during the said term shall be made therein or thereon, in good and substantial repair and condition, reasonable wear and tear and damage by fire, lightning and tempest only excepted. j) HEATING To heat or refrigerate at his own expense from heating equipment originally supplied by the Landlord, the Demised Premises and their contents from damage by cold or frost, and to operate, maintain and repair if necessary, at its own expense, the said heating or refrigerating equipment. k) ASSIGNMENT AND SUBLETTING That it will not assign, sublet or part with possession of the demised premises or any part thereof, or share the occupation of the demised premises or any part thereof, without the Landlord's written consent, which consent shall not be unreasonably withheld; provided that no assignment, subletting, licencing or parting with possession of the demised premises shall in any way release the Tenant, or any Guarantor hereof, from this or their obligations under the terms of this Lease. l) NUISANCE That it will not do or omit or permit to be done or omitted upon or about the demised premises anything which shall be or result in a nuisance or menace to the Landlord or other tenants (if so) of the building of which the demised premises form a part. m) INSURANCE The Tenant shall pay as additional rent all insurance which may be reasonably required by the landlord and especially fire and hazard insurance for 'valeur de replacement'. The Tenant covenants and agrees that in the event the Tenant's use and occupation of the demised premises, whether or not the Landlord has consented to the same, causes any increase in premiums for fire and extended coverage insurance, rental, boiler, casualty and other types of insurance carried by the 8 Landlord from time to time on the building of which the demised premises form a part, above the rate for the least hazardous type of occupancy legally permitted in the Demised Premises, the Tenant shall pay the additional premium on the policies aforementioned caused by reason thereof. In such event, the Tenant shall also pay any additional premium on the rent insurance policies that may be carried by the Landlord for the Landlord's protection against rent lost through fire or other casualty. If notice of cancellation shall be given respecting any insurance policy or any insurance policy on the said building or any part thereof shall be cancelled or refused to be renewed by an insurer by reason of the use or occupation of the demised premises by the Tenant whether or not the Landlord has consented to such use and occupation, the Tenant shall forthwith remedy or rectify such use or occupation upon being requested to do so in writing by the Landlord, and if the Tenant shall fail to do so forthwith, the Landlord may, at its option, determine this Lease forthwith by leaving upon the demised premises notice in writing of termination and thereupon rent and any other payment for which the Tenant is liable under this Lease shall be apportioned and paid up in full to the date of such determination of the Lease, and the Tenant shall immediately deliver up vacant possession of the said premises to the Landlord. ADDITIONAL PREMIUMS Bills for additional premiums as aforementioned shall be rendered by the Landlord to the Tenant at such times as the Landlord may elect, and shall be due from and payable by the Tenant when rendered, and the amount thereof shall be deemed to be and paid as additional rent. TENANT'S LIABILITY INSURANCE And the Tenant will provide the Landlord with a certificate of liability insurance covering the Tenant in respect of the demised premises and its operation therein to the extent of not less than $3,000,000.00 inclusive of all injuries or death to persons and damage to property of others arising from any one occurrence. DAMAGE TO LEASED PREMISES In the event of any damage to the leased premises by any cause, to give notice in writing to the Landlord of such damage forthwith upon the same becoming known to the Tenant. 9 7. LANDLORD'S COVENANTS The Landlord covenants and agrees to and with the Tenant as follows: a) For quiet enjoyment. b) That the Landlord has in it good right, full power and absolute authority to let the demised premises with their appurtenances according to the true intent of this indenture. 8. SEIZURE AND BANKRUPTCY It is hereby expressly agreed that, in case, without the written consent of the Landlord, the demised premises shall become and remain vacant or not used for a period of thirty (30) days while the same are suitable for use by the Tenant, or be used by any other person than the Tenant, or in case the term hereby granted or any of the goods and chattels of the Tenant shall be seized by any creditor of the Tenant, or if the Tenant do something without complying with the Civil Code of the Province of Quebec, or become bankrupt or insolvent, or take the benefit of any Act now or hereafter in force for bankrupt or insolvent debtors or any Order shall be made for the winding up of the Tenant, then and in every such case the current month's rent shall immediately cease and the said term shall immediately become forfeited and void, in which event the Landlord may re-enter and take possession of the demised premises. 9. NO EXCEPTIONS FOR DISTRESS It is hereby expressly agreed that notwithstanding the benefit of any present or future Statute taking away or limiting the Landlord's right of distress none of the goods and chattels of the Tenant on the demised premises at any time during the said term shall be exempt from levy by distress for rent in arrears accordingly with the laws of the Province of Quebec. 10. PUBLIC LIABILITY It is hereby expressly agreed that the Landlord shall not in any event whatsoever be liable or responsible in any way for any personal injury or death that may be suffered or sustained by the Tenant or any employee of the Tenant or any other person who may be upon the demised premises or for any loss or damage or injury to any property belonging to the Tenant or to its employees or to any other person while such property is on the demised premised and, in particular (but without 10 limiting the generality of the foregoing), the Landlord shall not be liable for any damage to any such property caused by steam, water, rain or snow which may leak into, issue or flow from any part of the said building or adjoining premises or from the water, steam, sprinkler or drainage pipes or plumbing works of the same or from any other place or quarter or for any damage caused by or attributable to the condition or arrangement of any electrical or other wiring or for any damage by anything done or omitted to be done by any tenant. Notwithstanding the foregoing, the Landlord will be liable for loss, damage, injury or expenses that are caused by the wilful misconduct or negligence of the Landlord or by persons for whom the Landlord is responsible. 11. INDEMNIFICATION OF LANDLORD It is hereby expressly agreed that the Tenant will indemnify and save harmless the Landlord from and against any and all liabilities, fines, suits, claims, demands, costs and actions of any kind or nature whatsoever to which the Landlord shall or may become liable for, or suffer by reason of any breach, violation or non-performance by the Tenant of any covenant, term or provision hereof, or by reason of any injury, loss, damage or death resulting from, occasioned to or suffered by any person or persons or any property by reason of any act, neglect or default on the part of the Tenant, or any of its agents, customers, employees, servants, contractors, licensees or invitees, in or about the demised premised or any part thereof; such indemnification in respect of any such breach, violation, non-performance, damage to property, loss injury or death occurring during the term of this Lease shall survive any termination of this Lease, anything in this Lease to the contrary notwithstanding. 12. HOLDING OVER It is hereby expressly agreed that, if the Tenant shall continue to occupy the demised premises after the expiration of this Lease, with or without the consent of the Landlord, and without any further written agreement, the Tenant shall be a monthly tenant at a monthly rental herein reserved and otherwise on the terms and conditions herein set forth, except as to the length of tenancy. 13. OVERLOADING It is hereby expressly agreed that Tenant will not bring upon the demised premises or any part thereof any machinery, equipment, article or thing 11 that by reason of its weight, size of use might damage the floors of the demised premises and that if any damage is caused to the Demised Premises by any machinery, equipment, article or thing or by overloading or by any act, neglect or misuse on the part of the Tenant or any of its employees or persons for whom the Tenant is responsible, the Tenant will forthwith repair the same or pay to the Landlord the cost of making good the same. 14. PAYMENTS DEEMED RENT It is hereby expressly agreed that in the event of failure of Tenant to pay any taxes, rates, insurance premiums or other charges which it has herein covenanted to pay, the Landlord may pay the same and shall be entitled to charge the sums so paid to the Tenant who shall pay them forthwith on demand; and Landlord, in addition to any other rights, shall have the same remedies and may take the same steps for the recovery of all such under the terms of this Lease; all such payments required to be made under the terms of this Lease shall be deemed rent. 15. LOADING AND UNLOADING It is hereby expressly agreed that all loading and unloading of merchandise, supplies, materials, garbage and other chattels shall be effected only through or by means of such doorways or corridors as the Landlord shall designate. 16. REFUSE It is hereby expressly agreed that the Tenant will keep the demised premises and every part thereof in a clean and tidy condition and will not permit waste paper, garbage, ashes or waste or objectionable material to accumulate thereon. 17. DEMISED PREMISES DEFINED It is hereby expressly agreed that whenever in this lease reference is made to the demised premises or leased premises it shall include all structures, improvements and erections in or upon the demised premises or any part thereof from time to time. 18. EVIDENCE OF PAYMENTS It is hereby expressly agreed that the Tenant shall from time to time at the request of the Landlord produce to the Landlord satisfactory evidence of the due payment by the Tenant of all 12 payments required to be made by the Tenant under this Lease. 19. FIXTURES Provided all rent due or to become due under the terms of this Lease is fully paid, Tenant may remove its fixtures; provided further that the Tenant shall not remove or carry away from the Demised Premises any plumbing, heating or ventilating plant or equipment or other building services; provided further that the Tenant shall make good any damage caused by such removal of fixtures. 20. RE-ENTRY Proviso for re-entry by the said Landlord on non-payment of rent or non-performance of covenants. The above powers may be exercised, whether legal demand for the rent has been made or not. Provided that, notwithstanding anything hereinbefore contained, the Landlord's right of re-entry hereunder for non-payment of rent, non-performance of covenants, seizure or forfeiture of the said term; shall become exercisable immediately upon such default being made. Provided further that upon such re-entry by the Landlord under the terms of this paragraph or any other provision or provisions of this Lease, the Landlord may, in addition to any other remedies to which the Landlord may be entitled, at its option, at any time and from time to time, relet the Demised Premises or any part thereof and receive and collect the rents therefor, applying the same first to the payment of such expenses as the Landlord may have incurred in recovering possession of the demised premised, including legal expenses and solicitor's fees and for putting the same into good order or condition or preparing or altering the same for re-rental and all other expenses, commissions and charges paid, assumed or incurred by the Landlord in or about reletting the premises and then to the fulfilment of the covenants of the Tenant hereunder. Any such reletting herein provided for may be for the remainder of the term as originally granted or for a longer or shorter period. In any such case and whether or not the Demised Premises or any part thereof be relet, the Tenant shall pay to the Landlord the rental hereby reserved and any other assessments mentioned in these presents or at the termination of this Lease or of recovery of possession of the Demised Premises by the Landlord, as the case may be, and thereafter the Tenant 13 covenants and agrees, if required by Landlord, to pay to the Landlord until the end of the term of this Lease the equivalent of the amount of all rentals hereby reserved and all other sums required to be paid by the Tenant hereunder, less the net avails of reletting, if any, and the same shall be due and payable by the Tenant to the Landlord on the days herein provided for rental. 21. INSPECT PREMISES Provided that during the term hereby created any person or persons may inspect the said premises and all parts thereof at all reasonable times on prior notice to the Tenant signed by the Landlord or its agents. 22. NOTICES FOR SALE OR TO LET Provided that the Landlord shall have the right during the term of this Lease to place upon the Demised Premises a notice stating that the Demises Premises are for sale and shall, within three (3) months from the termination of the said term, have the right to place upon the demised premises a notice stating that the demised premises are for rent; and further provided that the Tenant will not remove such notice or permit same to be removed. 23. REMOVAL OF GOODS Provided that in case of removal by the Tenant of the goods and chattel of the Tenant from the Demises Premises, the Landlord may follow the same for thirty (30) days in the same manner as is provided for in the Civil Code of the Province of Quebec. 24. IMPROVEMENTS Any alteration, erection or improvement placed or erected upon the demised premises shall become a part thereof and shall not be removed and shall be subject to all the provisions of this Lease. No alteration, erection or improvement shall be made or erected upon the demised premises without the prior written consent of the Landlord. 25. FIRE Provided, and it is hereby expressly agreed, that if and whenever during the term hereby demised the building of which the demised premises form a part shall be destroyed or damaged by fire, lightning of tempest, or any of the perils normally 14 insured against under the provisions of standard extended coverage fire insurance policies, then, and in every such event: a) If the damage or destruction of the building of which the demised premises form a part renders seventy-five percent (75%) or more of the said building wholly unfit for occupancy or impossible or unsafe for use and occupancy, the Landlord may, at its option, terminate this Lease by giving to the Tenant notice in writing of such termination, in which event, this Lease and the term hereby demised shall cease and be at an end as of the date of such destruction or damage, and the rent and all other payments for which the Tenant is liable under the terms of this Lease shall be apportioned and paid in full to the date of such destruction or damage. b) If the damage or destruction is such that the portion of the building hereby demised is rendered wholly unfit for occupancy or it is impossible or unsafe to use and occupy it and if in either event the damage, in the opinion of the Landlord to be given to the Tenant within thirty (30) days of the happening of such damage or destruction, cannot be repaired with reasonable diligence within one hundred and eighty (180) days from the happening of such damage or destruction, then either the Landlord or the Tenant may, within five (5) days next succeeding the giving of the Landlord's opinion as aforesaid, terminate this Lease by giving to the other notice in writing of such termination, in which event this Lease and the term hereby demised shall cease and be at an end as of the date of such destruction or damage; in the event that neither the Landlord nor the Tenant so terminates this Lease, then the Landlord shall repair the said building with all reasonable speed and the rent hereby re- served shall abate from the date of the happening of the damage until the damage shall be made good to the extent of enabling the Tenant of use and occupy the demised premises. c) If the damage be such that the portion of the building hereby demised is wholly unfit for occupancy, or if it is impossible or unsafe to use or occupy it but if in either event the damage, in the opinion of the Landlord to be given to the Tenant within thirty (30) days from the happening of such damage, can be repaired with reasonable diligence within one hundred and eighty (180) days from the happening of such damage, then the rent hereby reserved shall abate from the date of the happening of such damage until the damage shall be made good to the extent of enabling the 15 Tenant to use and occupy the Demised Premises and the Landlord shall repair the damage with all reasonable speed. d) If in the opinion of the Landlord the damage can be made good as aforesaid within one hundred and eighty (180) days of the happening of such destruction or damage and the damage is such that the portion of the building hereby demised is capable of being partially used for the purposes for which it is hereby demised, then until such damage has been repaired, the rent shall abate in the proportion that the part of the portion of the building hereby demised is rendered unfit for occupancy bears to the whole of the said portion of the building hereby demised and the Landlord shall repair the damage with all reasonable speed. 26. IMPOSSIBILITY OF PERFORMANCE It is understood and agreed that whenever and to the extent that the Landlord shall be unable to fulfill or shall be delayed or restricted in the fulfilment of any obligation hereunder in respect of the supply or provision of any service or utility or the doing of any work or the making of any repairs by reason of being unable to obtain the material, goods, equipment, service or labour required to enable it to fulfill such obligation, or by reason of any Statute, law or Order in Council, or any regulation or Order passed or made pursuant thereto, or by reason of the Order or Direction of any Administrator, Comptroller, Board, Governmental Department or Office, or other authority required thereby, or by reason of any other cause beyond its control whether of the foregoing character or not, the Landlord shall be relieved from the fulfilment of such obligation and the Tenant shall not be entitled to compensation for any inconvenience, nuisance or discomfort thereby occasioned. 27. SUBORDINATION Provided that this Lease and everything herein contained shall be deemed to be subordinate to any charge or charges from time to time created by the Landlord with respect to the building of which the demised premises form a part, by way of mortgage, and the Tenant hereby covenants and agrees that it will promptly at any time and from time to time as required by the Landlord during the term hereof execute all documents and give all further assurances to this proviso as may be reasonably required to effectuate the postponement of its rights and privileges hereunder to the holder or holders of such charges; provided however that no 16 such subordination by the Tenant shall have the effect of permitting the holder or holders of any mortgage or lien or other security to disturb the occupation and possession by the Tenant of the terms, covenants, conditions, agreements and provisos contained in this Lease. 28. LIMITATION OF LANDLORD'S LIABILITY The term "Landlord" as used in this lease so far as covenants or obligations on the part of the Landlord are concerned shall be limited to mean and include only the owner or owners at the time in question of the demised premises, and in the event of any transfer of transfers of ownership, the Landlord herein named, and in case of any subsequent transfers or conveyances, the then vendor or transferor, shall be automatically freed and relieved from and after the date of such transfer or conveyance, of all personal liability as respects the performance of any covenants or obligations on the part of the Landlord contained in this Lease thereafter to be performed, provided that: a) Any funds in the hands of such Landlord vendor or transferor at the time of such transfer, in which the Tenant has an interest, shall be turned over to the purchaser or transferee and any amount then due and payable to the Tenant by the Landlord vendor or transferor under any provision of this lease shall be paid to the Tenant; and b) Upon any such transfer, the purchaser or transferee shall assume, subject to the limitations of this paragraph, all of the terms, covenants and conditions in this Lease contained to be performed on the part of the Landlord; it being intended hereby that the covenants and obligations contained in this Lease on the part of the Landlord shall, subject as aforesaid, be binding on the Landlord, its successors and assigns, only during and in respect of their respective successive periods of ownership. 29. LIENS If any Mechanic's or other liens or Order for the payment of money shall be filed against the demised premises by reason, or arising out of any labour or material, work of service furnished to the Tenant or to anyone claiming through the Tenant, the Tenant shall, within fifteen (15) days after notice to the Tenant of the filing thereof, cause the same to be discharged by bonding, deposit, payment, Court Order or otherwise at the Tenant's own expense. The 17 Tenant hereby indemnifies the Landlord against any expense or damage as a result of such lien or Order. 30. SIGNS The Tenant shall have the right from time to time during the term hereof to erect, paint, display, maintain, alter, change or renew advertising signs on the exterior and interior walls of the Leased Premises; provided all such signs shall be dignified in appearance and shall be subject to the consent in writing of the Landlord, such consent not to be unreasonably withheld; provided further all such signs shall comply with the requirements of municipal and governmental authorities. 31. RULES AND REGULATIONS The Tenant covenants with the Landlord that the Tenant and its employees and all persons visiting or doing business with them on the demised premises shall be bound by and shall observe and perform any reasonable rules and regulations made by the Landlord of which notice in writing shall be given to the Tenant and all such Rules and Regulations shall be deemed to be incorporated in and form part of this Lease. 32. NOTICES Any notice, request or demand herein provided for or given hereunder, if given by the Tenant to the Landlord shall be sufficiently given if mailed by registered mail, postage prepaid, to the Landlord at Granby, P.Q., 982 Roger Street. If it is given by the Landlord to the Tenant, it shall be sufficiently given if mailed by registered mail, postage prepaid, to the Tenant at 1090 Aerowood Drive Missisauga, Ontario (L4W 1Y5). Any notice mailed as aforesaid shall be conclusively deemed to have been given on the next business day following the day on which such notice is mailed as aforesaid. Either Landlord or Tenant may, at any time, give notice in writing to the other (s) of any change of address of the party giving such notice. From and after the giving of such notice, the address therein specified shall be deemed to be the address of such party of the giving of such notices thereafter. 33. WAIVER OF BREACH The failure of the Landlord to insist upon a strict performance of any of the agreements, 18 terms, covenants and conditions hereof shall not be deemed a waiver of any rights or remedies that the Landlord may have and shall not be deemed a waiver of any subsequent breach or default in any of such agreements, terms, covenants and conditions. 34. NET LEASE It is the intention of this Lease that the said rentals herein provided to be paid shall be net to the Landlord and clear of all taxes (except the Landlord's income taxes), costs and charges arising from or relating to the demised premises and that the Tenant shall pay all charges, impositions and expenses of every nature and kind relating to the demised premises and the Tenant covenants with the Landlord accordingly. 35. GENDER AND NUMBER Words importing the singular number only shall included the plural and vice versa; words importing the masculine gender shall include the feminine and neuter genders and vice versa; and words importing persons shall include firms and corporations and vice versa. 36. This indenture and everything herein contained shall extend to and bind and enure to the benefit of the respective heirs, executors, administrators, successors and assigns (as the case may be) of each and every of the parties hereto, subject to the consent of the Landlord being obtained, as hereinbefore provided, to any assignment or sublease by Tenant. All covenants herein contained shall be deemed to be joint and several and all rights and powers reserved to the Landlord may be exercised by either Landlord or its agents or representatives. 37. ELECTION OF DOMICILE For the execution of these presents, the Landlord hereby elects domicile at the address hereinabove mentioned. 38. RIGHT OF FIRST REFUSAL During the term of this Lease, the Landlord give to the tenant a right of first refusal as follow: Should the Landlord decide to sell or otherwise alienate the immoveable, the Tenant will have the right to acquire it, in preference to anyone else. Consequently, the Landlord undertakes 19 to advise the Tenant in writing of any offer made to him or that he may have made by delivering a copy of same to the Tenant. The Tenant will have a delay of forty-five days (45) from receipt of said notice to advise the Landlord of the former's intention to purchase the immoveable for the same price and under the same conditions as set forth in the offer. Failure by the Tenant to advise the Landlord in the said manner and within the said delay of the Tenant's intention to exercise said right to purchase will entitle the Landlord to give effect to the offer in question. In witness whereof I have signed the present lease in the presence of the subscribing witnesses, at Granby, P.Q., on this twelve --- day of March - --- in the year nineteen hundred and ninety-two (1992). GESTON W. & L. CHOINIERE INC.,; /s/ Louis Choiniere ----------------------------------------- Louis Choiniere /s/ Lucie Roberge - ------------------------------------- Witness /s/ Jean-Pierre Blanchard - ------------------------------------- Witness In witness whereof I have signed the present lease in the presence of the subscribing witnesses, at Granby, P.Q. ____________________________ on this twelve __________ day of March ____________________ in the year nineteen hundred and ninety-two (1992). IKS CANADIAN KNIFE & SAW LTD: /s/ Bernd Esgen ----------------------------------------- Bernd Esgen /s/ Lucie Roberge - ------------------------------------- Witness /s/ Jean-Pierre Blanchard - ------------------------------------- Witness 20 SCHEDULE A DESCRIPTION 21 EXTRACT FROM THE RESOLUTION OF THE BOARD OF DIRECTORS OF IKS CANADIAN KNIFE & SAW LTD passed on the sixth day of March 1992. BE IT RESOLVED: 1) THAT in Consideration of the rents, covenants and agreements mentioned in the lease, the company rent from GESTION W. & L. CHOINIERE INC., a building being known as 625, Leon-Harmel Street, Granby, P.Q., containing an area of approximately nineteen thousand two hundred Square feet (19,200 sq. ft.) for a period of three years to be computed from the first day of March 1992 and ended the last day of February 1995. 2) THAT Mr. BERND ESGEN, secretary and vice-president of the corporation, be authorized to sign all lease and documents pertaining to such transaction. 3) THAT the draft of lease prepared for the parties, after have been read and studied clause by clause, is acceptable as such. CERTIFIED EXTRACT: /s/ Bernd Esgen - ---------------------- /s/ Bernd Esgen - ---------------------- Bernd Esgen 22 CANADA PROVINCE OF QUEBEC DISTRICT OF BEDFORD AFFIDAVIT I, undersigned, LUCIE ROBERGE, secretary, ___________________, residing ____________________________ and domiciled at St-Alphonse de Granby, P.Q., 126 Celine Street (JOE 2A0) ___________________ being duly sworn, do depose and say; 1. That I am one of the subscribing witnesses to the present Lease. 2. That the said Lease was signed by the said LOUIS CHOINIERE in the presence of JEAN-PIERRE BLANCHARD __________________________________________ __________________________________ and of myself, and that we both then immediately signed the said Lease, in the presence of each other and of the Landlord, and at his express request. AND I HAVE SIGNED /s/ Lucie Roberge ------------------------ Lucie Roberge Sworn to before me, at Granby, P.Q., on this twelve __________ day of March nineteen hundred and ninety-two (1992). /s/ Luc Turgeon #95.762 - --------------------------------- Luc Turgeon, commissioner of Oaths for the district of Bedford 23 CANADA PROVINCE OF ONTARIO AFFIDAVIT I, undersigned, JEAN-PIERRE BLANCHARD, notary, _________________________ residing and domiciled at Granby, P.Q, 155 St-Jacques Street #401 ______________ ______________ being duly sworn, do depose and say; 1. That I am one of the subscribing witnesses to the present Lease. 2. That the said Lease was signed by the said BERND ESGEN in the presence of LUCIE ROBERGE ______________________________________________________ _________________________ and of myself, and that we both then immediately signed the said Lease, in the presence of each other and of the Tenant, and at his express request. AND I HAVE SIGNED /s/ Jean-Pierre Blanchard ----------------------------- Jean-Pierre Blanchard Sworn to before me, at Granby, P.Q. on this twelve _____________ day of March nineteen hundred and ninetey-two (1992). /s/ Luc Turgeon #95.762 - -------------------------- Luc Turgeon, commissioner of Oaths for the district of Bedford 24 AGREEMENT OF PROLONGATION OF LEASE Entered into, in Granby, Que., on this 16th. day of November 1994, between: IKS CANADIAN KNIFE & SAW LTD., hereafter referred to as TENANT, and, LES IMMEUBLES GAETAN MARQUIS LTEE., hereafter referred to as LANDLORD, WHEREAS TENANT presently occupies premises located at 641 Leon Harmel street in Granby, Que. (said premises being a portion of a building originaly designated as 625 Leon Harmel Street ) pursuant to a LEASE (hereafter referred to as the LEASE ) between TENANT and Gestion W. & L. Choiniere Inc. signed on March the 12th 1992. WHEREAS LANDLORD, through a subsidiary company acquired said property from Gestion W. & L. Choiniere Inc. WHEREAS TENANT and LANDLORD agree to prolong the LEASE under the same terms and conditions, save that: TERM: The duration of the LEASE is hereby prolonged for three ( 3 ) additionnal years, starting March the 1st 1995, and ending the 28th 1998. RENT: For the prolongation period, annual net rent to LANDLORD shall be: a) for the first year an amount of seventy five thousand four hundred and fifty six dollars ($75,456.00 ) payable in advance in twelve consecutive monthly instalments of six thousand two hundred and eighty eight dollars ($6,288.00); 25 b) for the second year an amount of seventy eight thousand three hundred and thirty six dollars ( $ 78,336.00 ) payable in advance in twelve consecutive monthly instalments of six thousand five hundred and twenty eight dollars ( $ 6,528.00); c) for the third year an amount of eighty one thousand two hundred and sixteen dollars ( $ 81,216.00 ) payable in advance in twelve consecutive monthly instalments of six thousand seven hundred and sixty eight dollars ( $ 6,768.00); Signed in Granby, on this 16th day of November 1994. /s/ Gaetan Marquis - ------------------------------------ Les Immeubles Gaetan Marquis Ltee. Accepted in Mississauga on this 23rd day of November 1994. /s/ Bernd Esgen - ----------------------------------- IKS Canadian Knife & Saw Ltd. 26 AGREEMENT OF MODIFICATION OF LEASE Entered into, in Granby, Que., on this th. day of April 1995, between: IKS CANADIAN KNIFE & SAW LTD. , hereafter referred to as TENANT, and , LES IMMEUBLES GAETAN MARQUIS LTEE. , hereafter referred to as LANDLORD, WHEREAS TENANT presently occupies premises located at 641 Leon Harmel street in Granby, Que. ( said premises being a portion of a building originaly designated as 625 Leon Harmel Street ) pursuant to a LEASE ( hereafter referred to as the LEASE ) between TENANT and Gestion W. & L. Choiniere Inc. signed on March the 12th 1992, WHEREAS LANDLORD, through a subsidiary company acquired said property from Gestion W. & L. Choiniere Inc. , WHEREAS TENANT and LANDLORD agreed to prolong the LEASE under terms and conditions contained in a document executed on the 23rd day of November 1994, WHEREAS TENANT and LANDLORD wish to increase the size of the leased premises, under the same terms and conditions as the present prolongued LEASE, save that: PREMISES; Size of the premises shall be increased by approximately 10,614 square feet, as outlined in red on attached schedule " A ". LANDLORD'S WORK; Premises shall be delivered to TENANT in their present state and conditions, except that LANDLORD shall perform, at it's own expense, the following work: - - Erect a demising wall around the electrical switches and panels ( as shown in green on the attached schedule " A " ) in the premises presently occupied by Denrich; - - Create two openings of a maximum size of 8 feet by 8 feet in the demising block wall, in places to be determined by TENANT; - - Modify the electrical distribution to link the existing lighting and electrical outlets to TENANT's own electrical panel. 27 OCCUPANCY: TENANT shall be given occupancy of the additional space contemplated in the present document on August the 11th. 1995. RENT: For the additional square footage included in the LEASE, annual net rent per square foot payable to LANDLORD shall be the same as provided for in the existing LEASE: a) for the period starting August 1st 1995 to February 1996, $ 3.93 / s.f., save that rent shall not be payable on the additional space contemplated in the present agreement, for the months of August, September, October, November and December 1995; during this period, TENANT shall only be responsible for it's energy and it's participation to the taxes and operating expenses of the building. b) for the period starting March 1st 1996, and ending February 28th 1997. $ 4.08 / s.f. c) for the period starting March 1st 1997, and ending February 28th 1998, $ 4.23 / s.f. Signed in Granby, on this 1st day of April 1995. /s/ Gaetan Marquis - ---------------------------------- Les Immeubles Gaetan Marquis Ltee. Accepted in 4/13 on this 1995. /s/ John E. Hall - ---------------------------------- IKS Canadian Knife & Saw Ltd. 28 [DIAGRAM OF STATION] EX-23.2 13 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 Amendment No. 1 to the Registration Statement (Form S-4 No. 333-17305) 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 January 27, 1997 EX-99.1 14 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 Window 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 (i) any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or (ii) any broker-dealer that purchased Existing 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 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 meeting the requirements of the Securities Act in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 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 ---------------------------------------------------------------- ------------------------- Signature(s) of Registered Holder(s) Date 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. -----END PRIVACY-ENHANCED MESSAGE-----