-----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, IJ4Dn0PYZBfl4k/FoRECIBADnZY7FcJmxDNfP+SeFK3/gFABaYRMtlE+7tvB2r0Y avhSrnPqGPQXgOYUrLXcrQ== 0000895345-04-000159.txt : 20040315 0000895345-04-000159.hdr.sgml : 20040315 20040315154457 ACCESSION NUMBER: 0000895345-04-000159 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METTLER TOLEDO INTERNATIONAL INC/ CENTRAL INDEX KEY: 0001037646 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 133668641 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13595 FILM NUMBER: 04669466 BUSINESS ADDRESS: STREET 1: IM LANGACHER P O BOX MT-100 STREET 2: CH 8606 GREIFENSEE CITY: SWITZERLAND STATE: V8 ZIP: 10022 BUSINESS PHONE: 2126445900 MAIL ADDRESS: STREET 1: IM LANGACHER STREET 2: P O BOX MT 100 CH 8606 GREIFENSEE CITY: SWITZERLAND STATE: V8 ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: METTLER TOLEDO INTERNATIONAL INC DATE OF NAME CHANGE: 19971117 FORMER COMPANY: FORMER CONFORMED NAME: MT INVESTORS INC DATE OF NAME CHANGE: 19970411 10-K 1 tp10k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ FORM 10-K (MARK ONE) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM _______ TO _______ COMMISSION FILE NUMBER 1-13595 ------------------------------------ METTLER-TOLEDO INTERNATIONAL INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3668641 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) IM LANGACHER P.O. BOX MT-100 CH 8606 GREIFENSEE, SWITZERLAND ------------- (Address of principal executive offices) (Zip Code) 011-41-1-944-2211 ------------------------------------ (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, $0.01 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE ------------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes X No ----- ----- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12 b-2 of the Act). Yes X No ----- ----- As of March 8th, 2004 there were 44,497,811 shares of the Registrant's Common Stock, $0.01 par value per share, outstanding. The aggregate market value of the shares of Common Stock held by non-affiliates of the Registrant on June 30, 2003 (based on the closing price for the Common Stock on the New York Stock Exchange as of the last business day of the registrant's most recently completed second fiscal quarter, June 30, 2003) was approximately $1.6 billion. For purposes of this computation, shares held by affiliates and by directors of the Registrant have been excluded. Such exclusion of shares held by directors is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the Registrant. DOCUMENTS INCORPORATED BY REFERENCE DOCUMENT PART OF FORM 10-K -------- INTO WHICH INCORPORATED PROXY STATEMENT FOR 2004 ----------------------- ANNUAL MEETING OF STOCKHOLDERS PART III METTLER-TOLEDO INTERNATIONAL INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 PAGE PART I Item 1. Business........................................................ 2 Item 2. Properties......................................................12 Item 3. Legal Proceedings...............................................13 Item 4. Submission of Matters to a Vote of Security Holders.............13 Executive Officers of the Registrant............................13 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.............................................14 Item 6. Selected Financial Data.........................................16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................17 Item 7A. Quantitative and Qualitative Disclosures about Market Risk......37 Item 8. Financial Statements and Supplementary Data.....................37 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................37 Item 9A. Controls and Procedures.........................................37 PART III Item 10. Directors and Executive Officers of the Registrant..............38 Item 11. Executive Compensation..........................................41 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters......................41 Item 13. Certain Relationships and Related Transactions..................42 Item 14. Principal Accountant Fees and Services..........................42 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................................42 SIGNATURES ................................................................43 DISCLAIMER Some of the statements in this annual report and in documents incorporated by reference constitute "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. These statements relate to future events or our future financial performance, including, but not limited to, strategic plans, potential growth opportunities in both developed markets and emerging markets, planned research and development efforts, product introductions and innovation, manufacturing capacity, expected customer demand, meeting customer expectations, planned operational changes and productivity improvements, research and development expenditures, competitors' product development, expected capital expenditures, future cash sources and requirements, liquidity, impact of taxes, expected compliance with laws, impact of environmental costs, expected cost savings and benefits of completed or future acquisitions, which involve known and unknown risks, uncertainties and other factors that may cause our or our businesses' actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential" or "continue" or the negative of those terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially because of market conditions in our industries or other factors. Moreover, we do not, nor does any other person, assume responsibility for the accuracy and completeness of those statements. Unless otherwise required by applicable laws, we disclaim any intention or obligation to publicly update or revise any of the forward-looking statements after the date of this annual report to conform them to actual results, whether as result of new information, future events, or otherwise. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under the captions "Factors affecting our future operating results" in Exhibit 99.1 and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" to this annual report, which describe risks and factors that could cause results to differ materially from those projected in those forward-looking statements. We caution the reader that the above list of risks and factors that may affect results addressed in the forward-looking statements may not be exhaustive. Other sections of this annual report and other documents incorporated by reference may describe additional risks or factors that could adversely impact our business and financial performance. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict these new risk factors, nor can it assess the impact, if any, of these new risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. PART I Item 1. BUSINESS We are a leading global supplier of precision instruments and services. We are the world's largest manufacturer of weighing instruments for use in laboratory, industrial, packaging, logistics and food retailing applications. We also hold top-three market positions in several related analytical instruments, and are a leading provider of automated chemistry systems used in drug and chemical compound discovery and development. In addition, we are the world's largest manufacturer and marketer of metal detection and other end-of-line inspection systems used in production and packaging, and hold a leading position in certain process analytics applications. Our business is geographically diversified, with sales in 2003 derived 42% from Europe, 43% from North and South America and 15% from Asia and other countries. Our customer base is also diversified by industry and by individual customer. Mettler-Toledo International Inc., was incorporated as a Delaware corporation in 1991 and became a publicly traded company with its initial public offering in November 1997. In November 2001, we acquired Rainin Instrument, a leading manufacturer of pipetting solutions used in pharmaceutical, biotech and medical research applications. LABORATORY INSTRUMENTS We make a wide variety of precision laboratory instruments, including laboratory balances, pipettes, titrators, thermal analysis systems and other analytical instruments. The laboratory instruments business accounted for approximately 40% of our net sales in 2003. Laboratory Balances The balance is the most frequently used instrument in the laboratory and the Mettler-Toledo name is identified worldwide with accuracy, reliability and innovation. The weighing step is one of the most critical steps in the research process. Our balances have weighing ranges from one ten-millionth of a gram up to 32 kilograms. To cover a wide range of customer needs and price points, we market laboratory balances in a range of product tiers offering different levels of functionality. We also manufacture mass comparators, which are used by weights and measures regulators as well as laboratories to ensure the accuracy of reference weights. In addition to Mettler-Toledo branded products, we manufacture and sell balances under the brand name "Ohaus." Ohaus branded products principally target the educational market and other markets in which customers are interested in lower cost, a more limited set of features and less comprehensive support and service. Pipettes Pipettes are the third most widely used instrument in laboratories, after pH meters and balances, and are used for dispensing small volumes of liquids. In late 2001, we acquired Rainin Instrument, a premier provider of pipetting solutions based in California. Rainin develops, manufactures and distributes advanced pipettes, tips and accessories, including single- and multi-channel manual and electronic pipettes. Rainin's principal end markets are pharmaceutical, biotech, clinical and academia. Titrators Titrators measure the chemical composition of samples and are used in laboratories as well as the food and beverage and other industries. Our high-end titrators are multi-tasking models, which can perform two determinations simultaneously on multiple vessels. Our offering includes robotics to automate routine work in quality control applications. Thermal Analysis Systems Thermal analysis systems measure material properties as a function of temperature, such as weight, dimension, energy flow and viscoelastic properties. Thermal analysis systems are used in nearly every industry, but primarily in the plastics and polymer industries and increasingly in the pharmaceutical industry. Other Analytical Instruments pH meters measure acidity in laboratory samples, and are the second most widely used measurement instruments in the laboratory after the balance. We also sell density and refractometry instruments, which measure chemical concentrations in solutions. In addition, we manufacture and sell moisture analyzers, which precisely determine the moisture content of a sample by utilizing an infrared dryer to evaporate moisture. Laboratory Software LabX, our PC-based laboratory software platform, manages and analyzes data generated by our titrators and balances. LabX provides full network capability, has efficient, intuitive protocols, and enables customers to collect and archive data in compliance with the U.S. Food and Drug Administration's traceability requirements for electronically stored data (also known as 21 CFR Part 11). We plan to expand LabX to include other laboratory instruments. Automated Chemistry Solutions Our current drug discovery offerings are focused on key aspects of process development, as well as on identification of leads and optimization of those leads. Our automated lab reactors and reaction calorimeters are integral to the process research and development and scale-up activities of our customers. We offer a range of technologies including automated synthesizers to support chemists working on lead identification and optimization, automated workstations that support the synthesis process, and systems for cleaning up and purifying synthesis products. We believe that our portfolio of integrated technologies can bring significant efficiencies to the drug discovery process, enabling our customers to create larger numbers of higher quality candidate compounds and bring them to market faster. INDUSTRIAL INSTRUMENTS We manufacture numerous industrial weighing instruments and related terminals and we offer dedicated software solutions for the chemical, pharmaceutical and food industries. We supply automatic identification and data capture solutions, which integrate in-motion weighing, dimensioning and identification technologies for transport, shipping and logistics customers. We also offer heavy industrial scales and related software. The industrial instruments business accounted for approximately 30% of our net sales in 2003. Industrial Weighing Instruments We offer a comprehensive line of industrial scales and balances, such as bench scales and floor scales, for weighing loads from a few grams to several thousand kilograms in applications ranging from measuring materials in chemical production to weighing mail and packages. Our products are used in a wide range of applications, such as counting applications and in formulating and mixing ingredients. Industrial Terminals Our industrial scale terminals integrate collected data and control and automate manufacturing processes. They allow users to remotely download programs or access setup data and can minimize down time through predictive rather than reactive maintenance. Transportation / Shipping and Logistics We are the leading global supplier of automatic identification and data capture solutions, which integrate in-motion weighing, dimensioning and identification technologies. With these solutions, customers can measure the weight and cubic volume of packages for appropriate billing, logistics and quality control. Our solutions also integrate into customers' information systems. Vehicle Scale Systems Our primary heavy industrial products are scales for weighing trucks or railcars (i.e., weighing bulk goods as they enter or leave a factory or at a toll station). Heavy industrial scales are capable of measuring weights up to 500 tons and permit accurate weighing under extreme environmental conditions. We also offer advanced computer software, including OverDrive, that can be used with our heavy industrial scales to facilitate a broad range of customer solutions and provides a complete system for managing vehicle transaction processing. Industrial Software We offer a wide range of software that can be used with our industrial instruments. Examples include FreeWeigh.net, a statistical quality control software, Formweigh, our formulation/batching software, and OverDrive. In addition, our Q.i365 software controls batching processes by monitoring the material transfer control process. Q.i365 also provides statistical, diagnostic and operational information for asset management, process control and database applications. RETAIL WEIGHING SOLUTIONS Supermarkets, hypermarkets and other food retail organizations make use of multiple weighing applications for handling fresh goods (such as meat, vegetables, fruits and cheese). We offer stand-alone scales for basic counter weighing and pricing, price finding and printing. In addition, we offer network scales and software, which can integrate backroom, counter, self-service and checkout functions and can incorporate weighing data into a supermarket's overall fresh goods management system. The retail business accounted for approximately 12% of our net sales in 2003. Retail Software In March 2002, we acquired SofTechnics Inc, based in Texas. SofTechnics provides retail software for in-store item and inventory management solutions. SofTechnics' offering complements our solutions to food retailers. Its software provides the full scope of real-time item management, thereby allowing retailers to match local store inventory levels with local customer demand. SofTechnics strongly complements our leadership position in solutions for the management of fresh goods. In addition to cross-selling benefits, we will be able to offer an integrated data management solution for fresh goods in the future. PACKAGING CONTROL SYSTEMS Increasing safety and consumer protection requirements are driving the need for more and more sophisticated end-of-line inspection systems (e.g., for use in food processing and packaging, and pharmaceutical and other industries). We are the world's leading provider of metal detectors, x-ray visioning equipment and checkweighers that are used in these industries. Metal detectors are most commonly used to detect fine particles of metal that may be contained in raw materials or may be generated by the manufacturing process itself. X-ray-based vision inspection helps detect non-metallic contamination, such as glass, stones and pits, which enter the manufacturing process for similar reasons. Our x-ray systems can detect metal in metallized containers and can be used for mass control. Both x-ray and metal detection systems may be used together with checkweighers as components of integrated packaging lines. Checkweighers are used to control the filling content of packaged goods such as food, pharmaceuticals and cosmetics. FreeWeigh.net is our statistical and quality control software that optimizes package filling, monitors weight-related data and integrates it in real time into customers' enterprise resource planning and/or process control systems. The packaging business accounted for approximately 13% of our net sales in 2003. PROCESS ANALYTICS Our process analytics business provides instruments for the in-line measurement of liquid parameters used primarily in the production process of pharmaceutical, biotech and chemical companies. About half of our process analytics sales are to the pharmaceutical and biotech markets, where our customers need fast and secure scale-up and production that meets the validation processes required for GMP (Good Manufacturing Processes) and other regulatory standards. We are the leading supplier of pH and oxygen measurement instruments used in biotech and pharmaceutical ("Biopharma") manufacturing. The process analytics business accounted for approximately 5% of our net sales in 2003. CUSTOMERS AND DISTRIBUTION Our principal customers include companies in the following key end markets: the life science industry (pharmaceutical and biotech companies, as well as independent research organizations); food producers; food retailers; the beverage industry; specialty chemicals and cosmetics companies; the transportation and logistics industry; the metals industry; the electronics industry; and the academic market. Our products are sold through a variety of distribution channels. Generally, more technically sophisticated products are sold through our direct sales force, while less complicated products are sold through indirect channels. Our sales through direct channels exceed our sales through indirect channels. A significant portion of our sales in the Americas is generated through the indirect channels. We have a diversified customer base, with no single customer accounting for more than 3% of 2003 net sales. SALES AND SERVICE Market Organizations We maintain geographically focused market organizations around the world that are responsible for all aspects of our sales and service. The market organizations are local marketing and service organizations designed to maintain close relationships with our customers. Each market organization has the flexibility to adapt its marketing and service efforts to account for different cultural and economic conditions. Market organizations also work closely with our producing organizations (described below) by providing feedback on manufacturing and product development initiatives and relaying new product and application ideas. We have one of the largest and broadest global sales and service organizations among precision instrument manufacturers. At December 31, 2003, our sales and services group consisted of over 4,400 employees in sales, marketing and customer service (including related administration) and post-sales technical service, located in 37 countries. This field organization has the capability to provide service and support to our customers and distributors in major markets across the globe. This is important because our customers are seeking to do more and more business with a consistent global approach. Service We have expanded our service business from one centered on calibration, repair and maintenance to one driven by regulatory compliance and other value-added services, which we call Service XXL. We have a unique offering to our pharmaceutical customers in assuring that our instruments are used in compliance with FDA regulations and we can provide these services regardless of the customer's location throughout the world. This global service network also is an important factor in our ability to expand in emerging markets. We estimate that we have the largest installed base of weighing instruments in the world. In 2003, service (representing service contracts, repairs and replacement parts) accounted for approximately 22% of our total net sales. A significant portion of this amount is derived from replacement parts. Beyond revenue opportunities, we believe service is a key part of our solution offering and helps significantly in customer retention. The close relationships and frequent contact with our large customer base provides us with sales opportunities and innovative product and application ideas. RESEARCH AND DEVELOPMENT AND MANUFACTURING Producing Organizations Our research, product development and manufacturing efforts are organized into a number of producing organizations which specialize in specific products on a global basis. Our focused producing organizations help reduce product development time and costs, improve customer focus and maintain technological leadership. The producing organizations work together to share ideas and best practices, and there is a close interface and coordinated customer interaction among marketing organizations and producing organizations. Research and Development We intend to continue to invest in product innovation in order to provide technologically advanced products to our customers for existing and new applications. Over the last three years, we have invested $213.2 million in research and development ($78.0 million in 2003; $70.6 million in 2002; and $64.6 million in 2001). In 2003, we spent approximately 6.0% of net sales on research and development. Our research and development efforts fall into two categories: o technology advancements, which increase the value of our products. These advancements may be in the form of enhanced functionality, new applications for our technologies, more accurate or reliable measurement, additional software capability or automation through robotics or other means, and o cost reductions, which reduce the manufacturing cost of our products through better overall design. We have devoted an increasing proportion of our research and development budget to software development. This includes software to process the signals captured by the sensors of our instruments, application-specific software, and software that connects our solutions into customers' IT systems. We closely integrate research and development with marketing, manufacturing and product engineering. We have over 830 employees in research and development and product engineering. Manufacturing We are a worldwide manufacturer, with facilities principally in the United States, Switzerland, Germany, the United Kingdom and China. Laboratory instruments are produced mainly in Switzerland and to a lesser extent in the United States and China, while our remaining products are produced worldwide. We emphasize product quality in our manufacturing operations, and most of our products require very strict tolerances and exact specifications. We use an extensive quality control system that is integrated into each step of the manufacturing process. All major manufacturing facilities have achieved ISO 9001 certification. We believe that our manufacturing capacity is sufficient to meet our present and currently anticipated needs. We generally manufacture only critical components ourselves, usually components that contain proprietary technology. When outside manufacturing is more efficient, we contract with others for certain components. We use a wide range of suppliers. We believe our supply arrangements to be adequate and that there are no material constraints on the sources and availability of materials. From time to time we rely on a single supplier for all of our requirements of a particular component. Supply arrangements for electronics are generally made globally. BUSINESS SEGMENTS We have six reportable segments: Principal U.S. Operations, Other Western European Operations, Principal Central European Operations, Swiss R&D and Manufacturing Operations, Asia and Other. In previous reporting periods, results from Asia were included within the Other operating segment. Segment disclosure for 2002 and 2001 has been reclassified accordingly. See Note 17 to the audited consolidated financial statements and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations under "Results of Operations - by Operating Segment" for detailed results by segment and geographic region. We manufacture a wide variety of precision instruments and provide value added services to our customers. Our principal products and principal services are set forth above. Given the inherently global nature of our business, the above description of our products, customers and distribution, sales and services, research and development, manufacturing and other elements of our business apply, for the most part, to each of our segments. In some instances particular products are targeted for particular segments but none of these are material in nature to the entire business or an individual segment. BACKLOG; SEASONALITY Our manufacturing turnaround time is generally sufficiently short so as to permit us to manufacture to fill orders for most of our products, which helps to limit inventory costs. Backlog is therefore generally a function of requested customer delivery dates and is typically no longer than one to two months. Our business has historically experienced a slight amount of seasonal variation, particularly the high-end laboratory instruments business. Traditionally, sales in the first quarter are slightly lower than, and sales in the fourth quarter are slightly higher than, sales in the second and third quarters. Fourth quarter sales have historically generated approximately 27-28% of our sales. This trend has a somewhat greater effect on income from operations than on net sales because fixed costs are spread evenly across all quarters. EMPLOYEES As of December 31, 2003, we had approximately 8,650 employees throughout the world, including approximately 4,180 in Europe, 3,000 in North and South America, and 1,470 in Asia and other countries. We believe our employee relations are good, and we have not suffered any material employee work stoppage or strike during the last five years, except for a strike in early 2003 at our Bethune, France facility, which has been closed. Labor unions do not represent a meaningful number of our employees. INTELLECTUAL PROPERTY We hold over 1,700 patents and trademarks, primarily in the United States, Switzerland, Germany, the United Kingdom, France, Japan and China. Our products generally incorporate a wide variety of technological innovations, some of which are protected by patents of various durations. Products are generally not protected as a whole by individual patents, and as a result, no one patent or group of related patents is material to our business. We have numerous trademarks, including the Mettler-Toledo name and logo, which are material to our business. We regularly protect against infringement of our intellectual property. REGULATION Our products are subject to various regulatory standards and approvals by weights and measures regulatory authorities. All of our electrical components are subject to electrical safety standards. We believe that we are in compliance in all material respects with applicable regulations. Approvals are required to ensure our instruments do not impermissibly influence other instruments, and are themselves not affected by other instruments. In addition, some of our products are used in "legal for trade" applications, in which prices based on weight are calculated, and for which specific weights and measures approvals are required. Although there are a large number of regulatory agencies across our markets, there is an increasing trend toward harmonization of standards, and weights and measures regulation is harmonized across the European Union. Our products may also be subject to special requirements depending on the end-user and market. For example, laboratory customers are typically subject to Good Laboratory Practices (GLP), industrial customers to Good Manufacturing Practices (GMP), pharmaceutical customers to U.S. Food and Drug Administration (FDA) regulations, and customers in food processing industries may be subject to Hazard Analysis and Critical Control Point (HACCP) regulations. Products used in hazardous environments may also be subject to special requirements. ENVIRONMENTAL MATTERS We are subject to environmental laws and regulations in the jurisdictions in which we operate. We own or lease a number of properties and manufacturing facilities around the world. Like many of our competitors, we have incurred, and will continue to incur, capital and operating expenditures and other costs in complying with such laws and regulations in both the United States and abroad. We are currently involved in, or have potential liability with respect to, the remediation of past contamination in certain of our facilities in both the United States and abroad. Our subsidiary, Hi-Speed Checkweigher, is subject to an administrative consent order from the New Jersey Department of Environmental Protection that provides for the remediation of a former manufacturing site in Landing, New Jersey. Under the terms of the stock purchase agreement between GEI International Corporation and the predecessor to Hi-Speed, GEI assumed all responsibility for the administrative consent order and to date has performed and paid for all action it requires. In addition, certain of our present and former facilities have or had been in operation for many decades and, over such time, some of these facilities may have used substances or generated and disposed of wastes which are or may be considered hazardous. It is possible that these sites, as well as disposal sites owned by third parties to which we have sent wastes, may in the future be identified and become the subject of remediation. Accordingly, although we believe that we are in substantial compliance with applicable environmental requirements and to date we have not incurred material expenditures in connection with environmental matters, it is possible that we could become subject to additional environmental liabilities in the future that could result in a material adverse effect on our financial condition, results of operations, or competitive position in the market. COMPETITION Our markets are highly competitive. Weighing and analytical instruments markets are fragmented both geographically and by application, particularly the industrial and food retailing markets. As a result, we face numerous regional or specialized competitors, many of which are well established in their markets. In addition, some of our competitors are divisions of larger companies with potentially greater financial and other resources than our own. Taken together, the competitive forces present in our markets can impair our operating margins in certain product lines and geographic markets. We expect our competitors to continue to improve the design and performance of their products and to introduce new products with competitive prices. Although we believe that we have technological and other competitive advantages over many of our competitors, we may not be able to realize and maintain these advantages. These advantages include our worldwide market leadership positions; our global brand and reputation; our track record of technological innovation; our comprehensive, high-quality solution offering; our global sales and service offering; our large installed base of weighing instruments; and the fact that our revenue base is diversified by geographic region, product range and customer. To remain competitive, we must continue to invest in research and development, sales and marketing and customer service and support. We cannot be sure that we will have sufficient resources to continue to make these investments or that we will be successful in identifying, developing and maintaining any competitive advantages. We believe that the principal competitive factors in developed markets for purchasing decisions are the product itself, application support, service support and price. In emerging markets, where there is greater demand for less sophisticated products, price is a more important factor than in developed markets. Competition in the U.S. laboratory market is also influenced by the presence of large distributors that sell not only our products but those of our competitors as well. COMPANY WEBSITE AND INFORMATION Our website can be found on the Internet at www.mt.com. The website contains information about us and our operations. Copies of each of our filings with the SEC on Form 10-K, Form 10-Q and Form 8-K and all amendments to those reports can be viewed and downloaded free of charge when they are filed with the SEC by accessing www.mt.com, clicking on Investor Relations and then clicking on SEC Filings. Our website also contains copies of the following documents that can be downloaded free of charge: o Corporate Governance Guidelines o Audit Committee Charter o Compensation Committee Charter o Nominating and Corporate Governance Committee Charter o Code of Conduct Any of the above documents, and any of our reports on Form 10-K, Form 10-Q and Form 8-K and all amendments to those reports, can also be obtained in print by sending a written request to our Investor Relations Department: Investor Relations Mettler-Toledo International Inc. 1900 Polaris Parkway Columbus, OH 43240 U.S.A. Phone: +1 614 438 4748 Fax: +1 614 438 4646 E-mail: mary.finnegan@mt.com Item 2. PROPERTIES The following table lists our principal facilities, indicating the location and whether the facility is owned or leased. Our Greifensee, Switzerland facility also serves as our worldwide headquarters and our Columbus, Ohio, facility serves as our North American headquarters. We believe our facilities are adequate for our current and reasonably anticipated future needs.
LOCATION OWNED/LEASED BUSINESS SEGMENT - -------- ------------ ---------------- Europe: Greifensee/Nanikon, Switzerland..... Owned Swiss R&D and Manufacturing Operations Uznach, Switzerland................. Owned Swiss R&D and Manufacturing Operations Urdorf, Switzerland................. Owned Swiss R&D and Manufacturing Operations Schwerzenbach, Switzerland.......... Leased Swiss R&D and Manufacturing Operations Albstadt, Germany................... Owned Principal Central European Operations Giessen, Germany.................... Owned Principal Central European Operations Manchester, England................. Leased Other Western European Operations Oslo, Norway........................ Leased Other Western European Operations Americas: Columbus, Ohio...................... Leased Principal U.S. Operations Worthington, Ohio................... Owned Principal U.S. Operations Oakland, California ................ Leased Principal U.S. Operations Ithaca, New York.................... Owned Principal U.S. Operations Woburn, Massachusetts............... Leased Principal U.S. Operations Tampa, Florida...................... Leased Other Other: Shanghai, China..................... Building Owned; Land Leased Asia Changzhou, China (two facilities)... Buildings Owned; Land Leased Asia
Item 3. LEGAL PROCEEDINGS Routine litigation is incidental to our business. Nevertheless, we are not currently involved in any legal proceeding which we believe could have a material adverse effect upon our financial condition or results of operations. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 2003. EXECUTIVE OFFICERS OF THE REGISTRANT See Part III, Item 10 of this annual report for information about our executive officers. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION FOR COMMON STOCK Our common stock is traded on the New York Stock Exchange under the symbol "MTD". The following table sets forth on a per share basis the high and low sales prices for consolidated trading in our common stock as reported on the New York Stock Exchange Composite Tape for the quarters indicated. COMMON STOCK PRICE RANGE ----------- HIGH LOW ---- --- 2003 Fourth Quarter $42.73 $36.06 Third Quarter $39.75 $34.60 Second Quarter $38.00 $29.82 First Quarter $34.12 $28.90 2002 Fourth Quarter $37.04 $25.41 Third Quarter $36.87 $24.85 Second Quarter $45.74 $35.65 First Quarter $51.85 $42.80 HOLDERS At March 8th, 2004 there were 208 holders of record of common stock and 44,497,811 shares of common stock outstanding. The number of holders of record excludes beneficial owners of common stock held in street name. DIVIDEND POLICY Historically we have not paid dividends on our common stock. However, we will evaluate this policy on a periodic basis taking into account our results of operations, financial condition, capital requirements, including potential acquisitions, the taxation of dividends to our shareholders, and other factors deemed relevant by our Board of Directors.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2003 Number of securities remaining Number of securities to Weighted-average available for future issuance be issued upon exercise exercise price of under equity compensation of outstanding options, outstanding options, plans (excluding securities Plan Category warrants and rights warrants and rights reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders 5,621,976 $29.61 388,598 Equity compensation plans not approved by security holders - - - --------- ------ ------- Total 5,621,976 $29.61 388,598 ========= ====== =======
We do not have any equity compensation plans that have not been approved by our shareholders that are required to be disclosed in this annual report on Form 10-K or our proxy statement. Further details in relation to our stock option plan are given in Note 12 to the audited consolidated financial statements included herein. Item 6. SELECTED FINANCIAL DATA The selected historical financial information set forth below at December 31 and for the years then ended is derived from our audited consolidated financial statements. The financial information presented below, in thousands except share data, was prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP").
2003 (a) 2002 (a) 2001 (a) 2000 1999 STATEMENT OF OPERATIONS DATA: Net sales..........................$1,304,431 $1,213,707 $1,148,022 $1,095,547 $1,065,473 Cost of sales...................... 686,255 645,970 619,140 600,185 585,007 (b) ---------- ---------- ---------- ---------- ---------- Gross profit....................... 618,176 567,737 528,882 495,362 480,466 Research and development........... 78,003 70,625 64,627 56,334 57,393 Selling, general and administrative 372,822 331,959 299,191 296,187 300,389 Amortization (c)................... 11,724 9,332 14,114 11,564 10,359 Interest expense................... 14,153 17,209 17,162 20,034 21,980 Other charges, net (d)............. 4,563 28,202 15,354 2,614 10,468 ---------- ---------- ---------- ---------- ---------- Earnings before taxes and minority interest......................... 136,911 110,410 118,434 108,629 79,877 Provision for taxes ............... 41,073 9,989(e) 46,170 38,510 31,398 Minority interest.................. - - - - 378 ---------- ---------- ---------- ---------- ---------- Net earnings (f)................... $ 95,838 $100,421 $ 72,264 $ 70,119 $ 48,101 ========== ========== ========== ========== ========= Basic earnings per common share: Net earnings ..................... $ 2.15 $ 2.27 $ 1.78 $ 1.80 $ 1.25 Weighted average number of common shares...........................44,473,913 44,280,605 40,609,716 38,897,879 38,518,084 Diluted earnings per common share: Net earnings .................... $ 2.11 $ 2.21 $ 1.68 $ 1.66 $ 1.16 Weighted average number of common shares...........................45,508,847 45,370,053 42,978,895 42,141,548 41,295,757 BALANCE SHEET DATA : Cash and cash equivalents.......... $ 45,116 $ 31,427 $ 27,721 $ 21,725 $ 17,179 Working capital (g)................ 150,789 127,214 106,689 103,021 81,470 Total assets....................... 1,387,276 1,303,393 1,189,412 887,582 820,973 Long-term debt..................... 223,239 262,093 309,479 237,807 249,721 Other non-current liabilities (h).. 135,613 133,600 119,109 95,843 100,334 Shareholders' equity............... 653,996 502,386 388,184 178,840 112,015 (a) Includes the results of the Rainin acquisition from November 2001. (b) In connection with acquisitions in 1999, including the acquisition of the Testut-Lutrana group, we allocated $998 of the purchase price to revalue certain inventories (principally work-in-progress and finished goods) to fair value (net realizable value). Substantially all such inventories were sold during the second quarter of 1999. (c) Includes goodwill amortization of $10,054, $8,844 and $8,640 in 2001, 2000 and 1999 respectively. Beginning in 2002, the Company ceased amortization of goodwill as required by U.S. GAAP. (d) Other charges, net consists primarily of charges related to the Company's restructuring programs, interest income, (gains) losses from foreign currency transactions, (gains) losses from sales of assets and other items. The 2003 amount includes a charge of $5,444 related to the final union settlement on the closure of our French manufacturing facility. The 2002 and 2001 amounts also include charges of $28,661 and $15,196 respectively, primarily related to headcount reductions and manufacturing transfers. The 2000 amount includes a charge of $1,425 related to the close-down and consolidation of operations. The 1999 amount includes a gain on an asset sale of approximately $3,100, a charge of $8,007 to transfer production lines from the Americas to China and Europe and the closure of facilities and losses of approximately $4,100 in connection with the exit from our glass batching business based in Belgium. For the year ended December 31, 1999, the amount shown also includes $825 of expenses incurred on behalf of certain selling shareholders in connection with secondary offerings. (e) The provision for taxes for 2002 includes a benefit of $23,135 related to the completion of a tax restructuring program and related tax audits. (f) No dividends were paid during the five-year period ended December 31, 2003. (g) Working capital represents total current assets net of cash, less total current liabilities net of short-term borrowings and current maturities of long-term debt. (h) Other non-current liabilities consists of pension and other post-retirement liabilities, plus certain other non-current liabilities. See Note 13 to the audited consolidated financial statements included herein.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements. OVERVIEW We operate a global business, with net sales that are diversified by geographic region, product range and customer. We hold leading positions worldwide in many of our markets and attribute this leadership to several factors, including the strength of our brand name and reputation, our comprehensive solution offering, the quality of our global sales and service network, our continued investment in product development, our pursuit of technology leadership and our focus on capitalizing on opportunities in developed and emerging markets. Net sales in local currencies were flat in 2003, compared to an increase of 3% in 2002. As discussed in "Acquisition of Rainin Instrument" below, 2002 includes the benefit of the Rainin acquisition. During 2003, we continued to face a challenging world economy and political environment with conditions generally strong in Asia, improving in the United States but remaining weak in Europe. Specifically, we were affected by the unexpected softness in our biotech and pharmaceutical ("Biopharma") end user markets, particularly in our higher price point drug discovery product line. Biopharma firms are facing short-term pressures such as new drug approval activity, heightened price regulation and industry consolidation. However, we believe that the long-term fundamentals of this market are strong, as demonstrated by 12% compound annual growth rate in research and development spending over the last 30 years. An aging world population with more discretionary healthcare spending capacity drives the need for Biopharma companies to improve both scale and productivity in new drug research and development, which often requires products that mitigate bottlenecks in chemistry-oriented solutions, which Mettler-Toledo can provide. In our industrial markets, there is an accelerating trend of multinational companies investing in production in China to take advantage of cost savings. Although this provides a significant opportunity for our China operations, this manufacturing shift has a negative impact on our industrial related businesses in the U.S. and Europe. In our retail end markets, spending patterns continued to be suppressed in Europe after the significant euro conversion related investments by customers in 2001 and weak consumer confidence in major European economies. In our U.S. retail business, results were down relative to strong 2002 project activity. In spite of these external challenges, we continued to build for the future by investing in strong new marketing programs to further penetrate our markets and leading customers, turning our record R&D investments into new product launches, growing our Chinese operations into our third largest global market, expanding our unique services offering and improving our cost structure. Looking forward to 2004, we anticipate a gradual improvement in our customers' spending patterns. In Asia we expect further strong economic growth, and in the U.S. we expect the economic improvements experienced over the last several months to continue. We remain concerned however about Europe, where the major economies face low consumer confidence, a strong euro and lack of structural government reforms. In terms of our key earnings growth drivers for 2004, we expect to benefit from the introduction of new products. This follows our significant investment in research and development over the last few years, particularly in respect of our industrial and laboratory end markets. We also expect continued growth opportunities for most of our product lines in China, as our global customers develop in this region, and as we expand our geographic sales and service coverage. We also anticipate further sales growth in our service business as we continue to extend our regulatory and compliance service offerings. Finally, we expect to generate a further $4 million incremental savings from our cost reduction programs in 2004. More generally, we believe our sales growth over the next several years will come primarily from our solutions approach to the principal challenges facing our customer base. These include the need for increased efficiency (for example, in accelerating time to market for new products, achieving better yields, improving work processes and outsourcing non-core activities), the desire to integrate information captured by instruments into management information systems, the drive for ever higher quality of our customers' products and services, including the need to adhere to stringent regulatory and industry standards, and the move towards globalization in all major customer groups. Acquisitions are also an integral part of our growth strategy. Our acquisitions leverage our global sales and service network, respected brand name, extensive distribution channels and technological leadership. We are particularly attracted to acquisitions that leverage these attributes or increase our solutions capability. In addition, we continue to focus on the following end markets: drug discovery; process analytics; food and drug packaging; and transportation and logistics. NON-GAAP FINANCIAL MEASURES We supplement our U.S. GAAP results with non-GAAP financial measures. The principal non-GAAP financial measure we use is Adjusted Operating Income. We define Adjusted Operating Income as gross profit less research and development, selling general and administrative expenses and restructuring charges, before amortization, interest, other charges and taxes. The most directly comparable U.S. GAAP financial measure is net earnings. We believe that Adjusted Operating Income is important supplemental information for investors. Adjusted Operating Income is used internally as the principal profit measurement by our segments in their reporting to management. We use this measure because it excludes amortization, interest, other charges and taxes, which are not allocated to the segments. On a consolidated basis, we also believe Adjusted Operating Income is an important supplemental method of measuring profitability. It is used internally by senior management for measuring profitability, setting performance targets for managers and has historically been used as one of the means of publicly providing guidance on possible future results. We also believe that Adjusted Operating Income is an important performance measure because it provides a measure of comparability to other companies with different capital or legal structures which accordingly may be subject to disparate interest rates and effective tax rates, and to companies which may incur different amortization expenses or impairment charges related to intangible assets. Adjusted Operating Income is used in addition to and in conjunction with results presented in accordance with U.S. GAAP. Adjusted Operating Income is not intended to represent operating income under U.S. GAAP and should not be considered as an alternative to net earnings as an indicator of our performance because of the following limitations. Limitations of our non-GAAP measure, Adjusted Operating Income Our non-GAAP measure, Adjusted Operating Income, has certain material limitations as follows: o It does not include interest expense. Because we have borrowed money to finance some of our operations, interest is a necessary and ongoing part of our costs and has assisted us in generating revenue. Therefore any measure that excludes interest expense has material limitations; o It does not include taxes. Because payment of taxes is a necessary and ongoing part of our operations, any measure that excludes taxes has material limitations; o It excludes amortization expense and other charges. Because these items are recurring, any measure that excludes them has material limitations. Adjusted Operating Income should not be relied upon to the exclusion of U.S. GAAP financial measures, but reflects an additional measure of comparability and means of viewing aspects of our operations that, when viewed together with our U.S. GAAP results and the accompanying reconciliation to net earnings, provides a more complete understanding of factors and trends affecting our business. Because Adjusted Operating Income is not standardized, it may not be possible to compare with other companies' non-GAAP financial measures having the same or a similar name. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. Our Adjusted Operating Income increased from $149.9 million in 2001 to $161.9 million in 2003. This performance was achieved while we continued to invest in product development and in our distribution and manufacturing infrastructure. Adjusted Operating Income includes restructuring charges of $15.2 million in 2001, $28.7 million in 2002 and $5.4 million in 2003. These charges are described more fully below. A reconciliation of Adjusted Operating Income to net earnings for 2001 to 2003 is included in "Results of Operations" below. ACQUISITION OF RAININ INSTRUMENT In November 2001, we acquired Rainin Instrument, based in California, USA. Rainin is a leading manufacturer of pipetting solutions used in pharmaceutical, biotech and medical research applications. Rainin has a market leadership position in North America, a truly differentiating technology and a broad patent portfolio in areas like electronic pipetting, ergonomic designs for pipettes and tip designs. This acquisition further broadens our offering of instruments and solutions to the life sciences market and positions us to bring greater value to our customers. Assuming we acquired Rainin as of the beginning of 2001, the acquisition would have added sales of approximately $65 million, Adjusted Operating Income of approximately $20 million, and diluted earnings per share of negative $0.01 for 2001 on a pro forma basis. COST REDUCTION PROGRAMS In 2001, we recorded a restructuring charge of $15.2 million ($14.6 million after tax) associated primarily with headcount reductions and manufacturing transfers. This charge comprised primarily severance and other related benefits and costs of exiting facilities, including lease termination costs and the write-down of impaired assets. As further described in Note 15 to our audited consolidated financial statements, during the three months ended June 30, 2002 we recorded a restructuring charge of $28.7 million ($20.1 million after tax) which comprised severance, asset write-downs and other exit costs, primarily related to headcount reductions and manufacturing transfers. As a result of these actions, we expect to eliminate approximately $18 million of costs from the business. We estimate that approximately $6 million of these savings were realized in 2002, $8 million in 2003, and a further $4 million is expected in 2004. As noted in previous filings, in accordance with U.S. GAAP, the charge taken in the second quarter of 2002 related to the exit of our French manufacturing facility was limited to the minimum contractual payment required by French law. During the three months ended March 31, 2003, we recorded a restructuring charge of $5.4 million ($3.8 million after tax), related to the final union settlement on the closure of this facility. This charge comprises the additional employee-related costs resulting from final settlement of the social plan negotiated with the French workers' council during the first quarter of 2003. We assess our accrual for restructuring activities on an ongoing basis. During the three months ended September 30, 2003, we recorded a reduction in the restructuring accrual of $0.96 million, included within Other charges (income), net, as a result of lower employee-related charges than originally anticipated. Also, a restructuring charge of $1.4 million was recorded during the three months ended September 30, 2003, related to an extension of manufacturing consolidation activities. This charge comprised severance of $1.0 million, included within Other charges (income), net, and inventory write-downs of $0.4 million, included within Cost of sales. The Company's aforementioned restructuring programs and related accruals were substantially completed at December 31, 2003. RESULTS OF OPERATIONS The following table sets forth certain items from our consolidated statements of operations for the years ended December 31, 2003, 2002 and 2001 (amounts in thousands).
2003 2002 2001 ---- ---- ---- Net sales................................. $1,304,431 $1,213,707 $1,148,022 Cost of sales............................. 686,255 645,970 619,140 ---------- ---------- ---------- Gross profit.............................. 618,176 567,737 528,882 Research and development.................. 78,003 70,625 64,627 Selling, general and administrative....... 372,822 331,959 299,191 Amortization.............................. 11,724 9,332 14,114 Interest expense.......................... 14,153 17,209 17,162 Other charges, net (a).................... 4,563 28,202 15,354 ---------- ---------- ---------- Earnings before taxes..................... $ 136,911 $ 110,410 $ 118,434 ---------- ---------- ---------- Net earnings.............................. $ 95,838 $ 100,421 $ 72,264 ========== ========== ========== Adjusted Operating Income (after restructuring charges)(b)................ $ 161,907 $ 136,492 $ 149,868 ========== ========== ==========
A reconciliation of Adjusted Operating Income to net earnings for the years ended December 31 follows:
2003 2002 2001 ---- ---- ---- Adjusted Operating Income (after restructuring charges) (b).................................... $161,907 $136,492 $149,868 Amortization...................................... 11,724 9,332 14,114 Interest expense.................................. 14,153 17,209 17,162 Other charges, net (excluding restructuring charges)........................................ (881) (459) 158 Provision for taxes............................... 41,073 9,989 46,170 -------- -------- -------- Net earnings...................................... $ 95,838 $100,421 $ 72,264 ======== ======== ======== (a) Other charges, net consists primarily of charges related to our restructuring programs, interest income, (gains) losses from foreign currency transactions, (gains) losses from sales of assets and other items. The 2003, 2002 and 2001 amounts include restructuring charges of $5,444, $28,661 and $15,196 respectively, related primarily to headcount reductions and manufacturing transfers. (b) See "Non-GAAP Financial Measures" above. Adjusted Operating Income is defined as gross profit less research and development, selling, general and administrative expenses and restructuring charges, before amortization, interest expense and other charges. Restructuring charges that have been included are the costs set forth in Note (a) above.
RESULTS OF OPERATIONS - CONSOLIDATED Net sales Net sales were $1,304.4 million for the year ended December 31, 2003, compared to $1,213.7 million in 2002 and $1,148.0 million in 2001. In local currencies, this represents flat sales for 2003 and an increase of 3% in 2002. The fluctuation of the U.S. dollar versus our major trading currencies increased U.S. dollar-reported sales growth in 2003 and 2002. Net sales in U.S. dollars increased 7% in 2003, and 6% in 2002. 2003 sales were affected by the unexpected softness in our Biopharma end user market, particularly in our higher price point drug discovery product line. Spending patterns in our retail end markets continued to be suppressed in Europe after the significant euro conversion related investments by customers in 2001 and down in the U.S. relative to strong 2002 project activity. These trends were partially mitigated by solid results in our industrial markets, particularly for packaging, and transportation and logistics products. As discussed in "Acquisition of Rainin Instrument" above, results for 2002 include the benefit of the Rainin acquisition. However, we also experienced a sharp decline in sales of our European retail products in 2002, as a result of the euro conversion related investments by customers in 2001. Excluding the impact of European retail products in both 2002 and 2001, consolidated local currency sales growth would be 9% in 2002. A discussion of sales by operating segment is included below. As described in Note 17 to our consolidated financial statements, our net sales comprise product sales of precision instruments, and related services. Service revenues are primarily derived from regulatory compliance qualification, calibration, certification and repair services, much of which is provided under contracts, as well as sales of spare parts. Net sales of products declined 1% in local currencies in 2003 and increased 2% in 2002, whereas service revenue (including spare parts) increased 3% and 8% in 2003 and 2002 respectively. The higher service growth was generated by our consultative based value-added services approach, including the provision of instrument qualification and asset management services and training, rather than via increased sales of spare parts. Gross profit Gross profit as a percentage of net sales was 47.4% for 2003, compared to 46.8% for 2002 and 46.1% for 2001. Improvements in the margin over the two year period reflect the benefits from our cost rationalization and product transfer initiatives, partially offset by adverse currency impacts. On a constant currency basis relative to the prior year, gross margin as a percentage of net sales was 47.8% for 2003. Gross profit as a percentage of net sales for products was 50.9% for 2003, compared to 50.8% for 2002 and 49.9% for 2001. These improvements also reflect the benefits from our cost rationalization initiatives, offset by adverse currency impacts. On a constant currency basis relative to the prior year, product gross margin as a percentage of net sales was 51.4% for 2003. Gross profit as a percentage of net sales for services (including spare parts) was 35.1% for 2003, compared to 32.0% for 2002 and 31.3% for 2001. The increase in the margin over the two years reflects the expansion of higher margin regulatory compliance service sales and improved productivity. On a constant currency basis relative to the prior year, service gross margin as a percentage of net sales was 34.9% for 2003. Research and development and selling, general and administrative expenses Research and development expenses as a percentage of net sales was 6.0% for 2003, compared to 5.8% for 2002 and 5.6% in 2001. In local currencies, research and development expenses increased 2% in 2003 and 5% in 2002 compared to the previous year. The increase in 2003 is principally due to investments in our new laboratory, and transportation and logistics products. Selling, general and administrative expenses as a percentage of net sales increased to 28.6% for 2003, compared to 27.4% for 2002 and 26.1% for 2001. In local currencies, and adjusting for acquisitions, selling, general and administrative expenses increased 3% in 2003 and 2% in 2002. The increase in 2003 is principally due to higher medical plan costs in the U.S. and higher marketing costs related to the roll-out of our new laboratory products. Other charges (income), net Other charges (income), net were $4.6 million in 2003, compared to $28.2 million in 2002 and $15.4 million in 2001. The 2003, 2002 and 2001 amounts include the restructuring charges of $5.4 million ($3.8 million after tax), $28.7 million ($20.1 million after tax) and $15.2 million ($14.6 million after tax), comprising severance, asset write-downs and other exit costs primarily related to headcount reductions and manufacturing transfers, described more fully in "Cost Reduction Programs" above. Interest expense and taxes Interest expense was $14.2 million for 2003, compared to $17.2 million for both 2002 and 2001. The decrease in 2003 is principally due to reduced borrowing rates and lower average borrowings over the year. In 2002, reduced interest rates were offset by higher average borrowings used to fund the Rainin acquisition. The provision for taxes is based upon our effective tax rate for the related periods. This rate was 30% for 2003, 9% for 2002 and 39% for 2001. The reduction from 39% to 30% reflects the effects of a restructuring of our European operations and other tax initiatives. In addition, during the three months ended June 30, 2002 we recorded a one-time tax gain of $23.1 million related to the completion of a tax reorganization program and related tax audits. During the fourth quarter of 2002, we began a program of repatriating foreign subsidiary earnings to the United States in a tax efficient manner. This program resulted in a repatriation of $85 million of foreign earnings during 2002 and a further $100 million in 2003. In addition, this program will result in the repatriation of $80 million of foreign earnings over the next few years. The 2002 repatriation of $85 million created additional U.S. taxable income resulting in the utilization of certain historical tax attributes related to our U.S. operations and release of the related U.S. federal deferred tax valuation allowance. The 2003 repatriation of $100 million also utilized certain historical U.S. tax attributes. The tax effects related to the future repatriation of $80 million are also accrued. Earnings before taxes and net earnings Earnings before taxes were $136.9 million for 2003, compared to $110.4 million in 2002 and $118.4 million in 2001. Net earnings were $95.8 million for 2003, compared to $100.4 million in 2002 and $72.3 million in 2001. These results include the restructuring charge of $5.4 million ($3.8 million after tax) in 2003, the restructuring charge of $28.7 million ($20.1 million after tax) and the one-time tax gain of $23.1 million in 2002, and the restructuring charge of $15.2 million ($14.6 million after tax) in 2001. Supplemental data: Adjusted Operating Income See "Non-GAAP Financial Measures" above. Adjusted Operating Income (gross profit less research and development, selling, general and administrative expenses and restructuring charges, before amortization, interest expense and other charges) increased to $161.9 million, or 12.4% of net sales, for 2003, compared to $136.5 million, or 11.2% of net sales in 2002 and $149.9 million, or 13.1% of net sales in 2001. Adjusted Operating Income includes restructuring charges of $5.4 million in 2003, $28.7 million in 2002 and $15.2 million in 2001. In 2003, Adjusted Operating Income increased primarily as a result of the lower restructuring charge relative to 2002. The related benefits of our cost rationalization and product transfer initiatives and strong sales and manufacturing productivity improvements in China were offset by higher research and development costs and selling costs principally related to investments in new products, as well as higher medical plan costs in the U.S. In 2002, Adjusted Operating Income decreased primarily due to recording a higher restructuring charge relative to 2001 and the aforementioned volume impact on European retail following the euro conversion related investments by customers in 2001, partially offset by the benefit of the Rainin acquisition. A discussion of Adjusted Operating Income by operating segment is included below. RESULTS OF OPERATIONS - BY OPERATING SEGMENT Principal U.S. Operations Net sales to external customers in our Principal U.S. Operations segment decreased 3% in 2003, compared to an increase of 22% in 2002. Although not as significant as in Europe, we experienced slightly lower sales in our laboratory business in the U.S. in 2003, due to reduced spending in our Biopharma end market. In addition, retail sales declined relative to strong project activity in 2002. These trends were partially offset by increased sales of packaging products. The increase in 2002 is principally due to the Rainin acquisition. Approximately 86% of Rainin's operations were based in the Americas in 2002. Adjusted Operating Income increased $11.5 million in our Principal U.S. Operations in 2003, compared to an increase of $32.0 million in 2002. The increase in 2003 is due primarily to the restructuring charge recorded in 2002, of which $11.8 million relates to this segment. Adjusted Operating Income in 2003 was also impacted by lower sales of laboratory and food retailing products, combined with higher medical plan costs relative to 2002, partially offset by the impact of increased sales of packaging products and improved service profitability. The increase in 2002 is due primarily to the Rainin acquisition and improvements in service profitability partially offset by the impact of restructuring charges of $11.8 million in 2002 and $6.0 million in 2001. Other Western European Operations (including France, U.K., Italy and Spain) Net sales in local currencies to external customers in our Other Western European Operations segment decreased 1% in 2003, compared to a decrease of 7% in 2002. The reduced sales in 2003 were principally due to lower spending in our Biopharma and retail end markets. These trends were partially mitigated by solid results for packaging and transportation and logistics products. Our European sales trends in 2002 were primarily the result of the decline in sales of our European retail products following the significant euro conversion related investments by customers in 2001. Adjusted Operating Income increased $14.8 million in our Other Western European Operations segment in 2003, compared to a decrease of $22.9 million in 2002. The increase in 2003 is principally the result of a lower restructuring charge of $4.4 million recorded in 2003, compared to $11.4 million recorded in 2002. 2003 also benefited from the related benefits of our cost rationalization and product transfer initiatives, partially offset by the impact of declines in sales of laboratory and retail products. The decrease in 2002 was principally due to the aforementioned volume impact on European retail following the euro related investments by customers in 2001, as well as the impact of the restructuring charges of $11.4 million in 2002 and $0.9 million in 2001. Principal Central European Operations (including Germany) Net sales in local currencies to external customers in our Principal Central European Operations segment decreased 4% in 2003, compared to a decrease of 20% in 2002. Similar to our Other Western European Operations segment, the decline in 2003 was principally due to weakness in our laboratory and retail end markets, partially offset by solid results for packaging and transportation and logistics products. The decline in 2002 was principally due to a reduction in post-euro conversion retail sales. Adjusted Operating Income increased $7.1 million in our Principal Central European Operations segment in 2003, compared to a decrease of $16.8 million in 2002. The increase in 2003 is principally the result of the lower restructuring charge recorded in 2002, of which $2.8 million relates to this segment, and the related benefits from our cost rationalization and product transfer initiatives, partially offset by the impact of declines in sales of laboratory and retail products, while 2002 suffered from the aforementioned volume impact on European retail. Swiss R&D and Manufacturing Operations Net sales in local currencies to external customers in our Swiss R&D and Manufacturing Operations segment decreased 13% in 2003, compared to a decrease of 11% in 2002. These declines are principally the result of reduced sales in our laboratory markets. Adjusted Operating Income decreased $7.2 million in our Swiss R&D and Manufacturing Operations segment in 2003, compared to a decrease of $9.8 million in 2002. These declines were principally as a result of lower sales in our laboratory markets, and increased research and development costs in both years, as well as higher marketing costs in 2003 related to our new laboratory product launches. Asia As disclosed in Note 17 to the consolidated financial statements, continued growth resulted in the Company's reporting units in Asia exceeding the quantitative threshold for disclosure as a separate operating segment during the three months ended December 31, 2003. Net sales in local currencies to external customers in Asia increased 21% in 2003, compared to an increase of 11% in 2002. These results reflect strong sales performance in China for most of our product lines, partially offset by declines in Japan. As well as expanding our manufacturing capacity in China, we have also significantly increased our local sales and service resources in Asia. For example, our headcount in Asia increased by 19% to 1,383 in 2003. Selling, general and administrative expenses increased 18% in local currencies in Asia in 2003, reflecting the additional investment in this region and the strong sales performance. Adjusted Operating Income increased $8.6 million in Asia in 2003, compared to an increase of $4.1 million in 2002, principally due to stronger sales and improved manufacturing productivity in China, partially offset by declines, primarily in Japan. Other Net sales in local currencies to external customers in our Other operating segment increased 3% in 2003, compared to an increase of 5% in 2002. These results reflect modest sales growth in countries such as Russia and Australia, and in Eastern Europe, partially offset by a decline in sales of our drug discovery products. Adjusted Operating Income increased $5.0 million in our Other operating segment in 2003, compared to a decrease of $0.3 million in 2002. These results reflect the impact of restructuring charges, offset by the impact of declines in sales of our drug discovery products. In addition, 2002 was also negatively affected by the economic downturn in Latin America. LIQUIDITY AND CAPITAL RESOURCES Liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate financing. Therefore, liquidity cannot be considered separately from capital resources that consist of current and potentially available funds for use in achieving long-range business objectives and meeting debt service commitments. Currently, our liquidity needs arise primarily from: working capital requirements; capital expenditures; and acquisitions. Cash provided by operating activities totaled $117.2 million in 2003, compared to $115.4 million in 2002 and $101.6 million in 2001. The increase in 2003 resulted principally from improved management of operating assets and liabilities, partially offset by higher restructuring and tax payments. Included in 2003 cash provided by operating activities are voluntary incremental pension contributions of $10.0 million to the U.S. pension plan and $7.1 million to the U.K. pension plan. Included in 2002 cash provided by operating activities is a voluntary contribution of $19.0 million to the U.S. pension plan. In 2004, similar to previous years, we expect to make normal employer pension contributions of $11.4 million. Cash provided by operating activities also includes payments for restructuring and certain acquisition integration activities. These amounts totaled $16.8 million, $11.1 million and $10.7 million in 2003, 2002 and 2001, respectively. During 2003, we spent approximately $4.5 million on acquisitions, including additional consideration related to earn-out periods associated with acquisitions consummated in prior years. The cash portions of these purchases were funded from cash generated from operations and additional borrowings. We continue to explore potential acquisitions. In connection with any acquisition, we may incur additional indebtedness. In addition, the terms of certain of our acquisitions in 2003 and earlier years provide for possible additional earn-out payments of up to $1.0 million. Capital expenditures are a significant use of funds and are made primarily for machinery, equipment and the purchase and expansion of facilities. Our capital expenditures totaled $27.2 million in 2003, $33.2 million in 2002 and $33.2 million in 2001. Capital expenditures in 2003 include spending of $2.4 million associated with our new facility in China and in 2002 include spending of $8.3 million associated with Rainin's new facility in California. We expect capital expenditures in 2004 to be slightly above 2003. We also expect capital expenditures to increase as our business grows, and to fluctuate as currency exchange rates change. November 2003 refinancing On November 12, 2003, we closed a new five-year $300 million credit facility ("the $300 million Credit Facility" or "the Credit Facility") and completed the issuance of $150 million seven-year Senior Notes. The proceeds from this refinancing were immediately used to repay all of the borrowings under our former credit agreement, which was then terminated. Credit Facility Agreement The $300 million Credit Facility is provided by a group of financial institutions and has a bullet maturity in November 2008. It is not subject to any scheduled principal payments. Borrowings under the $300 million Credit Facility bear interest at current market rates plus a margin which is based on our senior unsecured credit ratings (currently "BBB" by Standard & Poor's and "Baa3" by Moody's), and is currently set at LIBOR plus 0.6%. We must also pay utilization and facility fees that are tied to our credit ratings. The $300 million Credit Facility contains covenants including maintaining a ratio of debt to earnings before interest, tax, depreciation and amortization of less than 3.25 to 1.0 and an interest coverage ratio of more than 3.5 to 1.0. The new facility also places certain limitations on us including limiting the ability to grant liens or incur debt at a subsidiary level. In addition, the $300 million Credit Facility has several events of default including upon a change of control. The Credit Facility is unsecured. Senior Notes In November 2003, we issued $150 million of 4.85% unsecured Senior Notes due November 15, 2010 ("the Senior Notes"). The Senior Notes rank equally with all our unsecured and unsubordinated indebtedness. Interest is payable semi-annually in May and November. Discount and issuance costs approximated $1.2 million and are being amortized to interest expense over the seven-year term of the Senior Notes. At our option, the Senior Notes may be redeemed in whole or in part at any time at a redemption price equal to the greater of: o The principal amount of the Senior Notes; or o The sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at a comparable treasury rate plus a margin of 0.20%. The new seven-year Senior Notes contain limitations on the ability to incur liens and enter into sale and leaseback transactions exceeding 10% of our consolidated net worth. At December 31, 2003, our consolidated debt, net of cash of $45.1 million, was $196.4 million. In addition to the Senior Notes, we had borrowings of $73.1 million under our Credit Facility and $18.3 million under various other local arrangements. Also at December 31, 2003, we had $218.6 million of availability remaining under the Credit Facility. At December 31, 2003, approximately $49.4 million of the borrowings under the Credit Facility and local working capital facilities were denominated in U.S. dollars. The balance of the borrowings under the Credit Facility and local working capital facilities were denominated in certain of our other principal trading currencies amounting to approximately $42.0 million. Changes in exchange rates between the currencies in which we generate cash flow and the currencies in which our borrowings are denominated affect our liquidity. In addition, because we borrow in a variety of currencies, our debt balances fluctuate due to changes in exchange rates. At December 31, 2003, we are in compliance with all covenants set forth in our Credit Facility and Senior Notes agreements. In addition, we do not have any downgrade triggers that would accelerate the maturity dates of our debt. We currently believe that cash flow from operating activities, together with liquidity available under our Credit Facility and local working capital facilities, will be sufficient to fund currently anticipated working capital needs and capital spending requirements for at least several years, but there can be no assurance that this will be the case. Contractual obligations The following summarizes certain of our contractual obligations at December 31, 2003 and the effect such obligations are expected to have on our liquidity and cash flow in future periods. We do not have significant outstanding letters of credit or other financial commitments.
Payments due by period ---------------------- Total Less than 1 year 1-3 years 3-5 years After 5 years ----- ---------------- --------- --------- ------------ Long-term debt (a) $ 223,239 $ - $ - $ 73,080 $ 150,159 Non-cancelable operating leases (b) 92,935 19,437 28,322 17,605 27,571 Purchase obligations (c) 8,519 6,109 2,410 - - ---------- --------- --------- --------- ---------- Total $ 324,693 $ 25,546 $ 30,732 $ 90,685 $ 177,730 ========== ========= ========= ========= ========== (a) As described in Note 10 to the audited consolidated financial statements. (b) As described in Note 16 to the audited consolidated financial statements. (c) Represents agreements to purchase goods or services that are enforceable and legally binding on the Company.
We have purchase commitments for materials, supplies, services and fixed assets as part of the normal course of business. Due to the proprietary nature of many of our materials and processes, certain supply contracts contain penalty provisions. We do not expect potential payments under these provisions to materially affect results of operations or financial condition. This conclusion is based upon reasonably likely outcomes derived by reference to historical experience and current business plans. Share repurchase program On February 5, 2004, we announced a share repurchase program, commencing with an initial buyback of up to $100 million over the two-year period ending December 31, 2005. The repurchases will be made through open market transactions, and the timing will depend on the level of acquisition activity, business and market conditions, the stock price, trading restrictions and other factors. We cannot assure you that we will repurchase shares representing the full value of the program over the two-year period. OFF-BALANCE SHEET ARRANGEMENTS Currently, we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material. EFFECT OF CURRENCY ON RESULTS OF OPERATIONS Because we conduct operations in many countries, our operating income can be significantly affected by fluctuations in currency exchange rates. Swiss franc-denominated expenses represent a much greater percentage of our operating expenses than Swiss franc-denominated sales represent of our net sales. In part, this is because most of our manufacturing costs in Switzerland relate to products that are sold outside Switzerland. Moreover, a substantial percentage of our research and development expenses, and general and administrative expenses are incurred in Switzerland. Therefore, if the Swiss franc strengthens against all or most of our major trading currencies (e.g., the U.S. dollar, the euro, other major European currencies and the Japanese yen), our operating profit is reduced. We also have significantly more sales in European currencies (other than the Swiss franc) than we have expenses in those currencies. Therefore, when European currencies weaken against the U.S. dollar and the Swiss franc, it also decreases our operating profits. Accordingly, the Swiss franc exchange rate to the euro is an important cross-rate monitored by the Company. We estimate that a 1% strengthening of the Swiss franc against the euro would result in a decrease in our earnings before tax of $0.8 million to $1.2 million on an annual basis. In addition to the effects of exchange rate movements on operating profits, our debt levels can fluctuate due to changes in exchange rates, particularly between the U.S. dollar and the Swiss franc. Based on our outstanding debt at December 31, 2003, we estimate that a 10% weakening of the U.S. dollar against the currencies in which our debt is denominated, would result in an increase of approximately $4.7 million in the reported U.S. dollar value of the debt. TAXES We are subject to taxation in many jurisdictions throughout the world. Our effective tax rate and tax liability will be affected by a number of factors, such as the amount of taxable income in particular jurisdictions, the tax rates in such jurisdictions, tax treaties between jurisdictions, the extent to which we transfer funds between jurisdictions, earnings repatriations between jurisdictions and changes in law. Generally, the tax liability for each taxpayer within the group is determined either (i) on a non-consolidated/non-combined basis or (ii) on a consolidated/combined basis only with other eligible entities subject to tax in the same jurisdiction, in either case without regard to the taxable losses of non-consolidated/non-combined affiliated legal entities. As a result, we may pay income taxes to certain jurisdictions even though on an overall basis we incur a net loss for the period. Our effective tax rates for the years ended December 31, 2003, 2002 and 2001 were approximately 30%, 9% and 39% respectively, as described in "Interest expense and taxes" above. ENVIRONMENTAL MATTERS We are subject to environmental laws and regulations in the jurisdictions in which we operate. We own or lease a number of properties and manufacturing facilities around the world. Like many of our competitors, we have incurred, and will continue to incur, capital and operating expenditures and other costs in complying with such laws and regulations in both the United States and abroad. We are currently involved in, or have potential liability with respect to, the remediation of past contamination in certain of our facilities in both the United States and abroad. Our subsidiary, Hi-Speed Checkweigher, is subject to an administrative consent order from the New Jersey Department of Environmental Protection that provides for the remediation of a former manufacturing site in Landing, New Jersey. Under the terms of the stock purchase agreement between GEI International Corporation and the predecessor to Hi-Speed, GEI assumed all responsibility for the administrative consent order and to date has performed and paid for all action it requires. In addition, certain of our present and former facilities have or had been in operation for many decades and, over such time, some of these facilities may have used substances or generated and disposed of wastes which are or may be considered hazardous. It is possible that these sites, as well as disposal sites owned by third parties to which we have sent wastes, may in the future be identified and become the subject of remediation. Accordingly, although we believe that we are in substantial compliance with applicable environmental requirements and to date we have not incurred material expenditures in connection with environmental matters, it is possible that we could become subject to additional environmental liabilities in the future that could result in a material adverse effect on our financial condition or results of operations. INFLATION Inflation can affect the costs of goods and services that we use. The competitive environment in which we operate limits somewhat our ability to recover higher costs through increased selling prices. Moreover, there may be differences in inflation rates between countries in which we incur the major portion of our costs and other countries in which we sell products, which may limit our ability to recover increased costs. We remain committed to operations in China and Eastern Europe, which have experienced inflationary conditions. To date, inflationary conditions have not had a material effect on our operating results. However, as our presence in China and Eastern Europe increases, these inflationary conditions could have a greater impact on our operating results. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have only limited involvement with derivative financial instruments and do not use them for trading purposes. We have entered into foreign currency forward contracts to economically hedge short-term intercompany balances with our international businesses and a portion of our Swiss franc / euro exposure on a monthly basis. Such contracts limit our exposure to both favorable and unfavorable currency fluctuations. A sensitivity analysis to changes in the U.S. dollar and Swiss franc on these foreign currency-denominated contracts indicates that if the U.S. dollar and Swiss franc uniformly worsened by 10% against all of our currency exposures, the fair value of these instruments would decrease by $4.5 million at December 31, 2003, as compared with $2.9 million at December 31, 2002. Any resulting changes in fair value would be offset by changes in the underlying hedged balance sheet position. The sensitivity analysis assumes a parallel shift in foreign currency exchange rates. The assumption that exchange rates change in parallel fashion may overstate the impact of changing exchange rates on assets and liabilities denominated in a foreign currency. We also have other currency risks as described under "Effect of Currency on Results of Operations" above. We have entered into certain interest rate swap agreements. These contracts are more fully described in Note 5 to our audited consolidated financial statements. The market value of these contracts as at December 31, 2003 and 2002 was $0.4 million and negative $4.4 million, respectively. Based on our agreements outstanding at December 31, 2003, a 100 basis point increase in interest rates would result in a decrease in the net aggregate market value of these instruments of $1.9 million, as compared with an increase of $1.4 million at December 31, 2002. Conversely, a 100 basis point decrease in interest rates would result in a $1.9 million increase in the net aggregate market value of these instruments, as compared with a net reduction of $1.4 million at December 31, 2002. Any change in fair value would not affect our consolidated statement of operations unless such agreements and the debt they hedge were prematurely settled. CRITICAL ACCOUNTING POLICIES Management's discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to pensions and other post-retirement benefits, inventories, intangible assets, income taxes, revenue and warranty costs. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our audited consolidated financial statements. For a detailed discussion on the application of these and other accounting policies, see Note 2 to our audited consolidated financial statements. Employee benefit plans The net periodic pension cost for 2003 and projected benefit obligation as at December 31, 2003 were $3.7 million and $99.8 million respectively for our U.S. pension plans, and $11.1 million and $402.5 million respectively for our international pension plans. The net periodic post-retirement cost for 2003 and projected benefit obligation as at December 31, 2003 for our U.S. post-retirement medical benefit plan were $0.5 million and $29.8 million respectively. Pension and post-retirement benefit plan expense and obligations are developed from assumptions in actuarial valuations. These assumptions include the discount rate and expected return on plan assets. In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods. While management believes the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our plan obligations and future expense. The expected rates of return on the various defined benefit pension plans' assets are based on the asset allocation of each plan and the long-term projected return of those assets, which represent a diversified mix of U.S. and international corporate equities and government and corporate debt securities. In April 2002, we froze our U.S. defined benefit pension plan and discontinued our retiree medical program for certain current and all future employees. Consequently, no significant future service costs will be incurred on these plans. For 2003, the average return on assets assumption was 8.5% for the U.S. plan and 6.1% for the international plans. A change in the rate of return of 1% would impact annual benefit plan expense by approximately $3.4 million after tax. The discount rates for defined benefit and post-retirement plans are set by benchmarking against high quality corporate bonds. For 2003, the average discount rate assumption was 6.25% for the U.S. plans and 4.5% for the international plans, representing a weighted average of local rates in countries where such plans exist. A change in the discount rate of 1% would impact annual benefit plan expense by approximately $3.5 million after tax. In 2003 and 2002, we made voluntary incremental funding payments of $17.1 million and $19.0 million respectively, to reduce the underfunded status of the U.S. and U.K. pension plans. As a result, we do not expect to make any significant required pension funding payments, other than normal employer contributions, during the next two years. However, if the equity markets do not mirror expected rates of return, in the future, we could be required to make additional cash funding payments or adjust the $43.6 million additional minimum pension liability recorded at December 31, 2003. The Company also has employee stock option plans which are accounted for under the intrinsic value recognition and measurement provisions of Accounting Principles Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. As stock options have been issued with exercise prices equal to the market value of the underlying shares on the grant date, no compensation cost has resulted. Note 12 to the audited consolidated financial statements provides supplemental information, including pro forma earnings and earnings per share, as if the Company had accounted for options based on the fair value method prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation." That methodology yields an estimate of fair value based in part on a number of management estimates, including future volatility and estimated option lives. Changes in these assumptions could significantly impact the estimated fair value of stock options. Inventory As at December 31, 2003, net inventories were $151.8 million. We record our inventory at the lower of cost or net realizable value. Cost, which includes direct materials, labor and overhead, is generally determined using the first in, first out (FIFO) method. The estimated market value is based on assumptions for future demand and related pricing. Excess and obsolete reserves are established based on forecast usage, orders and technological obsolescence. If actual market conditions are less favorable than those projected by management, reductions in the value of inventory may be required. Goodwill and other intangible assets As at December 31, 2003, our consolidated balance sheet included goodwill of $421.9 million and other intangible assets of $126.9 million. Our business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense that we will incur. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), our goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The annual evaluation is based on valuation models that estimate fair value based on expected future cash flows and profitability projections. In preparing the valuation models we consider a number of factors, including operating results, business plans, economic conditions, future cash flows, and transactions and market place data. There are inherent uncertainties related to these factors and our judgment in applying them to the impairment analyses. The significant estimates and assumptions within our fair value models include sales growth, controllable cost growth, perpetual growth, effective tax rates and discount rates. Our assessments to date have indicated that there has been no impairment of these assets. Our drug discovery reporting unit is sensitive to changes in Biopharma capital spending. As a result of aforementioned trends in this market, drug discovery experienced a double-digit decline in revenue and profitability during 2003. However, the fair value of the Company's drug discovery reporting unit exceeded its carrying value of $29 million as of September 30, 2003 and December 31, 2003. In accordance with the provisions of SFAS 142, the Company will monitor the fair value of this reporting unit closely to determine if the 2004 business plan is being achieved. For example, we will monitor whether the forecasted benefits of our drug discovery cost reduction programs are being realized, including the program of manufacturing site rationalization currently in progress. Should any of these estimates or assumptions in the preceding paragraphs not be accurate, or should we incur lower than expected operating performance or cash flows, we may experience a triggering event that requires a new fair value assessment for our reporting units, possibly prior to the required annual assessment. These types of events and resulting analysis could result in impairment charges for goodwill and other indefinite lived intangible assets if the fair value estimate declines below the carrying value. Our amortization expense related to intangible assets with finite lives may materially change should our estimates of their useful lives change. Income taxes Income tax expense and deferred tax assets and liabilities reflect management's assessment of actual future taxes to be paid on items reflected in the financial statements. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income, equity or goodwill in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. In 2002 and 2003, provisions were made for U.S. income taxes on certain undistributed earnings of non-U.S. subsidiaries as a decision was made to repatriate these earnings rather than permanently reinvest them. If we decide to repatriate an amount of undistributed earnings in excess of those originally planned, we could be subject to additional income tax. The significant assumptions and estimates described in the preceding paragraphs are important contributors to our ultimate effective tax rate for each year in addition to our income mix from geographical regions. If any of our assumptions or estimates were to change, or should our income mix from our geographical regions change, our effective tax rate can be materially affected. Based on pre-tax income of $136.9 million for the year ended December 31, 2003, each increase of $1.4 million in tax expense would increase our effective tax rate by 1%. Revenue recognition Revenue is recognized when title to a product has transferred and any significant customer obligations have been fulfilled. Standard shipping terms are generally FOB shipping point in most countries and accordingly, title transfers upon shipment. For those few countries where title cannot legally transfer before delivery, we defer revenue recognition until delivery has occurred. Other than a few small software applications, Mettler-Toledo does not sell its software products without the related hardware instrument as the software is embedded in the instrument. The Company's typical solution requires no significant production, modification or customization of the hardware or software that is essential to the functionality of the products. Revenues from service contracts are recognized ratably over the contract period. Warranty The Company generally offers one-year warranties on most of its products. Product warranties are recorded at the time revenue is recognized for certain product shipments. While the Company engages in extensive product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service costs incurred in correcting a product failure. If we experience claims or significant cost changes in material, freight and vendor charges, our cost of goods sold could be affected. NEW ACCOUNTING STANDARDS See Note 2 to the audited consolidated financial statements. FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS Some of the statements in this annual report and in documents incorporated by reference constitute "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. These statements relate to future events or our future financial performance, including, but not limited to, strategic plans, potential growth opportunities in both developed markets and emerging markets, planned research and development efforts, product introductions and innovation, manufacturing capacity, expected customer demand, meeting customer expectations, planned operational changes and productivity improvements, research and development expenditures, competitors' product development, expected capital expenditures, future cash sources and requirements, liquidity, impact of taxes, expected compliance with laws, impact of environmental costs, expected cost savings and benefits of completed or future acquisitions, which involve known and unknown risks, uncertainties and other factors that may cause our or our businesses' actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential" or "continue" or the negative of those terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially because of market conditions in our industries or other factors. Moreover, we do not, nor does any other person, assume responsibility for the accuracy and completeness of those statements. Unless otherwise required by applicable laws, we disclaim any intention or obligation to publicly update or revise any of the forward-looking statements after the date of this annual report to conform them to actual results, whether as result of new information, future events, or otherwise. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under the caption "Factors affecting our future operating results" in Exhibit 99.1 to this annual report, which describes risks and factors that could cause results to differ materially from those projected in those forward-looking statements. We caution the reader that the above list of risks and factors that may affect results addressed in the forward-looking statements may not be exhaustive. Other sections of this annual report and other documents incorporated by reference may describe additional risks or factors that could adversely impact our business and financial performance. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict these new risk factors, nor can it assess the impact, if any, of these new risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Discussion of this item is included in Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this item are set forth on pages F-1 through F-39 and the related financial schedule is set forth on page S-1. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9A. CONTROLS AND PROCEDURES Our management carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report under the supervision and with the participation of our disclosure committee, our CFO and CEO. Based upon that evaluation, our CFO and CEO concluded that our disclosure controls and procedures are effective in permitting us to comply with our disclosure obligations and ensure that the material information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2003 that have materially affected, or are reasonably likely to materially affect, our controls over financial reporting. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of the Company are set forth below. All directors hold office until the annual meeting of shareholders following their election or until their successors are duly elected and qualified. Officers are appointed by the Board of Directors and serve at the discretion of the Board.
NAME AGE POSITION - ---- --- -------- Robert F. Spoerry 48 President, Chief Executive Officer and Chairman of the Board of Directors Dennis W. Braun 39 Chief Financial Officer Peter Burker 58 Head of Human Resources William P. Donnelly 42 Head of Packaging Industry Olivier A. Filliol 37 Head of Process Analytics Jean-Lucien Gloor 51 Head of Information Systems and Logistics Timothy P. Haynes 39 Head of Retail Karl M. Lang 57 Head of Asia/Pacific Beat E. Luthi 42 Head of Laboratory Urs Widmer 53 Head of Industrial Philip Caldwell 84 Director John T. Dickson 58 Director Philip H. Geier 69 Director John D. Macomber 76 Director Hans Ulrich Maerki 57 Director George M. Milne 60 Director Thomas P. Salice 44 Director - ---------------------------------------------------------------------------------------------------
Robert F. Spoerry has been President and Chief Executive Officer of the Company since 1993. He served as Head of Industrial and Retail (Europe) of the Company from 1987 to 1993. Mr. Spoerry has been a Director since October 1996. Mr. Spoerry has been Chairman of the Board of Directors since May 1998. Dennis W. Braun has been Chief Financial Officer of the Company since July 2002. From 1986 until joining the Company, he held various positions within the public accounting firm PricewaterhouseCoopers LLP, except for a period between 1996 and 1997 when he obtained his M.B.A. degree from Harvard Business School. From 1999 to March 2002, Mr. Braun was a partner of PricewaterhouseCoopers in its Audit & Business Advisory Services practice. Peter Burker has been Head of Human Resources of the Company since 1995. From 1992 to 1994 he was the Company's General Manager in Spain, and from 1989 to 1991 he headed the Company's operations in Italy. William P. Donnelly has been Head of Packaging Industry and the company's pipetting business since July 2002. He was Chief Financial Officer of the Company from 1997 to July 2002. Olivier A. Filliol has been Head of Process Analytics of the Company since June 1999. From June 1998 to June 1999 he served as General Manager of Hi-Speed Checkweigher Inc., a subsidiary of the Company based in New York. Prior to joining the Company, he was a Strategy Consultant with the international consulting firm Bain & Company working in the Geneva, Paris, London and Sydney offices. Jean-Lucien Gloor has been Head of Information Systems and Logistics and Chief Information Officer of the Company since March 2001. From 1999 until joining the Company, he served as Head of Central Server Platforms at Credit Suisse Financial Services. Prior to 1999, he held various senior information systems positions during fifteen years with The Dow Chemical Company. Timothy P. Haynes has been Head of Retail of the Company since October 2001. From 1999 to 2001 he served as Business Unit Leader for the Company's Transport, Shipping, Mail and Components business. Prior to joining the Company, he held various management positions at Emerson Electric in their process control and measurement businesses, including from 1997 to 1999 when he served as Vice President of Marketing and Product Development in its Process Analytic Division. Karl M. Lang has been Head of Asia/Pacific of the Company since January 2000. From 1994 to January 2000 he served as Head of Laboratory. From 1991 to 1994 he was based in Japan as a representative of senior management with responsibility for expansion of the Asian operations. Beat E. Luthi has been Head of Laboratory of the Company since March 2003. From 1998 until returning to the Company, he served as Chief Executive Officer of Feintool International Holding, a Swiss public company. Feintool is a global technology and systems provider in fineblanking / forming and assembly / automation as well as a global supplier of metal and plastic components. From 1990 to 1998 he held various management positions with the Company in Switzerland. Urs Widmer has been Head of Industrial since 1999. From 1984 to 1999 he served in various management functions within the Company, including most recently Head of Standard Industrial (Europe) from 1995 to 1999. Prior to 1984 he held various management positions with Siemens, a global manufacturer of solutions for information and communications, automation and control, power and transportation. Philip Caldwell has been a Director since October 1996. Prior to May 1998, Mr. Caldwell served as Chairman of the Board of Directors. Mr. Caldwell spent 32 years at Ford Motor Company, where he served as Chairman of the Board of Directors and Chief Executive Officer from 1979 to 1985 and a Director from 1973 to 1990. He served as a Director and Senior Managing Director of Lehman Bros. Inc. and its predecessor, Shearson Lehman Brothers Holdings, Inc., from 1985 to February 1998. Mr. Caldwell is also a Director of the Mexico Fund, Russell Reynolds Associates, Inc. and Waters Corporation. John T. Dickson has been a Director since March 2000. Mr. Dickson is Chief Executive Officer and President of Agere Systems Inc, the former Microelectronics Group of Lucent, a position he has held since March 2001. Mr. Dickson joined the Microelectronics and Communications Technologies Group of Lucent Technologies in 1993. He served as Chief Executive Officer of the Microelectronics Group since January 1998 and Executive Vice President of Lucent Technologies since 1999. Mr. Dickson is also a Director of the Semiconductor Industry Association and a member of the Board of Trustees of Lehigh Valley Health Network. Philip H. Geier has been a Director since July 2001. Mr. Geier was Chairman of the Board and Chief Executive Officer of the Interpublic Group of Companies, Inc. from 1980 to 2000 and was a Director of Interpublic since 1975. Mr. Geier is a Director of AEA Investors LLC, Alcon, Inc., Fiduciary Trust Co. International, Foot Locker, Inc. and Intermedia Advertising Group. John D. Macomber has been a Director since October 1996. He has been a principal of JDM Investment Group since 1992. He was Chairman and President of the Export-Import Bank of the United States (an agency of the U.S. Government) from 1989 to 1992. From 1973 to 1986 Mr. Macomber was Chairman and Chief Executive Officer of Celanese Corporation. Prior to that, Mr. Macomber was a Senior Partner of McKinsey & Company. Mr. Macomber is also a Director of AEA Investors LLC, Lehman Brothers Holdings Inc., Mirror Worlds Technology, Sovereign Specialty Chemicals, Inc. and Textron Inc. Hans Ulrich Maerki has been a Director since September 2002. Mr. Maerki has been the General Manager of IBM Europe/Middle East/Africa since July 2003 and Chairman since August 2001. He is also a member of the World Wide Management Council of IBM Corporation. From 1996 to July 1991, Mr. Maerki was General Manager of IBM Global Services, Europe/Middle East/Africa. Mr. Maerki has been with IBM in various positions since 1973. Mr. Maerki is also a Director of ABB Ltd. George M. Milne, Jr., Ph.D., has been a Director since September 1999. From 1970 to July 2002, Dr. Milne held various management positions with Pfizer Corporation, including most recently Executive Vice President, Pfizer Global Research and Development and President, Worldwide Strategic and Operations Management. Dr. Milne was also a Senior Vice President of Pfizer Inc. and a member of the Pfizer Management Council. He was President of Central Research from 1993 to July 2002 with global responsibility for Pfizer's Human and Veterinary Medicine Research and Development. Dr. Milne is also a Director of Athersys, Inc. and Charles River Laboratories, Inc. Thomas P. Salice has been a Director since October 1996. Mr. Salice joined AEA Investors LLC, a private equity firm, in July 1989 and became President and a director in January 1999, Chief Executive Officer in 2000 and Vice Chairman in September 2002. Mr. Salice is also a Director of Agere Systems Inc., Marbo, Inc., Sovereign Specialty Chemicals, Inc. and Waters Corporation. He also serves on the Board of Trustees of Fordham University. AUDIT COMMITTEE The Company has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee are Philip Caldwell, John Macomber (Chair) and Thomas Salice. AUDIT COMMITTEE FINANCIAL EXPERT The Board of Directors has determined that each member of the Audit Committee is an audit committee financial expert as defined by Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and is independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act. CODE OF ETHICS The Company has adopted a code of business conduct and ethics for directors, officers (including the principal executive officer, principal financial officer and controller) and employees, known as the Code of Conduct. The Code of Conduct is available on the Company's website at http://www.mt.com under Investor Relations / Corporate Governance. Stockholders may request a free copy of the Code of Conduct from: Investor Relations Mettler-Toledo International Inc. 1900 Polaris Parkway Columbus, OH 43240 U.S.A. Phone: +1 614 438 4748 Fax: +1 614 438 4646 E-mail: mary.finnegan@mt.com CORPORATE GOVERNANCE GUIDELINES The Company has adopted Corporate Governance Guidelines, which are available on the Company's website at http://www.mt.com under Investor Relations / Corporate Governance. Stockholders may request a free copy of the Corporate Governance Guidelines from the address and phone numbers set forth under "Code of Ethics" above. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Information regarding Section 16(a) beneficial ownership reporting compliance is set forth under "General Information - Compliance with Section 16(a) Beneficial Ownership Reporting Requirements" in the Proxy Statement for the 2004 Annual Meeting of Stockholders (the "2004 Proxy Statement"), which information is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION The information appearing in the sections captioned "Board of Directors Information," "Executive Compensation" and "General Information - Compensation Committee Interlocks and Insider Participation" in the 2004 Proxy Statement is incorporated by reference herein. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information appearing in the section "Share Ownership" in the 2004 Proxy Statement is incorporated by reference herein. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information appearing in the sections "Fees Paid to PricewaterhouseCoopers" and "Audit Committee Report" in the 2004 Proxy Statement is hereby incorporated by reference. PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Exhibits Financial Statements and Schedules: 1. Financial Statements. See Index to Consolidated Financial Statements included on page F-1. 2. Financial Statement Schedule. See Schedule II, which is included on page S-1. 3. List of Exhibits. See Index of Exhibits included on page E-1. (b) Reports on Form 8-K: Date Filed Description February 5, 2004 Press release announcing financial results for the fourth quarter and full year ended December 31, 2003 SIGNATURES Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Mettler-Toledo International Inc. (Registrant) Date: March 15, 2004 By: /s/ ROBERT F. SPOERRY -------------------------------- Robert F. Spoerry Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant as of the date set out above and in the capacities indicated. Signature Title --------- ----- Chairman of the Board, President and /s/ ROBERT F. SPOERRY Chief Executive Officer - ------------------------------------------ Robert F. Spoerry Vice President and Chief Financial Officer (Principal financial and accounting /s/ DENNIS W. BRAUN officer) - ------------------------------------------ Dennis W. Braun /s/ PHILIP CALDWELL Director - ------------------------------------------ Philip Caldwell /s/ JOHN T. DICKSON Director - ------------------------------------------ John T. Dickson /s/ PHILIP H. GEIER Director - ------------------------------------------ Philip H. Geier /s/ JOHN D. MACOMBER Director - ------------------------------------------ John D. Macomber /s/ HANS ULRICH MAERKI Director - ------------------------------------------ Hans Ulrich Maerki Director - ------------------------------------------ George M. Milne /s/ THOMAS P. SALICE Director - ------------------------------------------ Thomas P. Salice EXHIBIT DESCRIPTION 3.1 Amended and Restated Certificate of Incorporation of the Company (1) 3.2 Amended By-laws of the Company, effective February 6, 2003 (12) 4.6 Rights Agreement dated as of August 26, 2002 between the Company and Mellon Investor Services LLC, as Rights Agent, which includes as Exhibit A thereto, the Certificate of Designation, as Exhibit B thereto, the Form of Rights Certificate, and as Exhibit C thereto, the Summary of Rights to Purchase Preferred Shares (11). 10.10 Credit Agreement, dated as of November 12, 2003 (3) 10.11* Registration Rights Agreement, dated as of November 12, 2003 10.12* Indenture, dated as of November 12, 2003 10.20 1997 Amended and Restated Stock Option Plan (4) 10.21 Amendment to the 1997 Amended and Restated Stock Option Plan (5) 10.31 Regulations of the Performance Oriented Bonus System (POBS) - Incentive System for the Management of Mettler Toledo, effective as of November 5, 1998 (6) 10.32 Regulations of the POBS Plus - Incentive Scheme for Senior Management of Mettler Toledo, effective as of March 14, 2000 (7) 10.33 Regulations of the POBS PLUS - Incentive Scheme for Members of the Group Management of Mettler Toledo, effective as of March 7, 2000 (7) 10.41 Employment Agreement between Robert Spoerry and Mettler-Toledo AG, dated as of October 30, 1996 (8) 10.42 Indemnification Agreement between Robert Spoerry and Mettler-Toledo International Inc., dated June 6, 2002 (12) 10.43 Employment Agreement between Dennis Braun and Mettler-Toledo International Inc., dated as of June 12, 2002 (2) 10.44 Employment Agreement between William Donnelly and Mettler-Toledo GmbH, dated as of November 10, 1997 (1) 10.45 Employment Agreement between Olivier Filliol and Mettler-Toledo GmbH, dated as of May 21, 2001 (9) 10.46 Indemnification Agreement between Olivier Filliol and Mettler-Toledo International Inc., dated June 6, 2002 (12) 10.47 Employment Agreement between Beat Luthi and Mettler-Toledo Inc., dated as of October 31, 2002 (13) 10.48 Indemnification Agreement between Beat Luthi and Mettler-Toledo International Inc., dated March 31, 2003 (13) 10.5 Purchase Agreement among the Company, Mettler-Toledo, Inc. and Rainin Instrument Company, Inc., dated as of October 13, 2001 (10) 21* Subsidiaries of the Company 23.1* Consent of PricewaterhouseCoopers 31.1* Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32* Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.1* Factors Affecting our Future Operating Results - --------------------------- (1) Incorporated by reference to the Company's Report on Form 10-K dated March 13, 1998 (2) Incorporated by reference to the Company's Report on Form 10-Q dated August 12, 2002 (3) Incorporated by reference to the Company's Report on Form 10-Q dated November 13, 2003 (4) Incorporated by reference to the Company's Registration Statement on Form S-1 (Reg. No. 333-35597) (5) Incorporated by reference to the Company's Report on Form 10-Q dated August 15, 2000 (6) Incorporated by reference to the Company's Report on Form 10-K dated March 18, 1999 (7) Incorporated by reference to the Company's Report on Form 10-K dated March 24, 2000 (8) Incorporated by reference to the Company's Report on Form 10-K dated March 31, 1997 (9) Incorporated by reference to the Company's Report on Form 10-K dated March 4, 2002 (10) Incorporated by reference to the Company's Report on Form 8-K dated November 28, 2001 (11) Incorporated by reference to the Company's Registration Statement on Form 8-K/A filed on August 29, 2002 (12) Incorporated by reference to the Company's Report on Form 10-K dated March 14, 2003 (13) Incorporated by reference to the Company's Report on Form 10-Q dated August 4, 2003 * Filed herewith METTLER-TOLEDO INTERNATIONAL INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Report of Independent Auditors........................................... F-2 Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001................. F-3 Consolidated Balance Sheets as of December 31, 2003 and 2002............. F-4 Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) for the years ended December 31, 2003, 2002 and 2001... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001................. F-6 Notes to the Consolidated Financial Statements at December 31, 2003...... F-7 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Mettler-Toledo International Inc. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Mettler-Toledo International Inc. and its subsidiaries at December 31, 2003 and December 31, 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles, which, as described in Note 1, are generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15 (a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 2 to the consolidated financial statements, on January 1, 2002, Mettler-Toledo International Inc. adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." As discussed in Note 2 to the consolidated financial statements, on September 30, 2003, Mettler-Toledo International Inc. adopted Emerging Issues Task Force Issue No. 03-4, "Accounting for `Cash Balance' Pension Plans." PricewaterhouseCoopers AG Zurich, Switzerland March 15, 2004
METTLER-TOLEDO INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT SHARE DATA) 2003 2002 2001 ------ ------ ------ Net sales Products............................... $ 1,014,722 $ 954,081 $ 912,664 Service................................ 289,709 259,626 235,358 ----------- ----------- ----------- Total net sales............................ 1,304,431 1,213,707 1,148,022 Cost of sales Products............................... 498,207 469,453 457,342 Service................................ 188,048 176,517 161,798 ----------- ----------- ----------- Gross profit............................... 618,176 567,737 528,882 Research and development................... 78,003 70,625 64,627 Selling, general and administrative........ 372,822 331,959 299,191 Amortization............................... 11,724 9,332 14,114 Interest expense........................... 14,153 17,209 17,162 Other charges, net......................... 4,563 28,202 15,354 ----------- ----------- ----------- Earnings before taxes................. 136,911 110,410 118,434 Provision for taxes........................ 41,073 9,989 46,170 ----------- ----------- ----------- Net earnings........................... $ 95,838 $ 100,421 $ 72,264 =========== =========== =========== Basic earnings per common share: Net earnings........................... $2.15 $2.27 $1.78 Weighted average number of common shares................................. 44,473,913 44,280,605 40,609,716 Diluted earnings per common share: Net earnings........................... $2.11 $2.21 $1.68 Weighted average number of common shares................................. 45,508,847 45,370,053 42,978,895
The accompanying notes are an integral part of these consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31 (IN THOUSANDS, EXCEPT SHARE DATA) 2003 2002 ------ ------ ASSETS Current assets: Cash and cash equivalents............................................... $ 45,116 $ 31,427 Trade accounts receivable, less allowances of $10,489 in 2003 and $10,916 in 2002....................................................... 249,353 231,673 Inventories, net........................................................ 151,764 150,441 Current deferred tax assets, net........................................ 27,644 33,584 Other current assets and prepaid expenses............................... 31,660 28,602 ----------- ----------- Total current assets.................................................. 505,537 475,727 Property, plant and equipment, net......................................... 231,512 217,754 Goodwill, net of accumulated amortization of $45,861 in 2003 and $43,337 in 2002.................................. 421,940 408,351 Other intangible assets, net .............................................. 126,874 129,441 Non-current deferred tax assets, net ...................................... 40,683 24,346 Other non-current assets .................................................. 60,730 47,774 ----------- ----------- Total assets.......................................................... $ 1,387,276 $ 1,303,393 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable................................................. $ 68,243 $ 73,072 Accrued and other liabilities........................................... 97,966 107,527 Accrued compensation and related items.................................. 56,575 47,013 Deferred service revenue................................................ 20,759 18,547 Taxes payable........................................................... 51,347 66,511 Current deferred tax liabilities........................................ 14,742 4,416 Short-term borrowings and current maturities of long-term debt......... 18,277 50,578 ----------- ----------- Total current liabilities............................................. 327,909 367,664 Long-term debt............................................................. 223,239 262,093 Pension and other post-retirement liabilities.............................. 131,448 123,438 Non-current deferred taxes................................................. 46,519 37,650 Other non-current liabilities.............................................. 4,165 10,162 ----------- ----------- Total liabilities.................................................... 733,280 801,007 Shareholders' equity: Preferred stock, $0.01 par value per share; authorized 10,000,000 shares - - Common stock, $0.01 par value per share; authorized 125,000,000 shares; issued 44,582,017 in 2003 and 44,384,820 in 2002..................... 446 444 Additional paid-in capital.............................................. 471,628 459,213 Retained earnings....................................................... 200,216 104,378 Accumulated other comprehensive loss.................................... (18,294) (61,649) ----------- ----------- Total shareholders' equity ........................................... 653,996 502,386 Commitments and contingencies.............................................. - - ----------- ----------- Total liabilities and shareholders' equity ........................... $ 1,387,276 $ 1,303,393 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT SHARE DATA) RETAINED ACCUMULATED COMMON STOCK ADDITIONAL EARNINGS OTHER --------------------- PAID-IN (ACCUMULATED COMPREHENSIVE SHARES AMOUNT CAPITAL DEFICIT) INCOME (LOSS) TOTAL --------- --------- ------------- --------------- ----------------- --------- Balance at December 31, 2000....... 39,372,873 $393 $294,558 $ (68,307) $ (47,804) $ 178,840 Issuance of shares................. 3,388,132 34 144,300 - - 144,334 Exercise of stock options.......... 1,384,737 14 16,826 - - 16,840 Comprehensive income: Net earnings.................... - - - 72,264 - 72,264 Unrealized loss on cash flow hedging arrangements......... - - - - (1,591) (1,591) Change in currency translation adjustment................... - - - - (2,494) (2,494) Minimum pension liability adjustment................... - - - - (20,009) (20,009) --------- Comprehensive income............... 48,170 ----------- ----- --------- ---------- ---------- ---------- Balance at December 31, 2001....... 44,145,742 $441 $455,684 $ 3,957 $ (71,898) $ 388,184 Exercise of stock options.......... 239,078 3 3,529 - - 3,532 Comprehensive income: Net earnings.................... - - - 100,421 - 100,421 Unrealized loss on cash flow hedging arrangements......... - - - - (2,805) (2,805) Change in currency translation adjustment................... - - - - 26,933 26,933 Minimum pension liability adjustment (a)............... - - - - (13,879) (13,879) --------- Comprehensive income............... 110,670 ----------- ----- --------- ---------- ---------- ---------- Balance at December 31, 2002....... 44,384,820 $444 $459,213 $ 104,378 $ (61,649) $ 502,386 Exercise of stock options.......... 197,197 2 3,575 - - 3,577 Tax benefit resulting from exercise of certain employee stock options - - 8,840 - - 8,840 Comprehensive income: Net earnings.................... - - - 95,838 - 95,838 Unrealized gain on cash flow hedging arrangements......... - - - - 3,960 3,960 Change in currency translation adjustment................... - - - - 34,209 34,209 Minimum pension liability adjustment (a)............... - - - - 5,186 5,186 --------- Comprehensive income............... 139,193 ----------- ----- --------- ---------- ---------- ---------- Balance at December 31, 2003....... 44,582,017 $446 $471,628 $ 200,216 $ (18,294) $ 653,996 =========== ===== ========= ========== ========== =========
(a) The minimum pension liability adjustments in 2003 and 2002 are net of deferred tax benefits of $8,215 and $6,650, respectively. The accompanying notes are an integral part of these consolidated financial statements.
METTLER-TOLEDO INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS) 2003 2002 2001 ------ ------ ------ Cash flows from operating activities: Net earnings............................................. $ 95,838 $ 100,421 $ 72,264 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation........................................ 25,086 25,392 22,858 Amortization........................................ 11,724 9,332 14,114 Other............................................... 13 2,950 1,055 Increase (decrease) in cash resulting from changes in: Trade accounts receivable, net...................... 3,516 13,663 (11,502) Inventories......................................... 8,773 7,378 3,531 Other current assets................................ 1,708 6,061 570 Trade accounts payable.............................. (8,452) 919 (14,825) Taxes payable....................................... (19,440) (13,340) 15,937 Accruals and other liabilities...................... (1,535) (a) (37,366) (a) (2,430) (a) ---------- ---------- ---------- Net cash provided by operating activities......... 117,231 115,410 101,572 ---------- ---------- ---------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment.... 2,092 1,995 3,518 Purchase of property, plant and equipment.............. (27,152) (33,157) (33,228) Acquisitions........................................... (4,450) (b) (21,305) (b) (165,471) (b) ---------- ---------- ---------- Net cash used in investing activities............. (29,510) (52,467) (195,181) ---------- ---------- ---------- Cash flows from financing activities: Proceeds from borrowings............................... 248,726 81,425 188,448 Repayments of borrowings............................... (325,946) (142,609) (105,062) Proceeds from options exercised........................ 3,577 3,532 16,840 Refinancing fees....................................... (3,077) - - ---------- ---------- ---------- Net cash provided by (used in) financing activities...................................... (76,720) (57,652) 100,226 ---------- ---------- ---------- Effect of exchange rate changes on cash and cash equivalents............................................ 2,688 (1,585) (621) ---------- ---------- ---------- Net increase in cash and cash equivalents................. 13,689 3,706 5,996 ---------- ---------- ---------- Cash and cash equivalents: Beginning of period.................................... 31,427 27,721 21,725 ---------- ---------- ---------- End of period.......................................... $ 45,116 $ 31,427 $ 27,721 ========== ========== ========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest............................................. $ 13,955 $ 16,249 $ 15,504 Taxes................................................ $ 40,451 $ 31,387 $ 26,838 Non-cash financing and investing activities: Issuance of common stock on acquisitions............... - - $ 144,334
(a) Accruals and other liabilities include payments for restructuring and certain acquisition integration activities of $16.8 million, $11.1 million and $10.7 million in 2003, 2002 and 2001, respectively. (b) Amounts paid for acquisitions including cash and the issuance of common stock were $4.5 million, $21.3 million and $309.8 million in 2003, 2002 and 2001, respectively. The accompanying notes are an integral part of these consolidated financial statements. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS UNLESS OTHERWISE STATED) 1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION Mettler-Toledo International Inc. ("Mettler-Toledo" or the "Company") is a global supplier of precision instruments and services. The Company manufactures weighing instruments for use in laboratory, industrial, packaging, logistics and food retailing applications. The Company also manufactures several related analytical instruments, and provides automated chemistry solutions used in drug and chemical compound discovery and development. In addition, the Company manufactures metal detection and other end-of-line inspection systems used in production and packaging, and provides solutions for use in certain process analytics applications. The Company's primary manufacturing facilities are located in Switzerland, the United States, Germany, the United Kingdom and China. The Company's principal executive offices are located in Greifensee, Switzerland. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") and include all entities in which the Company has control, including its majority owned subsidiaries. All intercompany transactions and balances have been eliminated. Investments in which the Company has voting rights between 20% and 50% are accounted for using the equity method of accounting. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments with original maturity dates of three months or less. Inventories Inventories are valued at the lower of cost or net realizable value. Cost, which includes direct materials, labor and overhead, is generally determined using the first in, first out (FIFO) method. The estimated market value is based on assumptions for future demand and related pricing. Excess and obsolete reserves are established based on forecast usage, orders and technological obsolescence. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) Long-Lived Assets a) Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is charged on a straight-line basis over the estimated useful lives of the assets as follows: Buildings and improvements 15 to 50 years Machinery and equipment 3 to 12 years Computer software 3 to 5 years Leasehold improvements Shorter of useful life or lease term b) Capitalized Software In accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", the Company expenses all internal-use software costs incurred in the preliminary project stage and capitalizes certain direct costs associated with the development and purchase of internal-use software within property, plant and equipment. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the software, generally not exceeding five years. c) Goodwill and Other Intangible Assets Effective January 1, 2002, in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets"("SFAS 142"), goodwill, representing the excess of purchase price over the net asset value of companies acquired, and indefinite lived intangible assets are not amortized, but are reviewed for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The annual evaluation is based on valuation models that estimate fair value based on expected future cash flows and profitability projections. Other intangible assets include indefinite lived assets and assets subject to amortization. Where applicable amortization is charged on a straight-line basis over the expected period to be benefited. The Company assesses the recoverability of other intangible assets subject to amortization in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), as discussed below. Prior to January 1, 2002, goodwill and other intangible assets were amortized on a straight-line basis over the expected period to be benefited. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) Accounting for Impairment of Long-Lived Assets Effective January 1, 2002, in accordance with SFAS 144, the Company assesses the need to record impairment losses on long-lived assets with finite lives when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. An impairment loss would be recognized when future estimated undiscounted cash flows expected to result from use of the asset are less than the asset's carrying value, with the loss measured at fair value based on discounted expected cash flows. Taxation The Company files tax returns in each jurisdiction in which it operates. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which the Company operates. In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred taxes are not provided on the unremitted earnings of subsidiaries outside of the United States when it is expected that these earnings are permanently reinvested. Such earnings may become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends. Deferred taxes are provided in situations where the Company's subsidiaries plan to make future dividend distributions. Currency Translation and Transactions The reporting currency for the consolidated financial statements of the Company is the U.S. dollar. The functional currency for the Company's operations is generally the applicable local currency. Accordingly, the assets and liabilities of companies whose functional currency is other than the U.S. dollar are included in the consolidated financial statements by translating the assets and liabilities into the reporting currency at the exchange rates applicable at the end of the reporting period. The statements of operations and cash flows of such non-U.S. dollar functional currency operations are translated at the monthly average exchange rates during the year. Translation gains or losses are accumulated in other comprehensive income (loss) in the consolidated statements of shareholders' equity. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) Revenue Recognition Revenue is recognized when title to a product has transferred and any significant customer obligations have been fulfilled. Standard shipping terms are generally FOB shipping point in most countries and accordingly, title transfers upon shipment. For those few countries where title cannot legally transfer before delivery, we defer revenue recognition until delivery has occurred. Other than a few small software applications, Mettler-Toledo does not sell its software products without the related hardware instrument as the software is embedded in the instrument. The Company's typical solution requires no significant production, modification or customization of the hardware or software that is essential to the functionality of the products. Revenues from service contracts are recognized ratably over the contract period. Research and Development Research and development costs are expensed as incurred. Warranty The Company generally offers one-year warranties on most of its products. Product warranties are recorded at the time revenue is recognized for certain product shipments. While the Company engages in extensive product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service costs incurred in correcting a product failure. Earnings per Common Share In accordance with the treasury stock method, the Company has included 1,034,934, 1,089,448 and 2,369,179 equivalent shares in the calculation of diluted weighted average number of common shares for the years ending December 31, 2003, 2002 and 2001, respectively, relating to outstanding stock options. Outstanding options to purchase 1,955,938, 1,360,600 and 354,250 shares of common stock for the years ending December 31, 2003, 2002 and 2001, respectively, have been excluded from the calculation of diluted weighted average number of common shares on the grounds that such options would be anti-dilutive. Stock-Based Compensation The Company applies the intrinsic valuation methodology under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock option plan. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) Derivative Financial Instruments The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended ("SFAS 133"), on January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The cumulative effect of adopting SFAS 133 as of January 1, 2001 was not material to the Company's consolidated financial statements. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. As described more fully in Note 5, the Company enters into foreign currency forward contracts to economically hedge short-term intercompany transactions with its international businesses and a portion of its Swiss franc / euro exposure. Such contracts limit the Company's exposure to both favorable and unfavorable currency fluctuations. These contracts are adjusted to reflect market values as of each balance sheet date, with the resulting changes in fair value being recognized in the appropriate financial statement caption in the income statement consistent with the underlying position. The Company also enters into certain interest rate swap agreements in order to manage its exposure to changes in interest rates. The differential paid or received on interest rate swap agreements is recognized as interest expense over the life of the agreements as incurred. The Company's floating to fixed interest rate swap agreements are generally cash flow hedges, while the fixed to floating interest rate swap agreements are generally fair value hedges. The change in fair value of outstanding interest rate swap agreements that are effective cash flow hedges is included in the Company's consolidated statement of shareholders' equity. The change in fair value of outstanding interest rate swap agreements that are effective as fair value hedges is recognized in earnings as incurred and is offset by the change in fair value of the hedged item. Concentration of Credit Risk The Company's revenue base is widely diversified by geographic region and by individual customer. The Company's products are utilized in many different industries, although extensively in the pharmaceutical, food and beverage, transportation and logistics and chemicals industries. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. New Accounting Pronouncements In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The provisions of SFAS 143 are effective for annual financial statements for fiscal years beginning on or after June 15, 2002. The adoption of SFAS 143 did not have a material impact on the Company's consolidated financial statements. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS UNLESS OTHERWISE STATED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) New Accounting Pronouncements - (continued) In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS 146 did not have a material impact on the Company's consolidated financial statements. In November 2002, the Emerging Issues Task Force reached a consensus on Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables" ("EITF 00-21"). EITF 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets and applies to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 did not have a material impact on the Company's consolidated financial statements. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an Amendment of FASB Statement No. 123" ("SFAS 148"). Effective for annual financial statements after December 15, 2002, SFAS 148 amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company applied the disclosure provisions of SFAS 148. See Note 12 to the consolidated financial statements. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 expands upon existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity and provides additional disclosure guidance. The implementation of FIN 46 did not have a material impact on the Company's consolidated financial statements. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 149, which is to be applied prospectively, is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of SFAS 149 did not have a material impact on the Company's consolidated financial statements. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) New Accounting Pronouncements - (continued) In 2003, the Emerging Issues Task Force reached a consensus on Issue No. 03-4, "Accounting for Cash Balance Pension Plans" ("EITF 03-4"). The Company determined that its Swiss cash balance pension plan met the requirements necessitating a change in the method of expense attribution used in its actuarial calculations from the `projected unit credit' method to the `traditional unit credit' method. This required change in methodology resulted in a reduction in the projected benefit obligation of our Swiss cash balance pension plan of $53.3 million, which will be amortized over the expected future service life of Switzerland-based employees, beginning in 2004. See Note 13 to the consolidated financial statements. In December 2003, the FASB issued a revision to SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-retirement Benefits" ("SFAS 132"). SFAS 132 revises employers' disclosures about pension plans and other post-retirement benefit plans. It requires additional disclosures related to the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit post-retirement plans. It does not change the measurement or recognition of those plans. The Company has adopted the provisions of this statement. See Note 13 to the consolidated financial statements. In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the "Act") was signed into law. The Act introduces a prescription drug benefit under Medicare and also provides that a nontaxable federal subsidy will be paid to sponsors of post-retirement benefit plans that provide retirees with a drug benefit that is at least "actuarially equivalent" to the Medicare benefit. Although the Company sponsors a post-retirement medical benefit plan that provides prescription drugs, as described in Note 15 to the consolidated financial statements, the Company's U.S. retiree medical program was discontinued in 2002 for certain current and all future active employees. As permitted by the FASB Staff Position document issued in January 2004, which acknowledged the issues associated with measuring and recognizing the effects of the Act and federal subsidy at this point in time, the Company elected to defer the accounting for such effects until authoritative guidance is issued. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 3. BUSINESS COMBINATIONS During the year ended December 31, 2003, the Company spent approximately $4.5 million on acquisitions and additional consideration related to earn-out periods associated with acquisitions consummated in prior years. Goodwill recognized in connection with these acquisition payments totaled $4.4 million, which is primarily included in the Company's Principal U.S. Operations segment. The Company accounted for the acquisition payments and additional consideration using the purchase method of accounting. During 2002, the Company spent approximately $21.3 million on acquisitions, including the acquisition of SofTechnics Inc. and approximately $4.2 million of additional consideration related to earn-out periods associated with acquisitions consummated in prior years. SofTechnics is a leading provider of in-store retail item management software solutions. Goodwill recognized in connection with these acquisition payments totaled $18.8 million, which is primarily included in the Company's Principal U.S. Operations segment. The Company accounted for the acquisition payments using the purchase method of accounting. Rainin Acquisition In November 2001, the Company acquired Rainin Instrument for approximately $294.2 million. Rainin develops, manufactures and distributes advanced pipettes, tips and accessories, including single- and multi-channel manual and electronic pipettes. As a result of the acquisition the Company became the leading provider of pipetting solutions in North America. The aggregate purchase price for Rainin was $294.2 million, including $149.9 million of cash and the issuance of common stock valued at $144.3 million. The following table summarizes the estimated fair values of the Rainin assets acquired and liabilities assumed at the date of acquisition. Current assets.......................................... $ 22,653 Property, plant and equipment........................... 4,168 Intangible assets....................................... 127,074 Goodwill................................................ 148,624 -------- Total assets acquired ................................ 302,519 Current liabilities..................................... 8,228 Non-current liabilities................................. 57 -------- Total liabilities assumed............................. 8,285 -------- Net assets acquired................................... $294,234 ======== The identifiable intangible assets include customer relationships of $67.4 million, tradename of $22.4 million, intellectual property license of $19.9 million and technology and patents of $17.4 million. The $148.6 million of goodwill was primarily assigned to the Company's Principal U.S. Operations segment and is expected to be fully deductible for tax purposes. This goodwill and certain intangible assets with indefinite useful lives approximating $42.3 million are not subject to amortization in accordance with U.S. GAAP. The non-indefinite lived identifiable intangible assets are amortized on a straight-line basis over periods ranging from 11 to 45 years. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 3. BUSINESS COMBINATIONS - (CONTINUED) Rainin Acquisition - (continued) The following summarized unaudited pro forma information assumes the acquisition of Rainin occurred on January 1, 2001. The pro forma data reflects adjustments directly related to the acquisition, and does not include adjustments that may arise as a consequence of the acquisition. Accordingly, the unaudited pro forma information does not purport to be indicative of what the Company's combined results of operations would actually have been had the acquisition occurred on January 1, 2001 or to project the Company's combined results of operations for any future periods. Year ended December 31: 2001 ------ Net sales: As reported........................................ $1,148,022 Pro forma.......................................... 1,212,587 ========= Net earnings: As reported........................................ $72,264 Pro forma.......................................... 76,561 ====== Basic earnings per common share: As reported........................................ $ 1.78 Pro forma.......................................... 1.76 ==== Diluted earnings per common share: As reported........................................ $ 1.68 Pro forma.......................................... 1.67 ==== Other Acquisitions During 2001, the Company spent a further $15.6 million on other acquisitions, including approximately $9.3 million additional consideration related to earn-out periods associated with acquisitions consummated in prior years. Goodwill recognized in connection with these acquisition payments totaled $21.3 million, which is primarily included in the Company's Principal U.S. Operations segment. The Company accounted for the acquisition payments using the purchase method of accounting. A reconciliation of the change in goodwill during the years ended December 31, 2003 and 2002 is provided in Note 7 to these consolidated financial statements. The terms of certain of our acquisitions in 2003 and earlier years provide for possible additional earn-out payments. Although we do not currently believe we will make any material payments relating to such earn-outs, the maximum amount potentially payable in cash is approximately $1.0 million. Any additional earn-out payments incurred will be treated as additional purchase price and accounted for using the purchase method of accounting. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 4. INVENTORIES, NET Inventories, net consisted of the following at December 31: 2003 2002 ------- ------ Raw materials and parts.................... $ 71,950 $ 73,667 Work-in-progress........................... 32,432 33,683 Finished goods............................. 47,382 43,091 ----------- ----------- $ 151,764 $ 150,441 =========== =========== 5. FINANCIAL INSTRUMENTS At December 31, 2002, the Company had certain interest rate swap agreements outstanding that fixed the variable interest obligation associated with CHF 50 million of Swiss franc-based debt and $155 million of USD-based debt incurred under the Company's former credit agreement. These agreements had various maturities through 2004. The fixed rates associated with the swap of Swiss franc debt were approximately 3.6%, while the rates associated with the USD were approximately 4.0% plus the Company's normal interest margin. The swaps were effective as cash flow hedges at three-month LIBOR rates. At December 31, 2002, the fair market value of such financial instruments was approximately negative $4.4 million. As described in Note 10, on November 12, 2003 the Company closed a new five-year $300 million credit facility and completed the issuance of $150 million seven-year Senior Notes. The proceeds from this refinancing were immediately used to repay all of the Company's borrowings under its former credit agreement, which was then terminated. In connection with this refinancing, on November 4, 2003 the Company unwound the outstanding swap agreements referred to in the preceding paragraph. The resulting loss of $1.0 million was settled in cash and, in accordance with U.S. GAAP, is being charged to interest expense over the original life of the agreements up to May 2004. Also in connection with the refinancing, the Company entered into a new interest rate swap agreement, designated as a fair value hedge, which changes the fixed interest obligation associated with $30 million of the Senior Notes into a floating rate. This agreement has a maturity date of November 15, 2010. Under the swap the Company will receive a fixed interest rate of 4.85% (i.e. the same rate as the Senior Notes) and pay interest at a rate of LIBOR plus 0.22%. At December 31, 2003, the fair value of the swap was approximately $0.4 million. At December 31, 2003, the Company had outstanding foreign currency forward contracts in the amount of $69.5 million, in order to economically hedge short-term intercompany balances with its foreign businesses and $13.2 million in order to economically hedge a portion of its Swiss franc / euro exposure. These agreements had various maturities through March 2004. The fair value of these contracts was not materially different from the carrying value at December 31, 2003. The Company may be exposed to credit losses in the event of nonperformance by the counterparties to its derivative financial instrument contracts. Counterparties are established banks and financial institutions with high credit ratings. The Company has no reason to believe that such counterparties will not be able to fully satisfy their obligations under these contracts. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 5. FINANCIAL INSTRUMENTS - (CONTINUED) The fair values of all derivative financial instruments are estimated based on current settlement prices of comparable contracts obtained from dealer quotes. The values represent the estimated amount the Company would pay or receive to terminate the agreements at the reporting date, taking into account current creditworthiness of the counterparties. 6. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net, consisted of the following at December 31: 2003 2002 ------ ------ Land............................................. $ 52,119 $ 45,421 Buildings and leasehold improvements............. 143,755 128,711 Machinery and equipment.......................... 225,307 193,802 Computer software................................ 5,414 4,934 -------- -------- 426,595 372,868 Less accumulated depreciation and amortization... (195,083) (155,114) -------- -------- $231,512 $217,754 ======== ======== 7. GOODWILL AND OTHER INTANGIBLE ASSETS As of January 1, 2002, the Company adopted SFAS 142, effective for fiscal years beginning after December 15, 2001. This statement requires that goodwill and indefinite lived intangible assets no longer be amortized to earnings, but instead be reviewed for impairment upon initial adoption of SFAS 142 and on an annual basis going forward. Other intangible assets with finite lives will continue to be amortized over their useful lives. Under the transition provisions of SFAS 142, we concluded that there was no impairment of goodwill and indefinite lived intangible assets at January 1, 2002. We estimate that application of the non-amortization provisions of SFAS 142 would have increased our net earnings for 2001 by $6.5 million, our basic earnings per share by $0.15 and our diluted earnings per share by $0.14, adjusting for additional shares issued in connection with our acquisition of Rainin. The reconciliations of reported net earnings to adjusted net earnings before amortization of goodwill for the years ended December 31 are as follows:
2003 2002 2001 ---- ---- ---- Net earnings: Reported................................. $ 95,838 $100,421 $ 72,264 Goodwill amortization.................... - - 6,535 -------- -------- -------- Adjusted................................. $ 95,838 $100,421 $ 78,799 ======== ======== ======== Basic earnings per share: Reported................................. $ 2.15 $ 2.27 $ 1.78 Goodwill amortization (a)............... - - 0.15 -------- -------- -------- Adjusted................................. $ 2.15 $ 2.27 $ 1.93 ======== ======== ======== Diluted earnings per share: Reported................................. $ 2.11 $ 2.21 $ 1.68 Goodwill amortization (a)............... - - 0.14 -------- -------- -------- Adjusted................................. $ 2.11 $ 2.21 $ 1.82 ======== ======== ======== (a) Adjusted for additional shares issued in connection with our acquistion of Rainin.
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 7. GOODWILL AND OTHER INTANGIBLE ASSETS - (CONTINUED) The following table shows the changes in the carrying amount of goodwill for the years ended December 31: 2003 2002 ---- ---- Balance at beginning of year......................... $ 408,351 $ 384,947 Goodwill acquired - Principal U.S. Operations........ 4,363 18,762 Acquisition related tax assets realized.............. - (9,488) Other (principally the effect of changes in foreign currency exchange rates).......................... 9,226 14,130 --------- --------- Balance at end of year............................... $ 421,940 $ 408,351 ========= ========= In accordance with SFAS 142, goodwill and indefinite lived assets are reviewed for impairment on an annual basis in the fourth quarter. The Company completed its impairment review under SFAS 142 and determined that through December 31, 2003, there had been no impairment of these assets. The components of other intangible assets as of December 31, are as follows:
2003 2002 ---- ---- Gross Accumulated Gross Accumulated amount amortization amount amortization ------ ------------ ------ ------------ Customer relationships.................. $ 70,955 $ (3,424) $ 70,955 $ (1,839) Proven technology and patents........... 19,999 (3,809) 19,138 (2,008) Tradename (finite life)................. 893 (79) 893 (37) Tradename (indefinite life)............. 22,434 - 22,434 - Intellectual property license (indefinite life)..................... 19,905 - 19,905 - -------- -------- --------- --------- $134,186 $ (7,312) $ 133,325 $ (3,884) ======== ======== ========= =========
Other intangible assets substantially relate to the acquisition of Rainin. The annual aggregate amortization expense based on the current balance of other intangible assets for each of the next five years is estimated at $3.5 million. 8. WARRANTY Changes to the Company's accrual for product warranties for the years ended December 31, 2003 and 2002 are as follows:
2003 2002 --------- -------- Balance at beginning of period............................... $ 8,850 $ 7,740 Accruals for warranties...................................... 12,429 11,073 Payments / utilizations...................................... (11,158) (9,963) --------- -------- Balance at end of period..................................... $ 10,121 $ 8,850 ========= ========
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 9. SHORT-TERM BORROWINGS AND CURRENT MATURITIES OF LONG-TERM DEBT Short-term borrowings and current maturities of long-term debt consisted of the following at December 31:
2003 2002 -------- ---------- Current maturities of long-term debt......................... $ - $ 38,646 Other short-term borrowings.................................. 18,277 11,932 -------- --------- $ 18,277 $ 50,578 ======== =========
10. LONG-TERM DEBT Long-term debt consisted of the following at December 31:
2003 2002 -------- -------- $150 million Senior Notes, interest at 4.85%, due November 15, 2010 $150,402 $ - Less: unamortized discount (243) - -------- -------- 150,159 - Credit Agreement / Credit Facility Borrowings: Term A USD Loans, interest at LIBOR plus 0.45% payable in quarterly installments due May 19, 2004........................... - 34,709 Term A CHF Loans, interest at LIBOR plus 0.45% payable in quarterly installments due May 19, 2004........................... - 21,050 Term A GBP Loans, interest at LIBOR plus 0.45% payable in quarterly installments due May 19, 2004........................... - 11,865 Revolving credit facilities, interest at LIBOR plus 0.6% (LIBOR plus 0.3% at December 31, 2002)................................... 73,080 224,467 Other................................................................. - 20,580 -------- -------- 73,080 312,671 Less current maturities............................................... - (50,578) -------- -------- $223,239 $262,093 ======== ========
November 2003 Refinancing On November 12, 2003, the Company closed a new five-year $300 million credit facility ("the $300 million Credit Facility" or "the Credit Facility") and completed the issuance of $150 million seven-year Senior Notes. The proceeds from this refinancing were immediately used to repay all of the Company's borrowings under its former credit agreement, which was then terminated. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 10. LONG-TERM DEBT - (CONTINUED) Credit Facility Agreement The $300 million Credit Facility is provided by a group of financial institutions and has a bullet maturity in November 2008. It is not subject to any scheduled principal payments. Borrowings under the $300 million Credit Facility bear interest at current market rates plus a margin which is based on the Company's senior unsecured credit ratings (currently "BBB" by Standard & Poor's and "Baa3" by Moody's), and is currently set at LIBOR plus 0.6%. The Company must also pay utilization and facility fees that are tied to the Company's credit ratings. The $300 million Credit Facility contains covenants including maintaining a ratio of debt to earnings before interest, tax, depreciation and amortization of less than 3.25 to 1.0 and an interest coverage ratio of more than 3.5 to 1.0. The new facility also places certain limitations on the Company including limiting the ability to grant liens or incur debt at a subsidiary level. In addition, the $300 million Credit Facility has several events of default including upon a change of control. As at December 31, 2003, approximately $218.6 million was available under the facility. The Credit Facility is unsecured. Senior Notes In November 2003, the Company issued $150 million of 4.85% unsecured Senior Notes due November 15, 2010 ("the Senior Notes"). The Senior Notes rank equally with all our unsecured and unsubordinated indebtedness. Interest is payable semi-annually in May and November. Discount and issuance costs approximated $1.2 million and are being amortized to interest expense over the seven-year term of the Senior Notes. At the Company's option, the Senior Notes may be redeemed in whole or in part at any time at a redemption price equal to the greater of: o The principal amount of the Senior Notes; or o The sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at a comparable treasury rate plus a margin of 0.20%. The new seven-year Senior Notes contain limitations on the ability to incur liens and enter into sale and leaseback transactions exceeding 10% of the Company's consolidated net worth. The Company's weighted average interest rate for both of the years ended December 31, 2003 and 2002 was approximately 5.0%. The carrying value of the Company's debt obligations approximates fair value. 11. SHAREHOLDERS' EQUITY Common Stock The number of authorized shares of the Company's common stock is 125,000,000 shares with a par value of $0.01 per share. Holders of the Company's common stock are entitled to one vote per share. At December 31, 2003, 6,010,574 shares of the Company's common stock were reserved for issuance pursuant to the Company's stock option plan. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 11. SHAREHOLDERS' EQUITY - (CONTINUED) Preferred Stock The Board of Directors, without further shareholder authorization, is authorized to issue up to 10,000,000 shares of preferred stock, par value $0.01 per share in one or more series and to determine and fix the rights, preferences and privileges of each series, including dividend rights and preferences over dividends on the common stock and one or more series of the preferred stock, conversion rights, voting rights (in addition to those provided by law), redemption rights and the terms of any sinking fund therefore, and rights upon liquidation, dissolution or winding up, including preferences over the common stock and one or more series of the preferred stock. The issuance of shares of preferred stock, or the issuance of rights to purchase such shares, may have the effect of delaying, deferring or preventing a change in control of the Company or an unsolicited acquisition proposal. Shareholder Rights Plan On August 26, 2002, the Board of Directors adopted a Shareholder Rights Plan under which the Company declared a non-cash dividend of one right for each outstanding share of common stock. The Rights, which expire on September 5, 2012, entitle stockholders to buy one one-thousandth of a share of preferred stock at an exercise price of $150. The Rights were distributed to those stockholders of record as of close of business on September 5, 2002 and are attached to all certificates representing those shares of common stock. The Rights Plan provides that should any person or group acquire, or announce a tender or exchange offer for 15% or more of the Company's common stock, each Right, other than Rights held by the acquiring person or group, would entitle its holder to purchase a number of shares of the Company's common stock for 50% of its then-current market value. Unless a 15% acquisition has occurred, the Rights may be redeemed by the Board of Directors of the Company at any time. The Rights Plan will not be triggered by a tender or exchange offer for all outstanding shares of the Company at a price and on terms that the Company's Board of Directors determines to be adequate and in the best interest of the Company and its stockholders. The Rights Plan exempts any stockholder that beneficially owned 15% or more of the Company's common stock as of August 26, 2002. However, the Rights will become exercisable if, at any time after August 26, 2002, any of these stockholders acquire additional shares of the Company's common stock in an amount which is greater than 2% of the Company's outstanding common stock. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 11. SHAREHOLDERS' EQUITY - (CONTINUED) Share Repurchase Program On February 5, 2004, the Company announced a share repurchase program, commencing with an initial buyback of up to $100 million over the two-year period ending December 31, 2005. The repurchases will be made through open market transactions, and the timing will depend on the level of acquisition activity, business and market conditions, the stock price, trading restrictions and other factors. The Company cannot assure that it will repurchase shares representing the full value of the program over the two-year period. Comprehensive Income Accumulated other comprehensive income consisted of the following at December 31:
2003 2002 2001 -------- -------- -------- Currency translation adjustment.......................... $ 10,844 $(23,365) $(50,298) Unrealized gain (loss) on cash flow hedging arrangements........................................... (436) (4,396) (1,591) Additional minimum pension liability..................... (43,567) (40,538) (20,009) Deferred tax on additional minimum pension liability..... 14,865 6,650 - -------- -------- -------- Total accumulated other comprehensive loss............... $(18,294) $(61,649) $(71,898) ======== ======== ========
12. STOCK OPTION PLAN The Company's stock option plan provides certain key employees and directors of the Company additional incentive to join and/or remain in the service of the Company as well as to maintain and enhance the long-term performance and profitability of the Company. Under the terms of the plan, options granted shall be nonqualified and the exercise price shall not be less than the fair market value of the common stock on the date of grant. Options generally vest equally over a five-year period from the date of grant and have a maximum term of up to 10 years and 6 months. Stock option activity is shown below:
Weighted Average Number of Options Exercise Price ----------------- ---------------- Outstanding at December 31, 2000........................ 5,173,777 $ 19.02 Granted................................................. 901,000 45.09 Exercised............................................... (1,384,737) (12.02) Forfeited............................................... (310,465) (30.44) ---------- --------- Outstanding at December 31, 2001........................ 4,379,575 $ 25.79 Granted................................................. 912,250 35.21 Exercised............................................... (239,078) (14.77) Forfeited............................................... (252,974) (34.97) ---------- --------- Outstanding at December 31, 2002........................ 4,799,773 $ 27.65 Granted................................................. 1,088,000 36.88 Exercised............................................... (197,197) (18.16) Forfeited............................................... (68,600) (40.77) ---------- --------- Outstanding at December 31, 2003........................ 5,621,976 $ 29.61 ========== ========= Options exercisable at December 31, 2001................ 2,112,471 $ 14.29 Options exercisable at December 31, 2002................ 2,620,713 $ 18.34 Options exercisable at December 31, 2003................ 3,005,676 $ 22.10 ========== =========
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 12. STOCK OPTION PLAN - (CONTINUED) At December 31, 2003, 388,598 options to purchase shares of common stock were available for grant. The following table details the weighted average remaining contractual life of options outstanding at December 31, 2003 by range of exercise prices:
Number of Options Weighted Average Remaining Contractual Options Outstanding Exercise Price Life of Options Outstanding Exercisable ----------- -------------- --------------------------- ------------- 1,270,090 $ 7.95 2.8 1,270,090 299,391 $ 15.92 3.7 299,391 790,100 $ 24.73 4.3 607,600 1,848,045 $ 35.81 9.3 183,245 1,414,350 $ 45.80 7.3 645,350 --------- --- ----------- 5,621,976 6.3 3,005,676 ========= ===========
As of the date granted, the weighted average grant-date fair value of the options granted during the years ended December 31, 2003, 2002 and 2001 was approximately $7.83, $11.20 and $16.72 per share, respectively. Such weighted average grant-date fair value was determined using an option pricing model that incorporated the following assumptions:
2003 2002 2001 ---- ----- ---- Risk-free interest rate.............. 3.0% 3.0% 4.3% Expected life in years (a)........... 4 4 4 Expected volatility.................. 25% 35% 40% Expected dividend yield.............. -- -- -- (a) 385,000 options to purchase shares of common stock with a grant date fair value of $5.40 were granted on a performance-related basis and have an expected life of 1.5 years. The performance criteria were met during 2003 and the options will vest over a 2-year period.
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 12. STOCK OPTION PLAN - (CONTINUED) The Company applies the intrinsic valuation methodology under Accounting Standards Board Opinion No. 25 and related interpretations in accounting for its plan. Had compensation cost for the Company's stock option plan been determined based upon the fair value of such awards at the grant date, consistent with the methods of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net earnings and basic and diluted net earnings per common share for the years ended December 31 would have been as follows:
2003 2002 2001 ------ ------ ------ Net earnings: As reported........................................ $ 95,838 $ 100,421 $ 72,264 Compensation expense............................... (6,748) (5,809) (4,916) -------- --------- --------- Pro forma.......................................... $ 89,090 $ 94,612 $ 67,348 ======== ========= ========= Basic earnings per common share: As reported........................................ $ 2.15 $ 2.27 $ 1.78 Compensation expense............................... (0.15) (0.13) (0.12) ------- ------- ------- Pro forma.......................................... $ 2.00 $ 2.14 $ 1.66 ======= ======= ======= Diluted earnings per common share: As reported........................................ $ 2.11 $ 2.21 $ 1.68 Compensation expense............................... (0.15) (0.12) (0.11) ------- ------- ------- Pro forma.......................................... $ 1.96 $ 2.09 $ 1.57 ======= ======= =======
13. BENEFIT PLANS Mettler-Toledo maintains a number of retirement and other post-retirement employee benefit plans. Certain subsidiaries sponsor defined contribution plans. Benefits are determined and funded annually based upon the terms of the plans. Amounts recognized as cost under these plans amounted to $7.0 million, $3.3 million and $2.6 million for the years ended December 31, 2003, 2002 and 2001, respectively. Certain subsidiaries sponsor defined benefit plans. Benefits are provided to employees primarily based upon years of service and employees' compensation for certain periods during the last years of employment. The Company's U.S. operations also provide post-retirement medical benefits to their employees. Contributions for medical benefits are related to employee years of service. As described in Note 15, during the year ended December 31, 2002 the Company revised its U.S. defined benefit pension plan to freeze the benefits for current participants and to discontinue the plan for all future employees, resulting in an expense of $1.1 million. In addition, the Company's U.S. retiree medical program was also discontinued during 2002 for certain current and all future active employees, resulting in a curtailment gain of $1.3 million. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 13. BENEFIT PLANS - (CONTINUED) In accordance with Emerging Issues Task Force Issue No. 03-4, "Accounting for Cash Balance Pension Plans" ("EITF 03-4"), the Company determined that its Swiss cash balance pension plan met the requirements necessitating a change in the method of expense attribution used in its actuarial calculations from the 'projected unit credit' method to the `traditional unit credit' method. Unlike the projected unit credit method, the traditional unit credit method does not assume compensation increases in calculating the benefit obligation, because the pension benefit is based on a guaranteed return on pension contributions, rather than employees' compensation for certain periods during the last years of employment. Accordingly, this required change in methodology resulted in a reduction in the projected benefit obligation of approximately $53.3 million, which will be amortized over the expected future service life of Switzerland-based employees, beginning in 2004. The Company uses a measurement date of September 30 for its defined benefit pension and other benefit plans. The following table sets forth the change in benefit obligation, the change in plan assets, the funded status and amounts recognized in the consolidated financial statements for the Company's defined benefit plans and post-retirement plans at December 31, 2003 and 2002:
U.S. Pension Non-U.S. ------------ -------- Other Benefits Benefits Pension Benefits -------------- -------- ---------------- 2003 2002 2003 2002 2003 2002 ---- ---- ---- ---- ---- ---- Change in benefit obligation: Benefit obligation at beginning of year................................ $ 89,249 $ 83,164 $404,057 $335,323 $ 33,303 $ 36,839 Service cost, gross............... 431 2,033 19,807 19,539 132 324 Interest cost..................... 6,129 6,167 18,807 17,386 1,856 2,551 Actuarial (gains) losses.......... 9,339 4,540 (73,647) (18,385) 3,956 (3,601) Plan amendments and other......... - (2,051) 238 682 (6,984) - Benefits paid..................... (5,353) (4,604) (15,823) (15,034) (2,485) (2,810) Impact of foreign currency........ - - 49,041 64,546 - - -------- -------- -------- -------- -------- -------- Benefit obligation at end of year. $ 99,795 $ 89,249 $402,480 $404,057 $ 29,778 $ 33,303 -------- -------- -------- -------- -------- -------- Change in plan assets: Fair value of plan assets at beginning of year............... $ 47,167 $ 54,555 $355,081 $302,617 $ - $ - Actual return on plan assets...... 9,624 (5,397) 3,721 (8,256) - - Employer contributions............ 19,028 2,613 11,306 10,882 2,485 2,810 Plan participants' contributions.. - - 5,873 5,557 - - Benefits paid..................... (5,353) (4,604) (15,823) (15,034) (2,485) (2,810) Impact of foreign currency........ - - 43,493 59,314 - - Fair value of plan assets at end -------- -------- -------- -------- -------- -------- of year......................... $ 70,466 $ 47,167 $403,651 $355,080 $ - $ - -------- -------- -------- -------- -------- -------- Funded status..................... $(29,329) $(42,082) $ 1,171 $(48,977) $(29,778) $(33,303) Unrecognized net actuarial (gain) loss............................ 35,914 33,302 (60,665) 806 (1,324) 77 Post-measurement date contributions................... 10,000 19,007 7,111 - - - -------- -------- -------- -------- -------- -------- Net amount recognized............. $ 16,585 $ 10,227 $(52,383) $(48,171) $(31,102) $(33,226) ======== ======== ======== ======== ======== ========
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 13. BENEFIT PLANS - (CONTINUED) Amounts recognized in the consolidated balance sheets consist of:
U.S. Pension Non-U.S. ------------ -------- Other Benefits Benefits Pension Benefits -------------- -------- ---------------- 2003 2002 2003 2002 2003 2002 ---- ---- ---- ---- ---- ---- Other non-current assets.......... $ - $ - $ 20,981 $ 11,730 $ - $ - Pension and other post-retirement liabilities..................... (19,323) (23,078) (81,023) (67,134) (31,102) (33,226) Accumulated other comprehensive loss............................ 35,908 33,305 7,659 7,233 - - ------- ------- -------- -------- -------- -------- Net amount recognized............. $16,585 $10,227 $(52,383) $(48,171) $(31,102) $(33,226) ======= ======= ======== ======== ======== ========
The accumulated benefit obligations at December 31, 2003 and 2002 were $99.8 million and $89.2 million respectively for the U.S. defined benefit pension plan, and $397.9 million and $397.1 million respectively for all non-U.S. plans. The assumed discount rates and rates of increase in future compensation levels used in calculating the projected benefit obligations vary according to the economic conditions of the country in which the retirement plans are situated. The weighted average rates used for the purposes of the Company's plans are as follows:
U.S. Non-U.S. --------------------------- ---------------------------- 2003 2002 2001 2003 2002 2001 ---- ---- ----- ---- ---- ---- Discount rate................................... 6.25% 7.0% 7.5% 4.5% 4.5% 4.7% Compensation increase rate...................... n/a n/a 4.0% 2.5% 2.5% 2.9% Expected long-term rate of return on plan assets........................................ 8.5% 8.5% 9.5% 6.1% 6.1% 6.1%
Net periodic pension cost for the defined benefit plans includes the following components for the year ended December 31:
U.S. Non-U.S. ---------------------------- --------------------------- 2003 2002 2001 2003 2002 2001 ----- ----- ----- ----- ----- ---- Service cost, net........................... $ 431 $ 897 $ 3,487 $13,934 $13,982 $ 10,789 Interest cost on projected benefit obligations............................... 6,129 6,167 5,596 18,807 17,386 14,399 Expected return on plan assets.............. (5,033) (5,196) (6,484) (22,281) (21,662) (17,373) Impact of plan freeze....................... - 1,136 - - - - Impact of early retirement.................. 428 1,615 1,013 - - - Recognition of actuarial losses (gains)..... 1,714 791 5 642 333 (731) -------- ------- ------- ------- ------- --------- Net periodic pension cost................... $ 3,669 $ 5,410 $ 3,617 $11,102 $10,039 $ 7,084 ======== ======= ======= ======= ======= =========
Net periodic post-retirement benefit cost for the U.S. post-retirement plans includes the following components for the year ended December 31:
2003 2002 2001 --------- ---------- ---------- Service cost............................... $ 132 $ 324 $ 495 Interest cost on projected benefit obligations.............................. 1,856 2,551 2,480 Curtailment gain on plan freeze............ (929) (1,334) - Impact of early retirement................. - 365 - Net amortization and deferral.............. (576) (209) - ------- ------- ------- Net periodic post-retirement benefit cost.. $ 483 $ 1,697 $ 2,975 ======= ======= =======
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 13. BENEFIT PLANS - (CONTINUED) The accumulated post-retirement benefit obligation and net periodic post-retirement benefit cost were principally determined using discount rates of 6.25% in 2003, 7.0% in 2002 and 7.5% in 2001 and health care cost trend rates ranging from 9% to 14% in 2003 and 2002, and from 10% to 15% in 2001, decreasing to 4.5% in 2008. The health care cost trend rate assumption has a significant effect on the accumulated post-retirement benefit obligation and net periodic post-retirement benefit cost. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
One-Percentage-Point One-Percentage- Increase Point Decrease -------------------- --------------- Effect on total of service and interest cost components.............. $ 142 $ (132) Effect on post-retirement benefit obligation......................... $2,461 $ (2,273)
Plan assets relate principally to the Company's U.S. and Swiss subsidiaries and consist of equity investments, obligations of the U.S. Treasury or other governmental agencies, and other interest-bearing investments. Actual and target asset allocations in the Company's pension plans at December 31, 2003 and 2002 were as follows:
U.S. Non-U.S. --------------------------------- --------------------------------- Target 2003 2002 Target 2003 2002 ------ ---- ---- ------ ---- ---- Debt securities............... 33% 31% 38% 50% 52% 63% Equity securities............. 65% 67% 58% 25% 23% 20% Real estate and other......... 2% 2% 4% 25% 25% 17% ---- ---- ---- ---- ---- ---- Total......................... 100% 100% 100% 100% 100% 100% ==== ==== ==== ==== ==== ====
Investment policies and strategies for each of the Company's pension plans are determined periodically by pension trustees for each plan, having regard to the potential risks and returns offered by investment in the various assets available. Target asset allocation and investment return criteria are established by the trustees with the overriding objective of stable earnings growth. Actual results are monitored against those targets and the trustees are required to report to the members of each plan, including an analysis of investment performance on an annual basis at a minimum. Day to day asset management is typically performed by a third party asset management company, reporting to the pension trustees. The long-term rate of return on plan asset assumptions used to determine pension expense under U.S. GAAP, are generally based on historical investment performance and the target investment return criteria for the future determined by the trustees. As a result of the voluntary incremental pension payments made to the Company's underfunded pension plans of $17.1 million in 2003 and $19.0 million in 2002, the Company does not expect to make any significant required pension funding payments during the next two years. However, similar to 2003 and 2002, voluntary contributions to the Company's pension plans may be made, for example if the funded status of the plans deteriorate significantly, and if cash flow generation is sufficient. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 13. BENEFIT PLANS - (CONTINUED) In 2004, the Company expects to make normal employer pension contributions of approximately $11.4 million to its non-U.S. pension plans and normal employer contributions of approximately $2.4 million to its U.S. post-retirement medical plan. 14. TAXES The sources of the Company's earnings before taxes were as follows for the years ending December 31:
2003 2002 2001 -------- -------- --------- United States.................................... $ 29,208 $ 29,669 $ (3,202) Non-United States................................ 107,703 80,741 121,636 --------- --------- --------- Earnings before taxes............................ $ 136,911 $ 110,410 $ 118,434 ========= ========= =========
The provisions for taxes consist of:
Adjustments to Current Deferred Goodwill Total -------- -------- ----------- ------- Year ended December 31, 2003: United States federal............................ $ 3,470 $ 10,356 $ - $13,826 State and local.................................. 585 700 - 1,285 Non-United States................................ 26,885 (923) - 25,962 -------- --------- -------- ------- $ 30,940 $ 10,133 $ - $41,073 ======== ========= ======== ======= Adjustments to Current Deferred Goodwill Total -------- -------- ----------- ------- Year ended December 31, 2002: United States federal............................ $ 14,291 $ (12,517) $ 9,488 $11,262 State and local.................................. 539 - - 539 Non-United States................................ 120 (1,932) - (1,812) -------- --------- -------- ------- $ 14,950 $ (14,449) $ 9,488 $ 9,989 ======== ========= ======== ======= Adjustments to Current Deferred Goodwill Total -------- -------- ----------- ------- Year ended December 31, 2001: United States federal............................ $ 129 $ 214 $ - $ 343 State and local.................................. 553 - - 553 Non-United States................................ 42,564 1,749 961 45,274 -------- --------- -------- --------- $ 43,246 $ 1,963 $ 961 $46,170 ======== ========= ======== =========
During 2002, the Company recorded a one-time benefit of $23.1 million related to the completion of a tax restructuring program and related audits. The adjustments to goodwill during the years ending December 31, 2002 and 2001 relate to tax benefits utilized that were not previously recognized in the purchase price allocation pertaining to previous acquisitions. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 14. TAXES - (CONTINUED) The provisions for tax expense for the years ending December 31, 2003, 2002 and 2001 differed from the amounts computed by applying the United States federal income tax rate of 35% to the earnings before taxes as a result of the following:
2003 2002 2001 ------------- ------------- ------------- Expected tax......................................... $ 47,919 $ 38,643 $41,453 United States state and local income taxes, net of federal income tax benefit....................... 1,285 350 553 Non-deductible intangible amortization............... - - 2,222 Change in valuation allowance........................ (2,728) 6,751 1,288 Tax restructuring program and audit settlements...... - (23,135) - Other non-United States income taxes at other than a 35% rate......................................... (8,695) (13,499) 373 Other, net........................................... 3,292 879 281 -------- --------- ------- Total provision for taxes............................ $ 41,073 $ 9,989 $46,170 ======== ========= =======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below at December 31:
2003 2002 --------- ---------- Deferred tax assets: Inventory............................................ $ 522 $ 497 Accrued and other liabilities........................ 21,364 29,931 Deferred losses...................................... 2,099 2,099 Accrued post-retirement benefit and pension costs.... 29,265 28,304 Net operating loss and tax credit carryforwards...... 51,315 60,935 Other................................................ - 4,508 -------- -------- Total deferred tax assets................................ 104,565 126,274 Less valuation allowance................................. (36,238) (68,344) -------- -------- Total deferred tax assets less valuation allowance....... 68,327 57,930 -------- -------- Deferred tax liabilities: Inventory............................................ 3,455 1,510 Property, plant and equipment........................ 18,465 16,976 Rainin intangibles amortization...................... 13,103 6,283 Other................................................ 15,379 13,482 International earnings............................... 10,859 3,815 -------- -------- Total deferred tax liabilities........................... 61,261 42,066 -------- -------- Net deferred tax asset................................... $ 7,066 $ 15,864 ======== ========
The Company has recorded valuation allowances related to its deferred income tax assets due to the uncertainty of the ultimate realization of future benefits from such assets. The potential decrease or increase of the valuation allowance in the near term is dependent on the future ability of the Company to realize the deferred tax assets that are affected by the future profitability of operations in various worldwide jurisdictions. The 2003 net change in the valuation allowance includes a $2.7 million release of the valuation allowance attributable to deferred tax assets associated with temporary differences and tax credit carryforwards and a $29.4 million reduction in deferred tax assets and the related valuation allowance primarily related to tax credit carryforwards. $2.6 million and $4.9 million of the valuation allowance will be credited to shareholders' equity and goodwill if and when realized. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 14. TAXES - (CONTINUED) At December 31, 2003, for U.S. federal income tax purposes, the Company had net operating loss carryforwards of $4.6 million that expire in various amounts through 2018 and foreign tax credits of $10.9 million that will expire in various amounts through 2007. The Company has various U.S. state net operating losses and various foreign net operating losses that expire in varying amounts through 2023. The Company plans to repatriate in future years $80 million of previously unremitted earnings of foreign subsidiaries. Accordingly, a deferred tax liability of $10.9 million was established to account for the incremental tax costs associated with the planned repatriation. No deferred tax liability has been recognized on the residual unremitted earnings approximating $219 million, as such earnings have been permanently reinvested in the business. The Company is currently under examination in various taxing jurisdictions in which it conducts business operations. While the Company has not yet received any material assessments from these taxing authorities, the Company believes that adequate amounts of taxes and related interest and penalties have been provided for any adverse adjustments as a result of these examinations and that the ultimate outcome of these examinations will not result in an adverse material impact on the Company's consolidated results of operations or financial position. 15. OTHER CHARGES (INCOME), NET Other charges (income), net consists primarily of charges related to the Company's restructuring programs, interest income, (gains) losses from foreign currency transactions, (gains) losses from sales of assets and other items. As part of its efforts to reduce costs, the Company recorded a charge of approximately $15.2 million ($14.6 million after tax) in 2001, associated primarily with headcount reductions and manufacturing transfers. This charge comprised primarily severance and other related benefits and costs of exiting facilities, including lease termination costs and the write-down of impaired assets. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 15. OTHER CHARGES (INCOME), NET - (CONTINUED) During the three months ended June 30, 2002, the Company recorded a restructuring charge of $28.7 million ($20.1 million after tax), primarily related to the exit of manufacturing facilities in France and the United States, and in order to further reduce the Company's expense structure. This charge comprised restructuring liabilities of $24.3 million and related asset impairments of $4.4 million. In total, the Company expects this restructuring plan to result in cash outlays of approximately $20.2 million and non-cash items of $8.5 million. The charge comprised involuntary employee separation benefits, write-downs of impaired assets to be disposed and other exit costs. The Company involuntarily terminated approximately net 300 employees in targeted manufacturing and administrative areas. The asset impairments of $4.4 million primarily relate to plant and equipment disposals resulting from the exit of certain manufacturing facilities. Fair value of these assets was determined on the basis of their net realizable value on disposal. As part of this restructuring program, the Company revised its U.S. defined benefit pension plan to freeze the benefits for current participants and to discontinue the plan for all future employees, resulting in an expense of $1.1 million. In addition, the Company's U.S. retiree medical program was also discontinued for certain current and all future active employees, resulting in a curtailment gain of $1.3 million. As noted in previous filings, in accordance with U.S. GAAP, the charge taken in the second quarter of 2002 related to the exit of our French manufacturing facility was limited to the minimum contractual payment required by French law. During the three months ended March 31, 2003, the Company recorded a restructuring charge of $5.4 million ($3.8 million after tax), related to the final union settlement on the closure of this facility. This charge comprises the additional employee-related costs resulting from final settlement of the social plan negotiated with the French workers' council during the first quarter of 2003. The Company assesses its accrual for restructuring activities on an ongoing basis. During the three months ended September 30, 2003, the Company recorded a reduction in the restructuring accrual of $0.96 million, included within Other charges (income), net, as a result of lower employee-related charges than originally anticipated. Also, a restructuring charge of $1.4 million was recorded during the three months ended September 30, 2003, related to an extension of manufacturing consolidation activities. This charge comprised severance of $1.0 million, included within Other charges (income), net, and inventory write-downs of $0.4 million, included within Cost of sales. The Company's aforementioned restructuring programs and related accruals were substantially completed at December 31, 2003. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 15. OTHER CHARGES (INCOME), NET - (CONTINUED) A roll-forward of the Company's accrual for restructuring activities follows:
Employee Lease related termination Other Total ------- ----------- ----- ----- (a) (b) (c) Balance at December 31, 2001........................ $ 2,001 $ 279 $ 324 $ 2,604 Restructuring expense (d)........................... 21,967 2,051 283 24,301 Cash payments....................................... (9,660) (433) (238) (10,331) Increase in retirement benefit obligation........... (3,850) - - (3,850) Impact of foreign currency.......................... 1,345 135 51 1,531 -------- ------- ------ ------- Balance at December 31, 2002........................ $ 11,803 $ 2,032 $ 420 $14,255 Restructuring expense (d)........................... 6,404 - - 6,404 Adjustment to previous accrual...................... (960) - - (960) Cash payments....................................... (16,492) (293) (7) (16,792) Other utilizations and transfers to operating liabilities........................................ (2,398) (1,866) (460) (4,724) Impact of foreign currency.......................... 1,643 127 47 1,817 -------- ------- ------ -------- Balance at December 31, 2003........................ $ - $ - $ - $ - ======== ======= ====== ======== (a) Employee related costs include severance, medical and early retirement costs for approximately net 300 employees, substantially all of which had been terminated as of December 31, 2003. These employees include positions primarily in manufacturing, as well as administrative and other personnel, primarily at the Company's Principal U.S. and Other Western European Operations. The increases in the Company's retirement benefit obligation represent enhanced early retirement benefits provided to impacted employees. (b) Lease termination costs primarily relate to the early termination of leases on vacated property, primarily at the Company's Principal U.S. and Other Western European Operations. (c) Other costs include expenses associated with equipment dismantling and disposal, and other exit costs. (d) Excludes the charges in respect of inventory and other asset write-downs of $4.4 million in 2002 and $0.4 million in 2003, recorded as reductions in the book values of the related assets.
16. COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases certain of its facilities and equipment under operating leases. The future minimum lease payments under non-cancelable operating leases are as follows at December 31, 2003: 2004.............................. $ 19,437 2005.............................. 15,745 2006.............................. 12,577 2007.............................. 9,550 2008.............................. 8,055 Thereafter........................ 27,571 ------------- Total........................... $ 92,935 ============= Rent expense for operating leases amounted to $28.2 million, $24.7 million and $20.0 million for the years ended December 31, 2003, 2002 and 2001, respectively. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 16. COMMITMENTS AND CONTINGENCIES - (CONTINUED) Legal The Company is party to various legal proceedings, including certain environmental matters, incidental to the normal course of business. Management does not expect that any of such proceedings will have a material adverse effect on the Company's financial condition or results of operations. 17. SEGMENT REPORTING Operating segments are the individual reporting units within the Company. These units are managed separately, and it is at this level where the determination of resource allocation is made. The units have been aggregated based on operating segments in geographic regions that have similar economic characteristics and meet the aggregation criteria of SFAS 131. The Company has determined that as of December 31, 2003 there are six reportable segments: Principal U.S. Operations, Other Western European Operations, Principal Central European Operations, Swiss R&D and Manufacturing Operations, Asia and Other. In previous reporting periods, results from Asia were included within the Other operating segment. During the three months ended December 31, 2003, the Company's reporting units in Asia exceeded the quantitative threshold for disclosure as a separate operating segment. Segment disclosure for 2002 and 2001 has been reclassified accordingly. Principal U.S. Operations represent certain of the Company's marketing and producing organizations located in the United States. Other Western European Operations include the Company's market organizations in Western Europe that are not included in Principal Central European Operations. Principal Central European Operations primarily include the Company's German marketing and producing organizations that primarily serve the German market and, to a lesser extent, Europe. Swiss R&D and Manufacturing Operations consist of the organizations located in Switzerland that are responsible for the development, production and marketing of precision instruments, including weighing, analytical and measurement technologies for use in a variety of industrial and laboratory applications. Asia represents the Company's marketing and producing organizations located in Asia. The Company's market organizations are geographically focused and are responsible for all aspects of the Company's sales and service. Operating segments that exist outside these reportable segments are included in Other. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 17. SEGMENT REPORTING - (CONTINUED) The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on Segment Profit (gross profit less research and development, selling, general and administrative expenses and restructuring charges before amortization, interest expense and other charges). Intersegment sales and transfers are priced to reflect consideration of market conditions and the regulations of the countries in which the transferring entities are located. The following tables show the operations of the Company's operating segments:
Net Purchase Net sales of sales to to Segment property, For the year ended external other Total profit Total plant and December 31, 2003 customers segments net sales (c) Depreciation assets equipment Goodwill - --------------------------- --------- -------- --------- --- ------------ ------ --------- -------- Principal U.S. Operations.. $ 426,680 $ 39,259 $ 465,939 $ 68,516 $ 6,936 $ 687,875 $ 7,689 $200,294 Other Western European Operations.............. 306,644 22,954 329,598 18,491 3,370 270,416 3,927 83,939 Principal Central European Operations.............. 180,272 59,048 239,320 20,453 2,810 186,754 2,049 26,931 Swiss R&D and Mfg. Operations.............. 49,897 185,798 235,695 39,970 6,595 196,012 6,239 23,091 Asia....................... 147,537 37,320 184,857 29,575 2,505 141,504 4,352 10,234 Other (a).................. 193,401 38,984 232,385 12,330 2,179 675,292 2,754 77,451 Eliminations and Corporate (b)....................... - (383,363) (383,363) (27,428) 691 (770,577) 142 - ---------- -------- ---------- -------- ------- ---------- -------- -------- Total...................... $1,304,431 $ - $1,304,431 $161,907 $25,086 $1,387,276 $ 27,152 $421,940 ========== ======== ========== ======== ======= ========== ======== ========
Net Purchase Net sales of sales to to Segment property, For the year ended external other Total profit Total plant and December 31, 2002 customers segments net sales (d) Depreciation assets equipment Goodwill - --------------------------- --------- -------- --------- --- ------------ ------ --------- -------- Principal U.S. Operations.. $ 441,898 $ 33,380 $ 475,278 $ 57,008 $ 8,457 $ 678,797 $ 14,480 $201,663 Other Western European Operations.............. 264,683 22,359 287,042 3,709 3,195 184,044 2,156 76,184 Principal Central European Operations.............. 158,232 49,052 207,284 13,360 2,607 149,198 2,908 23,607 Swiss R&D and Mfg. Operations.............. 49,632 176,496 226,128 47,193 5,916 495,442 4,905 21,512 Asia....................... 118,936 23,349 142,285 20,966 2,143 108,027 4,121 8,728 Other (a).................. 180,326 37,162 217,488 7,357 2,479 632,746 1,853 76,657 Eliminations and Corporate (b)..................... - (341,798) (341,798) (13,101) 595 (944,861) 2,734 - ---------- -------- ---------- -------- ------- ---------- -------- -------- Total...................... $1,213,707 $ - $1,213,707 $136,492 $25,392 $1,303,393 $ 33,157 $408,351 ========== ======== ========== ======== ======= ========== ======== ========
Footnotes on following page METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 17. SEGMENT REPORTING - (CONTINUED)
Net Purchase Net sales of sales to to Segment property, For the year ended external other Total profit Total plant and December 31, 2001 customers segments net sales (e) Depreciation assets equipment Goodwill - --------------------------- ----------- -------- ----------- --- ------------ ------ --------- -------- Principal U.S. Operations.. $ 362,855 $ 32,507 $ 395,362 $ 25,036 $ 6,762 $ 585,357 $ 7,007 $187,565 Other Western European Operations.............. 269,733 44,616 314,349 26,566 2,962 183,120 3,498 77,982 Principal Central European Operations.............. 185,606 60,886 246,492 30,145 2,283 144,967 4,386 21,100 Swiss R&D and Mfg. Operations.............. 51,300 190,485 241,785 56,999 5,769 381,873 5,980 19,205 Asia....................... 107,642 24,307 131,949 16,909 1,950 91,398 2,689 6,827 Other (a).................. 170,886 55,242 226,128 7,684 2,681 466,370 3,292 72,268 Eliminations and Corporate (b)..................... - (408,043) (408,043) (13,471) 451 (663,673) 6,376 - ---------- -------- ---------- -------- ------- ---------- ------- -------- Total...................... $1,148,022 $ - $1,148,022 $149,868 $22,858 $1,189,412 $33,228 $384,947 ========== ======== ========== ======== ======= ========== ======= ======== (a) Other includes reporting units in Eastern Europe, Latin America and segments from other countries that do not meet the quantitative thresholds but meet the majority of the aggregation criteria of SFAS 131. (b) Eliminations and Corporate includes the elimination of intersegment transactions as well as certain corporate expenses, intercompany investments and certain goodwill, which are not included in the Company's operating segments. (c) The results for the year ended December 31, 2003 include a restructuring charge of $5.4 million recorded in the Other Western European Operations segment ($4.4 million) and Other segment ($1.0 million). (d) The results for the year ended December 31, 2002 include a restructuring charge of $28.7 million, recorded in the second quarter, in the Principal U.S. Operations ($11.8 million), Principal Central European Operations ($2.8 million), Swiss R&D and Manufacturing Operations ($0.1 million), Other Western European Operations ($11.4 million), Asia ($0.1 million) and Other ($2.5 million) segments. (e) The results for the year ended December 31, 2001 include a restructuring charge of $15.2 million, recorded in the second quarter, in the Principal U.S. Operations ($6.0 million), Principal Central European Operations ($0.3 million), Other Western European Operations ($0.9 million), Asia ($0.3 million), Other ($5.5 million) and Corporate ($2.2 million) segments.
Non-GAAP Financial Measures The Company supplements U.S. GAAP results with non-GAAP financial measures. The principal non-GAAP financial measure used is Adjusted Operating Income. Adjusted Operating Income is defined as gross profit less research and development, selling general and administrative expenses and restructuring charges, before amortization, interest, other charges and taxes. The most directly comparable U.S. GAAP financial measure is net earnings. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 17. SEGMENT REPORTING - (CONTINUED) Non-GAAP Financial Measures - (continued) The Company believes that Adjusted Operating Income is important supplemental information for investors. Adjusted Operating Income, or Segment Profit, is used internally as the principal profit measurement by our segments in their reporting to management. The Company uses this measure because it excludes amortization, interest, other charges and taxes, which are not allocated to the segments. On a consolidated basis, the Company also believes Adjusted Operating Income is an important supplemental method of measuring profitability. It is used internally by senior management for measuring profitability, setting performance targets for managers and has historically been used as one of the means of publicly providing guidance on possible future results. The Company also believes that Adjusted Operating Income is an important performance measure because it provides a measure of comparability to other companies with different capital or legal structures which accordingly may be subject to disparate interest rates and effective tax rates, and to companies which may incur different amortization expenses or impairment charges related to intangible assets. Adjusted Operating Income is used in addition to and in conjunction with results presented in accordance with U.S. GAAP. Adjusted Operating Income is not intended to represent operating income under U.S. GAAP and should not be considered as an alternative to net earnings as an indicator of the Company's performance because of the following limitations. Limitations of the non-GAAP measure, Adjusted Operating Income The non-GAAP measure, Adjusted Operating Income, has certain material limitations as follows: o It does not include interest expense. Because the Company has borrowed money to finance some of its operations, interest is a necessary and ongoing part of the Company's costs and has assisted the Company in generating revenue. Therefore any measure that excludes interest expense has material limitations; o It does not include taxes. Because payment of taxes is a necessary and ongoing part of the Company's operations, any measure that excludes taxes has material limitations; o It excludes amortization expense and other charges. Because these items are recurring, any measure that excludes them has material limitations. Adjusted Operating Income should not be relied upon to the exclusion of U.S. GAAP financial measures, but reflects an additional measure of comparability and means of viewing aspects of the Company's operations that, when viewed together with U.S. GAAP results and the accompanying reconciliation to net earnings, provides a more complete understanding of factors and trends affecting the business. Because Adjusted Operating Income is not standardized, it may not be possible to compare with other companies' non-GAAP financial measures having the same or a similar name. The Company strongly encourages investors to review these financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 17. SEGMENT REPORTING - (CONTINUED) A reconciliation of Adjusted Operating Income, or Segment Profit to earnings before taxes for the years ended December 31 follows:
2003 2002 2001 ---- ---- ---- Adjusted operating income (after restructuring charges) (a).................................... $ 161,907 $ 136,492 $ 149,868 Amortization...................................... 11,724 9,332 14,114 Interest expense.................................. 14,153 17,209 17,162 Other charges, net (excluding restructuring charges) (881) (459) 158 Provision for taxes............................... 41,073 9,989 46,170 --------- --------- --------- Net earnings...................................... $ 95,838 $ 100,421 $ 72,264 ========= ========= ========= (a) Adjusted Operating Income for 2003, 2002 and 2001 includes restructuring charges of $5,444, $28,661 and $15,196 respectively, primarily related to headcount reductions and manufacturing transfers. See Note 15 to the consolidated financial statements.
The Company sells precision instruments, including weighing instruments and certain analytical and measurement technologies, and related services to a variety of customers and industries. None of these customers account for more than 3% of net sales. Service revenues are primarily derived from sales of spare parts and services such as calibration, certification and repair, much of which is provided under contracts. A breakdown of the Company's sales by category for the years ended December 31 follows:
2003 2002 2001 ---------- ---------- ---------- Weighing-related instruments..... $ 629,797 $ 594,465 $ 639,308 Non-weighing instruments......... 384,925 359,616 273,356 Service.......................... 289,709 259,626 235,358 ---------- ---------- ---------- Total net sales.................. $1,304,431 $1,213,707 $1,148,022 ========== ========== ==========
The breakdown of net sales by geographic customer destination and property, plant and equipment, net for the year ended December 31 is as follows:
Property, plant and Net sales equipment, net ----------------------------------------- ----------------------- 2003 2002 2001 2003 2002 ---------- ----------- ------------ ---------- ---------- United States....... $ 480,418 $ 494,913 $417,886 $41,398 $46,650 Other Americas...... 73,750 72,754 74,020 614 1,859 ---------- ----------- ------------ ---------- ---------- Total Americas...... 554,168 567,667 491,906 42,012 48,509 Germany............. 122,706 104,311 130,641 30,781 26,842 France.............. 99,303 90,046 104,206 5,196 5,497 United Kingdom...... 55,215 47,228 44,689 7,074 5,156 Switzerland......... 51,750 46,274 45,437 118,402 108,249 Other Europe........ 224,790 197,225 185,961 6,154 5,930 ---------- ----------- ------------ ---------- ---------- Total Europe........ 553,764 485,084 510,934 167,607 151,674 Rest of World....... 196,499 160,956 145,182 21,893 17,571 ---------- ----------- ------------ ---------- ---------- Total............... $1,304,431 $1,213,707 $1,148,022 $231,512 $217,754 ========== =========== ============ ========== ==========
METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 18. RELATED PARTY TRANSACTIONS As part of the Rainin acquisition (see Note 3 to the consolidated financial statements), the Company entered into an agreement to lease certain property from the former owner and current General Manager of Rainin. During the years ended December 31, 2003, 2002 and 2001, the Company made lease payments in respect of this agreement of $2.2 million, $1.9 million and $0.2 million respectively. In addition, Rainin continued to purchase certain products from its former owner. During the years ended December 31, 2003, 2002 and 2001, the volume of these purchases was $1.1 million, $1.5 million and $0.3 million respectively. All of the Company's transactions with the former owner of Rainin are in the normal course of business. METTLER-TOLEDO INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS UNLESS OTHERWISE STATED) 19. QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly financial data for the years ended December 31, 2003 and 2002 are as follows:
FIRST SECOND THIRD FOURTH QUARTER (a) QUARTER (b) QUARTER QUARTER 2003 ----------- ----------- ------- -------- Net sales .................................... $ 291,808 $ 321,363 $ 320,814 $ 370,446 Gross profit.................................. 133,658 156,411 151,864 176,243 Net earnings.................................. $ 12,935 $ 25,780 $ 24,182 $ 32,941 Basic earnings per common share: Net earnings................................ $ 0.29 $0.58 $0.54 $ 0.74 Weighted average number of common shares.... 44,393,312 44,434,612 44,485,712 44,582,017 Diluted earnings per common share: Net earnings................................ $ 0.29 $ 0.57 $ 0.53 $ 0.72 Weighted average number of common shares.... 45,288,823 45,467,106 45,568,383 45,711,078 Market price per share: High........................................ $ 34.12 $ 38.00 $ 39.75 $ 42.73 Low......................................... $ 28.90 $ 29.82 $ 34.60 $ 36.06 2002 Net sales .................................... $ 272,957 $ 296,454 $ 306,990 $ 337,306 Gross profit.................................. 125,137 141,082 142,923 158,595 Net earnings.................................. $ 18,674 $ 27,478 $ 22,977 $ 31,292 Basic earnings per common share: Net earnings................................ $ 0.42 $ 0.62 $ 0.52 $ 0.71 Weighted average number of common shares.... 44,173,850 44,208,274 44,355,475 44,384,820 Diluted earnings per common share: Net earnings................................ $ 0.41 $ 0.61 $ 0.51 $ 0.69 Weighted average number of common shares.... 45,517,058 45,409,690 45,235,544 45,317,919 Market price per share: High........................................ $ 51.85 $ 45.74 $ 36.87 $ 37.04 Low......................................... $ 42.80 $ 35.65 $ 24.85 $ 25.41 (a) The financial data for the first quarter of 2003 includes a charge of $5.4 million ($3.8 million after tax) primarily related to headcount reductions and manufacturing transfers (Note 15). (b) The financial data for the second quarter of 2002 includes a charge of $28.7 million ($20.1 million after tax) primarily related to headcount reductions and manufacturing transfers (Note 15). The financial data for the second quarter of 2002 also includes a benefit of $23.1 million related to tax restructuring activities and the completion of related tax audits (Note 14).
SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
Column A Column B Column C Column D Column E Additions (1) (2) Balance at Charged the beginning to costs and Charged to Balance at Description of period expenses other accounts -Deductions- end of period - -------------------------------- ---------------- ----------------- ---------------- ---------------- ----------------- Note (A) Note (B) Accounts Receivable- allowance for doubtful accounts: Year ended December 31, 2003 10,916 765 742 1,934 10,489 Year ended December 31, 2002 9,450 778 776 88 10,916 Year ended December 31, 2001 9,097 996 (244) 399 9,450 Allowance for inventory : Year ended December 31, 2003 30,831 8,033 3,485 3,604 38,745 Year ended December 31, 2002 30,965 6,022 3,047 9,203 30,831 Year ended December 31, 2001 30,619 3,498 (1,117) 2,035 30,965 Deferred Tax valuation allowance: Year ended December 31, 2003 68,344 (2,728) - 29,378 36,238 Year ended December 31, 2002 71,081 6,751 - 9,488 68,344 Year ended December 31, 2001 49,027 1,288 21,727 961 71,081 - -------------------------------- ---------------- ----------------- ---------------- ---------------- ----------------- Note A For accounts receivable and inventory, primarily comprised of currency translation adjustments. Note B For accounts receivable, represents excess of uncollectible balances written off over recoveries of accounts previously written off. For inventory, represents excess of book value of unsold inventory disposed over proceeds received on disposal. For deferred tax valuation allowance 2003, represents a reduction in the deferred tax assets related to tax credit carryforwards, while 2002 represents tax benefits utilized that were not previously recognized in the purchase price allocation pertaining to previous acquisitions.
EX-10.11 3 exh10_11.txt =============================================================================== Registration Rights Agreement Dated As of November 12, 2003 among Mettler-Toledo International Inc. (a Delaware corporation) and Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other several Initial Purchasers =============================================================================== EXHIBIT 10.11 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into this 12th day of November, 2003, among Mettler-Toledo International Inc., a Delaware corporation (the "Company"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other several Initial Purchasers named in Schedule I to the Purchase Agreement (collectively, the "Initial Purchasers"). This Agreement is made pursuant to the Purchase Agreement, dated as of November 3, 2003, among the Company and the Initial Purchasers (the "Purchase Agreement"), which provides for the sale by the Company to the Initial Purchasers of an aggregate of $150 million principal amount of the Company's 4.85% Senior Notes due 2010, (the "Securities"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "1934 Act" shall mean the Securities Exchange Act of l934, as amended from time to time. "Closing Date" shall mean the Closing Time as defined in the Purchase Agreement. "Company" shall have the meaning set forth in the preamble and shall also include the Company's successors. "Depositary" shall mean The Depository Trust Company, or any other depositary appointed by the Company; provided, however, that such depositary must have an address in the Borough of Manhattan, in the City of New York. "Exchange Offer" shall mean the exchange offer by the Company of Exchange Securities for Registrable Securities pursuant to Section 2.1 hereof. "Exchange Offer Registration" shall mean a registration under the 1933 Act effected pursuant to Section 2.1 hereof. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "Exchange Period" shall have the meaning set forth in Section 2.1 hereof. "Exchange Securities" shall mean the 4.85% Senior Notes due 2010, issued by the Company under the Indenture containing terms identical to the Securities in all material respects (except for references to certain interest rate provisions, restrictions on transfers and restrictive legends), to be offered to Holders of Securities in exchange for Registrable Securities pursuant to the Exchange Offer. "Holder" shall mean an Initial Purchaser, for so long as it owns any Registrable Securities, and each of its successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities under the Indenture and each Participating Broker-Dealer that holds Exchange Securities for so long as such Participating Broker-Dealer is required to deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities. "Indenture" shall mean the Indenture, dated as of November 12, 2003, between the Company and JPMorgan Chase Bank, as trustee, as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with the terms thereof. "Initial Purchaser" or "Initial Purchasers" shall have the meaning set forth in the preamble. "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of Outstanding (as defined in the Indenture) Registrable Securities; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company and other obligors on the Securities or any Affiliate (as defined in the Indenture) of the Company shall be disregarded in determining whether such consent or approval was given by the Holders of such required percentage amount. "Participating Broker-Dealer" shall mean any of Merrill Lynch, Pierce, Fenner & Smith Incorporated, the Initial Purchasers and any other broker-dealer which makes a market in the Securities and exchanges Registrable Securities in the Exchange Offer for Exchange Securities. "Person" shall mean an individual, partnership (general or limited), corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Private Exchange" shall have the meaning set forth in Section 2.1 hereof. "Private Exchange Securities" shall have the meaning set forth in Section 2.1 hereof. "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble. "Registrable Securities" shall mean the Securities and, if issued, the Private Exchange Securities; provided, however, that Securities and, if issued, the Private Exchange Securities, shall cease to be Registrable Securities when (i) a Registration Statement with respect to such Securities shall have been declared effective under the 1933 Act and such Securities shall have been disposed of pursuant to such Registration Statement, (ii) such Securities have been sold to the public pursuant to Rule l44 (or any similar provision then in force, but not Rule 144A) under the 1933 Act, (iii) such Securities shall have ceased to be outstanding or (iv) the Exchange Offer is consummated (except in the case of Securities purchased from the Company and continued to be held by the Initial Purchasers). "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees, including, if applicable, the fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained by any holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities and any filings with the NASD), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, (v) all rating agency fees, (vi) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, (vii) the fees and expenses of the Trustee, and any escrow agent or custodian, (viii) the reasonable fees and expenses of the Initial Purchasers in connection with the Exchange Offer, including the reasonable fees and expenses of counsel to the Initial Purchasers in connection therewith, (ix) the reasonable fees and disbursements of Simpson Thacher & Bartlett LLP, special counsel representing the Holders of Registrable Securities such fees and disbursements not to exceed $10,000, and (x) any fees and disbursements of the underwriters customarily required to be paid by issuers or sellers of securities and the fees and expenses of any special experts retained by the Company in connection with any Registration Statement, but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. "Registration Statement" shall mean any registration statement of the Company which covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "SEC" shall mean the U.S. Securities and Exchange Commission or any successor agency or government body performing the functions currently performed by the U.S. Securities and Exchange Commission. "Shelf Registration" shall mean a registration effected pursuant to Section 2.2 hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 2.2 of this Agreement which covers all of the Registrable Securities or all of the Private Exchange Securities on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Trustee" shall mean the trustee with respect to the Securities under the Indenture. 2. Registration Under the 1933 Act. 2.1. Exchange Offer. The Company shall, for the benefit of the Holders, at the Company's cost, (A) prepare and, as soon as practicable but not later than 150 days following the Closing Date, file with the SEC an Exchange Offer Registration Statement on an appropriate form under the 1933 Act with respect to a proposed Exchange Offer and the issuance and delivery to the Holders, in exchange for the Registrable Securities (other than Private Exchange Securities), of a like principal amount of Exchange Securities, (B) use its best efforts to cause the Exchange Offer Registration Statement to be declared effective under the 1933 Act within 210 days of the Closing Date, (C) use its best efforts to keep the Exchange Offer Registration Statement effective until the closing of the Exchange Offer and (D) use its best efforts to cause the Exchange Offer to be consummated not later than 240 days following the Closing Date. The Exchange Securities will be issued under the Indenture. Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (b) is not a broker-dealer tendering Registrable Securities acquired directly from the Company for its own account, (c) acquired the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any Person to participate in the Exchange Offer for the purpose of distributing the Exchange Securities) to transfer such Exchange Securities from and after their receipt without any limitations or restrictions under the 1933 Act and under state securities or blue sky laws. In connection with the Exchange Offer, the Company shall: (a) mail as promptly as practicable to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Exchange Offer open for acceptance for a period of not less than 30 calendar days after the date notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the "Exchange Period"); (c) utilize the services of the Depositary for the Exchange Offer; (d) permit Holders to withdraw tendered Registrable Securities at any time prior to 5:00 p.m. (Eastern Time), on the last business day of the Exchange Period, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange, and a statement that such Holder is withdrawing such Holder's election to have such Securities exchanged; (e) notify each Holder that any Registrable Security not tendered will remain outstanding and continue to accrue interest, but will not retain any rights under this Agreement (except in the case of the Initial Purchasers and Participating Broker-Dealers as provided herein); and (f) otherwise comply in all respects with all applicable laws relating to the Exchange Offer. If, prior to consummation of the Exchange Offer, the Initial Purchasers hold any Securities acquired by them and having the status of an unsold allotment in the initial distribution, the Company upon the request of any Initial Purchaser shall, simultaneously with the delivery of the Exchange Securities in the Exchange Offer, issue and deliver to such Initial Purchaser in exchange (the "Private Exchange") for the Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company on a senior basis, that are identical (except that such securities shall bear appropriate transfer restrictions) to the Exchange Securities (the "Private Exchange Securities"). The Exchange Securities and the Private Exchange Securities shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), or is exempt from such qualification and shall provide that the Exchange Securities shall not be subject to the transfer restrictions set forth in the Indenture but that the Private Exchange Securities shall be subject to such transfer restrictions. The Indenture or such indenture shall provide that the Exchange Securities, the Private Exchange Securities and the Securities shall vote and consent together on all matters as one class and that none of the Exchange Securities, the Private Exchange Securities or the Securities will have the right to vote or consent as a separate class on any matter. The Private Exchange Securities shall be of the same series as and the Company shall use all commercially reasonable efforts to have the Private Exchange Securities bear the same CUSIP number as the Exchange Securities. The Company shall not have any liability under this Agreement solely as a result of such Private Exchange Securities not bearing the same CUSIP number as the Exchange Securities. As soon as practicable after the close of the Exchange Offer and/or the Private Exchange, as the case may be, the Company shall: (i) accept for exchange all Registrable Securities duly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the letter of transmittal which shall be an exhibit thereto; (ii) accept for exchange all Securities properly tendered pursuant to the Private Exchange; (iii) deliver, or cause to be delivered, to the Trustee for cancellation all Registrable Securities so accepted for exchange; and (iv) cause the Trustee promptly to authenticate and deliver Exchange Securities or Private Exchange Securities, as the case may be, to each Holder of Registrable Securities so accepted for exchange in a principal amount equal to the principal amount of the Registrable Securities of such Holder so accepted for exchange. Interest on each Exchange Security and Private Exchange Security will accrue from the last date on which interest was paid on the Registrable Securities surrendered in exchange therefor or, if no interest has been paid on the Registrable Securities, from the date of original issuance. The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than (i) that the Exchange Offer or the Private Exchange, or the making of any exchange by a Holder, does not violate applicable law or any applicable interpretation of the staff of the SEC, (ii) the due tendering of Registrable Securities in accordance with the Exchange Offer and the Private Exchange, (iii) that each Holder of Registrable Securities exchanged in the Exchange Offer shall have represented that all Exchange Securities to be received by it shall be acquired in the ordinary course of its business and that at the time of the consummation of the Exchange Offer it shall have no arrangement or understanding with any person to participate in the distribution (within the meaning of the 1933 Act) of the Exchange Securities and shall have made such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render the use of Form S-4 or other appropriate form under the 1933 Act available and (iv) that no action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer or the Private Exchange which, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer or the Private Exchange. The Company shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. 2.2. Shelf Registration. (i) If, because of any changes in law, SEC rules or regulations or applicable interpretations thereof by the staff of the SEC, the Company is not permitted to effect the Exchange Offer as contemplated by Section 2.1 hereof, (ii) if for any other reason the Exchange Offer Registration Statement is not declared effective within 210 days following the original issue of the Registrable Securities or the Exchange Offer is not consummated within 240 days after the original issue of the Registrable Securities, (iii) upon the reasonable request of any of the Initial Purchasers, within 30 business days following the consummation of the Exchange Offer, if any such Initial Purchaser shall hold Registrable Securities which are acquired directly from the Company and if such Initial Purchaser is not permitted, in the opinion of counsel to such Initial Purchaser, pursuant to applicable interpretation of the staff of the SEC, to participate in the Exchange Offer, or (iv) if a Holder is not permitted to participate in the Exchange Offer or does not receive fully tradeable Exchange Securities pursuant to the Exchange Offer, then in case of each of clauses (i) through (iv) the Company shall, at its cost: (a) As promptly as practicable, file with the SEC, and thereafter shall use its best efforts to cause to be declared effective as promptly as practicable but no later than 240 days after the original issue of the Registrable Securities, a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by the Majority Holders participating in the Shelf Registration and set forth in such Shelf Registration Statement. (b) Subject to Section 2.2(c), use its reasonable efforts to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of two years from the date the Shelf Registration Statement is declared effective by the SEC, or for such shorter period that will terminate when all Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or cease to be outstanding or otherwise to be Registrable Securities (the "Effectiveness Period"); provided, however, that the Effectiveness Period in respect of the Shelf Registration Statement shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the 1933 Act and as otherwise provided herein. (c) The Company may suspend the use of the Prospectus forming a part of the Shelf Registration Statement to avoid premature public disclosure of a pending material corporate transaction, including, without limitation, pending material acquisitions and divestitures; provided that the Company promptly thereafter complies with the requirements of Section 3, as then applicable. (d) Notwithstanding any other provisions hereof, use its best efforts to ensure that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and any supplement thereto complies in all material respects with the 1933 Act and the rules and regulations thereunder, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Shelf Registration Statement, and any supplement to such Prospectus (as amended or supplemented from time to time), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading. The Company agrees, if necessary, to supplement or amend the Shelf Registration Statement, as required by Section 3(b) below, and to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. 2.3. Expenses. The Company shall pay all Registration Expenses in connection with the registration pursuant to Section 2.1 or 2.2. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. 2.4. Effectiveness. (a) The Company will be deemed not to have used its best efforts to cause the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, to become, or to remain, effective during the requisite period if the Company voluntarily takes any action that would, or omits to take any action which omission would, result in any such Registration Statement not being declared effective or in the Holders of Registrable Securities covered thereby not being able to exchange or offer and sell such Registrable Securities during that period as and to the extent contemplated hereby, unless such action or omission is required by applicable law or permitted by Section 2.2(c) hereof. (b) An Exchange Offer Registration Statement pursuant to Section 2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of Registrable Securities pursuant to an Exchange Offer Registration Statement or a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. 2.5. Interest. The Indenture executed in connection with the Securities will provide that in the event that either (a) the Exchange Offer Registration Statement is not filed with the Commission on or prior to the 150th calendar day following the date of original issue of the Securities, (b) the Exchange Offer Registration Statement has not been declared effective on or prior to the 210th calendar day following the date of original issue of the Securities or (c) the Exchange Offer is not consummated or a Shelf Registration Statement is not declared effective, in either case, on or prior to the 240th calendar day following the date of original issue of the Securities (each such event referred to in clauses (a) through (c) above, a "Registration Default"), the interest rate borne by the Securities shall be increased ("Additional Interest") by one-quarter of one percent (0.25%) per annum upon the occurrence of each Registration Default, which rate will increase by one-quarter of one percent (0.25%) each 90-day period that such Additional Interest continues to accrue under any such circumstance, provided that the maximum aggregate increase in the interest rate will in no event exceed one-half of one percent (0.50%) per annum. Following the cure of all Registration Defaults the accrual of Additional Interest will cease and the interest rate will revert to the original rate. If the Shelf Registration Statement is unusable by the Holders for any reason, including the reason set forth in Section 2.2(c), and the aggregate number of days in any consecutive twelve-month period for which the Shelf Registration Statement shall not be usable exceeds 60 days in the aggregate, then the interest rate borne by the Securities will be increased by one-quarter of one percent (0.25%) per annum of the principal amount of the Securities for the first 90-day period (or portion thereof) beginning on the 61st day after such date that such Shelf Registration Statement ceases to be usable, which rate shall be increased by an additional one-quarter of one percent (0.25%) per annum of the principal amount of the Securities at the beginning of each subsequent 90-day period, provided that the maximum aggregate increase in the interest rate will in no event exceed one-half of one percent (0.50%) per annum. Any amounts payable under this paragraph shall also be deemed "Additional Interest" for purposes of this Agreement. Upon the Shelf Registration Statement once again becoming usable, the interest rate borne by the Securities will be reduced to the original interest rate if the Company is otherwise in compliance with this Agreement at such time. Additional Interest shall be computed based on the actual number of days elapsed in each 90-day period in which the Shelf Registration Statement is unusable. The Company shall notify the Trustee within three business days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "Event Date"). Additional Interest shall be paid by depositing with the Trustee, in trust, for the benefit of the Holders of Registrable Securities, on or before the applicable semiannual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each interest payment date to the record Holder of Securities entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Additional Interest shall be deemed to accrue from and including the day following the applicable Event Date. 3. Registration Procedures. In connection with the obligations of the Company with respect to Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company shall: (a) prepare and file with the SEC a Registration Statement, within the relevant time period specified in Section 2, on the appropriate form under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof, (iii) shall comply as to form in all material respects with the requirements of the applicable form and include or incorporate by reference all financial statements required by the SEC to be filed therewith or incorporated by reference therein, and (iv) shall comply in all respects with the requirements of Regulation S-T under the 1933 Act, and use its best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; (b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary under applicable law to keep such Registration Statement effective for the applicable period; and cause each Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the 1933 Act and comply with the provisions of the 1933 Act, the 1934 Act and the rules and regulations thereunder applicable to them with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof (including sales by any Participating Broker-Dealer); (c) in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities, at least five business days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holders that the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holders participating in the Shelf Registration; (ii) furnish to each Holder of Registrable Securities and to each underwriter of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request, including financial statements and schedules and, if the Holder so requests, all exhibits in order to facilitate the public sale or other disposition of the Registrable Securities; and (iii) subject to the last paragraph of this Section 3, hereby consent to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (d) use its best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request by the time the applicable Registration Statement is declared effective by the SEC, and do any and all other acts and things which may be reasonably necessary or advisable to enable each such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), or (ii) take any action which would subject it to general service of process or taxation in any such jurisdiction where it is not then so subject; (e) promptly notify each Holder of Registrable Securities under a Shelf Registration or any Participating Broker-Dealer who has notified the Company that it is utilizing the Exchange Offer Registration Statement as provided in paragraph (f) below and, if requested by such Holder or Participating Broker-Dealer, confirm such advice in writing promptly (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for post-effective amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) in the case of a Shelf Registration, if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering cease to be true and correct in all material respects, (v) of the happening of any event or the discovery of any facts during the period a Shelf Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading, (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities or the Exchange Securities, as the case may be, for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (vii) of any determination by the Company that a post-effective amendment to such Registration Statement would be appropriate; (f) (A) in the case of the Exchange Offer Registration Statement (i) include in the Exchange Offer Registration Statement a section entitled "Plan of Distribution" which section shall be reasonably acceptable to Merrill Lynch on behalf of the Participating Broker-Dealers, and which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities and that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by such broker-dealer in the Exchange Offer, whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the reasonable judgment of Merrill Lynch on behalf of the Participating Broker-Dealers and its counsel, represent the prevailing views of the staff of the SEC, including a statement that any such broker-dealer who receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer may be deemed a statutory underwriter and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities, (ii) furnish to each Participating Broker-Dealer who has delivered to the Company the notice referred to in Section 3(e), without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, as such Participating Broker-Dealer may reasonably request, (iii) hereby consent to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto, by any Person subject to the prospectus delivery requirements of the SEC, including all Participating Broker-Dealers, in connection with the sale or transfer of the Exchange Securities covered by the Prospectus or any amendment or supplement thereto, and (iv) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision: "If the exchange offeree is a broker-dealer holding Registrable Securities acquired for its own account as a result of market-making activities or other trading activities, it will deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of Exchange Securities received in respect of such Registrable Securities pursuant to the Exchange Offer;" and (y) a statement to the effect that by a broker-dealer making the acknowledgment described in clause (x) and by delivering a Prospectus in connection with the exchange of Registrable Securities, the broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the 1933 Act; and (B) in the case of any Exchange Offer Registration Statement, the Company agrees to deliver to the Initial Purchasers on behalf of the Participating Broker-Dealers upon the effectiveness of the Exchange Offer Registration Statement, if requested, (i) an opinion of counsel or opinions of counsel substantially in the form attached hereto as Exhibit A, (ii) officers' certificates substantially in the form customarily delivered in a public offering of debt securities and (iii) a comfort letter or comfort letters in customary form to the extent permitted by Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accountants (or if such a comfort letter is not permitted, an agreed upon procedures letter in customary form) from PricewaterhouseCoopers AG, the Company's independent certified public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement), at least as broad in scope and coverage as the comfort letter or comfort letters delivered to the Initial Purchasers in connection with the initial sale of the Securities to the Initial Purchasers; (g) (i) in the case of an Exchange Offer, furnish counsel for the Initial Purchasers and (ii) in the case of a Shelf Registration, furnish counsel for the Holders of Registrable Securities copies of any comment letters received from the SEC or any other request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information; (h) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; (i) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, and each underwriter, if any, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto, including financial statements and schedules (without documents incorporated therein by reference and all exhibits thereto, unless requested); (j) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders or the underwriters, if any, may reasonably request at least three business days prior to the closing of any sale of Registrable Securities; (k) in the case of a Shelf Registration, upon the occurrence of any event or the discovery of any facts, each as contemplated by Sections 3(e)(v) and 3(e)(vi) hereof, as promptly as practicable after the occurrence of such an event, use its best efforts to prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities or Participating Broker-Dealers, such Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or will remain so qualified. At such time as such public disclosure is otherwise made or the Company determines that such disclosure is not necessary, in each case to correct any misstatement of a material fact or to include any omitted material fact, the Company agrees promptly to notify each Holder of such determination and to furnish each Holder such number of copies of the Prospectus as amended or supplemented, as such Holder may reasonably request; (l) in the case of a Shelf Registration, a reasonable time prior to the filing of any Registration Statement, any Prospectus, any amendment to a Registration Statement or amendment or supplement to a Prospectus or any document which is to be incorporated by reference into a Registration Statement or a Prospectus after initial filing of a Registration Statement, provide copies of such document to the Initial Purchasers on behalf of such Holders; and make representatives of the Company as shall be reasonably requested by the Holders of Registrable Securities, or the Initial Purchasers on behalf of such Holders, available for discussion of such document; (m) obtain a CUSIP number for all Exchange Securities, Private Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with printed certificates for the Exchange Securities, Private Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for deposit with the Depositary; (n) (i) cause the Indenture to be qualified under the TIA in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be, (ii) cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and (iii) execute, and use its best efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; (o) in the case of a Shelf Registration, enter into agreements (including underwriting agreements) and take all other customary and appropriate actions in order to expedite or facilitate the disposition of such Registrable Securities, if requested, and in such connection whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration: (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings as may be reasonably requested by them; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the holders of a majority in principal amount of the Registrable Securities being sold) addressed to each selling Holder and the underwriters, if any, covering the matters customarily covered in opinions requested in sales of securities or underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (iii) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement) addressed to the underwriters, if any, and use reasonable efforts to have such letter addressed to the selling Holders of Registrable Securities (to the extent consistent with Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accounts), such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with similar underwritten offerings; (iv) enter into a securities sales agreement with the Holders and an agent of the Holders providing for, among other things, the appointment of such agent for the selling Holders for the purpose of soliciting purchases of Registrable Securities, which agreement shall be in form, substance and scope customary for similar offerings; (v) if an underwriting agreement is entered into, cause the same to set forth indemnification provisions and procedures substantially equivalent to the indemnification provisions and procedures set forth in Section 4 hereof with respect to the underwriters and all other parties to be indemnified pursuant to said Section or, at the request of any underwriters, in the form customarily provided to such underwriters in similar types of transactions; and (vi) deliver such documents and certificates as may be reasonably requested and as are customarily delivered in similar offerings to the Holders of a majority in principal amount of the Registrable Securities being sold and the managing underwriters, if any. The above shall be done at (i) the effectiveness of such Registration Statement (and, if applicable, each post-effective amendment thereto) and (ii) each closing under any underwriting or similar agreement as and to the extent required thereunder; (p) in the case of a Shelf Registration or if a Prospectus is required to be delivered by any Participating Broker-Dealer in the case of an Exchange Offer, make available for inspection, at the Company's principal corporate office in the United States during regular business hours, by representatives of the Holders of the Registrable Securities, any underwriters participating in any disposition pursuant to a Shelf Registration Statement, any Participating Broker-Dealer and any counsel or accountant retained by any of the foregoing, all financial and other records, pertinent corporate documents and properties of the Company reasonably requested by any such persons, and cause the respective officers, directors, employees, and any other agents of the Company to supply all information reasonably requested by any such representative, underwriter, special counsel or accountant in connection with a Registration Statement, and make such representatives of the Company available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; (q) (i) in the case of an Exchange Offer Registration Statement, a reasonable time prior to the filing of any Exchange Offer Registration Statement, any Prospectus forming a part thereof, any amendment to an Exchange Offer Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to the Initial Purchasers and to counsel to the Holders of Registrable Securities and make such changes in any such document prior to the filing thereof as the Initial Purchasers or counsel to the Holders of Registrable Securities may reasonably request and, except as otherwise required by applicable law, not file any such document in a form to which the Initial Purchasers on behalf of the Holders of Registrable Securities and counsel to the Holders of Registrable Securities shall not have previously been advised and furnished a copy of or to which the Initial Purchasers on behalf of the Holders of Registrable Securities or counsel to the Holders of Registrable Securities shall reasonably object, and make the representatives of the Company available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; and (ii) in the case of a Shelf Registration, a reasonable time prior to filing any Shelf Registration Statement, any Prospectus forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to the Holders of Registrable Securities, to the Initial Purchasers, to counsel for the Holders and to the underwriter or underwriters of an underwritten offering of Registrable Securities, if any, make such changes in any such document prior to the filing thereof as the Initial Purchasers, the counsel to the Holders or the underwriter or underwriters reasonably request and not file any such document in a form to which the Majority Holders, the Initial Purchasers on behalf of the Holders of Registrable Securities, counsel for the Holders of Registrable Securities or any underwriter shall not have previously been advised and furnished a copy of or to which the Majority Holders, the Initial Purchasers on behalf of the Holders of Registrable Securities, counsel to the Holders of Registrable Securities or any underwriter shall reasonably object, and make the representatives of the Company available for discussion of such document as shall be reasonably requested by the Holders of Registrable Securities, the Initial Purchasers on behalf of such Holders, counsel for the Holders of Registrable Securities or any underwriter. (r) in the case of a Shelf Registration, use its best efforts to cause all Registrable Securities to be listed on any securities exchange on which similar debt securities issued by the Company are then listed if requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any; (s) in the case of a Shelf Registration, use its best efforts to cause the Registrable Securities to be rated by the appropriate rating agencies, if so requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any; (t) otherwise comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings statement covering at least 12 months which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder; (u) cooperate and assist in any filings required to be made with the NASD and, in the case of a Shelf Registration, in the performance of any due diligence investigation by any underwriter and its counsel (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and (v) upon consummation of an Exchange Offer or a Private Exchange, obtain a customary opinion of counsel to the Company addressed to the Trustee for the benefit of all Holders of Registrable Securities participating in the Exchange Offer or Private Exchange, and which includes an opinion that (i) the Company has duly authorized, executed and delivered the Exchange Securities and/or Private Exchange Securities, as applicable, and the related indenture, and (ii) each of the Exchange Securities and related indenture constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms (with customary exceptions). In the case of a Shelf Registration Statement, the Company may (as a condition to such Holder's participation in the Shelf Registration) require each Holder of Registrable Securities to furnish to the Company such information regarding the Holder and the proposed distribution by such Holder of such Registrable Securities as the Company may from time to time reasonably request in writing. In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Company of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(ii)-(v) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(k) hereof, and, if so directed by the Company, such Holder will deliver to the Company (at its expense) all copies in such Holder's possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. If the Company shall give any such notice to suspend the disposition of Registrable Securities pursuant to a Shelf Registration Statement as a result of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(v) hereof, the Company shall be deemed to have used its best efforts to keep the Shelf Registration Statement effective during such period of suspension; provided, that the Company shall use its best efforts to file and have declared effective (if an amendment) as soon as practicable an amendment or supplement to the Shelf Registration and shall extend the period during which the Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holders shall have received copies of the supplemented or amended Prospectus necessary to resume such dispositions; provided, further that nothing in this sentence shall be deemed to eliminate the Company's obligations to pay additional interest in accordance with Section 2.5 hereof. In the event that the Company fails to effect the Exchange Offer or file any Shelf Registration Statement and maintain the effectiveness of any Shelf Registration Statement as provided herein, the Company shall not file any Registration Statement with respect to any securities (within the meaning of Section 2(1) of the 1933 Act) of the Company other than Registrable Securities. If any of the Registrable Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the underwriter or underwriters and manager or managers that will manage such offering will be selected by the Majority Holders of such Registrable Securities included in such offering and shall be acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 4. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless the Initial Purchasers, each Holder, each Participating Broker-Dealer, each Person who participates as an underwriter (any such Person being an "Underwriter") and each Person, if any, who controls any Holder or Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment or supplement thereto) pursuant to which Exchange Securities or Registrable Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 4(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by any indemnified party), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened to the extent that any such expense is not paid under subparagraph (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Holder or Underwriter expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). (b) Each Holder severally, agrees to indemnify and hold harmless the Company, the Initial Purchasers, each Underwriter and the other selling Holders, and each of their respective directors and officers, and each Person, if any, who controls the Company, the Initial Purchasers, any Underwriter or any other selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Shelf Registration Statement (or any amendment thereto) or any Prospectus included therein (or any amendment or supplement thereto) in reliance upon and in conformity with written information with respect to such Holder furnished to the Company by such Holder expressly for use in the Shelf Registration Statement (or any amendment thereto) or such Prospectus (or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Shelf Registration Statement. (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure so to notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 4(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) If the indemnification provided for in this Section 4 is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Holders and the Initial Purchasers on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and the Holders and the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Holders or the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Holders and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 4. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 4 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 4, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities sold by it were offered exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 4, each Person, if any, who controls an Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser or Holder, and each director of the Company, and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Initial Purchasers' respective obligations to contribute pursuant to this Section 4 are several in proportion to the principal amount of Securities set forth opposite their respective names in Schedule A to the Purchase Agreement and not joint. 5. Miscellaneous. 5.1. Rule 144 and Rule 144A. For so long as the Company is subject to the reporting requirements of Section 13 or 15 of the 1934 Act, the Company covenants that it will file the reports required to be filed by it under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder. If the Company ceases to be so required to file such reports, the Company covenants that it will upon the request of any Holder of Registrable Securities (a) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver such information to a prospective purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it will take such further action as any Holder of Registrable Securities may reasonably request, and (c) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 5.2. No Inconsistent Agreements. The Company has not entered into and the Company will not after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not and will not for the term of this Agreement in any way conflict with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. 5.3. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure. 5.4. Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (a) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 5.4, which address initially is the address set forth in the Purchase Agreement with respect to the Initial Purchasers; and (b) if to the Company, initially at the Company's address set forth in the Purchase Agreement, and thereafter at such other address of which notice is given in accordance with the provisions of this Section 5.4. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; two business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the person giving the same to the Trustee under the Indenture, at the address specified in such Indenture. 5.5. Successor and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such person shall be entitled to receive the benefits hereof. 5.6. Third Party Beneficiaries. The Initial Purchasers (even if the Initial Purchasers are not Holders of Registrable Securities) shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Holders, on the other hand, and shall have the right to enforce such agreements directly to the extent they deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. Each Holder of Registrable Securities shall be a third party beneficiary to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder. 5.7. Specific Enforcement. Without limiting the remedies available to the Initial Purchasers and the Holders, the Company acknowledges that any failure by the Company to comply with its obligations under Sections 2.1 through 2.4 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it would not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Sections 2.1 through 2.4 hereof. 5.8. Restriction on Resales. Until the expiration of two years after the original issuance of the Securities, the Company will not, and will cause its "affiliates" (as such term is defined in Rule 144(a)(1) under the 1933 Act) not to, resell any Securities which are "restricted securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act) that have been reacquired by any of them and shall immediately upon any purchase of any such Securities submit such Securities to the Trustee for cancellation. 5.9. Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 5.10. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 5.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. 5.12. Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. METTLER-TOLEDO INTERNATIONAL INC. By: ------------------------------ Name: Title: Confirmed and accepted as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as Representative of the Initial Purchasers BY: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: --------------------------- Name: Title: Exhibit A FORM OF OPINION OF COUNSEL TO COMPANY ------------------------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other several Initial Purchasers named in Schedule I to the Purchase Agreement c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated 4 World Financial Center New York, New York 10080 Ladies and Gentlemen: We have acted as counsel for Mettler-Toledo International Inc., a Delaware corporation (the "Company"), in connection with the sale by the Company to the Initial Purchasers (as defined below) of $150,000,000 aggregate principal amount of 4.85% Senior Notes Due 2010 (the "Notes") of the Company pursuant to the Purchase Agreement dated November 3, 2003 (the "Purchase Agreement") among the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other several Initial Purchasers named in Schedule I thereto (collectively, the "Initial Purchasers") and the filing by the Company of an Exchange Offer Registration Statement (the "Registration Statement") in connection with an Exchange Offer to be effected pursuant to the Registration Rights Agreement (the "Registration Rights Agreement"), dated November 12, 2003 between the Company and the Initial Purchasers. This opinion is furnished to you pursuant to Section 3(f)(B) of the Registration Rights Agreement. Unless otherwise defined herein, capitalized terms used in this opinion that are defined in the Registration Rights Agreement are used herein as so defined. We have examined such documents, records and matters of law as we have deemed necessary for purposes of this opinion. In rendering this opinion, as to all matters of fact relevant to this opinion, we have assumed the completeness and accuracy of, and are relying solely upon, the representations and warranties of the Company set forth in the Purchase Agreement and the statements set forth in certificates of public officials and officers of the Company, without making any independent investigation or inquiry with respect to the completeness or accuracy of such representations, warranties or statements. Based on and subject to the foregoing, we are of the opinion that: 1. The Exchange Offer Registration Statement and the Prospectus (other than the financial statements, notes or schedules thereto and other financial data and supplemental schedules included or incorporated by reference therein or omitted therefrom and the Form T-1, as to which such counsel need express no opinion), comply as to form in all material respects with the requirements of the 1933 Act and the applicable rules and regulations promulgated under the 1933 Act. 2. We have participated in the preparation of the Registration Statement and the Prospectus and in the course thereof have had discussions with officers and other representatives of the Company and PricewaterhouseCoopers AG, the Company's independent public accountants, during which the contents of the Registration Statement and the Prospectus were discussed. We have not, however, independently verified and are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectus. Based on our participation as described above, nothing has come to our attention that would lead us to believe that the Registration Statement (except for financial statements and schedules and other financial data included therein as to which we make no statement) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except for financial statements and schedules and other financial data included therein, as to which such counsel need make no statement), at the time the Prospectus was issued, at the time any such amended or supplemented Prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The opinions set forth above are subject to the following qualification: (a) our opinions are subject to the effect of, and we express no opinion herein as to, the application of the securities or "blue sky" laws of any state of the United States except for the State of New York and the State of Delaware. The opinions expressed herein are limited to the federal law of the United States of America, the laws of the State of New York and the Delaware General Corporation Law, as currently in effect. This opinion is being furnished to you solely for your benefit in connection with the transactions contemplated by the Registration Rights Agreement, and may not be used for any other purpose or relied upon by any person other than you. Except with our prior written consent, the opinions herein expressed are not to be used, circulated, quoted or otherwise referred to in connection with any transactions other than those contemplated by the Registration Rights Agreement by or to any other person. Very truly yours, EX-10.12 4 exh10_12.txt =========================================================================== METTLER-TOLEDO INTERNATIONAL INC., as Issuer and JPMORGAN CHASE BANK, as Trustee 4.85% Senior Notes due 2010 ------------------------------ INDENTURE Dated as of November 12, 2003 ------------------------------ =========================================================================== EXHIBIT 10.12 CROSS-REFERENCE TABLE Certain Sections of this Indenture relating to Sections 310 through 318, inclusive, of the Trust Indenture Act of 1939: Trust Indenture Act Indenture Section Section - ------- ------- 310(a)(1) ...................................... 7.9; 7.10 (a)(2) ...................................... 7.10 (a)(3) ...................................... N.A. (a)(4) ...................................... N.A. (b) ...................................... 7.8; 7.10 (c) ...................................... N.A. 311(a) ...................................... 7.11 (b) ...................................... 7.11 (c) ...................................... N.A. 312(a) ...................................... 2.5 (b) ...................................... 10.3 (c) ...................................... 10.3 313(a) ...................................... 7.6 (b)(1) ...................................... N.A. (b)(2) ...................................... 7.6 (c) ...................................... 7.6 (d) ...................................... 7.6 314(a) ...................................... 4.7 ...................................... 4.4; 10.2 (b) ...................................... N.A. (c)(1) ...................................... 10.4 (c)(2) ...................................... 10.4 (c)(3) ...................................... N.A. (d) ...................................... N.A. (e) ...................................... 10.5 (f) ...................................... 4.4 315(a) ...................................... 7.1 (b) ...................................... 7.5 (c) ...................................... 7.1 (d) ...................................... 7.1 (e) ...................................... 6.11 316(a)(last sentence) ...................................... 10.6 (a)(1)(A) ...................................... 6.5 (a)(1)(B) ...................................... 6.4 (a)(2) ...................................... N.A. (b) ...................................... 6.7 317(a)(1) ...................................... 6.8 (a)(2) ...................................... 6.9 (b) ...................................... 2.4 318(a) ...................................... 10.1 N.A. means Not Applicable. ______________ Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of this Indenture. TABLE OF CONTENTS PAGE ARTICLE I Definitions and Incorporation by Reference........................1 SECTION 1.1. Definitions................................................1 SECTION 1.2. Other Definitions..........................................5 SECTION 1.3. Incorporation by Reference of Trust Indenture Act..........6 SECTION 1.4. Rules of Construction......................................7 ARTICLE II The Securities...................................................7 SECTION 2.1. Form and Dating............................................7 SECTION 2.2. Execution and Authentication..............................11 SECTION 2.3. Registrar and Paying Agent................................13 SECTION 2.4. Paying Agent To Hold Money in Trust.......................13 SECTION 2.5. Securityholder Lists......................................13 SECTION 2.6. Transfer and Exchange.....................................14 SECTION 2.7. Form of Certificates to be Delivered in Connection with Transfers Pursuant to Regulation S and Rule 144A.....18 SECTION 2.8. Business Days.............................................18 SECTION 2.9. Replacement Securities....................................18 SECTION 2.10. Outstanding Securities...................................19 SECTION 2.11. Temporary Securities.....................................19 SECTION 2.12. Cancellation.............................................19 SECTION 2.13. Defaulted Interest.......................................19 SECTION 2.14. CUSIP Numbers, etc.......................................20 SECTION 2.15. Issuance of Additional Securities........................20 SECTION 2.16. One Class of Securities..................................21 ARTICLE III Redemption.....................................................21 SECTION 3.1. Notices to Trustee........................................21 SECTION 3.2. Selection of Securities to be Redeemed....................21 SECTION 3.3. Notice of Redemption......................................21 SECTION 3.4. Effect of Notice of Redemption............................22 SECTION 3.5. Deposit of Redemption Price...............................22 SECTION 3.6. Securities Redeemed in Part...............................23 ARTICLE IV Covenants.......................................................23 SECTION 4.1. Payment of Securities.....................................23 SECTION 4.2. Limitations on Liens......................................23 SECTION 4.3. Limitation on Sale and Lease-Back Transactions............25 SECTION 4.4. Compliance Certificate....................................25 SECTION 4.5. Maintenance of Office or Agency...........................25 SECTION 4.6. Existence.................................................26 SECTION 4.7. SEC Reports...............................................26 SECTION 4.8. Further Instruments and Acts..............................26 ARTICLE V Consolidation, Merger and Sale of Assets.........................26 SECTION 5.1. Company May Merge or Transfer Assets Only on Certain Terms.....................................................26 SECTION 5.2. Successor Corporation Substituted.........................26 ARTICLE VI Defaults and Remedies...........................................27 SECTION 6.1. Events of Default.........................................27 SECTION 6.2. Acceleration..............................................29 SECTION 6.3. Other Remedies............................................29 SECTION 6.4. Waiver of Past Defaults...................................29 SECTION 6.5. Control by Majority.......................................29 SECTION 6.6. Limitation on Suits.......................................30 SECTION 6.7. Rights of Holders To Receive Payment......................30 SECTION 6.8. Collection Suit by Trustee................................30 SECTION 6.9. Trustee May File Proofs of Claim..........................30 SECTION 6.10. Priorities...............................................31 SECTION 6.11. Undertaking for Costs....................................31 SECTION 6.12. Waiver of Stay or Extension Laws.........................31 ARTICLE VII Trustee........................................................32 SECTION 7.1. Duties of Trustee.........................................32 SECTION 7.2. Rights of Trustee.........................................33 SECTION 7.3. Individual Rights of Trustee..............................34 SECTION 7.4. Trustee's Disclaimer......................................34 SECTION 7.5. Notice of Defaults........................................34 SECTION 7.6. Reports by Trustee to Holders.............................34 SECTION 7.7. Compensation and Indemnity................................34 SECTION 7.8. Replacement of Trustee....................................35 SECTION 7.9. Successor Trustee by Merger...............................36 SECTION 7.10. Eligibility; Disqualification............................36 SECTION 7.11. Preferential Collection of Claims Against the Company....37 ARTICLE VIII Discharge of Indenture; Defeasance............................37 SECTION 8.1. Discharge of Liability on Securities; Defeasance..........37 SECTION 8.2. Conditions to Defeasance..................................38 SECTION 8.3. Application of Trust Money................................39 SECTION 8.4. Repayment to the Company..................................39 SECTION 8.5. Indemnity for Government Obligations......................39 SECTION 8.6. Reinstatement.............................................39 ARTICLE IX Amendments......................................................40 SECTION 9.1. Without Consent of Holders................................40 SECTION 9.2. With Consent of Holders...................................41 SECTION 9.3. Compliance with Trust Indenture Act.......................42 SECTION 9.4. Revocation and Effect of Consents and Waivers.............42 SECTION 9.5. Notation on or Exchange of Securities.....................42 SECTION 9.6. Trustee To Sign Amendments................................42 SECTION 9.7. Payment for Consent.......................................43 ARTICLE X Miscellaneous....................................................43 SECTION 10.1. Trust Indenture Act Controls.............................43 SECTION 10.2. Notices..................................................43 SECTION 10.3. Communication by Holders with other Holders..............44 SECTION 10.4. Certificate and Opinion as to Conditions Precedent.......44 SECTION 10.5. Statements Required in Certificate or Opinion............44 SECTION 10.6. When Securities Disregarded..............................45 SECTION 10.7. Rules by Trustee, Paying Agent and Registrar.............45 SECTION 10.8. Governing Law............................................45 SECTION 10.9. No Recourse Against Others...............................45 SECTION 10.10. Successors..............................................45 SECTION 10.11. Multiple Originals......................................45 SECTION 10.12. Variable Provisions.....................................45 SECTION 10.13. Qualification of Indenture..............................45 SECTION 10.14. Table of Contents; Headings.............................46 Exhibit A - Form of Initial Security Exhibit B - Form of Exchange Security Exhibit C - Form of Certificate (transfers pursuant to Regulation S) Exhibit D - Form of Certificate (transfers pursuant to Rule 144A) EXHIBIT 10.12 INDENTURE, dated as of November 12, 2003, between Mettler-Toledo International Inc., a Delaware corporation (the "Company"), and JPMorgan Chase Bank, a New York banking corporation, as trustee (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of Holders of the Company's 4.85% Senior Notes due 2010 (the "Initial Securities") and, if and when issued in exchange for Initial Securities as provided in the Registration Rights Agreement, the Company's 4.85% Senior Notes due 2010 (the "Exchange Securities" and, together with the Initial Securities and any Additional Securities, the "Securities"): ARTICLE I Definitions and Incorporation by Reference SECTION 1.1. Definitions. "Additional Interest" shall have the meaning assigned to such term in the Registration Rights Agreement. "Additional Securities" means 4.85% Senior Notes due 2010 issued from time to time after the Issue Date under the terms of this Indenture (other than pursuant to Sections 2.6, 2.9, 2.11, 3.6 and 9.5 of this Indenture, in the case of Securities that are not already Additional Securities, and other than Exchange Securities issued pursuant to an exchange offer for the other Securities outstanding under this Indenture). "Attributable Debt" means, in respect of any Sale and Lease-Back Transaction, as of the time of the determination, the lesser of (i) the sale price of the Principal Property so leased multiplied by a fraction the numerator of which is the remaining portion of the base term of the lease included in such transaction and the denominator of which is the base term of such lease, and (ii) the total obligation (discounted to present value at the implicit interest factor, determined in accordance with generally accepted financial practice, included in the rental payments or, if such interest factor cannot readily be determined, at a rate of interest of 10% per annum, compounded semi-annually) of the lessee for rental payments (other than amounts required to be paid on account of property taxes as well as maintenance, repairs, insurance, water rates and other items which do not constitute payments for property rights) during the remaining portion of the base term of lease included in such transaction. "Board of Directors" or "Board" means, with respect to any Person, the Board of Directors of such Person or any committee thereof duly authorized to act on behalf of such Board of Directors. "Business Day" means a day which is not, in New York City or any other place of payment, a Saturday, Sunday or other day on which banking institutions or trust companies are authorized or required by law, resolution or executive order to close. "Capital Stock" means, with respect to any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any preferred stock, partnership interests and limited liability company membership interests, but excluding any debt securities convertible into such equity. "Code" means the U.S. Internal Revenue Code of 1986, as amended. "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter, "Company" shall mean such successor corporation. "Consolidated Net Worth" means the excess over current liabilities of all assets properly appearing on a consolidated balance sheet of the Company and its consolidated Subsidiaries after deducting the minority interests of others in Subsidiaries. "Corporate Trust Office" means the office of the Trustee at which, at any particular time, its corporate trust business shall be principally administered; which office at the date of the execution of this Indenture is located at 4 New York Plaza, 15th Floor, New York, New York 10004, Attention: Institutional Trust Services or at any other time at such other address as the Trustee may designate from time to time by notice to the Holders. "Debt" means, with respect to any Person, notes, bonds, debentures, or other evidences of indebtedness for money borrowed. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "DTC" means The Depository Trust Company, its nominees and their respective successors and assigns. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States as in effect from time to time. "guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Debt of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Debt of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "guarantee" will not include endorsements for collection or deposit in the ordinary course of business. The term "guarantee" used as a verb has a correlative meaning. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "Incur" means issue, assume or guarantee. "Indenture" means this Indenture, as amended or supplemented from time to time. "Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bank of America Securities LLC, UBS Securities LLC, Bank One Capital Markets, Inc., Fleet Securities, Inc., SG Cowen Securities Corporation, Tokyo-Mitsubishi International plc, Wachovia Capital Markets, LLC, Fifth Third Securities, Inc., Hypo-Vereinsbank and The Royal Bank of Scotland. "Issue Date" means November 12, 2003. "Officer" means the Chairman of the Board, the Chief Executive Officer, the President, the Vice Chairman, any Vice President, the Treasurer, the Assistant Treasurer, the Chief Financial Officer, the Secretary or the Assistant Secretary of the Company, as applicable. "Officers' Certificate" means a certificate signed by any two Officers of the Company. "Opinion of Counsel" means a written opinion from Fried, Frank, Harris, Shriver & Jacobson or any other legal counsel to the Company who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Principal" means the principal of the Security plus the premium, if any, payable on the Security which is due or overdue or is to become due at the relevant time; provided, however, that for purposes of calculating any such premium, the term "principal" shall not include the premium with respect to which such calculation is being made. "Principal Property" means any facility (together with the land on which it is erected and fixtures comprising a part of the land) used primarily for manufacturing or processing, located in the United States, owned by or leased to the Company or a Subsidiary, exclusive of (i) any property financed through obligations issued by a state or possession of the United States, or any political subdivision or instrumentality of the foregoing, on which the interest is not, in the opinion of tax counsel of recognized standing or in accordance with a ruling issued by the Internal Revenue Service, includible in gross income of the holder by reason of Section 103(a) of the Code (or any successor to such provision) as in effect at the time of the issuance of such obligations, (ii) any real property held for development or sale, or (iii) any property the gross book value of which (including related land and improvements thereon and all machinery and equipment included therein without deduction of any depreciation reserves) is less than 10% of Consolidated Net Worth or which the Board of Directors of the Company determines is not material to the operation of the business of the Company and its Subsidiaries taken as a whole. "Purchase Agreement" means the Purchase Agreement dated November 3, 2003 between the Company and the Initial Purchasers. "Registered Exchange Offer" means the offer by the Company, pursuant to the Registration Rights Agreement, to certain Holders of Initial Securities, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of Exchange Securities registered under the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of November 12, 2003, between the Company and the Initial Purchasers. "Restricted Period" means the 40 consecutive days beginning on and including the later of (A) the day on which the Initial Securities are offered to persons other than distributors (as defined in Regulation S under the Securities Act) and (B) the Issue Date or the date on which any Additional Securities are originally issued in the form of Initial Securities as the case may be. "Restricted Subsidiary" means a Subsidiary incorporated in any state of the United States which owns a Principal Property; provided, however, that the term shall not include any Subsidiary which is solely or primarily engaged in the business of providing or obtaining financing for the sale or lease of products sold or leased by the Company or any Subsidiary. "Restrictive Securities Legend" means the Restrictive Legend set forth in clause (A) of Section 2.1(c) or the Regulation S Legend set forth in clause (B) of Section 2.1(c), as applicable. "Sale and Lease-Back Transaction" means, with respect to any Person, any arrangement whereby (i) property has been or is to be sold or transferred by such Person to any other Person with the intention on the part of such Person of taking back a lease of such property pursuant to which the rental payments are calculated to amortize the purchase price of such property substantially over the useful life of such property and (ii) such property is in fact so leased by such Person. "SEC" means the U.S. Securities and Exchange Commission, or any successor agency. "Securities Act" means the U.S. Securities Act of 1933, as amended. "Securities Custodian" means the custodian with respect to a Global Security (as appointed by DTC), or any successor person thereto and shall initially be the Trustee. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the Company unless such contingency has occurred). "Subsidiary" means any corporation of which at least a majority of all outstanding stock having ordinary voting power in the election of directors of such corporation is at the time, directly or indirectly, owned by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries. "Trust Indenture Act" means the U.S. Trust Indenture Act of 1939, as amended (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendments, the U.S. Trust Indenture Act of 1939, as so amended. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means such successor. "Trust Officer" means, when used with respect to the Trustee, any officer of the Trustee within the Institutional Trust Services - Conventional Debt Unit (or any successor unit, department or division of the Trustee) located at the Corporate Trust Office of the Trustee who has direct responsibility for the administration of this Indenture and, for the purposes of Sections 5.01(c)(ii) and 5.05, also means any other officer or person performing similar functions to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the Company's option. SECTION 1.2. Other Definitions. Defined in Term Section ---- ------- "Affiliate".................................... 10.6 "Agent Members"................................ 2.1(d) "Applicable Procedures"........................ 2.6(a) "Authenticating Agent"......................... 2.2 "Bankruptcy Law"............................... 6.1 "Company Order"................................ 2.2 "covenant defeasance option"................... 8.1(b) "Custodian".................................... 6.1 "Definitive Securities"........................ 2.1(e) "Event of Default"............................. 6.1 "Exchange Global Security"..................... 2.1 "Exchange Securities".......................... Preamble "Global Securities"............................ 2.1(a) "Initial Securities"........................... Preamble "legal defeasance option"...................... 8.1(b) "Lien"......................................... 4.2(a) "Paying Agent"................................. 2.3 "QIBs"......................................... 2.1(a) "Registrar".................................... 2.3 "Regulation S"................................. 2.1(a) "Regulation S Certificate"..................... 2.6(a) "Regulation S Global Security"................. 2.1 "Regulation S Legend".......................... 2.1 "Regulation S Security"........................ 2.1 "Resale Restriction Termination Date".......... 2.1(c) "Restrictive Legend"........................... 2.1(c) "Rule 144A".................................... 2.1(a) "Rule 144A Certificate"........................ 2.6(b) "Rule 144A Global Security".................... 2.1 "Rule 144A Security"........................... 2.1 "Securities"................................... Preamble "Successor".................................... 5.1 SECTION 1.3. Incorporation by Reference of Trust Indenture Act. This Indenture is subject to the mandatory provisions of the Trust Indenture Act which are incorporated by reference in and made a part of this Indenture. The following terms in the Trust Indenture Act have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and any other obligor on the indenture securities. All other terms used in this Indenture that are defined by the Trust Indenture Act, defined by reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.4. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) all references to (a) Initial Securities shall refer also to any Additional Securities issued in the form of Initial Securities and (b) Exchange Securities shall refer also to any Additional Securities issued in the form of Exchange Securities, in each case, pursuant to Section 2.15; and (7) all references to the date the Securities were originally issued shall refer to the Issue Date or the date any Additional Securities were originally issued, as the case may be. ARTICLE II The Securities SECTION 2.1. Form and Dating. (a) The Initial Securities are being offered and sold by the Company to the Initial Purchasers pursuant to the Purchase Agreement. The Initial Securities will be resold initially by the Initial Purchasers only to (A) qualified institutional buyers (as defined in Rule 144A under the Securities Act ("Rule 144A")) in reliance on Rule 144A ("QIBs") and (B) Persons other than U.S. Persons (as defined in Regulation S under the Securities Act ("Regulation S")) in reliance on Regulation S. The Initial Securities may thereafter be transferred to among others, QIBs and purchasers in reliance on Regulation S of the Securities Act in accordance with the procedure described herein. Initial Securities offered and sold to qualified institutional buyers in the United States of America in reliance on Rule 144A (each, a "Rule 144A Security" and collectively, the "Rule 144A Securities") will be issued on the Issue Date in the form of a permanent global Security, without interest coupons, substantially in the form of Exhibit A, which is incorporated by reference and made a part of this Indenture, including appropriate legends as set forth in Section 2.1(c) (the "Rule 144A Global Security"), deposited with the Trustee, as custodian for DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Rule 144A Global Security may be represented by more than one certificate, if so required by DTC's rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Rule 144A Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC or its nominee, as hereinafter provided. Initial Securities offered and sold outside the United States of America (each, a "Regulation S Security" and collectively, the "Regulation S Securities") in reliance on Regulation S will be issued on the Issue Date in the form of a permanent global Security, without interest coupons, substantially in the form set forth in Exhibit A, which is incorporated by reference and made a part of this Indenture, including appropriate legends as set forth in Section 2.1(c) (the "Regulation S Global Security") deposited with the Trustee, as custodian for DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Regulation S Global Security may be represented by more than one certificate, if so required by DTC's rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Regulation S Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC or its nominee, as hereinafter provided. Exchange Securities exchanged for interests in a Rule 144A Security and a Regulation S Security will be issued in the form of a permanent global Security substantially in the form of Exhibit B hereto, which is hereby incorporated by reference and made a part of this Indenture, deposited with the Trustee as hereinafter provided, including the appropriate legend set forth in Section 2.1(c) (the "Exchange Global Security"). The Exchange Global Security may be represented by more than one certificate, if so required by DTC's rules regarding the maximum principal amount to be represented by a single certificate. The Rule 144A Global Security, the Regulation S Global Security and the Exchange Global Security are sometimes collectively herein referred to as the "Global Securities." The Principal of and interest on the Securities shall be payable at the office or agency of the Company maintained for such purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose pursuant to Section 2.3; provided, however, that at the option of the Company, each installment of interest may be paid by (i) check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Note Register or (ii) wire transfer to an account located in the United States maintained by the payee. Payments in respect of Securities represented by a Global Security (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by DTC. (b) Denominations. The Securities shall be issuable only in fully registered form, without coupons, and only in denominations of $1,000 and any integral multiple thereof. (c) Restrictive Legends. Unless and until (i) an Initial Security is sold under an effective registration statement or (ii) an Initial Security is exchanged for an Exchange Security in connection with an effective registration statement, in each case pursuant to the Registration Rights Agreement or a similar agreement, (A) the Rule 144A Global Security shall bear the following legend (the "Restrictive Legend") on the face thereof: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (D) PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (E) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM." (B) the Regulation S Global Security shall bear the following legend (the "Regulation S Legend") on the face thereof: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (1) AS PART OF THEIR DISTRIBUTION AT ANY TIME OR (2) OTHERWISE UNTIL 40 DAYS AFTER THE LATER OF THE COMMENCEMENT OF THE OFFERING OF THE SECURITY AND THE DATE OF ORIGINAL ISSUANCE OF THE SECURITY (THE "RESTRICTED PERIOD"), EXCEPT IN ACCORDANCE WITH REGULATION S OR RULE 144A UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. (C) The Global Securities, whether or not an Initial Security, shall bear the following legend on the face thereof: "UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF." (d) Book-Entry Provisions. (i) This Section 2.1(d) shall apply only to Global Securities deposited with the Trustee, as custodian for DTC. (ii) Each Global Security initially shall (x) be registered in the name of DTC for such Global Security or the nominee of DTC, (y) be delivered to the Trustee as custodian for DTC and (z) bear legends as set forth in Section 2.1(c). (iii) Members of, or participants in, DTC ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by DTC or by the Trustee as the custodian of DTC or under such Global Security, and DTC may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices of DTC governing the exercise of the rights of a holder of a beneficial interest in any Global Security. (iv) In connection with any transfer of a portion of the beneficial interest in a Global Security pursuant to subsection (e) of this Section 2.1 to beneficial owners who are required to hold Definitive Securities, the Securities Custodian shall reflect on its books and records the date and a decrease in the principal amount of such Global Security in an amount equal to the principal amount of the beneficial interest in the Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Definitive Securities of like tenor and amount. (v) In connection with the transfer of an entire Global Security to beneficial owners pursuant to subsection (e) of this Section 2.1, such Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by DTC in exchange for its beneficial interest in such Global Security, an equal aggregate principal amount of Definitive Securities of authorized denominations. (vi) The registered holder of a Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (e) Definitive Securities. (i) Except as provided below, owners of beneficial interests in Global Securities will not be entitled to receive certificated Securities ("Definitive Securities"). If required to do so pursuant to any applicable law or regulation, beneficial owners may obtain Definitive Securities in exchange for their beneficial interests in a Global Security upon written request in accordance with DTC's and the Registrar's procedures. In addition, Definitive Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Security if (a) DTC notifies the Company that it is unwilling or unable to continue as depositary for such Global Security or DTC ceases to be a clearing agency registered under the Exchange Act, at a time when DTC is required to be so registered in order to act as depositary, and in each case a successor depositary is not appointed by the Company within 90 days of such notice or, (b) the Company executes and delivers to the Trustee and Registrar an Officers' Certificate stating that such Global Security shall be so exchangeable or (c) an Event of Default has occurred and is continuing and the Registrar has received a request from DTC. (ii) Any Definitive Security delivered in exchange for an interest in a Global Security pursuant to Section 2.1(d)(iv) or (v) shall, except as otherwise provided by Section 2.6(g), bear the applicable legend regarding transfer restrictions applicable to the Definitive Security set forth in Section 2.1(c). SECTION 2.2. Execution and Authentication. An Officer of the Company shall sign the Securities for the Company by manual or facsimile signature and may be imprinted or otherwise reproduced. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually authenticates the Security. The signature of the Trustee on a Security shall be conclusive evidence that such Security has been duly and validly authenticated and issued under this Indenture. At any time and from time to time after the execution and delivery of this Indenture, the Trustee shall authenticate and make available for delivery: (1) Initial Securities for original issue on the Issue Date in an aggregate principal amount of $150.0 million, (the "Original Securities"), (2) any Additional Securities for original issue from time to time after the Issue Date in such principal amounts as set forth in Section 2.15 and (3) any Exchange Securities for issue only in exchange for a like principal amount of Initial Securities, in each case upon a written order of the Company signed by two Officers of the Company (a "Company Order"). Such Company Order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities or Exchange Securities. The aggregate principal amount of Initial Securities which may be authenticated and delivered under this Indenture is limited to $150.0 million. Additionally, the Company may from time to time, without notice to or consent of the Holders, issue such additional principal amounts of Additional Securities as may be issued and authenticated pursuant to clause (2) of this paragraph, and Securities authenticated and delivered upon registration or transfer of, or in exchange for, or in lieu of, other Securities of the same class pursuant to Section 2.6, Section 2.9, Section 2.10, Section 3.6, Section 9.5 and except for transactions similar to the Registered Exchange Offer. The Trustee may appoint an agent (the "Authenticating Agent") reasonably acceptable to the Company to authenticate the Securities. Unless limited by the terms of such appointment, any such Authenticating Agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. In case the Company, pursuant to Article V, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto (if not otherwise a party to the Indenture) with the Trustee pursuant to Article V, any of the Securities authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Order of the successor Person, shall authenticate and deliver Securities as specified in such order for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person (if other than the Company) pursuant to this Section 2.2 in exchange or substitution for or upon registration of transfer of any Securities, such successor Person (if other than the Company), at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time outstanding for Securities authenticated and delivered in such new name. SECTION 2.3. Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more additional paying agents. The term "Paying Agent" includes any such additional paying agent. In the event the Company shall retain any Person not a party to this Indenture as an agent hereunder, the Company shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture, which shall incorporate the terms of the Trust Indenture Act. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of each such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.7. The Company shall be responsible for the fees and compensations of all agents appointed or approved by it. Either the Company or any of its domestically incorporated wholly owned Subsidiaries may act as Paying Agent. The Company initially appoints the Trustee as Registrar and Paying Agent for the Securities. SECTION 2.4. Paying Agent To Hold Money in Trust. By no later than 11:00 a.m. (New York City time) on the date on which any Principal or interest (including any Additional Interest) on any Security is due and payable, the Company shall deposit with the Paying Agent a sum sufficient to pay such Principal or interest (including any Additional Interest) when due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that such Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by such Paying Agent for the payment of Principal of or interest (including any Additional Interest) on the Securities and shall notify the Trustee in writing of any default by the Company in making any such payment. If either of the Company or any of its Subsidiaries acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent (other than the Trustee) to pay all money held by it to the Trustee and to account for any funds disbursed by such Paying Agent. Upon complying with this Section 2.4, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money delivered to the Trustee. Upon any bankruptcy, reorganization or similar proceeding with respect to the Company, the Trustee shall serve as Paying Agent for the Securities. SECTION 2.5. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall cause the Registrar to furnish to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.6. Transfer and Exchange. Notwithstanding any other provision of this Indenture or the Securities (other than Section 2.1(e) hereof), transfers and exchanges of Securities and beneficial interests in a Global Security of the kinds specified in this Section 2.6 shall be made only in accordance with this Section 2.6. (a) Rule 144A Global Security to Regulation S Global Security. If the owner of a beneficial interest in the Rule 144A Global Security wishes at any time to transfer such interest to a person who wishes to take delivery thereof in the form of a beneficial interest in the Regulation S Global Security, such transfer may be effected only in accordance with the provisions of this Section 2.6(a), and subject to the Applicable Procedures (as defined below). Upon receipt by the Trustee, as Registrar, of (A) an order given by DTC or its authorized representative directing that a beneficial interest in the Regulation S Global Security in a specified principal amount be credited to a specified Agent Member's account and that a beneficial interest in the Rule 144A Global Security in an equal principal amount be debited from another specified Agent Member's account and (B) a Regulation S Certificate (a "Regulation S Certificate"), the form of which is set forth in Exhibit C hereto, satisfactory to the Trustee and duly executed by the owner of such beneficial interest in the Rule 144A Global Security and increase the principal amount of the Regulation S Global Security by such specified principal amount as provided in this Section 2.6. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of DTC, Euroclear System ("Euroclear") and Clearstream Banking, Societe Anonyme or their successors or assigns ("Clearstream Banking"), in each case, to the extent applicable to such transaction and as in effect from time to time. (b) Regulation S Global Security to Rule 144A Global Security. If the owner of a beneficial interest in the Regulation S Global Security wishes at any time to transfer such interest to a person who wishes to take delivery thereof in the form of a beneficial interest in the Rule 144A Global Security, such transfer may be effected only in accordance with this Section 2.6(b) and subject to the Applicable Procedures. Upon receipt by the Trustee, as Registrar, of (A) an order given by DTC or its authorized representative directing that a beneficial interest in the Rule 144A Global Security in a specified principal amount be credited to a specified Agent Member's account and that a beneficial interest in the Regulation S Global Security in an equal principal amount be debited from another specified Agent Member's account and (B) if such transfer is to occur during (but only during) the Restricted Period, a Rule 144A Certificate (a "Rule 144A Certificate"), the form of which is set forth in Exhibit D hereto, satisfactory to the Trustee and duly executed by the owner of such beneficial interest in the Regulation S Global Security or his attorney duly authorized in writing, then the Trustee, as Registrar, shall reduce the principal amount of the Regulation S Global Security and increase the principal amount of the Rule 144A Global Security by such specified principal amount as provided in this Section 2.6. (c) Rule 144A Non-Global Security to Rule 144A Global Security or Regulation S Global Security. If the holder of a Rule 144A Security (other than a Global Security) wishes at any time to transfer all or any portion of such Security to a person who wishes to take delivery thereof in the form of a beneficial interest in the Rule 144A Global Security or the Regulation S Global Security, such transfer may be effected only in accordance with the provisions of this Section 2.6(c) and subject to the Applicable Procedures. Upon receipt by the Trustee, as Registrar, of (A) such Security as provided in Section 2.3 and instructions satisfactory to the Trustee directing that a beneficial interest in the Rule 144A Global Security or Regulation S Global Security in a specified principal amount not greater than the principal amount of such Security be credited to a specified Agent Member's account and (B) a Rule 144A Certificate, if the specified account is to be credited with a beneficial interest in the Rule 144A Global Security, or a Regulation S Certificate, if the specified account is to be credited with a beneficial interest in the Regulation S Global Security, in either case, satisfactory to the Trustee and duly executed by such holder or his attorney duly authorized in writing, then the Trustee, as Registrar, shall cancel such Security (and issue a new Security in respect of any untransferred portion thereof) as provided in Section 2.3 and increase the principal amount of the Rule 144A Global Security or the Regulation S Global Security, as the case may be, by the specified principal amount as provided in this Section 2.6. (d) Regulation S Non-Global Security to Rule 144A Global Security or Regulation S Global Security. If the holder of a Regulation S Security (other than a Global Security) wishes at any time to transfer all or any portion of such Security to a person who wishes to take delivery thereof in the form of a beneficial interest in the Rule 144A Global Security or the Regulation S Global Security, such transfer may be effected only in accordance with this Section 2.6(d) and subject to the Applicable Procedures. Upon receipt by the Trustee, as Registrar, of (A) such Security as provided in Section 2.3 and instructions satisfactory to the Trustee directing that a beneficial interest in the Rule 144A Global Security or Regulation S Global Security in a specified principal amount not greater than the principal amount of such Security be credited to a specified Agent Member's account and (B) if the transfer is to occur during (but only during) the Restricted Period and the specified account is to be credited with a beneficial interest in the Rule 144A Global Security, a Rule 144A Certificate satisfactory to the Trustee and duly executed by such holder or his attorney duly authorized in writing, then the Trustee, as Registrar, shall cancel such Security (and issue a new Security in respect of any untransferred portion thereof) as provided in Section 2.3 and increase the principal amount of the Rule 144A Global Security or the Regulation S Global Security, as the case may be, by the specified principal amount as provided in this Section 2.6. (e) Non-Global Security to Non-Global Security. A Security that is not a Global Security may be transferred, in whole or in part, to a person who takes delivery in the form of another Security that is not a Global Security in accordance with Section 2.3; provided, that if the Security to be transferred in whole or in part is (I) a Rule 144A Security or (II) a Regulation S Security and the transfer is to occur during (but only during) the Restricted Period, then, in each case, the Trustee, as Registrar, shall have received (A) a Rule 144A Certificate, satisfactory to the Trustee and duly executed by the transferor holder or his attorney duly authorized in writing, in which case the transferee holder shall take delivery in the form of a Rule 144A Security, or (B) a Regulation S Certificate, satisfactory to the Trustee and duly executed by the transferor holder or his attorney duly authorized in writing, in which case the transferee holder shall take delivery in the form of a Regulation S Security (subject in each case to Section 2.6(g)). (f) Exchange between Global Security and Non-Global Security. A beneficial interest in a Global Security may be exchanged for a Security that is not a Global Security as provided in Section 2.1(e), provided, that if such interest is a beneficial interest in (I) the Rule 144A Global Security or (II) the Regulation S Global Security and such exchange is to occur during the Restricted Period, then, in each case, such interest shall be exchanged for a Rule 144A Security (subject in each case to Section 2.6(g)). A Security that is not a Global Security may be exchanged for a beneficial interest in a Global Security only if (A) such exchange occurs in connection with a transfer effected in accordance with Section 2.6(c) or (d) herein or (B) such Security is a Regulation S Security and such exchange occurs after the Restricted Period. (g) Restrictive Securities Legend. Upon the transfer, exchange or replacement of Securities not bearing a Restrictive Securities Legend, the Registrar shall deliver Securities that do not bear a Restrictive Securities Legend. Upon the transfer, exchange or replacement of Securities bearing a Restrictive Securities Legend, the Registrar shall deliver only Securities that bear a Restrictive Securities Legend unless there is delivered to the Registrar an Opinion of Counsel to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (h) The Company shall deliver to the Trustee an Officers' Certificate setting forth the Resale Restriction Termination Date and the Restricted Period. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.1 or this Section 2.6. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. (i) Obligations with Respect to Transfers and Exchanges of Securities. (i) To permit registrations of transfers and exchanges, the Company shall, subject to the other terms and conditions of this Article II, execute and the Trustee shall authenticate Definitive Securities and Global Securities at the Registrar's or co-registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charges payable upon exchange or transfer pursuant to Sections 3.6 or 9.5. (iii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of any Security for a period beginning (1) 15 days before the mailing of a notice of an offer to repurchase or redeem Securities and ending at the close of business on the day of such mailing or (2) 15 days before an interest payment date and ending on such interest payment date. (iv) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of Principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. (v) Any Definitive Security delivered in exchange for an interest in a Global Security pursuant to Section 2.1(d) shall, except as otherwise provided by Section 2.6(g), bear the applicable legend regarding transfer restrictions applicable to the Definitive Security set forth in Section 2.1(c). (vi) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall be the valid and legally binding obligation of the Company, shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. (vii) All certificates, certifications and opinions of counsel required to be submitted to the Registrar or any co-registrar pursuant to this Section 2.6 to effect any transfer or exchange may be submitted by facsimile transmission, with the original to follow by first class mail or hand delivery. (j) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in, DTC or other Person in respect of any aspect of the records, or for maintaining, supervising or reviewing any records, relating to beneficial ownership interests of a Global Security, with respect to the accuracy of the records of DTC or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than DTC) of any notice (including any notice of redemption) or the payment of any amount or delivery of any Securities (or other security or property) under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders in respect of the Securities shall be given or made only to or upon the order of the registered Holders (which shall be DTC or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through DTC subject to the applicable rules and procedures of DTC. The Trustee and the Company may conclusively rely and shall be fully protected in relying upon information furnished by DTC with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Agent Members or beneficial owners of interests in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. (k) Transfer and Exchange of Global Securities. A Global Security may not be transferred as a whole except by DTC to a nominee of DTC, by a nominee of DTC to DTC or to another nominee of DTC, or by the DTC or any such nominee to a successor depositary or to a nominee of such successor depositary. (l) Accrual of Interest on the Exchange Security; Exchange of Exchange Securities. (i) Interest on any Exchange Security shall accrue from the dates provided in Exhibit B. (ii) Subject to Section 2.1(e), upon the occurrence of the exchange offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2, the Trustee shall authenticate one or more Exchange Global Securities in an aggregate principal amount equal to the principal amount of the beneficial interests in the Initial Securities or Additional Securities tendered for acceptance by Persons that certify in the applicable letters of transmittal that (x) they are not broker-dealers, (y) they are not participating in a distribution of the Exchange Securities and (z) they are not affiliates (as defined in Rule 144 under the Securities Act) of the Company, and accepted for exchange in the exchange offer. Concurrently with the issuance of such Securities, the Trustee shall cause the aggregate principal amount of the applicable Initial Securities in the form of Global Securities and/or Additional Securities in the form of Global Securities to be reduced accordingly. SECTION 2.7. Form of Certificates to be Delivered in Connection with Transfers Pursuant to Regulation S and Rule 144A. Attached hereto as Exhibit C and Exhibit D are forms of certificates to be delivered in connection with transfers pursuant to Regulation S and Rule 144A, respectively. SECTION 2.8. Business Days. If a payment date is on a date that is not a Business Day, payment shall be made on the next succeeding day that is a Business Day, and no interest shall accrue on such payment for the intervening period. If a regular record date is on a day that is not a Business Day, the record date shall not be affected. SECTION 2.9. Replacement Securities. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security shall provide the Company and the Trustee with evidence to their satisfaction that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies any other reasonable requirements of the Trustee. In addition, such Holder shall furnish an indemnity or surety bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent and the Registrar from any loss which any of them may suffer if a Security is replaced. The Company and the Trustee may charge the Holder for their expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security is an additional obligation of the Company. SECTION 2.10. Outstanding Securities. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled, those delivered for cancellation and those described in this Section 2.10 as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. If a Security is replaced pursuant to Section 2.9, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all Principal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.11. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency maintained by the Company for that purpose and such exchange shall be without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute, and the Trustee shall authenticate and deliver in exchange therefor, one or more definitive Securities representing an equal principal amount of Securities. Until so exchanged, the Holder of temporary Securities shall in all respects be entitled to the same benefits under this Indenture as a Holder of definitive Securities. SECTION 2.12. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee for cancellation any Securities surrendered to them for registration of transfer or exchange or payment. The Trustee and no one else shall cancel (subject to the record retention requirements of the Exchange Act) all Securities surrendered for registration of transfer or exchange, payment or cancellation and, upon the request of the Company, deliver a certificate of such cancellation to the Company. The Company may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancellation, which shall not prohibit the Company from issuing any Additional Securities, or any Exchange Securities in exchange for Initial Securities. All cancelled Securities held by the Trustee may be disposed of by the Trustee in accordance with its then customary practices and procedures, unless the Company directs otherwise. SECTION 2.13. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, the Company shall pay defaulted interest plus interest on such defaulted interest to the extent lawful at the rate specified therefor in the Securities in any lawful manner. The Company may pay the defaulted interest to the Persons who are Securityholders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee which specified record date shall not be less than 10 days prior to the payment date for such defaulted interest and shall promptly mail or cause to be mailed to each Securityholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when so deposited to be held in trust for the benefit of the Person entitled to such defaulted interest as provided in this Section 2.13. SECTION 2.14. CUSIP Numbers, etc. The Company in issuing the Securities may use "CUSIP" or "ISIN" numbers and/or other similar numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" and/or "ISIN" numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers and/or other similar numbers. SECTION 2.15. Issuance of Additional Securities. The Company shall be entitled to issue, from time to time, Additional Securities under this Indenture which shall have identical terms as the Initial Securities issued on the Issue Date or the Exchange Securities exchanged therefor (in each case, other than with respect to the date of issuance, issue price and amount of interest payable on the first payment date applicable thereto), as the case may be. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities issued in exchange therefor shall be treated as a single class for all purposes under this Indenture. With respect to any Additional Securities, the Company shall set forth in a resolution of the Board of Directors and an Officers' Certificate, a copy of each shall be delivered to the Trustee, the following information: (i) the aggregate principal amount of such Additional Securities to be authenticated and delivered pursuant to this Indenture; (ii) the issue price, the issue date and the "CUSIP" and "ISIN" number of any such Additional Securities and the amount of interest payable on the first payment date applicable thereto; (iii) whether such Additional Securities shall be transfer restricted securities and issued in the form of Initial Securities as set forth in Exhibit A to this Indenture or shall be issued in the form of Exchange Securities as set forth in Exhibit B to this Indenture; and (iv) if applicable, the Resale Restriction Termination Date and the Restricted Period for such Additional Securities. SECTION 2.16. One Class of Securities. The Initial Securities, any Additional Securities and the Exchange Securities shall vote and consent together on all matters as one class; and none of the Initial Securities, any Additional Securities and the Exchange Securities shall have the right to vote or consent as a separate class on any matter. The Initial Securities, any Additional Securities and the Exchange Securities shall together be deemed to be a single series under this Indenture. ARTICLE III Redemption SECTION 3.1. Notices to Trustee. If the Company elects to redeem Securities pursuant to Section 5 of the Securities, it shall notify the Trustee in writing of the redemption date and the principal amount of Securities to be redeemed. The Company shall give each notice to the Trustee provided for in this Section 3.1 at least 60 days (45 days in the case of redemption of all the Securities) before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate from the Company to the effect that such redemption will comply with the conditions herein. The record date relating to such redemption shall be selected by the Company and set forth in the related notice given to the Trustee, which record date shall be not less than 15 days prior to the date selected for redemption by the Company. SECTION 3.2. Selection of Securities to be Redeemed. If fewer than all the Securities then outstanding are to be redeemed, the Trustee shall select the Securities to be redeemed by a method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee considers, in its discretion, to be fair and appropriate in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the Principal of Securities that have denominations larger than $1,000. Securities and portions of them that the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company of the Securities or portions of Securities to be redeemed. SECTION 3.3. Notice of Redemption. At least 30 days but not more than 60 days before a date for redemption of Securities, notice of redemption shall be mailed by first-class mail to each Holder of Securities to be redeemed. The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price (or the method of calculating such price) and the amount of accrued interest to be paid, if any; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price plus accrued and unpaid interest, if any; (5) if fewer than all the outstanding Securities are to be redeemed, the Bond No. (if certificated) and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; (7) the CUSIP number, or any similar number, if any, printed on the Securities being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, or any similar number, if any, listed in such notice or printed on the Securities. At the Company's request, the Trustee shall give the notice of redemption in the name of the Company and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section 3.3. SECTION 3.4. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.3, Securities called for redemption shall become due and payable on the redemption date and at the redemption price as stated in the notice. Upon surrender to the Paying Agent on or after the redemption date, such Securities shall be paid at the redemption price stated in the notice, plus accrued and unpaid interest to the redemption date; provided, that the Company shall have deposited the redemption price with the Paying Agent or the Trustee on or before 11:00 a.m. (New York City time) on the date of redemption; provided further that if the redemption date is after a regular record date and on or prior to the interest payment date, the accrued and unpaid interest shall be payable to the Securityholder of the redeemed Securities registered on the relevant record date. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.5. Deposit of Redemption Price. By no later than 11:00 a.m. (New York City time) on the date of redemption, the Company shall deposit with the Paying Agent (or, if the Company or any of its Subsidiaries is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which are owned by the Company or a Subsidiary and have been delivered by the Company or such Subsidiary to the Trustee for cancellation. Unless the Company defaults in the payment of such redemption price, interest on the Securities to be redeemed will cease to accrue on and after the applicable redemption date, whether or not such Securities are presented for payment. SECTION 3.6. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder thereof (at the Company's expense) a new Security, equal in a principal amount to the unredeemed portion of the Security surrendered. ARTICLE IV Covenants SECTION 4.1. Payment of Securities. The Company covenants and agrees that it will promptly pay the Principal of and interest (including Additional Interest) on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest (including Additional Interest) shall be considered paid on the date due if, on or before 11:00 a.m. (New York City time) on such date, the Trustee or the Paying Agent (or, if the Company or any of its Subsidiaries is the Paying Agent, the segregated account or separate trust fund maintained by the Company or such Subsidiary pursuant to Section 2.4) holds in accordance with this Indenture money sufficient to pay all Principal and interest (including Additional Interest) then due. If any Additional Interest is due, the Company shall deliver an Officers' Certificate to the Trustee setting forth the Additional Interest per $1,000 aggregate principal amount of Securities. The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful as provided in Section 2.13. Notwithstanding anything to the contrary contained in this Indenture, the Company or the Paying Agent may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America or other domestic or foreign taxing authorities from Principal or interest payments hereunder. SECTION 4.2. Limitations on Liens. (a) So long as any Securities remain outstanding, the Company will not and will not permit any of its Restricted Subsidiaries to Incur any Debt secured by a mortgage, security interest, pledge, lien or other encumbrance (mortgages, security interests, pledges, liens and other encumbrances being hereinafter in this Article 4 referred to as "Lien" or "Liens") upon any Principal Property or upon any shares of capital stock or Debt of any Restricted Subsidiary, unless the Company secures or causes such Restricted Subsidiary to secure the Securities (together with, if the Company shall so determine, any other Debt of the Company or the Restricted Subsidiary, then existing or thereafter created, which is not subordinate to the Securities) equally and ratably with such Debt to be so secured; provided, however, that the foregoing restrictions shall not apply to: (1) Liens on any property existing at the time of acquisition thereof by the Company or a Restricted Subsidiary or at the date of this Indenture (as set forth on a schedule to this Indenture); (2) Liens on property of a corporation existing at the time such corporation is merged or consolidated with the Company or a Restricted Subsidiary or at the time of a sale, lease or other disposition of the properties of such corporation as an entirety or substantially as an entirety to the Company or a Restricted Subsidiary, provided, that such Lien as a result of such merger, consolidation, sale, lease or other disposition is not extended to property owned by the Company or such Restricted Subsidiary immediately prior thereto; (3) Liens on property of any corporation existing at the time such corporation becomes a Restricted Subsidiary; (4) Liens securing Debt of a Restricted Subsidiary to the Company or to another Restricted Subsidiary; (5) Liens on property to secure the payment of all or any part of the purchase price of such property upon the acquisition of such property by the Company or a Restricted Subsidiary or to secure any Debt incurred prior to, at the time of or within 120 days after, the later of the date of acquisition of such property and the date such property is placed in service, for the purpose of financing all or any part of the purchase price thereof, or Liens to secure any Debt incurred for the purpose of financing the cost to the Company or a Restricted Subsidiary of improvement to such acquired property; (6) mechanics' liens, tax liens, liens in favor of any governmental body to secure progress, advance or other payments or the acquisition of real or personal property from such governmental body pursuant to any contract or provision of any statute, and other liens, charges and encumbrances incidental to construction, to the conduct of business or to the ownership of property of the Company or any Restricted Subsidiary which were not incurred in connection with the borrowing of money or the obtaining of advances or credits or the acquisition of property and do not in the aggregate materially impair the use of any Principal Property or which are being contested in good faith by the Company or such Restricted Subsidiary; or (7) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred to in the foregoing clauses (1) to (6), inclusive; provided, however, that (i) such extension, renewal or replacement Liens shall be limited to all or part of the same property, shares of stock or Debt that secured the Liens extended, renewed or replaced (plus improvements on such property) and (ii) the principal amount of Debt secured thereby and not otherwise authorized by said clauses (1) to (6), inclusive, shall not exceed the principal amount of Debt, plus any premium or fee payable in connection with any such extension, renewal or replacement, so secured at the time of such extension, renewal or replacement. (b) Notwithstanding the foregoing provisions of this Section 4.2, the Company and its Restricted Subsidiaries may Incur Debt secured by Liens which would otherwise be subject to the foregoing restrictions without equally and ratably securing the Securities; provided, that after giving effect thereto, the aggregate amount of all Debt so secured by Liens (not including Liens permitted under clauses (1) through (7) above), together with all Attributable Debt outstanding pursuant to Section 4.3(b), does not at the time exceed 10% of the Consolidated Net Worth. SECTION 4.3. Limitation on Sale and Lease-Back Transactions. (a) The Company will not, nor will it permit any Restricted Subsidiary to, enter into any Sale and Lease-Back Transaction with respect to any Principal Property (except for (i) a transaction providing for a lease for a term of not more than three years, (ii) the commitment by or on behalf of the purchaser is obtained within 120 days after the acquisition, construction or placing in service of the Principal Property, (iii) the transaction is between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, (iv) the Company or such Restricted Subsidiary would be entitled pursuant to Section 4.2(a) to Incur Debt secured by a Lien on such Principal Property to be leased back in an amount equal to the Attributable Debt with respect to such Sale and Lease-Back Transaction without equally and ratably securing the Securities or (v) the Company or such Restricted Subsidiary shall apply or cause to be applied, an amount equal to the greater of (x) the net proceeds so sold and leased back pursuant to such arrangement and (y) the fair market value (as determined by the Board of Directors) of the Principal Property so sold and leased back pursuant to such arrangement, to the retirement, within 180 days after the effective date of such Sale and Lease-Back Transaction, of Securities or other Debt of the Company or a Restricted Subsidiary; provided, however, that any such retirement of Securities shall be in accordance with Section 3.1 and provided further that the amount to be applied to such retirement of Securities or other Debt shall be reduced by an amount equal to the sum of (A) an amount equal to the principal amount of Securities delivered within 180 days after the effective date of such Sale and Lease-Back Transaction to the Trustee for retirement and cancellation and (B) the principal amount, plus any premium or fee paid in connection with any redemption in accordance with the terms, of other Debt voluntarily retired by the Company or a Restricted Subsidiary within such 180-day period). (b) Notwithstanding the foregoing provisions of Section 4.3(a), the Company or any Restricted Subsidiary may enter into a Sale and Lease-Back Transaction which would otherwise be subject to the restrictions of Section 4.3(a) so long as all Debt outstanding pursuant to Section 4.2(b) and 4.3(b) does not exceed, in the aggregate, 10% of Consolidated Net Worth. SECTION 4.4. Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate signed by its principal executive officer, the principal financial officer or the principal accounting officer stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default or Event of Default and whether or not the signers know of any Default or Event of Default that occurred during such period. If they do, the certificate shall describe the Default or Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with Section 314(a)(4) of the Trust Indenture Act. SECTION 4.5. Maintenance of Office or Agency. The Company shall maintain the office or agency required under Section 2.3. The Company shall give prior written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 10.2. SECTION 4.6. Existence. Except as otherwise permitted by Article V, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its existence as a corporation or other Person. SECTION 4.7. SEC Reports. The Company will comply with all the applicable provisions of Section 314(a) of the Trust Indenture Act. Delivery of such information, documents or reports to the Trustee pursuant to such provisions is for informational purposes only, and the Trustee's receipt thereof shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of the covenants hereunder (as to which the Trustee is entitled to rely exclusively on the Officers' Certificate). SECTION 4.8. Further Instruments and Acts. Upon reasonable request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE V Consolidation, Merger and Sale of Assets SECTION 5.1. Company May Merge or Transfer Assets Only on Certain Terms. The Company will not consolidate with or sell, lease, transfer or convey all or substantially all of its assets to, or merge with or into, in one transaction or a series of related transactions, any other Person, unless: (i) the Company shall be the continuing entity, or the resulting, surviving or transferee Person (the "Successor") shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor (if not the Company) shall expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) if requested, the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture (except that such Opinion of Counsel need not opine as to Clause (ii) above) and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 5.2. Successor Corporation Substituted. The Successor will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, but the predecessor Company in the case of a lease of all or substantially all of the Company's assets will not be released from the obligation to pay the Principal of and interest on the Securities. ARTICLE VI Defaults and Remedies SECTION 6.1. Events of Default. An "Event of Default" occurs with respect to the Securities if: (1) the Company defaults in any payment of interest (including Additional Interest) on any Security when the same becomes due and payable, and such default continues for a period of 30 days; (2) the Company defaults in the payment of the Principal of any Security when the same becomes due and payable at its Stated Maturity, upon optional redemption, upon declaration or otherwise; (3) the Company fails to comply with any of its covenants and agreements in the Securities or this Indenture (other than those referred to in (1) or (2) above) and such failure continues for 90 days after the notice specified below; (4) the Company defaults with respect to other Debt of the Company or any Restricted Subsidiary, which default results in the acceleration of Debt in an amount in excess of $25,000,000 or the equivalent thereof in any other currency or composite currency without such Debt having been discharged or such acceleration having been cured, waived, rescinded or annulled for a period of 30 days after written notice specified below; provided, however, that if any such default or acceleration shall be cured, waived, rescinded or annulled then the Event of Default by reason thereof shall be deemed likewise to have been cured; (5) the Company or any Restricted Subsidiary shall fail within 60 days to pay, bond or otherwise discharge any final non-appealable judgment, decree or order of any court or regulatory or administrative agency for the payment of money in excess of $25,000,000 which is not satisfied or stayed on appeal; or (6) the Company or any Restricted Subsidiary, pursuant to or within the meaning of the Bankruptcy Law: (A) commences a voluntary case or proceeding; (B) consents to the entry of an order for relief against it in an involuntary case or proceeding in which it is the debtor; (C) consents to the appointment of a Custodian of it or for all or substantially all of its property; (D) makes a general assignment for the benefit of its creditors; (E) files a petition in bankruptcy or answer or consent seeking reorganization or relief; (F) consents to the filing of such petition or the appointment of or taking possession by a Custodian; or (G) takes any comparable action under any foreign laws relating to insolvency; or (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Restricted Subsidiary in an involuntary case, or adjudicates the Company or a Restricted Subsidiary insolvent or bankrupt; (B) appoints a Custodian of the Company or a Restricted Subsidiary or for all or substantially all of the Company's or any Restricted Subsidiary's property; or (C) orders the winding-up or liquidation of the Company or a Restricted Subsidiary (or any similar relief is granted under any foreign laws) and the order or decree remains unstayed and in effect for 60 days. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any similar federal or state or foreign law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. If any failure, default or acceleration referred to in clause (4) above shall cease or be cured, waived, rescinded or annulled, then the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon cured. A Default with respect to Securities under clauses (3), (4) or (5) of this Section 6.1 is not an Event of Default until the Trustee (by notice to the Company) or the Holders of at least 25% in aggregate principal amount of the outstanding Securities (by notice to the Company and the Trustee) gives notice of the Default and the Company does not cure such Default within the time specified in said clause (3), (4) or (5) after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any event which with the giving of notice or the lapse of time would become an Event of Default under clause (3), (4) or (5) of this Section 6.1, its status and what action the Company is taking or proposes to take with respect thereto. SECTION 6.2. Acceleration. If an Event of Default with respect to the Securities (other than an Event of Default specified in Section 6.1(6) or (7)) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the outstanding Securities by notice to the Company and the Trustee, may declare the Principal of and accrued but unpaid interest on all the Securities to be due and payable. Upon such a declaration, such Principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.1(6) or (7) occurs and is continuing, the Principal of and accrued interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. The Holders of a majority in aggregate principal amount of the outstanding Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree (other than a judgment or decree for the payment of Principal or interest or monies due on the Securities) and if all existing Events of Default have been cured or waived except nonpayment of Principal or interest that has become due solely because of such acceleration and the Trustee has been paid all amounts due to it pursuant to Section 7.7. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.3. Other Remedies. If an Event of Default with respect to the Securities occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of Principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are, to the extent permitted by law, cumulative. SECTION 6.4. Waiver of Past Defaults. The Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may waive any past or existing Default and its consequences except (i) a Default in the payment of the Principal of or interest on a Security or (ii) a Default in respect of a provision that under Section 9.2 cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured, and any Event of Default arising therefrom shall be deemed to have been cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 6.5. Control by Majority. Upon provision of security or indemnity reasonably satisfactory to the Trustee, the Holders of a majority in aggregate principal amount of the Securities then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee with respect to the Securities or of exercising any trust or power conferred on the Trustee. However, the Trustee, which may rely on opinions of counsel, may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. SECTION 6.6. Limitation on Suits. A Holder of Securities may not pursue any remedy with respect to this Indenture or the Securities unless: (i) the Holder gives to the Trustee previous written notice stating that an Event of Default is continuing; (ii) the Holders of at least 25% in aggregate principal amount of the Securities then outstanding make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Trustee reasonable indemnity against any costs, liabilities or expenses; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (v) the Holders of a majority in aggregate principal amount of the Securities then outstanding do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.7. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of Principal of and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.8. Collection Suit by Trustee. If an Event of Default specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.7. SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relative to an Company, its creditors or any other obligor upon the Securities, or any of their creditors or the property of the Company or such other obligor or their creditors and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.7. SECTION 6.10. Priorities. Any money or other property collected by the Trustee pursuant to Article VI hereof, or any money or other property otherwise distributable in respect of the Company's obligations under this Indenture, shall be applied in the following order: FIRST: to the Trustee (including any predecessor Trustee) for amounts due under Section 7.7; SECOND: to Securityholders for amounts due and unpaid on the Securities for Principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for Principal and interest, respectively; and THIRD: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of more than 10% in aggregate principal amount of the outstanding Securities. SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VII Trustee SECTION 7.1. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of an Event of Default: (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon Officers' Certificates and Opinions of Counsel furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such Officers' Certificates and Opinions of Counsel which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such Officers' Certificates and Opinions of Counsel to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) this subsection does not limit the effect of subsections (b) or (f) of this Section 7.1; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to subsections (a), (b), (c) and (f) of this Section 7.1. (e) The Trustee shall not be liable for interest on any money or other property received by it or for holding moneys or other property uninvested, in either case, except as otherwise agreed between the Company and the Trustee. Money and other property held in trust by the Trustee need not be segregated from other money or property except to the extent required by law. (f) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (g) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 7.1 and to the provisions of the Trust Indenture Act, where applicable. SECTION 7.2. Rights of Trustee. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may execute any of the trusts or powers or perform any duties hereunder either directly through attorneys and agents, respectively, and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care by it hereunder. (d) The Trustee shall not be liable for any action it takes, suffers to exist or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Trustee's conduct does not constitute willful misconduct or negligence. (e) The Trustee may consult with counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in reliance thereon. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. (g) The Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the Securities unless either (1) a Trust Officer shall have actual knowledge of such Default or Event of Default or (2) written notice of such Default or Event of Default shall have been given to a Trust Officer of the Trustee at the Corporate Trust Office by the Company or any other obligor on the Securities or by any Holder of the Securities. Any such notice shall reference this Indenture and the Securities. (h) The rights, privileges, protections, immunities and benefits given to the Trustee pursuant to this Indenture, including its rights to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities as Registrar and Paying Agent, as the case may be, hereunder. SECTION 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities or any offering document, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 7.5. Notice of Defaults. If a Default or an Event of Default occurs with respect to the Securities and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default within 90 days after it is known to a Trust Officer or written notice of it is received by a Trust Officer of the Trustee. Except in the case of a Default in payment of Principal of or interest on any Security, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is not opposed to the interests of Securityholders. SECTION 7.6. Reports by Trustee to Holders. As promptly as practicable after each May 15 beginning with the May 15 following the date of this Indenture, and in any event prior to July 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as of such May 15 that complies with Section 313(a) of the Trust Indenture Act. The Trustee also shall comply with Section 313(b) of the Trust Indenture Act. The Trustee shall promptly deliver to the Company a copy of any report it delivers to Holders pursuant to this Section 7.6. A copy of each report at the time of its mailing to Securityholders shall be filed by the Trustee with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.7. Compensation and Indemnity. The Company covenants and agrees to pay to the Trustee (and any predecessor Trustee) from time to time such compensation for its services as the Company and the Trustee shall from time to time agree in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses (including attorneys' fees and expenses), disbursements and advances incurred or made by it in accordance with the provisions of this Indenture, including costs of collection, in addition to such compensation for its services, except any such expense, disbursement or advance as may arise from its negligence, willful misconduct or bad faith. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents and counsel. The Trustee shall provide the Company reasonable notice of any expenditure not in the ordinary course of business; provided that prior approval by the Company of any such expenditure shall not be a requirement for the making of such expenditure nor for reimbursement by the Company thereof. The Company shall indemnify each of the Trustee, its officers, directors, employees and any predecessor Trustees against any and all loss, damage, claim, liability or expense (including reasonable attorneys' fees and expenses) (other than taxes applicable to the Trustee's compensation hereunder) incurred by it in connection with the acceptance or administration of this trust and the performance of its duties hereunder. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee so to notify the Company shall not relieve the Company of its obligations hereunder, except to the extent that the Company has been prejudiced by such failure. The Company shall defend the claim and the Trustee shall cooperate, to the extent reasonable, in the defense of any such claim, and, if (in the opinion of counsel to the Trustee) the facts and/or issues surrounding the claim are reasonably likely to create a conflict with the Company, the Company shall pay the reasonable fees and expenses of separate counsel to the Trustee. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own willful misconduct, negligence or bad faith. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld or delayed. To secure the Company's payment obligations in this Section 7.7, the Trustee (including any predecessor trustee) shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay Principal of and interest on particular Securities. The Company's payment obligations pursuant to this Section 7.7 shall survive the satisfaction, discharge and termination of this Indenture, the resignation or removal of the Trustee and any discharge of this Indenture including any discharge under any bankruptcy law. In addition to and without prejudice to the rights provided to the Trustee under any of the provisions of this Indenture, when the Trustee incurs expenses or renders services after the occurrence of a Default specified in Section 6.1(6) or (7) with respect to the Company, the expenses and the compensation for the services are intended to constitute expenses of administration under the Bankruptcy Law. SECTION 7.8. Replacement of Trustee. The Trustee may resign at any time with 30 days notice to the Company. The Holders of a majority in principal amount of the Securities then outstanding, may remove the Trustee with 30 days notice to the Trustee and may appoint a successor Trustee, which successor Trustee shall be reasonably acceptable to the Company. The Company shall remove the Trustee if: (i) the Trustee fails to comply with Section 7.10; (ii) the Trustee is adjudged bankrupt or insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee otherwise becomes incapable of acting. If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company and the Company shall pay all amounts due and owing to the Trustee under Section 7.7 of the Indenture. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders affected by such resignation or removal. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.7. If a successor Trustee does not take office with respect to the Securities within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 shall continue for the benefit of the retiring Trustee. SECTION 7.9. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee; provided that such corporation shall be eligible under this Article Seven and Section 310(a) of the Trust Indenture Act. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of Section 310(a) of the Trust Indenture Act. The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with Section 310(b) of the Trust Indenture Act; provided, however, that there shall be excluded from the operation of Section 310(b)(1) of the Trust Indenture Act and any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in Section 310(b)(1) of the Trust Indenture Act are met. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of Section 310(b) of the Trust Indenture Act. SECTION 7.11. Preferential Collection of Claims Against the Company. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship listed in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent indicated. ARTICLE VIII Discharge of Indenture; Defeasance SECTION 8.1. Discharge of Liability on Securities; Defeasance. With respect to the Securities, (a) when (i) the Company delivers to the Trustee all outstanding Securities for cancellation or (ii) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article 3 hereof or the Securities will become due and payable at their Stated Maturity within one year, or the Securities are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and, in each case of this clause (ii), the Company irrevocably deposits or causes to be deposited with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities, including interest thereon to maturity or such redemption date, and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 8.1(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate from the Company and an Opinion of Counsel from the Company that all conditions precedent provided herein for relating to satisfaction and discharge of this Indenture have been complied with and at the cost and expense of the Company. (b) Subject to Sections 8.1(c) and 8.2, the Company at any time may terminate (i) all of its obligations under the Securities and this Indenture ("legal defeasance option") or (ii) its obligations under Section 4.2 and Section 4.3 and the operation of Sections 6.1(4) and 6.1(5) ("covenant defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option with respect to the Securities, payment of the Securities may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 6.1(4) or 6.1(5). Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations in Sections 2.3, 2.4, 2.5, 2.9, 4.1, 4.5, 4.8, 7.7, 7.8, 8.4, 8.5 and 8.6 and Section 2.3 of the Appendix shall survive until the Securities have been paid in full. Thereafter, the Company's and the Trustee's obligations in Sections 7.7, 8.4 and 8.5 shall survive. SECTION 8.2. Conditions to Defeasance. The Company may exercise its legal defeasance option or its covenant defeasance option with respect to the Securities only if: (i) the Company irrevocably deposits or causes to be deposited in trust with the Trustee money or U.S. Government Obligations which through the scheduled payment of Principal and interest in respect thereof in accordance with their terms will provide cash at such times and in such amounts as will be sufficient to pay Principal and interest when due on all outstanding Securities (except Securities replaced pursuant to Section 2.9) to maturity or redemption, as the case may be; (ii) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of Principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay Principal and interest when due on all outstanding Securities (except Securities replaced pursuant to Section 2.9) to maturity or redemption, as the case may be; (iii) 91 days pass after the deposit is made and during the 91-day period no Default specified in Section 6.1(6) or (7) occurs which is continuing at the end of the period; (iv) the deposit does not constitute a default under any other material agreement binding on the Company; (v) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (vi) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (vii) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; and (viii) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article 8 have been complied with. Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article 3. SECTION 8.3. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article 8. It shall apply the deposited money and the money from U.S. Government Obligations either directly or through the Paying Agent as the Trustee may determine and in accordance with this Indenture to the payment of Principal of and interest on the Securities. SECTION 8.4. Repayment to the Company. The Trustee and the Paying Agent shall promptly turn over to the Company upon request any excess money or securities held by them at any time. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of Principal or interest that remains unclaimed for two years after the date of payment of such Principal and interest, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. Anything in this Section 8.4 to the contrary notwithstanding, in the absence of a written request from the Company to return unclaimed funds to the Company, the Trustee shall from time to time deliver all unclaimed funds to or as directed by applicable escheat authorities, as determined by the Trustee in its sole discretion, in accordance with the customary practices and procedures of the Trustee. Any unclaimed funds held by the Trustee pursuant to this Section 8.4 shall be held uninvested and without any liability for interest. SECTION 8.5. Indemnity for Government Obligations. The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations other than any such tax, fee or other charge which by law is for the account of the Holders of the defeased Securities; provided that the Trustee shall be entitled to charge any such tax, fee or other charge to such Holder's account. SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article 8 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article 8; provided, however, that (a) if the Company has made any payment of interest on or Principal of any Securities following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent and (b) unless otherwise required by any legal proceeding or any order or judgment of any court or governmental authority, the Trustee or Paying Agent shall return all such money and U.S. Government Obligations to the Company promptly after receiving a written request therefor at any time, if such reinstatement of the Company's obligations has occurred and continues to be in effect. ARTICLE IX Amendments SECTION 9.1. Without Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to or consent of any Securityholder: (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to comply with Article 5; (iii) to add any additional Events of Default; (iv) to add to the covenants of the Company for the benefit of the Holders of all the Securities or to surrender any right or power herein conferred upon the Company; (v) to add one or more guarantees for the benefit of holders of the Securities; (vi) to secure the Securities pursuant to the terms of this Indenture; (vii) to add or appoint a successor or separate Trustee or other agent; (viii) to comply with any requirements in connection with qualifying this Indenture under the Trust Indenture Act; (ix) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are as described in Section 163(f)(2)(B) of the Code; (x) to provide for the issuance of the Exchange Securities, which will have terms substantially identical in all material respects to the Initial Securities (except that the transfer restrictions contained in the Initial Securities will be modified or eliminated, as appropriate); (xi) to provide for the issuance of any Additional Securities, which will have terms substantially identical in all material respects to the Initial Securities or the Exchange Securities (in each case, other than with respect to the date of issuance, issue price and amount of interest payable on the first payment date applicable thereto), as the case may be, and which will be treated, together with any outstanding Initial Securities and any Additional Securities, as a single issue of securities; and (xii) to change any other provision if the change does not adversely affect the interests of any Securityholder. After an amendment under this Section 9.1 becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.1. SECTION 9.2. With Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange for Securities). However, without the consent of each Securityholder affected, an amendment may not: (i) change the Stated Maturity of the Principal of, or installment of interest on, any Security; (ii) reduce the principal amount of, or the rate of interest on, any Securities; (iii) reduce any premium payable on the redemption of any Security or change the date on which any Security may or must be redeemed; (iv) change the place of payment or the coin or currency in which the Principal of or interest on any Security is payable; (v) impair the right of any Holder to institute suit for the enforcement of any payment on or after the Stated Maturity of any Security; (vi) reduce the percentage in principal amount of the outstanding Securities, the consent of whose Holders is required in order to take certain actions; (vii) reduce the requirements for quorum or voting by Holders in this Indenture or the Securities; (viii) modify any of the provisions of this Indenture regarding the waiver of past defaults and the waiver of certain covenants by Holders except to increase any percentage vote required or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the holder of each security affected thereby; or (ix) modify any of the above provisions of this Section 9.2. It shall not be necessary for the consent of the Holders under this Section 9.2 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section 9.2 becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.2. SECTION 9.3. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall comply with the Trust Indenture Act as then in effect. SECTION 9.4. Revocation and Effect of Consents and Waivers. A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. After an amendment or waiver becomes effective with respect to the Securities, it shall bind every Securityholder. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. SECTION 9.5. Notation on or Exchange of Securities. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Company shall provide in writing to the Trustee an appropriate notation to be placed on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determine, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.6. Trustee To Sign Amendments. The Trustee shall sign any amendment authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.1) shall be fully protected in relying upon, in addition to the documents required by Section 10.4, an Officers' Certificate of the Company and an Opinion of Counsel stating that such amendment complies with the provisions of this Article 9 and that such supplemental indenture constitutes the legal valid and binding obligation of the Company in accordance with its terms subject to customary exceptions. SECTION 9.7. Payment for Consent. Neither the Company nor any affiliate of the Company shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of a Security for, or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid to all Holders of a Securities that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. ARTICLE X Miscellaneous SECTION 10.1. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by, or with another provision included or which is required to be included in this Indenture by the Trust Indenture Act, the duty or provision required by the Trust Indenture Act shall control. SECTION 10.2. Notices. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail addressed as follows: if to the Company: Mettler-Toledo International Inc. Im Langacher 8606 Greifensee, Switzerland Facsimile Number: (41) 1944-3624 Attention: General Counsel if to the Trustee: JPMorgan Chase Bank Institutional Trust Services 4 New York Plaza, 15th Floor New York, NY 10004 Facsimile Number: (212) 623-6167 Attention: William G. Keenan Any notices between the Company and the Trustee may be by facsimile or certified first class mail, receipt confirmed and the original to follow by guaranteed overnight courier. The Company or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 10.3. Communication by Holders with other Holders. Securityholders may communicate pursuant to Section 312(b) of the Trust Indenture Act with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of Section 312(c) of the Trust Indenture Act. SECTION 10.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (i) an Officers' Certificate of the Company in form reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (ii) an Opinion of Counsel of the Company in form reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Notwithstanding the foregoing no such Opinion of Counsel shall be given with respect to the authentication and delivery of any Initial Securities. SECTION 10.5. Statements Required in Certificate or Opinion. The certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (i) a statement that the individual making such certificate or opinion has read such covenant or condition; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 10.6. When Securities Disregarded. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company (an "Affiliate") shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which a Trust Officer of the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 10.7. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 10.8. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 10.9. No Recourse Against Others. A director, officer, employee or stockholder (other than the Company), as such, of the Company shall not have any liability for any obligations of the Company under the Securities, this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 10.10. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 10.11. Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 10.12. Variable Provisions. The Company initially appoints the Trustee as Paying Agent and Registrar and custodian with respect to any Global Securities (as defined in the Appendix hereto). SECTION 10.13. Qualification of Indenture. The Company shall qualify this Indenture under the Trust Indenture Act in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys' fees for the Company, the Trustee and the Holders) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of this Indenture and the Securities and printing this Indenture and the Securities. The Trustee shall be entitled to receive from the Company any such Officers' Certificates, Opinions of Counsel or other documentation as it may reasonably request in connection with any such qualification of this Indenture under the Trust Indenture Act. SECTION 10.14. Table of Contents; Headings. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. METTLER-TOLEDO INTERNATIONAL INC. By______________________________ Name: Title: JPMORGAN CHASE BANK By______________________________ Name: Title: Schedule 4.2 EXISTING LIENS None. EXHIBIT A [FORM OF FACE OF INITIAL SECURITY] METTLER-TOLEDO INTERNATIONAL INC. 4.85% SENIOR NOTES DUE 2010 No. ____ Principal Amount $______________, (subject to adjustment as reflected in the Schedule of Increases and Decreases in Global Security attached hereto) CUSIP NO. _________ ISIN NO. _________ Mettler-Toledo International Inc., a Delaware corporation, for value received, promises to pay to _____________, or registered assigns, the principal sum of ____________ Dollars, subject to adjustment as reflected in the Schedule of Increases and Decreases in Global Security attached hereto, on November 15, 2010. Interest Payment Dates: May 15 and November 15 of each year, commencing on [May 15, 2004] [first interest payment date relating to any Additional Securities]. Record Dates: May 1 and November 1 of each year. Additional provisions of this Security are set forth on the other side of this Security. METTLER-TOLEDO INTERNATIONAL INC. By_________________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. JPMorgan Chase Bank, as Trustee By_____________________________ Authorized Officer Dated: _______ __, 20__ [FORM OF REVERSE SIDE OF INITIAL SECURITY] [Reverse of Security] 4.85% Senior Notes due 2010 1. Interest Mettler-Toledo International Inc., a Delaware corporation (together with its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above; provided, however, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, additional cash interest will accrue on this Security at a rate of up to 0.50% per annum from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured, calculated on the principal amount of this Security as of the date on which such interest is payable. Such additional cash interest of up to 0.50% per annum is payable in addition to any other interest payable from time to time with respect to this Security. The Trustee will not be deemed to have notice of a Registration Default until a Trust Officer shall have received actual notice of such Registration Default. The Company will pay interest semiannually on May 15 and November 15 of each year (each such date, an "Interest Payment Date"), commencing on [May 15, 2004] [first interest payment date relating to any Additional Securities]. Interest on the Securities will accrue from [November 12, 2003] [date of issuance of any Additional Securities], or from the most recent date to which interest has been paid on the Securities. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment By no later than 11:00 a.m. (New York City time) on the date on which any Principal of or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such Principal and/or interest. The Company will pay interest (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the May 1 or November 1 next preceding the interest payment date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay Principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities represented by a Global Security (including principal, premium, if any, and interest) will be made by the transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company may make all payments in respect of a Definitive Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Holder thereof or by wire transfer to an account located in the United States maintained by the payee. 3. Paying Agent and Registrar Initially, JPMorgan Chase Bank, a New York banking corporation (the "Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent or Registrar without notice to any Securityholder. The Company or any of its domestically organized wholly owned Subsidiaries may act as Paying Agent. 4. Indenture The Company issued the Securities under an Indenture dated as of November 12, 2003 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "Trust Indenture Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Trust Indenture Act for a statement of those terms. The Securities are senior obligations of the Company. The Security is one of the Initial Securities referred to in the Indenture. The Securities include the Initial Securities issued on the Issue Date, any Additional Securities issued in accordance with Section 2.15 of the Indenture and the Exchange Securities issued in exchange for the Initial Securities or Additional Securities pursuant to the Indenture. The Initial Securities, any Additional Securities and the Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to create liens, enter into sale and lease-back transactions and enter into mergers and consolidations. 5. Optional Redemption The Securities are redeemable, in whole or in part, at any time and from time to time, at the option of the Company, at a redemption price equal to the greater of (i) 100% of the principal amount of such Securities and (ii) the sum of the present values of the Remaining Scheduled Payments, obtained by discounting the Remaining Scheduled Payments to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 20 basis points, plus accrued interest thereon to the date of redemption. "Treasury Rate" means, with respect to any redemption date for the Securities, the rate per annum equal to the semiannual equivalent yield to maturity or interpolated (on a day count basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. "Comparable Treasury Issue" means the United States Treasury security or securities selected by an Independent Investment Banker as having an actual or interpolated maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities to be redeemed. "Comparable Treasury Price" means, with respect to any redemption date for the Securities, (a) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations or (b) if the Company obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Company. "Reference Treasury Dealer" means each of Merrill Lynch, Pierce, Fenner & Smith Incorporated and its affiliates which are primary United States government securities dealers, and their respective successors, and three other firms which are primary U.S. government securities dealers that the Company selects; provided, however, that if any of the foregoing shall cease to be a primary U.S. government securities dealer in The City of New York, the Company shall substitute therefor another such primary U.S. government securities dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Company by such Reference Treasury Dealer as of 3:30 p.m., New York time, on the third Business Day preceding such redemption date. "Remaining Scheduled Payments" means, with respect to each Security to be redeemed, the remaining scheduled payments of the Principal thereof and interest thereon that would be due after the related redemption date but for such redemption, exclusive of interest accrued to the date of such redemption. Except as set forth above, the Securities will not be redeemable by the Company prior to maturity. The Securities will not be entitled to the benefit of any sinking fund. 6. Notice of Redemption Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date by first-class mail to each Holder of Securities to be redeemed at his registered address. Securities in denominations of principal amount larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before 11:00 a.m. (New York City time) on the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. Registration Rights The Company is party to a Registration Rights Agreement, dated as of November 12, 2003, between the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bank of America Securities LLC, UBS Securities LLC, Bank One Capital Markets, Inc., Fleet Securities, Inc., SG Cowen Securities Corporation, Tokyo-Mitsubishi International plc, Wachovia Capital Markets, LLC, Fifth Third Securities, Inc., Hypo-Vereinsbank and The Royal Bank of Scotland, pursuant to which it is obligated to pay Additional Interest (as defined therein) upon the occurrence of certain Registration Defaults (as defined therein). 8. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may register, transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) for a period beginning 15 days before a selection of Securities to be redeemed and ending on the date of such selection. 9. Persons Deemed Owners The registered holder of this Security may be treated as the owner of it for all purposes. 10. Unclaimed Money If money for the payment of Principal or interest remains unclaimed for two years after the date of payment of Principal and interest, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. Anything in this Section 10 to the contrary notwithstanding, in the absence of a written request from the Company to return unclaimed funds to the Company, the Trustee shall from time to time deliver all unclaimed funds to or as directed by applicable escheat authorities, as determined by the Trustee in its sole discretion, in accordance with the customary practices and procedures of the Trustee. 11. Defeasance Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of Principal of and interest on the Securities to redemption or maturity, as the case may be. 12. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities and (ii) any default or noncompliance with any provision of the Indenture or the Securities may be waived with the written consent of the Holders of a majority in principal amount of the outstanding Securities. However, the Indenture requires the consent of each Securityholder that would be affected for certain specified amendments or modifications of the Indenture and the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to add any additional Events of Default, or to add additional covenants of or surrender rights and powers conferred on the Company, or to add or appoint a successor or separate trustee or other agent, or to comply with any requirements in connection with qualifying the Indenture under the Trust Indenture Act, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to change any other provision if the change does not adversely affect the interests of any Securityholder. 13. Defaults and Remedies Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of Principal on the Securities at maturity, upon redemption pursuant to paragraph 5 of the Securities, upon declaration or otherwise; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities, subject to notice and lapse of time; (iv) certain accelerations of other indebtedness of the Company or any Restricted Subsidiary if the amount accelerated exceeds $25,000,000, subject to notice and lapse of time; provided, however, that if any such default or acceleration shall be cured, waived, rescinded or annulled, then the Event of Default by reason thereof shall be deemed likewise to have been cured; (v) a failure to pay, bond or otherwise discharge, within 60 days, any final non-appealable judgment, decree or order of any court or regulatory or administrative agency for the payment of money in excess of $25,000,000 and (vi) certain events of bankruptcy or insolvency involving the Company or any Restricted Subsidiary. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives indemnity or security reasonably satisfactory to it. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of Principal or interest) if it in good faith determines that withholding notice is not opposed to their interest. 14. Trustee Dealings with the Company Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company and may otherwise deal with the Company with the same rights it would have if it were not Trustee. 15. No Recourse Against Others A director, officer, employee or stockholder (other than the Company), as such, of the Company shall not have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 16. Authentication This Security shall not be valid until an authorized officer of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 17. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (tenants in common), TEN ENT (tenants by the entirety), JT TEN (joint tenants with rights of survivorship and not as tenants in common), CUST (custodian) and U/G/M/A (Uniform Gift to Minors Act). 18. [CUSIP and ISIN Numbers The Company has caused CUSIP and ISIN numbers and/or other similar numbers to be printed on the Securities and has directed the Trustee to use CUSIP and ISIN numbers and/or other similar numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.] [For Securities to be issued with CUSIP or ISIN numbers.] 19. Governing Law THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------- Date: ____________________ Your Signature: ___________________ Signature Guarantee: ______________________________ (Signature must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program or other signature guarantor program reasonably acceptable to the Trustee) Sign exactly as your name appears on the other side of this Security. In connection with any transfer or exchange of any of the certificated Securities evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being transferred: CHECK ONE BOX BELOW: (1) |_| to the Company; or (2) |_| for so long as the Securities are eligible for resale pursuant to Rule 144A under the Securities Act, to a person it reasonably believes is a "Qualified Institutional Buyer" as defined in Rule 144A under the Securities Act that purchases for its own account or for the account of a Qualified Institutional Buyer to whom notice is given that the transfer is being made in reliance on Rule 144A; or (3) |_| pursuant to the offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act; or (4) |_| pursuant to Rule 144 under the Securities Act or any other available exemption from the registration requirements of the Securities Act; or (5) |_| pursuant to a registration statement that has been declared effective under the Securities Act. Unless one of the boxes is checked, the Trustee may refuse to register any of the certificated Securities evidenced by this certificate in the name of any Person other than the registered holder thereof; provided, however, that if box (4) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. _____________________________________ Signature Signature Guarantee: _______________________________ _____________________________________ Signature (Signature must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program or other signature guarantor program reasonably acceptable to the Trustee) ______________________________________________________________________ TO BE COMPLETED BY PURCHASER IF BOX (2) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this certificated Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated:___________________ _______________________________________ NOTICE: To be executed by an executive officer Signature Guarantee: ___________________________ ___________________________________ Signature (Signature must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program or other signature guarantor program reasonably acceptable to the Trustee) ______________________________________________________________ [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made: Principal Amount of Signature of Date of Amount of decrease in Amount of increase in this Global Security authorized officer of Exchange Principal Amount of Principal Amount of following such Trustee or Securities this Global Security this Global Security decrease or increase Custodian - ------- --------------- --------------- --------------- ---------------
EXHIBIT B [FORM OF FACE OF EXCHANGE SECURITY] METTLER-TOLEDO INTERNATIONAL INC. 4.85% SENIOR NOTES DUE 2010 No. __ Principal Amount $______________, (subject to adjustment as reflected in the Schedule of Increases and Decreases in Global Security attached hereto) CUSIP NO. _________ ISIN NO. __________ Mettler-Toledo International Inc., a Delaware corporation, for value received, promises to pay to _______________, or registered assigns, the principal sum of _____________ Dollars on November 15, 2010. Interest Payment Dates: May 15 and November 15 of each year, commencing on [May 15, 2004] [first interest payment date relating to any Additional Securities]. Record Dates: May 1 and November 1 of each year. Additional provisions of this Security are set forth on the other side of this Security. METTLER-TOLEDO INTERNATIONAL INC. By_________________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. JPMorgan Chase Bank, By_____________________________ Authorized Officer Dated:________ ___, 20___ [FORM OF REVERSE SIDE OF EXCHANGE SECURITY] 4.85% Senior Notes due 2010 1. Interest Mettler-Toledo International Inc., a Delaware corporation (together with its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on May 15 and November 15 of each year (each such date, an "Interest Payment Date"), commencing on [May 15, 2004] [first interest payment date relating to any Additional Securities]. Interest on the Securities will accrue from [November 12, 2003] [date of issuance of any Additional Securities], or from the most recent date to which interest has been paid on the Securities. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment By no later than 11:00 a.m. (New York City time) on the date on which any Principal of or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such Principal and/or interest. The Company will pay interest (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the May 1 or November 1 next preceding the Interest Payment Date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the Interest Payment Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay Principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities represented by a Global Security (including principal, premium, if any, and interest) will be made by the transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company may make all payments in respect of a Definitive Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Holder thereof or by wire transfer to an account located in the United States maintained by the payee. 3. Paying Agent and Registrar Initially, JPMorgan Chase Bank, a New York banking corporation (the "Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent or Registrar without notice to any Securityholder. The Company or any of its domestically organized wholly owned Subsidiaries may act as Paying Agent. 4. Indenture The Company issued the Securities under an Indenture dated as of November 12, 2003 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "Trust Indenture Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Trust Indenture Act for a statement of those terms. The Securities are senior obligations of the Company. The Security is one of the Exchange Securities referred to in the Indenture. The Securities include the Initial Securities issued on the Issue Date, any Additional Securities issued in accordance with Section 2.15 of the Indenture and any Exchange Securities issued in exchange for the Initial Securities pursuant to the Indenture and the Registration Rights Agreement. The Initial Securities, any Additional Securities and the Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of the Company and its subsidiaries to create liens, enter into sale and lease-back transactions and enter into mergers and consolidations. 5. Optional Redemption The Securities are redeemable, in whole or in part, at any time and from time to time, at the option of the Company, at a redemption price equal to the greater of (i) 100% of the principal amount of such Securities and (ii) the sum of the present values of the Remaining Scheduled Payments of Principal, obtained by discounting the Remaining Scheduled Payments to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 20 basis points, plus accrued interest thereon to the date of redemption. "Treasury Rate" means, with respect to any redemption date for the Securities, the rate per annum equal to the semiannual equivalent yield to maturity or interpolated (on a day count basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. "Comparable Treasury Issue" means the United States Treasury security or securities selected by an Independent Investment Banker as having an actual or interpolated maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities to be redeemed. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Company. "Comparable Treasury Price" means, with respect to any redemption date for the Securities, (a) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations or (b) if the Company obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Company. "Reference Treasury Dealer" means each of Merrill Lynch, Pierce, Fenner & Smith Incorporated and its affiliates which are primary United States government securities dealers, and their respective successors, and three other firms which are primary U.S. government securities dealers that the Company selects; provided, however, that if any of the foregoing shall cease to be a primary U.S. government securities dealer in The City of New York, the Company shall substitute therefor another such primary U.S. government securities dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Company by such Reference Treasury Dealer as of 3:30 p.m., New York time, on the third Business Day preceding such redemption date. "Remaining Scheduled Payments" means, with respect to each Security to be redeemed, the remaining scheduled payments of the Principal thereof and interest thereon that would be due after the related redemption date but for such redemption, exclusive of interest accrued to the date of redemption; Except as set forth above, the Securities will not be redeemable by the Company prior to maturity The Securities will not be entitled to the benefit of any sinking fund. 6. Notice of Redemption Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date by first-class mail to each Holder of Securities to be redeemed at his registered address. Securities in denominations of principal amount larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before 11:00 a.m. (New York City time) on the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may register transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) for a period beginning 15 days before a selection of Securities to be redeemed and ending on the date of such selection. 8. Persons Deemed Owners The registered holder of this Security may be treated as the owner of it for all purposes. 9. Unclaimed Money If money for the payment of Principal or interest remains unclaimed for two years after the date of payment of Principal and interest, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. Anything in this Section 9 to the contrary notwithstanding, in the absence of a written request from the Company to return unclaimed funds to the Company, the Trustee shall from time to time deliver all unclaimed funds to or as directed by applicable escheat authorities, as determined by the Trustee in its sole discretion, in accordance with the customary practices and procedures of the Trustee. 10. Defeasance Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of Principal of and interest on the Securities to redemption or maturity, as the case may be. 11. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities and (ii) any default or noncompliance with any provision of the Indenture or the Securities may be waived with the written consent of the Holders of a majority in principal amount of the outstanding Securities. However, the Indenture requires the consent of each Securityholder that would be affected for certain specified amendments or modifications of the Indenture and the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to add any additional Events of Default, or to add additional covenants of or surrender rights and powers conferred on the Company, or to add or appoint a successor or separate trustee or other agent, or to comply with any requirements in connection with qualifying the Indenture under the Trust Indenture Act, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to change any other provision if the change does not adversely affect the interests of any Securityholder. 12. Defaults and Remedies Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 of the Securities, upon declaration or otherwise; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities, subject to notice and lapse of time; (iv) certain accelerations of other indebtedness of the Company or any Restricted Subsidiary if the amount accelerated exceeds $25,000,000, subject to notice and lapse of time; provided, however, that if any such default or acceleration shall be cured, waived, rescinded or annulled, then the Event of Default by reason thereof shall be deemed likewise to have been cured; (v) a failure to pay, bond or otherwise discharge, within 60 days, any final non-appealable judgment, decree or order of any court or regulatory or administrative agency for the payment of money in excess of $25,000,000 and (vi) certain events of bankruptcy or insolvency involving the Company or any Restricted Subsidiary. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives indemnity or security reasonably satisfactory to it. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of Principal or interest) if it in good faith determines that withholding notice is not opposed to their interest. 13. Trustee Dealings with the Company Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company and may otherwise deal with the Company with the same rights it would have if it were not Trustee. 14. No Recourse Against Others A director, officer, employee or stockholder (other than the Company), as such, of the Company shall not have any liability for any obligations of the Company or under the Securities, the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 15. Authentication This Security shall not be valid until an authorized officer of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 16. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (tenants in common), TEN ENT (tenants by the entirety), JT TEN (joint tenants with rights of survivorship and not as tenants in common), CUST (custodian) and U/G/M/A (Uniform Gift to Minors Act). 17. [CUSIP and ISIN Numbers The Company has caused CUSIP and ISIN numbers and/or other similar numbers to be printed on the Securities and has directed the Trustee to use CUSIP and ISIN numbers and/or other similar numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.] [For Securities to be issued with CUSIP or ISIN numbers.] 18. Governing Law THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ___________________________________________________________________________ Date: ____________________ Your Signature: ______________________ Signature Guarantee: ______________________________ (Signature must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program or other signature guarantor program reasonably acceptable to the Trustee) ___________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. EXHIBIT C - Form of Regulation S Certificate REGULATION S CERTIFICATE (For transfers pursuant to Sections 2.6(a), (c) and (e) of the Indenture) To: JPMorgan Chase Bank as Trustee Re: 4.85% Senior Notes due 2010 of Mettler-Toledo International Inc. (the "Securities") Reference is made to the Indenture, dated as of November 12, 2003 (the "Indenture"), between Mettler-Toledo International Inc. (the "Company") and JPMorgan Chase Bank, as Trustee. Terms used herein and defined in the Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933, as amended (the "Securities Act") are used herein as so defined. This certificate relates to U.S.$________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ___________________________ CERTIFICATE No(s). ___________________ The person in whose name this certificate is executed below (the "undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through DTC or an Agent Member in the name of the undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Regulation S Security. In connection with such transfer, the Owner hereby certifies that, unless such transfer is being effected pursuant to an effective registration statement under the Securities Act, it is being effected in accordance with Rule 903 or 904 or Rule 144 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: 1. Rule 903 or 904 Transfers. If the transfer is being effected in accordance with Rule 903 or 904: (a) the Owner is not a distributor of the Securities, an affiliate of the Company or of any such distributor or a person acting on behalf of any of the foregoing; (b) the offer of the Specified Securities was not made to a person in the United States; (c) either: (i) at the time the buy order was originated, the Transferee was outside the United States or the Owner and any person acting on its behalf reasonably believed that the Transferee was outside the United States, or (ii) the transaction is being executed in, on or through the facilities of a designated offshore securities market (as defined in Regulation S) and neither the Owner nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; (d) no directed selling efforts have been made in the United States by or on behalf of the Owner or any affiliate thereof; (e) if the Owner is a dealer in Securities or has received a selling concession, fee or other remuneration in respect of the Specified Securities, and the transfer is to occur during the Restricted Period, then the requirements of Rule 904(c)(1) have been satisfied; and (f) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. 2. Rule 144 Transfers. If the transfer is being effected pursuant to Rule 144: (a) the transfer is occurring after November 12, 2004 and is being effected in accordance with the applicable amount, manner of sale and notice requirements of Rule 144; or (b) the transfer is occurring after November 12, 2005 and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers. Dated: -------------------------------------------- (Print the name of the undersigned, as such term is defined in the second paragraph of this certificate) By: ---------------------------------------- Name: Title: (If the undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the undersigned must be stated) EXHIBIT D - Form of Rule 144A Certificate RULE 144A CERTIFICATE (For transfers pursuant to Sections 2.6(b), (c), (d) and (e) of the Indenture) To: JPMorgan Chase Bank, as Trustee Re: 4.85% Notes due 2010 of Mettler- Toledo International Inc. (the "Securities") Reference is made to the Indenture, dated as of November 12, 2003, (the "Indenture"), between Mettler-Toledo International Inc. (the "Company") and JPMorgan Chase Bank, as Trustee. Terms used herein and defined in the Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933, as amended (the "Securities Act") are used herein as so defined. This certificate relates to U.S.$________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). __________________________ CERTIFICATE No(s). ____________________ The person in whose name this certificate is executed below (the "undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through DTC or an Agent Member in the name of the undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Rule 144A Security. In connection with such transfer, the Owner hereby certifies that, unless such transfer is being effected pursuant to an effective registration statement under the Securities Act, it is being effected in accordance with Rule 144A or Rule 144 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as: 1. Rule 144A Transfers. If the transfer is being effected in accordance with Rule 144A: (a) the Specified Securities are being transferred to a person that the Owner and any person acting on its behalf reasonably believe is a "qualified institutional buyer" within the meaning of Rule 144A, acquiring for its own account or for the account of a qualified institutional buyer; and (b) the Owner and any person acting on its behalf have taken reasonable steps to ensure that the Transferee is aware that the Owner is relying on Rule 144A in connection with the transfer; and 2. Rule 144 Transfers. If the transfer is being effected pursuant to Rule 144: (a) the transfer is occurring after November 12, 2004 and is being effected in accordance with the applicable amount, manner of sale and notice requirements of Rule 144; or (b) the transfer is occurring after November 12, 2005 and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers. Dated: --------------------------------------- (Print the name of the undersigned, as such term is defined in the second paragraph of this certificate) By: ------------------------------------ Name: Title: (If the undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the undersigned must be stated) EX-21 5 exh21.txt EXHIBIT 21 SUBSIDIARIES OF THE COMPANY AUSTRALIA Mettler-Toledo Limited Ohaus Australia Pty. Ltd. AUSTRIA Mettler-Toledo Ges.m.b.H. BELGIUM N.V. Mettler-Toledo B.V. BERMUDA Mettler-Toledo Finance Ltd. BRAZIL Mettler-Toledo Industria e Commercio Ltda Safeline do Brasil Limitada CANADA Mettler-Toledo Inc. CHINA Mettler-Toledo (Changzhou) Precision Instruments Limited Mettler-Toledo (Changzhou) Scale & System Limited Mettler-Toledo Instruments (Shanghai) Ltd. Mettler-Toledo International Trading (Shanghai) Corp. Ohaus International Trading (Shanghai) Ltd. CROATIA Mettler-Toledo d.o.o. CZECH REPUBLIC Mettler-Toledo spol. s.r.o. DENMARK Mettler-Toledo A/S FRANCE High Tech Service Societe Anonyme Mettler-Toledo Analyse Industrielle S.a.r.l. Mettler-Toledo EPEC SAS Mettler-Toledo Flexilab SAS Mettler-Toledo Holding (France) SAS Mettler-Toledo S.A. Mettler-Toledo Testut SAS Ohaus S.a.r.l. Safeline SA GERMANY Garvens Automation GmbH Getmore Ges. fur Marketing & Media Service m.b.H. Mesoma Verwaltungs GmbH Mettler-Toledo (Albstadt) GmbH Mettler-Toledo GmbH Mettler-Toledo Holding Deutschland GmbH Mettler-Toledo Management Holding Deutschland GmbH Mettler-Toledo Orga-P GmbH Ohaus Waagen Vertriebsgesellschaft m.b.H. Safeline GmbH HONG KONG Mettler-Toledo (HK) Ltd. HUNGARY Mettler-Toledo Kereskedelmi Kft. INDIA Mettler-Toledo India Private Limited Turing Softwares Private Limited ITALY Mettler-Toledo S.p.A. JAPAN Mettler-Toledo K.K. KOREA Mettler-Toledo (Korea) Ltd. MALAYSIA Mettler-Toledo (M) Sdn. Bhd. Ohaus (SEA) Sdn. Bhd. MEXICO Mettler-Toledo S.A. de C.V. Ohaus de Mexico S.A. de C.V. NETHERLANDS Gelan Detectiesystemen B.V. Gelan Holding B.V. Mettler-Toledo B.V. Mettler-Toledo Holding B.V. Mettler-Toledo Investment C.V. (Tiel) Mettler-Toledo Investment B.V. (Tiel) Safeline (Benelux) B.V. NORWAY Cargoscan A/S Mettler-Toledo A/S POLAND Mettler-Toledo sp.z.o.o. RUSSIAN FEDERATION ZAO Mettler-Toledo Vostock SINGAPORE Mettler-Toledo (S) Pte. Ltd. SLOVAK REPUBLIC Mettler-Toledo Spol s.r.o. SLOVENIA Mettler-Toledo d.o.o. SPAIN Mettler-Toledo S.A.E. SWEDEN Mettler-Toledo AB SWITZERLAND Mettler-Toledo GmbH Mettler-Toledo Holding AG Mettler-Toledo Instrumente AG Mettler-Toledo Logistik AG Mettler-Toledo Pac Rim AG Mettler-Toledo (Schweiz) AG Microwa AG THAILAND Mettler-Toledo (Thailand) Ltd. UNITED KINGDOM Mettler-Toledo Ltd. Mettler-Toledo Myriad Limited Mettler-Toledo UK Holding Company Mettler-Toledo UK Holdings Limited Ohaus UK Ltd. Safeline AVS Limited Safeline Limited UNITED STATES OF AMERICA American Garvens Corporation [Delaware] Exact Equipment Corporation [Delaware] Hi-Speed Checkweigher Co., Inc. [New York] Mettler-Toledo Autochem, Inc. [Delaware] Mettler Toledo Florida Inc. [Delaware] Mettler-Toledo Inc. [Delaware] Mettler-Toledo Netherlands Investment I, [Delaware] Mettler-Toledo Netherlands Investment II, [Delaware] Mettler-Toledo Northwest LLC [Delaware] Mettler-Toledo Process Analytical Inc. [Massachusetts] Ohaus Corporation [New Jersey] Rainin Instrument, LLC [Delaware] Safeline AVS, Inc. [Florida] Safeline Inc. [Delaware] Softechnics, Inc. [Texas] Thornton Inc. [Massachusetts] EX-23.1 6 exh23_1.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-52661, 333-31636, 333-55820 and 333-104083) of Mettler-Toledo International Inc. of our report dated March 15, 2004 relating to the financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers AG (signed) Zurich, Switzerland March 15, 2004 EX-31 7 exh31_1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert F. Spoerry, certify that: (1) I have reviewed this annual report on Form 10-K of Mettler-Toledo International Inc.; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) [omitted in accordance with SEC Release No. 33-8238]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2004 /s/ Robert F. Spoerry - ------------------------ Robert F. Spoerry Chief Executive Officer EX-31 8 exh31_2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Dennis W. Braun, certify that: (1) I have reviewed this annual report on Form 10-K of Mettler-Toledo International Inc.; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) [omitted in accordance with SEC Release No. 33-8238]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2004 /s/ Dennis W. Braun - ------------------------- Dennis W. Braun Chief Financial Officer EX-32 9 exh32.txt EXHIBIT 32 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Mettler-Toledo International Inc. (the "Company") does hereby certify, to such officer's knowledge, that: This annual report on Form 10-K for the period ending December 31, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in this report fairly presents, in all material respects, the financial condition and results of the Company. Date: March 15, 2004 /s/ Robert F. Spoerry - -------------------------- Robert F. Spoerry Chief Executive Officer /s/ Dennis W. Braun - --------------------------- Dennis W. Braun Chief Financial Officer EX-99.1 10 exh99_1.txt EXHIBIT 99.1 FACTORS AFFECTING OUR FUTURE OPERATING RESULTS WE HAVE SUBSTANTIAL DEBT AND WE MAY INCUR SUBSTANTIALLY MORE DEBT, WHICH COULD AFFECT OUR ABILITY TO MEET OUR DEBT OBLIGATIONS AND MAY OTHERWISE RESTRICT OUR ACTIVITIES. We have substantial debt, and we may be able to incur substantial additional debt in the future. As of December 31, 2003, we had total indebtedness of approximately $196.4 million, net of cash of $45.1 million. We are also permitted by the terms of our debt instruments to incur substantial additional indebtedness, subject to the restrictions therein. Our debt could have important consequences to you. For example, it could: o make it more difficult for us to satisfy our obligations under our debt instruments; o require us to dedicate a substantial portion of our cash flow to payments on our indebtedness, which would reduce the amount of cash flow available to fund working capital, capital expenditures, product development and other corporate requirements; o increase our vulnerability to general adverse economic and industry conditions, including changes in raw material costs; o limit our ability to respond to business opportunities; o limit our ability to borrow additional funds, which may be necessary; and o subject us to financial and other restrictive covenants, which, if we fail to comply with these covenants and our failure is not waived or cured, could result in an event of default under our debt. TO SERVICE OUR DEBT, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL. Our ability to make payments on our debt and to fund planned capital expenditures and research and development efforts will depend on our ability to generate cash in the future. This, to an extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors, including those described in this exhibit, that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our new senior credit facility in an amount sufficient to enable us to pay our debt, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our debt, including our senior credit facility and the senior notes, on commercially reasonable terms or at all. THE AGREEMENTS GOVERNING OUR DEBT IMPOSE RESTRICTIONS ON OUR BUSINESS. The indenture governing our senior notes and the agreements governing our senior credit facility contain a number of covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. The restrictions these covenants place on us and our restricted subsidiaries include limitations on our ability and the ability of our restricted subsidiaries to: o enter into sale and leaseback arrangements; o incur liens; and o consolidate, merge, sell or lease all or substantially all of our assets; Our senior credit facility also requires us to meet several financial ratios. Our ability to comply with these agreements may be affected by events beyond our control, including prevailing economic, financial and industry conditions and are subject to the risks in this exhibit. The breach of any of these covenants or restrictions could result in a default under the indenture governing the senior notes or under our senior credit facility. An event of default under our senior credit facility would permit our lenders to declare all amounts borrowed from them to be immediately due and payable. Acceleration of our other indebtedness may cause us to be unable to make interest payments on the senior notes and repay the principal amount of the senior notes. CURRENCY FLUCTUATIONS MAY AFFECT OUR OPERATING PROFITS. Because we conduct operations in many countries, our operating income can be significantly affected by fluctuations in currency exchange rates. Swiss franc-denominated expenses represent a much greater percentage of our operating expenses than Swiss franc-denominated sales represent of our net sales. In part, this is because most of our manufacturing costs in Switzerland relate to products that are sold outside Switzerland. Moreover, a substantial percentage of our research and development expenses, and general and administrative expenses are incurred in Switzerland. Therefore, if the Swiss franc strengthens against all or most of our major trading currencies (e.g., the U.S. dollar, the euro, other major European currencies and the Japanese yen), our operating profit is reduced. We also have significantly more sales in European currencies (other than the Swiss franc) than we have expenses in those currencies. Therefore, when European currencies weaken against the U.S. dollar and the Swiss franc, it also decreases our operating profits. Accordingly, the Swiss franc exchange rate to the euro is an important cross-rate monitored by the Company. We estimate that a one percent strengthening of the Swiss franc against the euro would result in a decrease in our earnings before tax of $0.8 million to $1.2 million on an annual basis. In addition to the effects of exchange rate movements on operating profits, our debt levels can fluctuate due to changes in exchange rates, particularly between the U.S. dollar and the Swiss franc. Based on our outstanding debt at December 31, 2003, we estimate that a ten percent weakening of the U.S. dollar against the currencies in which our debt is denominated, would result in an increase of approximately $4.7 million in the reported U.S. dollar value of the debt. WE ARE SUBJECT TO CERTAIN RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS AND FLUCTUATING CONDITIONS IN EMERGING MARKETS. We conduct business in many countries, including emerging markets in Asia, Latin America and Eastern Europe. In addition to the currency risks discussed above, international operations pose other substantial risks and problems for us. For instance, various local jurisdictions in which we operate may revise or alter their respective legal and regulatory requirements. In addition, we may encounter one or more of the following obstacles or risks: o tariffs and trade barriers; o difficulties in staffing and managing local operations; o credit risks arising from financial difficulties facing local customers and distributors; o difficulties in protecting intellectual property; o nationalization of private enterprises; o restrictions on investments and/or limitations regarding foreign ownership; o adverse tax consequences, including imposition or increase of withholding and other taxes on remittances and other payments by subsidiaries; and o uncertain local economic, political and social conditions, including hyper-inflationary conditions. We must also comply with a variety of regulations regarding the conversion and repatriation of funds earned in local currencies. For example, converting earnings from our operations in China into other currencies and repatriating these funds require governmental approvals. If we cannot comply with these or other applicable regulations, we may face increased difficulties in utilizing cash flow generated by these operations outside of China. Economic conditions in emerging markets have from time to time deteriorated significantly, and some emerging markets are experiencing recessionary trends, severe currency devaluations and inflationary prices. Moreover, economic problems in individual markets can spread to other economies, adding to the adverse conditions we face in emerging markets. We remain committed to emerging markets, particularly those in Asia, Latin America and Eastern Europe. However, we expect the fluctuating economic conditions will affect our results of operations in these markets for the foreseeable future. The past outbreak and possible recurrence of severe acute respiratory syndrome, or SARS, or other public health-related developments could have a negative impact on our results of operations. In particular, SARS-related factors may reduce our sales to affected regions and disrupt our manufacturing centers located in China. Any disruption to our manufacturing operations could result in reduced sales and increased supply chain costs. WE OPERATE IN HIGHLY COMPETITIVE MARKETS, AND IT MAY BE DIFFICULT TO PRESERVE OPERATING MARGINS, GAIN MARKET SHARE AND MAINTAIN A TECHNOLOGICAL ADVANTAGE. Our markets are highly competitive. Weighing and analytical instruments markets are also fragmented both geographically and by application, particularly the industrial and food retailing markets. As a result, we face numerous regional or specialized competitors, many of whom are well established in their markets. In addition, some of our competitors are divisions of larger companies with potentially greater financial and other resources than our company. Taken together, the competitive forces present in our markets can impair our operating margins in certain product lines and geographic markets. We expect our competitors to continue to improve the design and performance of their products and to introduce new products with competitive prices. Although we believe that we have certain technological and other advantages over our competitors, we may not be able to realize and maintain these advantages. OUR PRODUCT DEVELOPMENT EFFORTS MAY NOT PRODUCE COMMERCIALLY VIABLE PRODUCTS IN A TIMELY MANNER. We must introduce new products and enhancements in a timely manner, or our products could become technologically obsolete over time, which would harm our operating results. To remain competitive, we must continue to make significant investments in research and development, sales and marketing and customer service and support. We cannot be sure that we will have sufficient resources to continue to make these investments. In developing new products, we may be required to make substantial investments before we can determine their commercial viability. As a result, we may not be successful in developing new products and we may never realize the benefits of our research and development activities. A PROLONGED DOWNTURN OR ADDITIONAL CONSOLIDATION IN THE PHARMACEUTICAL, FOOD, FOOD RETAILING AND CHEMICALS INDUSTRIES COULD ADVERSELY AFFECT OUR OPERATING RESULTS. Our products are used extensively in the pharmaceutical, food and beverage and chemical industries. Consolidation in the pharmaceutical and chemicals industries hurt our sales in prior years. A prolonged downturn or additional consolidation in any of these industries could adversely affect our operating results. In addition, the capital spending policies of our customers in these industries are based on a variety of factors we cannot control, including the resources available for purchasing equipment, the spending priorities among various types of equipment and policies regarding capital expenditures generally. Any decrease or delay in capital spending by our customers would cause our revenues to decline and could harm our profitability. WE MAY FACE RISKS ASSOCIATED WITH FUTURE ACQUISITIONS. We plan to pursue acquisitions of complementary product lines, technologies or businesses. Acquisitions involve numerous risks, including: o difficulties in the assimilation of the acquired operations, technologies and products; o diversion of management's attention from other business concerns; and o potential departures of key employees of the acquired company. If we successfully identify acquisitions in the future, completing such acquisitions may result in: o new issuances of our stock that may be dilutive to current owners; o increases in our debt and contingent liabilities; and o additional amortization expenses related to intangible assets. Any of these acquisition-related risks could materially adversely affect our profitability. We may not be able to identify, successfully complete or integrate potential acquisitions in the future. However, even if we can do so, we cannot be sure that these acquisitions will have a positive impact on our business or operating results. IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OR IF WE INFRINGE OR MISAPPROPRIATE THE PROPRIETARY RIGHTS OF OTHERS, OUR OPERATING RESULTS COULD BE HARMED. Our success depends on our ability to obtain and enforce patents on our technology and to protect our trade secrets. Our patents may not provide complete protection, and competitors may develop similar products that are not covered by our patents. Our patents may also be challenged by third parties and invalidated or narrowed. Although we take measures to protect confidential information, improper use or disclosure of our trade secrets may still occur. We may be sued for infringing on the intellectual property rights of others. The cost of any litigation could affect our profitability regardless of the outcome, and management attention could be diverted. If we are unsuccessful in such litigation, we may have to pay damages, stop the infringing activity and/or obtain a license. If we fail to obtain a required license, we may be unable to sell some of our products, which could result in a decline in our revenues. DEPARTURES OF KEY EMPLOYEES COULD IMPAIR OUR OPERATIONS. We have employment contracts with each of our key employees. In addition, our key employees own shares of our common stock and have options to purchase additional shares. Nevertheless, such individuals could leave the Company. If any key employees stopped working for us, our operations could be harmed. We have no key man life insurance policies with respect to any of our senior executives. WE MAY BE ADVERSELY AFFECTED BY ENVIRONMENTAL LAWS AND REGULATIONS. We are subject to various environmental laws and regulations, including those relating to: o air emissions; o wastewater discharges; o the handling and disposal of solid and hazardous wastes; and o the remediation of contamination associated with the use and disposal of hazardous substances. We incur capital and operating expenditures in complying with environmental laws and regulations both in the U.S. and abroad. We are currently involved in, or have potential liability with respect to, the remediation of past contamination in facilities both in the U.S. and abroad. In addition, some of these facilities have or had been in operation for many decades and may have used substances or generated and disposed of wastes that are hazardous or may be considered hazardous in the future. These sites and disposal sites owned by others to which we sent waste may in the future be identified as contaminated and require remediation. Accordingly, it is possible that we could become subject to additional environmental liabilities in the future that may harm our results of operations or financial condition. WE MAY BE ADVERSELY AFFECTED BY FAILURE TO COMPLY WITH REGULATIONS OF GOVERNMENTAL AGENCIES. Our products are subject to regulation by governmental agencies. These regulations govern a wide variety of activities relating to our products, from design and development, to labeling, manufacturing, promotion, sales and distribution. If we fail to comply with these regulations, we may have to recall products and cease their manufacture and distribution. In addition, we could be subject to fines or criminal prosecution. GUIDELINES RELATING TO ACCOUNTING FOR GOODWILL COULD MAKE OUR ACQUISITION-RELATED CHARGES LESS PREDICTABLE IN ANY GIVEN REPORTING PERIOD. Starting in 2002, our goodwill amortization charges have ceased. As at December 31, 2003 our consolidated balance sheet included goodwill of $421.9 million and other intangible assets of $126.9 million. Our business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense that we will incur. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), our goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The annual evaluation is based on valuation models that estimate fair value based on expected future cash flows and profitability projections. In preparing the valuation models we consider a number of factors, including operating results, business plans, economic conditions, future cash flows, and transactions and market place data. There are inherent uncertainties related to these factors and our judgment in applying them to the impairment analyses. The significant estimates and assumptions within our fair value models include sales growth, controllable cost growth, perpetual growth, effective tax rates and discount rates. Our assessments to date have indicated that there has been no impairment of these assets. Our drug discovery reporting unit is sensitive to changes in Biopharma capital spending and, drug discovery experienced a double-digit decline in revenue and profitability during 2003. However, the fair value of the Company's drug discovery reporting unit exceeded its carrying value of $29 million as of September 30, 2003 and December 31, 2003. In accordance with the provisions of SFAS 142, the Company will monitor the fair value of this reporting unit closely to determine if the 2004 business plan is being achieved. For example, we will monitor whether the forecasted benefits of our drug discovery cost reduction programs are being realized, including the program of manufacturing site rationalization currently in progress. Should any of these estimates or assumptions in the preceding paragraphs not be accurate, or should we incur lower than expected operating performance or cash flows, we may experience a triggering event that requires a new fair value assessment for our reporting units prior to the required annual assessment. These types of events and resulting analysis could result in impairment charges for goodwill and other indefinite lived intangible assets if the fair value estimate declines below the carrying value. Our amortization expense related to intangible assets with finite lives may materially change should our estimates of their useful lives change. IF WE ARE REQUIRED TO ACCOUNT FOR EMPLOYEES' OPTIONS UNDER OUR STOCK OPTION PLAN AS A COMPENSATION EXPENSE, IT WOULD REDUCE OUR NET EARNINGS. There has been increasing public debate in the U.S. and elsewhere about the proper accounting treatment for employee stock options. Although we are not currently required to record any compensation expense in connection with option grants that have an exercise price at or above fair market value, it is possible that future laws or regulations will require us to treat all stock options as a compensation expense. Note 12 to our financial statements shows the impact that such a change in accounting treatment would have had on our net earnings and earnings per share if it had been in effect during the past three fiscal years and if the compensation expense were calculated as described in Note 12. UNANTICIPATED CHANGES IN OUR TAX RATES OR EXPOSURE TO ADDITIONAL INCOME TAX LIABILITIES COULD IMPACT OUR PROFITABILITY. We are subject to income taxes in both the United States and various other foreign jurisdictions, and our domestic and international tax liabilities are subject to allocation of expenses among different jurisdictions. Our effective tax rates could be adversely affected by: o changes in the mix of earnings by jurisdiction o changes in tax laws or tax rates o changes in the valuation of deferred tax assets and liabilities o material audit adjustments. In particular, the carrying value of deferred tax assets, which are predominantly in the U.S., is dependent upon our ability to generate future taxable income in the U.S. In addition, the amount of income taxes we pay is subject to ongoing audits in various jurisdictions and a material assessment by a governing tax authority could affect our profitability. -----END PRIVACY-ENHANCED MESSAGE-----