-----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, MMMoNwzq5jrMUaPGgW/LjqfdlAnCavgWJqoZ11jsO7jv+BYWdSE3MHFDOPMkNQQE WPDcvTOfp1430jPq86tOyw== 0000950135-98-005009.txt : 19980904 0000950135-98-005009.hdr.sgml : 19980904 ACCESSION NUMBER: 0000950135-98-005009 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 41 FILED AS OF DATE: 19980903 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMONDS INDUSTRIES INC CENTRAL INDEX KEY: 0001067919 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 050484518 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-62795 FILM NUMBER: 98703491 BUSINESS ADDRESS: STREET 1: 135 INTERVALE RD CITY: FITCHBURG STATE: MA ZIP: 01420 BUSINESS PHONE: 9783433731 MAIL ADDRESS: STREET 1: 135 INTERVALE RD CITY: FITCHBURG STATE: MA ZIP: 01420 S-4 1 SIMONDS INDUSTRIES, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1998 ================================================================================ REGISTRATION NO. 333-59613 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 SIMONDS INDUSTRIES INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 5995 05-0484518 (State or Other (Primary Standard (I.R.S. Employer Jurisdiction of Incorporation Industrial Classification Identification No.) or Organization) Code Number) 135 INTERVALE ROAD FITCHBURG, MASSACHUSETTS 01420 (978) 343-3731 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) CHRISTINE M. MARX EDWARDS & ANGELL 150 JOHN F. KENNEDY PARKWAY SHORT HILLS, NEW JERSEY 07078 (973) 376-7700 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]____________ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]____________
============================================================================================================= PROPOSED MAXIMUM AMOUNT OFFERING AMOUNT OF TITLE OF EACH CLASS OF TO BE PRICE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER UNIT FEE - ------------------------------------------------------------------------------------------------------------- 10 1/4% Senior Subordinated Notes due 2008..................... $100,000,000 100% $29,500 - ------------------------------------------------------------------------------------------------------------- Guarantee of Notes of Armstrong Manufacturing Company, Inc..... -- -- -- - ------------------------------------------------------------------------------------------------------------- Guarantee of Notes of Simonds Holding Company, Inc............. -- -- -- - ------------------------------------------------------------------------------------------------------------- Guarantee of Notes of Simonds Industries FSC, Inc.............. -- -- -- =============================================================================================================
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 - -------------------------------------------------------------------------------- THIS PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO COMPLETION OR AMENDMENT. UNDER NO CIRCUMSTANCES SHALL THIS PROSPECTUS CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY. SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1998 - -------------------------------------------------------------------------------- PROSPECTUS SIMONDS INDUSTRIES INC. [LOGO] OFFER TO EXCHANGE ITS 10 1/4% SENIOR SUBORDINATED NOTES DUE JULY 1, 2008, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR AN EQUAL PRINCIPAL AMOUNT OF ITS 10 1/4% SENIOR SUBORDINATED NOTES DUE JULY 1, 2008, WHICH HAVE NOT BEEN SO REGISTERED THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS THEREUNDER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED Simonds Industries Inc., a Delaware corporation ("Simonds" or the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange an aggregate principal amount of up to $100,000,000 of its 10 1/4% Senior Subordinated Notes due 2008 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its outstanding 10 1/4% Senior Subordinated Notes due 2008 (the "Original Notes" and, together with the Exchange Notes, the "Notes"), which have not been so registered, from the holders thereof. The terms of the Exchange Notes are identical in all material respects to the Original Notes, except for certain transfer restrictions and registration rights relating to the Original Notes. The Company will accept for exchange any and all Original Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on ,1998, unless extended (as so extended, the "Expiration Date"). Tenders of Original Notes may be withdrawn at any time prior to the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of Original Notes being tendered for exchange pursuant to the Exchange Offer. Pursuant to the Registration Agreement (as defined), the Exchange Offer will remain open for not less than 30 days (or longer if required by applicable law) after the date hereof. The Exchange Offer is subject to certain other customary conditions. See "The Exchange Offer." Interest on the Exchange Notes will be payable semi-annually on January 1 and July 1 of each year, commencing January 1, 1999. The Exchange Notes are subject to redemption on or after July 1, 2003, at the option of the Company, in whole or in part, at the redemption prices set forth herein, plus accrued and unpaid interest to the date of redemption. In addition, prior to July 1, 2001, the Company may, at its option, redeem up to an aggregate of 35% of the original principal amount of the Notes issued with the net proceeds from one or more Public Equity Offerings (as defined) at the redemption price set forth herein plus accrued and unpaid interest to the date of redemption; provided that at least 65% of the Notes issued remain outstanding immediately after giving effect to any such redemption. In the event of a Change of Control (as defined), the Company will be obligated to make an offer to purchase all of the outstanding Notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase. In addition, the Company will be obligated to make an offer to purchase Notes in the event of certain asset sales. See "Description of Exchange Notes." The Exchange Notes will be general unsecured obligations of the Company ranking subordinate in right of payment to all existing and future Senior Indebtedness (as defined) of the Company. The Exchange Notes will be unconditionally guaranteed (the "Guarantees"), on a senior subordinated basis, jointly and severally, by each of the Company's Domestic Wholly Owned Restricted Subsidiary (as defined) (the "Guarantors"). The Guarantee of each Guarantor will be subordinate in right of payment to all Guarantor Senior Debt (as defined) of such Guarantor. As of June 27, 1998, on a pro forma basis, the Company and the Guarantors would have had no Senior Debt or Guarantor Senior Debt outstanding. In addition, the Exchange Notes will be effectively subordinated in right of payment to all liabilities, including indebtedness, of subsidiaries of the Company which are not Guarantors. As of June 27, 1998, on a pro forma basis, such subsidiaries would have had $14.4 million of total liabilities, including approximately $6.5 million of indebtedness. The Exchange Notes are being offered hereunder in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement dated July 7, 1998 (the "Registration Rights Agreement"), among the Company and the other signatories thereto. The Company believes that based on interpretations by the staff of the Securities and Exchange Commission (the "SEC"), Exchange Notes issued pursuant to the Exchange Offer in exchange for Original Notes may be offered for resale, resold and otherwise transferred by each holder thereof (other than any holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement with any person to participate in the distribution of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Original Notes where such Original Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, starting on the Expiration Date and ending on the close of business on the ninetieth day after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." The Company will not receive any proceeds from the Exchange Offer and will pay all expenses incident to the Exchange Offer. SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE EXCHANGE NOTES. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1998. 3 The Exchange Offer is not being made to, nor will the Company accept surrenders for exchange from, holders of Original Notes in any jurisdiction in which such Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. The Exchange Notes will be available initially only in book-entry form. The Company expects that the Exchange Notes issued pursuant to this Exchange Offer will be issued in the form of a Global Exchange Note (as defined), which will be deposited with, or on behalf of, The Depository Trust Company (the "Depositary") and registered in its name or in the name of Cede & Co., its nominee. Beneficial interests in the Global Exchange Note representing the Exchange Notes will be shown on, and transfers thereof will be effected through, records maintained by the Depositary and its participants. After the initial issuance of the Global Exchange Note, Exchange Notes in certificated form will be issued in exchange for interests in the Global Exchange Note only on the terms set forth in the Indenture dated as of July 7, 1998 (the "Indenture") among the Company, the Guarantors and State Street Bank and Trust Company, as trustee (the "Trustee"). See "Description of Exchange Notes -- Book-Entry Transfer." Prior to this Exchange Offer, there has been no public market for the Original Notes. To the extent that Original Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered Original Notes could be adversely affected. If a market for the Exchange Notes should develop, the Exchange Notes could trade at a discount from their face value. The Company does not currently intend to list the Exchange Notes on any securities exchange or to seek approval for quotation through any automated quotation system. Neither the Company nor any of its subsidiaries will receive any cash proceeds from the issuance of the Exchange Notes offered hereby. No dealer-manager is being used in connection with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution." THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION. HOLDERS OF ORIGINAL NOTES ARE URGED TO READ THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS WHEN USED IN THIS PROSPECTUS, THE WORDS "BELIEVES," "EXPECTS," "ANTICIPATES" AND SIMILAR EXPRESSIONS ARE USED TO IDENTIFY FORWARD LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. THE COMPANY WISHES TO CAUTION READERS THAT ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER "SUMMARY," "USE OF PROCEEDS," "SELECTED PRO FORMA FINANCIAL DATA," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING THE COMPANY'S FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE FORWARD LOOKING STATEMENTS. ALL OF THESE FORWARD LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY, WHICH ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED ON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES OR STATEMENTS WILL BE REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2) INCREASED COSTS; (3) LOSS OR DISRUPTION ON SUPPLY SOURCES OF SPECIALTY STEELS; (4) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (5) INCREASES IN THE COMPANY'S COST OF BORROWINGS OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL ON TERMS CONSIDERED REASONABLE BY MANAGEMENT; (6) ADVERSE STATE, FEDERAL OR FOREIGN i 4 LEGISLATION OR REGULATION OR ADVERSE DETERMINATIONS BY REGULATORS; AND (7) CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH THE COMPANY MAY COMPETE AND FLUCTUATIONS IN DEMAND IN THE METAL PROCESSING AND PRIMARY WOOD INDUSTRIES. MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK FACTORS." AVAILABLE INFORMATION The Company has filed a registration statement on Form S-4 (herein referred to, together with all exhibits and schedules thereto and any amendments thereto, as the "Exchange Offer Registration Statement") under the Securities Act with respect to the Exchange Notes offered hereby. This Prospectus, which forms a part of the Exchange Offer Registration Statement, does not contain all of the information set forth in the Exchange Offer Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information with respect to the Company and the Exchange Notes offered hereby, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of certain documents are not necessarily complete and, in each instance, reference is made to the copy of the document filed as an exhibit to the Exchange Offer Registration Statement. The Company is not currently subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Pursuant to the Indenture, the Company has agreed that, until such time as the Company shall become subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, (a) the Company shall file with the SEC and provide to the Trustee, the Initial Purchasers (as defined) and holders of Notes such annual reports and such information, documents and other reports to be filed with the SEC pursuant to Sections 13 and 15(d) of the Exchange Act, whether or not the Company is subject to such filing requirements so long as the SEC will accept such filings, and (b) the Company shall provide to the Trustee and the holders of the Notes, and make available to prospective purchasers of Notes, securities analysts and broker-dealers upon request, consolidated financial statements comparable to those required to appear in annual or quarterly reports. In addition, for so long as any of the Original Notes remain outstanding, the Company has agreed to make available to any prospective purchaser of the Original Notes or beneficial owner of the Original Notes in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act. Any reports or documents filed by Simonds with the SEC (including the Exchange Offer Registration Statement) may be inspected and copied at the Public Reference Section of the SEC's office at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices in New York (7 World Trade Center, 13th Floor, New York, New York 10048) and Chicago (Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661). Copies of such reports or other documents may be obtained at prescribed rates from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the SEC maintains a web site that contains reports and other information that is filed through the SEC's Electronic Data Gathering Analysis and Retrieval System. The web site can be accessed at http://www.sec.gov. ii 5 SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial data, including the consolidated financial statements and notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, references to the "Company" are to Simonds Industries Inc. and its wholly owned subsidiaries. References herein to various financial information on a "pro forma basis" (i) give effect to the acquisitions of Armstrong Manufacturing Company ("Armstrong") and W. Notting Limited ("Notting") as if such transactions had been completed as of the first day of the related period and (ii) reflect certain adjustments described in "Selected Pro Forma Financial Data." This Prospectus includes product names and trademarks of the Company and of other organizations. THE COMPANY GENERAL Simonds, with operations since 1832, is a leading global manufacturer and marketer of high quality industrial cutting tools. With facilities in North America and Europe, the Company sells its products into three distinct end user markets: metal (49% of 1997 net sales on a pro forma basis), wood (40%), and paper (11%). Management believes the Company holds a number one, two or three share position in each of the markets it serves. For the twelve months ended June 27, 1998, net sales and EBITDA (as defined) were $131.4 million and $19.5 million, respectively, on a pro forma basis. The Company manufactures saw blades, files, knives and steel rule that, when mounted on industrial machinery, cut, shape, bend and perforate metal, wood and paper. In addition, the Company manufactures and distributes machinery, including a complete line of filing room equipment used primarily in saw mills. Management believes that Simonds manufactures and markets the most technologically advanced industrial cutting tools available in the industry. The Company's more than 25,000 products are used in a wide variety of industrial applications. End users of Simonds' products range from large companies such as General Motors Corp. and Georgia Pacific Corp. to small businesses such as machine shops. The primary end users of the Company's metal cutting tools include aerospace, automotive, construction and home appliance manufacturers as well as steel service centers, forge shops and aluminum foundries. The Company's wood cutting products are used in saw mills, pulp and paper mills, furniture manufacturing facilities and wood chipping operations. Steel rule products produced by the Company are used in the die making and packaging industries. The products are consumable and require replacement many times per year. More than 85% of the Company's net sales are derived from sales of replacement products for use in the aftermarket. In addition, despite the significant value added by the Company's products in the processes in which they are used, these products add relatively little cost to end users' operations. These factors have contributed to the Company's historically stable revenue stream. Management believes that as a result of its long and successful history, Simonds has been able to create a loyal, knowledgeable and efficient distribution base. A substantial majority of the Company's products are marketed and sold to end users in each of its market segments worldwide through approximately 7,000 independent distributors. This distribution base provides the Company with a competitive advantage by allowing the Company to more easily sell its broad range of products, including new and sophisticated tools. In addition, through its independent distributors the Company is able to offer end users the highest quality customer service, including the resharpening and maintenance of its cutting tools. The Company complements its distribution base with a service oriented, highly trained and experienced sales force who spend most of their time with end users. The Company sells its products directly to over 12,000 distributors and end users with no single customer representing more than 2.1% of total net sales for 1997. Simonds' products are marketed and sold worldwide in 92 countries through facilities located in the United States, Canada, Germany, Spain and the United Kingdom. The Company has expanded its product sales outside of North America from 15% of net sales in 1991 to 24% in 1997 on a pro forma basis through acquisitions and internal growth. The Company intends to continue its international growth by broadening its 1 6 - -------------------------------------------------------------------------------- product offerings in existing markets and entering new geographic areas. For the year ended December 27, 1997, the Company's net sales in the United States, Canada, Europe and the rest of the world represented approximately 62%, 14%, 17% and 7% of total Company net sales, respectively, on a pro forma basis. Simonds benefits from an experienced management team with a demonstrated track record of successfully implementing the Company's business strategy. The senior management team averages more than 20 years of industry experience. Management believes that this experience, in combination with the Company's 166 year history and superior product quality, has made Simonds a widely recognized brand name among its target customer base. BUSINESS STRATEGY Management believes that Simonds is well positioned to maintain its current leadership position within the cutting tool industry. The Company's strategic objective is to continue to design, manufacture and sell superior cutting tools and equipment while leveraging its metallurgy and tooth edge geometry expertise. The Company focuses on end user markets where high product performance is valued and in geographic markets with a developed and large industrial base. The Company's objective is to continue to grow its sales and expand its operating margins by pursuing the following business strategy: Continued Margin Expansion Through Focus on Profitability. The Company's culture and organization focuses on consistently improving profitability. The Company's compensation structure creates incentives for all personnel to focus on profit margins. In each of the manufacturing facilities, all levels of employees from machine operators through plant managers receive bonuses tied to the profitability or productivity of their particular facility. The Company's corporate sales management and sales force receive incentive compensation based on achieving specific profit margins as well as sales targets. Senior management's incentive compensation is based on targeted levels of the Company's profitability. As a result of this cultural focus and emphasis on profitability, Simonds' EBITDA margin has grown from 10.4% of net sales in 1990 to 15.2% of net sales in 1997. Strategic Acquisitions. The Company intends to continue to pursue strategic acquisitions in the highly fragmented industrial cutting tool industry. Management believes that there are many attractive potential acquisition targets both domestically and internationally. Since 1989, the Company has completed eight acquisitions as described in the following table.
MARKET YEAR ENTITY ACQUIRED SEGMENT PRODUCT TYPE LOCATIONS ACQUIRED --------------- ------- ----------------------- --------------------- -------- Michigan Knife Company Wood - Industrial Knives North America 1989 - Circular Saws Mainland Manufacturing Inc. Wood - Wide Band Saws Western Canada 1990 - Circular Saws - Filing Room Equipment A.H. Ralston Limited Metal - Industrial Files United Kingdom 1990 Wespa Metallsagenfabrik-Lorenz Weisel KG ("Wespa") Metal - Band Saws Germany 1992 - Hack Saws Strongridge Limited ("Strongridge") Metal - Sales & Marketing North America 1996 Product line of Pacific Hoe Company Wood - Bits and Shanks -- 1997 Armstrong Wood - Filing Room Equipment United States 1997 Notting Paper - Steel Rule Europe, North America 1998
Each of these acquisitions has provided significant strategic opportunities for the Company by either expanding product offerings or geographic markets in which these products are sold. For example, Notting expanded the Company's steel rule product line, Armstrong expanded the Company's filing room equipment machinery, Strongridge provided access to smaller distributors, and Wespa further developed the metal band product line. The Company is presently evaluating certain acquisition opportunities and as part of its strategy will continue to do so in the future. There can be no assurance that the Company will consummate any such acquisitions or, if consummated, the timing thereof. - -------------------------------------------------------------------------------- 2 7 Emphasis on Product Innovation. Management believes that the Company is a leader in the development of innovative and technologically superior products. Throughout its history, the Company has often been first to introduce new product technologies, including bits and shanks, carbide tipped band saws, circular and band levelers, band tensioners, computerized saw control and narrow wood band technology. An even greater emphasis on product innovation was initiated in 1996 with the creation of a staff level position devoted to product development. Recent new products include (i) "Epic(R)," a state-of-the-art metal band saw line; (ii) automated band saws and circular saw levelers, revolutionary products which allow for automated tensioning and leveling of band saws and circular saws; (iii) "Red Streak(R)," a premier product for portable saw mill use that enables users to cut lumber in the forest, resulting in lower operating expenses; and (iv) "Dominator(R)," carbide tip bits which last significantly longer than high speed steel bits. Management estimates that the Company introduces approximately 10 to 25 new product innovations annually. New product innovations are important to the Company's independent distributors, providing them with the ability to expand their product lines, the opportunity to improve their margins and the ability to offer their customers enhanced products. Low Cost Manufacturing. The Company continues to focus on being a low cost producer of high value-added products within the cutting tool industry. The Company has continued to benefit from economies of scale in both purchasing and manufacturing. Management believes that the Company is able to purchase specialty steel, its primary raw material, more efficiently than many of its smaller competitors, generating significant savings. The Company has reduced its manufacturing costs and improved its consistency of product quality as a result of capital investment and process control programs. Capital investment of more than $10 million since 1995 in new and upgraded equipment such as electron beam welding, milling equipment, grinding equipment, heat treating equipment, and in-line process controls has resulted in productivity and quality gains. The Company's Fitchburg and Newcomerstown facilities received ISO 9002 certification in 1993 and 1997, respectively. As a measure of improved efficiency, the Company's sales per employee has increased from approximately $87,000 in 1989 to approximately $151,000 in 1997. COMPANY HISTORY The Company has been in continuous operation selling cutting tools with headquarters in Fitchburg, Massachusetts since 1832. The Company originally manufactured agricultural cutting tools, evolving into an industry leader in the development of industrial cutting tools for metal, wood and paper. In 1995, the Company was acquired by Fleet Venture Resources, Inc. and certain of its affiliates ("Fleet") and management. The Company is incorporated in Delaware and maintains its principal executive offices at 135 Intervale Road, Fitchburg, Massachusetts 01420. Its phone number is (978) 343-3731. On July 7, 1998, the Company consummated the sale of the Original Notes in a transaction exempt from the registration requirements of the Securities Act (the "Original Offering"). 3 8 THE EXCHANGE OFFER The Exchange Offer............ Up to $100,000,000 aggregate principal amount of Exchange Notes are being offered in exchange for a like aggregate principal amount of Original Notes. The Company is making the Exchange Offer in order to satisfy its obligations under the Registration Rights Agreement relating to the Original Notes. For a description of the procedures for tendering Original Notes, see "The Exchange Offer -- Procedures for Tendering." Expiration Date............... 5:00 p.m., New York City time, on , 1998, unless the Exchange Offer is extended (in which case the Expiration Date will be the latest date and time to which the Exchange Offer is extended). See "The Exchange Offer -- Terms of the Exchange Offer." Conditions of the Exchange Offer........................ The Exchange Offer is subject to the condition that the Exchange Offer does not violate applicable law or SEC staff interpretation. If the Company determines that the Exchange Offer is not permitted by applicable federal law, it may terminate the Exchange Offer. The Exchange Offer is not conditioned upon any minimum principal amount of Original Notes being tendered. See "The Exchange Offer -- Conditions of the Exchange Offer." Resale of the Exchange Notes........................ Based on an interpretation by the staff of the SEC set forth in no-action letters issued to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Original Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than (i) a broker-dealer who purchased such Original Notes directly from the Company for resale pursuant to Rule 144A ("Rule 144A") or any other available exemption under the Securities Act or (ii) a person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that the holder is acquiring the Exchange Notes in its ordinary course of business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Original Notes wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. In the event that the Company's belief is inaccurate, holders of Exchange Notes who transfer Exchange Notes in violation of the prospectus delivery provisions of the Securities Act and without an exemption from registration thereunder may incur liability under the Securities Act. The Company does not assume or indemnify holders of Exchange Notes against such liability, although the Company does not believe that any such liability should exist. Each broker-dealer that receives Exchange Notes for its own account in exchange for Original Notes, where such Original Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. Although such broker-dealer may be an "underwriter" within the 4 9 - -------------------------------------------------------------------------------- meaning of the Securities Act, the Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "Plan of Distribution." All resales must be made in compliance with applicable state securities or "blue sky" laws. Such compliance may require that the Exchange Notes be registered or qualified in a particular state or that the resales be made by or through a licensed broker-dealer, unless exemptions from these requirements are available. The Company assumes no responsibility with regard to compliance with such requirements. The Exchange Offer is not being made to, nor will the Company accept surrenders for exchange from, holders of Original Notes in any jurisdiction in which the Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. Procedures for Tendering Notes........................ Each holder of Original Notes wishing to accept the Exchange Offer must complete, sign and date the accompanying Letter of Transmittal or a facsimile hereof, as the case may be, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Original Notes and any other required documentation to the Exchange Agent (as defined) at the address set forth herein. By executing a Letter of Transmittal, each holder will represent to the Company that, among other things, (i) the Exchange Notes acquired pursuant to such Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, (ii) neither the holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that such holder is not engaged in, and does not intend to engage in, a distribution of Exchange Notes, and (iii) that neither the holder nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. See "The Exchange Offer -- Procedures for Tendering." Special Procedures for Beneficial Owners............ Any beneficial owner whose Original Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. See "The Exchange Offer -- Procedures for Tendering." Guaranteed Delivery Procedures................... Holders of Original Notes who wish to tender their Original Notes and whose Original Notes are not immediately available or who cannot deliver their Original Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal, as the case may be, to the Exchange Agent (or comply with the procedures for book-entry transfer) prior to the Expiration Date must - -------------------------------------------------------------------------------- 5 10 - -------------------------------------------------------------------------------- tender their Original Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." Untendered Notes.............. Following the consummation of the Exchange Offer, holders of Original Notes eligible to participate but who do not tender their Original Notes will not have any further exchange rights and such Original Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Original Notes could be adversely affected by the Exchange Offer. Consequences of Failure to Exchange..................... The Original Notes that are not exchanged pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Original Notes may be resold only (i) to the Company, (ii) to a qualified institutional buyer pursuant to Rule 144A or pursuant to Rule 144 under the Securities Act, (iii) in an offshore transaction pursuant to the requirements of Rule 903 or Rule 904 of Regulation S under the Securities Act, (iv) to an institutional accredited investor pursuant to an exemption under the Securities Act, or (v) pursuant to an effective registration statement under the Securities Act. See "The Exchange Offer -- Consequences of Failure to Exchange." Shelf Registration Statement.................... If (i) the Company is not permitted to effect the Exchange Offer as contemplated hereby because the Exchange Offer is not permitted by applicable law or SEC policy, (ii) any holder of Original Notes notifies the Company within the specified time period that (A) due to a change in law or policy it is not entitled to participate in the Exchange Offer or such holder may not resell the Exchange Notes to the public without delivering a Prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such holder or (B) it is a broker-dealer and owns Original Notes acquired directly from the Company or an affiliate of the Company, the Company has agreed pursuant to the Registration Rights Agreement to register the Original Notes issued by it on a shelf registration statement (the "Shelf Registration Statement") and use its reasonable best efforts to cause it to be declared effective by the SEC, as promptly as practicable after the filing thereof, and if applicable, use its reasonable best efforts to keep the Shelf Registration Statement effective for a period of two years from the Issue Date. Withdrawal Rights............. Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Acceptance of Original Notes and Delivery of Exchange Notes....................... The Company will accept for exchange any and all Original Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer." - -------------------------------------------------------------------------------- 6 11 - -------------------------------------------------------------------------------- Federal Income Tax Consequences................. The exchange pursuant to the Exchange Offer will generally not be a taxable event for federal income tax purposes. See "Certain Federal Income Tax Consequences." Use of Proceeds............... There will be no cash proceeds to the Company from the exchange pursuant to the Exchange Offer. Exchange Agent................ State Street Bank and Trust Company. - -------------------------------------------------------------------------------- 7 12 - -------------------------------------------------------------------------------- THE EXCHANGE NOTES Issuer........................ Simonds Industries Inc. Securities Offered............ $100 million aggregate principal amount of 10 1/4% Senior Subordinated Notes due 2008 registered under the Securities Act. Maturity Date................. July 1, 2008 Interest...................... The Exchange Notes will bear interest at a rate of 10 1/4% per annum, payable semi-annually on January 1 and July 1 commencing January 1, 1999. Guarantees.................... The Exchange Notes will be unconditionally guaranteed, on a senior subordinated basis, jointly and severally, by each of the Company's existing Domestic Wholly Owned Restricted Subsidiaries and by certain of the Company's future subsidiaries as described under "Description of Exchange Notes -- Guarantees" and "Description of Exchange Notes -- Certain Covenants -- Issuance of Subsidiary Guarantees." Ranking....................... The Exchange Notes will be unsecured obligations of the Company ranking subordinate in right of payment with all existing and future Senior Debt of the Company. Each Guarantee will be an unsecured obligation of the applicable Guarantor ranking subordinate in right of payment to all Guarantor Senior Debt of such Guarantor. As of June 27, 1998, on a pro forma basis, the Company and the Guarantors would have had no Senior Debt or Guarantor Senior Debt outstanding. In addition, the Notes will be effectively subordinated in right of payment to all liabilities, including indebtedness, of subsidiaries of the Company which are not Guarantors. As of June 27, 1998, on a pro forma basis, such subsidiaries would have had approximately $14.4 million of total liabilities, including $6.5 million of indebtedness. Optional Redemption........... Except as provided below, the Exchange Notes are not redeemable at the Company's option prior to July 1, 2003. Thereafter, the Exchange Notes will be redeemable, in whole or in part, at the option of the Company, at the redemption prices set forth herein plus accrued and unpaid interest to the date of redemption. In addition, prior to July 1, 2001, the Company may, at its option, redeem up to an aggregate of 35% of the principal amount of Exchange Notes issued with the net proceeds from one or more Public Equity Offerings at the redemption price set forth herein plus accrued and unpaid interest to the date of redemption; provided that 65% of the Exchange Notes issued remain outstanding immediately after giving effect to any such redemption. See "Description of Exchange Notes -- Redemption." Change of Control............. In the event of a Change of Control, the Company will be obligated to make an offer to purchase all of the outstanding Exchange Notes at a purchase price of 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase. See "Description of Exchange Notes -- Change of Control." - -------------------------------------------------------------------------------- 8 13 - -------------------------------------------------------------------------------- Asset Sales................... The Company will be required in certain circumstances to make an offer to purchase Exchange Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase, with the net cash proceeds of certain asset sales. See "Description of Exchange Notes -- Certain Covenants -- Limitation on Asset Sales." Certain Covenants............. The Indenture contains covenants, including, but not limited to, covenants with respect to limitations on the following matters: (i) incurrence of additional indebtedness, (ii) issuance of preferred stock by subsidiaries, (iii) creation of liens, (iv) restricted payments, (v) sales of assets and subsidiary stock, (vi) incurrence of other senior subordinated indebtedness, (vii) mergers and consolidations, (viii) payment restrictions affecting subsidiaries, and (ix) transactions with affiliates. See "Description of Exchange Notes -- Certain Covenants." RISK FACTORS See "Risk Factors" beginning on page 11 for a discussion of certain factors that should be considered in evaluating an investment in the Exchange Notes. - -------------------------------------------------------------------------------- 9 14 - -------------------------------------------------------------------------------- SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER SIX MONTHS ENDED JUNE ----------------------------------------- ------------------------------ PRO FORMA TWELVE PRO FORMA PRO FORMA MONTHS ENDED 1995(1) 1996 1997 1997(2) 1997 1998 1998(2) JUNE 27, 1998(2) -------- ------- -------- --------- ------- -------- --------- ---------------- OPERATING DATA: Net sales....................... $101,144 $98,661 $114,182 $131,808 $55,376 $ 62,641 $ 66,290 $131,440 Cost of goods sold.............. 71,455 69,828 78,798 89,892 38,247 42,281 44,940 89,539 -------- ------- -------- -------- ------- -------- -------- -------- Gross profit.................. 29,689 28,833 35,384 41,916 17,129 20,360 21,350 41,901 Selling, general and administrative expense........ 17,594 17,135 21,149 26,913 9,944 11,961 13,165 26,340 Special compensation expense.... 7,920 -- -- -- -- -- -- -- -------- ------- -------- -------- ------- -------- -------- -------- Operating income.............. 4,175 11,698 14,235 15,003 7,185 8,399 8,185 15,561 Interest expense................ 3,530 4,399 4,963 11,549 2,394 2,477 5,822 11,620 Other expense (income), net..... (484) 245 520 543 172 167 49 389 -------- ------- -------- -------- ------- -------- -------- -------- Income before income taxes.... 1,129 7,054 8,752 2,911 4,619 5,755 2,314 3,552 Income taxes.................... 469 3,071 3,751 1,375 1,971 2,441 1,180 1,852 -------- ------- -------- -------- ------- -------- -------- -------- Net income.................... $ 660 $ 3,983 $ 5,001 $ 1,536 $ 2,648 $ 3,314 $ 1,134 $ 1,700 ======== ======= ======== ======== ======= ======== ======== ======== OTHER DATA: EBITDA(3)....................... $ 14,782 $14,026 $ 17,299 $ 18,785 $ 8,555 $ 10,246 $ 10,205 $ 19,528 Depreciation and amortization(4)............... 2,687 2,328 3,064 3,782 1,370 1,847 2,020 3,967 Capital expenditures............ 2,640 3,638 3,708 4,105 1,542 2,085 2,224 4,714 Ratio of EBITDA to interest expense(5).................... 1.8x Ratio of total debt to EBITDA... 5.5x BALANCE SHEET DATA:(6) Working capital...................................................................... $ 23,726 $ 32,671 Total assets......................................................................... 108,594 114,827 Total debt........................................................................... 59,882 106,497 Shareholders' equity(deficit)........................................................ 24,704 (13,525)
- --------------- (1) The 1995 results and data include the five months ended May 26, 1995 for the Predecessor and seven months ended December 30, 1995 for the Company. The Predecessor's results include a $7,920 special compensation expense as described in Note 2 of Notes to Consolidated Financial Statements. (2) The pro forma operating data presented gives effect to the acquisitions of Armstrong and Notting and the Original Offering as if they had occurred on January 1, 1997. (3) EBITDA is defined as operating income plus depreciation, amortization (other than amortization of debt discount and deferred financing costs) and special compensation expense. The Company believes that EBITDA provides additional information for determining its ability to meet debt service requirements. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations as determined by generally accepted accounting principles, and EBITDA does not necessarily indicate whether cash flow will be sufficient to meet cash requirements. (4) Depreciation and amortization excludes amortization of deferred financing costs and debt discount. (5) For the purpose of calculating the ratio of EBITDA to interest expense, interest expense does not include amortization of deferred financing costs. (6) The pro forma balance sheet gives effect to the Original Offering and the use of proceeds therefrom as if they had occurred on June 27, 1998. - -------------------------------------------------------------------------------- 10 15 RISK FACTORS Prospective investors should carefully consider the following risk factors in addition to the other information set forth in this Prospectus before making an investment in the Notes. SUBSTANTIAL LEVERAGE As of June 27, 1998, on a pro forma basis, the Company would have had $106.5 million of consolidated indebtedness and consolidated stockholders' deficit of $13.5 million. The Company's indebtedness will have several important consequences for the holders of the Notes, including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to debt service requirements on its indebtedness and will not be available for other purposes; (ii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, to refinance other indebtedness or for general corporate purposes may be impaired; (iii) the Company's leverage may increase its vulnerability to economic downturns and limit its ability to withstand competitive pressures; and (iv) the Company's ability to capitalize on significant business opportunities may be limited. The Company's ability to make payments with respect to the Notes and to satisfy its other debt obligations will depend on its future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond the Company's control. The Company believes, based on current circumstances, that the Company's cash flow, together with available borrowings under the Senior Credit Facility (as defined), will be sufficient to permit the Company to meet its operating expenses and to service its debt requirements as they become due. Significant assumptions underlie this belief, including, among other things, that the Company will succeed in implementing its business strategy and there will be no material adverse developments in the business, liquidity or capital requirements of the Company. If the Company is unable to service its indebtedness, it will be forced to adopt an alternative strategy that may include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing its indebtedness or seeking additional equity capital. There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS The Indenture restricts the ability of the Company and certain of its subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments or investments, consummate certain asset sales, enter into certain transactions with affiliates, incur liens, or merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of their assets. In addition, the Senior Credit Facility contains other and more restrictive covenants. The Senior Credit Facility requires the Company to maintain specified financial ratios and satisfy certain financial tests. The Company's ability to meet such financial ratios and tests may be affected by events beyond its control, and there can be no assurance that the Company will meet such tests. A breach of any of these covenants could result in an event of default under the Senior Credit Facility. In an event of default under the Senior Credit Facility, the lenders thereunder could elect to declare all amounts borrowed, together with accrued interest, to be immediately due and payable and the lenders under the Senior Credit Facility could terminate all commitments thereunder. If such indebtedness were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay such indebtedness and the Notes. See "Description of Senior Debt" and "Description of Exchange Notes -- Certain Covenants." SUBORDINATION OF NOTES AND GUARANTEES The payment of principal of and interest on, and any premium or other amounts owing in respect of, the Notes will be subordinated to the prior payment in full of all existing and future Senior Debt of the Company, including all amounts owing or guaranteed under the Senior Credit Facility. The Guarantees will be similarly subordinated to Guarantor Senior Debt. Consequently, in the event of a bankruptcy, liquidation, dissolution, 11 16 reorganization or similar proceeding with respect to the Company or a Guarantor, assets of the Company or such Guarantor will be available to pay obligations on the Notes or Guarantees only after all Senior Debt of the Company or Guarantor Senior Debt of such Guarantor, as applicable, has been paid in full, and there can be no assurance that there will be sufficient assets to pay amounts due on any or all of the Notes. In addition, neither the Company nor any Guarantor may pay principal, premium, interest or other amounts on account of the Notes or any Guarantee in the event of a payment default (or, with respect to a non-payment default on Designated Senior Debt (as defined), for a specified period) in respect of Senior Debt. See "Description of Exchange Notes -- Subordination." As of June 27, 1998, on a pro forma basis, the Company and the Guarantors would have had no Senior Debt or Guarantor Senior Debt outstanding. In addition, the Notes will be effectively subordinated in right of payment to all liabilities, including indebtedness, of subsidiaries of the Company which are not Guarantors. As of June 27, 1998, on a pro forma basis, such subsidiaries would have had $14.4 million of total liabilities, including $6.5 million of indebtedness. DEPENDENCE ON KEY INDIVIDUALS The success of the Company is largely dependent on the experience and knowledge of certain key executive officers. The loss of the services of one or more of these individuals and the Company's inability to attract and retain other key members of the Company's management could have a material adverse effect upon the Company. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS The Company operates manufacturing, sales and service facilities in Germany, the United Kingdom, Spain and Canada. In 1997, sales of its products in foreign countries accounted for approximately 38% of the Company's net sales. As a result, the Company is subject to risks associated with operations in foreign countries, including fluctuations in currency exchange rates, imposition of limitations on conversion of foreign currencies into dollars or remittance of dividends and other payments by foreign subsidiaries, imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries, hyperinflation in certain foreign countries and imposition or increase of investment, subjection to certain foreign labor laws and other restrictions by foreign governments. Fluctuations in currency exchange rates have had an impact on the Company's operations in the past, and historically the Company has hedged some of its foreign currency risks. No assurance can be given that the risks associated with operating in foreign countries will not have a material adverse effect on the Company in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." DEPENDENCE ON SPECIALTY STEELS; RELIANCE ON LIMITED SOURCES OF SUPPLY The principal raw material used by the Company is specialty steels. The Company relies on limited sources for its supply of specialty steels. The loss of any such source, or any major disruption in such source's business or failure by it to meet the Company's needs on a timely basis could cause shortages in the Company's supply of specialty steels that could have a material adverse effect on the Company's business and financial condition. The steel industry is highly cyclical in nature and steel prices are influenced by numerous factors beyond the control of the Company, including general economic conditions, labor costs, molybdenum and chrome costs, competition, import duties, tariffs and currency exchange rates. If the Company is unable to pass some or all of future steel price increases to its customers, the Company could be materially and adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Raw Materials." RELIANCE ON METAL PROCESSING AND PRIMARY WOOD INDUSTRIES Demand for the Company's metal and wood products generally follows movements in the metal processing and primary wood industries. The metal processing and primary wood industries are both cyclical in 12 17 nature and are affected by global and national economic conditions. A material change in either industry or general economic conditions could have a material adverse effect on the Company's business and financial condition. UNION CONTRACTS The Company's facilities at Fitchburg and Newcomerstown employ members of the United Steel Workers of America Union. The current contracts at these facilities expire in 2000 and 2001, respectively. Although the Company considers its relations with the unions to be good, there can be no assurance that the contracts with the unions will be timely renewed without work stoppages. Work stoppages could have a material adverse effect on the Company's business and financial condition. COMPETITION The industrial cutting tool market is fragmented with numerous participants. Although there is no one company which competes with the Company in all three of the market sectors which the Company serves and there is no one company which is dominant in any of such market sectors, there can be no assurance that the Company's products will be able to compete successfully with those of its competitors. See "Business -- Competition." ACQUISITION STRATEGY The Company has pursued and intends to continue to pursue acquisitions as an important component of its strategy. No assurance can be given that in the future other suitable acquisition candidates can be acquired on acceptable terms or that future acquisitions, if completed, will be successful. Future acquisitions by the Company could result in the incurrence of additional debt and contingent liabilities which could materially adversely affect the Company's business, operating results and financial condition. The success of any completed acquisition will depend on the Company's ability to integrate effectively the acquired business into the Company's. The process of integrating acquired businesses may involve numerous risks, including difficulties in the assimilation of operations and products, the diversion of management's attention from other business concerns and the potential loss of key employees of the acquired businesses. See "Business -- Business Strategy." ENVIRONMENTAL MATTERS The Company's operations are subject to federal, state, local and foreign laws and regulations relating to the storage, handling, generation, treatment, emission, release, discharge and disposal of certain substances and waste materials. While the Company believes that it is currently in material compliance with those laws and regulations, there can be no assurance that the Company will not incur significant costs to remediate violations thereof or to comply with changes in existing laws and regulations (or the enforcement thereof). Such costs could have a material adverse effect on the Company's business, financial condition or results of operations. See "Business -- Environmental Matters." CHANGE OF CONTROL Upon the occurrence of a Change of Control, each holder of Notes will have the right to require the Company to repurchase all or a portion of such holder's Notes at a price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. However, the Company's ability to repurchase the Notes upon a Change of Control may be limited by the terms of then existing contractual obligations of the Company and its subsidiaries. In addition, the occurrence of a Change of Control will constitute an Event of Default under the Senior Credit Facility. The Senior Credit Facility will prohibit the purchase of the Notes unless and until such time as the indebtedness under the Senior Credit Facility is paid in full. There can be no assurance that the Company will have the financial resources to repay amounts due under the Senior Credit Facility, or to repurchase or redeem the Notes. If the 13 18 Company fails to repurchase all of the Notes tendered for purchase upon the occurrence of a Change of Control, such failure will constitute an Event of Default under the Indenture. See "-- Substantial Leverage." FRAUDULENT CONVEYANCE CONSIDERATIONS Under the applicable provisions of the federal bankruptcy law or comparable provisions of state fraudulent transfer law, if the Company or any Guarantor, at the time it issues the Notes or incurs a Guarantee, as the case may be, (a)(i) was or is insolvent or rendered insolvent by reason of such issuance or incurrence, as the case may be, (ii) was or is engaged in a business or transaction for which the assets remaining with the Company or such Guarantor, as the case may be, constituted unreasonably small capital or (iii) intended or intends to incur, or believed or believes that it would incur, debt beyond its ability to pay such debts as they mature and (b) received or receives less than reasonably equivalent value or fair consideration, the obligations of the Company under the Notes or such Guarantor under its Guarantee, as the case may be, could be avoided or claims in respect of the Notes or such Guarantee, as the case may be, could be subordinated to all other debts of the Company or such Guarantor, as the case may be. Among other things, a legal challenge of the Notes or a Guarantee, as the case may be, on fraudulent conveyance grounds may focus on the benefits, if any, realized by the Company or such Guarantor, as the case may be, as a result of the issuance of the Notes or the incurrence of a Guarantee, as the case may be. To the extent that the Notes or any Guarantee was a fraudulent conveyance or held unenforceable for any other reason, the holders of the Notes would cease to have any claim in respect of the Company, in the case of the Notes, or in respect of a Guarantor whose Guarantee was avoided or held unenforceable. In such event, the claims of the holders of the Notes would be subject to the prior payment of all liabilities of the Company, in the case of the Notes, or the Guarantor whose Guarantee was avoided. There can be no assurance that, after providing for all prior claims, there would be sufficient assets to satisfy the claims of the holders of the Notes relating to any avoided portion of the Notes or a Guarantee. Each Guarantor has agreed, jointly and severally with the other Guarantors, to contribute to the obligation of any Guarantor under a Guarantee of the Notes. Further, the Guarantee of each Guarantor provides that it is limited to an amount that would not render the Guarantor thereunder insolvent. The Company believes that it and the Guarantors received equivalent value at the time the indebtedness was incurred under the Notes and the Guarantees. In addition, the Company believes that neither it nor any of the Guarantors is or was insolvent or is or was engaged in a business or transaction for which its remaining assets constitute unreasonably small capital and that neither it nor any of the Guarantors have intended or will intend to incur debts beyond its ability to pay such debts as they mature. Since each of the components of the question of whether the Notes or a Guarantee is a fraudulent conveyance is inherently fact based and fact specific, there can be no assurance that a court passing on such questions would agree with the Company. ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON RESALE The Exchange Notes are new securities for which there currently is no market. Although the Initial Purchasers have informed the Company that they intend to make a market in the Exchange Notes, they are not obligated to do so and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Notes. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through the Nasdaq National Market. The liquidity of, and trading market for, the Exchange Notes also may be adversely affected by general declines in the market for similar securities. Such a decline may adversely affect such liquidity and trading markets independent of the financial performance of, and prospects for, Simonds. 14 19 USE OF PROCEEDS The Company will receive no proceeds from the issuance of the Exchange Notes. CAPITALIZATION (DOLLARS IN THOUSANDS) The following table sets forth the capitalization of the Company at June 27, 1998 and after giving effect to the Original Offering and the acquisition of Notting. This table should be read in conjunction with the Company's historical financial statements and "Selected Pro Forma Financial Data" and the respective notes thereto included elsewhere in this Prospectus.
ACTUAL PRO FORMA -------- --------- Indebtedness (including current portion): Senior Credit Facility(1)........................... $ -- $ -- Foreign debt(2)..................................... 2,697 2,697 Note payable(3)..................................... 3,800 3,800 Original Notes...................................... 53,385 100,000 -------- ------- Total debt.................................. 59,882 106,497 -------- ------- Shareholders' Equity.................................. 24,704 (13,525) -------- ------- Total capitalization........................ $ 84,586 $92,972 ======== =======
- --------------- (1) In connection with the consummation of the Original Offering, the Company entered into a new Senior Credit Facility which provides for borrowing in an outstanding principal amount of $30,000. (2) Includes the Company's retained foreign credit facility and term loan. (3) Note issued to partially fund the acquisition of Notting; the note matures in May 1999 and debt assumed in the acquisition of Notting. 15 20 SELECTED PRO FORMA FINANCIAL DATA (DOLLARS IN THOUSANDS) The Company completed the acquisitions of Armstrong and Notting on August 1, 1997 and May 8, 1998, respectively. The following pro forma statements of operations are presented as if such acquisitions and the Original Offering had occurred and the Senior Credit Facility was in place on January 1, 1997. The following pro forma balance sheet gives effect to the Original Offering and the use of proceeds therefrom as if they had occurred on June 27, 1998. The accompanying selected pro forma financial data have been prepared utilizing a preliminary purchase price allocation for Notting. The preliminary purchase price allocation of Notting is subject to refinement until all pertinent information regarding the acquisition is obtained and, accordingly, the amounts presented herein are subject to change. The actual results of operations presented for both Armstrong and Notting are unaudited. In addition, the pro forma adjustments presented in both the pro forma statements of operations and the pro forma balance sheet have not been audited. The accompanying pro forma information is presented for illustrative purposes and is not necessarily indicative of the financial position or results of operations which would actually have been reported had the above transactions been in effect during the periods presented or which may be reported in the future. The results of operations for the six months ended June 27, 1998 are not necessarily indicative of the results of operations to be expected for the full year. PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 1997 ------------------------------------------------------------------------------------- 7 MONTHS ARMSTRONG ARMSTRONG NOTTING NOTTING OFFERING PRO ACTUAL ACTUAL(a) ADJUSTMENTS ACTUAL(b) ADJUSTMENTS ADJUSTMENTS FORMA -------- --------- ----------- --------- ----------- ----------- -------- Net sales.................. $114,182 $5,720 -- $11,906 -- -- $131,808 Cost of goods sold......... 78,798 3,764 -- 7,330 -- -- 89,892 -------- ------ ----- ------- ----- ------- -------- Gross profit............. 35,384 1,956 -- 4,576 -- -- 41,916 Selling, general and administrative expense... 21,149 1,608 154(c) 3,955 47(c) -- 26,913 -------- ------ ----- ------- ----- ------- -------- Operating income (loss)................. 14,235 348 (154) 621 (47) -- 15,003 Interest expense........... 4,963 -- 390(d) 198 723(d) 5,275(d) 11,549 Other expense (income)..... 520 35 -- (12) -- -- 543 -------- ------ ----- ------- ----- ------- -------- Income (loss) before income taxes........... 8,752 313 (544) 435 (770) (5,275) 2,911 Income taxes............... 3,751 110 (196)(e) 109 (289)(e) (2,110)(e) 1,375 -------- ------ ----- ------- ----- ------- -------- Net income (loss).......... $ 5,001 $ 203 $(348) $ 326 $(481) $(3,165) $ 1,536 ======== ====== ===== ======= ===== ======= ======== EBITDA(f).................. $ 18,785 ========
See Notes to the Selected Pro Forma Financial Data. 16 21
SIX MONTHS ENDED JUNE 1998 ------------------------------------------------------------- NOTTING NOTTING OFFERING PRO ACTUAL ACTUAL(b) ADJUSTMENTS ADJUSTMENTS FORMA ------- --------- ----------- ----------- ------- Net sales............................ $62,641 $3,649 $ -- $ -- $66,290 Cost of goods sold................... 42,281 2,659 -- -- 44,940 ------- ------ ----- ------- ------- Gross profit....................... 20,360 990 -- -- 21,350 Selling, general and administrative expense............................ 11,961 1,188 16(c) -- 13,165 ------- ------ ----- ------- ------- Operating income (loss)............ 8,399 (198) (16) -- 8,185 Interest expense..................... 2,477 71 241(d) 3,033(d) 5,822 Other expense........................ 167 (118) -- -- 49 ------- ------ ----- ------- ------- Income (loss) before income taxes........................... 5,755 (151) (257) (3,033) 2,314 Income taxes......................... 2,441 48 (96)(e) (1,213)(e) 1,180 ------- ------ ----- ------- ------- Net income (loss).................... $ 3,314 $ (199) $(161) $(1,820) $ 1,134 ======= ====== ===== ======= ======= EBITDA(f)............................ $10,205 ======= TWELVE MONTHS ENDED JUNE 1998 ---------------------------------------------------------------------------------------- ARMSTRONG ARMSTRONG NOTTING NOTTING OFFERING PRO ACTUAL ACTUAL(a) ADJUSTMENTS ACTUAL(b) ADJUSTMENTS ADJUSTMENTS FORMA -------- --------- ----------- --------- ----------- ----------- -------- Net sales............... $121,447 $844 $ -- $9,149 $ -- $ -- $131,440 Cost of goods sold...... 82,832 544 -- 6,163 -- -- 89,539 -------- ---- ---- ------ ----- ------- -------- Gross profit.......... 38,615 300 -- 2,986 -- -- 41,901 Selling, general and administrative expense............... 23,166 239 22(c) 2,874 39(c) -- 26,340 -------- ---- ---- ------ ----- ------- -------- Operating income (loss).............. 15,449 61 (22) 112 (39) -- 15,561 Interest expense........ 5,046 -- 54(d) 176 603(d) 5,741(d) 11,620 Other expense (income).............. 515 (8) -- (118) -- -- 389 -------- ---- ---- ------ ----- ------- -------- Income (loss) before income taxes........ 9,888 69 (76) 54 (642) (5,741) 3,552 Income taxes............ 4,221 72 (28)(e) 124 (241)(e) (2,296)(e) 1,852 -------- ---- ---- ------ ----- ------- -------- Net income (loss)....... $ 5,667 $ (3) $(48) $ (70) $(401) $(3,445) $ 1,700 ======== ==== ==== ====== ===== ======= ======== EBITDA(f)............... $ 19,528 ========
See Notes to the Selected Pro Forma Financial Data. 17 22 PRO FORMA BALANCE SHEET
AS OF JUNE 27, 1998 ------------------------------------ OFFERING ACTUAL ADJUSTMENTS PRO FORMA -------- ----------- --------- ASSETS Cash....................................................... $ 835 $ 1,955(g) $ 2,790 Accounts receivable........................................ 18,842 -- 18,842 Inventories, net........................................... 28,697 -- 28,697 Other current assets....................................... 3,568 -- 3,568 -------- -------- -------- Total current assets.................................. 51,942 1,955 53,897 Property, plant and equipment, net......................... 32,956 -- 32,956 Goodwill, net of accumulated amortization.................. 22,065 -- 22,065 Deferred financing costs, net of accumulated amortization............................................. 722 4,278(h) 5,000 Other assets............................................... 909 -- 909 -------- -------- -------- Total assets..................................... $108,594 $ 6,233 $114,827 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Overdraft facilities....................................... $ 150 $ -- $ 150 Bank Loans................................................. -- -- -- Notes payable.............................................. 5,802 (1,786)(i) 4,016 Current portion of long-term debt.......................... 5,255 (3,051)(i) 2,204 Accounts payable........................................... 6,578 -- 6,578 Accrued payroll and employee benefits...................... 3,693 -- 3,693 Other accrued liabilities.................................. 4,088 (2,153)(j) 1,935 Currently deferred income taxes............................ 2,650 -- 2,650 -------- -------- -------- Total current liabilities............................. 28,216 (6,990) 21,226 Deferred income taxes...................................... 4,386 -- 4,386 Other long-term liabilities................................ 933 -- 933 Long-term pension expense.................................. 1,530 -- 1,530 Long-term debt, net of current portion..................... 48,825 (48,548)(i) 277 Notes...................................................... -- 100,000 100,000 -------- -------- -------- Total liabilities..................................... 83,890 44,462 128,352 Common stock............................................... 1 -- 1 Additional paid-in capital................................. 10,553 (35,000)(k) (24,447) Retained earnings.......................................... 15,173 (3,229)(k) 11,944 Cumulative translation adjustment.......................... (976) -- (976) Treasury stock, at cost.................................... (47) -- (47) -------- -------- -------- Total shareholders' equity (deficit).................. 24,704 (38,229) (13,525) -------- -------- -------- Total liabilities and shareholders' equity (deficit)...................................... $108,594 $ 6,233 $114,827 ======== ======== ========
See Notes to the Selected Pro Forma Financial Data. 18 23 NOTES TO SELECTED PRO FORMA FINANCIAL DATA (DOLLARS IN THOUSANDS) (a) The Company acquired Armstrong on August 1, 1997. Reflects actual 1997 historical results of Armstrong prior to acquisition. (b) The Company acquired Notting on May 8, 1998. For purposes of determining 1997 pro forma results, Notting's statement of operations is for its fiscal year ended September 30, 1997. For purposes of calculating pro forma results for the periods ended June 27, 1998, the statement of operations reflects actual historical results of Notting prior to acquisition. (c) Reflects adjustments related to amortization of non-compete agreement and additional goodwill as shown below:
6 MONTHS TWELVE MONTHS YEAR ENDED ENDED ENDED DECEMBER 27, JUNE 27, JUNE 27, 1997 1998 1998 ------------ ------------- ------------- Armstrong non-compete (5 year life)..................... $101 -- $15 Armstrong goodwill (40 year life)....................... 53 -- 8 ---- --- --- Total........................................... $154 -- $23 ==== === === Notting goodwill (40 year life)......................... $ 47 $16 $39 ==== === ===
(d) Reflects the net increase in interest expense attributed to the increased indebtedness resulting from the acquisitions of Armstrong and Notting and the Original Offering as if they had occurred and the Senior Credit Facility as if it had been in place on the first day of the periods indicated. (e) Reflects the impact on income taxes of the increase in interest expense and the amortization of the non-compete agreement. (f) EBITDA is defined as operating income plus depreciation and amortization (other than amortization of debt discount and deferred financing costs). The Company believes that EBITDA provides additional information for determining its ability to meet debt service requirements. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations as determined by generally accepted accounting principles, and EBITDA does not necessarily indicate whether cash flow will be sufficient to meet cash requirements. (g) Reflects excess cash resulting from the Original Offering. (h) Reflects estimated increase in deferred financing fees related to the Original Offering and the Senior Credit Facility and the estimated write-off of deferred financing costs related to the repaid indebtedness. The write-off was recorded as an extraordinary loss on the extinguishment of debt, net of tax, in the month the Original Offering closed. (i) Represents estimated repayment of the Company's existing domestic indebtedness. (j) Reflects decrease in income taxes payable resulting from a benefit attributed to a compensation charge of $4,500 incurred in connection with the repurchase of all outstanding stock options of the Company with proceeds from the Original Offering. The compensation charge was reflected in the Company's operating results in July 1998 when the Original Offering was closed. In addition, reflects decrease in income taxes payable from a benefit resulting from the write-offs of unamortized debt discount and deferred financing costs totalling $882. (k) Reflects decrease in shareholders' investment resulting from the Recapitalization (as defined) distribution paid to existing securityholders, including the repurchase of stock options, and the write-off of deferred financing costs, net of tax. 19 24 SELECTED HISTORICAL FINANCIAL DATA (DOLLARS IN THOUSANDS) The selected consolidated operating and balance sheet data for and as of the seven months ended December 30, 1995 and the years ended December 28, 1996 and December 27, 1997 are derived from the Company's audited consolidated financial statements included elsewhere herein. The selected consolidated operating and balance sheet data as of and for the years ended January 1, 1994 and December 31, 1994 and the five months ended May 26, 1995 are derived from the Predecessor's audited consolidated financial statements. The selected consolidated operating and balance sheet data for the six months ended June 28, 1997 and June 27, 1998, and as of the end of such periods, have been derived from the Company's unaudited condensed consolidated financial statements included elsewhere herein which reflect, in the opinion of management, all adjustments of a normal recurring nature necessary for a fair statement of the interim periods presented. The results of operations for the six months ended June 27, 1998 are not necessarily indicative of the results of operations to be expected for the full year. The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Offering Memorandum.
PREDECESSOR COMPANY ---------------------------- -------------------------------------------------- SIX MONTHS ENDED YEAR ENDED 5 MONTHS 7 MONTHS YEAR ENDED JUNE ----------------- ENDED ENDED ------------------ ------------------ 1993 1994 5/26/95 12/30/95 1996 1997 1997 1998 ------- ------- -------- -------- ------- -------- ------- -------- OPERATING DATA: Net sales.............................. $86,528 $95,284 $42,212 $58,932 $98,661 $114,182 $55,376 $ 62,641 Cost of goods sold..................... 62,263 68,537 30,102 41,353 69,828 78,798 38,247 42,281 ------- ------- ------- ------- ------- -------- ------- -------- Gross profit.................... 24,265 26,747 12,110 17,579 28,833 35,384 17,129 20,360 Selling, general and administrative expense.............................. 16,513 17,028 7,418 10,176 17,135 21,149 9,944 11,961 Special compensation expense........... -- -- 7,920 -- -- -- -- -- ------- ------- ------- ------- ------- -------- ------- -------- Operating income (loss)......... 7,752 9,719 (3,228) 7,403 11,698 14,235 7,185 8,399 Interest expense....................... 1,978 1,623 650 2,880 4,399 4,963 2,394 2,477 Other expense (income), net............ 149 (432) (276) (208) 245 520 172 167 ------- ------- ------- ------- ------- -------- ------- -------- Income (loss) before income taxes......................... 5,625 8,528 (3,602) 4,731 7,054 8,752 4,619 5,755 Income taxes........................... 2,413 3,491 (1,387) 1,856 3,071 3,751 1,971 2,441 ------- ------- ------- ------- ------- -------- ------- -------- Net income (loss)............... $ 3,212 $ 5,037 $(2,215) $ 2,875 $ 3,983 $ 5,001 $ 2,648 $ 3,314 ======= ======= ======= ======= ======= ======== ======= ======== OTHER DATA: EBITDA from operations(1).............. $10,723 $12,964 $ 6,109 $ 8,673 $14,026 $ 17,299 $ 8,555 $ 10,246 Depreciation and amortization.......... 3,079 3,307 1,498 1,500 2,712 3,459 1,552 2,023 Capital expenditures................... 2,091 2,377 745 1,895 3,638 3,708 1,542 2,085 Ratio of income to fixed charges(2).... 3.6x 5.7x -- 2.6x 2.5x 2.7x 2.8x 3.2x BALANCE SHEET DATA: Working capital........................ $14,386 $17,753 $16,033 $21,786 $22,209 $ 21,651 $23,260 $ 23,726 Total assets........................... 56,172 56,931 62,413 77,728 82,620 95,343 89,620 108,594 Total debt............................. 21,484 16,278 14,899 46,809 46,175 51,692 52,016 59,882 Shareholders' equity................... 19,866 24,986 24,608 13,185 17,198 21,615 17,882 24,704
- --------------- (1) EBITDA is defined as operating income plus depreciation, amortization (other than amortization of debt discount and deferred financing costs) and special compensation expense. The Company believes that EBITDA provides additional information for determining its ability to meet debt service requirements. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations as determined by generally accepted accounting principles, and EBITDA does not necessarily indicate whether cash flow will be sufficient to meet cash requirements. (2) For purposes of calculating this ratio, "income" consists of income before provision for income taxes and fixed charges. "Fixed charges" consists of interest expense and the estimated interest portion of rental payments on operating leases. Such income was insufficient to cover fixed charges by approximately $2,100 for the five months ended May 26, 1995. 20 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS) The following discussion of the Company's financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements and notes thereto, as well as the selected financial information, all appearing elsewhere herein. GENERAL Simonds has been in continuous operation selling cutting tools for 166 years. In May 1995, the Company was acquired by Fleet and senior management. The acquisition enabled the Company to continue to implement its business strategy, including pursuing strategic acquisitions. Since 1995, the Company has completed four acquisitions, including Strongridge in October 1996, the bit and shank product line of Pacific Hoe Company in January 1997, Armstrong in August 1997, and Notting on May 5, 1998. The Company's results of operations for the periods 1995-1997 and the six months ending June 27, 1998 reflect the impact of all of the acquisitions. In particular, the Company benefited from three months in 1996 and a full year in 1997 of operations of Strongridge, five months of operations of Armstrong in 1997 and two months of operations of Notting in 1998. Results for the year ended December 30, 1995 contain a one-time compensation expense related to the acquisition of the Company. See Note 2 of the Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS The following table sets forth, for the periods presented, the percentage which such results bears to net sales.
PERCENTAGE OF NET SALES --------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER JUNE ------------------------- ---------------- 1995(a) 1996 1997 1997 1998 ------- ----- ----- ------ ------ Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold................................ 70.6 70.8 69.0 69.1 67.5 ----- ----- ----- ----- ----- Gross profit............................ 29.4 29.2 31.0 30.9 32.5 Selling, general and administrative expense....... 17.4 17.4 18.5 18.0 19.1 Special compensation expense...................... 7.8 -- -- -- -- ----- ----- ----- ----- ----- Operating income........................ 4.2 11.8 12.5 12.9 13.4 Interest expense.................................. 3.5 4.5 4.3 4.3 4.0 Other expense (income), net....................... (0.5) 0.2 0.5 0.3 0.3 ----- ----- ----- ----- ----- Income before income taxes.............. 1.2 7.1 7.7 8.3 9.1 Income taxes...................................... 0.5 3.1 3.3 3.6 3.9 ----- ----- ----- ----- ----- Net income.............................. 0.7% 4.0% 4.4% 4.7% 5.2% ===== ===== ===== ===== =====
- --------------- (a) The year ended 1995 includes the five months ended May 26, 1997 of the Predecessor and seven months ended December 30, 1995 of the Company. Six Months Ended June 27, 1998 Compared To Six Months Ended June 28, 1998 Net Sales: Net sales increased 13.1% to $62,641 for the first half of 1998 from $55,376 for the same period in 1997. This increase was primarily the result of increased wood product sales of $4,917 in the first half of 1998 from the acquisition of Armstrong which was completed on August 1, 1997 and, to a lesser extent, from increased sales of carbide tip bits and Red Streak(R) bands. Additionally, 1998 sales included $1,727 due to the recent acquisition of W. Notting Limited, effective May 1, 1998. Changes in foreign currency exchange 21 26 rates in the first half of 1998 (primarily the weaker Canadian dollar and German Mark) negatively impacted the Company's net sales by $886 when compared to the corresponding period last year. Gross Profit Margin: Gross profit as a percentage of net sales for 1998 was 32.5% compared to 30.9% for the comparable period in 1997. Favorable raw material prices for Red Streak(R) bands, carbide tips, and the majority of the Company's knife steel along with higher production levels without significant increases in fixed expenses are the main reasons for margin improvements. In addition, the gross profit of Armstrong in the first six months of 1998 and of Notting for May and June of 1998 increased gross profit for the reported period. Selling, General and Administrative Expenses: Selling, general and administrative expenses as a percent of net sales were 19.1% for the first six months of 1998 and 18.0% for the comparable period a year ago. The higher level of expenses in 1998 as compared to 1997 was primarily due to the addition of Armstrong and Notting in 1998. Operating Income: As a result of the aforementioned factors, operating income increased 16.9% to $8,399 or 13.4% of net sales in 1998 from $7,185 or 12.9% in 1997. Interest Expense: Interest expense was higher in 1998 compared to the corresponding period in 1997 as a result of higher debt balances primarily due to the above mentioned acquisitions of Armstrong and Notting. Income Taxes: The Company's effective tax rate in 1998 decreased to 42.4% from 42.7% in 1997. Improved profitability in the United Kingdom, which has a lower tax rate, has affected the consolidated effective tax rate. Net Income: As a result of the foregoing, net income increased 25.2% to $3,314 in 1998 from $2,648 in 1997. Year Ended December 27, 1997 Compared To Year Ended December 28, 1996 Net Sales: Net sales increased 15.7% to $114,182 for 1997 from $98,661 for 1996. Of this increase, $3,457 resulted from the contribution of five months of Armstrong and $4,647 from a full year of results of Strongridge in 1997 as compared to three months in 1996. In addition, the Company benefited from the acquisition of the bit and shank business from Pacific Hoe Company. The remaining increase in net sales was due to increased demand from the wood and metal markets in the United States and Canada, which was reflected in increased sales of levelers and tensioners, Red Streak(R) and waferizer knives as well as increased sales of metal band saws and files. Gross Profit Margin: Gross profit as a percentage of net sales increased to 31.0% in 1997 compared to 29.2% in 1996. This increase was primarily due to lower costs of raw materials, other manufacturing efficiencies and the addition of higher gross profit margin products at Armstrong. Selling, General and Administrative Expenses: Selling, general and administrative expenses increased as a percent of net sales to 18.5% in 1997 from 17.4% in 1996. This was partly due to additional bonus accruals, commissions, and marketing incentive plans resulting from the Company exceeding incentive targets. In addition, the increase resulted from the inclusion of Strongridge and Armstrong, which have higher percentages of selling, general and administrative expenses to net sales than the Company. Operating Income: As a result of the aforementioned factors, operating income increased 21.7% to $14,235 or 12.5% of net sales in 1997 from $11,698 or 11.9% in 1996. Interest Expense: Interest expense increased to $4,963 in 1997 from $4,399 in 1996 as a result of borrowings to finance acquisitions. Income Taxes: The Company's effective tax rate decreased to 42.9% in 1997 from 43.5% in 1996. The income tax rates principally differed from the statutory U.S. rate of 34% as a result of state income tax provisions, nondeductible amortization expense (for tax purposes), the change in tax valuation reserves and the effect of foreign income tax on foreign source income. 22 27 Net Income: As a result of the foregoing, net income increased 25.6% to $5,001 in 1997 from $3,983 in 1996. Year Ended December 28, 1996 Compared To Year Ended December 30, 1995 Net Sales: Net sales decreased 2.5% to $98,661 in 1996 from $101,144 in 1995. This reduction was primarily attributable to reduced demand for the Company's wood cutting products. Demand was impacted by a softening in new home sales, a drop in lumber consumption and a corresponding decrease in lumber prices. Lumber prices began to fall in the latter part of 1995 and continued into 1996, resulting in the lumber mills cutting back production and postponing capital investment in new filing room equipment. The majority of the decrease was in filing room equipment and knife grinders. Gross Profit Margin: Gross profit as a percentage of net sales remained relatively stable at 29.2% in 1996 compared to 29.4% in 1995. Selling, General and Administrative Expenses: Selling, general and administrative expenses remained flat at 17.4% of net sales in 1996 compared to 1995. Special Compensation Expense: In 1995 the Predecessor incurred a one-time compensation expense totaling $7,920 related to the acquisition of Simonds. Operating Income: As a result of the aforementioned factors, excluding the special compensation expense, operating income decreased 3.3% to $11,698 or 11.9% of net sales in 1996 from $12,095 or 11.9% of net sales in 1995. Interest Expense: Interest expense increased $869 in 1996 from 1995 as a result of the acquisition of Simonds in May 1995. Other Expense (Income), net: Other expense (income), net was ($484) in 1995 and $245 in 1996 due to a foreign exchange gain in 1995 and a foreign exchange loss in 1996. Income Taxes: The Company's effective tax rate increased to 43.5% in 1996 from 41.5% in 1995. The Company's 1996 effective tax rate was impacted by increased profit in its German operations, where there is a higher tax rate. Net Income: As a result of the foregoing, net income increased to $3,983 in 1996 as compared to $660 in 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's principal capital requirements are to fund working capital needs, meet required debt payments, and to complete planned maintenance and manufacturing improvements. During 1995, 1996, 1997 and the six months ended June 27, 1998, net cash provided by operations was $7,097, $6,665, $13,046 and $2,700, respectively. During 1995, 1996, 1997 and for the six months ended June 27, 1998, net cash used in investing activities was $47,193, $4,788, $17,304 and $8,809, respectively, consisting primarily of capital expenditures and acquisitions. In 1995, $44,620 was used to acquire the Predecessor. In 1997, approximately $14,000 was used for the acquisitions of Armstrong and the bit and shank product line of Pacific Hoe Company. During 1995, 1996, 1997 and for the six months ended June 27, 1998, net cash provided (used) by financing activities was $40,373, ($2,526), $4,299 and $5,814. In 1995, $35,800 was provided from the proceeds of the issuance of long-term debt, which was used to pay off $9,710 in existing debt, and to finance the acquisition of the Predecessor. In connection with the Original Offering, the Company entered into an agreement with a group of bank lenders to provide the Senior Credit Facility. The Senior Credit Facility provides a $30,000 line of credit to meet acquisition and expansion needs as well as seasonal working capital and general corporate requirements. Borrowings under the Senior Credit Facility bear interest at a fluctuating rate based on, at the Company's option, either the lender's alternate base rate, as defined, or LIBOR plus the applicable margin. A 23 28 commitment fee calculated based upon the unused portion of the revolving credit facility is payable quarterly in arrears. The Company believes that future cash flows from operations, together with the borrowings available under the Senior Credit Facility will provide the Company with sufficient liquidity and financial resources to finance its growth and satisfy its working capital requirements for the foreseeable future. The Company may not be able to generate sufficient cash flows from operations to pay the entire principal amount of the Notes when due in 2008. In such event, the Company would be required to refinance the Notes. However, there can be no assurance that the Company will be able to obtain financing acceptable terms. See "Risk Factors -- Substantial Leverage." Seasonality Historically, the Company's business has not been subject to seasonality in any material respect. The Company's third quarter, which includes July through September, is typically lower due to customers' and plant vacation shutdowns. Inflation Certain of the Company's expenses, such as wages and benefits, occupancy costs and equipment repair and replacement, are subject to normal inflationary pressures. Although the Company to date has been able to offset inflationary cost increases through operating efficiencies, there can be no assurance that the Company will be able to offset any future inflationary cost increases through similar efficiencies. YEAR 2000 The Company has a formal Year 2000 Compliance Plan which it began to implement in 1996 to ensure that its hardware, operating systems and software will function properly with respect to dates in the year 2000 and thereafter. The Company does not expect that the cost to modify its information technology infrastructure to be Year 2000 compliant will be material to its financial condition or results of operations. The Company does not anticipate any material disruption in its operations as a result of any failure by the Company to be in compliance. The Company does not currently have any information concerning the Year 2000 compliance status of its suppliers and customers. In the event that any of the Company's significant suppliers or customers does not successfully and timely achieve Year 2000 compliance, the Company's business or operations could be adversely affected. 24 29 BUSINESS GENERAL Simonds, with operations since 1832, is a leading global manufacturer and marketer of high quality industrial cutting tools. With facilities in North America and Europe, the Company sells its products into three distinct end user markets: metal (49% of 1997 net sales on a pro forma basis), wood (40%), and paper (11%). Management believes the Company holds a number one, two or three share position in each of the markets it serves. For the twelve months ended June 27, 1998, net sales and EBITDA were $131.4 million and $19.5 million, respectively, on a pro forma basis. The Company manufactures saw blades, files, knives and steel rule that, when mounted on industrial machinery, cut, shape, bend and perforate metal, wood and paper. In addition, the Company manufactures and distributes machinery, including a complete line of filing room equipment used primarily in saw mills. Management believes that Simonds manufactures and markets the most technologically advanced industrial cutting tools available in the industry. The Company's more than 25,000 products are used in a wide variety of industrial applications. End users of Simonds' products range from large companies such as General Motors Corporation and Georgia-Pacific Corporation to small businesses such as machine shops. The primary end users of the Company's metal cutting tools include aerospace, automotive, construction and home appliance manufacturers as well as steel service centers, forge shops and aluminum foundries. The Company's wood cutting products are used in saw mills, pulp and paper mills, furniture manufacturing facilities and wood chipping operations. Steel rule products produced by the Company are used in the die making and packaging industries. The products are consumable and require replacement many times per year. More than 85% of the Company's net sales are derived from sales of replacement products for use in the aftermarket. In addition, despite the significant value added by the Company's products in the processes in which they are used, these products add relatively little cost to end users' operations. These factors have contributed to the Company's historically stable revenue stream. Management believes that as a result of its long and successful history, Simonds has been able to create a loyal, knowledgeable and efficient distribution base. A substantial majority of the Company's products are marketed and sold to end users in each of its market segments worldwide through approximately 7,000 independent distributors. This distribution base provides the Company with a competitive advantage by allowing the Company to more easily sell its broad range of products, including new and sophisticated tools. In addition, through its independent distributors the Company is able to offer end users the highest quality customer service, including the resharpening and maintenance of its cutting tools. The Company complements its distribution base with a service oriented, highly trained and experienced sales force who spend most of their time with end users. The Company sells its products directly to over 12,000 distributors and end users with no single customer representing more than 2.1% of total net sales for 1997. Simonds' products are marketed and sold worldwide in 92 countries through facilities located in the United States, Canada, Germany, Spain and the United Kingdom. The Company has expanded its product sales outside of North America from 15% of net sales in 1991 to 24% in 1997 on a pro forma basis through acquisitions and internal growth. The Company intends to continue its international growth by broadening its product offerings in existing markets and entering new geographic areas. For the year ended December 27, 1997, the Company's net sales in the United States, Canada, Europe and the rest of the world represented approximately 62%, 14%, 17% and 7% of total Company net sales, respectively, on a pro forma basis. Simonds benefits from an experienced management team with a demonstrated track record of successfully implementing the Company's business strategy. The senior management team averages more than 20 years of industry experience. Management believes that this experience, in combination with the Company's 166 year history and superior product quality, has made Simonds a widely recognized brand name among its target customer base. 25 30 BUSINESS STRATEGY Management believes that Simonds is well positioned to maintain its current leadership position within the cutting tool industry. The Company's strategic objective is to continue to design, manufacture and sell superior cutting tools and equipment while leveraging its metallurgy and tooth edge geometry expertise. The Company focuses on end user markets where high product performance is valued and in geographic markets with a developed and large industrial base. The Company's objective is to continue to grow its sales and expand its operating margins by pursuing the following business strategy: Continued Margin Expansion Through Focus on Profitability. The Company's culture and organization focuses on consistently improving profitability. The Company's compensation structure creates incentives for all personnel to focus on profit margins. In each of the manufacturing facilities, all levels of employees from machine operators through plant managers receive bonuses tied to the profitability or productivity of their particular facility. The Company's corporate sales management and sales force receive incentive compensation based on achieving specific profit margins as well as sales targets. Senior management's incentive compensation is based on targeted levels of the Company's profitability. As a result of this cultural focus and emphasis on profitability, Simonds' EBITDA margin has grown from 10.4% of net sales in 1990 to 15.2% of net sales in 1997. Strategic Acquisitions. The Company intends to continue to pursue strategic acquisitions in the highly fragmented industrial cutting tool industry. Management believes that there are many attractive potential acquisition targets both domestically and internationally. Since 1989, the Company has completed eight acquisitions as described in the following table.
MARKET YEAR ENTITY ACQUIRED SEGMENT PRODUCT TYPE LOCATIONS ACQUIRED - --------------- ------- ----------------------- --------------------- -------- Michigan Knife Company Wood - Industrial Knives North America 1989 - Circular Saws Mainland Manufacturing Inc. Wood - Wide Band Saws Western Canada 1990 - Circular Saws - Filing Room Equipment A.H. Ralston Limited Metal - Industrial Files United Kingdom 1990 Wespa Metal - Band Saws Germany 1992 - Hack Saws Strongridge Metal - Sales & Marketing North America 1996 Product line of Pacific Hoe Company Wood - Bits and Shanks -- 1997 Armstrong Wood - Filing Room Equipment United States 1997 Notting Paper - Steel Rule Europe, North America 1998
Each of these acquisitions has provided significant strategic opportunities for the Company by either expanding product offerings or geographic markets in which these products are sold. For example, Notting expanded the Company's steel rule product line, Armstrong expanded the Company's filing room equipment machinery, Strongridge provided access to smaller distributors, and Wespa further developed the metal band product line. The Company is presently evaluating certain acquisition opportunities and as part of its strategy will continue to do so in the future. There can be no assurance that the Company will consummate any such acquisitions or, if consummated, the timing thereof. Emphasis on Product Innovation. Management believes that the Company is a leader in the development of innovative and technologically superior products. Throughout its history, the Company has often been first to introduce new product technologies, including bits and shanks, carbide tipped band saws, circular and band levelers, band tensioners, computerized saw control and narrow wood band technology. An even greater emphasis on product innovation was initiated in 1996 with the creation of a staff level position devoted to product development. Recent new products include (i) Epic(R), a state-of-the-art metal band saw line; (ii) automated band saws and circular saw levelers, revolutionary products which allow for automated tensioning and leveling of band saws and circular saws; (iii) Red Streak(R), a premier product for portable saw mill use that enables users to cut lumber in the forest, resulting in lower operating expenses; and 26 31 (iv) Dominator(R), carbide tip bits which last significantly longer than high speed steel bits. Management estimates that the Company introduces approximately 10 to 25 new product innovations annually. New product innovations are important to the Company's independent distributors, providing them with the ability to expand their product lines, the opportunity to improve their margins and the ability to offer their customers enhanced products. Low Cost Manufacturing. The Company continues to focus on being a low cost producer of high value-added products within the cutting tool industry. The Company has continued to benefit from economies of scale in both purchasing and manufacturing. Management believes that the Company is able to purchase specialty steel, its primary raw material, more efficiently than many of its smaller competitors, generating significant savings. The Company has reduced its manufacturing costs and improved its consistency of product quality as a result of capital investment and process control programs. Capital investment of more than $10 million since 1995 in new and upgraded equipment such as electron beam welding, milling equipment, grinding equipment, heat treating equipment, and in-line process controls has resulted in productivity and quality gains. The Company's Fitchburg and Newcomerstown facilities received ISO 9002 certification in 1993 and 1997, respectively. As a measure of improved efficiency, the Company's sales per employee has increased from approximately $87,000 in 1989 to approximately $151,000 in 1997. PRODUCTS AND MARKET Simonds produces an array of world-class industrial cutting tools for a wide variety of end user markets. The Company's products can be segmented into three major market sectors: metal (49% of 1997 net sales on a pro forma basis); wood (40%); and paper (11%). Metal Cutting Products The Company is a world leader in the manufacture and marketing of metal cutting products with 1997 pro forma net sales of $64.3 million. The Company's products primarily include metal band saw blades and files for use in industrial/commercial applications. In addition, the Company manufactures and markets other products for similar applications. Simonds is one of only two companies with a significant presence in both the band saw and file markets. This combined presence creates significant synergies at the distributor and end user levels. In addition, management believes that the Company is a technological innovator in a business where a premium is placed on such innovation. Band Saw Blades (62% of Metal Cutting Products Pro Forma Net Sales). Management believes that Simonds is the second largest manufacturer of metal band saw blades both globally and in North America. Management believes the Company markets the world's most technologically advanced and complete metal band saw blade product line with three broad varieties distributed for portable and stationary band saws. The three varieties include bi-metal, carbide tip and carbon blades sold under brand names including EPIC(R), Si-Clone(R), Bundle Band(R), Si-Namic(R) and XL. These products are used on a variety of OEM vertical and horizontal machines which are generally used in cut-off, profile/contour and friction cutting applications. In cut-off applications, the Company's products cut steel and non-ferrous bars from long to shorter lengths which are ultimately used in finished products. This type of cutting is most often found in steel mills, steel warehouses and manufacturing plants. Profile/contour cutting involves the Company's narrower width blades, usually one-half inch or less, which are used to saw arcs or curves in a wide variety of materials ranging from sheet metal to tool steel, plastics and wood. Friction cutting is a method of removing seams and other size overages created by metal casting using a silicon carbon steel bandsaw blade, running at extremely high speeds. The Company's metal band products have a large number of industrial applications. The largest consumers of these products include the automotive, construction, home appliance and aerospace industries. Other important end user markets, particularly in the United States, include specialty manufacturers, maintenance shops, tool and die shops, machine shops, metal fabricators, aluminum foundries and steel service centers. End users include General Motors Corporation, Ford Motor Company, The Boeing Company and The Stanley Works. Purchasing criteria vary by end user market but generally center around performance, 27 32 durability and speed, resulting in effective cost per cut. Management believes the Company offers the highest quality products resulting in the most effective cost per cut. The Company continues to expand its comprehensive metal band saw line with product innovations and designs. End user needs have become more specialized with demand for particular applications. In 1998, the Company intends to introduce additional new products, including an improved friction blade for the investment casting industry with high volume usage applications, and new carbide tipped products designed for aluminum foundries and for cutting high temperature alloys. File Products (31% of Metal Cutting Products Pro Forma Net Sales). Management believes that Simonds is the second largest manufacturer of industrial file products in North America and the third largest worldwide. The Company's files are precision hand tools made from forged, hardened steel, and are generally used to debur and shape metals and wood. These files are also used to sharpen many types of cutting blades. In general, the Company sells its file products under various brand names, including Red Tang(R), Black Maxi-Sharp(R), Ralston and SI. The Company believes the Simonds' name itself is widely recognized by industrial/ commercial users as a leader in the manufacture of high quality files. The Company's files are sold into two primary end user markets: industrial and consumer. Industrial end users consist of machinists, millwrights, welders, gunsmiths, plumbers, electricians, tool and die makers, watchmakers, automobile body repair and manufacturing as well as many non-ferrous end user applications such as filing copper, brass and aluminum. Industrial end users of the Company's file products include General Motors Corporation, Chrysler Corporation, Ford Motor Company and Jaguar Cars. The consumer end user market, a growing area for the Company, primarily consists of do-it-yourself users. The Company manufactures a rapidly expanding line of files which are sold to retail chains and specialty suppliers such as Sears, Roebuck & Co. (Craftsman), The Stanley Works and Fiskars under private label brand names. In addition, there are several niche commercial markets, such as the farrier and formica markets, that are also important to the Company. Purchasing criteria vary by end user market but generally center around product availability, design, performance, durability, and price. Management believes that the Company's pursuit of innovative new products and markets complemented by the quality, durability and reliability associated with the Simonds' Red Tang(R) file will continue to provide excellent opportunities. The Company introduced four new products in 1997 which address specific needs within the end user markets: the Spot Welders Tip File, which enables the user to dress and maintain the tip, thereby maximizing efficiency and tip life; the MIG Welder Nozzle File, a self-cleaning hollow copper nozzle; and the Diamond Needle and Diamond Escapement Files, specialty files that are used on hardened steel. Wood Cutting Products The Company believes it is the North American leader in the manufacture of wood cutting products with net sales of $52.9 million in 1997 on a pro forma basis. The Company offers a broad array of wood cutting tools, including bandsaw blades, wood cutting knives, bits and shanks for inserted tooth saws, and large diameter circular saws. The Company's products are generally used to cut and shape logs into dimensional lumber and chip lumber for the pulp and paper industry. In addition, the Company manufactures and sells a complete line of filing room equipment used primarily in saw mills. The Company markets its cutting and sawing tools and associated products to the primary wood industry, including saw mills, pulp mills, wood pallet producers and plywood, wafer board and particle board plants. End users of the Company's products include Georgia-Pacific Corporation, International Paper Company, Louisiana-Pacific Corporation and Weyerhaeuser Company. Purchasing criteria vary by end user market but generally center around performance, durability, and effective cost per cut. The Company continues to build on its breadth of wood cutting products and accessories. The Company's wood products are designed to minimize kerf loss, which reduces saw dust, and to maximize log yield. To address these objectives, the Company has recently introduced automatic saw leveling and tensioning machines as well as computerized systems to control the feed and speed of saw mill carriages. These machines enable saw mills to reduce operating costs by reducing manpower and lowering maintenance costs. In addition, 28 33 the Company's Red Streak(R) product offers a narrow kerf band which, when used in portable saw mills, increases log yield and reduces operating costs. Paper Products The Company is a leading producer of precision steel rules used primarily in the die making and packaging industries with net sales of $14.5 million in 1997 on a pro forma basis. Manufactured from hardened and beveled steel, rule products are used to fold, cut and perforate paper, cardboard and other packaging materials in addition to stamping and bending various types and grades of sheet metal. The Company's paper products include flat, rotary and perforated steel rule. Rule products purchasing criteria vary by end user but generally center around performance, durability and cost. Paper processors are particularly focused on products that are more easily formed, maintain sharpness, minimize "dusting" and maximize tool life. Over the past three years, the Company has introduced new steel rule products that address each of these concerns, including Mirror Edge(R), Hard Edge and Micro Perf II. In addition, in May 1998, the Company acquired Notting, a steel rule products company headquartered in the United Kingdom. This acquisition expands the Company's steel rule product line and its geographic market penetration. MARKETING, SALES AND DISTRIBUTION Management believes that the Company has one of the most extensive and efficient distribution bases in the industry. The Company's products are marketed and sold worldwide through an extensive distributor base serviced by its subsidiaries located in the United States, Canada, Germany, Spain and the United Kingdom. More than 85% of the Company's sales are through its extensive independent distributor base. Direct end user shipments and agent channels are also employed by the Company as dictated by private label programs, specific geographic markets, industry practice and competition. The Company employs separate independent distributors for its metal, wood and paper products in North America and internationally. The Company's marketing and sales functions are divided geographically between North America and the rest of the world. The Company's distribution effort is comprised of three major components: (i) independent distributors, (ii) the Company's field sales force, and (iii) the Company's customer service representatives. The Company's sales and distribution base encompasses approximately 3,800 metal products, 1,300 wood products and 200 paper products distributors in North America and 1,300 metal products, 150 wood products and 200 paper products distributors internationally. These distributors include mill supply houses, saw shops, catalog houses, OEMs, welding suppliers and other manufacturers. Because it offers high quality products and extensive training, service, and technical support, the Company attracts and retains the industry's most highly coveted distributors. The Company's independent distributors are supported by 27 metal product and 26 wood product representatives in North America and 21 and two, respectively, internationally. The Company's field sales professionals provide technical service, in-house formal training and on-going field training to both distributors and end users. The Company's 23 customer service representatives in North America and eight internationally are a critical element of the Company's distribution and service leadership. By responding to and processing many orders from different points and providing tailored, real-time service, this group provides a user-friendly interface with the distributors and end users. Each distributor and field sales professional is assigned a customer service representative who is trained in service techniques and has extensive product knowledge. Steel rule products are marketed through the Notting direct sales force, independent specialized distributors and Myersco Limited, an independent representative agency. In addition to this effort, the Company maintains a team of customer service representatives to market the rule products to smaller accounts. 29 34 The Company distributes private label products directly to retailers, including Sears, Roebuck & Co., catalog houses such as McMaster-Carr, and industrial products marketers such as The Stanley Works and Matco through a dedicated private label sales manager, supported by the Company's customer service organization. The Company distributes certain industrial products through its wholly owned subsidiary, Strongridge Limited, located in Brampton, Ontario, Canada. Since its acquisition in 1996, Strongridge has been operating as a separate division with a separate identity in the industrial market place. The primary focus of Strongridge has been to sell metal products to the small and mid-size industrial and contractor distributors. Weld centers and warehouse locations in Ontario, Canada, Texas, Ohio, California, North Carolina and Georgia provide local service support to these distributors. RAW MATERIALS The primary raw material for the Company's products is specialty steels. In order to take advantage of volume price discounts, the Company pursues a "primary" sourcing strategy through which most of the Company's strip steel is purchased. Designated "primary" sources of steel inventory are supported by identified secondary sources of raw materials. See "Risk Factors -- Dependence on Specialty Steels; Reliance on Limited Sources of Supply." Each production facility is responsible for coordinating and executing the materials for their respective inventory needs. A purchasing manager at each facility oversees these purchases. MANUFACTURING FACILITIES The following table provides information on the Company's facilities and the products produced at these locations.
MARKET OWNED/ SIZE LOCATION SEGMENT PRODUCT TYPES LEASED (SQ. FT) EMPLOYEES - -------- ------- ------------------------------- ------ -------- --------- Fitchburg, MA............... Metal - Weld Edged Bandsaw Blades Owned 401,000 340 - Carbide Tipped Bandsaw Blades - Carbon Bandsaw Blades Wood - Bits & Shanks - Red Streak(R) Bandsaw Blades Paper - Perforating - Flat - Rotary Big Rapids, MI.............. Wood - Circular Saws Owned 127,500 105 - Knives - Inserted Tooth Saws Newcomerstown, OH........... Metal - Files Owned 208,000 130 Springfield, OR............. Wood - Wide Bandsaw Blades Owned 28,400 30 Portland, OR................ Wood - Filing Room Equipment Owned 40,000 98 Riverside, CA............... Paper - Perforating Leased 19,200 24 Tottenham, UK............... Paper - Flat Owned 30,000 42 - Perforating Barcelona, Spain............ Paper - Rule Leased 4,040 9 Spangenberg, Germany........ Metal - Carbon Bandsaw Blades Owned 57,000 89 - Bi-Metal Bandsaw Blades - Hacksaw Blades
Since 1996, the Company has made substantial investments in its manufacturing equipment and processes and instituted operational improvements that have generated significant cost savings and productivity increases. The Company's focused capital spending programs have targeted improvements in technology, quality control, information systems and manufacturing efficiencies. 30 35 EMPLOYEES At July 25, 1998, the Company had 938 full-time employees. Of such employees, 729 were located in the United States, 48 were located in Canada, 87 were located in Germany, 9 were located in Spain and 65 were located in the United Kingdom. The Company considers its relations with these employees to be good. The Fitchburg and Newcomerstown facilities employ members of the United Steel Workers of America ("USWA") Union. Their contracts with the USWA expire in 2000 and 2001, respectively. The Company considers its relations with the unions to be good. See "Risk Factors -- Union Contracts." COMPETITION The cutting tool market is highly fragmented with numerous participants. The Company is a leader in the global cutting tools market and is consistently among the top three competitors in the metal cutting saw blade, file, wood cutting product and rule product markets. Competition is principally on the basis of price, service, delivery, quality and technical expertise. The Company's competitors vary in each of the market sectors it serves. There is no one company which competes with the Company in all three of the market sectors served by the Company and there is no one company which is dominant in any of such market sectors. The Company believes that its reputation over its long history for quality products, extensive sales and service network and its in-depth product knowledge provide it with a competitive advantage in all of the market sectors it services. ENVIRONMENTAL MATTERS As with most industrial companies, the Company's facilities and operations are required to comply with and are subject to a wide variety of federal, state, local and foreign environment and worker health and safety laws, regulations and ordinances, including those related to air emissions, wastewater discharges and chemical and hazardous waste management and disposal ("Environmental Laws"). Certain of these Environmental Laws hold owners or operators of land or businesses liable for their own and for previous owners' or operators' releases of hazardous or toxic substances, materials or wastes, pollutants or contaminants, including petroleum and petroleum products. Compliance with Environmental Laws also may require the acquisition of permits or other authorizations for certain activities and compliance with various standards or procedural requirements. The nature of the Company's operations, the long history of industrial uses at some of its current or former facilities, and the operations of predecessor owners or operators of certain of the businesses expose the Company to risk of liabilities or claims with respect to environmental and worker health and safety matters. There can be no assurance that material costs or liabilities will not be incurred in connection with such liabilities or claims. In 1992 the Company's property in Ashburnham, Massachusetts, was identified as having groundwater contamination. The Company has been indemnified from such liability by prior owners and there is currently $2.7 million held in escrow to cover such liability. Based on current estimates, management believes that the amounts held in escrow will be sufficient to cover these environmental liabilities, although there can be no assurance that such amounts will be sufficient. In addition, environmental issues were previously identified at the Company's Fitchburg, Massachusetts, and Newcomerstown, Ohio, properties which have since been remediated. However, the state of Ohio has not yet issued its certification to that effect with respect to the Newcomerstown site. The prior owner has agreed to indemnify the Company for any post-closure care expenses at the Newcomerstown site. See "Risk Factors -- Environmental Matters." LITIGATION The Company is party to a lawsuit that was litigated in China involving a Chinese joint venture established by the Company's predecessor. This case was filed by a Chinese joint venture company against the Company and its predecessor, alleging breach of a sales agreement. Judgment was entered in 1993 against the Company in the approximate amount of $410,000. The plaintiff has made no effort to enforce its foreign judgment in the U.S. If and when it does so, the Company will interpose defenses of denial of due process in the Chinese court, as well as other substantive defenses provided under the Massachusetts General Laws. Management believes the lawsuit to be without merit. In addition, the Company is a party to other lawsuits arising in the normal course of business. In the opinion of management, the final resolutions of these lawsuits are not expected to materially affect the financial condition or results of operations of the Company. 31 36 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information with respect to the directors and executive officers of the Company. Directors serve for a term of one year or until their successors are elected and qualified. NAME AGE POSITION - ---- --- -------- Ross George............. 65 President, Chief Executive Officer and Director Joseph Sylvia........... 53 Executive Vice President, Chief Financial Officer and Director Robert Deedrick......... 55 Vice President -- Manufacturing Roland Richard.......... 56 Vice President -- Sales and Marketing, Wood Products James Palmer............ 57 Vice President -- Sales and Marketing, Metal Products Harry Rogers............ 57 Vice President -- International and Rule Products Peter Hopper............ 47 Vice President -- Product Development F.A. DeVilling III...... 56 Vice President and General Manager -- Strongridge Ron Owens............... 52 Vice President -- Business Development Habib Gorgi............. 41 Director Bernard Buonanno III.... 32 Director Ross George: Mr. George has been President, Chief Operating Officer and member of the Board of Directors since 1988 and was made Chief Executive Officer in 1995. Mr. George previously served as acting President and Vice President of Operations at Simonds Cutting Tools -- Division of Household Manufacturing. Mr. George joined Simonds in 1983. From 1980 to 1983, he was Vice President and General Manager of the New England Carbide division of Wallace Murray Corp. Prior to 1980 he held various positions at Johnson & Johnson and Texas Instruments. Joseph Sylvia: Mr. Sylvia has been Chief Financial Officer since 1988 and is a member of the Board of Directors of Simonds. He was promoted to Executive Vice President in 1995. Mr. Sylvia formerly held the position of Division Controller of Simonds Cutting Tools -- Division of Household Manufacturing. He joined Simonds in 1970 as Senior Programmer Analyst and held various management positions in Information Services from 1972 to 1982. From 1982 to 1987, Mr. Sylvia was Director of Finance and Information Services. Robert Deedrick: Mr. Deedrick has been Vice President of Manufacturing since 1991. He managed the Fitchburg plant from 1984 to 1991 and the Newcomerstown operations from 1981 to 1984. Mr. Deedrick joined Simonds in 1973 as an Engineer, progressing through Production and Inventory Control and Production Management positions. Roland Richard: Mr. Richard has been Vice President of Sales and Marketing -- Wood Products since 1991. He previously held the position of Director of Corporate Development from 1989 to 1991 and was Corporate Sales Manager of the acquired Michigan Knife Company from 1987 to 1989. Mr. Richard originally joined Simonds in 1961, progressing through sales, sales management, product management, and became a Strategic Business Unit Manager in 1980. James Palmer: Mr. Palmer has been Vice President of Sales and Marketing for Metal Products since 1995. He was Vice President of Sales of Milford Products for 10 years. Mr. Palmer joined Milford Products in 1982. Prior to 1982, Mr. Palmer held various sales and management positions with a variety of companies in the machine tool and cutting tool industries over a period of approximately 16 years. Harry Rogers: Mr. Rogers has been Vice President of International and Rule Products since 1990. He previously held the position of General Sales Manager. Since joining Simonds in 1971 as a salesman, he has held key positions in sales and marketing management. Peter Hopper: Mr. Hopper has been Vice President of Product Development since 1996. He has held positions of increasing responsibility with Crucible Specialty Metals from 1976 to 1983. He held research, metallurgy and quality control positions with Milford Products Corporation from 1983 to 1991. From 1991 to 32 37 1996 he served in various product development and design positions with Milwaukee Electric Tool Corporation. F.A. "Skip" DeVilling III: Mr. DeVilling joined Simonds as Vice President of Business Development in 1995. In 1996, Mr. DeVilling became Vice President and General Manager of Strongridge Limited, a wholly owned Canadian subsidiary of Simonds. Mr. DeVilling was formerly Vice President of Sales and Marketing for Columbus McKinnon Corporation from 1992 to 1995 and Vice President of Sales and Marketing for National Twist Drill Division of Regal Beloit Corporation from 1986 to 1992. Prior to 1986, Mr. DeVilling worked for the Baystate Abrasives Division of Dresser Industries in various sales and marketing management positions, including National Sales Manager form 1979 to 1985. Ron Owens: Mr. Owens joined Simonds in 1998 as Vice President of Business Development. In 1990 Mr. Owens formed "SAWELL, INC", a manufacturing business that produced jigsaw and recip blades for their own brand, as well as private label product for all major brands. Black and Decker purchased "SAWELL, INC" in late 1994 and Mr. Owens was President of the subsidiary until October 1996. Mr. Owens was Vice President of Operations at Allen Industrial from 1965 to 1978; Executive Vice President of Mid State Industrial from 1978 to 1982; and owned a sales rep agency in Tampa, Florida prior to starting "SAWELL, INC". Habib Gorgi: Mr. Gorgi has been a member of the Board of Directors since 1995. Since 1995, Mr. Gorgi has been President of each of (i) Fleet Ventures Resources, Inc., (ii) Fleet Growth Resources II, Inc., a general partner of Fleet Equity Partners VI, L.P., and (iii) Silverado III, Corp., the general partner of Silverado III, L.P., the general partner of Chisholm Partners III, L.P. Mr. Gorgi is also managing general partner of Kennedy Plaza Partners. Since 1986, Mr. Gorgi has held various management positions with Fleet Equity Partners and its affiliates. Prior to 1986, he had worked in the Mergers, Acquisitions and Leveraged Buyouts Group of BankAmerica. Mr. Gorgi serves on the Board of Directors of several Fleet Equity Partners' portfolio companies. Bernard Buonanno: Mr. Buonanno has been a member of the Board of Directors since 1995. Since 1998, Mr. Buonanno has been Senior Vice President of each of (i) Fleet Venture Resources, Inc., (ii) Fleet Growth Resources, Inc., a general partner of Fleet Equity Partners VI, L.P., and (iii) Silverado III, Corp., the general partner of Silverado III, L.P., the general partner of Chisholm Partners III, L.P. Mr. Buonanno is also general partner of Kennedy Plaza Partners. Mr. Buonanno has held various positions with Fleet Equity Partners and its affiliates since 1993. Prior to joining Fleet Equity Partners in 1993, Mr. Buonanno worked in the Mergers and Acquisitions Department of Prudential-Bache Capital Funding. Mr. Buonanno serves on the Board of Directors of several Fleet Equity Partners' portfolio companies. DIRECTOR COMPENSATION AND ARRANGEMENTS Each non-employee director currently receives fees of $25,000 per year plus reimbursement of out-of-pocket expenses. Directors who are employees receive no additional compensation for serving as a director. 33 38 EXECUTIVE COMPENSATION The following table sets forth all cash compensation earned in 1997 by the Company's Chief Executive Officer and each of the four most highly compensated executive officers whose remuneration exceeded $100,000 (the "Named Executives"). SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ALL OTHER -------------------- --------------------------- NAME AND POSITION SALARY BONUS OTHER(1) COMPENSATION(2) - ----------------- -------- -------- -------- --------------- Ross George................................. $262,080 $262,080 $20,895 $17,102 Chief Executive Officer, President Joseph Sylvia............................... $178,605 $142,884 $16,958 $11,324 Executive Vice President, CFO Robert Deedrick............................. $126,200 $ 75,720 $ 8,206 $ 8,683 Vice President -- Manufacturing James Palmer................................ $120,935 $ 47,013 $ 7,553 $ 8,829 Vice President -- Sales & Marketing, Metal Products Roland Richard.............................. $116,844 $ 70,106 $ 7,617 $ 8,667 Vice President -- Sales & Marketing, Wood Products
- --------------- (1) Consists of amounts reimbursed during the year for the payment of taxes relating to company vehicles, tax preparation and club memberships. (2) Consists of the Company's contributions to the 401(k) Plan (Messrs. George and Sylvia, $4,750; Mr. Deedrick, $3,786; Mr. Palmer, $3,628; and Mr. Richard, $3,505) and the profit-sharing plan (Messrs. George and Sylvia, $4,800; Mr. Deedrick, $3,786; Mr. Palmer, $3,628; and Mr. Richard, $3,505), and group insurance payments (Mr. George, $7,552; Mr. Sylvia, $1,774; Mr. Deedrick $1,111; Mr. Palmer, $1,573; and Mr. Richard, $1,656). Options No options were granted in the year ended December 27, 1997 to the Named Executives. The following table sets forth certain information with respect to unexercised options to purchase the Company's Common Stock which were granted in connection with the acquisition of the Company in May 1995. These options, which were immediately exercisable at $400 per share, were repurchased by the Company at a value of $458.52 per share less the exercise price in connection with the Recapitalization. See "Certain Transactions." FY-END OPTION VALUES
VALUE OF UNEXERCISED NO. OF SECURITIES UNDERLYING IN-THE-MONEY UNEXERCISED OPTIONS AT FY-END OPTIONS AT FY-END(1) ----------------------------- ----------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ----------- ------------- Ross George............................ 12,301.79 0 $719,900.75 0 Joseph Sylvia.......................... 8,201.20 0 $479,934.22 0 Robert Deedrick........................ 2,050.30 0 $119,983.55 0 James Palmer........................... 2,050.30 0 $119,983.55 0 Roland Richard......................... 2,050.30 0 $119,983.55 0
- --------------- (1) Based on the equity value per share being paid in connection with the Recapitalization ($458.52). The Company adopted the Amended and Restated 1998 Stock Incentive Plan in July 1998 pursuant to which key employees (including officers who are also directors of the Company) will be eligible for discretionary awards of stock options at the discretion of the Board of Directors. The terms and prices of 34 39 options granted will be in the discretion of the Board. Messrs. George and Sylvia were granted options in July 1998 to purchase 351.13 and 222.45 shares, respectively, of Common Stock at a price of $458.52 per share. Employment Contracts Messrs. George and Sylvia each entered into employment agreements with the Company which expire May 26, 2000, subject to extension. The employment agreements provide for base salaries and bonuses as determined by the Board of Directors. In addition, the agreements provide that in the event of termination of employment by the Company for any reason other than cause, the officer is entitled to receive all salary and bonuses earned through the termination date plus the remaining base salary for one year. Messrs. Deedrick, Palmer, Richard and Rogers have also entered into employment agreements with the Company which provide for one year's notice of termination from the Company, and 90 days notice of termination from the employee, except in the case of cause, in which event the agreement is terminable on 30 days notice from the Company. The agreements provide that the officers' base salary and bonuses will be determined by the Board. Each of these agreements contains a covenant not to compete for two years after termination of employment. 35 40 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Company's voting Common Stock (i) by each person known to the Company to own more than 5% of the Company's voting Common Stock and (ii) by each director of the Company, each of the executive officers of the Company listed under "Management" and the directors and executive officers of the Company as a group.
SHARES BENEFICIALLY OWNED(1) ------------------------------ NUMBER OF SHARES % OF CLASS ---------------- ---------- Fleet Venture Resources, Inc.(2).......................... 22,118.93 31.3 Fleet Equity Partners VI, L.P.(2)......................... 9,479.54 13.4 Chisholm Partners III, L.P.(2)............................ 8,014.92 11.4 Kennedy Plaza Partners.................................... 461.20 * Private Market Fund, L.P. ................................ 8,723.72 12.7 Ross George............................................... 6,348.69 7.3 Joseph Sylvia............................................. 4,039.09 5.9 Robert Deedrick........................................... 436.19 * Roland Richard............................................ 1,090.46 1.6 James Palmer.............................................. 381.66 * Harry Rogers.............................................. 1,090.46 1.6 Peter Hopper.............................................. 163.57 * F.A. DeVilling............................................ 218.09 * Ron Owens................................................. -- -- Habib Gorgi(2)............................................ 40,074.59 56.7 Bernard Buonanno(2)....................................... 40,074.59 56.7 All directors and executive officers as a group, including the above named persons(2).............................. 53,842.79 75.6
- --------------- * Less than 1% (1) As used in this table, beneficial ownership means the sole or shared power to vote, or to direct the voting of, a security or the sole or shared power to dispose, or direct the disposition of, a security, and includes options and warrants exercisable within 60 days. (2) Fleet Venture Resources, Inc. ("FVR"), Fleet Equity Partners VI, L.P. ("FEP"), Chisholm Partners III ("Chisholm") and Kennedy Plaza Partners ("Kennedy") are affiliated entities. As a result, they may be deemed to have shared voting and investment power of the shares held by each of the other entities. FVR and FEP are also affiliates of Fleet Financial Group, Inc. ("FFG"). As a result, FFG may be deemed to have shared voting and investment power of the shares held by such entities. Mr. Gorgi is President of FVR and of the corporate general partners of FEP and Chisholm, and a managing general partner of Kennedy. As a result, he may be deemed to have shared voting and investment power of the shares held by such entities. Mr. Buonanno is Senior Vice President of FVR and of the corporate general partners of FEP and Chisholm, and a general partner of Kennedy. As a result, he may be deemed to have shared voting and investment power of the shares held by such entities. Messrs. Gorgi and Buonanno disclaim beneficial ownership for all shares held directly by these entities. 36 41 CERTAIN TRANSACTIONS The Original Offering was made in connection with a recapitalization (the "Recapitalization") of the Company pursuant to which (i) the Company repurchased certain of its outstanding equity securities for an aggregate purchase price of $58.9 million (or $458.52 per share of Common Stock and equivalents) (the "Recapitalization Consideration"), (ii) the Company issued new shares of voting and non-voting Common Stock to certain existing stockholders and new investors with aggregate proceeds to the Company of $19.4 million (or $458.52 per share) (the "New Shares"), (iii) the Company issued certain warrants and options to certain existing stockholders and new investors, and (iv) certain of the Company's existing stockholders retained voting Common Stock with an aggregate value (based on per share value of $458.52) of approximately $15.6 million (the "Retained Shares"). Fleet (i) received approximately $39.0 million of the Recapitalization Consideration, (ii) purchased approximately $7.8 million of the New Shares and (iii) retained approximately $9.6 million of the Retained Shares. In addition, Fleet received (a) warrants to purchase 2,180.93 shares of Common Stock at a price of $458.52 per share and (b) warrants to purchase 1,357.73 shares of Common Stock at a price of $458.52 per share which will be exercisable in full upon the occurrence of a sale of the Company or an initial public offering of its stock ("Liquidity Events") if Fleet does not earn a specified return on its cash investment in the Company. Management of the Company (i) received approximately $16.0 million of the Recapitalization Consideration, (ii) purchased approximately $0.9 million of the New Shares and (iii) retained approximately $5.8 million of the Retained Shares. Messrs. George, Sylvia, Deedrick and Richard (or members of their respective families) received approximately $7.0 million, $3.4 million, $0.9 million and $1.2 million, respectively, of such Recapitalization Consideration. Mr. Palmer purchased approximately $0.2 million of such New Shares, and Messrs. George, Sylvia, Deedrick and Richard retained approximately $2.8 million, $1.8 million, $0.2 million and $0.5 million, respectively, of such Retained Shares. In addition, Messrs. George and Sylvia were granted options to purchase 351.13 and 222.45 shares, respectively, of Common Stock at a price of $458.52 per share. First Union Investors, Inc., an affiliate of First Union Capital Partners, one of the Initial Purchasers, and First Union National Bank, the principal lender under the Senior Credit Facility, acquired 3,373.75 voting and 7,530.90 non-voting New Shares for approximately $5 million and also received warrants to purchase 391.57 shares of Common Stock at a price of $458.52 per share which will be exercisable in full upon the occurrence of certain Liquidity Events if the holder does not earn a specified return on its cash investment in the Company. The Private Market Fund, L.P. received warrants to purchase 313.26 shares of Common Stock at a price of $458.52 per share which will be exercisable in full upon the occurrence of certain Liquidity Events if the holder does not earn a specified return on its cash investment in the Company. DESCRIPTION OF SENIOR DEBT The following is a summary of certain Senior Debt of the Company. To the extent such summary contains descriptions of the Senior Credit Facility and other loan documents, such descriptions do not purport to be complete and are qualified in their entirety by reference to such documents, which are available upon request from the Company. SENIOR CREDIT FACILITY On July 7, 1998, the Company entered into an agreement with First Union National Bank (the "Bank") providing for a revolving credit facility (the "Senior Credit Facility") to the Company for up to $30.0 million of revolving loans. Borrowings under the Senior Credit Facility are available for permitted acquisitions and working capital, including letters of credit. The Senior Credit Facility is secured by first priority liens on all tangible and intangible personal property and real property assets of the Company and its subsidiaries. The Senior Credit Facility expires in 2003, unless extended. The interest rate per annum applicable to the Senior Credit Facility is, at the Company's option, either LIBOR or the greater of the prime rate or the overnight federal funds rate plus 0.50%, in each case plus 0.125% to 2.375% depending on the Company's 37 42 financial leverage (the "Applicable Margin"). The Company is required to pay certain fees in connection with the Senior Credit Facility, including a commitment fee of 0.50% initially and thereafter at a per annum rate equal to the Applicable Margin on the unutilized portion of the revolver. The Senior Credit Facility also contains certain other terms and conditions, covenants and events of default. FOREIGN DEBT The Company's German subsidiary has a term loan in the principal amount of DM 4.2 million and a working capital line facility with a maximum aggregate limit of DM 5.5 million. The term loan expires and the working capital line terminates on December 31, 1999. Interest rates on both the term loan and the working capital line are based on the Frankfurt Interbank Offer Rate. The term loan may be prepaid without premium or penalty in minimum multiples of DM 100,000 upon one month's advance notice. Simonds UK Holdings Ltd., a British subsidiary of the Company, issued a series of promissory notes in the aggregate principal amount of L1,000,000 (the "UK Notes") in favor of the former shareholders of Notting as a portion of the purchase price. The UK Notes, which mature April 30, 1999, bear interest at a rate of 8.5% per annum. The payment of the UK Notes is guaranteed by the Company. The Company's Notting subsidiary has the following outstanding indebtedness: (i) a business development loan with National Westminster Bank in the amount of L44,139 as of July 31, 1998 bearing interest at 10% per annum and maturing June 7, 1999; (ii) a demand note with National Westminster Bank in the amount of L200,000 bearing interest at 2 1/2% above the bank's base rate and maturing December 31, 1998; (iii) a revolving line of credit with Wells Fargo Bank in the amount of $1.2 million bearing interest at 1% above the bank's prime rate and maturing March 31, 1999; (iv) a credit facility with Banco Sabadell of Spain in the amount of 26 million pesetas bearing interest at rates ranging from 6.35% to 10%; (v) an overdraft line with Central Hispano Bank of Spain in the amount of 5 million pesetas bearing interest at a rate of MIBOR plus 1.5%; and (vi) a loan with National Westminster Bank in the amount of L26,709 for the purchase of fixed assets bearing interest at 2 1/2% above the bank's base rate and maturing August 1, 2000. 38 43 DESCRIPTION OF EXCHANGE NOTES The Exchange Notes will be issued under the Indenture. The following summary of certain provisions of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of the Indenture, including the definitions of certain terms therein and those terms made a part of the Indenture by reference to the TIA as in effect on the date of the Indenture. A copy of the Indenture may be obtained from the Company or the Initial Purchasers. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." For purposes of this section, references to the "Company" include only Simonds Industries Inc. and not its Subsidiaries. The Exchange Notes will be unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Debt of the Company. The Exchange Notes will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the Trustee will act as Paying Agent and Registrar for the Exchange Notes. The Exchange Notes may be presented for registration or transfer and exchange at the offices of the Registrar, which initially will be the Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to holders of the Exchange Notes (the "Holders"). The Company will pay principal (and premium, if any) on the Exchange Notes at the Trustee's corporate office in New York, New York. At the Company's option, interest may be paid at the Trustee's corporate trust office or by check mailed to the registered address of the Holders. Any Notes that remain outstanding after the completion of the Exchange Offer, together with the Exchange Notes, will be treated as a single class of securities under the Indenture. PRINCIPAL, MATURITY AND INTEREST The Notes are limited in aggregate principal amount to $150,000,000, of which $100,000,000 will be issued on the Issue Date, and will mature on July 1, 2008. Interest on the Notes will accrue at the rate of 10 1/4% per annum and will be payable semiannually in cash on each January 1 and July 1 commencing on January 1, 1999, to the persons who are registered Holders at the close of business on the December 15 and June 15 immediately preceding the applicable interest payment date. Interest on the Notes will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from and including the date of issuance. The Notes will not be entitled to the benefit of any mandatory sinking fund. REDEMPTION Optional Redemption. The Exchange Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after July 1, 2003, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on July 1 of the applicable year set forth below, plus, in each case, accrued and unpaid interest, if any, thereon to the date of redemption:
YEAR PERCENTAGE ---- ---------- 2003................................................. 105.125% 2004................................................. 103.417% 2005................................................. 101.708% 2006 and thereafter.................................. 100.000%
Optional Redemption upon Public Equity Offerings. At any time, or from time to time, on or prior to July 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined below) to redeem up to 35% of the Notes issued at a redemption price equal to 110.250% of the principal amount thereof plus accrued and unpaid interest, if any, thereon to the date of redemption; provided that at least 65% of the principal amount of Notes issued remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any 39 44 Public Equity Offering, the Company shall make such redemption not more than 90 days after the consummation of any such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act. SELECTION AND NOTICE OF REDEMPTION In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Exchange Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Exchange Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Exchange Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture. SUBORDINATION The payment of all Obligations on the Exchange Notes is subordinated in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on Senior Debt. Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due upon all Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the Notes, or for the acquisition of any of the Notes for cash or property or otherwise. If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by declaration or otherwise, of any principal of, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Senior Debt, no payment of any kind or character shall be made by or on behalf of the Company or any other Person on its behalf with respect to any Obligations on the Notes or to acquire any of the Notes for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt, permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for such Designated Senior Debt gives written notice of the event of default to the Trustee (a "Default Notice"),then, unless and until all events of default with respect to such Designated Senior Debt have been cured or waived or have ceased to exist or the Trustee receives notice from the Representative for such Designated Senior Debt terminating the Blockage Period (as defined below), during the 180 days after the delivery of such Default Notice (the "Blockage Period"), neither the Company nor any other Person on its behalf shall (x) make any payment of any kind or character with respect to any Obligations on the Notes or (y) acquire any of the Notes for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 180 days from the date the Default Notice was delivered to the Trustee and only one such Blockage Period may be commenced within any 360 40 45 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Debt shall be, or be made, the basis for commencement of a second Blockage Period by the Representative of such Designated Senior Debt whether or not after a period of 360 consecutive days, unless such event of default shall have been cured or waived or ceased to exist for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions of the Designated Senior Debt under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). By reason of such subordination, in the event of the insolvency of the Company, creditors of the Company who are not holders of Senior Debt, including the Holders of the Notes, may recover less, ratably, than holders of Senior Debt. GUARANTEES The Exchange Notes will be guaranteed by each of the Company's Domestic Wholly Owned Restricted Subsidiaries on the Issue Date and by certain of the Company's Restricted Subsidiaries formed or acquired after the Issue Date. See "Certain Covenants -- Issuance of Subsidiary Guarantees." The Guarantee of each Guarantor will be subordinated to all Guarantor Senior Debt of such Guarantor to the same extent as the Notes are subordinated to all Senior Debt. In the event all of the Capital Stock of a Guarantor owned by the Company and the Restricted Subsidiaries is sold by the Company and/or one or more Restricted Subsidiaries or all or substantially all of the assets of a Guarantor are sold by such Guarantor and the sale complies with the provisions set forth under "Certain Covenants -- Limitation on Asset Sales," such Guarantor's Guarantee will be released. CHANGE OF CONTROL The Indenture provides that upon the occurrence of a Change of Control, each Holder will have the right to require that the Company purchase all or a portion of such Holder's Exchange Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, thereon to the date of purchase. The Indenture provides that, prior to the mailing of the notice referred to below, but in any event within 30 days following any Change of Control, the Company covenants to (i) repay in full and terminate all commitments under all Indebtedness under the Credit Agreement and all other Senior Debt the terms of which require repayment upon a Change of Control or offer to repay in full and terminate all commitments under all Indebtedness under the Credit Agreement and all other such Senior Debt and to repay the Indebtedness owed to each lender which has accepted such offer or (ii) obtain the requisite consents under the Credit Agreement and all other Senior Debt to permit the repurchase of the Exchange Notes as provided below. The Company shall first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase Exchange Notes pursuant to the provisions described below. Within 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have an Exchange Note purchased pursuant to a Change of Control Offer will be required to surrender the Exchange Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Exchange Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date. If a Change of Control Offer is required to be made, there can be no assurance that the Company will be permitted by the terms of its Senior Debt to make such a Change of Control Offer or that it have available funds sufficient to pay the Change of Control purchase price for all the Notes that might be delivered by 41 46 Holders seeking to accept the Change of Control Offer. In the event the Company is required to purchase outstanding Notes pursuant to a Change of Control Offer, the Company expects that it would seek third party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing. Neither the Board of Directors of the Company nor the Trustee may waive the covenant relating to a Holder's right to require the purchase of Exchange Notes upon a Change of Control. Restrictions in the Indenture described herein on the ability of the Company and the Restricted Subsidiaries to incur additional Indebtedness, to grant liens on its property, to make Restricted Payments and to make Asset Sales may also make more difficult or discourage a takeover of the Company, whether favored or opposed by the management of the Company. Consummation of any such transaction in certain circumstances may require the purchase of the Exchange Notes, and there can be no assurance that the Company or the acquiring party will have sufficient financial resources to effect such purchase. Such restrictions and the restrictions on transactions with Affiliates may, in certain circumstances, make more difficult or discourage any leveraged buyout of the Company or any of its Subsidiaries by the management of the Company. While such restrictions cover a wide variety of arrangements which have traditionally been used to effect highly leveraged transactions, the Indenture may not afford the Holders of Exchange Notes protection in all circumstances from the adverse aspects of a highly leveraged transactions, reorganization, restructuring, merger or similar transaction. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture by virtue thereof. CERTAIN COVENANTS The Indenture contains, among others, the following covenants: Limitation on Incurrence of Additional Indebtedness. The Company will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company or any Guarantor may incur Indebtedness (including, without limitation, Acquired Indebtedness) and the Restricted Subsidiaries may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0. No Indebtedness incurred pursuant to the Consolidated Fixed Charge Coverage Ratio test of the preceding paragraph (including, without limitation, Indebtedness under the Credit Agreement) shall reduce the amount of Indebtedness which may be incurred pursuant to any clause of the definition of Permitted Indebtedness (including without limitation, Indebtedness under the Credit Agreement pursuant to clause (ii) of the definition of Permitted Indebtedness). Limitation on Restricted Payments. The Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock (including by means of a Person (including an Unrestricted Subsidiary) making such a payment with the proceeds of an Investment made by the Company or any Restricted Subsidiary), (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (including by means of a Person (including an Unrestricted Subsidiary) making such a payment with the proceeds of an Investment made by the Company or any Restricted Subsidiary) or (c) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in 42 47 clauses (a), (b) and (c) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing or (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the covenant described under "-- Limitation on Incurrence of Additional Indebtedness" or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purpose, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the Issue Date and through the end of the most recent fiscal quarter for which financial statements are available prior to the date such Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (x) 100% of the fair market value of the aggregate net proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company or of other securities converted to Qualified Capital Stock of the Company; plus (y) without duplication of any amounts included in clause (iii)(x) above, 100% of the fair market value of the aggregate net proceeds of any contribution to the common equity capital of the Company received by the Company from a holder of the Company's Capital Stock (excluding, in the case of clauses (iii)(x) and (y), any net proceeds from a Public Equity Offering to the extent used to redeem the Notes); plus (z) an amount equal to the lesser of (A) the sum of the fair market value of the Capital Stock of an Unrestricted Subsidiary owned by the Company and/or the Restricted Subsidiaries and the aggregate amount of all Indebtedness of such Unrestricted Subsidiary owed to the Company and each Restricted Subsidiary on the date of Revocation of such Unrestricted Subsidiary as an Unrestricted Subsidiary in accordance with the covenant described under "-- Limitation on Designations of Unrestricted Subsidiaries" or (B) the Designation Amount with respect to such Unrestricted Subsidiary on the date of the Designation of such Subsidiary as an Unrestricted Subsidiary in accordance with the covenant described under "-- Limitation on Designations of Unrestricted Subsidiaries." Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration; (2) the acquisition of any shares of Capital Stock of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company; (3) so long as no Default or Event of Default shall have occurred and be continuing, repurchases of Capital Stock (or options therefor) of the Company from officers, directors, employees or consultants pursuant to equity ownership or compensation plans or stockholders agreements not to exceed $1.0 million in any year; (4) so long as no Default or Event of Default shall have occurred and be continuing, other Restricted Payments in an aggregate amount not to exceed $5.0 million; and (5) Restricted Payments made on the Issue Date in connection with the Recapitalization Distribution. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the immediately preceding paragraph, amounts expended pursuant to clauses (1), (2), (3) and (4) shall be included in such calculation. Limitation on Asset Sales. The Company will not, and will not permit any of the Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's Board of Directors), (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash, Cash Equivalents and/or Replacement Assets and is received at the time of such disposition; and (iii) upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 360 days of receipt thereof either (A) to prepay any Senior Debt or Guarantor Senior Debt and, in the case of any Senior Debt or Guarantor Senior Debt under any revolving credit facility, effect a permanent reduction in the availability under such revolving credit facility, (B) to acquire Replacement Assets, or (C) a combination 43 48 of prepayment and investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 361st day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that principal amount of Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest, if any, thereon to the date of purchase; provided, however, that if at any time any non-cash consideration received by the Company or any Restricted Subsidiary, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration) or Cash Equivalents, then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $5,000,000 resulting from one or more Asset Sales or deemed Asset Sales(at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $5,000,000, shall be applied as required pursuant to this paragraph). In the event of the transfer of substantially all (but not all) of the property and assets of the Company and the Restricted Subsidiaries as an entirety to a Person in a transaction permitted under "-- Merger, Consolidation and Sale of Assets," the successor corporation shall be deemed to have sold the properties and assets of the Company and the Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value (as determined in good faith by the Board of Directors of the Company) of such properties and assets of the Company or the Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 30 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Exchange Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Exchange Notes in an amount exceeding the Net Proceeds Offer Amount, Exchange Notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the Indenture by virtue thereof. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary; or (c) transfer any of its property or assets to the Company or any other Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reasons of: (1) applicable law; (2) the Indenture; (3) customary non-assignment provisions of any contract or any lease governing a leasehold interest of any Restricted Subsidiary; (4) any instrument governing Acquired Indebtedness, which encum- 44 49 brance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired; (5) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; (6) any other agreement entered into after the Issue Date which contains encumbrances and restrictions which are not materially more restrictive with respect to any Restricted Subsidiary than those in effect with respect to such Restricted Subsidiary pursuant to agreements as in effect on the Issue Date; (7) any instrument governing Indebtedness of a Foreign Restricted Subsidiary; provided that after giving effect to the imposition of such encumbrance or restriction, the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the covenant described under "-- Limitation on Incurrence of Additional Indebtedness"; (8) customary restrictions on the transfer of any property or assets arising under a security agreement governing a Lien permitted under the Indenture; (9) any agreement governing Refinancing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2), (4), (5) or (7) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such Refinancing Indebtedness are not materially more restrictive than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2), (4), (5) or (7); and (10) any agreement governing the sale or disposition of any Restricted Subsidiary which restricts dividends and distributions pending such sale or disposition. Limitation on Preferred Stock of Restricted Subsidiaries. The Company will not permit any of the Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a Restricted Subsidiary) or permit any Person (other than the Company or a Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary. Limitation on Liens. The Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens of any kind against or upon any property or assets of the Company or any of the Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Notes, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (ii) in all other cases, the Notes are equally and ratably secured, except for (A) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date; (B) Liens securing Senior Debt and Liens securing Guarantor Senior Debt; (C) Liens securing the Notes and any Guarantees; (D) Liens in favor of the Company or a Guarantor; (E) Liens securing Refinancing Indebtedness which is incurred to Refinance any Indebtedness which Refinancing Indebtedness has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any of the Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted Liens. Prohibition on Incurrence of Senior Subordinated Debt. The Company will not, and will not permit any Guarantor to, incur or suffer to exist Indebtedness that is senior in right of payment to the Notes or the Guarantee of such Guarantor and subordinate in right of payment to any other Indebtedness of the Company or such Guarantor, as the case may be. Merger, Consolidation and Sale of Assets. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (i) either (1) the Company shall be the surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and the Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture (in form and 45 50 substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes, the Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Incurrence of Additional Indebtedness"; (iii) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. The Indenture will provide that upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture and the Notes with the same effect as if such surviving entity had been named as such. No Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and Indenture in connection with any transaction complying with the provisions of the covenant described under "-- Limitation on Asset Sales") will, and the Company will not cause or permit any Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Guarantor unless: (i) the entity formed by or surviving any such consolidation or merger (if other than the Guarantor) is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) such entity assumes by supplemental indenture all of the obligations of the Guarantor under the Indenture, such Guarantor's Guarantee and the Registration Rights Agreement; (iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iv) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a pro forma basis, the Company could satisfy the provisions of clause (ii) of the first paragraph of this covenant; and (v) the Company shall have delivered to the Trustee an officers' certificate and opinion of counsel, each stating that such consolidation or merger and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied. Limitations on Transactions with Affiliates. (a) The Company will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate Transactions on terms that are not materially less favorable than those that would have reasonably been expected in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate 46 51 Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $1.0 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary enters into an Affiliate Transaction (or series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $10.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Trustee. (b) The restrictions set forth in clause (a) shall not apply to (i) employment, consulting and compensation arrangements and agreements of the Company or any Restricted Subsidiary consistent with past practice or approved by a majority of the disinterested members of the Board of Directors (or a committee comprised of disinterested directors); (ii) reasonable fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees, consultants or agents of the Company or any Restricted Subsidiary as determined in good faith by the Company's Board of Directors or senior management; (iii) consulting fees paid by the Company consistent with past practice; (iv) transactions exclusively between or among the Company and any of the Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries, provided such transactions are not otherwise prohibited by the Indenture; and (v) Restricted Payments or Permitted Investments permitted by the Indenture. Issuance of Subsidiary Guarantees. If (a) any Domestic Wholly Owned Restricted Subsidiary incurs any Indebtedness (other than Indebtedness owing to the Company or a Restricted Subsidiary) or (b) any Restricted Subsidiary (including any Foreign Restricted Subsidiary) guarantees any Indebtedness (other than Indebtedness owing to the Company or a Restricted Subsidiary) of the Company or any of its Restricted Subsidiaries (other than a Subsidiary of such Restricted Subsidiary) then, in either case, the Company shall cause such Domestic Wholly Owned Restricted Subsidiary or such Restricted Subsidiary, as the case may be, to (i) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Domestic Wholly Owned Restricted Subsidiary or such Restricted Subsidiary, as the case may be, shall unconditionally guarantee (each, a "Guarantee") all of the Company's obligations under the Notes and the Indenture on the terms set forth in the Indenture and (ii) deliver to the Trustee an opinion of counsel (which may contain customary exceptions) that such supplemental indenture has been duly authorized, executed and delivered by such Domestic Wholly Owned Restricted Subsidiary or such Restricted Subsidiary, as the case may be, and constitutes a legal, valid, binding and enforceable obligation of such Domestic Wholly Owned Restricted Subsidiary or such Restricted Subsidiary, as the case may be. Thereafter, such Domestic Wholly Owned Restricted Subsidiary or such Restricted Subsidiary, as the case may be, shall be a Guarantor for all purposes of the Indenture. The Company may cause any other Restricted Subsidiary of the Company to issue a Guarantee and become a Guarantor. Conduct of Business. The Company will not, and will not permit any Restricted Subsidiary to, engage in any businesses which are not either: (i) the same, similar or related to the businesses in which the Company or any of the Restricted Subsidiaries are engaged on the Issue Date; (ii) Permitted Investments; or (iii) businesses acquired through an acquisition after the Issue Date which are not material to the Company and the Restricted Subsidiaries, taken as a whole. Payments for Consent. The Company will not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture, the Notes or the Guarantees unless such consideration is offered to be paid to all Holders of the Notes who so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. 47 52 Limitation on Designations of Unrestricted Subsidiaries. The Company may designate any Subsidiary of the Company (other than a Subsidiary of the Company which owns Capital Stock of a Restricted Subsidiary) as an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if: (a) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; and (b) the Company would be permitted under the Indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to the sum of (i) the fair market value of the Capital Stock of such Subsidiary owned by the Company and/or any of the Restricted Subsidiaries on such date and (ii) the aggregate amount of Indebtedness of such Subsidiary owed to the Company and the Restricted Subsidiaries on such date; and (c) the Company would be permitted to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Incurrence of Additional Indebtedness" at the time of Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment in the Designation Amount pursuant to the covenant described under "-- Limitation on Restricted Payments" for all purposes of the Indenture. The Indenture will further provide that the Company shall not, and shall not permit any Restricted Subsidiary to, at any time (x) provide direct or indirect credit support for or a guarantee of any Indebtedness of any Unrestricted Subsidiary (including any undertaking agreement or instrument evidencing such Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly liable for any Indebtedness which provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the extent permitted under the covenant described under "-- Limitation on Restricted Payments." The Indenture further provides that the Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary ("Revocation"), whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if (a) no Default shall have occurred and be continuing at the time and after giving effect to such Revocation; and (b) all Liens and Indebtedness of such Unrestricted Subsidiaries outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of the Indenture. All Designations and Revocations must be evidenced by an officers' certificate of the Company delivered to the Trustee certifying compliance with the foregoing provisions. Reports to Holders. The Indenture provides that the Company will deliver to the Trustee within 15 days after the filing of the same with the Commission, copies of the quarterly and annual reports and of the information, documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further provides that, notwithstanding that the Company may not be subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act, the Company will file with the Commission, to the extent permitted, and provide the Trustee and Holders with such annual and quarterly reports and such information, documents and other reports specified in Section 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of TIA sec. 314(a). 48 53 EVENTS OF DEFAULT The following events are defined in the Indenture as "Events of Default:" (i) the failure to pay interest on any Notes when the same becomes due and payable and the default continues for a period of 30 days (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); (ii) the failure to pay the principal on any Notes, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or not such payment shall be prohibited by the subordination provision of the Indenture); (iii) a default in the observance or performance of any other covenant or agreement contained in the Indenture which default continues for a period of 60 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes (except in the case of a default with respect to the covenant described under "-- Certain Covenants -- Merger, Consolidation and Sale of Asset," which will constitute an Event of Default with such notice requirement but without such passage of time requirement); (iv) a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or of any Restricted Subsidiary (or the payment of which is guaranteed by the Company or any Restricted Subsidiary), whether such Indebtedness now exists or is created after the Issue Date, which default (a) is caused by a failure to pay principal of such Indebtedness after any applicable grace period provided in such Indebtedness on the date of such default (a "payment default") or (b) results in the acceleration of such Indebtedness prior to its express maturity (and such acceleration is not rescinded, or such Indebtedness is not repaid, within 30 days) and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated (and such acceleration is not rescinded, or such Indebtedness is not repaid, within 30 days), aggregates $7.5 million; (v) one or more judgments in an aggregate amount in excess of $7.5 million not covered by adequate insurance shall have been rendered against the Company or any of the Restricted Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and nonappealable; (vi) certain events of bankruptcy affecting the Company or any of the Significant Subsidiaries; or (vii) any Guarantee ceases to be in full force and effect or any Guarantee is declared to be null and void and unenforceable or any Guarantee is found to be invalid or any of the Guarantors denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of the Indenture). If an Event of Default (other than an Event of Default specified in clause (vi) above) shall occur and be continuing, the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may declare the principal of, premium, if any, and accrued interest on all the Notes to be due and payable by notice in writing to the Company and (if given by the Holders) the Trustee specifying the respective Events of Default and that it is a "notice of acceleration," and the same shall become immediately due and payable. If an Event of Default specified in clause (vi) above occurs and is continuing, then all unpaid principal of, premium, if any, and accrued and unpaid interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Indenture provides that, at any time after a declaration of acceleration with respect to the Notes as described in the preceding paragraph, the Holders of a majority in principal amount of the then outstanding Notes may rescind and cancel such declaration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except 49 54 nonpayment of principal or interest that has become due solely because of the acceleration, (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iv) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (v) in the event of the cure or waiver of an Event of Default of the type described in clause (vi) of the description above of Events of Default, the Trustee shall have received an officers' certificate and an opinion of counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The Holders of a majority in principal amount of the then outstanding Notes may waive any existing Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the principal of or interest on any Notes. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture and under the TIA. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity. Subject to all provisions of the Indenture and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. Under the Indenture, the Company is required to provide an officers' certificate to the Trustee promptly upon the Company obtaining knowledge of any Default or Event of Default (provided that the Company shall provide such certification at least annually whether or not it knows of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have its obligations and the obligations of any Guarantors discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for (i) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, replacing mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payments, (iii) the rights, powers, trust, duties and immunities of the Trustee and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission or failure to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "-- Events of Default" will no longer constitute an Event of Default with respect to the Notes. In order to exercise Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Notes on the stated date of payment thereof or on the applicable redemption date, as the case may be; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the 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 Holders will not recognize income gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal 50 55 income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (vii) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; (viii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that (A) the trust funds will not be subject to any rights of holders of Senior Debt, including, without limitation, those arising under the Indenture and (B) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (ix) certain other customary conditions precedent are satisfied. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under the Indenture by the Company; and (iii) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. MODIFICATION OF THE INDENTURE From time to time, the Company and the Trustee, without the consent of the Holders, may amend the Indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies and other changes so long as such change does not, in the opinion of the Trustee, adversely affect the rights of any of the Holders in any material respect. In formulating its opinion on such matters, the Trustee will be entitled to rely on such evidence as it deems appropriate, including, without limitation, solely on an opinion of counsel. Other modifications and amendments of the Indenture may be made with the consent of the Holders of a majority in principal amount of the then outstanding Notes issued under the Indenture, except that, without the consent of each Holder affected thereby, no amendment may: (i) reduce the amount of Notes whose holders must consent to an amendment; (ii) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Notes; (iii) reduce the principal of or change or have the effect of changing the fixed maturity of any Notes, or change the date on which any Notes may be subject 51 56 to redemption or repurchase, or reduce the redemption or repurchase price therefor; (iv) make any Notes payable in money other than that stated in the Notes; (v) make any change in provisions of the Indenture protecting the right of each Holder to receive payment of principal of and interest on such Notes on or after the stated due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of the then outstanding Notes to waive Defaults or Events of Default; (vi) amend, change or modify in any material respect the obligation of the Company to make and consummate a Change of Control Offer after the occurrence of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto; (vii) modify or change any provision of the Indenture or the related definitions affecting the subordination or ranking of the Notes or any Guarantee in a manner which adversely affects the Holders; (viii) modify the provisions of "-- Certain Covenants -- Payments for Consent" in any manner adverse to a Holder of Notes; or (ix) release any Guarantor from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with the terms of the Indenture. GOVERNING LAW The Indenture provides that it, the Notes and any Guarantees will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. The Indenture and the provisions of the TIA contain certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions; provided that if the Trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or at the time it merges or consolidates with the Company or any of the Restricted Subsidiaries or assumed by the Company or any Restricted Subsidiary in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such acquisition, merger or consolidation. "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "Affiliate Transaction" has the meaning set forth under "-- Certain Covenants -- Limitation on Transactions with Affiliates." "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Restricted Subsidiary, or shall be merged with or into 52 57 the Company or any Restricted Subsidiary, or (b) the acquisition by the Company or any Restricted Subsidiary of the assets of any Person (other than a Restricted Subsidiary) which constitute all or substantially all of the assets of such Person or comprises any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means any direct or indirect sale, issuance, conveyance, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer (other than the granting of a Lien in accordance with the Indenture) for value by the Company or any of the Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Restricted Subsidiary of (a) any Capital Stock of any Restricted Subsidiary; or (b) any other property or assets of the Company or any Restricted Subsidiary other than in the ordinary course of business; provided, however, that Asset Sales shall not include (i) a transaction or series of related transactions for which the Company or the Restricted Subsidiaries receive aggregate consideration of less than $1.0 million, (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted by the covenant described under "-- Certain Covenants -- Merger, Consolidation and Sale of Assets," or (iii) any Restricted Payment made in accordance with the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments." "Blockage Period" has the meaning set forth under "-- Subordination." "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with 53 58 the provisions of the Indenture); (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of the Indenture); or (iii) any Person or Group (other than the Permitted Holder(s)) shall become the beneficial owner, directly or indirectly, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company. "Change of Control Offer" has the meaning set forth under "-- Change of Control." "Change of Control Payment Date" has the meaning set forth under "-- Change of Control." "Commission" means the Securities and Exchange Commission, as from time to time constituted, or if at any time after the execution of the Indenture such Commission is not existing and performing the applicable duties now assigned to it, then the body or bodies performing such duties at such time. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated EBITDA" means, with respect to the Company, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (A) all income taxes of the Company and the Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary or nonrecurring gains or taxes attributable to Asset Sales outside the ordinary course of business), (B) Consolidated Interest Expense and (C) Consolidated Non-cash Charges, less any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for the Company and the Restricted Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to the Company, the ratio of Consolidated EBITDA of the Company during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of the Company for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of the Company or any of the Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter period and (ii) any Asset Sales or other dispositions or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the Company or one of the Restricted Subsidiaries (including any person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (provided that such Consolidated EBITDA shall be included only to the extent includable pursuant to the definition of "Consolidated Net Income" attributable to the assets which are the subject of the Asset Acquisition or Asset Sale or other disposition during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date as if such Asset Sale or Asset Acquisition or other disposition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If the Company or any of the Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if the Company or any Restricted Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the 54 59 numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period; and (3) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to the Company for any period, the sum, without duplication, of (i) Consolidated Interest Expense, plus (ii) the product of (x) the amount of all dividend payments on any series of Preferred Stock of the Company (other than dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local income tax rate of the Company, expressed as a decimal. "Consolidated Interest Expense" means, with respect to the Company for any period, the sum of, without duplication: (i) the aggregate of the interest expense of the Company and the Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without limitation, (a) any amortization of debt discount, (b) the net costs under Interest Swap Obligations, (c) all capitalized interest and (d) the interest portion of any deferred payment obligation; and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and the Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to the Company, for any period, the aggregate net income (or loss) of the Company and the Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom (a) after-tax gains and losses from Asset Sales or abandonments or reserves relating thereto, (b) extraordinary or nonrecurring gains or losses, (c) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary or is merged or consolidated with the Company or any Restricted Subsidiary, (d) the net income (but not loss) of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise, (e) the net income of any Person, other than a Restricted Subsidiary, except to the extent of cash dividends or distributions paid to the Company or to a Restricted Subsidiary by such Person, (f) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date or any such restorations which do not exceed $500,000 in the aggregate in any four fiscal quarter period, (g) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued) and (h) in the case of a successor to the Company by consolidation or merger or as a transferee of the Company's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. "Consolidated Non-cash Charges" means, with respect to the Company, for any period, the aggregate depreciation, amortization and other non-cash expenses of the Company and the Restricted Subsidiaries reducing Consolidated Net Income of the Company for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charge which requires an accrual of or a reserve for cash charges for any future period). "Covenant Defeasance" has the meaning set forth under "-- Legal Defeasance and Covenant Defeasance." "Credit Agreement" means the Credit Agreement dated as of the Issue Date, among the Company, the Guarantors, the lenders party thereto in their capacities as lenders thereunder and First Union National Bank, as agent, together with the related documents thereto (including, without limitation, any guarantee agree- 55 60 ments and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder (provided that such increase in borrowings is permitted by the covenant described under "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness" (including the definition of Permitted Indebtedness)) or adding Restricted Subsidiaries as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in currency values. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Default Notice" has the meaning set forth under "-- Subordination." "Designated Senior Debt" means (i) Indebtedness under or in respect of the Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which, at the time of determination, has an aggregate principal amount of at least $10,000,000 and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the Company. "Designation" has the meaning set forth under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries." "Designation Amount" has the meaning set forth under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries." "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is mandatorily exchangeable for Indebtedness, or is redeemable, or is exchangeable for Indebtedness, at the sole option of the holder thereof on or prior to the final maturity date of the Notes. "Domestic Wholly Owned Restricted Subsidiary" means a Wholly Owned Restricted Subsidiary incorporated or otherwise organized or existing under the laws of the United States, any state thereof or any territory or possession of the United States. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto, and the rules and regulations of the Commission promulgated thereunder. "Fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. "Foreign Restricted Subsidiary" means any Restricted Subsidiary that is organized and existing under the laws of a jurisdiction other than the United States, any State thereof, the District of Columbia or any territory or possession of the United States. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. 56 61 "Guarantee" has the meaning set forth under "-- Certain Covenants -- Issuance of Subsidiary Guarantees." "Guarantor" means (i) each Domestic Wholly Owned Restricted Subsidiary of the Company as of the Issue Date and (ii) each other Person that in the future executes a Guarantee pursuant to the covenant described under "-- Certain Covenants -- Issuance of Subsidiary Guarantees" or otherwise; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its Guarantee is released in accordance with the terms of the Indenture. "Guarantor Senior Debt" means, with respect to any Guarantor, (i) the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of such Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Guarantee of such Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations of every nature of the Company or any Guarantor with respect to the Credit Agreement, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, (y) all Interest Swap Obligations and (z) all obligations under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include (i) any Indebtedness of such Guarantor owing to a Subsidiary of such Guarantor or any Affiliate of such Guarantor or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of such Guarantor or any Subsidiary of such Guarantor (including, without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by such Guarantor, (vi) Indebtedness incurred in violation of the covenant described under "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness," (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to such Guarantor and (viii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of such Guarantor. "incur" has the meaning set forth under "-- Certain Covenants -- Limitation on Incurrence on Additional Indebtedness." "Indebtedness" means, with respect to any Person, without duplication, (i) all Obligations of such Person for borrowed money, (ii) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted), (v) all Obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) guarantees and other contingent obligations in respect of Indebtedness of any other Person referred to in clauses (i) through (v) above and clause (viii) below, (vii) all Obligations of any other Person of the type referred to in clauses (i) through (vi) which are secured by any Lien on any property or asset of such Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the Obligation so secured, (viii) all Obligations under currency agreements and interest swap agreements of such Person and (ix) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if 57 62 any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. "Independent Financial Advisor" means a firm (i) which does not, and whose directors, officers and employees and Affiliates do not, have a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "Initial Purchasers" means Salomon Brothers Inc, First Union Capital Markets and Schroder & Co. Inc. "Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Investment" means, with respect to any Person, (i) any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or (ii) any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any Person. "Investment" shall exclude extensions of trade credit by the Company and the Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. If the Company or any Restricted Subsidiary sells or otherwise disposes of any Capital Stock of any Restricted Subsidiary (the "Referent Subsidiary") such that, after giving effect to any such sale or disposition the Referent Subsidiary shall cease to be a Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Capital Stock of the Referent Subsidiary not sold or disposed of. "Issue Date" means the date of original issuance of the Notes. "Legal Defeasance" has the meaning set forth under "-- Legal Defeasance and Covenant Defeasance." "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest), received by the Company or any of the Restricted Subsidiaries from such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, sales commissions and relocation expenses), (b) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements, (c) repayments of Indebtedness secured by the property or assets subject to such Asset Sale that is required to be repaid in connection with such Asset Sale and (d) appropriate amounts determined by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. 58 63 "Net Proceeds Offer" has the meaning set forth under "-- Certain Covenants -- Limitation on Asset Sales." "Net Proceeds Offer Amount" has the meaning set forth under "-- Certain Covenants -- Limitation on Asset Sales." "Net Proceeds Offer Payment Date" had the meaning set forth under "-- Certain Covenants -- Limitation on Asset Sales." "Net Proceeds Offer Trigger Date" has the meaning set forth under "-- Certain Covenants -- Limitation on Asset Sales." "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Holders" means (i) Fleet Venture Resources, Inc., Fleet Equity Partners VI-B, L.P., Chisholm Partners III, L.P., Kennedy Plaza Partners, Habib Y. Gorgi, Bernard V. Buonanno III, Ross B. George and Joseph L. Sylvia and (ii) any Person "controlled" (as defined in the definition of "Affiliate") by one or more of the Persons identified in clause (i) of this definition. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes, the Indenture and any Guarantees not to exceed $100,000,000 in aggregate principal amount; (ii) Indebtedness incurred pursuant to the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed the greater of (x) $30.0 million and (y) the sum of (A) 85% of the net book value of the accounts receivable of the Company and the Restricted Subsidiaries and (B) 50% of the net book value of the inventory of the Company and the Restricted Subsidiaries less (C) the amount of Indebtedness outstanding pursuant to clause (xiii) of this definition reduced in the case of (x) by any required permanent repayments with the proceeds of Asset Sales (which are accompanied by a corresponding permanent commitment reduction) thereunder; (iii) other Indebtedness of the Company and the Restricted Subsidiaries outstanding on the Issue Date reduced by the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereon; (iv) Interest Swap Obligations of the Company covering Indebtedness of the Company or any Guarantor and Interest Swap Obligations of any Restricted Subsidiary covering Indebtedness of such Restricted Subsidiary; provided, however, that such Interest Swap Obligations are entered into to protect the Company and the Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with the Indenture to the extent the notional principal amount of such Interest Swap Obligations does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligations relates; (v) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and the Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (vi) Indebtedness of a Restricted Subsidiary to the Company or another Restricted Subsidiary for so long as such Indebtedness is held by the Company or a Restricted Subsidiary, in each case subject to no Lien held by a Person other than the Company or a Restricted Subsidiary; provided that if as of any date any Person other than the Company or a Restricted Subsidiary owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (vii) Indebtedness of the Company to a Restricted Subsidiary for so long as such Indebtedness is held by a Restricted Subsidiary, in each case subject to no Lien; provided that (a) any Indebtedness of 59 64 the Company to any Restricted Subsidiary is unsecured and (b) if as of any date any Person other than a Restricted Subsidiary owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company; (viii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five business days of incurrence; (ix) Indebtedness of the Company or any of the Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; (x) Refinancing Indebtedness; (xi) additional Indebtedness of the Company and the Guarantors in an aggregate principal amount not to exceed $10.0 million at any one time outstanding; (xii) Purchase Money Indebtedness and Capitalized Lease Obligations (and any Indebtedness incurred to Refinance such Purchase Money Indebtedness or Capitalized Lease Obligations) not to exceed $10.0 million at any one time outstanding; and (xiii) Indebtedness of Foreign Restricted Subsidiaries that are not Guarantors in an aggregate principal amount at any one time outstanding not to exceed the greater of (a) $25.0 million or (b) the sum of (x) 85% of the net book value of accounts receivable of the Foreign Restricted Subsidiaries that are not Guarantors and (y) 50% of the net book value of the inventory of the Foreign Restricted Subsidiaries that are not Guarantors. "Permitted Investments" means (i) Investments by the Company or any Restricted Subsidiary in any Person that is or will become immediately after such Investment a Restricted Subsidiary or that will merge or consolidate into the Company or a Restricted Subsidiary; (ii) investments in the Company by any Restricted Subsidiary; provided that any Indebtedness evidencing such Investment is unsecured; (iii) investments in cash and Cash Equivalents; (iv) loans and advances to employees, officers and directors of the Company and the Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $1.0 million at any time outstanding; (v) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or a Restricted Subsidiary's businesses and otherwise in compliance with the Indenture; (vi) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (vii) Investments made by the Company or the Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with the covenant described under "-- Certain Covenants -- Limitation on Asset Sales"; (viii) Investments in Persons, including, without limitation, Unrestricted Subsidiaries and joint ventures, engaged in a business similar or related to the businesses in which the Company and the Restricted Subsidiaries are engaged on the Issue Date not to exceed $10.0 million at any one time outstanding; and (ix) Investments in the Notes. "Permitted Liens" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or any Restricted Subsidiary shall have set aside on its books such reserves as may be required pursuant to GAAP; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; 60 65 (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (v) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not impairing in any material respect the ordinary conduct of the business of the Company or any of the Restricted Subsidiaries; (vi) any interest or title of a lessor under any Capitalized Lease Obligation; provided that such Liens do not extend to any property or assets which is not leased property subject to such Capitalized Lease Obligation; (vii) purchase money Liens securing Indebtedness incurred to finance property or assets of the Company or any Restricted Subsidiary acquired in the ordinary course of business, and Liens securing Indebtedness which Refinances any such Indebtedness; provided, however, that (A) the related purchase money Indebtedness (or Refinancing Indebtedness) shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary other than the property and assets so acquired and (B) the Lien securing the purchase money Indebtedness shall be created within 90 days of such acquisition; (viii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (ix) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (x) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of the Restricted Subsidiaries, including rights of offset and set-off; (xi) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under the Indenture; (xii) Liens securing Indebtedness under Currency Agreements; (xiii) Liens securing Acquired Indebtedness (and any Indebtedness which Refinances such Acquired Indebtedness) incurred in accordance with the covenant described under "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness"; provided that (A) such Liens secured the Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary and were not granted in connection with, or in anticipation of the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary and (B) such Liens do not extend to or cover any property or assets of the Company or of any of the Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted Subsidiary; and (xiv) Liens securing Indebtedness of Foreign Restricted Subsidiaries that are not Guarantors incurred in accordance with the Indenture; provided that such Liens do not extend to any property or assets other than property or assets of Foreign Restricted Subsidiaries that are not Guarantors. 61 66 "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "Public Equity Offering" has the meaning set forth under "-- Redemption -- Optional Redemption upon Public Equity Offerings." "Purchase Money Indebtedness" means Indebtedness of the Company or any Restricted Subsidiary incurred for the purpose of financing all or any part of the purchase price or the cost of construction or improvement of any property, provided that the aggregate principal amount of such Indebtedness does not exceed the lesser of the fair market value of such property or such purchase price or cost. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Reference Date" has the meaning set forth under "-- Certain Covenants -- Limitation on Restricted Payments." "Refinance" means in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by the Company or any Restricted Subsidiary of Indebtedness incurred in accordance with the covenant described under "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness" (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (xi), (xii) and (xiii) of the definition of Permitted Indebtedness), in each case that does not (1) result in an increase in the aggregate principal amount of any Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium reasonably necessary to Refinance such Indebtedness and plus the amount of reasonable expenses incurred by the Company in connection with such Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; provided that if such Indebtedness being Refinanced is Indebtedness of the Company or a Guarantor, then such Refinancing Indebtedness shall be Indebtedness solely of the Company and/or Guarantors. "Registration Rights Agreement" means the Registration Rights Agreement dated the Issue Date among the Company, the Guarantors and the Initial Purchasers. "Replacement Assets" means assets and property that will be used in the business of the Company and/or its Restricted Subsidiaries as existing on the Issue Date or in a business the same, similar or reasonably related thereto (including Capital Stock of a Person which becomes a Restricted Subsidiary if such Person is engaged in businesses which comply with the covenant described under "-- Certain Covenants -- Conduct of Business"). "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt; provided that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt in respect of any Designated Senior Debt. "Restricted Payment" has the meaning set forth under "-- Certain Covenants -- Limitation on Restricted Payments." "Restricted Subsidiary" means any Subsidiary of the Company that has not been designated by the Board of Directors of the Company, by a Board Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with the covenant described under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries." Any such Designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such covenant. 62 67 "Revocation" has the meaning set forth under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries." "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. "Securities Act" means the Securities Act of 1933, as amended, or any successor statute or statutes thereto, and the rules and regulations of the Commission promulgated thereunder. "Senior Debt" means the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations of every nature of the Company under the Credit Agreement, including, without limitation, obligations to pay principal and interest reimbursement obligations under letters of credit, fees, expenses and indemnities, (y) all Interest Swap Obligations and (z) all obligations under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not include (i) any Indebtedness of the Company to a Restricted Subsidiary or any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Restricted Subsidiary (including without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed by the Company, (vi) Indebtedness incurred in violation of the covenant described under "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness," (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company and (viii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company. "Significant Subsidiary" means, with respect to any Person, any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities Act. "Subsidiary," with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "Surviving Entity" has the meaning set forth under "-- Certain Covenants -- Merger, Consolidation and Sale of Assets." "Unrestricted Subsidiary" means any Subsidiary of the Company designated as such pursuant to and in compliance with the covenant described under "-- Certain Covenants -- Limitation on Designations of Unrestricted Subsidiaries." Any such designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such covenant. 63 68 "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date the making of such payment. "Wholly Owned Restricted Subsidiary" of the Company means any Restricted Subsidiary of which all the outstanding voting securities (other than in the case of a Foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by the Company or any Wholly Owned Restricted Subsidiary. THE EXCHANGE OFFER Pursuant to the Registration Rights Agreement, the Company agreed to file with the SEC the Exchange Offer Registration Statement on the appropriate form under the Securities Act with respect to an offer to exchange the Original Notes for the Exchange Notes. Upon the effectiveness of the Exchange Offer Registration Statement, the Company will offer to the holders of Original Notes who are able to make certain representations the opportunity to exchange their Original Notes for Exchange Notes. If (i) the Company is not permitted to file the Exchange Offer Registration Statement or to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or SEC policy or (ii) any holder of Original Notes notifies the Company within the specified time period that (A) due to a change in law or policy it is not entitled to participate in the Exchange Offer, (B) due to a change in law or policy it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such holder or (C) it is a broker-dealer and owns Original Notes acquired directly from the Company or an affiliate of the Company, the Company will file with the SEC the Shelf Registration Statement to cover resales of the Transfer Restricted Notes (as defined) by the holders thereof. The Company will use reasonable efforts to cause the applicable registration statement to be declared effective as promptly as possible by the SEC. For purposes of the foregoing, "Transfer Restricted Notes" means each Original Note until (i) the date on which such Original Note has been exchanged by a person other than a broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of an Original Note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which said Original Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Original Note is distributed to the public pursuant to Rule 144 under the Securities Act. Under existing SEC interpretations, the Transfer Restricted Notes would, in general, be freely transferable after the Exchange Offer without further registration under the Securities Act; provided that in the case of broker-dealers participating in the Exchange Offer, a prospectus meeting the requirements of the Securities Act will be delivered upon resale by such broker-dealer in connection with resales of the Exchange Notes. The Company has agreed, for a period of 180 days after consummation of the Exchange Offer, to make available a prospectus meeting the requirements of the Securities Act to any such broker-dealer for use in connection with any resale of any Exchange Notes acquired in the Exchange Offer. A broker-dealer which delivers such a prospectus to purchasers in connection with such resales will be subject to certain of the civil liability provisions under the Securities Act and will be bound by the provisions of the Registration Rights Agreement (including certain indemnification rights and obligations). Each holder of the Original Notes who wishes to exchange such Notes for Exchange Notes in the Exchange Offer will be required to make certain representations, including representations that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in the distribution of the Exchange Notes and (iii) it is not an 64 69 "affiliate," as defined in Rule 405 of the Securities Act, of the Company or, if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Notes. If the holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Registration Rights Agreement provides that: (i) unless the Exchange Offer would not be permitted by applicable law or SEC policy, the Company will file an Exchange Offer Registration Statement with the SEC on or prior to 60 days after the date of original issuance of the Original Notes (the "Closing Date"), (ii) unless the Exchange Offer would not be permitted by applicable law or SEC policy, the Company will use its best efforts to have the Exchange Offer Registration Statement declared effective by the SEC on or prior to 120 days after the Closing Date, (iii) unless the Exchange Offer would not be permitted by applicable law or SEC policy, the Company will commence the Exchange Offer and use reasonable efforts to issue, on or prior to 20 business days after the date on which the Exchange Offer Registration Statement was declared effective by the SEC, Exchange Notes in exchange for all Original Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file the Shelf Registration Statement the Company will file the Shelf Registration Statement prior to the later of (x) 60 days after the Closing Date or (y) 30 days after such filing obligation arises, and use its best efforts to cause the Shelf Registration Statement to be declared effective by the SEC on or prior to the later of (x) 120 days after the Closing Date and (y) 90 days after such obligation arises; provided that if the Company has not consummated the Exchange Offer within 150 days of the Closing Date, then the Company will, upon the request of any holder of Original Notes, file the Shelf Registration Statement with the SEC on or prior to the 151st day after the Closing Date. The Company shall use its best efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended until the second anniversary of the Closing Date or such shorter period that will terminate when all the Transfer Restricted Notes covered by the Shelf Registration Statement have been sold pursuant thereto. If (a) the Company fails to file any of the registration statements required by the Registration Rights Agreement on or before the date specified for such filing, (b) any of such registration statements are not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date with respect to the Exchange Offer Registration Statement") or (c) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter, subject to certain exceptions, ceases to be effective or usable in connection with the Exchange Offer or resales of Transfer Restricted Notes, as the case may be, during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (a) through (c) above, a "Registration Default"), then the interest rate on Transfer Restricted Notes will increase ("Additional Interest"), with respect to the first 90-day period immediately following the occurrence of such Registration Default by 0.50% per annum and will increase by an additional 0.50% per annum with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of 1.50% 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. The summary herein of certain provisions of the Registration Rights Agreement is a description of the material provisions of the Registration Rights Agreement, a copy of which is filed as an exhibit to the Exchange Offer Registration Statement. Except as set forth herein, after consummation of the Exchange Offer, holders of Original Notes have no registration or exchange rights under the Registration Agreement. See "--Consequences of Failure to Exchange," and "-- Resales of the Exchange Notes; Plan of Distribution." CONSEQUENCES OF FAILURE TO EXCHANGE The Original Notes which are not exchanged for Exchange Notes pursuant to an Exchange Offer and are not included in a resale prospectus will remain Transfer Restricted Notes. Accordingly, such Original Notes may not be offered, sold or otherwise transferred prior to the date which is two years after the later of the date 65 70 of original issue and the last date that the Company or any affiliate of the Company was the owner of such securities (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) for so long as the Original Notes are eligible for resale pursuant to Rule 144A, to a person the owner reasonably believes is a qualified institutional buyer 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 to Rule 144A, (d) to an "accredited investor" within the meaning of subparagraph (1), (2), (3) or (7) of paragraph (a) of Rule 501 under the Securities Act that is purchasing for his own account or for the account of such an "accredited investor" in each case in a minimum of Original Notes with a purchase price of $500,000, or (c) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Original Notes is proposed to be made pursuant to clause (d) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee to the Company and the Trustee, which shall provide, among other things, that the transferee is an "accredited investor" within the meaning of subparagraph (1), (2), (3) or (7) of paragraph (a) of Rule 501 under the Securities Act and that it is acquiring such securities for investment purposes and not for distribution in violation of the Securities Act. Prior to any offer, sale or other transfer of Original Notes prior to the Resale Restriction Termination Date pursuant to clauses (d) or (e) above, the issuer and the Trustee may require the delivery of an opinion of counsel, certifications and/or other information satisfactory to each of them. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in the Prospectus and in the Letter of Transmittal, the form of which is included as Exhibit 99.1 to the Registration Statement of which this Prospectus is a part, the Company will accept any and all Original Notes validly tendered and not withdrawn prior to the applicable Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of Original Notes accepted in the Exchange Offer. Holders may tender some or all of their Original Notes pursuant to the Exchange Offer. However, Original Notes may be tendered only in integral multiples of $1,000 principal amount. The form and terms of the Exchange Notes are the same as the form and terms of the Original Notes, except that (i) the Exchange Notes have been registered under the Securities Act and therefore will not bear legends restricting their transfer pursuant to the Securities Act, and (ii) the holders of Exchange Notes will not be entitled to rights under the Registration Rights Agreement (except under certain limited circumstances). The Exchange Notes will evidence the same debt as the Original Notes (which they replace), and will be issued under, and be entitled to the benefits of, the Indenture. Solely for reasons of administration (and for no other purpose) the Company has fixed the close of business on ,1998 as the record date for the Exchange Offer for purposes of determining the persons to whom this Prospectus and the Letter of Transmittal will be mailed initially. Only a registered holder of Original Notes (or such holder's legal representative or attorney-in-fact) as reflected on the records of the Trustee under the Indenture may participate in the Exchange Offer. There will be no fixed record date for determining registered holders of the Original Notes entitled to participate in the Exchange Offer. Holders of the Original Notes do not have any appraisal or dissenters' rights under the General Corporation Law of Delaware or under the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC thereunder. The Company shall be deemed to have accepted validly tendered Original Notes when, as and if it has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of the Original Notes for purposes of receiving the Exchange Notes. 66 71 If any tendered Original Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, certificates for any such unaccepted Original Notes will be returned without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Original Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of the Original Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes, in connection with the Exchange Offer. See "--Fees and Expenses." EXPIRATION DATE; EXTENSION; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time on , 1998, unless the Company extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which such Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will make a public announcement thereof, prior to 9:00 a.m., New York City time, on the next Business Day after the previously scheduled Expiration Date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Original Notes, (ii) extend the Exchange Offer, (iii) if the condition set forth below under "--Conditions of the Exchange Offer" shall not have been satisfied, to terminate the Exchange Offer, by giving oral or written notice of such delay, extension or termination to the Exchange Agent, or (iv) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by a public announcement thereof. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, it will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders of the Original Notes and the Exchange Offer will be extended for a period of five to ten business days, as required by law, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. Without limiting the manner in which the Company may choose to make public announcement of any delay, extension, termination or amendment of its Exchange Offer, the Company shall not have an obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release thereof to the Dow Jones News Service. PROCEDURES FOR TENDERING Only a registered holder of Original Notes may tender such Original Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, have the signatures thereon guaranteed if required by such Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal to the Exchange Agent at the address set forth below under "--Exchange Agent" for receipt prior to the applicable Expiration Date. In addition, either (i) certificates for such Original Notes must be received by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Original Notes into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the applicable Expiration Date, or (iii) the Holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the Letter of Transmittal and all other required documents must be received by the Exchange Agent at the address set forth below under "--Exchange Agent" prior to the applicable Expiration Date. The tender by a Holder will constitute an agreement between such Holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal applicable to such Exchange Offer. 67 72 THE METHOD OF DELIVERY OF THE ORIGINAL NOTES AND THE APPLICABLE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE APPLICABLE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Original Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered Holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Original Notes, either make appropriate arrangements to register ownership of the Original Notes in such beneficial owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Original Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Delivery Instructions" on the Letter of Transmittal designated for such Original Discount Notes, or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a participant in a recognized signature guarantee program within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution"). If a Letter of Transmittal is signed by a person other than the registered holder of any Original Notes listed therein, such Original Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Original Notes, with signature guaranteed by an Eligible Institution. If a Letter of Transmittal or any Original Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to the Company, as applicable, of their authority to so act must be submitted with the Letter of Transmittal designated for such Original Notes. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Original Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Original Notes not properly tendered or any Original Notes the issuer's acceptance of which would, in the opinion of counsel for such issuer, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Original Notes. The interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) by the Company will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Original Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Original Notes issued by it, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Original Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Original Notes received by the Exchange Agent that are not validly tendered and as to which the defects or irregularities have not been cured or waived, or if Original Notes are submitted in a principal amount greater than the principal amount of Original Notes being tendered by such tendering holder, such unaccepted or non-exchanged Original Notes will be returned by the Exchange Agent to the tendering holders (or, in the case of Original Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such unaccepted or non- 68 73 exchanged Original Notes will be credited to an account maintained with such Book-Entry Transfer Facility), unless otherwise provided in the Letter of Transmittal designated for such Original Notes, as soon as practicable following the applicable Expiration Date. By tendering Original Notes in the Exchange Offer, each registered holder will represent to the issuer of such Original Notes that, among other things, (i) the Exchange Notes to be acquired by the holder and any beneficial owner(s) of such Original Notes ("Beneficial Owner(s)") in connection with the Exchange Offer are being acquired by the holder and any Beneficial Owner(s) in the ordinary course of business of the holder and any Beneficial Owner(s) for such holder's own account, for investment and not with a view to or for sale in connection with any distribution of the Exchange Notes, (ii) the holder and each Beneficial Owner are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in a distribution of the Exchange Notes, (iii) the holder and each Beneficial Owner acknowledge and agree that (x) any person participating in an Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction with respect to the Exchange Notes acquired by such person and cannot rely on the position of the staff of the SEC set forth in no-action letters that are discussed herein under "-- Resales of the Exchange Notes," and (y) any broker-dealer that receives Exchange Notes for its own account in exchange for Original Notes pursuant to an Exchange Offer, where such Original Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must deliver a prospectus in connection with any resale of such Exchange Notes (see "Plan of Distribution") but by so acknowledging, the holder shall not be deemed to admit that, by delivering a prospectus, it is an "underwriter" within the meaning of the Securities Act, (iv) neither the holder nor any Beneficial Owner is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company except as otherwise disclosed to the Company in writing, and (v) the holder and each Beneficial Owner understands that a secondary resale transaction described in clause (iii) above should be covered by an effective registration statement containing the selling securityholder information required by Item 507 of Regulation S-K of the SEC. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Original Notes at the Book-Entry Transfer Facility, for purposes of the Exchange Offer, within two business days after the date of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Original Notes by causing the Book-Entry Transfer Facility to transfer such Original Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Original Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the applicable Letter of Transmittal, with any required signature guarantees and any other documents, must be transmitted to and received by the Exchange Agent at the address set forth below under "--Exchange Agent" on or prior to the applicable Expiration Date or the guaranteed delivery procedures described below must be complied with. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Original Notes and (i) whose Original Notes are not immediately available, or (ii) who cannot deliver their Original Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the applicable Expiration Date, may effect a tender if: (1) The tender is made through an Eligible Institution; (2) Prior to the applicable Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by mail, hand delivery or facsimile transmission) setting forth the name and address of the Holder, the certificate number(s) of such Original Notes and the principal amount of the Original Notes being tendered, stating that the tender is being made thereby and guaranteeing that, within five business days after the applicable Expiration Date, the applicable Letter of Transmittal together with the certificate(s) representing the Original Notes (or a Book-Entry Confirmation) and any other documents required by the applicable Letter of Transmittal will be delivered by the Eligible Institution to the Exchange Agent; and 69 74 (3) Such properly completed and executed Letter of Transmittal, as well as the certificate(s) representing all tendered Original Notes in proper form for transfer (or a Book-Entry Confirmation) and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five business days after the applicable Expiration Date. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Original Notes pursuant to an Exchange Offer may be withdrawn, unless theretofore accepted for exchange as provided in the applicable Exchange Offer, at any time prior to the Expiration Date of that Exchange Offer. To be effective, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original Notes to be withdrawn (including the certificate number or numbers and aggregate principal amount of such Original Notes), and (iii) be signed by the holder in the same manner as the original signature on the applicable Letter of Transmittal (including any required signature guarantees). All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company in its sole respective discretion, which determination shall be final and binding on all parties. Any Original Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Original Notes so withdrawn are retendered. Properly withdrawn Original Notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the applicable Expiration Date. Any Original Notes which have been tendered but which are not accepted for exchange due to the rejection of the tender due to uncured defects or the prior termination of the applicable Exchange Offer, or which have been validly withdrawn, will be returned to the holder thereof (unless otherwise provided in the Letter of Transmittal), as soon as practicable following the applicable Expiration Date or, if so requested in the notice of withdrawal, promptly after receipt by the issuer of the Original Notes of notice of withdrawal without cost to such holder. CONDITIONS OF THE EXCHANGE OFFER The Exchange Offer is subject to the condition that the Exchange Offer, or the making of any exchange by a holder, does not violate applicable law or any applicable interpretation of the staff of the SEC. If there has been a change in SEC policy such that there is a substantial question whether the Exchange Offer is permitted by applicable federal law, the Company has agreed to seek a no-action letter or other favorable decision from the SEC allowing the Company to consummate the Exchange Offer. If the Company determines that the Exchange Offer is not permitted by applicable Federal law, it may terminate the Exchange Offer. In connection therewith the Company may (i) refuse to accept any Original Notes and return any Original Notes that have been tendered by the holders thereof, (ii) extend the Exchange Offer and retain all Original Notes tendered prior to the Expiration of the Exchange Offer, subject to the rights of such holders of tendered Original Notes to withdraw their tendered Original Notes, or (iii) waive such termination event with respect to the Exchange Offer and accept all properly tendered Original Notes that have not been withdrawn. If such waiver constitutes a material change in the Exchange Offer, the Company will disclose such change by means of a supplement to this Prospectus that will be distributed to each registered holder of Original Notes, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders of the Original Notes, if the Exchange Offer would otherwise expire during such period. 70 75 EXCHANGE AGENT State Street Bank and Trust Company has been appointed as "Exchange Agent" for the Exchange Offer. Questions and requests for assistance, requests for additional copies of the Prospectus or of the Letter of Transmittal and other documents should be directed to the Exchange Agent addressed as follows: By Registered or Certified Mail or Hand or Overnight Delivery: State Street Bank and Trust Company Two International Place Fourth Floor Boston, MA 02110 Attention: Kellie Mullen, Corporate Trust Department Facsimile Transmissions: 617-664-3290 Confirm by Telephone: 617-664-5587 (ELIGIBLE INSTITUTIONS ONLY) Delivery to other than the above addresses or facsimile numbers will not constitute a valid delivery. FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. No dealer-manager has been retained in connection with the Exchange Offer and no payments will be made to brokers, dealers or others soliciting acceptance of the Exchange Offer. However, reasonable and customary fees will be paid to the Exchange Agent for its service and it will be reimbursed for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be approximately $ . Such expenses include fees and expenses of the Exchange Agent and the Trustee under the Indenture, accounting and legal fees and printing costs, among others. The Company will pay all transfer taxes, if any, applicable to the exchange of the Original Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the exchange of the Original Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. ACCOUNTING TREATMENT The carrying values of the Original Notes are not expected to be materially different from the fair value of the Exchange Notes at the time of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized. The expenses of the Exchange Offer will be amortized over the term of the Exchange Notes. RESALES OF THE EXCHANGE NOTES; PLAN OF DISTRIBUTION Based on no-action letters issued by the staff of the SEC to third parties, the Company believes the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than (i) a broker-dealer who purchased such Original Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that the holder is acquiring the Exchange Notes in its ordinary course of business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Original Notes wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. In the event that the Company's belief is inaccurate, holders of Exchange Notes who transfer Exchange Notes in violation of the prospectus delivery 71 76 provisions of the Securities Act and without an exemption from registration thereunder may incur liability under the Securities Act. The Company does not assume or indemnify holders against such liability. All resales must be made in compliance with applicable state securities or "blue sky" laws. Such compliance may require that the Exchange Notes be registered or qualified in a particular state or that the resales be made by or through a licensed broker-dealer, unless exemptions from these requirements are available. The Company assumes no responsibility with regard to compliance with such requirements. Each affiliate of the Company must acknowledge that such person will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Each broker-dealer that receives Exchange Notes in exchange for Original Notes held for its own account, as a result of market- making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. Although a broker-dealer may be an "underwriter" within the meaning of the Securities Act, the Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Original Notes. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of certain federal income tax consequences associated with the acquisition, ownership, and disposition of the Exchange Notes by holders who exchange Original Notes for the Exchange Notes. The following summary assumes that the issue price of the Exchange Notes is equal to the principal amount. The summary does not discuss all of the aspects of federal income taxation that may be relevant to a prospective holder of the Exchange Notes in light of his or her particular circumstances, or to certain types of holders (including dealers in securities, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, S corporations, and persons who hold the Notes as part of a hedge, straddle, "synthetic security" or other integrated investment) which are subject to special treatment under the federal income tax laws. This discussion also does not address the tax consequences to nonresident aliens, foreign corporations, foreign partnerships or foreign trusts that are subject to United States federal income tax on a net basis on income with respect to an Exchange Note because such income is effectively connected with the conduct of a U.S. trade or business. Such holders generally are taxed in a similar manner to U. S. Holders (as defined below); however, certain special rules apply. In addition, this discussion is limited to holders who hold the Exchange Notes as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). This summary also does not describe any tax consequences under state, local, or foreign tax laws. The discussion is based upon the Code, Treasury Regulations, Internal Revenue Service ("IRS") rulings and pronouncements, and judicial decisions all in effect as of the date hereof, all of which are subject to change at any time by legislative, judicial or administrative action. Any such changes may be applied retroactively in a manner that could adversely affect a holder of the Exchange Notes. The Company has not sought and will not seek any rulings or opinions from the IRS or counsel with respect to the matters discussed below. There can be no assurance that the IRS will not take positions concerning the tax consequences of the purchase, ownership or disposition of the Exchange Notes which are different from those discussed herein. HOLDERS WHO EXCHANGE ORIGINAL NOTES FOR EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY APPLY TO THEM, AS WELL AS THE APPLICATION OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS. EXCHANGE OF ORIGINAL NOTES FOR EXCHANGE NOTES The exchange of an Original Note by a holder for an Exchange Note should not constitute a taxable exchange of the Original Note. As a result, a holder will not recognize taxable gain or loss upon receipt of an Exchange Note, such holder's holding period for an Exchange Note will include the holding period for the 72 77 Original Note so exchanged and such holder's adjusted tax basis in an Exchange Note will be the same as such holder's adjusted tax basis in the Original Note so exchanged. CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS In general, a U.S. Holder is: (i) a citizen or resident (as defined for United States federal income tax purposes) of the United States; (ii) a corporation or partnership organized in or under the laws of the United States or a political subdivision thereof; (iii) an estate the income of which is subject to United States federal taxation regardless of its source; or (iv) a trust if and only if (A) a court within the United States is able to exercise primary supervision over the administration of the trust and (B) one or more United States trustees have the authority to control all substantial decisions of the trust. Taxation of Stated Interest. In general, U.S. Holders of the Exchange Notes will be required to include interest received thereon in taxable income as ordinary income at the time it accrues or is received, in accordance with the holder's regular method of accounting for federal income tax purposes. Sale or Other Taxable Disposition of the Exchange Notes. The sale, exchange, redemption, retirement or other taxable disposition of an Exchange Note will in general result in the recognition of gain or loss to a U.S. Holder in an amount equal to the difference between (a) the amount of cash and fair market value of property received in exchange therefor (except to the extent attributable to the payment of accrued but unpaid stated interest) and (b) the holder's adjusted tax basis in such Exchange Note. Any gain or loss on the sale or other taxable disposition of an Exchange Note generally will be capital gain or loss and will be long-term capital gain or loss if the Exchange Note had been held for more than one year and otherwise will be short-term capital gain or loss. Payments on such disposition for accrued interest not previously included in income will be treated as ordinary interest income. Backup Withholding. In October 1997, the Treasury Department issued final regulations relating to information and back-up withholding that unify current certification procedures and forms and clarify reliance standards. These new regulations will be effective on January 1, 1999. The following description of the backup withholding rules are applicable to payments made before January 1, 1999. The backup withholding rules require a payor to deduct and withhold a tax if (i) the payee fails to furnish a taxpayer identification number ("TIN") in the prescribed manner, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) the payee has failed to report properly the receipt of "reportable payments" and the IRS has notified the payor that withholding is required, or (iv) the payee fails to certify under the penalty of perjury that such payee is not subject to backup withholding. If any one of the events discussed above occurs with respect to a holder of Exchange Notes, the Company, its paying agent or other withholding agent will be required to withhold a tax equal to 31% of any "reportable payment" made in connection with the Exchange Notes of such holder. A "reportable payment" includes, among other things, amounts paid in respect of interest or original issue discount on an Exchange Note. Any amounts withheld from a payment to a holder under the backup withholding rules will be allowed as a refund or credit against such holder's federal income tax, provided that the required information is furnished to the IRS. Certain holders (including, among others, corporations and certain tax-exempt organizations) are not subject to backup withholding. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS This section discusses special rules applicable to a Non-U.S. Holder of Exchange Notes. This summary does not address the tax consequences to stockholders, partners or beneficiaries in a Non-U.S. Holder or the tax consequences to Non-U.S. Holders that are subject to United States federal income tax on a net basis on income with respect to an Exchange Note because such income is effectively connected with the conduct of a U.S. trade or business. For purposes hereof, a "Non-U.S. Holder" is any person that is not a U.S. Holder. Interest. Interest that is paid to a Non-U.S. Holder on an Exchange Note will not be subject to U.S. income or withholding tax if the interest qualified as "portfolio interest." Generally, interest on the Exchange Notes that is paid by the Company will qualify as portfolio interest if (i) the Non-U.S. Holder does not own, 73 78 actually or constructively, 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote, (ii) the Non-U.S. Holder is not a controlled foreign corporation that is related to the Company actually or constructively through stock ownership for U.S. federal income tax purposes, (iii) the Non-U.S. Holder is not a bank receiving interest on a loan entered into in the ordinary course of business, and (iv) either (x) the beneficial owner of the Exchange Note provides the Company or its paying agent with a properly executed certification on IRS Form W-8 (or a suitable substitute form) signed under penalties of perjury that the beneficial owner is not a "U.S. person" for U.S. federal income tax purposes and that provides the beneficial owner's name and address, or (y) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its business holds the Exchange Note and certifies to the Company or its agent under penalties of perjury that the IRS Form W-8 (or a suitable substitute) has been received by it from the beneficial owner of the Exchange Note or a qualifying intermediary and furnishes the payor a copy thereof. Payments of interest to a Non-U.S. Holder that do not qualify for the portfolio interest exception discussed above will be subject to withholding of U.S. federal income tax at a rate of 30% unless a U.S. income tax treaty applies to reduce the rate of withholding. To claim a treaty reduced rate, the Non-U.S. Holder must provide a properly executed Form 1001. Sale, Exchange or Retirement of Exchange Notes. Any gain realized by a Non-U.S. Holder on the sale, exchange or retirement of the Exchange Notes, will generally not be subject to U.S. federal income tax or withholding unless (i) the Non-U.S. Holder is an individual who was present in the U.S. for 183 days or more in the taxable year of the disposition and meets certain other requirements, or (ii) the Non-U.S. Holder is subject to tax pursuant to certain provisions of the Code applicable to certain individuals who renounce their U.S. citizenship or terminate long-term U.S. residency. If a Non-U.S. Holder falls under (i) above, the holder generally will be subject to U.S. federal income tax at a rate of 30% on the gain derived from the sale (or reduced treaty rate) and may be subject to withholding in certain circumstances. If a Non-U.S. Holder falls under (ii) above, the holder will be taxed on the net gain derived from the sale under the graduated U.S. federal income tax rates that are applicable to U.S. citizens, resident aliens, and domestic corporations, as the case may be, and may be subject to withholding under certain circumstances. U.S. Information Reporting and Backup Withholding Tax. Back-up withholding and information reporting generally will not apply to an Exchange Note issued in registered form that is beneficially owned by a Non-U.S. Holder if the certification of Non-U.S. Holder status is provided to the Company or its agent as described above in " -- Certain Federal Income Tax Consequences to Non-U.S. Holders -- Interest," provided that the payor does not have actual knowledge that the holder is a U.S. person. The Company may be required to report annually on Form 1042-S to the IRS and to each Non-U.S. Holder the amount of interest paid to, and the tax withheld, if any, with respect to each Non-U.S. Holder. If payments of principal and interest are made to the beneficial owner of an Exchange Note by or through the foreign office of a custodian, nominee or other agent of such beneficial owner, or if the proceeds of the sale of Exchange Notes are made to the beneficial owner of an Exchange Note through a foreign office of a "broker" (as defined in the pertinent Treasury Regulations), the proceeds will not be subject to backup withholding (absent actual knowledge that the payee is a U.S. person). Information reporting (but not backup withholding) will apply, however, to a payment by a foreign office of a custodian, nominee, agent or broker that is (i) a U.S. person, (ii) a controlled foreign corporation for U.S. federal income tax purposes, or (iii) derives 50% or more of its gross income from the conduct of a U.S. trade or business for a specified three-year period; unless the broker has in its records documentary evidence that the holder is not a Non-U.S. Holder and certain conditions are met (including that the broker has no actual knowledge that the holder is a U.S. Holder) or the holder otherwise establishes an exemption. Payment through the U.S. office of a custodian, nominee, agent or broker is subject to both backup withholding at a rate of 31% and information reporting, unless the holder certifies that it is a Non-U.S. Holder under penalties of perjury or otherwise establishes an exemption. Any amount withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a credit against, or refund of, such holder's U.S. federal income tax liability, provided that certain information is provided by the holder to the IRS. 74 79 The IRS released Treasury Regulations in October 1997 that revise the procedures for withholding tax, and the associated backup withholding and information reporting rules described above for payments of interest and gross proceeds made after December 31, 1998. By Notice 98-16, the IRS delayed effectiveness of these regulations to payments made after December 31, 1999. The regulations modify the requirements imposed on a Non-U.S. Holder or certain intermediaries for establishing the recipient's status as a Non-U.S. Holder eligible for exemption from withholding and backup withholding. In particular, the regulations impose more stringent conditions on the ability of financial intermediaries acting for a Non-U.S. Holder to provide certifications on behalf of the Non-U.S. Holder, which may include entering into an agreement with the IRS to audit certain documentation with respect to such certifications. Non-U.S. Holders should consult their tax advisors to determine how the regulations will affect their particular circumstances. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Original Notes where such Original Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, starting on the Expiration Date and ending on the close of business on the ninetieth day after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 1998, all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit of any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the Expiration Date, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the 75 80 Exchange Offer (including the expenses of one counsel for the Holders of the Notes) other than commissions or concessions of any broker or dealers and will indemnify the Holders of the Notes (including any broker-dealer) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS Certain legal matters in connection with the Exchange Notes offered hereby are being passed upon for the Company by Wellesley Law Associates, Wellesley Hills, Massachusetts, and Edwards & Angell, LLP, Providence, Rhode Island, counsel for the Company. EXPERTS The audited consolidated financial statements of Simonds Industries Inc. and its subsidiaries as of December 28, 1996 and December 27, 1997, and for the five months ended May 26, 1995 and seven months ended December 30, 1995 and the years ended December 28, 1996 and December 27, 1997 included in this registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto and are included herein in reliance upon the authority of said firm as experts in giving said reports. 76 81 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ---- Report of Independent Public Accountants.................................. F-2 Consolidated Balance Sheets as of December 28, 1996, December 27, 1997 and June 27, 1998 (unaudited)........................................... F-3 Consolidated Statements of Operations for each of the periods -- Five Months ended May 26, 1995, Seven Months ended December 30, 1995, Years ended December 28, 1996 and December 27, 1997, and the Six Months ended June 28, 1997 (unaudited) and June 27, 1998 (unaudited)................. F-4 Consolidated Statements of Cash Flows for each of the periods -- Five Months ended May 26, 1995, Seven Months ended December 30, 1995, Years ended December 28, 1996 and December 27, 1997, and the Six Months ended June 28, 1997 (unaudited) and June 27, 1998 (unaudited)........... F-5 Consolidated Statements of Shareholders' Equity for each of the periods -- Five Months ended May 26, 1995, Seven Months ended December 30, 1995, Fiscal Years ended December 28, 1996 and December 27, 1997, and the Six Months ended June 27, 1998 (unaudited).......................... F-6 Notes to Consolidated Financial Statements................................ F-7 F-1 82 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Simonds Industries Inc: We have audited the consolidated balance sheets of Simonds Industries Inc. (the Company), formerly known as SI Holding Corporation, as of December 28, 1996 and December 27, 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for the seven months ended December 30, 1995, and each of the two years ended December 27, 1997. We have also audited the consolidated statements of operations, shareholders' equity and cash flows of Simonds Industries Inc. (Predecessor Company) for the five months ended May 26, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Simonds Industries Inc. at December 28, 1996 and December 27, 1997, and the consolidated results of its operations and cash flows for the seven months ended December 30, 1995, and each of the two years ended December 27, 1997, and the consolidated results of operations and cash flows of the Predecessor Company for the five months ended May 26, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts June 11, 1998 F-2 83 SIMONDS INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FISCAL YEARS ENDED ------------------ JUNE 27, 1996 1997 1998 ------- ------- ----------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash...................................................... $ 1,255 $ 1,255 $ 835 Accounts receivable, net of reserves of $798, $806 and $866........................................... 14,113 16,185 18,842 Inventories............................................... 23,235 22,576 28,697 Other current assets...................................... 3,260 3,160 3,467 Refundable income taxes................................... 141 101 101 ------- ------- -------- Total current assets................................ 42,004 43,277 51,942 PROPERTY, PLANT AND EQUIPMENT: Land...................................................... 2,029 2,324 2,315 Buildings and improvements................................ 9,669 10,557 11,747 Machinery and equipment................................... 15,283 21,735 23,658 Construction-in-progress.................................. 1,675 348 1,891 ------- ------- -------- 28,656 34,964 39,611 Less -- Accumulated depreciation.......................... 2,999 5,308 6,655 ------- ------- -------- Net property, plant and equipment..................... 25,657 29,656 32,956 OTHER ASSETS: Goodwill, net of accumulated amortization of $537, $1,026 and $1,152................................. 13,714 20,613 22,065 Deferred financing costs, net of accumulated amortization of $553, $909 and $988..................... 1,099 880 722 Other..................................................... 146 917 909 ------- ------- -------- Total other assets.................................. 14,959 22,410 23,696 ------- ------- -------- Total assets........................................ $82,620 $95,343 $108,594 ======= ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Overdraft facilities...................................... $ 788 $ 249 $ 150 Notes payable............................................. 2,390 1,481 5,802 Current portion of long-term debt......................... 4,197 4,925 5,255 Accounts payable.......................................... 4,930 4,797 6,578 Accrued payroll and employee benefits..................... 3,287 4,827 3,693 Other accrued liabilities................................. 1,445 2,691 4,088 Currently deferred income taxes........................... 2,758 2,656 2,650 ------- ------- -------- Total current liabilities........................... 19,795 21,626 28,216 LONG-TERM DEBT, net of current portion...................... 39,588 45,286 48,825 DEFERRED INCOME TAXES....................................... 3,320 4,321 4,386 ACCRUED PENSION LIABILITY................................... 1,735 1,550 1,530 OTHER NONCURRENT LIABILITIES................................ 984 945 933 COMMITMENTS AND CONTINGENCIES (NOTE 7)...................... -- -- -- SHAREHOLDERS' EQUITY: Common stock, $.01 par value -- Authorized -- 200,000 shares Issued and outstanding -- 148,037, 148,371 and 148,371..................................... 1 1 1 Capital in excess of par value............................ 10,520 10,553 10,553 Retained earnings......................................... 6,858 11,859 15,173 Cumulative translation adjustment......................... (181) (798) (976) Treasury stock, at cost................................... (47) ------- ------- -------- Total shareholders' equity.......................... 17,198 21,615 24,704 ------- ------- -------- Total liabilities and shareholders' equity.......... $82,620 $95,343 $108,594 ======= ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 84 SIMONDS INDUSTRIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
PREDECESSOR THE COMPANY ----------- ---------------------------------------------------------------- SIX MONTHS 5 MONTHS 7 MONTHS YEAR YEAR ------------------- ENDED ENDED ENDED ENDED ENDED ENDED MAY 26, DECEMBER 30, DECEMBER 28, DECEMBER 27, JUNE 28, JUNE 27, 1995 1995 1996 1997 1997 1998 ----------- ------------ ------------ ------------ -------- -------- (UNAUDITED) Net sales....................... $42,212 $58,932 $98,661 $114,182 $55,376 $62,641 Cost of goods sold.............. 30,102 41,353 69,828 78,798 38,247 42,281 ------- ------- ------- -------- ------- ------- Gross profit.......... 12,110 17,579 28,833 35,384 17,129 20,360 Selling, general and administrative expense........ 15,338 10,176 17,135 21,149 9,944 11,961 ------- ------- ------- -------- ------- ------- Operating income (loss).............. (3,228) 7,403 11,698 14,235 7,185 8,399 Other expenses (income): Interest expense.............. 650 2,880 4,399 4,963 2,394 2,477 Other, net.................... (276) (208) 245 520 172 167 ------- ------- ------- -------- ------- ------- Income (loss) before income taxes........ (3,602) 4,731 7,054 8,752 4,619 5,755 Provision (benefit) for income taxes......................... (1,387) 1,856 3,071 3,751 1,971 2,441 ------- ------- ------- -------- ------- ------- Net income (loss)..... $(2,215) $ 2,875 $ 3,983 $ 5,001 $ 2,648 $ 3,314 ======= ======= ======= ======== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-4 85 SIMONDS INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PREDECESSOR THE COMPANY ----------- ---------------------------------------------------------------- SIX MONTHS FIVE MONTHS SEVEN MONTHS YEAR YEAR ------------------- ENDED ENDED ENDED ENDED ENDED ENDED MAY 26, DECEMBER 30, DECEMBER 28, DECEMBER 27, JUNE 28, JUNE 27, 1995 1995 1996 1997 1997 1998 ----------- ------------ ------------ ------------ -------- -------- (UNAUDITED) CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss).............................. $(2,215) $ 2,875 $ 3,983 $ 5,001 $ 2,648 $ 3,314 Adjustment to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization................ 1,498 1,500 2,712 3,459 1,552 2,023 Bonus paid in common stock................... 1,449 -- -- -- -- -- Gain on asset sales.......................... (41) (9) (11) (16) (5) (33) Provision (benefit) for deferred income taxes...................................... (104) 1,612 1,322 258 990 754 Changes in assets and liabilities, net of acquisitions: Accounts receivable........................ (878) 1,560 (350) (927) (1,221) 100 Inventories................................ (3,088) 3,030 686 2,902 (145) (2,423) Income tax refunds receivable.............. -- -- -- 40 40 -- Other current and non-current assets....... (2,329) 2,104 (818) 602 298 (134) Accounts payable........................... 1,793 (1,711) 168 (346) 284 150 Accrued expenses........................... 5,396 (4,743) (979) 2,297 717 (1,019) Other non-current liabilities.............. (28) (574) (48) (224) (182) (32) ------- -------- ------- -------- ------- ------- Net cash provided by operating activities.... 1,453 5,644 6,665 13,046 4,976 2,700 ------- -------- ------- -------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment... 45 22 35 107 38 57 Purchases of equipment......................... (745) (1,895) (3,638) (3,708) (1,542) (2,085) Acquisition of Simonds, net of cash acquired... -- (44,620) -- -- -- -- Acquisition of Pacific Hoe Company assets...... -- -- -- (5,578) (5,578) -- Acquisition of Strongridge Limited............. -- -- (1,185) -- -- -- Acquisition of Armstrong Manufacturing, net of cash acquired................................ -- -- -- (8,125) -- -- Acquisition of W. Notting Ltd., net of cash $51.......................................... -- -- -- -- -- (6,781) ------- -------- ------- -------- ------- ------- Net cash used by investing activities........ (700) (46,493) (4,788) (17,304) (7,082) (8,809) ------- -------- ------- -------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in overdrafts....................... 149 124 319 (539) (290) (99) Net proceeds under revolving credit............ (247) 5,053 (197) (1,445) (585) 6,802 Proceeds from issuance of long-term debt....... -- 35,800 -- 7,700 6,000 -- Principal payments of long-term debt........... (1,132) (8,777) (2,530) (1,312) (3,362) (2,316) Proceeds from issuance of notes payable........ -- -- -- -- -- 1,474 Issuance of common stock....................... -- 11,000 -- 33 33 -- Fees paid for debt financing................... -- (1,534) (118) (138) (32) -- Expenses of capitalization..................... -- (63) -- -- -- -- Purchase of treasury stock..................... -- -- -- -- -- (47) ------- -------- ------- -------- ------- ------- Net cash (used in) provided by financing activities................................. (1,230) 41,603 (2,526) 4,299 1,764 5,814 ------- -------- ------- -------- ------- ------- EFFECT OF EXCHANGE RATE.......................... (189) 8 360 (41) (33) (125) ------- -------- ------- -------- ------- ------- NET INCREASE (DECREASE) IN CASH.................. (666) 762 (289) -- (375) (420) CASH AT BEGINNING OF PERIOD...................... 1,448 782 1,544 1,255 1,255 1,255 ------- -------- ------- -------- ------- ------- CASH AT END OF PERIOD............................ $ 782 $ 1,544 $ 1,255 $ 1,255 $ 880 $ 835 ======= ======== ======= ======== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-5 86 SIMONDS INDUSTRIES INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
CAPITAL IN CUMULATIVE TOTAL COMMON COMMON EXCESS RETAINED TRANSLATION TREASURY SHAREHOLDERS' COMPREHENSIVE SHARES STOCK OF PAR VALUE EARNINGS ADJUSTMENT STOCK EQUITY INCOME(LOSS) --------- ------ ------------ -------- ----------- -------- ------------- ------------- SIMONDS INDUSTRIES INC. (Predecessor) Balance at December 31, 1994.................... 3,461,777 $35 $ 6,574 $19,267 $(651) $ (239) $24,986 $ -- Net loss................ -- -- -- (2,215) -- -- (2,215) (2,215) Foreign currency translation adjustment............ -- -- -- -- 386 -- 386 386 Stock bonus............. 125,732 2 1,447 -- -- -- 1,449 -- --------- --- ------- ------- ----- ------- ------- ------- Balance at May 26, 1995... 3,587,509 $37 $ 8,021 $17,052 $(265) $ (239) $24,606 $(1,829) ========= === ======= ======= ===== ======= ======= ======= SIMONDS INDUSTRIES INC. Balance at May 26, 1995... -- $-- $ -- $ -- $ -- $ -- $ -- $ -- Issuance of common stock for cash.............. 110,000 1 10,999 -- -- -- 11,000 -- Issuance of common stock in exchange for stock of Predecessor........ 38,037 -- 1,252 -- -- -- 1,252 -- Cash distribution to shareholders.......... -- -- (2,001) -- -- -- (2,001) -- Issuance of common stock warrants.............. -- -- 270 -- -- -- 270 -- Net income.............. -- -- -- 2,875 -- -- 2,875 2,875 Foreign currency translation adjustment............ -- -- -- -- (211) -- (211) (211) --------- --- ------- ------- ----- ------- ------- ------- Balance at December 30, 1995.................... 148,037 1 10,520 2,875 (211) -- 13,185 2,664 ======= Net income.............. -- -- -- 3,983 -- -- 3,983 3,983 Foreign currency translation adjustment............ -- -- -- -- 30 -- 30 30 --------- --- ------- ------- ----- ------- ------- ------- Balance at December 28, 1996.................... 148,037 1 10,520 6,858 (181) -- 17,198 4,013 ======= Net income.............. -- -- -- 5,001 -- -- 5,001 5,001 Foreign currency translation adjustment............ -- -- -- -- (617) -- (617) (617) Stock options exercised............. 334 -- 33 -- -- -- 33 -- --------- --- ------- ------- ----- ------- ------- ------- Balance at December 27, 1997.................... 148,371 1 10,553 11,859 (798) -- 21,615 4,384 ======= Net income.............. -- -- -- 3,314 -- -- 3,314 3,314 Foreign currency translation adjustment............ -- -- -- -- (178) -- (178) (178) Acquisition of treasury stock................. -- -- -- -- -- (47) (47) -- --------- --- ------- ------- ----- ------- ------- ------- Balance at June 27, 1998 (unaudited)............. 148,371 $ 1 $10,553 $15,173 $(976)) $ (47) $24,704 $ 3,136 ========= === ======= ======= ===== ======= ======= =======
Comprehensive income for the six months ended June 28, 1997 was $2,139. The accompanying notes are an integral part of these consolidated financial statements. F-6 87 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Effective June 11, 1998, SI Holding Corporation changed its name to Simonds Industries Inc., and merged with its wholly owned operating subsidiary. Simonds Industries Inc. (Simonds or the Company), a Delaware corporation, manufactures and is a worldwide distributor of industrial cutting tools. The primary products manufactured by Simonds include metal band and wood saws, industrial knives and rule, files and band saw equipment. Simonds' principal manufacturing operations are located in Fitchburg, Massachusetts; Newcomerstown, Ohio; Big Rapids, Michigan; Portland and Springfield, Oregon; and Spangenberg, Germany. Simonds also has sales subsidiaries in the United Kingdom and Canada. (a) Principles of Consolidation The accompanying consolidated financial statements include the accounts of Simonds Industries Inc. and its subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. (b) Disclosures About Fair Value of Financial Instruments The carrying amounts of cash, accounts receivable and accounts payable approximate fair value because of their short-term nature. The fair value of long-term indebtedness approximate the amount on the Company's consolidated balance sheets because the vast majority of the debt has variable interest rates. (c) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 could differ from those estimates. (d) Fiscal Year The Company's fiscal year ends on the Saturday closest to December 31. As a result, the fiscal period for the five months ended May 26, 1995, seven months ended December 30, 1995, and years ended December 28, 1996 and December 27, 1995 include 21, 31, 52, and 52 weeks, respectively. The six months ended June 28, 1997 and June 27, 1998 each include 26 weeks. (e) Inventories Approximately 67% and 62% of inventories at December 28, 1996 and December 27, 1997, respectively, are valued at the lower of cost (last-in, first-out (LIFO) method) or market. All other inventories are valued at the lower of cost (first-in, first-out (FIFO) method) or market. Inventory costs include labor and manufacturing overhead. F-7 88 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (f) Property, Plant and Equipment Depreciation is computed using the straight-line method based on the following estimated useful lives:
ESTIMATED USEFUL LIVES ------------ Buildings and improvements.................................. 20-40 years Machinery and equipment..................................... 3-12 years Furniture and fixtures...................................... 8 years
Maintenance and repairs are expensed as incurred. (g) Goodwill Goodwill represents the cost in excess of fair value of the net assets of companies acquired in purchase transactions. Goodwill is being amortized on a straight-line method over 40 years. Amortization charged to operations amounted to $10, $202, $335 and $489 for the five months ended May 26, 1995, seven months ended December 30, 1995, and fiscal years ended 1996 and 1997, respectively. At each balance sheet date, the Company evaluated the realizability of goodwill based on expectations of non-discounted cash flows and operating income for each subsidiary having a material goodwill balance. Based on its most recent analysis, the Company believes that no material impairment of goodwill exists at December 27, 1997. (h) Foreign Currency Translation The assets and liabilities of the Company's foreign subsidiaries are translated at year-end rates of exchange, and statement of operations accounts are translated at weighted average rates of exchange. The resulting translation adjustments are excluded from net income and are accumulated as a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in income or expense in the period in which the transaction occurs. The effect of foreign currency transaction gains or losses included in the determination of results for the periods ended May 26, 1995, December 30, 1995, December 28, 1996 and December 27, 1997 have not been material. (i) Sales Recognition The Company recognizes sales upon the shipment of its products net of applicable provisions for discounts and allowances. (j) Income Taxes The Company accounts for its income taxes under the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. SFAS No. 109 utilizes the liability method, and deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities at currently enacted tax laws and rates. (k) Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued No. 131, Disclosures About Segments of an Enterprise and Related Information which will be effective for the Company's financial statements for the 1998 fiscal year. This statement established standards for reporting information about segments in annual and interim financial statements. This statement introduces a new model for segment reporting, called the "management approach." The management approach is based on the way the chief F-8 89 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure and management structure. (2) ORGANIZATION AND ACQUISITIONS In May 1995, Fleet Equity Partners VI, L.P., Fleet Venture Resources, Inc., and other affiliated entities (Fleet) and certain officers of Simonds Industries Inc. (Predecessor) formed SI Holding Corporation for the purpose of acquiring 100% of the Predecessor's outstanding stock and warrants. The Company received cash proceeds through the issuance of 110,000 shares of common stock to Fleet of $11,000 and debt proceeds amounting to $46,033 (see Note 6). In addition, as discussed below, certain members of management exchanged $3,803 aggregate fair value of options and stock awards for 38,037 shares of the Company's common stock. In connection therewith, the Company incurred $63 of organizational costs, which are being amortized over a five-year period, and approximately $1,534 in professional fees related to the debt financing, which are being amortized over the lives of the underlying respective debt agreements using the effective interest rate method. These amounts are included in other assets in the accompanying consolidated balance sheets, net of accumulated amortization at December 28, 1996 and December 27, 1997 of approximately $20 and $33, respectively, for the organizational costs and $553 and $909, respectively, for the debt financing costs. On May 26, 1995, the Company purchased the outstanding common stock and warrants of the Predecessor for $44,620, including acquisition expenses of $436. Of this amount, $3,250 was placed into an escrow account to satisfy certain environmental and other contingent liabilities in accordance with the escrow agreement. Prior to the acquisition, the Predecessor granted stock awards with a fair value of approximately $1,449 to certain officers and purchased the Predecessor's outstanding stock options for $2,354, representing the difference between the fair value of the underlying stock and the exercise price of the options. In connection with the acquisition, the officers exchanged the $3,803 aggregate fair value of these awards and option payments for 38,037 shares of the Company's common stock. The exchange was recorded at $1,252, an amount equal to the officers' basis in the Predecessor prior to the acquisition (i.e., the carryover basis). Cash of $2,001 paid to these officers to purchase other shares of the Predecessor's stock held by them was recorded as a cash distribution to shareholders. The transactions and the acquisition were accounted for as a purchase in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 16, Business Combinations, and Emerging Issues Task Force Issue No. 88-16, Basis in Leveraged Buyout Transactions. The stock awards and purchase of stock options discussed in the preceding paragraph resulted in a compensation charge to the Predecessor's selling, general and administrative expense of $3,803 for the 5 months ended May 26, 1995. The Predecessor also accrued additional compensation costs of $4,117 for the five months ended May 26, 1995 representing certain bonuses to the Predecessor's management and the buyout of stock options held by management that terminated employment on the closing date. Accordingly, the Predecessor's selling, general and administrative expense includes approximately $7,920 of unusual compensation costs. For financial reporting purposes, the purchase price was allocated to assets acquired and liabilities assumed based on the fair market value at the date of acquisition, except for the portion of assets and liabilities in which ownership in the Company was retained by the Predecessor's management. This portion was recorded using Simonds' predecessor/carryover basis. The excess of purchase price over fair market value of net assets acquired (as adjusted for the predecessor basis) is reflected in the accompanying consolidated balance sheets as goodwill. For income tax purposes, the transaction was treated as an acquisition of stock. As a result, the tax bases of assets and liabilities carry over from amounts previously reported for income tax purposes. Deferred taxes F-9 90 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) have been provided in the accompanying consolidated balance sheets for the temporary differences between the tax and financial reporting bases of the assets acquired and liabilities assumed. On October 1, 1996, the Company's wholly owned Canadian subsidiary acquired 100% of the outstanding stock of Strongridge Limited (a Canadian company) for approximately $1,185. The acquisition has been accounted for as a purchase, with the purchase price in excess of the fair value of net assets acquired, $932, being amortized on a straight-line basis over 40 years. Results of operations of Strongridge Limited are included in the accompanying consolidated financial statements subsequent to October 1, 1996. On January 27, 1997, the Company purchased certain assets, mainly inventory and equipment, for $5,578 from Pacific Hoe Company. Purchase price in excess of fair value of assets acquired, $3,831, is being amortized on a straight-line basis over 40 years. On August 1, 1997, the Company acquired 100% of the outstanding stock of Armstrong Manufacturing Company (Armstrong) for $9,000, which includes cash acquired of $875. The acquisition has been accounted for as a purchase, with the purchase price in excess of the fair value of net assets acquired, $3,601, being amortized on a straight-line basis over 40 years. To fund the acquisition, the Company amended its credit agreement with Heller Financial Inc. (Note 6). Results of operations of Armstrong are included in the accompanying consolidated financial statements subsequent to August 1, 1997. Pro forma results for 1996 and 1997 have not been reported because they would not be materially different from the financial statements presented. (3) INVENTORIES Inventories at December 28, 1996 and December 27, 1997 were as follows:
1996 1997 ------- ------- Raw materials............................................ $ 4,526 $ 4,176 Work-in-process.......................................... 6,108 6,740 Finished goods........................................... 12,601 11,660 ------- ------- Total inventories.............................. $23,235 $22,576 ======= =======
U.S. inventories of $15,497 and $14,190 at December 28, 1996 and December 27, 1997, respectively, were valued using the LIFO method. The replacement cost of these inventories would have been higher by approximately $1,053 and $704 in 1996 and 1997, respectively. (4) WARRANTS In connection with the 1995 issuance of a $3,300 secured subordinated note (see Note 6), the Company issued warrants to purchase, for $46.56 per share, 5,052 shares of the Company's common stock. The difference between the $100 fair value per common share at the grant date and the exercise price has been credited to capital in excess of par value. (5) RETIREMENT PLANS The Company has a combined defined-contribution profit sharing and 401(k) retirement plan covering all domestic salaried and certain hourly employees. Contributions to the profit sharing plan are determined by the Board of Directors. The profit sharing cost of this plan was approximately $157, $231, $390 and $399 for the five months ended May 26, 1995, seven months ended December 30, 1995, and fiscal years ended December 28, 1996 and December 27, 1997, respectively. In the 401(k) portion of the plan, the Company matches at a rate of 50% on the first 6% of an employee's salary contribution. Company 401(k) matching F-10 91 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) contributions amounted to approximately $141, $183, $283 and $302 for the five months ended May 26, 1995, seven months ended December 30, 1995, and fiscal years ended December 28, 1996 and December 27, 1997, respectively. Certain of the Company's hourly employees participate in a union-sponsored, multiemployer defined-benefit retirement plan. The cost of this plan was approximately $151, $213, $378 and $392 for the five months ended May 26, 1995, seven months ended December 30, 1995, and fiscal years ended December 28, 1996 and December 27, 1997, respectively. Contributions are based on wages earned and are paid monthly to the pension administrator. All other domestic hourly employees are covered by a defined-contribution plan. Contributions are based on a union contract as a percentage of wages earned and are paid annually. The cost of this plan was approximately $52, $85, $140 and $151 for the five months ended May 26, 1995, seven months ended December 30, 1995, and fiscal years ended December 28, 1996 and December 27, 1997, respectively. In connection with the acquisition of Armstrong, the Company acquired a defined benefit plan to cover all employees of Armstrong. The defined benefit plan was frozen as of December 27, 1997. The fair value of plan assets exceeded the projected benefit obligation for services rendered as of December 27, 1997. The plan officially will terminate in 1998, at which time all plan assets will be fully distributed to plan participants. All Participants of this plan were eligible to participate in the Company's 401(k) retirement plan, effective January 1, 1998 and based on eligibility, as defined. In addition to the defined benefit plan, employees of Armstrong are also covered under a profit sharing plan. The plan merged with the Company's 401(k) retirement plan effective January 1, 1998. Contributions to the Armstrong profit sharing plan are determined by the Board of Directors. The profit sharing cost of this plan was approximately $260 in 1997. Certain foreign employees are covered under defined-contribution plans. Total costs for these plans amounted to approximately $53, $88, $136 and $148 for the five months ended May 26, 1995, seven months ended December 30, 1995, and fiscal years ended December 28, 1996 and December 27, 1997, respectively. Certain employees of one of Simonds' subsidiaries, Wespa Metallsagenfabrik -- Simonds Industries GmbH (Wespa), are covered by an unfunded defined-benefit plan. The following table sets forth the plan's funded status and the amount recognized in the Company's accompanying consolidated balance sheets at December 28, 1996 and December 27, 1997:
1996 1997 ------ ------ Actuarial present value of accumulated plan benefits -- Vested................................................... $1,430 $1,259 Nonvested................................................ 26 4 ------ ------ Accumulated benefit obligation................... 1,456 1,263 Effect of projected future compensation increases.......... 280 287 ------ ------ Projected benefit obligation for service rendered to date............................... 1,736 1,550 ------ ------ Plan assets at fair value.................................. -- -- ------ ------ Accrued pension liability........................ $1,736 $1,550 ====== ======
F-11 92 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net periodic pension expense for the year ended December 28, 1996 and December 27, 1997 includes the following components:
PREDECESSOR THE COMPANY ----------- -------------------------------------------- 5 MONTHS 7 MONTHS YEAR YEAR ENDED ENDED ENDED ENDED MAY 26, DECEMBER 30, DECEMBER 28, DECEMBER 27, 1995 1995 1996 1997 ----------- ------------ ------------ ------------ Service costs (benefits earned during the period)............... $12 $16 $ 23 $ 18 Interest cost on projected benefit obligation....................... 53 74 102 84 --- --- ---- ---- Net periodic pension expense..................... $65 $90 $125 $102 === === ==== ====
The discount rate and rate of increase in future compensation levels used in determining the projected benefit obligation were 7.0% and 4.0%, respectively, for the five months ended May 26, 1995 and seven months ended December 30, 1995. The discount rate and rate of increase used for the years ended December 28, 1996 and December 27, 1997, were 7.0% and 6.5%, respectively. (6) DEBT Debt consists of the following at December 28, 1996 and December 27, 1997:
1996 1997 ------- ------- Revolving credit facility loan......................... $10,743 $12,945 Term notes payable..................................... 28,600 33,375 Line-of-credit facility for German subsidiary.......... 2,390 1,481 Term loan payable by German subsidiary................. 1,351 761 Subordinated notes payable............................. 3,091 3,130 ------- ------- 46,175 51,692 Less -- Current maturities............................. 6,587 6,406 ------- ------- $39,588 $45,286 ======= =======
(a) Revolving Credit and Term Loans The Company has a credit agreement (the Agreement) with a syndicate of lenders, including Heller Financial Inc., which is also the agent for the lenders. The Agreement provides for secured borrowings consisting of a revolving credit facility up to $20,000 and term loans of $34,500. The Agreement provides that the Company may borrow amounts under the revolving credit line up to the sum of 85% of eligible accounts receivable plus 60% of eligible inventory, less any outstanding letters of credit issued by the lenders on behalf of the Company. At December 27, 1997, approximately $18,316 is available under the formula, of which $12,945 is borrowed and outstanding. Outstanding letters of credit issued by the lenders amount to approximately $100 at December 27, 1997. Principal payments are due in full on June 30, 2003, the termination date of the Agreement. Mandatory principal prepayments are required upon the occurrence of certain transactions resulting in cash proceeds to the Company, including asset dispositions greater than $250 and issuance of capital stock. Beginning on September 30, 1997 and continuing through June 30, 2003, principal repayments on the term loans are due on the last day of each September, December, March and June. The payments per quarter are in varying amounts set forth in the respective underlying promissory notes. F-12 93 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Borrowings under the Senior Debt are secured by substantially all of the assets of the Company. During the period ended December 27, 1997, and at the option of the Company, term and revolver advances bear interest at either the prime rate (8.5% at December 27, 1997) plus 1% or the LIBOR rate (5.97% at December 27, 1997) plus 2.5%. Subsequent to December 27, 1997, loans will bear interest at one of the above rates based on the ratio of the total outstanding amount of Senior Debt to the Company's operating cash flow. Interest on the prime-based loans is payable quarterly in arrears on the first day of each June, September, December and March. Interest on the LIBOR-based loans is payable at the end of each respective loan period, except for those loans with periods in excess of three months, which require interest payments in arrears on the last day of each three-month interval. The average daily unused line bears a commitment fee of .5% per annum payable quarterly. The Company is required to comply with a number of affirmative and negative covenants under the Agreement. Among other things, the Company is required to satisfy certain financial tests and ratios (including debt service coverage, leverage ratio and minimum net worth) and is restricted as to additional borrowings, the payment of cash dividends and the retirement of outstanding common stock or warrants. The Company is in compliance with these covenants at December 27, 1997. (b) German Subsidiary Debt Wespa, the Company's German subsidiary, has a line of credit with a bank for approximately $3,100. The line-of-credit agreement bears interest at varying rates and is due on demand by the bank. The $1,481 outstanding principal at December 27, 1997 is reflected as a short-term revolving credit loan in the accompanying consolidated balance sheets. Wespa has a term loan payable to a bank with an outstanding balance at December 28, 1996 and December 27, 1997 of $1,351 and $761, respectively. Principal payments are due in equal quarterly installments of approximately $85, with a final payment due on December 31, 1999. The loan bears interest at the French Interbank Offering Rate (FIBOR) (3.7% at December 27, 1997) plus 2.5% and is secured by substantially all assets of Wespa and a guarantee by the Company. (c) Subordinated Debt On May 26, 1995, the Company entered into a Note and Warranty Purchase Agreement (the Subordinated Agreement) with Massachusetts Capital Resource Company (MCRC), under which MCRC provided cash of $3,300 in exchange for a $3,300 subordinated note and warrants to purchase 5,052 shares of common stock. The proceeds were used in combination with the Senior Debt to fund the acquisition described in Note 2. This debt is subordinate to the Senior Debt and bears interest at a rate of 12% per annum. Interest is payable quarterly in arrears. Principal payments of $412.5 are due on each of September 30, December 31, March 31 and June 30 beginning on September 30, 2000 and continuing through June 30, 2002. Upon full satisfaction of the Senior Debt, the Company may make optional prepayments in the amount of $330 for each of the years ending June 30, 1999 through June 30, 2001 without penalty. Principal payments occurring prior to the year ending June 30, 1999, or in amounts in excess of the optional and mandatory payments discussed above, will be subject to a penalty ranging from 2% to 12% of the principal amount being redeemed. The $33 fee charged by MCRC in connection with the issuance of this loan to the Company is included in other assets in the accompanying consolidated balance sheets and is being amortized over the life of the loan. The warrants to purchase 5,052 shares of the Company's common stock are exercisable at $46.56 per share. The difference between the $100 fair value per share at the grant date and the exercise price has been credited to capital in excess of par value. At December 27, 1997, approximately $170, net of $99 accumulated amortization, is treated as a debt discount and is reflected as a reduction of the debt in the accompanying consolidated balance sheets. This discount is being amortized using the effective interest method over the life of the Subordinated Debt, which results in an effective per annum interest rate of 14.02%. F-13 94 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Subordinated Agreement contains certain covenants that, among other things, require the Company to satisfy certain financial tests and ratios (including debt service coverage and leverage ratio) and is restrictive as to additional borrowings. The Company is in compliance with these covenants at December 27, 1997. The following is a summary of maturities of all of the Company's debt obligations due after December 27, 1997:
FISCAL YEAR AMOUNT - ----------- ------- 1998............................................. $ 6,406 1999............................................. 5,551 2000............................................. 6,621 2001............................................. 7,861 2002............................................. 7,559 Thereafter....................................... 17,694 ------- $51,692 =======
(7) COMMITMENTS AND CONTINGENCIES (a) Commitments under Operating Leases Certain of the Company's operations are conducted from facilities rented under operating leases that expire over the next 10 years. The Company also has operating leases covering certain office equipment. Substantially all leases provide for the Company to pay operating expenses in addition to basic rent. Rent expense was approximately $307, $375, $676 and $710 for the five months ended May 26, 1995, seven months ended December 30, 1995, and fiscal years ended December 28, 1996, and December 27, 1997, respectively. Future minimum annual rentals on noncancelable leases in effect at December 27, 1997, which have initial or remaining terms of more than one year, are as follows:
FISCAL YEAR AMOUNT - ----------- ------ 1998................................................ $226 1999................................................ 130 2000................................................ 119 2001................................................ 88 2002................................................ 73 Thereafter.......................................... 66 ---- $702 ====
(b) Commitments under Joint Venture The Company owns 50% of a domestic joint venture that has a 50% investment in a file manufacturing facility in the People's Republic of China. Previously, the Company had committed to purchase from the file manufacturing facility all of the Company's requirements for certain types of files. However, the manufacturing facility in China is no longer in operation. The Company has secured alternative sources for these products. F-14 95 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (c) Litigation The Company is party to a lawsuit that was litigated in China involving the Chinese joint venture established by the Company's predecessor. This case was filed by a Chinese joint venture company against Household and the Company, alleging breach of a 1984 Sales Agreement. Judgment was entered against the Company in the approximate amount of US$410. The plaintiff has made no effort to enforce its foreign judgment in the United States. If and when it does so, the Company will interpose defenses of denial of due process in the Chinese court, as well as other substantive defenses under the Massachusetts General Laws. Company management believes the lawsuit to be without merit. In addition, the Company is a party to other lawsuits that arose in the normal course of business. In the opinion of management, the final resolutions of these lawsuits are not expected to materially affect the financial condition or results of operations of the Company. (d) Letters of Credit In the normal course of its business activities, the Company is required under certain contracts to provide letters of credit that may be drawn down in the event that the Company fails to perform under the contracts. As of December 27, 1997, the Company has issued or agreed to issue letters of credit totaling approximately $100. (e) Employment Contracts In connection with the acquisition (discussed in Note 2) on May 26, 1995, the Company entered into employment and noncompetition agreements with two key officers. The employment agreements provide for an employment term through May 26, 2000. Should employment be terminated by the Company for any reason other than cause (as defined in the employment agreement), the officers shall be entitled to receive all salary and bonuses earned through the termination date, plus the remaining base salary for the period, through the expiration of the agreement. (8) INCOME TAXES Components of Income (loss) before income taxes are as follows:
PREDECESSOR THE COMPANY ------------ -------------------------------------------- FIVE MONTHS SEVEN MONTHS YEAR YEAR ENDED ENDED ENDED ENDED MAY 26, DECEMBER 30, DECEMBER 28, DECEMBER 27, 1995 1995 1996 1997 ------------ ------------ ------------ ------------ Domestic................. $(4,517) $3,493 $5,254 $6,441 Foreign.................. 915 1,238 1,800 2,311 ------- ------ ------ ------ Total.......... $(3,602) $4,731 $7,054 $8,752 ======= ====== ====== ======
F-15 96 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision (benefit) for income taxes consists of the following components for the periods ended:
PREDECESSOR THE COMPANY ------------------------------ ----------------------------- FIVE MONTHS ENDED SEVEN MONTHS ENDED MAY 26, 1995 DECEMBER 30, 1995 ------------------------------ ----------------------------- CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL ------- -------- ------- ------- -------- ------ Domestic -- Federal.................. $(1,476) $ 102 $(1,374) $ -- $1,107 $1,107 State.................... (413) 29 (384) (54) 214 160 Foreign.................... 606 (235) 371 298 291 589 ------- ----- ------- ---- ------ ------ Total............ $(1,283) $(104) $(1,387) $244 $1,612 $1,856 ======= ===== ======= ==== ====== ====== THE COMPANY ---------------------------------------------------------------- YEAR ENDED YEAR ENDED DECEMBER 28, 1996 DECEMBER 27, 1997 ------------------------------- ----------------------------- CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL ------- ---------- ------ ------- -------- ------ Domestic -- Federal.................. $ 889 $ 876 $1,765 $2,153 $ 57 $2,210 State.................... 129 273 402 487 18 505 Foreign.................... 731 173 904 853 183 1,036 ------ ------ ------ ------ ---- ------ Total............ $1,749 $1,322 $3,071 $3,493 $258 $3,751 ====== ====== ====== ====== ==== ====== An income tax rate reconciliation of the difference between actual and statutory effective tax rates is as follows: PREDECESSOR THE COMPANY ------------ --------------------------------------------- FIVE MONTHS SEVEN MONTHS YEAR YEAR ENDED ENDED ENDED ENDED MAY 26, DECEMBER 30, DECEMBER 28, DECEMBER 27, 1995 1995 1996 1997 ------------ ------------- ------------ ------------ Provision (benefit) for income taxes at the federal statutory rate.......................... $(1,225) $1,608 $2,398 $2,976 State taxes, net of federal tax effect........................ (227) 298 445 552 Goodwill amortization not deductible for tax purposes... 30 114 156 166 Higher foreign tax rates........ 15 70 70 89 Other, net...................... 20 (234) 2 (32) ------- ------ ------ ------ Recorded provision (benefit).... $(1,387) $1,856 $3,071 $3,751 ======= ====== ====== ======
F-16 97 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred taxes are recorded based on the differences between the financial statement and tax bases of assets and liabilities. The tax effect of the temporary differences that give rise to a significant portion of deferred tax liabilities is as follows at December 28, 1996 and December 27, 1997:
1996 1997 ------ ------- Tax assets -- Reserves and accruals not yet deductible for tax purposes............................................... $ (948) $(1,383) Other..................................................... (35) -- ------ ------- Total tax assets.................................. (983) (1,383) ------ ------- Tax liabilities -- Property-basis differences................................ 3,576 4,523 Inventory-basis differences............................... 2,480 2,671 Other current assets-basis differences.................... 1,005 863 Other..................................................... -- 303 ------ ------- Total tax liabilities............................. 7,061 8,360 ------ ------- Net tax liabilities............................... $6,078 $ 6,977 ====== =======
Net deferred tax liabilities are included in the accompanying consolidated balance sheets in deferred income taxes and currently deferred income taxes. (9) STOCK OPTION PLANS Predecessor: On January 17, 1989, the Board of Directors approved a nonstatutory stock option plan (the Plan) for management and executive personnel, officers, directors, employees, agents and consultants of the Company. The Company had reserved 540,030 shares of the Company's common stock for issuance under the Plan. Options granted under the Plan were issued at the fair market value at the date of grant as determined by the Board of Directors. Option prices range from $2.47 per share to $4.80 per share. The following table summarizes option activity from December 31, 1994 through May 26, 1995.
1995 -------- Options Outstanding at December 31, 1994.................... 436,675 Granted................................................... -- Exercised................................................. -- Redeemed for Cash......................................... (150,000) Redeemed for New Company Stock............................ (286,675) -------- Options Outstanding at May 26, 1995......................... -- ======== Options Exercisable at May 26, 1995......................... -- ========
As of May 26, 1995 all stock options under this plan had been redeemed and the plan was terminated. The Company: On July 25, 1995, the Board of Directors of the Company approved the Stock Incentive Plan (the Plan) for key executives, management and employees. The Company has reserved 9,568 shares of the Company's common stock for issuance under the Plan. Shares issued under the Plan may be either nonqualified stock options or incentive stock options. Nonqualified options granted under the Plan are exercisable at a price equal F-17 98 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) to the greater of $100 or the net book value per share at the time of grant. Incentive stock options are issued at the fair market value at the date of grant as determined by the Board of Directors. The exercise period for options granted under the Plan are determined by the Board of Directors, but in the case of incentive stock options, the period may not exceed 10 years from the grant date. For incentive stock options granted to those employees owning more than 10% of the Company's common shares at the grant date, the exercise price is at least 100% of the fair market value at the date of grant, and the option expires five years from the grant date. At the discretion of the Board of Directors, the options may be exercisable in installments based on the completion of a specified service requirement by the optionholder. Also on July 25, 1995 the Board of Directors approved the Senior Management Stock Option Plan (the Senior Plan). The Senior Plan is a nonstatutory stock option plan for senior management and executives of the Company. Options are 100% vested at the grant date and are exercisable into shares of the Company's common stock at a price of $400 per share. The options expire upon the earliest of the termination of the optionholder's employment with the Company, the one-year anniversary of the optionholder's death, or the seventh-year anniversary of the date of grant. The Company has reserved 28,704.19 shares of the Company's common stock for issuance under the Senior Plan, and at December 27, 1997, options for all of the shares had been granted. Stock option activity for the period May 26,1995 through December 27, 1997 is summarized below:
WEIGHTED WEIGHTED AVERAGE FAIR AVERAGE VALUE OF TOTAL SHARES EXERCISE PRICE OPTIONS GRANTED ------------ -------------- --------------- Outstanding, May 26, 1995................... -- $ -- Granted................................... 36,904.19 333.34 --------- ------- Outstanding, December 30, 1995.............. 36,904.19 333.34 Granted................................... 200.00 100.00 $56.84 --------- ------- Outstanding, December 28, 1996.............. 37,104.19 332.08 Granted................................... 500.00 113.28 $59.06 Canceled.................................. (366.00) 100.00 Exercised................................. (334.00) 100.00 --------- ------- Outstanding, December 27, 1997.............. 36,904.19 $333.52 ========= ======= Options exercisable......................... 36,504.19 ========= Shares reserved for future grants........... 1,034.06 =========
During 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation, which defines a fair-value-based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation costs for those plans using the method of accounting prescribed by APB Opinion 25. Entities electing to remain with the accounting in APB Opinion 25 must make pro forma disclosures of net income as if the fair-value-based method of accounting defined in SFAS No. 123 had been applied. The Company has elected to account for its stock-based compensation plans under APB Opinion 25. No accounting recognition is given to stock options with exercise prices equal to fair market value on the grant date until the options are exercised, at which time the proceeds are credited to the shareholders' equity accounts. For options with an exercise price less than fair market value on the grant date, the amount that the fair market value exceeds the exercise price is charged to compensation expense over the period the options F-18 99 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) vest. Had compensation cost for these plans been determined consistent with SFAS No. 123, the Company's net income would not have been materially different from amounts reported. Because the SFAS No. 123, method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation costs may not be representative of those to be expected in future years. Set forth below is a summary of options outstanding at December 27, 1997:
WEIGHTED AVERAGE EXERCISE PRICE OUTSTANDING WEIGHTED WEIGHTED FOR CURRENTLY RANGE OF NUMBER OF AVERAGE AVERAGE OPTIONS EXERCISABLE EXERCISE PRICE OPTIONS EXERCISE PRICE REMAINING LIFE EXERCISABLE OPTIONS - -------------- ----------- -------------- -------------- ----------- -------------- $100 -- $113.28............ 8,200.00 $100.81 7.56 years 7,800.00 $100.28 400...................... 28,704.19 400.00 7.42 years 28,704.19 400.00
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for the grants: Risk-free interest rate of 6.62%, expected dividend yield at zero, expected lives of 10 years and expected volatility of zero. (10) SUPPLEMENTAL CASH FLOW DISCLOSURE Cash payments for interest and income taxes and certain noncash transactions were as follows for the following periods:
PREDECESSOR THE COMPANY ----------- -------------------------------------------- FIVE SEVEN MONTHS MONTHS YEAR YEAR ENDED ENDED ENDED ENDED MAY 26, DECEMBER 30, DECEMBER 28, DECEMBER 27, 1995 1995 1996 1997 ----------- ------------ ------------ ------------ Interest paid..................... $ 538 $ 2,689 $3,914 $4,429 Income taxes paid................. 1,435 756 1,876 2,733 Liabilities assumed in acquisitions.................... -- 37,805 2,830 7,879 Issuance of 38,037 shares of common stock in exchange for the Predecessor's stock at carryover basis (Note 2).................. -- 1,252 -- --
(11) SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) The following summarizes unaudited quarterly financial data for the years ended December 28, 1996 and December 27, 1997:
1996 -------------------------------------------------- FOR THE QUARTERS ENDED -------------------------------------------------- MARCH 30 JUNE 29 SEPTEMBER 28 DECEMBER 28 -------- ------- ------------ ----------- Net Sales..................... $25,582 $24,651 $22,689 $25,658 Gross Profit.................. 7,661 7,406 6,364 7,056 Net Income.................... 1,272 1,103 761 874
F-19 100 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 -------------------------------------------------- FOR THE QUARTERS ENDED -------------------------------------------------- MARCH 29 JUNE 28 SEPTEMBER 27 DECEMBER 27 -------- ------- ------------ ----------- Net Sales..................... $27,174 $28,202 $27,950 $30,856 Gross Profit.................. 8,219 8,689 8,611 9,457 Net Income.................... 1,151 1,066 1,066 1,285
(12) OPERATING AND GEOGRAPHIC SEGMENT INFORMATION AND CONCENTRATION OF CREDIT RISK The Company operates in one industry segment, industrial cutting tools and related machinery. No single customer accounts for 10% or more of consolidated net sales. Prior to 1996, more than 65% of net sales and 75% of identifiable assets were related to the Company's domestic operations. The following information by geographic area is presented for 1996 and 1997. For the year ended December 28, 1996:
TRANSFERS INCOME NET SALES TO BETWEEN BEFORE UNAFFILIATED GEOGRAPHIC INCOME IDENTIFIABLE CUSTOMERS AREAS TAXES ASSETS ------------ ---------- ------- ------------ Geographic areas: Domestic Operations............. $65,824 $ 11,133 $ 9,483 $60,812 Canadian Operations............. 10,520 206 625 6,399 European Operations............. 22,317 472 1,590 15,409 ------- -------- ------- ------- 98,661 11,811 11,698 82,620 Unallocated..................... -- (11,811) (258) -- Interest Expense................ -- -- (4,399) -- Interest Income................. -- -- 13 -- ------- -------- ------- ------- Consolidated Totals............... $98,661 $ -- $ 7,054 $82,620 ======= ======== ======= ======= For the year ended December 27, 1997: TRANSFERS INCOME NET SALES TO BETWEEN BEFORE UNAFFILIATED GEOGRAPHIC INCOME IDENTIFIABLE CUSTOMERS AREAS TAXES ASSETS ------------ ---------- ------- ------------ Geographic areas: Domestic Operations............. $ 75,903 $ 13,954 $11,538 $74,440 Canadian Operations............. 17,172 74 1,151 6,652 European Operations............. 21,107 557 1,546 14,251 -------- -------- ------- ------- 114,182 14,585 14,235 95,343 Unallocated..................... -- (14,585) (544) -- Interest Expense................ -- -- (4,963) -- Interest Income................. -- -- 24 -- -------- -------- ------- ------- Consolidated Totals............... $114,182 $ -- $ 8,752 $95,343 ======== ======== ======= =======
F-20 101 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (13) SELECTED CONSOLIDATING FINANCIAL STATEMENTS OF PARENT, GUARANTORS, AND NON-GUARANTORS In connection with the Offering of Notes, the Company's wholly-owned domestic subsidiaries will guarantee, on a senior subordinated basis, the Notes, jointly and severally. The guarantor subsidiaries include combining financial statements of Armstrong, which was acquired in August 1997, and Simonds Holding Company. The non-guarantor subsidiaries include combining financial statements of Wespa, Simonds UK, and Simonds Canada. The following financial data summarizes the consolidating Company on the equity method of accounting for the following periods presented:
AS OF DECEMBER 28, 1996 --------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------ ---------- -------------- ------------ ------------ ASSETS CURRENT ASSETS: Cash............................ $ 698 $ 3 $ 554 -- $ 1,255 Accounts receivable............. 7,556 -- 6,557 -- 14,113 Interdivision accounts receivable.................... 20,850 -- -- (20,850) 0 Inventories: Raw materials................. 3,436 -- 1,090 -- 4,526 Work in progress.............. 5,372 -- 736 -- 6,108 Finished goods................ 6,689 -- 6,169 (257) 12,601 Other current assets............ 2,894 4 503 -- 3,401 -------- ------- ------- -------- ------- Total current assets....... 47,495 7 15,609 (21,107) 42,004 -------- ------- ------- -------- ------- NET PROPERTY, PLANT AND EQUIPMENT.... 20,197 -- 5,460 -- 25,657 -------- ------- ------- -------- ------- OTHER ASSETS: Investment in subsidiaries...... 27,197 6,629 -- (33,826) -- Intercompany loan............... -- 17,503 -- (17,503) -- Other assets.................... 13,963 -- 996 -- 14,959 -------- ------- ------- -------- ------- Total assets............... $108,852 $24,139 $22,065 $(72,436) $82,620 ======== ======= ======= ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES.................. $ 34,722 $ 10 $ 5,908 $(20,845) $19,795 LONG-TERM DEBT, net of current portion............................ 38,623 -- 965 -- 39,588 INTERDIVISION LONG-TERM DEBT......... 15,145 -- 2,358 (17,503) -- OTHER NONCURRENT LIABILITIES......... 3,164 -- 2,875 -- 6,039 TOTAL SHAREHOLDERS' EQUITY........... 17,198 24,129 9,959 (34,088) 17,198 -------- ------- ------- -------- ------- Total liabilities and shareholders' equity..... $108,852 $24,139 $22,065 $(72,436) $82,620 ======== ======= ======= ======== =======
F-21 102 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF DECEMBER 27, 1997 -------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- -------------- ------------ ------------ ASSETS CURRENT ASSETS: Cash............................. $ 25 $ 188 $ 1,042 -- $ 1,255 Accounts receivable.............. 8,896 872 6,417 -- 16,185 Intercompany accounts receivable.................... 20,929 285 -- (21,214) -- Inventories: Raw materials................. 3,099 310 767 -- 4,176 Work in progress.............. 5,527 421 792 -- 6,740 Finished goods................ 5,564 576 5,825 (305) 11,660 Other current assets............. 2,416 326 519 -- 3,261 -------- ------- ------- -------- ------- Total current assets.......... 46,456 2,978 15,362 (21,519) 43,277 -------- ------- ------- -------- ------- NET PROPERTY, PLANT AND EQUIPMENT........................ 22,098 2,582 4,976 -- 29,656 OTHER ASSETS: Investment in subsidiaries....... 35,736 7,894 -- (43,630) -- Intercompany loan receivable..... -- 17,051 -- (17,051) -- Other assets..................... 17,130 4,366 913 1 22,410 -------- ------- ------- -------- ------- Total assets.................. $121,420 $34,871 $21,251 $(82,199) $95,343 ======== ======= ======= ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES................ $ 36,202 $ 888 $ 5,751 $(21,215) $21,626 LONG-TERM DEBT, net of current portion.......................... 44,863 -- 423 -- 45,286 INTERDIVISION LONG-TERM DEBT....... 15,145 0 1,906 (17,051) -- OTHER NONCURRENT LIABILITIES....... 3,595 638 2,583 -- 6,816 SHAREHOLDERS' EQUITY............... 21,615 33,345 10,588 (43,933) 21,615 -------- ------- ------- -------- ------- Total liabilities and shareholders' equity........ $121,420 $34,871 $21,251 $(82,199) $95,343 ======== ======= ======= ======== =======
F-22 103 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED)
AS OF JUNE 27, 1998 -------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- -------------- ------------ ------------ ASSETS CURRENT ASSETS: Cash................................. $ 26 $ 265 $ 544 $ -- $ 835 Accounts receivable, net of reserves.......................... 8,735 1,040 9,067 -- 18,842 Intercompany accounts receivable..... 997 101 1,320 (2,418) -- Inventories: Raw materials..................... 3,539 344 1,481 -- 5,364 Work in progress.................. 5,978 332 1,019 -- 7,329 Finished goods.................... 6,545 626 9,138 (305) 16,004 Other current assets................. 2,454 304 810 -- 3,568 -------- ------- ------- -------- -------- Total current assets.............. 28,274 3,012 23,379 (2,723) 51,942 -------- ------- ------- -------- -------- NET PROPERTY, PLANT AND EQUIPMENT...... 22,935 2,525 7,496 -- 32,956 OTHER ASSETS: Investment in subsidiaries........... 41,403 7,653 -- (49,056) -- Intercompany loan receivable......... -- 22,163 -- (22,163) -- Other assets......................... 16,751 4,236 2,709 -- 23,696 -------- ------- ------- -------- -------- Total assets...................... $109,363 $39,589 $33,584 $(73,942) $108,594 ======== ======= ======= ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES.................... $ 17,485 $ 834 $12,336 $ (2,439) $ 28,216 LONG-TERM DEBT, net of current portion.............................. 48,548 -- 277 -- 48,825 INTERDIVISION LONG-TERM DEBT........... 15,145 -- 7,018 (22,163) -- OTHER NONCURRENT LIABILITIES........... 3,481 638 2,730 -- 6,849 TOTAL SHAREHOLDERS' EQUITY............................... 24,704 38,117 11,223 (49,340) 24,704 -------- ------- ------- -------- -------- Total liabilities and shareholders' equity.......................... $109,363 $39,589 $33,584 $(73,942) $108,594 ======== ======= ======= ======== ========
F-23 104 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THE PREDECESSOR ------------------------------------------------------------------- FIVE MONTHS ENDED MAY 26, 1995 ------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------ ---------- -------------- ------------ ------------ Net sales.......................... $33,513 $ -- $14,093 $(5,394) $42,212 Cost of goods sold................. 24,147 -- 11,237 (5,282) 30,102 ------- ------ ------- ------- ------- Gross profit................ 9,366 -- 2,856 (112) 12,110 Selling, general and administrative expense.......................... 13,549 -- 1,789 -- 15,338 ------- ------ ------- ------- ------- Operating income (loss)..... (4,183) -- 1,067 (112) (3,228) Other expenses (income): Interest expense................. 999 -- 200 (549) 650 Interest income.................. -- (549) -- 549 -- Other, net....................... (205) (23) (48) -- (276) Equity in earnings of subsidiaries.................. (784) (544) -- 1,328 -- ------- ------ ------- ------- ------- Income (loss) before income taxes.................... (4,193) 1,116 915 (1,440) (3,602) Provision (benefit) for income taxes............................ (1,978) 220 371 -- (1,387) ------- ------ ------- ------- ------- Net income (loss)........... $(2,215) $ 896 $ 544 $(1,440) $(2,215) ======= ====== ======= ======= ======= THE COMPANY ------------------------------------------------------------------- SEVEN MONTHS ENDED DECEMBER 30, 1995 ------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------ ---------- -------------- ------------ ------------ Net sales........................... $46,865 $ -- $19,320 $(7,253) $58,932 Cost of goods sold.................. 33,272 -- 15,328 (7,247) 41,353 ------- ------ ------- ------- ------- Gross profit................. 13,593 -- 3,992 (6) 17,579 Selling, general and administrative expense........................... 7,668 -- 2,508 -- 10,176 ------- ------ ------- ------- ------- Operating income............. 5,925 -- 1,484 (6) 7,403 Other expenses (income): Interest expense.................. 3,413 29 246 (808) 2,880 Interest income................... (808) 808 -- Other, net........................ (289) -- 81 -- (208) Equity in earnings of subsidiaries................... (1,155) (649) -- 1,804 -- ------- ------ ------- ------- ------- Income before income taxes... 3,956 1,428 1,157 (1,810) 4,731 Provision for income taxes.......... 1,081 267 508 -- 1,856 ------- ------ ------- ------- ------- Net income................... $ 2,875 $1,161 $ 649 $(1,810) $ 2,875 ======= ====== ======= ======= =======
F-24 105 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THE COMPANY ------------------------------------------------------------------- FISCAL YEAR ENDED DECEMBER 28, 1996 ------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------ ---------- -------------- ------------ ------------ Net sales.......................... $76,957 -- $33,515 $(11,811) $98,661 Cost of goods sold................. 55,121 -- 26,421 (11,714) 69,828 ------- ------- ------- -------- ------- Gross profit................ 21,836 -- 7,094 (97) 28,833 Selling, general and administrative expense.......................... 12,155 -- 4,980 -- 17,135 ------- ------- ------- -------- ------- Operating income............ 9,681 -- 2,114 (97) 11,698 Other expenses (income): Interest expense................. 5,411 35 365 (1,412) 4,399 Interest income.................. -- (1,412) -- 1,412 -- Other, net....................... 360 -- (115) 245 Equity in earnings of subsidiaries.................. (1,735) (960) -- 2,695 -- ------- ------- ------- -------- ------- Income before income taxes.................... 5,645 2,337 1,864 (2,792) 7,054 Provision for income taxes......... 1,662 505 904 -- 3,071 ------- ------- ------- -------- ------- Net income.................. $ 3,983 $ 1,832 $ 960 $ (2,792) $ 3,983 ======= ======= ======= ======== ======= THE COMPANY ------------------------------------------------------------------- FISCAL YEAR ENDED DECEMBER 27, 1997 ------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------ ---------- -------------- ------------ ------------ Net sales.......................... $86,060 $ 3,797 $38,910 $(14,585) $114,182 Cost of goods sold................. 60,571 2,401 30,362 (14,536) 78,798 ------- ------- ------- -------- -------- Gross profit................ 25,489 1,396 8,548 (49) 35,384 Selling, general and administrative expense.......................... 14,288 900 5,961 -- 21,149 ------- ------- ------- -------- -------- Operating income............ 11,201 496 2,587 (49) 14,235 Other expenses (income): Interest expense................. 6,163 196 430 (1,826) 4,963 Interest income.................. -- (1,826) 1,826 -- Other, net....................... 463 186 (129) -- 520 Equity in earnings of subsidiaries.................. (2,402) (1,231) -- 3,633 -- ------- ------- ------- -------- -------- Income before income taxes.................... 6,977 3,171 2,286 (3,682) 8,752 Provision for income taxes......... 1,976 720 1,055 -- 3,751 ------- ------- ------- -------- -------- Net income.................. $ 5,001 $ 2,451 $ 1,231 $ (3,682) $ 5,001 ======= ======= ======= ======== ========
F-25 106 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED)
THE COMPANY ------------------------------------------------------------------- SIX MONTHS ENDED JUNE 28, 1997 ------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------ ---------- -------------- ------------ ------------ Net sales.......................... $42,696 $ -- $20,032 $(7,352) $55,376 Cost of goods sold................. 30,189 -- 15,410 (7,352) 38,247 ------- ------ ------- ------- ------- Gross profit................ 12,507 -- 4,622 -- 17,129 Selling, general and administrative expense.......................... 6,964 -- 2,980 -- 9,944 ------- ------ ------- ------- ------- Operating income............ 5,543 -- 1,642 -- 7,185 Other expenses (income): Interest expense................. 2,962 -- 394 (956) 2,400 Interest income.................. -- (809) (153) 956 (6) Other, net....................... 211 15 (54) -- 172 Equity in earnings of subsidiaries.................. (1,296) (788) -- 2,084 -- ------- ------ ------- ------- ------- Income before income taxes.................... 3,666 1,582 1,455 (2,084) 4,619 Provision for income taxes......... 1,018 286 667 -- 1,971 ------- ------ ------- ------- ------- Net income.................. $ 2,648 $1,296 $ 788 (2,084) $ 2,648 ======= ====== ======= ======= ======= THE COMPANY ------------------------------------------------------------------- SIX MONTHS ENDED JUNE 27, 1998 ------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------ ---------- -------------- ------------ ------------ Net sales.......................... $43,960 $5,099 $21,272 $(7,690) $62,641 Cost of goods sold................. 30,344 3,344 16,283 (7,690) 42,281 ------- ------ ------- ------- ------- Gross profit................ 13,616 1,755 4,989 -- 20,360 Selling, general and administrative expense.......................... 7,374 1,310 3,277 -- 11,961 ------- ------ ------- ------- ------- Operating income............ 6,242 445 1,712 -- 8,399 Other expenses (income): Interest expense................. 3,044 238 452 (1,249) 2,485 Interest income.................. -- (1,106) (151) 1,249 (8) Other, net....................... 240 26 (99) -- 167 Equity in earnings of subsidiaries.................. (1,654) (853) -- 2,507 -- ------- ------ ------- ------- ------- Income before income taxes.................... 4,612 2,140 1,510 (2,507) 5,755 Provision for income taxes......... 1,298 486 657 -- 2,441 ------- ------ ------- ------- ------- Net income.................. $ 3,314 $1,654 $ 853 $(2,507) $ 3,314 ======= ====== ======= ======= =======
F-26 107 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THE PREDECESSOR ---------------------------------------------------------------------- FIVE MONTHS ENDED DECEMBER 30, 1995 ---------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------- ----------- --------------- ------------ ------------- Net cash (used in) provided by operating activities............................. $ 1,773 $ 52 $ (774) $ 402 $ 1,453 Cash flows from investing activities: Proceeds from asset sales.............. 31 -- 14 -- 45 Purchase of equipment.................. (630) -- (115) -- (745) ------- ---- ------ ----- ------- Net cash used by investing activities.......................... (599) -- (101) -- (700) Cash flows from financing activities: Change in overdraft.................... 147 -- 2 -- 149 Proceeds from issuance of long-term debt................................ (284) -- 37 -- (247) Principal payments of long-term debt... (914) -- 173 (391) (1,132) Intercompany loans..................... -- (27) 27 -- -- ------- ---- ------ ----- ------- Net cash (used in) provided by financing activities................ (1,051) (27) 239 (391) (1,230) Effect of foreign exchange............. -- -- (178) (11) (189) ------- ---- ------ ----- ------- Increase (decrease) in cash.............. 123 25 (814) -- (666) Cash at beginning of the period.......... 17 1 1,430 -- 1,448 ------- ---- ------ ----- ------- Cash at end of the period................ $ 140 $ 26 $ 616 $ -- $ 782 ======= ==== ====== ===== =======
F-27 108 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THE COMPANY ---------------------------------------------------------------------- SEVEN MONTHS ENDED DECEMBER 30, 1995 ---------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------- ----------- --------------- ------------ ------------- Net cash (used in) provided by operating activities............................. $ 3,040 $(854) $ 978 $ 2,480 $ 5,644 Cash flows from investing activities: Proceeds from asset sales.............. 22 -- -- -- 22 Purchase of equipment.................. (1,628) -- (267) -- (1,895) Acquisitions........................... (44,620) -- -- -- (44,620) ------- ----- ------- ------- ------- Net cash used in investing activities.......................... (46,226) -- (267) -- (46,493) Cash flows from financing activities: Change in overdraft.................... 124 -- -- -- 124 Net proceeds from revolving credit facility............................ 7,643 -- (2,590) -- 5,053 Proceeds from issuance of long-term debt................................ 35,800 -- -- -- 35,800 Principal payments of long-term debt... (9,125) -- 1,829 (1,481) (8,777) Intercompany loans..................... -- 829 (829) -- -- Issuance of common stock............... 11,000 -- 1,000 (1,000) 11,000 Other.................................. (1,597) -- -- -- (1,597) ------- ----- ------- ------- ------- Net cash (used in) provided by financing activities................ 43,845 829 (590) (2,481) 41,603 Effect of foreign exchange............. -- -- 7 1 8 ------- ----- ------- ------- ------- Increase (decrease) in cash.............. 659 (25) 128 -- 762 Cash at beginning of the period.......... 140 26 616 -- 782 ------- ----- ------- ------- ------- Cash at end of the period................ $ 799 $ 1 $ 744 $ -- $ 1,544 ======= ===== ======= ======= =======
F-28 109 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THE COMPANY ---------------------------------------------------------------------- FISCAL YEAR ENDED DECEMBER 28, 1996 ---------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------- ----------- --------------- ------------ ------------- Net cash (used in) provided by operating activities............................. $ 2,227 $ 1,204 $(1,540) $ 4,774 $ 6,665 Cash flows from investing activities: Proceeds from asset sales.............. 20 -- 15 -- 35 Purchase of equipment.................. (3,168) -- (470) -- (3,638) Acquisitions........................... (1,185) (1,185) (1,185) 2,370 (1,185) ------- ------- ------- ------- ------- Net cash used in investing activities.......................... (4,333) (1,185) (1,640) 2,370 (4,788) Cash flows from financing activities: Change in overdraft.................... 266 -- 53 -- 319 Net proceeds from revolving credit facility............................ -- -- (197) -- (197) Proceeds from issuance of long-term debt................................ -- -- -- -- -- Principal payments of long-term debt... 865 -- 611 (4,006) (2,530) Intercompany loans..................... -- (2,125) 2,125 -- -- Issuance of common stock............... -- 3,100 37 (3,137) -- Dividends (paid) received.............. 992 (992) -- -- -- Other.................................. (118) -- -- -- (118) ------- ------- ------- ------- ------- Net cash (used in) provided by financing activities................ 2,005 (17) 2,629 (7,143) (2,526) Effect of foreign exchange............. -- -- 361 (1) 360 ------- ------- ------- ------- ------- Increase (decrease) in cash.............. (101) 2 (190) -- (289) Cash at beginning of the period.......... 799 1 744 -- 1,544 ------- ------- ------- ------- ------- Cash at end of the period................ $ 698 $ 3 $ 554 $ -- $ 1,255 ======= ======= ======= ======= =======
F-29 110 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THE COMPANY ------------------------------------------------------------------- FISCAL YEAR ENDED DECEMBER 27, 1997 ------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------ ---------- -------------- ------------ ------------ Net cash provided by operating activities........................ $ 7,385 $1,644 $ 3,342 $ 675 $13,046 Cash flows from investing activities: Proceeds from asset sales......... 65 37 4 1 107 Purchase of equipment............. (3,074) (18) (616) -- (3,708) Acquisitions...................... (13,703) (8,125) -- 8,125 (13,703) ------- ------ ------- ------- ------- Net cash used by investing activities..................... (16,712) (8,106) (612) 8,126 (17,304) Cash flows from financing activities: Change in overdraft............... (488) -- (51) -- (539) Net proceeds from revolving credit facility....................... -- (536) (909) -- (1,445) Proceeds from issuance of long-term debt................. 7,700 -- -- -- 7,700 Principal payments of long-term debt........................... (722) -- (733) 143 (1,312) Intercompany loans................ -- 452 (452) -- -- Issuance of common stock.......... 33 9,000 (1) (8,999) 33 Dividends (paid) received......... 2,269 (2,269) -- -- -- Other............................. (138) -- -- -- (138) ------- ------ ------- ------- ------- Net cash (used in) provided by financing activities........... 8,654 6,647 (2,146) (8,856) 4,299 Effect of foreign exchange........ -- -- (96) 55 (41) ------- ------ ------- ------- ------- Increase (decrease) in cash......... (673) 185 488 -- -- Cash at beginning of the period..... 698 3 554 -- 1,255 ------- ------ ------- ------- ------- Cash at end of the period........... $ 25 $ 188 $ 1,042 -- $ 1,255 ======= ====== ======= ======= =======
F-30 111 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED)
THE COMPANY ---------------------------------------------------------------------- FOR SIX MONTHS ENDED JUNE 27, 1997 ---------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------- ----------- --------------- ------------ ------------- Net cash (used in) provided by operating activities............................. $ 3,194 $ 506 $ 1,290 $(14) $ 4,976 Cash flows from investing activities: Proceeds from asset sales.............. 38 -- -- -- 38 Purchase of equipment.................. (1,242) -- (300) -- (1,542) Acquisitions........................... (5,578) -- -- -- (5,578) ------- ----- ------- ---- ------- Net cash used in investing activities........................ (6,782) -- (300) -- (7,082) Cash flows from financing activities: Change in overdraft.................... (270) -- (20) -- (290) Net proceeds from revolving credit facility............................ -- -- (585) -- (585) Proceeds from issuance of long-term debt................................ 6,000 -- -- -- 6,000 Principal payments of long-term debt... (2,960) -- (402) -- (3,362) Proceeds from issuance of notes payable............................. -- -- -- -- -- Intercompany loans..................... 33 -- (1) 1 33 Issuance of common stock............... -- -- -- -- -- Purchase of treasury stock............. -- -- -- -- -- Dividends (paid) received.............. 594 (594) -- -- -- Other.................................. (32) 93 (92) (1) (32) ------- ----- ------- ---- ------- Net cash (used in)/provided by financing activities................ 3,365 (501) (1,100) -- 1,764 Effect of foreign exchange............. -- -- (47) 14 (33) ------- ----- ------- ---- ------- Increase (decrease) in cash.............. (223) 5 (157) -- (375) Cash at beginning of the period.......... 698 3 554 -- 1,255 ------- ----- ------- ---- ------- Cash at end of the period................ $ 475 $ 8 $ 397 -- $ 880 ======= ===== ======= ==== =======
F-31 112 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED)
THE COMPANY ---------------------------------------------------------------------- FOR SIX MONTHS ENDED JUNE 28, 1998 ---------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------- ----------- --------------- ------------ ------------- Net cash (used in) provided by operating activities............................. $(3,043) $ 1,025 $ (600) $ 5,318 $ 2,700 Cash flows from investing activities: Proceeds from asset sales.............. 1 -- 56 -- 57 Purchase of equipment.................. (1,874) (50) (161) -- (2,085) Acquisitions........................... -- -- (6,781) -- (6,781) ------- ------- ------- ------- ------- Net cash used in investing activities........................ (1,873) (50) (6,886) -- (8,809) Cash flows from financing activities: Change in overdraft.................... (97) -- (2) -- (99) Net proceeds from revolving credit facility............................ 6,167 -- 635 -- 6,802 Proceeds from issuance of long-term debt................................ -- -- -- -- -- Principal payments of long-term debt... (2,250) -- (66) -- (2,316) Proceeds from issuance of notes payable............................. -- -- 1,474 -- 1,474 Intercompany loans..................... -- (5,112) 5,112 -- -- Issuance of common stock............... -- 5,358 -- (5,358) -- Purchase of treasury stock............. (47) -- -- -- (47) Dividends (paid) received.............. 1,144 (1,144) -- -- -- Other.................................. -- -- -- -- -- ------- ------- ------- ------- ------- Net cash (used in)/provided by financing activities................ 4,917 (898) 7,153 (5,358) 5,814 Effect of foreign exchange............. -- -- (165) 40 (125) ------- ------- ------- ------- ------- Increase (decrease) in cash.............. 1 77 (498) -- (420) Cash at beginning of the period.......... 25 188 1,042 -- 1,255 ------- ------- ------- ------- ------- Cash at end of the period................ $ 26 $ 265 $ 544 -- $ 835 ======= ======= ======= ======= =======
F-32 113 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (14) SUBSEQUENT EVENTS AND INTERIM FINANCIAL STATEMENTS (UNAUDITED) The unaudited condensed consolidated financial statements presented (Unaudited Financial Statements) as of June 27, 1998 and for the three months ended June 28, 1997 and June 27, 1998 have been prepared by the Company and include all of its wholly owned subsidiaries after elimination of intercompany accounts and transactions, without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted; however, the Company believes that the disclosures included are adequate to make the information presented not misleading. The Unaudited Financial Statements should be read in conjunction with the consolidated financial statements and the notes included herein. Inventories at June 27, 1998 include approximately $5,364 of raw materials, $7,329 of work in process and $16,004 in finished goods. In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income, which requires companies to report all changes in equity during a period, except those resulting from investment by owners and distribution to owners, in a financial statement for the period in which they are recognized. The Company has chosen to disclose Comprehensive Income, which encompasses net income and foreign currency translation adjustments, in the Consolidated Statements of Shareholders' Equity. Prior years have been restated to conform to the SFAS No. 130 requirements. On May 8, 1998, the Company acquired 100% of the outstanding stock of W. Notting Limited for approximately $6,781, of which $5,358 was paid in cash with additional financing from the Company's revolving credit facility and the balance was in the form of a term Promissory Note bearing interest at 8.5% and repayable April 30, 1999. The acquisition is accounted for as a purchase and the purchase price has been allocated based on the fair market value of the underlying assets and liabilities. The purchase allocation is preliminary and subject to adjustment. Goodwill totaled $1,867 on this acquisition and will be amortized on a straight-line basis over 40 years. The consolidated financial statements include the results of operations of W. Notting Limited subsequent to the date of acquisition. In July 1998, the Company issued $100,000 of Senior Subordinated Notes (the "Notes"). Interest on the Notes will accrue from the date of issuance at 10.25% and is payable semi-annually on January 1 and July 1, commencing January 1, 1999. The Notes are due in 2008 but may be redeemed on or after July 1, 2003 at specified premium prices. Proceeds from the Notes were primarily used for repayment of indebtedness, acquisition of treasury stock, and buyout of all outstanding stock options and warrants. The buyout of stock options resulted in a pretax compensation charge of approximately $4,500 recorded in July 1998. The repayment of indebtedness resulted in an extraordinary charge of approximately $600, net of tax benefit, recorded in July 1998 to write off unamortized debt discount and deferred financing costs. The Company concurrently entered into a new Senior Credit Facility with a commercial lender, that provides $30,000 availability, undrawn as of the offering date. Borrowings under the Senior Credit Facility are available for permitted acquisitions and working capital, including letters of credit. The Senior Credit Facility is secured by first priority liens on all tangible and intangible personal property and real property assets of the Company and its subsidiaries. The Senior Credit Facility will expire in 2003, unless extended. The interest rate per annum applicable to the Senior Credit Facility will be, at the Company's option, either LIBOR or the greater of the prime rate or the overnight federal funds rate plus 0.50%, in each case plus 0.125% to 2.375% depending on the Company's financial leverage (the "Applicable Margin"). The Company will be required to pay certain fees in connection with the Senior Credit Facility, including a commitment fee of 0.50% initially and thereafter at a per annum rate equal to the Applicable Margin on the unutilized portion of the revolver. F-33 114 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Financing costs relating to the issuance of these Notes are estimated to be $5,000 and will be amortized over the term of the debt. Also in July 1998 the Company issued warrants to certain shareholders to purchase an aggregate of 4393.74 shares of common stock at a price of $458.52 per share, and granted options to two executives to purchase an aggregate of 673 shares of common stock at $458.52 per share. F-34 115 ================================================================================ NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. --------------- TABLE OF CONTENTS PAGE ---- Summary................................................................... 1 Risk Factors.............................................................. 11 Use of Proceeds........................................................... 15 Capitalization............................................................ 15 Selected Pro Forma Financial Data......................................... 16 Selected Historical Financial Data........................................ 20 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 21 Business.................................................................. 25 Management................................................................ 32 Security Ownership of Certain Beneficial Owners and Management............ 36 Certain Transactions...................................................... 37 Description of Senior Debt................................................ 37 Description of Exchange Notes............................................. 39 The Exchange Offer........................................................ 64 Certain Federal Income Tax Considerations................................. 72 Plan of Distribution...................................................... 75 Legal Matters............................................................. 76 Experts................................................................... 76 Index to Consolidated Financial Statements................................ F-1 ================================================================================ $100,000,000 SIMONDS INDUSTRIES INC. 10 1/4% SENIOR SUBORDINATED NOTES DUE 2008 -------------- PROSPECTUS , 1998 -------------- ================================================================================ 116 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. As permitted by Section 102(b)(7) of the Delaware General Corporation Law ("DGCL"), the Registrant's Certificate of Incorporation eliminates the personal liability of a director to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL (relating to unlawful payment of dividends and unlawful stock purchase and redemption) or (iv) for any transaction from which the director derived an improper personal benefit. Section 145 of the DGCL authorizes a corporation to indemnify its directors, officers, employees and other agents in terms sufficiently broad to permit indemnification (including reimbursement for expenses) under certain circumstances for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"). The Registrant's Certificate of Incorporation contains a provision covering indemnification to the maximum extent permitted under the DGCL of directors and officers of the Registrant against certain liabilities and expenses incurred as a result of proceedings involving such persons in their capacities as directors, officers or agents of the Registrant, including proceedings under the Securities Act or the Securities Exchange Act of 1934, as amended. At present, there is no pending litigation or proceeding involving a director, officer or other agent of the Registrant in which indemnification is being sought, nor is the Registrant aware of any threatened litigation that may result in a claim for indemnification by any director, officer or other agent of the Registrant. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 Stockholder Agreement dated as of July 7, 1998 among the Company and its stockholders 2.2 Stock Purchase Agreement dated August 1, 1997 among Simonds Holding Company, Inc., Armstrong Manufacturing Company and Frederic B. Andrianoff 2.3 Share Purchase Agreement dated May 7, 1998 among Time Eclipse Limited, SI Holding Corporation and the shareholders of W. Notting Limited 3.1 Amended and Restated Certificate of Incorporation of Simonds 3.2 By-laws of Simonds 3.3 Certificate of Incorporation of Armstrong Manufacturing Company 3.4 By-laws of Armstrong Manufacturing Company 3.5 Certificate of Incorporation of Simonds Holding Company, Inc. 3.6 By-laws of Simonds Holding Company, Inc. 3.7 Certificate of Incorporation of Simonds Industries FSC, Inc. 3.8 By-laws of Simonds Industries FSC, Inc. 4.1 Indenture dated as of July 7, 1998 among the Company, the Guarantors and the Trustee 4.2 Registration Rights Agreement dated July 7, 1998 among the Company, the Guarantors and Salomon Brothers Inc., First Union Capital Markets and Schroder & Co. Inc. 4.3 Credit Agreement dated as of July 2, 1998 among the Company, certain of its Subsidiaries and First Union National Bank 4.4 Credit Agreement between Wespa and The First National Bank of Boston Zweigniederlassung Frankfurt dated February 23, 1993 4.5 Promissory Notes of Simonds UK Holdings Ltd. 4.6 Purchase Agreement dated June 30, 1998 among the Company, the Guarantors and Salomon Smith Barney Inc, First Union Capital Markets and Schroder & Co., Inc. 5.1 Opinion of Wellesley Law Associates 5.2 Opinion of Edwards & Angell, LLP II-1 117 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.1 Employment and Non-Competition Agreement between the Company and Ross George dated May 26, 1995, as amended July 7, 1998 10.2 Employment and Non-Competition Agreement between the Company and Joseph Sylvia dated May 26, 1995, as amended July 7, 1998 10.3 Employment agreement between the Company and Robert Deedrick dated June 1, 1993 10.4 Employment agreement between the Company and James Palmer dated March 31, 1995 10.5 Employment agreement between the Company and Roland Richard dated May 7, 1992 10.6 Employment Agreement dated November 14, 1995 between the Company and F. A. DeVilling, III 10.7 Employment Agreement dated March 31, 1998 between the Company and Ronald Owens 10.8 Simonds Industries Inc. Amended and Restated 1998 Stock Incentive Plan 10.9 Escrow Agreement dated May 26, 1995 among SI Holding Corporation, the Company, Charles W. Doulton, the Massachusetts Capital Resource Company, the shareholders of Simonds Industries, Inc., the option holders of the Company and Fleet Bank of Massachusetts, N.A. 10.10 Labor Agreement dated May 5, 1998 between the Company and Local No. 7896 of the United Steel Workers of America 10.11 Agreement dated April 6, 1998 between the Company and Local 2737-16 of the United Steelworkers of America, AFL-CIO 10.12 Agreement dated April 6, 1998 between the Company and Local No. 2737-17 of the United Steelworkers of America, AFL-CIO 10.13 Employment Agreement between the Company and Harry Rogers dated February 23, 1994 12.1 Statement regarding computation of ratios 21.1 Subsidiaries 23.1 Consent of Wellesley Law Associates (included in Exhibit 5.1) 23.2 Consent of Edwards & Angell, LLP (included in Exhibit 5.2) 23.3 Consent of Arthur Andersen LLP 24.1 Powers of Attorney (included on signature pages) 25.1 Statement of Eligibility on Form T-1 of State Street Bank and Trust Company as Trustee under the Indenture 27.1 Financial Data Schedules 99.1 Form of Letter of Transmittal used in connection with the Exchange Offer 99.2 Form of Notice of Guaranteed Delivery used in connection with the Exchange Offer 99.3 Form of Exchange Agent Agreement ITEM 22. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by any such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether or not such indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: (1) That, prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), such reoffering prospectus will contain the information II-2 118 called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) That, every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (4) That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (5) That for purposes of determining any liability under the Securities Act, each post-effective amendment that contained a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (6) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (7) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (8) That, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. (9) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (10) To file an application for the purpose of determining the eligibility of the Trustee to act under subsection (a) of section 310 of the Trust Indenture Act ("Act") in accordance with the rules and regulations prescribed by the Commission under section 305 (b)(2) of the Act. II-3 119 SIGNATURES Simonds Industries Inc. Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Fitchburg, Commonwealth of Massachusetts, on the 2nd day of September, 1998. SIMONDS INDUSTRIES INC. By: /s/ ROSS GEORGE ---------------------------------- Ross George Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed by the following persons in the capacities indicated on the 2nd day of September, 1998. KNOW ALL MEN BY THESE PRESENTS that each officer and director of Simonds Industries Inc. whose signature appears below constitutes and appoints Ross George, Joseph Sylvia and David Witman, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him or her and in his or her name, place and stead, in any and all capacities, to execute any and all amendments, or any post-effective amendments and supplements to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in- fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES TITLE ---------- ----- /s/ ROSS GEORGE President, Chief Executive Officer and Director - --------------------------------------------------- (principal executive officer) Ross George /s/ JOSEPH SYLVIA Executive Vice President, Chief Financial Officer - --------------------------------------------------- and Director (principal financial and accounting Joseph Sylvia officer) /s/ HABIB GORGI Director - --------------------------------------------------- Habib Gorgi /s/ BERNARD BUONANNO III Director - --------------------------------------------------- Bernard Buonanno III
II-4 120 SIGNATURES Armstrong Manufacturing Company. Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Fitchburg, Commonwealth of Massachusetts, on the 2nd day of September, 1998. ARMSTRONG MANUFACTURING COMPANY By: /s/ ROSS GEORGE ---------------------------------- Ross George Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed by the following persons in the capacities indicated on the 2nd day of September, 1998. KNOW ALL MEN BY THESE PRESENTS that each officer and director of Armstrong Manufacturing Company whose signature appears below constitutes and appoints Ross George, Joseph Sylvia and David Witman, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him or her and in his or her name, place and stead, in any and all capacities, to execute any and all amendments, or any post-effective amendments and supplements to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in- fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES TITLE ---------- ----- /s/ ROSS GEORGE President, Chief Executive Officer and Director - --------------------------------------------------- (principal executive officer) Ross George /s/ JOSEPH SYLVIA Chief Financial Officer and Director (principal - --------------------------------------------------- financial and accounting officer) Joseph Sylvia /s/ JOHN F. WILSON Director - --------------------------------------------------- John F. Wilson
II-5 121 SIGNATURES Simonds Holding Company, Inc. Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Fitchburg, Commonwealth of Massachusetts, on the 2nd day of September, 1998. SIMONDS HOLDING COMPANY, INC. By: /s/ JOSEPH L. SYLVIA ---------------------------------- Joseph L. Sylvia President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed by the following persons in the capacities indicated on the 2nd day of September, 1998. KNOW ALL MEN BY THESE PRESENTS that each officer and director of Simonds Holding Company, Inc. whose signature appears below constitutes and appoints Ross George, Joseph Sylvia and David Witman, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him or her and in his or her name, place and stead, in any and all capacities, to execute any and all amendments, or any post-effective amendments and supplements to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in- fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES TITLE ---------- ----- /s/ JOSEPH L. SYLVIA President, Treasurer and Director (principal - --------------------------------------------------- executive officer and principal financial and Joseph L. Sylvia accounting officer) /s/ DAVID P. WITMAN Director - --------------------------------------------------- David P. Witman /s/ JOAN DOBRZYNSKI Director - --------------------------------------------------- Joan Dobrzynski /s/ BARBARA STEEN Director - --------------------------------------------------- Barbara Steen
II-6 122 SIGNATURES Simonds Industries FSC, Inc. Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Fitchburg, Commonwealth of Massachusetts, on the 2nd day of September, 1998. SIMONDS INDUSTRIES FSC, INC. By: /s/ ROSS GEORGE ---------------------------------- Ross George Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed by the following persons in the capacities indicated on the 2nd day of September, 1998. KNOW ALL MEN BY THESE PRESENTS that each officer and director of Simonds Industries FSC, Inc. whose signature appears below constitutes and appoints Ross George, Joseph Sylvia and David Witman, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him or her and in his or her name, place and stead, in any and all capacities, to execute any and all amendments, or any post-effective amendments and supplements to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in- fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES TITLE ---------- ----- /s/ ROSS GEORGE President, Chief Executive Officer and Director - --------------------------------------------------- (principal executive officer) Ross George /s/ JOSEPH SYLVIA Treasurer and Director (principal financial and - --------------------------------------------------- accounting officer) Joseph Sylvia /s/ FRANCISCO J.T. RIVERA Director - --------------------------------------------------- Francisco J.T. Rivera
II-7 123 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 Stockholder Agreement dated as of July 7, 1998 among the Company and its stockholders 2.2 Stock Purchase Agreement dated August 1, 1997 among Simonds Holding Company, Inc., Armstrong Manufacturing Company and Frederic B. Andrianoff 2.3 Share Purchase Agreement dated May 7, 1998 among Time Eclipse Limited, SI Holding Corporation and the shareholders of W. Notting Limited 3.1 Amended and Restated Certificate of Incorporation of Simonds 3.2 By-laws of Simonds 3.3 Certificate of Incorporation of Armstrong Manufacturing Company 3.4 By-laws of Armstrong Manufacturing Company 3.5 Certificate of Incorporation of Simonds Holding Company, Inc. 3.6 By-laws of Simonds Holding Company, Inc. 3.7 Certificate of Incorporation of Simonds Industries FSC, Inc. 3.8 By-laws of Simonds Industries FSC, Inc. 4.1 Indenture dated as of July 7, 1998 among the Company, the Guarantors and the Trustee 4.2 Registration Rights Agreement dated July 7, 1998 among the Company, the Guarantors and Salomon Brothers Inc., First Union Capital Markets and Schroder & Co. Inc. 4.3 Credit Agreement dated as of July 2, 1998 among the Company, certain of its Subsidiaries and First Union National Bank 4.4 Credit Agreement between Wespa and The First National Bank of Boston Zweigniederlassung Frankfurt dated February 23, 1993 4.5 Promissory Notes of Simonds UK Holdings Ltd. 4.6 Purchase Agreement dated June 30, 1998 among the Company, the Guarantors and Salomon Smith Barney Inc, First Union Capital Markets and Schroder & Co., Inc. 5.1 Opinion of Wellesley Law Associates 5.2 Opinion of Edwards & Angell, LLP 10.1 Employment and Non-Competition Agreement between the Company and Ross George dated May 26, 1995, as amended July 7, 1998 10.2 Employment and Non-Competition Agreement between the Company and Joseph Sylvia dated May 26, 1995, as amended July 7, 1998 10.3 Employment agreement between the Company and Robert Deedrick dated June 1, 1993 10.4 Employment agreement between the Company and James Palmer dated March 31, 1995 10.5 Employment agreement between the Company and Roland Richard dated May 7, 1992 10.6 Employment Agreement dated November 14, 1995 between the Company and F. A. DeVilling, III 10.7 Employment Agreement dated March 31, 1998 between the Company and Ronald Owens 10.8 Simonds Industries Inc. Amended and Restated 1998 Stock Incentive Plan 10.9 Escrow Agreement dated May 26, 1995 among SI Holding Corporation, the Company, Charles W. Doulton, the Massachusetts Capital Resource Company, the shareholders of Simonds Industries, Inc., the option holders of the Company and Fleet Bank of Massachusetts, N.A. 10.10 Labor Agreement dated May 5, 1998 between the Company and Local No. 7896 of the United Steel Workers of America 10.11 Agreement dated April 6, 1998 between the Company and Local 2737-16 of the United Steelworkers of America, AFL-CIO 10.12 Agreement dated April 6, 1998 between the Company and Local No. 2737-17 of the United Steelworkers of America, AFL-CIO 10.13 Employment Agreement between the Company and Harry Rogers dated February 23, 1994 12.1 Statement regarding computation of ratios 21.1 Subsidiaries 23.1 Consent of Wellesley Law Associates (included in Exhibit 5.1) 23.2 Consent of Edwards & Angell, LLP (included in Exhibit 5.2) 23.3 Consent of Arthur Andersen LLP 24.1 Powers of Attorney (included on signature pages) 25.1 Statement of Eligibility on Form T-1 of State Street Bank and Trust Company as Trustee under the Indenture 27.1 Financial Data Schedules 99.1 Form of Letter of Transmittal used in connection with the Exchange Offer 99.2 Form of Notice of Guaranteed Delivery used in connection with the Exchange Offer 99.3 Form of Exchange Agent Agreement
EX-2.1 2 STOCK HOLDER AGREEMENT DATED 7/7/98 1 EXHIBIT 2.1 STOCKHOLDER AGREEMENT --------------------- SIMONDS INDUSTRIES INC. 135 Intervale Road Fitchburg, Massachusetts 01420 This Stockholder Agreement dated as of July 7, 1998 is among Simonds Industries Inc., a Delaware corporation (the "Company"), Fleet Venture Resources, Inc., a Rhode Island corporation ("FVR"), Kennedy Plaza Partners, a Rhode Island general partnership ("KPP"), Fleet Equity Partners VI, L.P., a Delaware limited partnership ("FEP"), Chisholm Partners III, L.P., a Delaware limited partnership ("Chisholm"), Private Market Fund, L.P., a Delaware limited partnership ("Pacific"), Heller Financial, Inc., a Delaware corporation ("Heller"), First Union Investors, Inc., a North Carolina corporation ("First Union"), Donald E. Bates, an individual residing in the Commonwealth of Massachusetts ("Bates"), and those persons designated as managers on the signature pages hereto (collectively, the "Managers"). WHEREAS, the parties have entered into a Subscription Agreement (as defined herein) of even date herewith pursuant to which such parties have agreed to purchase shares of capital stock in the Company; WHEREAS, the Company has repurchased various shares of capital stock, warrants and options held in the Company as of the date hereof pursuant to a recapitalization of the Company (the "Recapitalization"); WHEREAS, the parties to that certain Amended and Restated Stockholder Agreement dated June 20, 1995 (the "Prior Agreement") have terminated the Prior Agreement, effective as of the date hereof; and WHEREAS, the parties desire to enter into this Stockholder Agreement to reflect certain agreements concerning the Company's repurchase rights and obligations set forth in ARTICLE II hereof, and to read in all respects as set forth herein. NOW THEREFORE, the parties hereby agree as follows: Section 1. DEFINITIONS. For all purposes of this Agreement, the following terms shall have the meanings set forth below: AFFILIATE. Affiliate shall mean as applied to any specified Person, any Person directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person and shall also include (a) any Person who is an officer, director, manager or beneficial owner of at least 5% of the then outstanding equity securities of such specified Person and Family Members and officers, directors or managers of any such Person, (b) any Person in which such specified Person or an Affiliate (as defined in clause (a) above) of such specified Person shall, directly or indirectly, either beneficially own at least 10% of the then outstanding 2 equity securities or constitute at least a 10% equity participant, and (c) in the case of a specified Person who is an individual, any Family Member of such Person. APPROVED SALE. See Section 5.1. BASE RATE. Base Rate shall mean the rate of interest announced from time to time by Fleet Bank of Massachusetts, N.A. at its head office in Boston, Massachusetts as its "prime rate". BATES. See preamble. BOOK VALUE. Book Value shall mean an amount, to be determined as of any point in time, which is equal to the sum of the Company's recorded amounts of: (i) the Stock; (ii) additional paid-in capital specifically related to the Stock; (iii) the Company's retained earnings or shareholders' deficit, as the case may be (it being understood that if a deficit exists, whether created by cumulative net losses or charges for accretion on mandatorily redeemable preferred stock, such amount will reduce Book Value); (iv) the initial value assigned to the Warrants at date of issuance (it being understood that any increase above the initial value will not increase Book Value nor will the charge to retained earnings associated with such increase reduce Book Value); (v) the initial value assigned to any outstanding and exercisable options, warrants, or convertible securities, in each case to the extent then exercisable; and (vi) treasury stock related to the Stock (it being understood that any treasury stock amount will reduce Book Value). All of these components of Book Value shall be determined in accordance with generally accepted accounting principles, consistently applied. BOOK VALUE CHANGE. Book Value Change shall mean the increase or decrease in Book Value from the date hereof (after giving effect to the Recapitalization) to the applicable Termination Date. BOOK VALUE DECREASE. Book Value Decrease shall mean the decrease in Book Value from the date hereof (after giving effect to the Recapitalization) to the applicable Termination Date. BOOK VALUE INCREASE. Book Value Increase shall mean the increase in Book Value from the date hereof (after giving effect to the Recapitalization) to the applicable Termination Date. BOOK VALUE PER SHARE. Book Value Per Share shall mean, in the case of each share of Management Stock being transferred with respect to any Termination Date, the quotient obtained by dividing (a) the Book Value calculated as of the date of the end of the month immediately preceding such Termination Date by (b) the sum of the number of shares of Stock then outstanding, PLUS the sum of the number of dilutive shares of Stock as determined under the treasury stock method defined in APB Opinion No. 15 for outstanding and exercisable warrants, options, or convertible securities. BOOK VALUE PER SHARE CHANGE. Book Value Per Share Change shall mean the increase or decrease in Book Value Per Share from the date hereof (after giving effect to the Recapitalization) to the Applicable Termination Date. -2- 3 BOOK VALUE PER SHARE DECREASE. Book Value Per Share Decrease shall mean the decrease in Book Value Per Share from the date hereof (after giving effect to the Recapitalization) to the applicable Termination Date. BOOK VALUE PER SHARE INCREASE. Book Value Per Share Increase shall mean the increase in Book Value Per Share from the date hereof (after giving effect to the Recapitalization) to the applicable Termination Date. CAUSE. Cause shall mean, with respect to any Manager, (a) an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against the Company by such Manager as determined by the Company's Board of Directors in its reasonable discretion, (b) any intentional, knowing or reckless action or inaction by such Manager which causes the breach of a representation, warranty or covenant by the Company or any Management Stockholder under any of the Related Agreements, (c) conviction of such Manager by a court of competent jurisdiction of or a plea of guilty or nolo contendere by such Manager to any felony or crime involving moral turpitude, (d) the habitual drug addiction or intoxication of any Manager, (e) the willful failure or refusal of any Manager to perform his duties under the terms of his employment with the Company, including the willful failure or refusal of such Manager to follow the instructions of the Company's Board of Directors or Chief Executive Officer, (f) the breach by any Manager of any terms of his employment with the Company (including, without limitation, the breach of any non-competition, non-disclosure, or other restrictive covenants), or (g) the breach by such Manager of any of the covenants, terms and provisions of Sections 3.1, 5, and 7 hereof. CHARTER. Charter shall include the articles or certificate of incorporation, statute, constitution, joint venture, partnership or operating agreement or articles or other organizational document of any Person other than an individual, each as from time to time amended or modified. CHISHOLM. See preamble. COMPANY. See preamble. CONSENT OF THE FLEET INSTITUTIONAL STOCKHOLDERS. Consent of the Fleet Institutional Stockholders shall mean the written consent of each of FVR, FEP, Chisholm and KPP. CONSENT OF THE INSTITUTIONAL STOCKHOLDERS. Consent of the Institutional Stockholders means the written consent of Institutional Stockholders holding a majority of the shares of Stock held by all Institutional Stockholders; provided, however, that in the case of any matter requiring such consent that has a material and adverse effect on any Institutional Stockholder that is substantially and disproportionately more burdensome to such Institutional Stockholder than to the other Institutional Stockholders, the Consent of the Institutional Stockholders shall require the consent of any such Institutional Stockholder so affected; provided, further, in no event shall any consent, otherwise required hereunder, of any BHC Holder (as defined in the Subscription Agreement) (other than pursuant to such BHC Holder's rights as a holder of Class A Common Stock) be so required (i) unless the matter subject to such consent would "significantly and adversely affect the rights or preferences of the security or interest" of such BHC Holder, as such -3- 4 terms are used in Section 225.2(q)(2)(i) of Regulation Y of the Board of Governors of the Federal Reserve System or (ii) if the result of such consent would be to cause the interests of such BHC Holder in the Company (other than such BHC Holder's Class A Common Stock) to be considered "voting securities" for purposes of said Regulation Y. DELAYED CLOSING DATE. See Section 2.3(b). DISABILITY. A Manager shall be deemed to have a disability if an independent medical doctor (selected by the Company's health or disability insurer) certifies that such Manager has for six (6) months, consecutive or non-consecutive, in any twelve (12) month period been disabled in such a manner as to be unable to perform the essential functions of his then current position, with or without reasonable accommodation. Any refusal by such Manager to submit to a medical examination for the purpose of certifying disability shall be deemed to constitute conclusive evidence of such Manager's disability. EMPLOYEE STOCK OPTION PLAN. Employee Stock Option Plan shall have the same meaning herein as in the Subscription Agreement. EXECUTIVE STOCK OPTIONS. Executive Stock Options shall have the same meaning herein as in the Subscription Agreement. EXERCISE NOTICE. See Section 2.3(a). FAMILY MEMBERS. Family Members shall mean, as applied to any individual, (i) any spouse, child, parent, brother or sister, or spouse of any thereof, and (ii) each trust or other entity created for the benefit of such individual or one or more of such Persons and each custodian of property of such individual or one or more such Persons. FAMILY TRANSFEREE. Family Transferee shall mean any Family Member of a Stockholder (i) to whom such Stockholder has transferred shares of Stock pursuant to Section 3.1 and (ii) who has executed an Instrument of Accession. FEP. See preamble. FIRST UNION. See preamble. FLEET INSTITUTIONAL STOCKHOLDERS. Fleet Institutional Stockholders means Chisholm, FEP, FVR and KPP. FVR. See preamble. HELLER. See preamble. INSTITUTIONAL STOCK. Institutional Stock shall mean (a) all shares of Stock issued to the Institutional Stockholders, (b) any shares of Stock issued to an Institutional Stockholder upon exercise of a Warrant and (c) all shares of Stock issued with respect to the foregoing by way of stock dividend or stock split or in connection with any merger, consolidation, recapitalization or -4- 5 other reorganization affecting the Stock. Institutional Stock will continue to be Institutional Stock in the hands of any holder and each transferee thereof (provided that the transfer to such transferee is permitted by this Agreement) will succeed to the rights and obligations of a holder of Institutional Stock hereunder, PROVIDED that shares of Institutional Stock will cease to be shares of Institutional Stock when transferred (i) pursuant to a Public Sale or an Approved Sale or (ii) to the Company or its Subsidiaries. INSTITUTIONAL STOCKHOLDERS. Institutional Stockholders shall mean FVR, FEP, KPP, Bates, Chisholm, Pacific, Heller, First Union and any other Person who (i) acquires Institutional Stock pursuant to the terms hereof and (ii) has executed an Instrument of Accession. Whenever this Agreement refers to the exercise of consent, voting, or approval rights of the Institutional Stockholders, such rights shall be exercisable only by Consent of the Institutional Stockholders. INSTITUTION ELECTION PERIOD. See Section 3.2. INSTRUMENT OF ACCESSION. Instrument of Accession shall mean an Instrument of Accession in the form of SCHEDULE 1 hereto. KOWIN-SIMONDS. Kowin-Simonds shall mean Kowin-Simonds, Inc., a Delaware corporation of which the Company owns fifty percent (50%) of the issued and outstanding capital stock. KPP. See preamble. MANAGEMENT STOCK. Management Stock shall mean (a) all shares of Stock purchased by or issued to the Managers, including Stock issued to the Managers upon exercise of the Executive Stock Options, (b) all shares of Stock issued with respect to the foregoing by way of stock dividend or stock split or in Connection with any merger, consolidation, recapitalization or mother reorganization affecting the Stock, and (c) all shares of Stock issued to any holder of the Employee Stock Options upon the exercise of the Employee Stock options. Management Stock will continue to be Management Stock in the hands of any holder and each transferee thereof (provided that the transfer to such transferee is permitted by this Agreement) will succeed to rights and obligations of a holder of Management Stock hereunder, PROVIDED that shares of Management Stock will cease to be shares of Management Stock when transferred (i) pursuant to a Public Sale or an Approved Sale or (ii) to the Company. MANAGEMENT STOCKHOLDERS. Management Stockholders shall mean each Manager for so long as such Manager holds shares of Management Stock and any other Person who (i) holds Management Stock and (ii) has executed an Instrument of Accession. MANAGERS. Managers shall mean those Persons listed on the signature pages hereof under the caption "Managers" and any officers, employee, director or consultant of the Company who receives shares of Stock from the Company and executes and delivers an Instrument of Accession. -5- 6 MARKET VALUE PER SHARE. Market Value Per Share shall mean the fair value per share of shares of Management Stock being transferred with respect to any Termination Date, determined as of the applicable Termination Date based on the number of shares of Stock then outstanding, PLUS the sum of the number of dilutive shares of Stock as determined under the treasury stock method defined in APB Opinion No. 15 for outstanding and exercisable warrants, options, or convertible securities, as determined in the manner set forth below. The Company's Board of Directors, by affirmative vote of at least a majority of the Board (excluding any Management Stockholder who is the subject of the termination giving rise to such determination), shall make a good faith determination of the fair value per share of such shares of Management Stock (the "Board Determination") and shall cause such determination to be delivered to such Management Stockholder. Within fifteen (15) days of such delivery, the Management Stockholder may object to the Board Determination. If such Management Stockholder does not so object, then the Market Value Per Share of such shares of Management Stock shall be equal to the Board Determination. If such Management Stockholder shall make such an objection, he may select a qualified appraiser to make a good faith determination of the fair per share value of such shares of Stock (the "Initial Appraised Value"). If the Initial Appraised Value does not exceed (or is not less than) the Board Determination by more than ten percent (10%) of the Board Determination, then the Market Value Per Share of such shares of Management Stock shall be equal to the mathematical mean of the Initial Appraised Value and the Board Determination. If the Initial Appraised Value exceeds (or is less than) the Board Determination by more than ten percent (10%) of the Board Determination, then a majority of the Board of Directors (excluding such Management Stockholder) and such Management Stockholder shall select a mutually acceptable additional qualified appraiser to make a good faith determination of the fair per share value of such shares of Management Stock (the "Second Appraised Value"). The Market Value Per Share of such shares of Management Stock shall be equal to the mathematical mean of the two closest values of the Board Determination, the Initial Appraised Value and the Second Appraised Value. The foregoing determinations shall take into consideration (i) the value of the Company as an ongoing entity, (ii) any and all indebtedness of the Company for borrowed money, (iii) any and all preferred stock or class or classes of common stock senior to the shares of Management Stock being repurchased, and (iv) any and all cash and cash equivalents held by the Company including any insurance proceeds paid or payable to the Company if the event giving rise to the termination is the death of the Management Stockholder; but without taking into consideration any minority discount. NON-TRANSFERRING STOCKHOLDERS. See Section 3.2. OFFER NOTICE. See Section 3.2. OTHER STOCK. Other Stock shall mean (a) all Restricted Securities other than Institutional Stock and (b) all shares of Stock issued with respect to the foregoing by way of stock dividend or stock split or in connection with any merger, consolidation, recapitalization or other reorganization affecting the Stock. Other Stock will continue to be Other Stock in the hands of any holder and each transferee thereof (provided that the transfer to such transferee is permitted by this Agreement) will succeed to the rights and obligations of a holder of Other Stock hereunder, -6- 7 provided that shares of Other Stock will cease to be shares of Other Stock when transferred (i) pursuant to a Public Sale or an Approved Sale or (ii) to the Company or its Subsidiaries. OTHER STOCKHOLDERS. Other Stockholders shall mean each of Stockholders, for so long as such Person holds shares of Other Stock, and any other Person who (i) holds Other Stock and (ii) has executed an Instrument of Accession. PACIFIC. See preamble. PERMITTED TRANSFERS. See Section 3.1. PERSON. Person shall mean an individual, partnership, corporation limited liability company, association, trust, joint venture, unincorporated organization, or any government, governmental department or agency or political subdivision thereof. PERSONAL REPRESENTATIVE. Personal Representative shall mean the successor or legal representative (including without limitation, a guardian, executor, administrator or conservator) of a deceased or incompetent Stockholder. PRINCIPAL SUBSIDIARY. Principal Subsidiary shall mean Simonds Holding, Simonds FSC and any other Subsidiary designated in writing to the Company's Board of Directors as a, "Principal Subsidiary" by FVR, FEP, KPP and Chisholm. PUBLIC SALE. Public Sale shall mean any sale of Restricted Securities to the public pursuant to a public offering registered under the Securities Act or to the public through a broker or market-maker pursuant to the provisions of Rule 144 (or any successor rule) adopted under the Securities Act or any other public offering not required to be registered under the Securities Act. REGISTRATION RIGHTS AGREEMENT. Registration Rights Agreement shall mean the Registration Rights Agreement of even date herewith among the Company and the Stockholders pursuant to which the Stockholders are entitled to certain registration rights in respect of the Restricted Securities as provided therein. REMAINING INSTITUTIONAL STOCKHOLDERS. Remaining Institutional Stockholders means those Institutional Stockholders other than the Fleet Institutional Stockholders. REMAINING MANAGEMENT STOCKHOLDERS. See Section 2.3(a). RELATED AGREEMENTS. Related Agreements shall mean the Repurchase Agreements, the Subscription Agreement and the Registration Rights Agreement. REPURCHASE AGREEMENTS. Repurchase Agreements means those certain agreements listed on SCHEDULE 2 hereof. RESTRICTED SECURITIES. Restricted Securities shall mean at any particular time all of the Company's then outstanding shares of Stock and options, warrants, including the Warrants, and securities convertible therefor which have not been sold in a Public Sale. -7- 8 RETIREMENT. Retirement means the retirement of a Manager at the retirement age prescribed by any applicable employment agreement between such Manager and the Company, or if no such agreement exists, prescribed by the Company for employees of the Company holding positions comparable to such Manager. SECURITIES ACT. Securities Act shall mean the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Securities and Exchange Commission, thereunder, all as the same shall be in effect from time to time. SIMONDS CANADA. Simonds Canada shall mean Simonds Industries, Inc., a business corporation organized under the Ontario Business Corporation Act of which Simonds Holding owns one hundred percent (100%) of the issued and outstanding capital stock. SIMONDS FSC. Simonds FSC shall mean Simonds Industries FSC, Inc., a corporation formed under the laws of the U.S. Virgin Islands of which the Company owns one hundred percent (100%) of the issued and outstanding capital stock. SIMONDS HOLDING. Simonds Holding shall mean Simonds Holding Company, Inc., a Delaware corporation of which the Company owns one hundred percent (100%) of the issued and outstanding capital stock. SIMONDS U.K. Simonds U.K. shall mean Simonds Industries Limited, a company formed under the laws of the United Kingdom of which Simonds Holding owns one hundred percent (100%) of the issued and outstanding capital stock. STOCK. Stock shall mean (a) the Class A Common Stock, $.0l par value, and Class B Common Stock, $.01 par value, of the Company and (b) any shares of any other class of capital stock of the Company hereafter issued which is (i) not preferred in the Company's Charter as to dividends or assets over any class of stock of the Company, (ii) not subject to redemption in the Company's Charter, or (iii) issued to the holders of shares of Stock upon any reclassification thereof. STOCKHOLDERS. Stockholders shall mean, initially, the Institutional Stockholders, the Other Stockholders and thereafter any Person who becomes a party to this Agreement by executing an Instrument of Accession in connection with the transfer or issuance to or acquisition by such Person of any Restricted Securities; provided that a Person shall cease to be a Stockholder hereunder at such time as such Person ceases to own Restricted Securities. SUBSCRIPTION AGREEMENT. Subscription Agreement shall mean the Subscription and Investment Agreement of even date herewith among the Company, the Institutional Stockholders and the Management Stockholders pursuant to which, INTER ALIA, the Institutional Stockholders and the Management Stockholders agreed to purchase Stock. SUBSIDIARY. Subsidiary shall mean any Person of which the Company or other specified Person now or hereafter shall at the time own directly or indirectly through a Subsidiary at least a majority of the outstanding capital stock (or other shares of beneficial interest) entitled to vote -8- 9 generally, including without limitation Simonds FSC, Simonds Holding, Kowin-Simonds, Simonds U.K., Simonds Canada and Wespa. TERMINATED MANAGER. Any Manager whose employment with the Company and its Subsidiaries has been terminated for any reason. TERMINATION DATE. The date on which any Manager's employment with the Company and its Subsidiaries is terminated. TRANSFER. See Section 3.1. TRANSFERRING STOCKHOLDER. See Section 3.2. WARRANTS. Warrants means those certain warrants issued to the Institutional Holders on the date hereof listed on SCHEDULE 3 hereto. WESPA. Wespa shall mean Wespa Metallsagenfabrik Simonds Industries GmbH, a German business entity of which Simonds Holding owns one hundred percent (100%) of the issued and outstanding capital stock. Section 2. REPURCHASE RIGHTS AND OBLIGATIONS WITH RESPECT TO MANAGEMENT STOCK. 2.1. TERMINATION FOR CAUSE; RESIGNATION. (a) Subject to and in accordance with the other provisions of this Section 2, if the employment or other engagement by the Company or any of its Subsidiaries of any Manager is terminated for Cause by the Company or any of its Subsidiaries at any time after the date hereof, the Company may, but shall not be obligated to, repurchase from such Terminated Manager and, if the Company so elects, such Terminated Manager shall be obligated to sell to the Company, all or any portion of such Terminated Manager's shares of Management Stock (whether held by such Terminated Manager or such Terminated Manager's Transferees) at a purchase price share equal to the lowest of (i) four hundred fifty-eight dollars and 52/100 ($458.52) per share reduced by Book Value Per Share Decrease, if any, (ii) the Market Value Per Share determined as of the applicable Termination Date or (iii) the Market Value Per Share determined as of the date of the first to occur of (a) the effective date of any Public Sale or (b) the effective date of the sale of the Company (whether by merger, consolidation, sale of all or substantially all of the Company's assets or of the assets of the Subsidiaries, or sale of all the outstanding shares of Stock). The purchase price payable in such event shall be paid in accordance with the provisions of Section 2.3 hereof. (b) Subject to and in accordance with the other provisions of this Section 2, if the employment or other engagement by the Company or any of its Subsidiaries of any Manager is terminated by reason of such Manager's resignation (other than by reason of Retirement) at any time after the date hereof, the Company may, but shall not be obligated to, repurchase from such Terminated Manager and, if the Company so elects, such Terminated Manager shall be obligated -9- 10 to sell to the Company, all or any portion of such Terminated Manager's shares of Management Stock (whether held by such Terminated Manager or such Terminated Manager's Transferees) at a purchase price share equal to four hundred fifty-eight dollars and 52/100 ($458.52) per share increased or decreased as the case may be by the Book Value Per Share Change determined as of the Applicable Termination Date. The purchase price payable in such event shall be paid in accordance with the provisions of Section 2.3 hereof. 2.2. DEATH, DISABILITY OR TERMINATION WITHOUT CAUSE. Subject to and in accordance with the other provisions of this Section 2, if the employment or other engagement by the Company or any of its Subsidiaries of any Manager is terminated at any time by reason of such Manager's death or Disability, or if the Company or any of its Subsidiaries terminates such Manager's employment other than for Cause, then the Company may, but shall not be obligated to, repurchase from such Terminated Manager or such Terminated Manager's Personal Representative, as applicable, all or any portion of such Terminated Manager's Management Stock (whether held by such Terminated Manager or such Terminated Manager's Family Transferees) at a purchase price per Share equal to the higher of (i) the Market Value Per Share or (ii) the Book Value Per Share Increase, determined as of the applicable Termination Date. The purchase price payable in such event shall be paid in accordance with the provisions of Section 2.3 hereof. 2.3 REPURCHASE CLOSINGS. (a) In the event that the Company elects to exercise its call rights pursuant to this Section 2, the Company shall deliver written notice to the Terminated Manager or such Terminated Manager's Personal Representative, as applicable, (the "Exercise Notice") specifying the number of shares of Management Stock to be repurchased within 90 days following the applicable Termination Date. The repurchase of such shares pursuant to the exercise of such call shall be completed at the Company's principal office within 30 days after delivery of the Exercise Notice, except as otherwise provided in Section 2.3(b) or Section 2.3(d) below. In the event that the Company fails to deliver an Exercise Notice within 90 days following the later of the applicable Termination Date or the date on which a Personal Representative is appointed for such Terminated Manager, if applicable, (i) the call rights under this Section 2 with respect to the Terminated Manager's Management Stock shall terminate, (ii) the Company shall deliver written notice of the same (the "Company Call Expiration Notice") to each other Management Stockholder (the "Remaining Management Stockholders") and (iii) each of the Remaining Management Stockholders may elect, by delivery of written notice to the Company within 15 days after delivery of the Company Call Expiration Notice, to repurchase all or any Portion of such Terminated Manager's Management Stock that is subject to the Company's call rights for cash at the same price as the Company would have paid for such Management Stock had the Company exercised its call rights with respect thereto pursuant to this Section 2. In the event that the aggregate number of shares which the Remaining Management Stockholders elect to purchase exceeds the total number of shares of such Terminated Manager's Management Stock that is subject to the Company's call rights, each Remaining Management Stockholder will be entitled to purchase a PRO RATA portion of such shares based upon the respective number of such shares which each Remaining Management Stockholder had elected to purchase. The repurchase -10- 11 of such shares by the Remaining Management Stockholders shall be completed at the Company's principal office within 30 days after delivery of the Company Call Expiration Notice, except as otherwise provided by Section 2.3(d). In the event that any remaining Management Stockholder fails to notify the Company of his election to repurchase any shares of Management stock of the Terminated Manager within 15 days after the applicable Company all Expiration Notice or, except as otherwise provided in Section 2.3(d), fails to tender cash payment of the purchase price for such shares at the Company's principal office within 30 days following such Company Call Expiration Notice, the call rights of such Remaining Management Stockholder with respect to such Terminated Manager's Management Stock shall lapse. At any closing of any purchase of any shares of Management Stock pursuant to this SECTION 2 other than the purchase of shares under Section 2.1(a) hereof (as to which the Company or the purchasing Management Stockholders have elected the special purchase option provided for in Section 2.3(d)), the Terminated Manager, the Terminated Manager's Personal Representative and any Family Transferees (subject to Section 2.4) shall deliver to the Company, or the purchasing Management Stockholders, as applicable, duly endorsed stock certificates for the shares of Management Stock being repurchased by the Company, or the purchasing Management Stockholders, as applicable, against receipt of such Person's check for the purchase price therefor, subject to the provisions of Sections 2.3(b) and (c) below. (b) Notwithstanding the foregoing, in the event that the payment by the Company of any portion of the purchase price for any shares of Management Stock that the Company is entitled to, repurchase pursuant to this Section 2 is, at the time such payment would otherwise be due hereunder, prohibited by law due to any existing or prospective impairment of the Company's capital, or by the terms of any documents evidencing the Company's Indebtedness, as such term is defined in the Subscription Agreement (a "Lender Prohibition"), the Company shall continue to have the right to repurchase such Management Stock, but the closing of the repurchase by the Company of any remaining unrepurchased Management Stock shall be delayed until first date on which the Company has sufficient capital to purchase lawfully such Management Stock or until any such Lender Prohibition is no longer applicable (the "Delayed Closing Date"). In the event of any such delay, the Company will be obligated to pay, on the Delayed Closing Date, interest on the purchase price (as such purchase price may be adjusted as of the payment date pursuant to Section 2.3(d) hereof) for such Management Stock, at a floating rate equal to the Base Rate, from the 120th day following the applicable Termination Date, until such Delayed Closing Date. Until such Delayed Closing Date, the holders of any shares of Management Stock to be repurchased on such Delayed Closing Date shall retain all rights of Management Stockholders hereunder, except that if the Company's call right arises under Section 2.1 hereof, such holders shall have only the rights of stockholders under the Delaware General Corporation law, as amended at the time of reference thereto. Notwithstanding the foregoing provisions of this Section 2.3(b), in the event that such Delayed Closing Date does not occur within 90 days following the applicable Termination Date, or at such later time as may be required by Section 2.3(d), the Company shall deliver written notice of the same to each Management Stockholder other than the Terminated Manager and each such Management Stockholder may elect by delivery of written notice to the Company to repurchase such Management Stock. Any such repurchase by the Management Stockholders shall be completed in accordance with the provisions of Section 2.3(a) within 30 days following delivery of such -11- 12 notice. In the event that such Management Stockholders fail to complete such repurchase of Management Stock by the end of such 30 day period, then (i) the call rights of such Management Stockholders with respect to such Management Stock shall terminate and (ii) such Management Stock shall once again be subject to the call rights of the Company pursuant to Section 2.3(a). (c) Notwithstanding the foregoing, the Company shall be entitled to complete the repurchase of any shares of Management Stock that the Company is entitled to repurchase pursuant to this Section 2 other than the purchase of shares under Section 2.1(a) hereof (as to which the Company or the purchasing Management Stockholders have elected the special purchase option provided for in Section 2.3(d)) by delivering to the appropriate Terminated Manager or his Personal Representative or Family Transferees (A) a check for that portion of the purchase price which is equal to the Minimum Cash Amount (as defined below) and (B) a promissory note for the balance of the purchase price (including any interest accrued on such purchase price pursuant to paragraph (b) above). Each such promissory note shall (x) bear interest at a floating rate equal to the Base Rate, and (y) provide for the payment of the principal evidenced thereby in three equal annual installments commencing one year after such repurchase, and (z) be subordinated to the Company's indebtedness to its lenders on terms satisfactory to such lenders. For purposes of this Section 2.3(c), the term "Minimum Cash Amount" shall mean one quarter of the total purchase price due with respect to such Management Stock except in the case of Management Stock initially held by Nancy Bent, which shall have a Minimum Cash Amount equal to the total purchase price due with respect to such Management Stock. (d) In the case of a purchase of shares under Section 2.1)(a), and subject to Section 2.3(b), the purchase price may, at the option of the Company, or the purchasing Management Stockholders, as applicable, be payable in full, without interest, on the earliest of (i) the effective date of any Public Sale or (ii) the effective date of any sale of the Company (whether by merger, consolidation, sale of all or substantially all of the Company's or of the assets of the Subsidiaries, or sale of all of the outstanding shares of Stock) or (iii) July 7, 2005. If payment is required prior to July 7, 2005 due to the occurrence of (a) a Public Sale or (b) a sale of the Company, (either of the occurrences specified in subparagraph (a) or subparagraph (b) of this sentence are hereafter referred to as a "Triggering Event") the purchase price shall be redetermined as of the date of the Triggering Event pursuant to the formula set forth in Section 2.l(a). In such event, the Terminated Manager, the Terminated Manager's Personal Representative and Family Transferees shall deliver to the Company, or the purchasing Management Stockholders, as applicable, within 30 days after delivery of the Exercise Notice referred to in Section 2.3(a), duly endorsed stock certificates for the shares of Management Stock being repurchased by the Company, or the purchasing Management Stockholders, as applicable, against receipt of such Person's promissory note containing the terms set forth in the preceding sentence. The promissory note may state the amount due as the figure representing the lower of (i) four hundred fifty-eight dollars and 52/100 ($458.52) per share reduced by Book Value Decrease, if any, and (ii) the Market Value Per Share, as of the Termination Date multiplied in either case by the number of shares of Management Stock subject to repurchase under Section 2.1(a), provided that the note expressly states that the purchase price is subject to redetermination upon the occurrence of a Triggering Event based on the lowest of (i) four hundred fifty-eight dollars and 52/100 ($458.52) per share, reduced by Book Value Decrease, if any, (ii) the Market -12- 13 Value Per Share determined as of the applicable Termination Date and (iii) the Market Value Per Share determined as of the date of the Triggering Event. 2.4. REPURCHASE OF STOCK HELD BY FAMILY TRANSFEREES. The repurchase provisions set forth of this Section 2 shall bind and apply to each Manager's Family Transferees and all Management Stock transferred to such Family transferees pursuant to Section 3 hereof, and upon termination of such Manager's employment or other engagement with the Company or the death or Disability of such manager, all Management Stock so Transferred shall be subject to repurchase as provided in this Section 2. 2.5. PRIORITY OF REPURCHASES. In the event that (a) any Terminated Manager has transferred any or all of his shares of his shares of Management Stock to a Family Transferee and (b) such shares of Management Stock are subject to repurchase pursuant to this Section 2, the Company shall repurchase the shares of Management Stock it is entitled to repurchase pursuant to this Section 2 from such Terminated Manager and the Family Transferees of such Terminated Manager PRO RATA in accordance with the number of shares of Management Stock held by such Terminated Manager and each such Family Transferee. The repurchase price for the shares of Management Stock so repurchased shall be payable to such Terminated Manager and such Terminated Manager's Family Transferees PRO rata, both as to the portion of the purchase price evidenced by a check and that portion evidenced by a promissory note (in accordance with Section 2.3 above), in accordance with the numbers of repurchased shares of Management Stock held by each such Person. 2.6 RIGHT OF FLEET INSTITUTIONAL STOCKHOLDERS TO APPROVE REPURCHASE OF MANAGEMENT STOCK. Notwithstanding anything to the contrary, the Company's exercise of its call rights pursuant to this Section 2 shall be subject to the prior Consent of the Fleet Institutional Stockholders. Section 3. RESTRICTIONS ON TRANSFER OF SHARES. 3.1 TRANSFER. No Stockholder will sell, assign, pledge or otherwise transfer (a "Transfer") any interest in any Restricted Securities, either voluntarily or involuntarily, by operation of law or otherwise, except (a) in the case of any Institutional Stockholder (other than Bates) in compliance with the provisions of Sections 3.2, 3.3, 3.4, and 3.5 hereof and the requirements of any applicable federal or state securities laws, (b) in the case of any of the Other Stockholders and Bates: (i) to such Stockholder's Family Members, provided that such Stockholder has retained the right to exercise all voting rights attributable to the Restricted Securities so transferred, (ii) to such Stockholder's Personal Representative, or (iii) to the Company pursuant to the terms of this Agreement or with the prior Consent of the Fleet Institutional Stockholders, (c) pursuant to a Public Sale or an Approved Sale, or (d) transfers of the Institutional Stock among the Institutional Stockholders or (d) a transfer of up to a total of 1,304 shares of stock by Ross B. George and/or Joseph L. Sylvia to employees of the Company within 30 days from the date of this Agreement (collectively, "Permitted Transfers"); PROVIDED that (x) the restrictions contained in this Section 3.1 will continue to be applicable to the Restricted Securities after any such Permitted Transfer pursuant to clause (a), (b), (c) or (d) -13- 14 above other than a Permitted Transfer to the Company and (y) the transferee of such Restricted Securities pursuant to this Section 3.1 above shall have executed and delivered an Instrument of Accession as a condition precedent to the transfer thereof. 3.2 FIRST RIGHT OF PURCHASE. Any Institutional Stockholder (other than Bates) may Transfer any interest in any Restricted Securities to any transferee PROVIDED that any such Transfer shall be made in accordance with the provisions of this Section 3.2 and Sections 3.3 and 3.4 and in compliance with the requirements any applicable federal or state securities laws. At least 30 days prior to making any such Transfer of any Institutional Stock, the transferring Institutional Stockholder (the "Transferring Stockholder") will deliver a written notice (the "Offer Notice") to each of the other Institutional Stockholders. The Offer Notice will disclose in reasonable detail the proposed number of shares of Restricted Securities to be transferred, the type of such Restricted Securities, the proposed price, terms and conditions of the Transfer and the identity of the transferee. Any Institutional Stockholder may elect (by itself or through an Affiliate of such Institutional Stockholder) to purchase all of the shares of any Restricted Securities specified in any Offer Notice given by a Transferring Stockholder at the price and on the terms specified therein by written notice of such election to the Transferring Stockholder within 30 days after delivery of such Offer Notice (the "Institution Election Period"). If any of the Institutional Stockholders elects to purchase all of such Restricted Securities, the Transfer of the Restricted Securities will be consummated within 15 days after the expiration of the Institution Election Period. If more than one Institutional Stockholder elects to purchase all of the Restricted Securities to be transferred, each Institutional Stockholder electing to purchase such Restricted Securities will be entitled to purchase a PRO RATA portion (based upon the respective numbers of shares of Restricted Securities then held by such Institutional Stockholders (on a fully diluted basis)) of the Restricted Securities proposed to be transferred. If none of the Institutional Stockholders elects to purchase all of the Restricted Securities being offered, the Transferring Stockholder may, within 90 days after the expiration of the Institution Election Period, Transfer the Restricted Securities specified in the Offer Notice to one or more third parties specified in the Offer Notice at a price and on terms no more favorable to the transferees than the price and terms offered to the Institutional Stockholders in the Offer Notice, PROVIDED that no such Transfer may be completed except in compliance with Section 3.3 and unless each of such transferees shall have executed and delivered an Instrument of Accession as a condition precedent to the transfer thereof. If the Transferring Stockholder fails to consummate such transfer within the 90 day period after the expiration of the Institution Election Period, any subsequent proposed Transfer of the Restricted Securities shall be once again subject to the provisions of this Section 3.2. 3.3. PARTICIPATION RIGHTS. (a) In the event that the other Institutional Stockholders fail to purchase the Restricted Securities specified in the Offer Notice, the Transferring Stockholder shall offer, by written notice (the "Tag-along Notice") each of the other Institutional Stockholders and each of the Other Stockholders (the "Non-Transferring Stockholders") the opportunity to participate in such sale, subject to the provisions of subparagraph (b) of this Section 3.3. Each of the Non-Transferring Stockholders may elect to participate in the contemplated sale by delivering written notice to the Transferring Stockholder within 15 days after receipt of the Tag-along Notice. If any of the Non-Transferring Stockholders elects to -14- 15 participate in such sale (the "Tag-along Sale"), each of the Transferring Stockholder and such participating Non-Transferring Stockholders will be entitled to sell, in the contemplated sale, at the same price and on the same terms, a number of shares of Restricted Securities of the class proposed to be sold equal to the product of (i) the fraction, the numerator of which is the number of shares of Restricted Securities (on a fully-diluted basis, treating all classes of Restricted Securities as a single class) held by such Person, and the denominator of which is the aggregate number of shares of Restricted Securities (on a fully-diluted basis, treating all classes of Restricted Securities as a single class) owned by the Transferring Stockholder and such participating Non-Transferring Stockholders, MULTIPLIED BY (ii) the number of shares of Restricted Securities (on a fully diluted basis) to be sold in the contemplated sale. For example, if the notice from the Transferring Stockholder contemplated a sale of 100 shares of Restricted Securities by the Transferring Stockholder and the Transferring Stockholder at such time owns 300 shares of Restricted Securities, and if one Non-Transferring Stockholder elects to participate in such sale and such Non-Transferring Stockholder owns 200 shares of Restricted Securities (on a fully-diluted basis), such Transferring Stockholder would be entitled to sell 60 shares (300/500 x 100 shares) and such Non-Transferring Stockholder would be entitled to sell 40 shares (200/500 x 100 shares). (b) The Transferring Stockholder will use its best efforts to obtain the agreement of the prospective transferee(s) to the participation of the Non-Transferring Stockholders in any contemplated sale and will not transfer any of its Restricted Securities to the prospective transferee(s) if the prospective transferee(s) declines to allow the participation of the Non-Transferring Stockholders on the terms specified herein. (c) The Non-Transferring Stockholders electing to participate in the Tag-Along Sale shall bear their PRO RATA share of transaction costs incurred in connection with such Tag-Along Sale to the extent such costs would otherwise be borne by the Transferring Stockholder. To the extent a Non-Transferring Stockholder(s) elects not to participate in any Tag-Along Sale, the Transferring Stockholder may sell additional shares of Institutional Stock in an amount equal to the aggregate number of shares of Institutional Stock such Non-Transferring Stockholder(s) would otherwise be entitled to sell pursuant to such Tag-Along Sale. 3.4. EXEMPTED TRANSFERS. Notwithstanding any provision to the contrary, (a) any Institutional Stockholder may Transfer shares of Institutional Stock to a successor corporation or other successor entity as a result of a merger or consolidation with, or a sale of all or substantially all of the assets of, such Institutional Stockholder or a transfer to one or more of its Affiliates or, if a general or limited partnership, in connection with the liquidation and dissolution of such partnership, without the requirement of complying with Sections 3.2 and 3.3 hereof and (b) any Institutional Stockholder may Transfer shares of Institutional Stock to the extent required by governmental rule, law or regulation, or any directive or order of any governmental authority without the requirement of complying with Section 3.3 hereof. Any transferee of shares pursuant to this Section 3.4 shall become a party to this Agreement and execute an Instrument of Accession. -15- 16 Section 3.5. REGULATORY COMPLIANCE COOPERATION. (i) In the event that FVR, FEP, or any other Institutional Stockholder that is a Small Business Investment Company within the meaning of the Small Business Investment Act of 1958, as amended or is subject to regulation under the Bank Holding Company Act of 1956, as amended (a "Regulated Holder") determines that it has a Regulatory Problem (as defined below), such Regulated Holder shall have the right to transfer its Stock without regard to any restriction on transfer set forth in this Agreement other than the securities laws restrictions set forth in Section 3.1 (provided that the transferee agrees to become a party to this Agreement and executes an Instrument of Accession), and the Company shall take all such actions as are reasonably requested by such Regulated Holder in order to (a) effectuate and facilitate any transfer by such Regulated Holder of any securities of the Company then held by such Regulated Holder to any Person designated by such Regulated Holder, (b) permit such Regulated Holder (or any of its affiliates) to exchange all or any portion of any voting security then held by it on a share-for-share basis for shares of a nonvoting security of the Company, which nonvoting security shall be identical in all respects to the voting security exchanged for it, except that it shall be nonvoting and shall be convertible into a voting security on such terms as are requested by such Regulated Holder in light of regulatory considerations then prevailing, and (c) amend this Agreement, the Company's Charter, the Company's bylaws and related agreements and instruments to effectuate and reflect the foregoing. The parties to this Agreement agree to vote their securities in favor of such amendments and actions. The Company shall give reasonable prior notice to each Regulated Holder, if such Regulated Holder does not otherwise receive notice thereof hereunder, of any repurchase or redemption of Stock, or other corporate transaction, that would increase such Regulated Holder's percentage ownership of the Stock or any class thereof. (ii) For purposes of this Agreement, a "Regulatory Problem" means any set of facts or circumstances wherein it has been asserted by any governmental regulatory agency (or any Regulated Holder believes that there is a substantial risk of such assertion) that such Regulated Holder is not entitled to hold, or exercise any significant right with respect to, the Stock. Section 4. CERTAIN REGISTRATION RIGHTS. Each of the parties to this Agreement, contemporaneously with the execution and delivery hereof, has executed and delivered the Registration Rights Agreement. Section 5. SALE OF THE COMPANY. 5.1 CONSENT OF OTHER STOCKHOLDERS. In the event of (i) the sale of the Company (whether by merger, consolidation, sale of all or substantially all of the Company's assets or of the assets of the Subsidiaries, or sale of all of the outstanding shares of Stock) to a third party which is not an Affiliate of a Fleet Institutional Stockholder or (ii) the offer by the Company to repurchase shares of Stock held by each Stockholder on a PRO RATA basis, is approved by the Consent of the Fleet Institutional Stockholders (an "Approved Sale"), each of the Remaining Institutional Stockholders and the Other Stockholders hereby waives, to the extent permitted by applicable law, all rights to object to or dissent from such Approved Sale of the Company and hereby agrees that each will raise no objections against such Approved Sale of the Company. -16- 17 Each of the Remaining Institutional Stockholders and the Other Stockholders agree to vote their respective Restricted Securities entitled to vote to approve the terms of any such Approved Sale and any matters ancillary thereto as may be necessary in the judgment of the Fleet Institutional Stockholders, acting by Consent of the Fleet Institutional Stockholders, to effect such Approved Sale. If the Approved Sale of the Company is structured as a sale of stock, each of the Remaining Institutional Stockholders and the Other Stockholders agree to sell all of their respective shares of Stock (and any options, warrants including the Warrants, or other rights to acquire any Stock) on the terms and conditions approved by Consent of the Fleet Institutional Stockholders. The sale provisions set forth in this Section 5.1 shall bind and apply to each Family Transferee and all Stock transferred to such Family Transferees pursuant to Section 3 hereof. 5.2. OBLIGATIONS OF STOCKHOLDERS. (a) The Company, the Remaining Institutional Stockholders and the Other Stockholders hereby agree to cooperate fully in any Approved Sale and not to take any action prejudicial to or inconsistent with such sale. Without limiting the generality of the foregoing, the Remaining Institutional Stockholders and the Other Stockholders will, upon request, deliver their stock (together with executed instruments of transfer) in escrow (pending receipt of the purchase price therefor) to counsel for the Company (selected by the Fleet Institutional Stockholders) in such sale. (b) The Company shall cause its officers, employees, agents, contractors and others under its control to cooperate in any proposed sale pursuant to this Section 5.1 and not to take any action which might impede any such sale. Any resignation or threat thereof prior to closing of such Approved Sale by any Manager shall be regarded as a breach of this provision. Pending the completion of any proposed sale, the Company shall operate only in the ordinary course and shall maintain all existing business relationships in good standing. 5.3 CONDITIONS. The obligations of each Remaining Institutional Stockholder and each Other Stockholder with respect to the Approved Sale of the Company are subject to the satisfaction of the condition that, upon the consummation of the Approved Sale, each Remaining Institutional Stockholder and each Other Stockholder will receive that form and amount of consideration per share of outstanding Stock given to all other holders of Stock (in their capacity as stockholders) pursuant to the Company's Charter and, if any holder of Stock is given an option as to the form and amount of consideration to be received, each Remaining Institutional Stockholder and each Other Stockholder will be given the same option. In addition, in connection with any such Approved Sale, each Remaining Institutional Stockholder and each Other Stockholder shall share all indemnifications, escrows and other liabilities incurred in connection with any such Approved Sale on a pro rata basis with all Stockholders based upon their relative holdings of Stock and such respective liability shall, except as provided in the next sentence, be in all events limited to an amount equal to the consideration received by each Stockholder pursuant to such Approved Sale. In the case of liabilities relating to knowing or intentional misrepresentation, it shall not be required that the liability of each Stockholder be -17- 18 limited to an amount equal to the consideration received by each Stockholder pursuant to such Approved Sale. Section 6. LIMITED PRE-EMPTIVE RIGHTS. 6.1. ANTI-DILUTION PROVISION. Except for the issuance of Stock (or securities convertible into or containing options or rights to acquire shares of Stock) (i) pursuant to a Public Sale, (ii) pursuant to the Warrants, (iii) pursuant to the exercise of stock options issued pursuant to the Employee Stock Option Plan or exercise of the Executive Stock Options, (iv) upon conversion of shares of Class B Common Stock of the Company to Class A Common Stock of the Company pursuant to the Company's Charter, and (v) upon the exercise of any outstanding warrants or options or the conversion of any outstanding convertible securities the issuance of which does not violate the provisions of this Section 6, if the Company authorizes the issuance and sale of any shares of Stock or any securities convertible into or containing options or rights to acquire any shares of Stock (other than as a dividend on the outstanding Stock), the Company will first offer to sell to each of the Stockholders a portion of such securities equal to the percentage determined by dividing (A) the sum of (1) the number of shares of Stock held by such Stockholder and (2) the number of shares of Stock then purchasable by such Stockholder upon the exercise of all outstanding options and warrants and the conversion of all outstanding convertible securities held by such Stockholder, by (B) the sum of (x) the number of shares of Stock held by all Stockholders and (y) the number of shares of Stock then purchasable upon exercise of all outstanding options and warrants and the conversion of all outstanding convertible securities held by all Stockholders. Each Stockholder will be entitled to purchase all or part of such stock or securities at the same price and on the same terms as such stock or securities are to be offered to any other Persons. Each Institutional Stockholder may assign its rights and obligations under this Section 6 to an Affiliate of such Institutional Stockholder. 6.2 STOCKHOLDERS' EXERCISE OF RIGHT. Each Stockholder must exercise such Stockholder's purchase rights hereunder within 30 days after receipt of written notice from the Company describing in reasonable detail the stock or securities being offered, the purchase price thereof, the payment terms and such Stockholder's percentage allotment. If all of the stock or securities offered to the Stockholders are not fully subscribed by the Stockholders, the stock or securities which are not so subscribed for will be reoffered to the Stockholders purchasing their full allotment upon the terms set forth in this Section 6, except that such Stockholders must exercise their purchase rights within 15 days after receipt of such reoffer. 6.3 COMPANY'S EXERCISE OF RIGHT. Upon the expiration of the offering periods described above, the Company will be free to sell such stock or securities which the Stockholders have not elected to purchase during the 90 days following such expiration on terms and conditions no more favorable to the purchasers thereof than those offered to the Stockholders. Any stock or securities offered or sold by the Company after such 90-day period must be reoffered to the Stockholders pursuant to the terms of this Section 6. 6.4 COMPLIANCE WITH SUBSCRIPTION AGREEMENT AND APPLICABLE LAW. The Company and each Stockholder hereby acknowledges and agrees that, notwithstanding anything contained -18- 19 in this Section 6, the Company will not issue or sell any shares of Stock or any securities convertible into or containing options or rights to acquire any shares of Stock except in accordance with the provisions of the Subscription Agreement, the Securities Act and applicable state blue sky laws and except to purchasers who execute Instruments of Accession in accordance with Section 13 hereof. Section 7. BOARDS OF DIRECTORS. 7.1 BOARDS OF DIRECTORS: VOTING AGREEMENTS; ATTENDANCE RIGHTS. (a) In any and all elections of directors of the Company and any Principal Subsidiary (whether at a meeting or by written consent in lieu of a meeting), each Stockholder shall vote, or cause to be voted, or cause such Stockholder's designees as directors to vote, all shares of Stock or stock of any Subsidiary owned by such Stockholder or over which such Stockholder has voting control so as to fix the number of directors of each of the Company and each Principal Subsidiary at five, and to nominate and elect such five directors of each of the Company and each Principal Subsidiary as follows: (i) One individual designated by Chisholm; (ii) One individual designated by FEP; (iii) One individual designated by FVR; and (iv) Ross B. George and Joseph L. Sylvia during the period of their employment by the Company and, upon their resignation or termination of their employment for any reason, two individuals designated by the Company's then current Chief Executive Officer (the "Company's CEO"). If Chisholm, FEP, FVR or the Company's CEO, as applicable, choose not to designate one or more directors as provided above, the number of directors of each of the Company and each Principal Subsidiary shall be reduced by one, two, three, four or five, as applicable, until such time as Chisholm, FEP, FVR or the Company's CEO, as applicable, exercise their or his rights as provided above, at which time the number of directors of each of the Company and each Principal Subsidiary shall be increased by one, two, or three, four or five, as applicable. (b) If any vacancy shall occur in the Board of Directors of the Company or of any Principal Subsidiary as a result of death, disability, resignation or any other termination of a director, the replacement for such vacating director shall be designated by the Person who, pursuant to Section 7.1(a) above, originally designated such vacating director. Each Person entitled to designate a director pursuant to this Section 7 shall also be entitled to designate the removal of such director with or without cause and a replacement for any director so removed. Each Stockholder hereby agrees to vote or cause to be voted or cause such Stockholder's designees as directors to vote all shares of Stock owned by such Stockholder so as to comply with; this Section 7.1(b). -19- 20 (c) Pacific and First Union shall each have the right to designate a representative to attend all meetings of the Board of Directors in a nonvoting observer capacity, to receive a notice of such meetings and to receive the information provided by the Company to the Board of Directors; provided, however, that the Company may require as a condition precedent to the rights under this Section 7.1(c) that each person proposing to attend any meeting of the Board of Directors and each person to have access to any of the information provided by the Company to the Board of Directors shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information so received during such meetings or otherwise and provided, further, that the Company reserves the right not to provide information and to exclude such representatives from any meeting or portion thereof if delivery of such information or attendance at such meeting by such representatives would adversely affect the attorney-client privilege between the Company and its counsel. The right of First Union or Pacific to designate a representative hereunder shall terminate as to First Union or Pacific, as the case may be, upon the dissolution or liquidation of the designating party. 7.2 PROXY. EACH STOCKHOLDER HEREBY GRANTS TO THE COMPANY AN IRREVOCABLE PROXY, COUPLED WITH AN INTEREST, TO VOTE ALL SHARES OF STOCK TO THE EXTENT NECESSARY TO CARRY OUT THE PROVISIONS OF THIS SECTION 7 IN THE EVENT OF ANY BREACH BY SUCH STOCKHOLDER OF ITS OBLIGATIONS UNDER THE VOTING AGREEMENT CONTAINED HEREIN. 7.3 ACTION BY STOCKHOLDERS. Each Stockholder will not vote any shares owned by such Stockholder or over which such Stockholder has voting control or take any action by written consent, or take any other action as a stockholder of the Company, to circumvent the voting arrangements required by this Section 7. Without limiting the generality of the foregoing, each Stockholder agrees not to (i) vote any shares owned by such Stockholder or over which such Stockholder has voting control, or take any other action as a stockholder of the Company, to approve any corporate action or transaction by the Company not previously approved by the Board of Directors of the Company in accordance with this SECTION 7 or (ii) commence or maintain any shareholder's derivative suit challenging any action or transaction approved by the Company's Board of Directors. The limitation set forth in Section 7.3(ii) shall not apply to a shareholder's derivative suit which involves solely allegations of intentional fraud or allegations that any such action or transaction was made in violation of this Agreement or the Subscription Agreement. 7.4 DELEGATION OF VOTING POWER. By execution of this Agreement, Bates hereby delegates to each of the Fleet Institutional Stockholders, acting by Consent of the Fleet Institutional Stockholders, all right, power, and authority to vote or cause to be voted all shares of Stock owned by such Stockholder and to exercise any and all voting and consent rights attributable to such Stockholder under this Agreement as such Fleet Institutional Stockholders shall determine in their sole discretion, and, in any event, agrees to vote or cause to be voted all shares of such stock owned by such Stockholder and to exercise any such voting and consent rights attributable to such Stockholder under this Agreement as such Fleet Institutional Stockholders shall direct in their sole discretion. -20- 21 Section 8. LEGEND. So long as any shares of Restricted Securities are subject to this Agreement, all certificates or instruments representing the Restricted Securities will have imprinted on the following legend: "The [shares] [warrant] evidenced by this certificate have not been registered under the Securities Act of 1933, as amended. No transfer, sale or other disposition of these [shares] [warrants] may be made unless a Registration Statement with respect to these [shares] [warrants] has become effective under said Act, or Simonds Industries Inc. (the "Company") has been furnished with an opinion of counsel reasonably satisfactory to the Company that such registration is not required. The [shares] [warrant] represented by this certificate are subject to the terms of a certain Stockholder Agreement, dated as of July 7, 1998, among the issuer of this [certificate] [warrant] and certain investors. The Stockholder Agreement contains certain restrictive provisions relating to the [voting and transfer of shares of the stock represented hereby] [the transfer of the warrant represented hereby and the voting and transfer of the shares of stock issuable upon the exercise of the warrant represented hereby]. A copy of the Stockholder Agreement is on file at the Company's principle offices. Upon written request to the Company's Secretary, a copy of the Stockholder Agreement will be provided without charge to appropriately interested persons." Section 9. AMENDMENT AND WAIVER. No modification, amendment or waiver of any provision of this Agreement will be effective against the Company or the Stockholders unless such modification, amendment or waiver is approved in writing by Consent of the Institutional Stockholders and the holders of at least 51% of the total number of outstanding shares of Management Stock. Section 10. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law, but if any provisions of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. Section 11. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein and in the Related Agreements, this document embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and thereof and supersedes and preempts any prior understandings, agreements or representation by or among the parties, written or oral, which may have related to the subject matter hereof in any way. Section 12. SUCCESSORS AND ASSIGNS. This Agreement will bind and inure to the benefit of and be enforceable by (i) the company and its successors and assigns and (ii) the Stockholders and any subsequent holders of Restricted Securities and the respective successors and assigns of each of them so long as they hold Restricted Securities. -21- 22 Section 13. NEW STOCKHOLDERS. The Company will not issue any shares of capital stock or enter into any commitment, conditional or otherwise, to do so unless the holder or transferee of such stock or commitment shall have first executed an Instrument of Accession if such Person is not already a party to this Agreement. Section 14. COUNTERPARTS. This Agreement may be executed in separate counterparts each of which will be an original and all of which taken together will constitute one and the same agreement. Section 15. REMEDIES. The Stockholders will be entitled to enforce their rights under this Agreement specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any Stockholder may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief in order to enforce or prevent any violation of the provisions of this Agreement. In the event of any dispute involving the terms of this Agreement, the prevailing party shall be entitled to collect reasonable fees and expenses incurred by the prevailing party in connection with such dispute from the other parties to such dispute. Section 16. EMPLOYMENT. Nothing contained in this Agreement is intended to create for any Management Stockholder who is an employee of the Company or any of its Subsidiaries a right to continue employment with the Company or employment in the same position or on the same terms as those currently in effect. Section 17. NOTICES. Any notice provided for in this Agreement will be in writing and will be deemed properly delivered if either personally delivered or mailed certified or registered mail, return receipt requested, postage prepaid to the recipient at the address listed for such Stockholder in the stock records of the Company. The Company agrees to make available to each Stockholder upon request an address list of all Stockholders to ensure correct delivery of all notices hereunder. Section 18. TERMINATION. This Agreement will terminate upon the earliest to occur of (i) the completion of the distribution of the proceeds of an Approved Sale under Section 5.1(i) to the Stockholders, (ii) the date on which no Institutional Stock remains outstanding, (iii) the completion of any voluntary or involuntary liquidation or dissolution of the Company, and (iv) the completion of any Public Sale resulting in gross proceeds to the Company of at least $50 million. Section 19. NO EFFECT UPON LENDING RELATIONSHIPS. Notwithstanding anything herein to the contrary, nothing contained in this Agreement shall affect, limit or impair the rights and remedies of Heller or any other lender in their capacity as a lender(s) to the Company or any of its Subsidiaries pursuant to any agreement under which the Company or any of its Subsidiaries has borrowed money. -22- 23 Section 19. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE. Section 20. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. SIGNATURES APPEAR ON THE NEXT PAGE 24 IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Stockholder Agreement on the day and year first above written. THE COMPANY: ------------ SIMONDS INDUSTRIES, INC. By: ---------------------------------------- Title: ------------------------------------- INSTITUTIONAL STOCKHOLDERS: --------------------------- FLEET VENTURE RESOURCES, INC. By: ---------------------------------------- Title: ------------------------------------- Address: 50 Kennedy Plaza, Suite 1200 Providence, RI 02903 Attention: Habib Y. Gorgi, President FLEET EQUITY PARTNERS VI, L.P. By: FLEET GROWTH RESOURCES II, INC., its general partner By: ---------------------------------------- Title: ------------------------------------- Address: 50 Kennedy Plaza, Suite 1200 Providence, RI 02903 Attention: Habib Y. Gorgi, President -24- 25 CHISHOLM PARTNERS III, L.P. By: Silverado III, L.P., Its General Partner By: Silverado III Corp., Its General Partner By: ----------------------------------------- Title: -------------------------------------- Address: 50 Kennedy Plaza, Suite 1200 Providence, RI 02903 Attention: Habib Y. Gorgi, President -------------------------------------------- Donald E. Bates Address: ------------------------------------ ------------------------------------ KENNEDY PLAZA PARTNERS By: ----------------------------------------- Address: 50 Kennedy Plaza, Suite 1200 Providence, RI 02903 Attention: Habib Y. Gorgi, Managing General Partner PRIVATE MARKET FUND, L.P. By: Pacific Corporate Capital, Inc., Its General partner By: ----------------------------------------- FIRST UNION INVESTORS, INC. By: ----------------------------------------- Title: -------------------------------------- HELLER FINANCIAL, INC. By: ----------------------------------------- Title: -------------------------------------- [MANAGERS] ---------- [Signatures appear on the next page.] -25- 26 MANAGERS -------- ------------------------------------------- Signature Print Name: -------------------------------- Address: ----------------------------------- ----------------------------------- ----------------------------------- ------------------------------------------- Signature Print Name: -------------------------------- Address: ----------------------------------- ----------------------------------- ----------------------------------- Signature Print Name: Address: ------------------------------------------- Signature Print Name: -------------------------------- Address: ----------------------------------- ----------------------------------- ----------------------------------- -26- 27 Schedule 1 TO STOCKHOLDER AGREEMENT ------------------------ Instrument of Accession Reference is made to that certain Stockholder Agreement dated as of _______________, 1998, a copy of which is attached hereto (as amended and in effect from time to time, the "Stockholder Agreement"), among Simonds Industries, Inc., a Delaware corporation (the "Company"), and the Stockholders of the Company (as defined therein) and the holders of certain warrants of the Company. The undersigned, _________________, in order to become the owner or holder of _____ shares (the "Shares") of Stock of the Company, hereby agrees that by the undersigned's execution hereof (a) the undersigned is an [Institutional] [Other] Stockholder party to the Stockholder Agreement subject to all of the restrictions and conditions set forth in the Stockholder Agreement, and (b) all of the Shares (and any and all shares of stock of the Company issued in respect thereof) constitute [Institutional] [Other Stock] [Restricted Securities] subject to all the restrictions and conditions applicable to [Institutional] [Other Stock] [Restricted Securities] as set forth in the Stockholder Agreement. This Instrument of Accession shall take effect and shall become a part of said Stockholder Agreement immediately upon execution. Executed as of the date set forth below under the laws of the State of Delaware. Signature: ------------------------------- Address: -------------------------------- ---------------------------------------- ---------------------------------------- Date: ----------------------------------- Accepted: SIMONDS INDUSTRIES INC. By: ------------------------------------ Date: ---------------------------------- -27- EX-2.2 3 STOCK PURCHASE AGREEMENT DATED 8/1/97 1 Exhibit 2.2 STOCK PURCHASE AGREEMENT This Agreement ("Agreement") is entered into effective August 1, 1997, by and among Simonds Holding Company, Inc., a Delaware corporation ("Buyer"), Armstrong Manufacturing Company, an Oregon corporation ("Company") and Fredric B. Andrianoff, a resident of Portland, Oregon ("Seller"). WHEREAS, the Company presently has authorized five thousand (5,000) common shares of stock, ten dollars ($10.00) par value (the "Common Shares"), and one hundred fifty (150) preferred shares of stock, one hundred dollars ($100.00) par value (the "Preferred Shares"); WHEREAS, the Company presently has issued and outstanding no (000) Preferred Shares and six hundred ninety-seven (697) Common Shares, referred to herein as the "Shares," all of which are issued to and owned by Seller, and WHEREAS, said Shares are the only issued and outstanding capital stock of the Company; and WHEREAS, Buyer desires to purchase from Seller and Seller desires to sell to Buyer all of the Shares owned by Seller on the terms and subject to the conditions set forth herein. NOW THEREFORE, IT IS AGREED AS FOLLOWS: SECTION 1.0. PURCHASE OF SHARES. 1.1 PURCHASE OF SHARES. Subject to the terms and conditions set forth herein, at the Closing (as defined below) Seller will sell all of the Shares to Buyer and Buyer will purchase all of the Shares, said Shares constituting one hundred percent (100%) of all of the issued and outstanding capital stock of the Company as of the Closing. 1.2 PURCHASE PRICE. Buyer will pay to Seller the sum of US$9,000,000 ("Purchase Price"), in the form of cash or cash equivalent, allocated as provided in Section 1.4, infra. 1.3 ADJUSTMENTS TO PURCHASE PRICE. Within a reasonable period of time after Closing, the parties will reasonably agree on Closing Financial Statements (hereinafter defined). The Purchase Price will be reduced, dollar-for-dollar, to the extent that Net Worth as represented in the Closing Financial Statements is less than $3,531,747.30, as represented in June 1997 Financial Statements (hereinafter defined). 1.4 PAYMENT OF PURCHASE PRICE. The Purchase Price will be paid at Closing, allocable as follows: (i) the sum of US$8,125,000 in consideration of the Stock; and (ii) the sum of US$875,000 in consideration of a certain Noncompetition Agreement to be executed and delivered at Closing. 2 Section 2.0. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLER. As a material inducement to Buyer to enter into this Agreement and to purchase the Shares, Seller and the Company, jointly and severally, represent and warrant that: 2.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation duly incorporated and validly existing under the laws of Oregon, and the Company is qualified to do business in every jurisdiction in which its ownership of property or conduct of business requires it to qualify. The Company has all requisite corporate power and authority and all material licenses, permits, and authorizations necessary to own and operate its properties and to carry on its business as now conducted. The copies of the Company's charter documents and bylaws have been furnished to Buyers counsel reflect all amendments made thereto at any time prior to the date of this Agreement and are correct and complete. 2.2 CAPITAL STOCK AND RELATED MATTERS. The authorized capital stock and issued and outstanding stock of the Company are as set forth in the first and second recitals respectively, above. All of the Shares are owned, beneficially and of record, by Seller and no other stock of the Company is issued and outstanding. The Company does not have outstanding and has not agreed, orally or in writing, to issue any stock or securities convertible or exchangeable for any shares of its stock, nor does it have outstanding nor has it agreed, orally or in writing, to issue any options or rights to purchase or otherwise acquire its stock. The Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its stock. The Company has not violated any applicable securities laws or regulations in connection with the offer or sale of its securities other than violations that have been, or will before the Closing have been, corrected by post-issuance filings. All of the outstanding shares of the Company's capital stock are validly issued, fully paid, and nonassessable. Seller has, and upon purchase thereof, pursuant to the terms of this Agreement Buyer will have, good and marketable title to the shares, free and clear of all security interests, liens, encumbrances, or other restrictions or claims, subject only to restrictions as to marketability imposed by securities laws. Assuming that the representations in Section 3.6 are true and correct, neither Seller nor the Company have violated or will violate any applicable securities laws in connection with the offer or sale of the Shares to Buyer hereunder. 2.3 SUBSIDIARIES. Except as set forth in SCHEDULE 2.3, the Company does not own or hold any rights to acquire any shares of stock or any other security or interest in any other corporation or entity. 2.4 CONDUCT OF BUSINESS; LIABILITIES. Except as set forth in SCHEDULE 2.4, the Company is not in default under, and no condition exists that with notice or lapse of time would constitute a default of the Company under (i) any mortgage, loan agreement, evidence of indebtedness, or other instrument evidencing borrowed money to which the Company is a party or by which the Company or the properties of the Company are bound or (ii) any judgment, order, or injunction of any court, arbitrator, or governmental agency that would reasonably be expected to affect materially and adversely the business, financial condition, or results of operations of the Company taken as a whole. 2 3 2.5 FINANCIAL STATEMENTS. The unaudited (but independent CPA reviewed) 1995/1996 balance sheet, income statement and cash flow statement of the Company as of December 31, 1996, in the form attached to this Agreement as EXHIBIT 2.5(A) (collectively the "1995/1996 Financial Statements"), fairly present the financial position of the Company as at December 31, 1996, and have been prepared in accordance with generally accepted accounting principles, consistently applied, and in a manner consistent with prior financial statements of the Company. The unaudited and unreviewed balance and income statement of the Company as at June 30, 1997, and for the month then ended, in the form attached hereto as EXHIBIT 2.5(B) ("June, 1997 Financial Statements"), fairly present the financial position of the Company as at June 30, 1997 and the results of operations for the one month then ended and have been prepared in accordance with generally accepted accounting principles consistently applied and in a manner substantially consistent with the 1995/1996 Financial Statements, except for differences resulting from normally occurring audit adjustments, including, but not limited to, income tax and tax accrual adjustments, or as noted in the June, 1997 Financial Statements or the notes thereto. Except as contemplated by or permitted under this Agreement, there are no adjustments that would be required on review of the June, 1997 Financial Statements that would, individually or in the aggregate, have a material negative effect upon the Company's reported financial condition. 2.6 NO UNDISCLOSED LIABILITIES. Except for (i) trade liabilities and trade obligations incurred in the ordinary course of business since June 30, 1997 ("Statement Date"), and (ii) liabilities or obligations described in SCHEDULE 2.6, neither the Company nor any of the property of the Company is subject to any material liability or obligation that was required to be included or adequately reserved against in the June, 1997 Financial Statements or described in the notes thereto and was not so included, reserved against, or described. Neither the Company nor Seller has any knowledge of any basis for any liability of Company, contingent or otherwise, not reflected in the June, 1997 financial Statements or described in the notes thereto. 2.7 ABSENCE OF CERTAIN CHANGES. Except as contemplated or permitted by this Agreement or as described in SCHEDULE 2.7, since the Statement Date there has not been: 2.7.1 Any material adverse change in the business, financial condition, operations, or assets of the Company; 2.7.2 Any damage, destruction, or loss, whether covered by insurance or not materially adversely affecting the properties or business of the Company; 2.7.3 Any sale or transfer by the Company of any tangible or intangible asset other than in the ordinary course or business, any mortgage or pledge or the creation of any security interest, lien, or encumbrance on any such asset, or any lease of property, including equipment, other than tax liens with respect to taxes not yet due and contract rights of customers in inventory; 2.7.4 Any declaration, setting aside, or payment of a distribution in respect of or the redemption or other repurchase by the Company of any stock of the Company; 3 4 2.7.5 Any material transaction not in the ordinary course of business of the Company; 2.7.6 The lapse of any material trademark, assumed name, trade name, service mark, copyright, or license or any application with respect to the foregoing; 2.7.7 The grant of any increase in the compensation of officers or employees (including any such increase pursuant to any bonus, pension, profit-sharing, or other plan) other than customary increases on a periodic basis or required by agreement or understanding in the ordinary course of business and in accordance with past practice; 2.7.8 The discharge or satisfaction of any material lien or encumbrance or the payment of any material liability other than current liabilities in the ordinary course of business; 2.7.9 The making of any material loan, advance, or guaranty to or for the benefit of any person except the creation of accounts receivable in the ordinary course of business; or 2.7.10 An agreement to do any of the foregoing. 2.8 TITLE AND RELATED MATTERS. Except as set forth in SCHEDULE 2.8, the Company has good and marketable title to all of its property, real and personal, and other assets included in the June, 1997 Financial Statements (except properties and assets sold or otherwise disposed of subsequent to the Statement Date in the ordinary course of business or as contemplated in this Agreement), free and clear of all security interests, mortgages, liens, pledges, charges, claims, or encumbrances of any kind or character, except (i) statutory liens for property taxes not yet delinquent or payable subsequent to the date of this Agreement and statutory or common law liens securing the payment or performance of any obligation of the Company, the payment or performance of which is not delinquent, or that is payable without interest or penalty subsequent to the date on which this representation is given, or the validity of which is being contested in good faith by the Company, (ii) the rights of customers of the Company with respect to inventory under orders or contracts entered into by the Company in the ordinary course of business; (iii) claims, easements, liens, and other encumbrances of record pursuant to filings under real property recording statutes; and (iv) as described in the Unaudited Statements or the notes thereto. 2.9 LITIGATION. Except as set forth in SCHEDULE 2.9, there are no material actions, suits, proceedings, orders, investigations, or claims pending or, to the best of Seller's and the Company's knowledge, overtly threatened against the Company or any property of either, at law or in equity, or before or by any governmental department, commission, board, bureau, agency, or instrumentality; the Company is not subject to any arbitration proceedings under collective bargaining agreements or otherwise or, to the best of Seller's and the Company's knowledge, any governmental investigations or inquiries; and, to the best knowledge of Seller's and the directors and responsible officers of the Company, there is no basis for any of the foregoing. 4 5 2.10 TAX MATTERS. Except as set forth on SCHEDULE 2.10, (i) the Company has prepared in a substantially correct manner and has filed all federal, provincial, local, and foreign tax returns and reports heretofore required to be filed by them and have paid all taxes shown as due thereon; and (ii) no taxing authority has asserted any deficiency in the payment of any tax or informed the Company that it intends to assert any such deficiency or to make any audit or other investigation of the Company for the purpose of determining whether such a deficiency should be asserted against the Company. 2.11 COMPLIANCE WITH LAWS. To the best of Seller's knowledge, the Company is, in the conduct of its business, in compliance with all laws, statutes, ordinances, regulations, orders, judgments, or decrees applicable to them, the enforcement of which, if the Company were not in compliance therewith, would have a materially adverse effect on the business of the Company, taken as a whole. Neither Seller nor the Company has received any notice of any asserted present or past failure by the Company to comply with such laws, statutes, ordinances, regulations, orders, judgments, or decrees. 2.12 NO BROKERS. There are no claims for brokerage commissions, finders' fees, or similar compensation in connection with the purchase based on any arrangement or agreement binding upon any of the parties hereto. 2.13 INSURANCE. SCHEDULE 2.13 contains a list of each insurance policy maintained by the Company with respect to its properties, assets, and businesses, and each such policy is in full force and effect. The Company is not in material default with respect to its obligations under any such policy maintained by it. Neither Seller nor the Company has been notified of the cancellation of any of the insurance policies listed on SCHEDULE 2.13 or of any material increase in the premiums to be charged for such insurance policies. 2.14 EMPLOYEES AND LABOR RELATIONS MATTERS. Except as set forth in SCHEDULE 2.14 or as provided in this Agreement: 2.14.1 Neither Seller nor the Company is aware that any executive or key employee of the Company or any group of employees of the Company has any plans to terminate employment with the Company, 2.14.2 To the best of Seller's knowledge, the Company has complied in all material respects with all labor and employment laws, including provisions thereof relating to wages, hours, equal opportunity, collective bargaining, nondiscrimination, and the payment of employment and employee related taxes and other taxes; 2.14.3 There is no unfair labor practice charge, complaint, or other action against the Company pending or, to Seller's and the Company's best knowledge, threatened, and the Company is not subject to any order to bargain by the government; 2.14.4 To Seller's and the Company's best knowledge, there is no movement among employees to organize, or gain union representation for, Company's employees; 5 6 2.14.5 No grievance that might have a material adverse effect on the Company and no arbitration proceeding arising out of or under any collective bargaining agreement is pending and, to the best knowledge of Seller and the directors and responsible officers of the Company, no basis exists for any such grievance or arbitration proceeding; and 2.14.6 To the best knowledge of Seller and the directors and responsible officers of the Company, no employee of the Company is subject to any noncompetition, nondisclosure, confidentiality, employment, consulting, or similar agreements with persons other than the Company relating to the present business activities of the Company except as disclosed in item 8 of Exhibit 2.18 hereto. 2.15 DISCLOSURE. To the best knowledge of Seller, neither this Agreement nor any of the schedules, attachments, written statements, documents, certificates, or other items prepared or supplied to Buyer by or on behalf of the Company or Seller with respect to this purchase contain any untrue statement of a material fact or omit a material fact necessary to make each statement contained herein or therein not misleading. Neither Seller nor any responsible officer or director has intentionally concealed any fact known by such person to have a material adverse effect upon the Company's existing or expected financial condition, operating results, assets, customer relations, employee relations, or business prospects taken as a whole. 2.16 POWER OF ATTORNEY. Except as set forth in SCHEDULE 2.16, no material power of attorney or similar authorization given by the Company is presently in effect. 2.17 ACCOUNTS RECEIVABLE. To the best of Seller's and Company's knowledge, all accounts receivable of the Company reflected in the June, 1997 Financial Statements represent bona fide sales actually made, and collectible, in the ordinary course of business. 2.18 AGREEMENTS AND COMMITMENTS. SCHEDULE 2.18 contains a complete and accurate list of each agreement, contract, instrument, and commitment (including license agreements) to which the Company is a party that provides for payments in excess of $10,000 per year or whose term is in excess of one year and is not cancelable upon thirty (30) or fewer days' notice without any liability, penalty, or premium, other than a nominal cancellation fee or charge ("Third Party Agreements"). Except as otherwise set forth in SCHEDULE 2.18, 2.18.1 The Company has no collective bargaining or union contracts agreement in effect or being negotiated; 2.18.2 There is no labor strike, dispute, request for representation, slowdown, or stoppage pending or, to Seller's and the Company's best knowledge, threatened against the Company; 2.18.3 The Company is not in material default under any Third Party Agreements, nor, to Seller's and the Company's best knowledge, does there exist any event that, 6 7 with notice or the passage of time or both, would constitute a material default or event of default by the Company under any Third Party Agreements; 2.18.4 There is no pension or benefit fund which is less than fully funded as required by government regulation and all applicable plan provisions; and, 2.18.5 No third party consent is required in connection with the sale of the Shares by Seller to Buyer. 2.19 PERSONAL PROPERTY. Without material exception, SCHEDULE 2.19 contains lists of all tangible personal property and assets owned or held by the Company and used or useful in the conduct of the business of the Company. Except as set forth in SCHEDULE 2.19, the Company owns and has good title to such properties and none of such properties is subject to any security interest, mortgage, pledge, conditional sales agreement or other lien or encumbrance (except for liens for current taxes, assessments, charges, or other governmental levies not yet due and payable). The Company has delivered to Buyer copies of all leases and other agreements relating to property described in SCHEDULE 2.19 (including any and all amendments and other modifications to such leases and other agreements) all of which are valid and binding, and the Company is not in material default under any such leases or agreements. Except as set forth in SCHEDULE 2.19 and to the best of Seller's knowledge, all material properties listed therein are in good operating condition and repair (ordinary wear and tear excepted), are performing satisfactorily, and are available for immediate use in the conduct of the Business and operations of the Company. To the best of Seller's knowledge, all such tangible personal property is in compliance in all material respects with all applicable statutes, ordinances, rules, and regulations. The properties listed in SCHEDULE 2.19 include substantially all such properties necessary to conduct the business and operations of the Company as now conducted. 2.20 REAL PROPERTY. SCHEDULE 2.20 contains a list of all real property currently owned or leased by the Company and used or useful in the conduct of the business operations of the Company. Except as set forth in SCHEDULE 2.20, the Company has good and marketable fee simple title, insurable at standard rates, to all of the real property listed as owned in SCHEDULE 2.20 free and clear of all liens, mortgages, pledges, covenants, easements, restrictions, leases, charges, and other claims and encumbrances of any nature whatsoever, and without reservation or exclusion of any mineral, timber, or other rights or interests, except liens for real estate taxes, assessments, charges, or other governmental levies not yet due and payable and except for easements, rights of way, and restrictions of record. Seller has delivered to Buyer copies of all leases listed in SCHEDULE 2.20 (including any and all amendments and other modifications of such leases), which leases are valid and binding. To the best of Seller's knowledge, the Company is not in material default under any such leases. To the best of Seller's knowledge, all property listed in SCHEDULE 2.20 (including improvements thereon) is in satisfactory condition and repair consistent with its present use and is available for immediate use in the conduct of the business of the company. Except as set forth in SCHEDULE 2.20 and to the best of Seller's knowledge, none of the property listed in SCHEDULE 2.20 or subject to leases listed in SCHEDULE 2.20 violates in any material respect any applicable building, zoning or environmental code or regulation of any governmental authority having jurisdiction. The 7 8 property and leases described in SCHEDULE 2.20 include all such property or property interests necessary to conduct the business and operations of the Company as they are presently conducted. 2.21 PERSONNEL. SCHEDULE 2.21 sets forth a true and complete list of: 2.21.1. The names, title, and current salaries of all officers of the Company; 2.21.2 The names of all directors of the Company; 2.213 The wage rates (or ranges, if applicable) for each class of exempt and nonexempt, salaried and hourly employees of the Company; 2.21.4 All scheduled or contemplated increases in compensation or bonuses; and 2.21.5 All scheduled or contemplated employee promotions, demotions, hirings, firings or disciplining. 2.22 PATENTS, TRADEMARKS, TRADE NAMES, ETC. SCHEDULE 2.22 contains an accurate and complete list of all patents, trademarks, tradenames, service marks, and copyrights, and all applications therefor, presently owned or held subject to license by the Company and, to the Company's best knowledge, the use thereof by the Company does not materially infringe on any, patents, trademarks, or copyrights or any other rights of any person. To Seller's and the Company's best knowledge, the Company has not operated and is not operating its business in a manner that infringes the proprietary rights of any other person in any patents, trademarks, trade names, service marks, copyrights, or confidential information. Except as set forth in SCHEDULE 2.22, the Company has not received any written notice of any infringement or unlawful use of such property. 2.23 BENEFIT PLANS AND RELATED MATTERS. SCHEDULE 2.23 sets forth a description of all "Employee Welfare Benefit Plans" and "Employee Pension Benefit Plans" existing on the date hereof that are or have been maintained or contributed to by the Company. Except as listed on SCHEDULE 2.23, the Company does not maintain any retirement or deferred compensation plan, savings, incentive, stock option or stock purchase plan, unemployment compensation plan, vacation pay, severance pay, bonus or benefit arrangement, insurance or hospitalization program or any other fringe benefit arrangement for any employee, consultant or agent of the Company, whether pursuant to contract, arrangement, custom or informal understanding, for which the Company may have any ongoing material liability after Closing. The Company does not maintain nor has it ever contributed to any Multiemployer Plan. There have been no unlawful transactions or actions with respect to any Employee Pension Benefit Plan or Employee Welfare Benefit Plan maintained by the Company as to which the Company has been party. As to any employee pension benefit plan listed on SCHEDULE 2.23, there have been no events required to be reported to the government. 8 9 2.24 ENVIRONMENTAL MATTERS. To the best of Company's and Seller's knowledge, there exist no environmental conditions upon any real property described in Schedule 2.20 which violate any local, state or federal government, environmental or health code, ordinance, statute, order, notice or law; nor is there any environmental condition which requires that notice be given to any government entity pursuant to any such local, state or code, ordinance, statute, order, notice or law. 2.25 REPRESENTATIONS TRUE, ACCURATE AND COMPLETE. All representations and warranties made herein by Company and Seller are true, accurate and complete in all material respects. Each of Company and Seller agrees to notify Purchaser immediately in writing in the event it/he learns any information required to make all representations and warranties of Company and Seller herein true, accurate and complete in all material respects at all times subsequent hereto. SECTION 3.0. REPRESENTATIONS AND WARRANTIES OF BUYER. As a material inducement to Seller to enter into this Agreement and to sell the Shares, Buyer hereby represents and warrants to Seller as follows: 3.1 ORGANIZATION; POWER. Buyer is a corporation duly incorporated and validly existing under the laws of Delaware, and has all requisite corporate power and authority to enter into this Agreement and perform its obligations hereunder. 3.2 AUTHORIZATION; CONSENTS. The execution, delivery, and performance by Buyer of this Agreement and all other agreements contemplated hereby to which Buyer is a party have been duly and validly authorized by all necessary corporate action of Buyer, and this Agreement and each such other agreement, when executed and delivered by the parties thereto, will constitute the legal, valid, and binding obligation of Buyer enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, and similar statutes affecting creditors' rights generally and judicial limits on equitable remedies. Buyer is required to obtain the written consent of its secured institutional lenders in connection with the acquisition of the Shares. 3.3 NO CONFLICT WITH OTHER INSTRUMENTS OR AGREEMENTS. The execution, delivery, and performance by Buyer of this Agreement and all other agreements contemplated hereby to which Buyer is a party will not result in a breach or violation of, or constitute a default under, its Articles of Incorporation or Bylaws or any material agreement to which Buyer is a party or by which Buyer is bound. 3.4 GOVERNMENTAL AUTHORITIES. Except as set forth in SCHEDULE 3.4, (i) Buyer is not required to submit any notice, report, or other filing with any governmental or regulatory authority in connection with the execution and delivery by buyer of this Agreement and the consummation of the purchase and (ii) no consent, approval, or authorization of any governmental or regulatory authority is required to be obtained by Buyer or any affiliate in connection with Buyer's execution, delivery, and performance of this Agreement and the consummation of this purchase. 9 10 3.5 LITIGATION. There are no actions, suits, proceedings, or governmental investigations or inquiries pending or, to the knowledge of Buyer, threatened against Buyer or its properties, assets, operations, or businesses that might delay, prevent, or hinder the consummation of this purchase. 3.6 INVESTMENT REPRESENTATIONS 3.6.1 Buyer is acquiring the Shares for its own account for purposes of investment and without expectation, desire, or need for resale and not with the view toward distribution, resale, subdivision, or fractionalization of the Shares. 3.6.2 During the course of the negotiation of this Agreement, Buyer has reviewed all information provided to it by the Company and has had the opportunity to ask questions of and receive answers from representatives of the Company concerning the Company, the securities offered and sold hereby, and this purchase, and to obtain certain additional information requested by Buyer. 3.63 Buyer understands that no public market now exists for the Shares and that it is uncertain that a public market will ever exist for the Shares. 3.7 BROKERAGE. There are no claims for brokerage commissions, finders' fees, or similar compensation in connection with this purchase based on any arrangement or agreement entered into by Buyer and binding upon any of the parties hereto. SECTION 4.0. CONDUCT OF THE COMPANY'S BUSINESS PENDING THE CLOSING. From the date hereof until the Closing, and except as otherwise consented to or approved by Buyer, Seller and the Company covenant and agree with Buyer as follows: 4.1 REGULAR COURSE OF BUSINESS. The Company will operate its business in accordance with the reasonable judgment of its management diligently and in good faith, consistent with past management practices, and the Company will continue to use its reasonable efforts to keep available the services of present officers and employees (other than planned retirements) and to preserve its present relationships with persons having business dealings with it. The Company will not conduct any transactions outside the ordinary course of business without the prior written consent of Purchaser. 4.2 DISTRIBUTIONS. The Company will not declare, pay, or set aside for payment any dividend or other distribution in respect of its capital stock. Nor will the Company repurchase any of its capital stock. 4.3 CAPITAL CHANGES. The Company will not issue any shares of its stock, or issue or sell any securities convertible into, or exchangeable for, or options, warrants to purchase, or rights to subscribe to, any shares of its stock or subdivide or in any way reclassify any shares of its capital stock, or repurchase reacquire, cancel, or redeem any such shares. 10 11 4.4 ASSETS. The assets, property, and rights now owned by the Company will be used, preserved, and maintained, as far as practicable, in the ordinary course of business, to the same extent and in the same condition as said assets, property, and rights are on the date of this Agreement, and no unusual or novel methods of manufacture, purchase, sale, management, or operation of said properties or business or accumulation or valuation of inventory will be made or instituted. Without the prior consent of Buyer, the Company will not encumber any of its assets or make any commitments relating to such assets, property, or business, except in the ordinary course of its business. 4.5 INSURANCE. The Company will keep or cause to be kept in effect and undiminished the insurance now in effect on its various properties and assets, and will purchase such additional insurance, at Buyer's cost, as Buyer may request. 4.6 EMPLOYEES. The Company will not grant to any employee any promotion, any increase in compensation, or any bonus or other award other than promotions, increases, or awards that are regularly scheduled in the ordinary course of business or contemplated on the date of this Agreement or that are, in the reasonable judgment of management of the Company, in the Company's best interest. 4.7 NO VIOLATION. The Company will comply in all material respects with all statutes, laws, ordinances, rules, and regulations applicable to it in the ordinary course of business. 4.8 PUBLIC ANNOUNCEMENTS. No press release or other announcement to the employees, customers, or suppliers of the Company related to this Agreement or this purchase will be issued without the joint approval of the parties, unless required by law, in which case Buyer and Seller will consult with each other regarding the announcement. SECTION 5.0. COVENANTS OF THE COMPANY AND SELLER. Company and Seller covenant and agree with Buyer as follows: 5.1 SATISFACTION OF CONDITIONS. The Company will use reasonable efforts to obtain as promptly as practicable the satisfaction of the conditions to Closing set forth in Section 7 and any necessary consents or waivers under or amendments to agreements by which the Company is bound. 5.2 SUPPLEMENTS TO SCHEDULES. From time to time prior to the Closing, Seller and the Company will promptly supplement or amend the schedules with respect to any matter hereafter arising that, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in any schedule and will promptly notify Buyer of any breach by either of them that either of them discovers of any representation, warranty, or covenant contained in this Agreement. No supplement or amendment of any schedule made pursuant to this section will be deemed to cure any breach of any representation of or warranty made in this Agreement unless Buyer specifically agrees thereto in writing; provided, however, that if this purchase is closed, Buyer will be deemed to have waived its rights with respect to any breach of a 11 12 representation, warranty, or covenant or an supplement to any schedule of which it shall have been notified pursuant to this Section 5.2. 5.3 NO SOLICITATION. Until the Closing or termination pursuant to Section 10 of this Agreement, neither Seller nor the Company, nor any of their respective directors, officers, employees, or agents shall, directly or indirectly, encourage, solicit, initiate, or enter into any discussions or negotiations concerning any disposition of any of the capital stock or all or substantially all of the assets of the Company (other than pursuant to this Agreement), or any proposal therefor, or furnish or cause to be furnished any information concerning the Company to any party in connection with any transaction involving the acquisition of the capital stock or assets of the Company by any person other than Buyer. Seller or the Company will promptly inform Buyer of any inquiry (including the terms thereof and the person making such inquiry) received by any responsible officer or director of the Company or Seller after the date hereof and believed by such person to be a bona fide, serious inquiry relating to any such proposal. 5.4 ACTION AFTER THE CLOSING. Upon the reasonable request of any party hereto after the Closing, any other party will take all action and will execute all documents and instruments necessary or desirable to consummate and give effect to this purchase. These include, by way of illustration and not by way of limitation, the following: 5.4.1 Various conditions relating to filing, payment, and collecting of refunds relating to taxes; 5.4.2 Provisions relating to delivery of Corporate books and records; and 5.43 Provisions relating to treatment of confidential proprietary information obtained in the acquisition process. 5.5 INDEMNIFICATION. Seller shall satisfy, indemnify, hold harmless and defend Company and Buyer from and against any and all liabilities, claims, costs, actions or expenses, including reasonable attorneys' fees, accrued, in connection with or arising out of: 5.5.1 any condition existing, or liability, action or event occurring, prior to the Closing Date to the extent that such liability, condition, action or event has not been disclosed in this Agreement or in any of the exhibits hereto; 5.5.2 any breach by Seller of any covenant to be performed by Seller pursuant to this Agreement; 5.5.3 any misrepresentation made by Seller or Company in this Agreement; 5.5.4 any violation of any environmental and/or tax code, ordinance, regulation or law, and/or of any provision of state or federal law dealing with employment benefits or unlawful discrimination, existing, accruing, occurring or arising prior to the Closing Date, 12 13 including without limitation, costs, fines, penalties, interest assessments and expenses relating to remediation and bringing company into full compliance with such governmental requirements; 5.5.5 the termination of employment of any employees by Company with cause within three (3) months after the Closing, including without limitation, the incurring of costs and expenses, and the providing of previously unfunded or unaccrued benefits, relating to employment severance and/or redundancy; and 5.5.6 The liabilities identified in sections 5.5.1 through 5.5.5, above, shall be the "Indemnified Liabilities." 5.6 ACTIONS OF COMPANY AND SELLER. Neither Company nor Seller shall take any actions subsequent to the date hereof, the effect of which would be to make untrue, inaccurate or incomplete any of the warranties or representations of Company or Seller herein made. SECTION 6.0. COVENANTS OF BUYER. Buyer will use its best efforts to cause the conditions set forth in Section 8 to be satisfied. SECTION 7.0. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. Each and every obligation of Buyer under this Agreement is subject to the satisfaction, at or before the Closing, of each of the following conditions: 7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. Each of the representations and warranties made by the Company herein will be true and correct in all material respects as of the Closing with the same effect as though made at that time except for changes contemplated, permitted, or required by this Agreement; Seller and tile Company will have performed and complied with all agreements, covenants, and conditions required by this Agreement to be performed and complied with by them prior to the Closing; and Buyer will have received, at the Closing, a certificate of the Company and Seller, signed by the President and the Chief Financial Officer of the Company and Seller, stating that each of the representations and warranties made by the Company herein is true and correct in all material respects as of the Closing except for changes contemplated, permitted, or required by this Agreement and that Seller and the Company have performed and complied with all agreements, covenants, and conditions required by this Agreement to be performed and complied with by them prior to the Closing. 7.2 LITIGATION. No material action, suit, or proceeding before any court, governmental or regulatory authority will have been commenced and be continuing, and no investigation by any governmental or regulatory authority will have been commenced and be continuing, and no action, investigation, suit, or proceeding will be threatened at the time of Closing, against Seller, the Company, or Buyer or any of their affiliates, associates, officers, or directors, seeking to restrain, prevent, or change this purchase, questioning the validity or legality of this purchase, or seeking damages in connection with this purchase. 13 14 7.3 LEGAL OPINION. Buyer will have received an opinion of Miller, Nash, Wiener, Hager & Carlsen of Portland, Oregon, in form and content reasonably acceptable to Buyer and its legal counsel. 7.4 MATERIAL CHANGE. From the date of this Agreement to the Closing, the Company shall not have suffered any material adverse change (whether or not such change is referred to or described in any supplement to any exhibit or schedule to this Agreement) in its business prospects, financial condition, working capital, assets, liabilities (absolute, accrued, contingent, or otherwise), or operations. 7.5 CORPORATE ACTION. Seller will have furnished to Buyer: 7.5.1 The corporate charter and all amendments thereto and restatements thereof of the Company certified by the official having custody over corporate records in the jurisdiction of incorporation of the corporation in question; 7.5.2 The current bylaws and minutes of all meetings and consents of shareholders and directors of the Company; 7.5.3 Each certificate of qualification to do business as a foreign corporation of the Company; 7.5.4 All stock transaction records of the Company, and 7.5.5 A certificate of the Secretary or Assistant Secretary of the Company as to the accuracy, currency, and completeness of each of the above documents, the incumbency and signatures of officers of the Company, the absence of any amendment to the charter documents of the Company, and the absence of any proceeding for dissolution or liquidation of the Company. SECTION 8.0. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND SELLER. Each and every obligation of Seller and the Company under this Agreement is subject to the satisfaction, at or before the Closing, of each of the following conditions: 8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. Each of the representations and warranties made by Buyer herein will be true and correct in all material respects as of the Closing with the same effect as though made at that time except for changes contemplated, permitted, or required by this Agreement; Buyer will have performed and complied with all agreements, covenants, and conditions required by this Agreement to be performed and complied with by it prior to the Closing; and Seller will have received, at the Closing, a certificate of Buyer, signed by the President and the Chief Financial Officer of Buyer, stating that each of the representations and warranties made by Buyer herein is true and correct in all material respects as of the Closing except for changes contemplated, permitted, or required by this Agreement and that Buyer has performed and complied with all agreements, covenants, and conditions required by this Agreement to be performed and complied with by it prior to the Closing. 14 15 8.2 NO PROCEEDING OR LITIGATION. No action, suit, or proceeding before any court (other than suits seeking monetary damages only and in the aggregate sum of less than $10,000) and any governmental or regulatory authority will have been commenced and be continuing, and no investigation by any governmental or regulatory authority will have been commenced and be continuing, and no action, investigation, suit, or proceeding will be threatened at the time of Closing, against Seller, the Company, or Buyer or any of their affiliates, associates, officers, or directors, seeking to restrain, prevent, or change this purchase, questioning the validity or legality of this purchase, or seeking damages in connection with this purchase. 8.3 CORPORATE ACTION. Buyer will have furnished to Seller a copy, certified by the Secretary of an Assistant Secretary of Buyer, of the resolutions of Buyer authorizing the execution, delivery, and performance of this Agreement. 8.4 LEGAL OPINION. Seller will have received an opinion of David P. Witman, Wellesley Law Associates of Wellesley, Massachusetts, in form and content reasonably acceptable to Seller and his legal counsel. SECTION 9.0. CLOSING. 9.1 TIME, PLACE, AND MANNER OF CLOSING. Unless this Agreement has been terminated and this purchase has been abandoned pursuant to the provisions of Section 10, the closing ("Closing") will be held at the offices of Company at Portland, Oregon, or such other place as the parties may agree, as soon as practicable after the satisfaction of the various conditions precedent to the Closing set forth herein. At the Closing the parties to this Agreement will exchange certificates, and other instruments and documents in order to determine whether the terms and conditions of this Agreement have been satisfied. Upon the determination of each party that its conditions to consummate this purchase have been satisfied or waived, Seller shall deliver to Buyer the certificate(s) evidencing the Shares, duly endorsed for transfer, and Buyer shall deliver to Seller that portion of the Purchase Price required to be delivered at the Closing. After the Closing, Seller will execute, deliver, and acknowledge all such further instruments of transfer and conveyance and will perform all such other acts as Buyer may reasonably request to effectively transfer the Shares. 9.2 CONSUMMATION OF CLOSING. All acts, deliveries, and confirmations comprising the Closing regardless of chronological sequence shall be deemed to occur contemporaneously and simultaneously upon the occurrence of the last act, delivery, or confirmation of the Closing and none of such acts, deliveries, or confirmations shall be effective unless and until the last of the same shall have occurred. The time of the Closing has been scheduled to correspond with the close of business at the principal office of the Company and, regardless of when the last act, delivery, or confirmation of the Closing shall take place, the transfer of the Shares shall be deemed to occur as of the close of business at the principal office of the Company on the date of the Closing. SECTION 10.0. TERMINATION. 15 16 10.1 TERMINATION FOR CAUSE. If, pursuant to the provisions of Section 7 or 8 of this Agreement, Seller or Buyer is not obligated at the Closing to consummate this Agreement, then the party who is not so obligated may terminate this Agreement. 10.2 TERMINATION WITHOUT CAUSE. Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated and abandoned at any time without further obligation or liability on the part of any party in favor of any other by mutual consent of Buyer and Seller. 10.3 TERMINATION PROCEDURE. Any party having the right to terminate this Agreement due to a failure of a condition precedent contained in Sections 7 or 8 hereto may terminate this Agreement by delivering to the other party written notice of termination, and thereupon, this Agreement will be terminated without obligation or liability of any party. SECTION 11.0. MISCELLANEOUS PROVISIONS. 11.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this Agreement may be amended, modified, or supplemented only by a written agreement signed by Buyer and Seller. 11.2 WAIVER OF COMPLIANCE; CONSENTS 11.2.1 Any failure of any party to comply with any obligation, covenant, agreement, or condition herein may be waived, but only in writing by the party entitled to the performance of such obligation, covenant, or agreement or who has the benefit of such condition, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement, or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 11.2.2 Whenever this Agreement requires or permits consent by or on behalf of any party hereto, such consent will be given in a manner consistent with the requirements for a waiver of compliance as set forth above. 11.3 NOTICES. All notices, requests, demands, and other communications required or permitted hereunder will be in writing and will be deemed to have been duly given when delivered by hand or two days after being mailed by certified or registered mail, return receipt requested, with postage prepaid: If to Buyer, Joseph L. Sylvia, President Simonds Holding Company, Inc. P.O. Box 500 Fitchburg, MA 01420 USA 16 17 with a copy to: David P. Witman, Esq. Wellesley Law Associates 25 Walnut Street, 3d Floor Wellesley, M 02181 or to such other person or address as Buyer furnishes to Seller pursuant to the above. If to Seller: Mr. Fredric B. Andrianoff c/o Armstrong Manufacturing Company 2135 N.W. 21st Avenue P.O. Box 3008 Portland, OR 97208 with a copy to: Gerald Froebe, Esq. Miller, Nash, Wiener, Hager & Carlsen 111 S.W. Fifth Avenue Portland, OR 97204 or to such other person or address as Seller furnishes to Buyer pursuant to the above. Notices to the Company shall be care of Seller prior to the Closing Date and care of Buyer after the Closing Date. 11.4 TITLES AND CAPTIONS. All section titles or captions contained in this Agreement are for convenience only and shall not be deemed part of the context nor effect the interpretation of this Agreement. 11.5 ENTIRE AGREEMENT. This Agreement contains the entire understanding between and among the parties and supersedes any prior understandings and agreements among them respecting the subject matter of this Agreement. 11.6 AGREEMENT BINDING. This Agreement shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto. 11.7 ATTORNEY FEES. In the event an arbitration, suit or action is brought by any party under this Agreement to enforce any of its terms, or in any appeal therefrom, it is agreed that the prevailing party shall be entitled to reimbursement of all related reasonable costs and expenses, as well as reasonable attorneys' fees to be fixed by the arbitrator, trial court, and/or appellate court, as the case may be. 17 18 11.8 COMPUTATION OF TIME. In computing any period of time pursuant to this Agreement, the day of the act, event or default from which the designated period of time begins to run shall be included, unless it is a Saturday, Sunday, or a legal holiday, in which event the period shall begin to run on the next day which is not a Saturday, Sunday, or legal holiday, in which event the period shall run until the end of the next day thereafter which is not a Saturday, Sunday, or legal holiday. 11.9 PRONOUNS AND PLURAL. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular, or plural as the identity of the person or persons may require. 11.10 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of Oregon. 11.11 ARBITRATION. If at any time during the term of this Agreement any dispute, difference, or disagreement shall arise upon or in respect of the Agreement, and the meaning and construction hereof, every such dispute, difference, and disagreement shall be referred to a single arbiter agreed upon by the parties, or if no single arbiter can be agreed upon, three arbiters shall be selected in accordance with the guidelines of the American Arbitration Association, and such dispute, difference, or disagreement shall be settled by binding arbitration. Judgment upon the award rendered by the arbiter(s) may be entered in any court having jurisdiction thereof. 11.12 PRESUMPTION. This Agreement or any section thereof shall not be construed against any party due to the fact that said Agreement or any section thereof was drafted by said party. 11.13 FURTHER ACTION. The parties hereto shall execute and deliver all documents, provide all information and take or forbear from all such action as may be necessary or appropriate to achieve the purposes of the Agreement. 11.14 PARTIES IN INTEREST. Nothing herein shall be construed to be to the benefit of any third party, nor is it intended that any provision shall be for the benefit of any third party. 11.15 SAVINGS CLAUSE. If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby. Dated: August 6, 1997 18 19 Simonds Holding Company, Inc. Armstrong Manufacturing Co. a Delaware corporation as Buyer an Oregon corporation as Company By: By: --------------------------- ------------------------------ Joseph L. Sylvia, President John F. Wilson, President - ---------------------------------------------- Frederic B. Andrianoff, Individually as Seller 19 20 EXHIBIT & SCHEDULE LISTS EXHIBIT Description - ------- ----------- 2.5(A) Company 1995/1996 Financial Statements 2.5(B) Company June 1997 Financial Statements 1.3 Company Closing Financial Statements SCHEDULE Description - -------- ----------- 2.3 Subsidiaries 2.4 Exceptions to Section 2.4's representation of no default on other contracts 2.6 Omissions/Exceptions to Events in the Financial Statements 2.7 Material Adverse Changes Since Financial Statement Dates 2.8 Exceptions to Company's marketable title to its property 2.9 Exceptions to Section 2.9 representation of no lawsuits against Company 2.10 Exceptions to Section 2.10 representation of all taxes paid and reported 2.13 List of insurance policies 2.14 Exceptions to Section 2.14 representations regarding employees and labor matters 2.16 Exceptions to Section 2.16 representations regarding powers of attorney 2.18 List of Company's contracts 2.19 List of all personal property 2.20 List of all real property 2.21 Officer, director, & employee info 2.22 List of intellectual property 2.23 Description of all "Employee Welfare Benefit Plans" and "Employee Pension Benefit Plans" 3.4 Exceptions to Section 3.4's representation regarding effects of the Agreement on other contracts, laws, etc. EX-2.3 4 SHARE PURCHASING AGREEMENT DATED 5/7/98 1 EXHIBIT 2.3 SHARE PURCHASE AGREEMENT This Agreement ("Agreement") is entered into this date by and among Time Eclipse Limited, a company organized and existing under the laws of England ("Purchaser") (proposed to be renamed Simonds UK Holding Limited after Completion), SI Holding Corporation, a corporation organized and existing under the laws of Delaware, USA ("Guarantor") and all the holders of all the shares of W. Notting Limited, a company organized and existing under the laws of England ("Company"), as set forth in SCHEDULE 2.2 hereto, made a part hereof ("Sellers"). WHEREAS, the Company presently has an authorized share capital comprising Three Hundred Thousand (300,000) ordinary One Pound ((pound)1) shares (the "Ordinary Shares"); WHEREAS, the Company presently has issued and outstanding Two Hundred Six Thousand One Hundred Fifty-Two (206,152) Ordinary Shares, referred to herein as the "Shares, all of which are duly issued to, fully paid and owned by Sellers, and WHEREAS, said Shares are the only issued and outstanding shares of the Company; and WHEREAS, Purchaser desires to purchase from Sellers and Sellers desire to sell to Purchaser all of the Shares on the terms and subject to the conditions set forth herein. NOW, THEREFORE, IT IS AGREED AS FOLLOWS: SECTION 1.0. SALE AND PURCHASE OF SHARES. Subject to the terms and conditions set forth herein, at the Completion (as defined below) Sellers will sell all of the Shares to Purchaser, with full title guarantee, and Purchaser will purchase from Sellers all of the Shares, constituting one hundred percent (100 %) of all of the issued and outstanding shares of the Company as of the Completion. 1.1 PURCHASE PRICE. Purchaser will pay to Sellers the sum of Four Million Two Hundred Fifty Thousand Pounds Sterling ((pound)4,250,000) for the Shares ("Purchase Price"), as set forth in SECTION 1.3 hereafter. 1.2 ADJUSTMENTS TO PURCHASE PRICE. Within sixty (60) days after Completion, the parties will reasonably agree on consolidated Completion Financial Statements, representing fairly the financial condition of the Company and the Subsidiaries as at the Completion Date. The Purchase Price will be reduced, Pound Sterling-for-Pound Sterling, to the extent that (i) Net Current Assets as represented in the Completion Financial Statements is less than (pound)1,750,000 and/or (ii) the Completion Financial Statements show long-term debt, and/or any short-term debt other than working capital debt in excess of (pound)1,000,000. The Completion Financial Statements shall be prepared by Paul Sewell, in cooperation with Sellers, under accounting principles and practices identical to those employed in the March 31, 1998 Financial Statements (the "Completion Financial Statements") to be attached hereto as EXHIBIT 1.2. 2 1.3 PAYMENT OF PURCHASE PRICE. The Purchase Price will be paid at Completion, allocable as follows: (i) the sum of(pound)3,250,000, in the form of cash in partial consideration of the Shares; and (ii) the sum of (pound)1,000,000, in the form of a Term Promissory Note, as set forth in EXHIBIT 1.3(iii) hereto, made a part hereof (the "Note") as remaining consideration for the Shares. Amounts payable under the Note will be subject to Purchaser's rights as set forth in SCHEDULE 2.24 hereto, to Purchaser's rights under SECTION 5.2 hereafter, and to Purchaser's right of set off in the event of any adjustments to the Purchase Price under SECTION 1.2, above. SECTION 2.0. WARRANTIES OF SELLERS. As a material inducement to Purchaser to enter into this Agreement and to purchase the Shares, Sellers warrant that, as at Completion: 2.1 ORGANIZATION AND CORPORATE POWER. The Company is a company duly incorporated and validly existing under the laws of England, and the Company is qualified to do business in every jurisdiction in which its ownership of property or current conduct of business requires it to qualify. The Company has all requisite corporate power and authority and all material licenses, permits, and authorizations necessary to own (or use under lease or license, as the case may be) and operate its properties and to carry on its business as now conducted. The Company's Memorandum and Articles of Association, reflecting all amendments made thereto at any time prior to the date of this Agreement, as set forth in EXHIBIT 2.1, made a part hereof, are correct, current and complete. 2.2 SHARES AND RELATED MATTERS. The authorized share capital, and issued share capital, of the Company are as set forth in SCHEDULE 2.2 hereto. Each Seller warrants in relation to his/her own shareholding that his/her Shares are owned by him /her, that they will be sold by him /her with full title guarantee, free and clear of all security interests, liens, encumbrances, or other restrictions or claims, and that no other shares of the Company are issued to him /her. The Company does not have outstanding and has not agreed, orally or in writing, to issue any shares or securities convertible or exchangeable for any shares, nor does it have outstanding nor has it agreed, orally or in writing, to issue any options or rights to purchase or otherwise acquire its shares. The Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any of its shares. The Company has not violated any applicable securities laws or regulations in connection with the offer or sale of its securities. All of the outstanding shares of the Company are validly issued and fully paid. Neither Sellers nor the Company have violated or will violate any applicable securities laws of England and Wales in connection with the offer or sale of the Shares to Purchaser hereunder. 2.3 SUBSIDIARIES. Except as set forth in SCHEDULE 2.3, the Company does not own or hold any rights to acquire any shares or any other security or interest in any other company (the "Subsidiaries"). -2- 3 2.3.1 ORGANIZATION AND CORPORATE POWER OF SUBSIDIARIES. Each Subsidiary is a company duly incorporated and validly existing under the laws of the jurisdiction under which is incorporated and is qualified to do business in every jurisdiction in which its current ownership of property or current conduct of business requires it to qualify. Each Subsidiary has all requisite corporate power and authority and all material licenses, permits, and authorizations necessary to own (or use under lease or license, as the case may be) and operate its properties and to carry on its business as now conducted. The constitutional documents of each Subsidiary, reflecting all amendments made thereto at any time prior to the date of this Agreement, as set forth in EXHIBITS 2.3.1 (A-F), made a part hereof, are correct and complete. 2.3.2 SHARES AND RELATED MATTERS OF SUBSIDIARIES. Each Subsidiary does not have outstanding and has not agreed, orally or in writing, to issue any shares or securities convertible or exchangeable for any of its shares, nor does it have outstanding nor has it agreed, orally or in writing, to issue any options or rights to purchase or otherwise acquire its shares. Each Subsidiary is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any of its shares. Each Subsidiary has not violated any applicable securities laws or regulations in connection with the offer or sale of its securities. All of the outstanding shares of each Subsidiary are validly issued and fully paid. The Company has full title to its shares of each Subsidiary, free and clear of all security interests, liens, encumbrances, or other restrictions or claims. 2.3.3 FINANCIAL STATEMENTS OF SUBSIDIARIES. Attached hereto as EXHIBITS 2.3.3(A-F), made a part hereof, are the most recent financial statements of each Subsidiary (the "Subsidiary Financial Statements"). The Subsidiary Financial Statements fairly present the financial position of the Subsidiaries as at the dates set forth therein, and have been prepared in accordance with generally accepted accounting principles, consistently applied, and in a manner consistent with the Financial Statements of the Company, except for differences resulting from normally occurring adjustments required in their respective jurisdictions, or as noted in the notes thereto, or in the Disclosure Letter, this Share Purchase Agreement or in any SCHEDULE or EXHIBIT hereto. Except as set forth in EXHIBIT 2.3.3(X), there are no adjustments that would be required on independent audit review (under generally accepted principles of accounting practiced in the jurisdiction applicable to each Subsidiary) of each of the Subsidiary Financial Statements that would, individually or in the aggregate, have a material negative effect upon the reported financial condition of any Subsidiary. 2.3.4 WARRANTIES APPLICABLE TO SUBSIDIARIES. For purposes of SECTIONS 2.4 through 2.24, hereinafter, the term "Company" shall include "Subsidiaries." Provided however, that all references hereinafter to the Financial Statements of the Company do not apply to any Subsidiary. 2.4 CONDUCT OF BUSINESS; LIABILITIES. Except as set forth in SCHEDULE 2.4, the Company is not in default under, and no condition exists that with notice or lapse of time would constitute a material default of the Company under (i) any mortgage, loan agreement, evidence of indebtedness, or other instrument evidencing borrowed money to which the Company is a party or by which the -3- 4 Company or the properties of the Company are bound or (ii) any judgment, order, or injunction of any court, arbitrator, or governmental agency that would reasonably be expected to affect materially and adversely the business, financial condition, or results of operations of the Company taken as a whole. 2.5 FINANCIAL STATEMENTS. 2.5.1 The consolidated 1996/1997 balance sheet, income statement and cash flow statement of the Company as of September 30, 1997, as audited and annotated (only as to the Company and the UK Subsidiary) by Williams Allan of Windsor, Berkshire, England, in the form attached to this Agreement as EXHIBIT 2.5.1 (collectively, the "1996/1997 Financial Statements"), give a true and fair (and to Seller's knowledge, materially accurate) view of the financial position of the Company as at September 30, 1997, and have been prepared in accordance with generally accepted accounting principles, consistently applied, and in a manner consistent with the financial statements of the Company for the three (3) prior years. 2.5.2 The consolidated, unaudited and unreviewed balance sheet and income statement of the Company as at March 31, 1998, and for the month then ended, in the form attached hereto as EXHIBIT 2.5.2 ("March 31, 1998 Financial Statements"), give a fair (and to Seller's knowledge, materially accurate) view of the financial position of the Company as at March 31, 1998 and the results of operations for the one month then ended and have been prepared in accordance with generally accepted accounting principles consistently applied and in a manner substantially consistent with the 1996/1997 Financial Statements, except for differences resulting from normally occurring adjustments, including, but not limited to, income tax and tax accrual adjustments, or as noted in the March 31, 1998 Financial Statements or the notes thereto. Except as contemplated by or permitted under this Agreement, there are no adjustments that would be required on an independent audit review of the March 31, 1998 Financial Statements that would, individually or in the aggregate, have a material negative effect upon the Company's and the Subsidiaries' reported financial condition. 2.6 NO UNDISCLOSED LIABILITIES. Except for (i) trade liabilities and trade obligations incurred in the ordinary course of business since March 31, 1998 ("Statement Date"), and (ii) liabilities or obligations described in SCHEDULE 2.6, so far as Sellers are aware, neither the Company nor any of the property of the Company is subject to any material liability or obligation that was required, under generally accepted accounting practices applicable to the 1996-1997 Financial Statements, to be included or adequately reserved against in the March 31, 1998 Financial Statements or described in the notes thereto and was not so included, reserved against, or described. Each Seller warrants that he/she has no knowledge of any basis for any material liability of Company, contingent or otherwise, as at March 31, 1998, not reflected in the March 31, 1998 Financial Statements or described in the notes thereto. 2.7 ABSENCE OF CERTAIN CHANGES. Except as contemplated or permitted by this Agreement or as described in SCHEDULE 2.7, since the Statement Date there has not been: -4- 5 2.7.1 Any material adverse change in the business, financial condition, operations, or assets of the Company; 2.7.2 Any damage, destruction, or loss, whether covered by insurance or not, materially adversely affecting the properties or business of the Company; 2.7.3 Any sale or transfer by the Company of any tangible or intangible asset other than in the ordinary course of business, any mortgage or pledge or the creation of any security interest, lien, or encumbrance on any such asset, or any lease of property, including equipment, other than tax liens with respect to taxes not yet due and contract rights of customers in inventory; 2.7.4 Any declaration, setting aside, or payment of a distribution in respect of, or the redemption or other repurchase by the Company of, any shares of the Company; 2.7.5 Any material transaction not in the ordinary course of business of the Company; 2.7.6 The lapse of any material trademark, assumed name, trade name, service mark, copyright, or license or any application with respect to the foregoing; 2.7.7 The grant of any increase in the compensation of officers or employees (including any such increase pursuant to any bonus, pension, profit-sharing, or other plan) other than customary increases on a periodic basis, or required by agreement or understanding in the ordinary course of business and in accordance with past practice; 2.7.8 The discharge or satisfaction of any material lien or encumbrance or the payment of any material liability other than current liabilities in the ordinary course of business; 2.7.9 The making of any material loan, advance, or guaranty to or for the benefit of any person except the creation of accounts receivable in the ordinary course of business; or 2.7.10 An agreement to do any of the foregoing. 2.8 TITLE AND RELATED MATTERS. Except as set forth in SCHEDULE 2.8, the property, real and personal, and other assets included in the March 31, 1998 Financial Statements (except properties and assets sold or otherwise disposed of subsequent to the Statement Date in the ordinary Course of business or as contemplated in this Agreement) are the absolute property of the Company, free and clear of all security interests, mortgages, liens, pledges, charges, claims, or encumbrances of any kind or character, except (i) statutory liens for property taxes not yet delinquent or payable subsequent to the date of this Agreement and statutory or common law liens securing the payment or performance of any obligation of the Company, the payment or -5- 6 performance of which is not delinquent, or that is payable without interest or penalty subsequent to the date on which this representation is given, or the validity of which is being contested in good faith by the Company; (ii) the rights of customers of the Company with respect to inventory under orders or contracts entered into by the Company in the ordinary course of business; (iii) claims, easements, liens, and other encumbrances of record pursuant to filings under real property recording statutes; and (iv) as described in the March 31, 1998 Financial Statements or the notes thereto. 2.9 LITIGATION. Except as set forth in SCHEDULE 2.9, there are no material actions, suits, proceedings, orders, investigations, or claims pending or overtly threatened against the Company or any property of the Company, at law or in equity, or before or by any governmental department, commission, board, bureau, agency, or instrumentality; the Company is not subject to any arbitration proceedings or any governmental investigations or inquiries; and, to the best knowledge of Sellers there is no basis for any of the foregoing. 2.10 TAX MATTERS. Except as set forth on SCHEDULE 2.10, (i) the Company has prepared in a substantially correct manner and has filed all national, local, and foreign tax returns and reports heretofore required to be filed by them and have paid all taxes shown as due thereon; and (ii) no taxing authority has asserted any deficiency in the payment of any tax or informed the Company that it intends to assert any such deficiency or to make any audit or other investigation of the Company for the purpose of determining whether such a deficiency should be asserted against the Company. 2.11 COMPLIANCE WITH LAWS. The Company is, in the conduct of its business, in compliance with all laws, statutes, ordinances, regulations, orders, judgments, or decrees applicable to them, the enforcement of which, if the Company were not in compliance therewith, would have a materially adverse effect on the business of the Company, taken as a whole. For the purposes of this warranty only, a "materially adverse effect" means aggregate liabilities, and reasonable costs incurred post-Completion by the Company, any Subsidiary and/or the Purchaser, resulting from any non-compliance by the Company and the Subsidiaries in excess of Fifty Thousand Pounds Sterling ((pound). 50,000) in the aggregate. No disclosures shall be permitted against this warranty, and this warranty is not subject to the limitations set forth in SECTIONS 3.0 and 4.2 of SCHEDULE 2.24 hereto. 2.12 NO BROKERS. There are no claims for brokerage commissions, finders' fees, or similar compensation in connection with the purchase of the Shares by Purchaser hereunder based on any arrangement or agreement binding upon any of the Sellers. 2.13 INSURANCE. SCHEDULE 2.13 contains a list of each insurance policy maintained by the Company with respect to its properties, assets, and businesses, and each such policy is in full force and effect, so far as Sellers are aware. The Company is not in material default with respect to its obligations under any such policy maintained by it. Neither Sellers nor the Company has been notified of the cancellation, or potential cancellation, of any of the insurance policies listed on SCHEDULE 2.13 or of any material increase in the premiums to be charged for such insurance policies. -6- 7 2.14 EMPLOYEES AND LABOR RELATIONS MATTERS. Except as set forth in SCHEDULE 2.14: 2.14.1 Sellers are not aware that any executive or key employee of the Company or any group of employees of the Company has any plans to terminate employment with the Company; 2.14.2 The Company has complied in all material respects with all labor and employment laws, including provisions thereof relating to wages, redundancies, benefits, hours, equal opportunity, collective bargaining, nondiscrimination, and the payment of employment and employee related taxes and other taxes; 2.14.3 There is no unfair labor practice charge, complaint, or other action against the Company pending or threatened, and the Company is not subject to any order to bargain by the government; 2.14.4 Sellers are not aware of any movement among employees to organize, or gain trade union representation for, Company's employees; 2.14.5 No grievance that might have a material adverse effect on the Company and no arbitration proceeding arising out of any material employment claim is currently pending and Sellers are not aware of any basis for any such grievance or arbitration proceeding; 2.14.6 There is no labor strike, dispute, request for representation, slowdown, or stoppage currently pending, and Sellers are aware of none threatened against the Company; and 2.14.7 Sellers are not aware that any employee of the Company is subject to any non competition, nondisclosure, confidentiality, employment, consulting, or similar agreements with persons other than the Company relating to the present business activities of the Company except as disclosed in EXHIBIT 2.18 hereto. 2.15 DISCLOSURE. Sellers are not aware of any facts indicating that this Agreement, any of the schedules or exhibits hereto, or any of the documents delivered by Sellers to Purchaser in the Sellers' Disclosure Letter, contain any untrue statement of a material fact or omit a material fact necessary to make each statement contained herein or therein not misleading. 2.16 POWERS OF ATTORNEY. Except as set forth in SCHEDULE 2.16, no material power of attorney or similar authorization given by the Company, or any Seller with respect to the Company or the Shares, is presently in effect. 2.17 ACCOUNTS RECEIVABLE. All accounts receivable of the Company reflected in the March 31, 1998 Financial Statements represent bona fide sales actually made and are -7- 8 collectible (unless reserved against in the March 31, 1998 Financial Statements, or as set forth otherwise in SCHEDULE 2.17 hereto, or where they relate to sales made to the Guarantor or its subsidiaries) in the ordinary course of business. 2.18 AGREEMENTS AND COMMITMENTS. SCHEDULE 2.18 contains a complete and accurate list of each material agreement, contract, instrument, and commitment (including license agreements) to which the Company is a party that provides for payments in excess of (pound)10,000 per year or whose term is in excess of one year and is not cancelable upon thirty (30) or fewer days' notice without any liability, penalty, or premium, other than a nominal cancellation fee or charge ("Third Party Agreements"). 2.18.1 The Company has no collective bargaining or trade union contracts agreement in effect or being negotiated; 2.18.2 The Company is not in material default under any Third Party Agreement, nor are the Sellers aware of any event that, with notice or the passage of time or both, would constitute a material default or event of material default by the Company under any Third Party Agreement; 2.18.3 In connection with the Company's pension scheme, Sellers are aware of no material error or omission in any Norwich Union report included in the Disclosure Letter, and Sellers have no reason to believe that any pension plan of the Company or any Subsidiary is less than fully funded as required by government regulation and all applicable plan provisions; and, 2.18.5 No third party or governmental consent is required in connection with the sale of the Shares by Seller to Purchaser, nor, as respects any Subsidiary, in connection with the change of control of Company as contemplated in this Agreement. 2.19 PERSONAL PROPERTY. Without material exception, SCHEDULE 2.19 contains lists of all fixed assets owned or held by the Company and used in the conduct of the business of the Company. Except as set forth in SCHEDULE 2.19, the Company owns and has full title to such fixed assets, and none of such fixed assets is subject to any security interest, mortgage, pledge, conditional sales agreement, or other lien or encumbrance (except for liens for current taxes, assessments, charges, or other governmental levies not yet due and payable). The Company has delivered to Purchaser copies of all leases relating to leased fixed assets described in SCHEDULE 2.19 (including any and all amendments and other modifications to such leases) all of which are valid and binding, and the Company is not in material default under any such leases. Except as set forth in SCHEDULE 2.19, all fixed assets listed therein are generally in good operating condition and repair (ordinary wear and tear excepted), are performing satisfactorily at current production levels, and are available for immediate use in the conduct of the business and operations of the Company. The fixed assets listed in SCHEDULE 2.19 include all such fixed assets reasonably necessary to conduct the business and operations of the Company as currently conducted. -8- 9 2.20 REAL PROPERTY. SCHEDULE 2.20 contains a list of all real property currently owned or leased by the Company and used in the conduct of the business operations of the Company. Except as set forth in SCHEDULE 2.20, the Company has absolute title to all of the real property listed as owned in SCHEDULE 2.20 free and clear of all liens, mortgages, pledges, covenants, easements, restrictions, leases, charges, and other claims and encumbrances of any nature whatsoever, and without reservation or exclusion of any mineral, timber, or other rights or interests, except liens for real estate taxes, assessments, charges, or other governmental levies not yet due and payable and except for easements, rights of way, and restrictions of record. Sellers have delivered to Purchaser copies of all leases listed in SCHEDULE 2.20 (including any and all amendments and other modifications of such leases), which leases are valid and binding. The Company is not in material default under any such leases. All property listed in SCHEDULE 2.20 (including improvements thereon) is in satisfactory condition and repair consistent with its present use and is available for immediate use in the conduct of the business of the Company. 2.20.1 Except asset forth in SCHEDULE 2.20.1, none of the freehold property listed in SCHEDULE 2.20, or the leasehold property subject to leases listed in SCHEDULE 2.20, violates in any material respect any applicable building, use or planning code or regulation of any governmental authority having jurisdiction. 2.20.2 The property and leases described in SCHEDULE 2.20 include all such property or property interests necessary to conduct the business and operations of the Company as they are presently conducted. 2.20.3 The replies given by the Sellers' solicitors (Shoosmiths & Harrison) to the Purchaser's solicitors' (Browne Jacobson) enquiries concerning the Company's real property at Garman Road are true, complete and accurate in all material respects. 2.21 PERSONNEL. SCHEDULE 2.21 sets forth a true and complete list of: 2.21.1 The names, title, and current salaries of all officers of the Company; 2.21.2 The names of all directors of the Company; 2.21.3 The wage rates for each salaried and hourly employee of the Company; 2.21.4 All scheduled increases in compensation or bonuses; and 2.21.5 All scheduled employee promotions, demotions, hirings, firings or disciplining. 2.22 PATENTS. TRADEMARKS, TRADE NAMES, ETC. SCHEDULE 2.22 contains an accurate and complete list of all registered patents, trademarks, trade names, service marks, and copyrights, and all applications therefor, presently owned or held subject to license by the -9- 10 Company, and the use thereof by the Company does not materially infringe on any patents, trademarks, or copyrights or any other rights of any other person. Except as set forth in SCHEDULE 2.22, the Company has not received any written notice of any infringement or unlawful use of any patents, trademarks, or copyrights or any other rights of any other person, and Sellers are aware of no such infringement or unlawful use not set forth in SCHEDULE 2.22. 2.23 BENEFIT PLANS AND RELATED MATTERS. SCHEDULE 2.23 sets forth a description of all employee benefit plans and employee pension plans existing on the date hereof that are or have been maintained or contributed to by the Company. Except as listed on SCHEDULE 2.23, the Company does not maintain any retirement or deferred compensation plan, savings, incentive, share options or share purchase plans, unemployment compensation plan, vacation pay, severance pay, bonus or benefit arrangement, insurance or hospitalization program or any other fringe benefit arrangement for any employee, consultant or agent of the Company, whether pursuant to contract, arrangement, custom or informal understanding, for which the Company may have any ongoing material liability after Completion. There have been no unlawful transactions or actions with respect to any benefit plan or pension plan maintained by the Company as to which the Company has been party. As to any employee pension plan listed on SCHEDULE 2.23, there have been no events required to be reported to the government. 2.24 WARRANTIES TRUE, ACCURATE AND COMPLETE. All warranties made herein by Sellers are true, accurate and complete in all respects. SCHEDULE 2.24 sets out certain limitations and other provisions with respect to Sellers' liability under the Warranties and the Tax Covenant set out at Schedule 4.2 in this Agreement. The warranties given by the Sellers in SECTIONS 2.1 through 2.24 are referred to herein as the "Warranties." SECTION 3.0. WARRANTIES OF PURCHASER AND GUARANTOR. As a material inducement to Sellers to enter into this Agreement and to sell the Shares, Purchaser and Guarantor hereby warrant, jointly and severally, to Sellers as follows: 3.1 ORGANIZATION; POWER. Purchaser is a company duly incorporated and validly existing under the laws of England, and has all requisite corporate power and authority to enter into this Agreement and perform its obligations hereunder. Guarantor is a company duly incorporated and validly existing under the laws of Delaware, USA, and has all requisite corporate power and authority to enter into this Agreement and perform its obligations hereunder. 3.2 AUTHORIZATION; CONSENTS. The execution, delivery, and performance by Purchaser and Guarantor of this Agreement and all other agreements contemplated hereby to which Purchaser is a party have been duly and validly authorized by all necessary corporate action of Purchaser and Guarantor, and this Agreement and each such other agreement, when executed and delivered by the parties thereto, will constitute the legal, valid, and binding obligation of Purchaser and Guarantor enforceable against each of them in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, and similar statutes affecting creditors' rights generally and judicial limits on equitable remedies. Purchaser and Guarantor have obtained the written consent of their secured institutional lenders in -10- 11 connection with the acquisition of the Shares by Purchaser, which consents are a condition to Completion. 3.3 NO CONFLICT WITH OTHER INSTRUMENTS OR AGREEMENTS. The execution, delivery, and performance by Purchaser and Guarantor of this Agreement and all other agreements contemplated hereby to which Purchaser is a party will not result in a breach or violation of, or constitute a default under, the Memorandum and Articles of Association, as to Purchaser, and the Articles of Association, as to Guarantor, or any material agreement to which Purchaser or Guarantor is a party or by which Purchaser or Guarantor is bound. 3.4 GOVERNMENTAL AUTHORITIES. Except as set forth in SCHEDULE 3.4, (i) neither Purchaser nor Guarantor is required to submit any notice, report, or other filing with any governmental or regulatory authority in connection with the execution and delivery by Purchaser and Guarantor of this Agreement and the consummation of the purchase and (ii) no consent, approval, or authorization of any governmental or regulatory authority is required to be obtained by Purchaser or Guarantor, or any affiliate of either of them, in connection with Purchaser's and Guarantor's execution, delivery, and performance of this Agreement and the consummation of this purchase by Purchaser. 3.5 LITIGATION. There are no actions, suits, proceedings, or governmental investigations or inquiries pending or, to the knowledge of Purchaser or Guarantor, threatened against Purchaser or Guarantor, their properties, assets, operations, or businesses that might delay, prevent, or hinder the consummation of this purchase by Purchaser. 3.6 INVESTMENT REPRESENTATIONS. 3.6.1 Purchaser is acquiring the Shares for its own account for purposes of investment and without expectation, desire, or need for resale and not with the view toward distribution, resale, subdivision, or fractionalization of the Shares. 3.6.2 Purchaser understands that no public market now exists for the Shares and that it is uncertain that a public market will ever exist for the Shares. 3.7 BROKERAGE. There are no claims for brokerage commissions, finders' fees, or similar compensation in connection with this purchase based on any arrangement or agreement entered into by Purchaser and binding upon Purchaser. SECTION 4.0. INDEMNIFICATION. 4.1 ENVIRONMENTAL INDEMNIFICATION. Subject only to the applicable provisions and limitations set forth in SCHEDULE 2.24 hereto, Sellers shall severally satisfy, indemnify, hold harmless and defend Company and Purchaser from and against any and all liabilities, claims, reasonable costs, actions or reasonable expenses, including reasonable attorneys' fees, accrued, in connection with or arising out of any breach(es) of any environmental code, ordinance, regulation or law existing, accruing, occurring or arising prior to the Completion -11- 12 Date, including without limitation, reasonable costs, fines, penalties, interest assessments and reasonable expenses relating to remediation and bringing Company, and/or any Subsidiary, into full compliance with such governmental requirements. 4.2 TAX INDEMNIFICATION. Subject only to the applicable provisions and limitations set forth in SCHEDULE 2.24 hereto, Sellers are providing to the Purchaser the tax covenant attached hereto as SCHEDULE 4.2, made a part hereof. 4.3 The liabilities identified in this Section 4.1 and Section 4.2 are the "Indemnified Liabilities." SECTION 5.0. WAIVER OF CERTAIN RIGHTS; CONFIDENTIALITY AND NON-COMPETITION. 5.1 Each Seller hereby waives any and all rights which she/he might otherwise have under the Articles of Association of the Company, any corporate resolution, any Shareholder Agreement, or otherwise, to pre-emptively purchase any of the Shares as the result of the transactions contemplated by this Agreement. 5.2 Each Seller hereby ratifies and confirms all issues and allotments of shares and all transfers of shares which have taken place and which have resulted ultimately in the issued share capital as set out in SCHEDULE 2.2 and hereby waive any claim that he/she /it may have against any other person or the Company in respect of any such issue, allotment or transfer taking place or being registered in contravention of the Articles of Association. 5.3 Sellers Michael Johnson, Patrick Drew, Julian Gaisford St Lawrence and Thomas Nigel Miller (the "Restricted Sellers"), and no other Seller, agree as follows: 5.3.1 For a period of three (3) years from the date hereof (the "Restriction Period"), each Restricted Seller covenants and agrees, severally and not jointly, that he will not own nor operate, directly or indirectly, any business dealing in products competitive with the current products, nor any services competitive with the current services, of the Company within Europe, Canada or the United States of America (the "Territory"). Each Restricted Seller covenants and agrees that during the Restriction Period, he will not function as a principal, employee, agent, consultant or otherwise, directly or indirectly, of, for or with any related business competitive with the business of the Company (as currently conducted) within the Territory. A Restricted Seller may, however, own five percent (5 %) or less of the shares of a publicly traded entity which does engage in such business, and a Restricted Seller may function as a consultant, or otherwise, for the Purchaser or the Company, if requested to do so by the Purchaser or the Company, and if such Restricted Seller so agrees. 5.3.2 Purchaser shall have the right to set off against damages suffered by Purchaser for any violation of this SECTION 5.2 by a Restricted Seller any amounts owing such Restricted Seller under the Note, subject only to SECTION 12.0 and SECTION 15.0 of SCHEDULE 2.24 hereto. -12- 13 5.4 Each Seller shall keep confidential, and shall not use or disclose to any third party, directly or indirectly, any proprietary or confidential information of the Company. SECTION 6.0. COMPLETION. 6.1 TIME, PLACE. AND MANNER OF COMPLETION. The completion ("Completion") will be held at the offices of Shoosmiths & Harrison in Nottingham, England, or such other place as the parties may agree, simultaneously upon the execution and delivery of this Agreement. 6.2 DELIVERIES AT COMPLETION. 6.2.1 Sellers shall deliver to Purchaser (i) duly executed transfers of the Shares in favor of the Purchaser (or as it shall direct) together with the certificates evidencing the Shares, or, in the case of any lost certificates, a lost certificate indemnity satisfactory to Purchaser, as well as all certificates of shares of each Subsidiary; (ii) the common seal of the Company and each Subsidiary; (iii) the certificate of incorporation and any certificates of incorporation on change of name of the Company and the UK Subsidiary and each original and current certificate of qualification of the United States and Canadian Subsidiary to do business as a foreign corporation in a foreign jurisdiction; (iv) the statutory books of the Company and its United Kingdom Subsidiary, complete and up-to-date, as well as copies of same as to each other Subsidiary and a certificate of the Secretary of the Company as to the name of custodian and location of same as to each Subsidiary; (v) a certificate of the Secretary of the Company as to the absence of any amendment to the constitutional documents of the Company and each Subsidiary; (vi) the Disclosure Letter and the bundle of disclosure documents; (vii) a certificate of the Secretary of the Company of the board minutes of the Company approving the registration of the Shares being transferred to Purchaser under this Agreement, subject only to the transfers of such Shares being stamped, -13- 14 (viii) written resignation of Williams Allan from their position as auditors for the Company and the UK Subsidiary, acknowledging that they have no claim whatsoever against the Company or the UK Subsidiary and containing the statement required by Section 394 of the Companies Act 1985; and (ix) written resignations and waivers of all claims of the Directors of the Company and each Subsidiary with regard to their positions as directors. 6.2.2 Purchaser shall deliver to Shoosmiths & Harrison, on behalf of Sellers, (i) by way of telegraphic transfer, that portion of the Purchase Price required to be delivered at the Completion; (ii) the Note, and each individual certificate thereto relating to each Seller; (iii) a certificate of the Secretary of Purchaser of the resolution of Purchaser authorizing the execution, delivery and performance of this Agreement and the Note; and (iv) a certificate of the Secretary of SI Holding Corporation of the resolution of SI Holding Corporation authorizing the execution, delivery and performance of this Agreement as Guarantor. 6.3 CONSUMMATION OF COMPLETION. All acts, deliveries, and confirmations comprising the Completion regardless of chronological sequence shall be deemed to occur contemporaneously and simultaneously upon the occurrence of the last act, delivery, or confirmation of the Completion and none of such acts, deliveries, or confirmations shall be effective unless and until the last of the same shall have occurred. The time of the Completion is scheduled to correspond with the close of business at the principal office of the Company and, regardless of when the last act, delivery, or confirmation of the Completion shall take place, the completion of the purchase of the Shares shall be deemed to occur as of the close of business at the principal office of the Company on the date of the Completion. SECTION 7.0. MISCELLANEOUS PROVISIONS. 7.1 AMENDMENT AND MODIFICATION. Subject to applicable law, neither this Agreement nor the Guaranty may be amended, modified, or supplemented only by a written agreement signed by Purchaser and Sellers. 7.2 WAIVER OF COMPLIANCE: CONSENTS -14- 15 7.2.1 Any failure of any party to comply with any obligation, covenant, agreement, or condition herein may be waived, but only in writing by the party entitled to the performance of such obligation, covenant, or agreement or who has the benefit of such condition, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement, or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 7.2.2 Whenever this Agreement requires or permits consent by or on behalf of any party hereto, such consent will be given in a manner consistent with the requirements for notices as set forth in Section 8.3 below. 7.3 NOTICES. All notices, requests, demands, and other communications required or permitted hereunder will be in writing and will be deemed to have been duly given (i) when delivered by hand, or (ii) two days after being mailed by certified or registered mail with postage prepaid within a single country, or (iii) twenty days after being mailed by certified or registered mail with postage prepaid between different countries, or (iv) five days after being sent via Federal Express or DHL. If to Purchaser, Joseph L. Sylvia, Managing Director Time Eclipse, Limited c/o Simonds Industries Inc. P.O. Box 500 Fitchburg, MA 01420 USA with a copy to: David P. Witman Wellesley Law Associates 25 Walnut Street, 3rd Floor Wellesley, MA 02181 USA and to: Mr. David Tilly Browne Jacobson, Solicitors 44 Castle Gate Nottingham NGl 7BJ ENGLAND or to such other person or address as Purchaser hereafter furnishes to Sellers pursuant to the provisions of this SECTION 7.3. -15- 16 If to Sellers, with regard to any Claim under the Warranties, the Tax Covenant or the Indemnified Liabilities: Mr. Michael Johnson c/o The Needham Partnership 9 Needham Road London, ENGLAND W11 2RP with a copy to: Mr. Nigel Thorne Shoosmith & Harrison, Solicitors Lockhouse, Castle Meadow Road Nottingham, ENGLAND NG2 1AG or to such other person or address as Sellers furnish hereafter to Purchaser pursuant to the provisions of this SECTION 7.3. If to Sellers, with regard to any other matter: to their individual addresses set forth in SCHEDULE 2.2; with a copy to: Mr. Nigel Thorne Shoosmiths & Harrison, Solicitors Lockhouse, Castle Meadow Road Nottingham, ENGLAND NG2 IAG or to such other person or address as an individual Seller furnishes hereafter to Purchaser and the Sellers' Committee pursuant to the provisions of this SECTION 7.3. 7.4 TITLES; CAPTIONS: COUNTERPARTS. All section titles or captions contained in this Agreement are for convenience only and shall not be deemed part of the context nor effect the interpretation of this Agreement. This Agreement may be executed in any number of counterparts and by the parties to it on separate counterparts, each of which when so executed and delivered shall be an original, but all the counterparts shall together constitute one and the same instrument. 7.5 ENTIRE AGREEMENT. This Agreement contains the entire understanding between and among the parties and supersedes any prior understandings and agreements among them respecting the subject matter of this Agreement. 7.6 TIME OF THE ESSENCE. Time shall be of the essence of this Agreement, as regards both the dates and periods mentioned and any dates and periods which may be -16- 17 substituted for them in accordance with this Agreement or by agreement in writing among the parties (whether or not executed as a deed). 7.7 ATTORNEY FEES. In the event a suit or action is brought by any party under this Agreement to enforce any of its terms, or in any appeal therefrom, it is agreed that the prevailing party shall be entitled to reimbursement of all related reasonable costs and expenses, as well as reasonable attorneys' fees to be fixed by the court, provided that this will always be subject to the limitation of Sellers' liability as set out in Clause 5.0 of SCHEDULE 2.24. 7.8 COMPUTATION OF TIME. In computing any period of time pursuant to this Agreement, the day of the act, event or default from which the designated period of time begins to run shall be included, unless it is a Saturday, Sunday, or a legal holiday, in which event the period shall begin to run on the next day which is not a Saturday, Sunday, or legal holiday, in which event the period shall run until the end of the next day thereafter which is not a Saturday, Sunday, or legal holiday. 7.9 PRONOUNS AND PLURALS. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular, or plural as the identity of the person or persons may require. 7.10 GOVERNING LAW AND SUBMISSION TO JURISDICTION. This Agreement and the documents to be entered into pursuant to it shall be governed by and construed in accordance with English law, and all the parties irrevocably agree that the Courts of England are to have non-exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and such documents. 7.11 FURTHER ASSURANCE. After Completion, the Sellers shall, at the Purchaser's cost, execute such documents and do such acts and things as the Purchaser may reasonably require for the purpose of giving to the Purchaser the full benefit of SECTION 1.0 of this Agreement 7.12 PARTIES IN INTEREST. Nothing herein shall be construed to be to the benefit of any third party, nor is it intended that any provision shall be for the benefit of any third party. 7.13 SAVINGS CLAUSE. If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby. 7.14 NO ASSIGNMENT. This Agreement shall be personal to the parties to it, and no party may assign the benefit of any provisions of this Agreement to any other person, save that (and save otherwise expressly provided herein) the benefit of any of its provisions may be assigned to any company which is a subsidiary of the party concerned or which is a holding company of such party or a subsidiary of such holding company, but only for so long as such company remains the holding company or subsidiary of the party concerned, or a subsidiary of -17- 18 such holding company and remains the beneficial owner of such benefit so assigned. In the event that any such subsidiary or holding company ceases to be such, then all such assigned rights and benefits shall be assigned back promptly to the assignor. Subject to the aforesaid, this Agreement shall be binding upon and enure to the benefit of the personal representatives of, and successors in title to, each of the parties hereto. Additionally, Purchaser may assign collaterally to Heller Financial, as Agent for the institutional investors of Purchaser and Guarantor, all Warranties and certifications made by Sellers hereunder. 7.15 APPOINTMENT OF PROCESS AGENTS. 7.15.1 The Purchaser and the Guarantor hereby irrevocably appoint Browne Jacobson of 44 Castle Gate, Nottingham NGI 7BJ as their agent for the service of process in England, service upon whom shall be deemed completed whether or not forwarded to or received by Purchaser or Guarantor. If such process agents cease to have an address in England, the Purchaser and the Guarantor irrevocably agree to appoint new process agents acceptable to the Sellers and to deliver to the Sellers within fourteen (14) days a copy of a written acceptance of appointment by the process agents. 7.15.2 Each Seller hereby irrevocably appoints Shoosmiths & Harrison of Lockhouse, Castle Meadow Road, Nottingham NG2 IAG as his/her agent for the service of process in England, service upon whom shall be deemed completed whether or not forwarded to or received by any Seller. If such process agents cease to have an address in England, each Seller irrevocably agrees to appoint new process agents acceptable to the Purchaser and to deliver to the Purchaser within fourteen (14) days a copy of a written acceptance of appointment by the process agents. 7.15.3 Nothing contained in this Agreement shall affect the right to serve process in any other manner permitted by law of the right to bring proceedings in any other jurisdiction for the purposes of enforcement or execution of any judgment or other settlement in any of the courts. 7.16 COSTS. Each party hereto shall bear, and be solely responsible for, without contribution from any other party, his /her/its own costs incurred in connection with this Agreement and the transactions contemplated hereby. 7.17 GUARANTY. The Guarantor hereby unconditionally and irrevocably guarantees to the Sellers the due and punctual performance and observance by the Purchaser of all its obligations, commitments, undertakings, warranties and indemnities under, or pursuant to this Agreement and the Note. 7.17.1 The liability of the Guarantor under this Agreement and the Note shall not be released nor diminished by any variation of the terms of this Agreement (except as agreed by all parties to this Agreement), any forbearance, neglect or delay by Sellers in seeking performance of the obligations hereby imposed or any granting of time for such performance by Sellers. -18- 19 7.17.2 If, and whenever, the Purchaser defaults for any reason whatsoever in the performance of any obligation or liability undertaken or expressed to be undertaken by the Purchaser under or pursuant to this Agreement or the Note, the Guarantor shall forthwith upon demand unconditionally perform (or prosecute the performance of) and satisfy (or procure the satisfaction of) the obligation or liability in regard to which such default has been made in the manner prescribed by this Agreement or the Notes, and so that the same benefits shall be conferred on the Sellers as they would have received if such obligation or liability had been duly performed and satisfied by the Purchaser. 7.17.3 This guaranty is to be a continuing guaranty and accordingly is to remain in force until all the obligations of the Purchaser under this Agreement and the Note shall have been performed and satisfied. This guaranty is in addition to, and without prejudice to, and not in substitution for, any rights or security which the Sellers may now or hereafter have or hold for the performance and observance of the obligations, commitments, undertakings and warranties of the Purchaser under, or in connection with, this Agreement and the Note. 7.17.4 Notwithstanding any provision hereof to the contrary, the Guarantor retains and shall have available to it any and all defenses (arising out of contract law or otherwise, excepting only defenses arising out of bankruptcy or insolvency law or lack of capacity or authority on the part of Purchaser) available to the Purchaser against any enforcement of this guaranty by the Sellers against the Guarantor. This guaranty is intended solely to secure for the Sellers the Purchaser's performance obligations hereunder and under the Note. This guaranty is not intended to, it does not, nor shall it be deemed, construed nor interpreted to, provide any additional rights to Sellers hereunder or under the Note. 7.18 SELLERS' COMMITTEE. Each Seller hereby authorizes Michael Johnson, Patrick Drew, Julian St Lawrence and Nigel Miller as the "Sellers' Committee." Michael Johnson is the initial Chairman of the Sellers' Committee which is hereby authorized and constituted to (i) receive notices on behalf of each Seller pursuant to SECTION 8.3, above, (ii) to conduct, on behalf of each Seller, any and all claims relating to any Warranty, the Tax Covenant or any Indemnified Liability, and (iii) to provide any consents required or permitted in this Agreement on behalf of each Seller. With regard to any matter authorized hereunder to the Sellers' Committee, the Purchaser is entitled to rely exclusively on such notices, conduct of claims and consents provided by the Sellers' Committee and is further entitled to disregard any communications from any individual Seller with respect thereto. -19- 20 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on May 7, 1998, Time Eclipse, Limited SI Holding Corporation an English Corporation, a Delaware Corporation as Purchaser, as Guarantor, By: /s/ Joseph L. Sylvia By: /s/ Joseph L. Sylvia ----------------------------- ------------------------------ Joseph L. Sylvia Joseph L. Sylvia Managing Director Executive Vice President - ------------------------------------------ Penelope Christine Gaisford St. Lawrence Howth Castle County Dublin Erie - ------------------------------------------ Platinum Holdings Limited 60 Market Square P.O. Box 364 Belize, Central America - ------------------------------------------ Marcris Holdings Limited c/o Chris R. Bewley 157 Caulder Drive Oakville, Ontario L6J 4T2 CANADA - ------------------------------------------ Thomas Nigel Miller Main Street Repton Derbyshire -20- 21 - ------------------------------------------ Valerie Drew 31 Allingham Street Longon Nl 8NX ENGLAND - ------------------------------------------ Georgina Miller "Westlands" Upperton Petworth West Sussex GU28 9BB ENGLAND - ------------------------------------------ Ronald Francis Kirby Joylons Bury near Pulborough West Sussex RH20 lPF ENGLAND - ------------------------------------------ Lady Davis 21 Tryon Street, Chelsea London SW3 3LG ENGLAND - ------------------------------------------ Joanna Marie Drew 57 St. George's Square London SW1 U3QN ENGLAND - ------------------------------------------ Michael Johnson 9 Needham Road London W11 2RP ENGLAND -21- 22 - ------------------------------------------ Timothy Douglas Ian Drew The Dingle, Crew Lane, Kenilworth Warwickshire CV8 2DG ENGLAND - ------------------------------------------ Patrick Arnold Drew The Yarrows Lodge 17 Church Hill, Camberley Surrey GU1 52HA ENGLAND - ------------------------------------------ G. Miller and Dr. T.N. Miller c/o Geraldine Devine Palmer Cowen Solicitors 16 Berkeley Street London W1 5AE ENGLAND - ------------------------------------------ Dagmar Paton 9 Dealtry Road London SW15 6NL ENGLAND - ------------------------------------------ Paul Malcolm Ruse 47 Greyhound Hill London NW4 4JN ENGLAND - ------------------------------------------ Bibury Investment Holding Inc. 4 Britannia Place St. Helier Jersey JE4 5RE -22- 23 - ------------------------------------------ Paul Sewell 16420 Fair Ridge Court Riverside, CA 92503 USA - ------------------------------------------ Dennis Stephen Parker 7 Gander Green Lane, Cheam Surrey ENGLAND - ------------------------------------------ Kenneth Trickett Burnham, Barley Mow Road Englefield Green Surrey TW20 0NP ENGLAND - ------------------------------------------ John Greville Drew 1 Greenwood Drive London E8 lAB ENGLAND - ------------------------------------------ Timothy John Drew Flat C, 62 Herman Hill, Wanstead London E11 1PB ENGLAND - ------------------------------------------ David Graham Drew 11b Alexandra Road, Windsor Berks SL4 1JH ENGLAND -23- 24 - ------------------------------------------ Marcus Guy Drew The Magpie, 17 Beechwood Close Church Crookham, Fleet Hants GU13 0TT ENGLAND - ------------------------------------------ Christopher Marcus Roy Drew Corner Cottage, 13 Benner Lane West End near Woking Surrey ENGLAND - ------------------------------------------ Robin Patrick Barry Drew 17 Petrel Crort, Gold Crest Kempshott near Basingstoke Hants ENGLAND - ------------------------------------------ Sally Elizabeth Drew 31 Chalsey Road London SE4 1YN ENGLAND - ------------------------------------------ Simon Drew BA Randersvej 18 8800 Viborg DENMARK - ------------------------------------------ M.T. Roxby Bott Maplewood, Cherry Tree Road Milford Godalming Surrey GU8 5AY ENGLAND -24- 25 - ------------------------------------------ J.T. Gaisford St. Lawrence 43 Rowan Road London W6 7DT ENGLAND - ------------------------------------------ Nicholas Blews Robotham 24 Meenaar Crescent Coolbinia, Perth 6050 Western Australia - ------------------------------------------ Mary Thorndike Drew 1 Greenwood Road London E8 1AB ENGLAND - ------------------------------------------ Jane Elizabeth Merrick-Johnson 9 Needham Road London W11 2RP - ------------------------------------------ Elena F.L. Miller Laurel Hill, Main Street Repton Derbyshire DE65 6FB - ------------------------------------------ Matthew T.V. Miller Laurel Hill, Main Street Repton Derbyshire DE65 6FB -25- 26 - ------------------------------------------ Honor L. Miller Laurel Hill, Main Street Repton Derbyshire DE65 6FB - ------------------------------------------ David E.B. Miller Laurel Hill, Main Street Repton Derbyshire DE65 6FB - ------------------------------------------ Avril J.V. Miller Laurel Hill, Main Street Repton Derbyshire DE65 6FB - ------------------------------------------ Alexander H.J. Miller Laurel Hill, Main Street Repton Derbyshire DE65 6FB -26- EX-3.1 5 AMMENDED & RESTATED CERT. OF INCORP. 1 EXHIBIT 3.1 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SIMONDS INDUSTRIES INC. It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is Simonds Industries Inc. 2. The certificate of incorporation of the Corporation is hereby amended by striking out Article FOURTH thereof and by substituting in lieu of said Article the following new Article: "FOURTH: The total number of shares which the Corporation shall have authority to issue is 200,000 shares, of which 100,000 shares shall be designated as "Class A Common Stock" and 100,000 shares shall be designated as "Class B Common Stock." All shares of common stock of the Corporation currently outstanding are hereby redesignated as Class A Common Stock. As used herein, the term "Common Stock" shall mean collectively the Class A Common Stock and the Class B Common Stock. The preferences, limitation and relative rights relating to the Class A Common Stock and the Class B Common Stock are as follows: 1. PAR VALUE. The par value of the Class A Common Stock and the Class B Common Stock shall be $0.01 per share. 2. RANKING. Except with respect to voting rights, the Class A Common Stock and the Class B Common Stock shall in all respects have the same powers, preferences, rights and qualification (including dividend rights and rights on liquidation, dissolution and winding up) and shall rank PARI PASSU with each other. 2 3. VOTING RIGHTS. Except as otherwise expressly provided herein or as required by law, the holders of the Class A Common Stock shall have the right to vote on all corporate matters for which a vote of the shareholders of the Corporation is taken, and each share of Class A Common Stock shall be entitled to one vote. Except as otherwise expressly provided herein or as required by law, the holders of the Class B Common Stock shall have no right to vote on any corporate matters for which a vote of the shareholders of the Corporation is taken. 4. CONVERSION a. Any holder of Class B Common Stock shall have the right, at its option, at any time and from time to time, to convert, subject to the terms and provisions of this paragraph 4, any or all of such holder's shares of Class B Common Stock into fully paid and non-assessable shares of Class A Common Stock at the rate (subject to adjustment as provided below) of one share of Class A Common Stock for each share of Class B Common Stock surrendered for conversion; PROVIDED, HOWEVER, that if the holder in any such conversion is subject to the Bank Holding Company Act of 1956, as amended (12 U.S.C. ss.1841, ET. SEQ.) and the regulations promulgated thereunder (collectively and including any successor provisions, the "BHCA Act"), such conversion may be made only if (i) the BHCA Act would not prohibit such holder from holding such shares of Class A Common Stock and (ii) such shares of Class A Common Stock to be received upon such conversion will be distributed or sold (A) in connection with any public equity offering registered under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Securities Act"), (B) in a "broker's transaction" (as defined in Rule 144(g) under the Securities Act) pursuant to Rule 144 under the Securities Act or any similar rule then in force, (C) to a person or group (within the meaning of the Securities Exchange Act of 1934 (the "Exchange Act")) of persons if, after such distribution or sale, such person or group of persons would not, in the aggregate, own, control or have the right to acquire more than 2% of the outstanding securities of the Corporation entitled to vote on the election of directors of the Corporation, (D) to a person or group -2- 3 (within the meaning of the Exchange Act) of persons if, prior to such sale, such persons or group of persons had control of the Corporation, or (E) in any other manner permitted under the BHCA, PROVIDED, FURTHER, that if the holder converts any shares of the Class B Common Stock as provided in clauses (i) and (ii) above and any distribution or sale of the Class A Common Stock fails to occur for any reason, such holder may convert the Class A Common Stock into the Class B Common Stock converted in anticipation of such distribution or sale. Any holder of Class A Common Stock that is subject to the BHCA Act shall also have the right, at its option, at any time and from time to time, to convert, subject to the terms of this paragraph 4, any or all of such holder's shares of Class A Common Stock into fully paid and non-assessable shares of Class B Common Stock at the rate (subject to adjustment as provided below) of one share of Class B Common Stock for each share of Class A Common Stock surrendered for conversion; PROVIDED; HOWEVER, that such conversion shall be made only if such holder has determined and certified to the corporation that such conversion is necessary to reduce such holder's holdings of the Class A Common Stock to a number of shares of Class A Common Stock (if any) then permitted to be held by such holder under the BHCA Act. b. Such conversion right shall be exercised by the surrender to the Corporation of the shares of the applicable Common Stock to be converted in the manner provided above at any time during usual business hours at its principal place of business, accompanied by (i) written notice that the holder elects to convert such shares of Common Stock and specifying the name or names (with address) in which a certificate or certificates for shares of such Common Stock are to be issued; (ii) if so required by the Corporation, a written instrument or instruments of transfer in form reasonably satisfactory to the Corporation duly executed by the holder or its duly authorized legal representative; (iii) transfer tax stamps or funds therefor, if required pursuant to paragraph 4(d), and (iv) a certificate in form satisfactory to the Corporation stating that the holder has satisfied all applicable conditions to conversion, including without limitation the restrictions described in paragraph 4(a), and the Corporation may rely upon such Certificate as to the holder's compliance with any such conditions or restrictions without any investigation by the -3- 4 Corporation as to such matters. As promptly as practicable after the surrender, as herein provided, of any shares of Common Stock for conversion pursuant to paragraph 4(a), the Corporation shall deliver to or upon the written order of the holder of such shares of Common Stock so surrendered a certificate or certificates representing the number of fully paid and non-assessable shares of the Common Stock into which such shares of Common Stock may be or have been converted in accordance with the provisions of this paragraph 4. Such conversion shall be deemed to have been made immediately prior to the close of business on the date that such shares of Common Stock shall have been surrendered in satisfactory form for conversion, and the person or persons entitled to receive the shares of Common Stock deliverable upon conversion of such shares of Common Stock shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock at such appropriate time. Notwithstanding the foregoing, a holder's identification of the person or persons entitled to receive any shares of Common Stock deliverable upon conversion shall not be deemed an approval by the Corporation of a transfer or conversion that would result in a violation of any applicable law or restriction on transfer or conversion and shall not be deemed a waiver by the Corporation or any other person of any right or restriction regarding any such transfer or conversion. c. So long as shares of each of the Class A Common Stock and Class B Common Stock are outstanding or authorized or reserved for issuance, the Corporation shall not effect any stock split, stock dividend, reclassification, reorganization, recapitalization or consolidation of Class A or Class B Common Stock, unless the Corporation shall also contemporaneously effect a stock split, stock dividend, reclassification, reorganization or consolidation on the same terms with respect to the other class of Common Stock. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, share exchange, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, including without limitation the adjustments required under this paragraph 4, and will at all times in good faith assist in the carrying out of all the provisions of this paragraph 4 and in the taking of all such action as may be necessary -4- 5 or appropriate in order to protect the conversion rights of the holders of Common Stock against dilution or other impairment. d. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Class A or Class B Common Stock pursuant thereto; PROVIDED, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. e. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A and Class B Common Stock, free of preemptive rights, solely for the purpose of effecting the conversion of the shares of Common Stock, such number of its shares of Class A and Class B Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of each class into the other class; and if at any time the number of authorized by unissued shares of each class shall not be sufficient to effect the conversion of all then outstanding shares of the other class, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized by unissued shares of Class A or Class B Common Stock, as the case may be, to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to this Certificate of Incorporation. f. In case of any recapitalization, reorganization or reclassification of the capital stock of the Corporation, any consolidation or merger of the Corporation with or into another entity, any acquisition of shares of the capital stock of the Corporation in a share exchange, or the sale, lease or other disposition of all or substantially all of the assets of the Corporation, each share of Class B Common Stock shall thereafter be convertible into the number of shares of stock or other securities or property (including cash) to which a holder of the number of shares of Class A Common Stock deliverable upon conversion of such share of Class B Common Stock would have been entitled upon the record date of (or date of, if no record date is fixed) such recapitalization, reorganization, reclassification, consolidation, merger, share exchange, sale, lease or other disposition and, in any case, appropriate adjustment (as determined by the Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of such Class B Common Stock, to the end that the provisions set forth herein shall thereafter be -5- 6 applicable, as nearly as equivalent as is practicable, in relation to any shares of stock or the securities or property (including cash) thereafter deliverable upon the conversion of the shares of Class B Common Stock." 3. The amendment of the certificate of incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. 4. The effective date and time of the amendment herein certified shall be July 7, 1998 at 10:00 a.m. IN WITNESS WHEREOF, said Simonds Industries Inc. has caused this certificate to be executed by Ross B. George, its President and attested by David P. Witman, its Secretary this 6th day of July, 1998. SIMONDS INDUSTRIES INC. By: /s/ Ross B. George --------------------------------------- Ross B. George, President ATTEST: By: /s/ David P. Witman ------------------------------- David P. Witman, Secretary -6- 7 CERTIFICATE OF OWNERSHIP AND MERGER OF SIMONDS INDUSTRIES INC. (a Delaware corporation) INTO SI HOLDING CORPORATION (a Delaware corporation) It is hereby certified that: 1. SI Holding Corporation (the "Corporation") is a business corporation of the State of Delaware. 2. The Corporation is the owner of all of the outstanding shares of the common stock of Simonds Industries Inc., which is also a business corporation of the State of Delaware ("Simonds Industries"). 3. On June 11, 1998, the Board of Directors of the Corporation adopted the following resolutions to merge Simonds Industries into the Corporation: RESOLVED: That Simonds Industries be merged into the Corporation, and that all of the estate, property, rights, privileges, powers and franchises of Simonds Industries be vested in and held and enjoyed by the Corporation as fully and entirely and without change or diminution as the same were before held and enjoyed by Simonds Industries in its name. RESOLVED: That the Corporation shall assume all of the obligations of Simonds Industries. RESOLVED: That the Corporation shall cause to be executed and filed and/or recorded the documents prescribed by the laws of the State of Delaware and by the laws of any other appropriate jurisdiction and will cause to be performed all necessary acts within the State of Delaware and within any other appropriate jurisdiction. RESOLVED: That the Corporation shall change its corporate name to "Simonds Industries Inc." -7- 8 RESOLVED: That the effective time of the Certificate of Ownership and Merger setting forth a copy of these resolutions shall be upon filing with the Delaware Secretary of State, and that, insofar as the General Corporation Law of the State of Delaware shall govern the same, said time shall be the effective merger time. IN WITNESS WHEREOF, the undersigned has caused this Certificate of Ownership and Merger to be duly executed as of the 11th day of June, 1998. SI HOLDING CORPORATION By: /s/ Ross B. George -------------------------- Name: Ross B. George Title: President/CEO -8- 9 CERTIFICATE FOR RENEWAL AND REVIVAL OF CERTIFICATE OF INCORPORATION SI Holding Corporation, a corporation organized under the laws of Delaware, the Certificate of Incorporation of which was filed in the office of the Secretary of State on the 16th Day of May, 1995 and thereafter voided for non-payment of taxes, new desiring to procure a revival of its Certificate of Incorporation, hereby certifies as follows: 1. The name of the corporation is SI Holding Corporation. 2. Its registered office in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of new Castle and the name of its registered agent at such address is The Corporation Trust Company. 3. The date when revival of the Certificate of Incorporation of this corporation is to commence is the 28th day of February, 1997. Revival of the Certificate of Incorporation is to be perpetual. 4. This corporation was duly organized under the laws of Delaware and carried on the business authorized by its Certificate of Incorporation until the 1st day of March, 1997 at which time its Certificate of Incorporation became inoperative and void for non-payment of taxes and this Certificate for Renewal and Revival is filed by authority of the duly elected directors of the corporation in accordance with the laws of Delaware. IN WITNESS WHEREOF, said SI Holding Corporation in compliance with Section 312 of Title 8 of the Delaware Code has caused this Certificate to be signed by Ross B. George, its last acting President, this 31st day of July, 1997. SI Holding Corp. By /s/ Ross B. George ---------------------------- Ross B. George -9- 10 CERTIFICATE OF INCORPORATION OF SI HOLDING CORPORATION FIRST. The name of the corporation is SI Holding Corporation. SECOND. The address of the corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The total number of shares which the corporation shall have authority to issue is 200,000 shares of common capital stock, $.01 par value each. FIFTH. The name and mailing address of the incorporator is Kristin A. DeKuiper, Esq., Hinckley, Allen & Snyder, 1500 Fleet Center, Providence, Rhode Island 02903. SIXTH. The powers of the incorporator are to terminate upon the filing of the Certificate of Incorporation, and the names and mailing addresses of the persons who are to serve as directors until the first annual meeting of stockholders or until their successors are elected and qualified are: NAME ADDRESS Habib Y. Gorgi 111 Westminster St., 4th Floor Providence, RI 02903 Bernard V. Buonanno III 111 Westminster St., 4th Floor Providence, RI 02903 SEVENTH. The corporation is to have perpetual existence. EIGHTH. The board of directors of the corporation are expressly authorized to make, alter, restate or repeal by-laws of the corporation. NINTH. Elections of directors need not be by written ballot except and to the extent provided in the by-laws of the corporation. TENTH. The personal liability of any director to the corporation or its stockholders for monetary damages arising as a result of the director's breach of his or her fiduciary duty as a director is hereby eliminated. Nothing in this provision shall be construed as eliminating the -10- 11 liability of the director (i) for any breach of the director's duty of loyalty to the corporation nor its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the officer derived an improper personal benefit. ELEVENTH. Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the corporation may be kept (subject to any provisions contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. TWELFTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. The undersigned incorporator hereby acknowledges that the foregoing Certificate of Incorporation is her free act and deed and that the facts stated therein are true. /s/ Kristin A. DeKuiper ---------------------------------- Kristin A. DeKuiper, Incorporator STATE OF RHODE ISLAND COUNTY OF PROVIDENCE On the 16th day of May, 1995, before me personally came Kristin A. DeKuiper, known to me to be the individual described in and who acknowledged the foregoing instrument and swore and acknowledged that she executed the same as her free act and deed. /s/ Laurie C. [Wilkinson] Notary Public My Commission Expires: 6/25/95 -11- EX-3.2 6 BY LAWS OF SIMONDS INDUSTRIES INC. 1 EXHIBIT 3.2 BY - LAWS OF SIMONDS INDUSTRIES INC. ARTICLE I OFFICES SECTION 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. All meetings of the stockholders for the election of directors shall be held in the City of Wilmington at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. Annual meetings of stockholders, commencing with the year 1995 shall be held on the first Monday in May, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 A.M., or at such other date and time as shall be designated from 2 time to time by the board of directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. SECTION 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than fifty days before the date of the meeting. SECTION 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. -2- 3 SECTION 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than fifty days before the date of the meeting, to each stockholder entitled to vote at such meeting. SECTION 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. SECTION 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provisions of the statutes or of the certificate of incorporation, a different vote is required in which case such express provisions shall govern and control the decision of such question. -3- 4 SECTION 10. Unless otherwise provided in the certificate of incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. SECTION 11. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS SECTION 1. The number of directors which shall constitute the whole board shall not be less than two nor more than seven. The initial board shall consist of five directors. Thereafter, within the limits above specified, the number of directors shall be determined by resolution of the board of directors or by the stockholders at the annual meeting. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and -4- 5 each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. SECTION 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten per cent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. SECTION 3. The business of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. SECTION 4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. SECTION 5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to -5- 6 constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. SECTION 6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. SECTION 7. Special meetings of the board may be called by the president on two days' notice to each director, either personally or by mail or by telegram. Special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors. SECTION 8. At all meetings of the board a majority of the number of directors fixed pursuant to Section 2 of this Article shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting until a quorum shall be present. SECTION 9. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or -6- 7 committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. SECTION 10. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution or the certificate of incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. -7- 8 SECTION 11. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. SECTION 12. Unless otherwise restricted by the certificate of incorporation, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV NOTICES SECTION 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. SECTION 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. -8- 9 ARTICLE V OFFICERS SECTION 1. The officers of the corporation shall be chosen by the board of directors and shall be a chairman, a chief executive officer, a president, a vice-president, a secretary and a treasurer. The board of directors may also choose additional vice-presidents, and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. SECTION 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, one or more vice-presidents, a secretary and a treasurer. SECTION 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. SECTION 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. SECTION 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. SECTION 6. The president shall be the principal executive officer of the corporation and shall supervise and conduct the business and affairs of the corporation. The other officers of the corporation shall have the powers and shall perform the duties customarily appurtenant to their respective offices, and shall have such further powers and shall perform such further duties as shall be from time to time assigned to them by the board of directors. -9- 10 ARTICLE VI CERTIFICATES OF STOCK SECTION 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the president or vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. SECTION 2. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or, (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 3. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. -10- 11 SECTION 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporation action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. SECTION 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. -11- 12 ARTICLE VII INDEMNIFICATION SECTION 1. THIRD PARTY ACTIONS. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (each an "Indemnitee"), against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. SECTION 2. DERIVATIVE ACTIONS. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit. SECTION 3. EXPENSES. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or -12- 13 matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. SECTION 4. AUTHORIZATION AND REQUEST FOR INDEMNIFICATION. (a) Any indemnification requested by the Indemnitee under Section 1 hereof shall be made no later than ten (10) days after receipt of the written request of the Indemnitee, unless it shall have been adjudicated by a court of final determination that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. (b) Any indemnification requested by the Indemnitee under Section 2 hereof shall be made no later than ten (10) days after receipt of the written request of the Indemnitee, unless it shall have been adjudicated by a court of final determination that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to, the best interests of the corporation, the Indemnitee shall have been finally adjudged to be liable to the corporation by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of the Indemnitee's duty to the corporation unless and only to the extent that any court in which such proceeding was brought shall determine upon application that despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. SECTION 5. ADVANCE PAYMENT OF EXPENSES. Subject to Section 4 hereof, the corporation shall advance all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the -13- 14 corporation. The Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the corporation. The advances to be made hereunder shall be paid by the corporation to or on behalf of the Indemnitee within 30 days following delivery of a written request therefor by the Indemnitee to the corporation. SECTION 6. NON-EXCLUSIVENESS. The indemnification provided by this Article VII shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 7. INSURANCE. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VII. SECTION 8. CONSTITUENT CORPORATIONS. The corporation shall have power to indemnify any person who is or was a director, officer, employee or agent of a constituent corporation absorbed in a consolidation or merger with this corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, -14- 15 partnership, joint venture, trust or other enterprise in the same manner as hereinabove provided for any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. ARTICLE VIII GENERAL PROVISIONS SECTION 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. SECTION 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. SECTION 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. SECTION 4. The fiscal year of the corporation shall be fixed by resolution of the board of directors. -15- 16 SECTION 5. The corporate seal shall be in the form of a circle with the name of the corporation, the words "Incorporated Delaware" and the year of its incorporation inscribed therein. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE IX AMENDMENTS SECTION 1. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the board of directors by the certificate of incorporation, at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. -16- EX-3.3 7 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.3 KNOW ALL MEN BY THESE PRESENTS, That we, E.P. Armstrong, J.M. Crook and Clarence H. Gilbert, do hereby associate ourselves together for the purpose of forming a private corporation under the laws of the State of Oregon, to engage in the enterprise, business, pursuit and occupation hereinafter mentioned and do hereby adopt the following Articles of Incorporation, to-wit: I The name of this corporation and by which it shall be known is the ARMSTRONG MANUFACTURING COMPANY and its duration shall be perpetual. II The enterprise, business, pursuit and occupation in which this corporation proposes to engage is to conduct and carry on the business of buying and selling machinery, new or second hand, of every kind and description; to buy and sell goods, wares and merchandise; to accept goods upon consignment, with the right to obtain and dispose of goods, wares and merchandise in any way, share or manner; to manufacture and dispose of machinery, goods, wares and merchandise of every kind and description; to buy and sell, lease or mortgage real estate or personal property; to borrow money, either upon security or otherwise and to give the note of this corporation for the same; to execute notes, bonds, mortgages, evidence of indebtedness of every kind and description, to rent, own or lease factories, warehouses, storerooms, etc., and to do and perform every act and thing necessary or convenient to properly conduct or carry on its business. 2 III The place this corporation proposes to have its office and principal place of business in the City of Portland, county of Multnomah and State of Oregon. IV The amount of capital stock of this corporation shall be $35,000. V The amount of each share of capital stock shall be $10 and the number of shares in this corporation shall be 3500. IN WITNESS WHEREOF, we have hereunto set our hands and seals this 17th day of September 1908, in triplicate. Executed in the presence of: /s/ E. P. Armstrong ----------------------------------- E. P. Armstrong /s/ J. M. Crook - ------------------------------- ----------------------------------- J. M. Crook /s/ Clarence H. Gilbert - ------------------------------- ----------------------------------- Clarence H. Gilbert State of Oregon, ) ss. County of Multnomah) THIS CERTIFIES that on this 17th day of September 1908, before me the undersigned, a Notary Public in and for said County and State, personally appeared the within named E.P. Armstrong, J.M. Crook and Clarence H. Gilbert, who are know to me to be the identical persons mentioned in and who executed the foregoing Articles of Incorporation and acknowledged to me that they executed the same. -2- 3 IN WITNESS WHEREOF, I have hereunto set my hand and Notarial Seal the day and year first hereinabove written. /s/ ------------------------------------ Notary Public, State of Oregon -3- 4 CERTIFICATE AND COPY OF RESOLUTIONS increasing Capital Stock of Armstrong Manufacturing Co., a Corporation. I, Clarence H. Gilbert, secretary of Armstrong Manufacturing Co., a corporation organized and formed under and by virtue of the laws of the State of Oregon, hereby certify that at a meeting of the stockholders of said corporation, duly and legally called and held at the principal office of said corporation at 4th and Stark Streets in the city of Portland, County of Multnomah, State of Oregon, at 2 o'clock P.M. on the 20th day of June, 1912, due and legal notice having been given of such meeting, which meeting was called for the purpose of increasing the capital stock of such corporation; that a majority of the stock of said corporation was present at such meeting of the stockholders thereof and voted; that the following is a full copy of the resolutions authorizing the increase of capital stock of said corporation: Resolved that the capital stock of this corporation be increased from $35,000 to $500,000; that the president and secretary, or either of them, be authorized and directed to take the necessary legal steps to carry this resolution into effect. Such resolution was adopted by a vote of the majority of the stock of such corporation. WITNESS, my hand and the seal of said corporation affixed this _______ day of _____________, 19___. ----------------------------------- , Secretary {Corporate Seal} -4- 5 STATE OF OREGON, ) SS. COUNTY OF MULTNOMAH ) I, Clarence H. Gilbert, being first duly sworn, upon my oath depose and say that I am secretary of Armstrong Manufacturing Co., a corporation; that the foregoing statement is true, and that the resolution therein is a full and complete copy of the resolution adopted at the meeting of the stockholders of said corporation, held at its principal office at 4th and Stark Streets in the City of Portland, State of Oregon, at 2 o'clock P.M., on the 20th day of June, 1912, which said meeting was called for the purposes of increasing the capital stock of said corporation; that there was present, either in person or by proxy, a majority of the stock of said corporation; and that said resolution increasing the capital stock of Armstrong Manufacturing Co., a corporation from Thirty-Five Thousand Dollars to Five Hundred Thousand Dollars was duly adopted by a vote of the majority of the STOCK of such corporation. /s/ Clarence H. Gilbert --------------------------------- Clarence H. Gilbert Subscribed and sworn to before me this 9th day of August, 1912. --------------------------------- Notary Public for Oregon [Notarial Seal] -5- 6 CERTIFICATE AND COPY OF RESOLUTIONS decreasing Capital Stock of Armstrong Manufacturing Company, a Corporation. I, Clarence H. Gilbert, secretary of Armstrong Manufacturing Company, a corporation organized and formed under and by virtue of the laws of the State of Oregon, hereby certify that at a meeting of the stockholders of said corporation, duly and legally called and held at the principal office of said corporation at Chamber of Commerce Street in the city of Portland, County of Multnomah, State of Oregon, at 2 o'clock P.M., on the 25th day of July, 1913, due and legal notice having been given of such meeting, which meeting was called for the purpose of decreasing the capital stock of such corporation; that a majority of the stock of said corporation was present at such meeting of the stockholders thereof and voted; that the following is a full copy of the resolutions authorizing the decrease of capital stock of said corporation: "Resolved that the capital stock of this corporation be reduced from $500,000 to $50,000, with 5000 shares, with Par Value of $10 each, and the President and Secretary, or either of them, be authorized and directed to take the necessary legal steps to carry this Resolution into effect:" Such resolution was adopted by a vote of the majority of the stock of such corporation. WITNESS, my hand and the seal of said corporation affixed this 12th day of August, 1913. /s/ Clarence H. Gilbert --------------------------------- Clarence H. Gilbert, Secretary {Corporate Seal} -6- 7 STATE OF OREGON, ) SS. COUNTY OF MULTNOMAH ) I, Clarence H. Gilbert, being first duly sworn, upon my oath depose and say that I am secretary of Armstrong Manufacturing Company, a corporation; that the foregoing statement is true, and that the resolution therein is a full and complete copy of the resolution adopted at the meeting of the stockholders of said corporation, held at its principal office at Chamber of Commerce Street in the City of Portland, State of Oregon, at 2 o'clock P.M., on the 25th day of July, 1913, which said meeting was called for the purpose of decreasing the capital stock of said corporation; that there was present, either in person or by proxy, a majority of the stock of said corporation; and that said resolution decreasing the capital stock of Armstrong Manufacturing Company, a corporation from Five Hundred Thousand Dollars to Fifty Thousand Dollars was duly adopted by a vote of the majority of the stock of such corporation. /s/ Clarence H. Gilbert --------------------------------- Clarence H. Gilbert Subscribed and sworn to before me this 12th day of August, 1913. /s/ --------------------------------- Notary Public for Oregon [Notarial Seal] -7- 8 Supplementary Articles of Incorporation OF Armstrong Manufacturing Company WHEREAS at a meeting of the stockholders of the above named corporation, duly and regularly called and held, at 2 o'clock p.m. the 6th day of May 1930, at office of the company No. 4--2d street in the City of Portland and State of Oregon at which there were present and voting, either in person or by proxy, stockholders owning twenty six hundred ninety (2690) shares of the capital stock of said corporation, being more than three fourths of the stock issued and outstanding, there was presented and adopted by a unanimous vote, a resolution authorizing the directors of the said corporation to execute and file supplementary articles, for the purpose of increasing the capital stock of the corporation from $50,000 to $65,000, the increase of $15,000 to be preferred stock entitled to 7 per cent cumulative annual dividends. NOW, THEREFORE, We, E. P. Armstrong, L.E. Armstrong and F. H. Armstrong being all of the directors of Armstrong Manufacturing Company, a corporation, being thereto duly authorized by the resolution aforesaid, do hereby execute and acknowledge supplementary articles of incorporation, amending Article IV and Article V of the original articles of incorporation of this company, to read as follows: ARTICLE IV The amount of the capital stock of this corporation shall be $65,000, represented as follows: 5000 shares of common stock of the par value of $10.00 per share and entitled to one vote for each in all stockholders' meeting; 150 shares of preferred stock of the par value of $100 per share. -8- 9 ARTICLE V The preferred stock shall be entitled to 7 per cent. cumulative annual dividends, shall have no voting privileges and all or any part thereof may be called at any dividend period on payment of $102.00 per share. IN WITNESS WHEREOF, we have hereunto set our hands and seals this 6th day of May, A.D. 1930 Signed, sealed and delivered in the presence of /s/ E. P. Armstrong [SEAL] ----------------------- E. P. Armstrong /s/ F. M. Armstong [SEAL] - ------------------------------------ ----------------------- F. M. Armstrong /s/ Lloyd E. Armstong [SEAL] - ------------------------------------ ----------------------- L. E. Armstrong -9- 10 STATE OF OREGON, ) SS. COUNTY OF MULTNOMAH ) THIS CERTIFIES that on this 6th day of May, A.D. 1930, before me, the undersigned, a Notary public in and for said county and state, personally appeared E.P. Armstrong, F. M. Armstrong and L. E. Armstrong known to me to be the identical persons named in and who executed the foregoing supplementary articles of incorporation, and acknowledged to me that they executed the same freely and voluntarily for the uses and purposes therein mentioned. IN TESTIMONY WHEREOF, I have hereunto set my hand and notarial seal, the day and year last above written. /s/ W. S. U'Ren ----------------------------------------- W. S. U'Ren [NOTARIAL SEAL] My commission expires Sep. 29, 1931 -10- 11 CERTIFICATE AND COPY OF RESOLUTION increasing CAPITAL STOCK OF Armstrong Manufacturing Company, A CORPORATION I, F. M. Armstrong, secretary of Armstrong Manufacturing Company by virtue of the laws of the State of Oregon, hereby certify that at a meeting of the stockholders of said corporation, duly and legally called and held at the principal office of said corporation at No. 4--2d Street, in the City of Portland, County of Multnomah, State of Oregon, at 2 o'clock p.m., on the 6th day of May, 1960, due and legal notice having been given of such meeting, which meeting was called for the purpose of increasing the capital stock of such corporation; that a majority of the stock of said corporation was present at such meeting of the stockholders thereof and voted; that the following is a full copy of the resolution authorizing the increase of capital stock of said corporation: "Resolved, that the capital stock of the Armstrong Manufacturing Company be increased from $50,000 to $65,000, said increase to consist of 150 shares of preferred stock of the par value of $100 per share; the said preferred stock to be entitled to 7 per cent. cumulative annual dividends and not entitled to voting privileges; that the same or any part thereof be callable at any dividend period at the price of $102 per share and the president and secretary are hereby authorized to issue and sell said stock; that the board of directors is hereby authorized to file supplementary articles of incorporation for said increase of capital stock." Such resolution was adopted by a vote of the majority of the stock of such corporation, and more than 3/4 of said stock issued and outstanding. WITNESS my hand and the seal of said corporation affixed this 6th day of May, 1930. [CORPORATE SEAL] /s/ F. M. Armstrong ------------------------------- F. M. Armstrong, Secretary STATE OF OREGON, ) SS. COUNTY OF MULTNOMAH ) I, F. M. Armstrong, being first duly sworn, upon my oath depose and say that I am secretary of the Armstrong Manufacturing Company, a corporation; that the foregoing statement is true, and that the resolution therein is a full and complete copy of the resolution adopted at the meeting of the stockholders of said corporation, held at its principal office at No. 4--2d Street, in the City of Portland, State of Oregon, at 2 o'clock P.M., on the 6th day of May 1930, which said meeting was called for the purpose of increasing the capital stock of said corporation: that -11- 12 there was present, either in person or by proxy, a majority of the stock of said corporation; and that said resolution increasing the capital stock of the Armstrong Manufacturing Company, a corporation, from Fifty Thousand Dollars to Sixty Five Thousand Dollars was duly adopted by a vote of the majority of the stock of such corporation and more than 3/4 of said stock issued and outstanding. /s/ F. M. Armstrong ------------------------------------ F. M. Armstrong Subscribed and sworn to before me this 6th day of May, 1930. [NOTARIAL SEAL] /s/ W. S. U'Ren ------------------------------------ Notary Public for Oregon My commission expires Sept. 29, 1931 -12- 13 STATEMENT OF CANCELLATION OF REDEEMABLE SHARES OF ARMSTRONG MANUFACTURING COMPANY To the Corporation Commissioner of the State of Oregon: Pursuant to the provisions of ORS 57.395 (Section 61, Chapter 549, Oregon Laws 1953) of the Oregon Business Corporation Act, the undersigned corporation submits the following statement of cancellation by redemption or purchase of redeemable shares of the corporation: FIRST: The name of the corporation is Armstrong Manufacturing Company. SECOND: The number of redeemable shares of the corporation canceled through redemption or purchase is 93, itemized as follows: Class Series Number of Shares ----- ------ ---------------- Preferred 93 THIRD: The aggregate number of issued shares of the corporation after giving effect to such cancellation is 8,946, itemized as follows: Class Series Number of Shares ----- ------ ---------------- Common 8946 FOURTH: The amount of the stated capital of the corporation after giving effect to such cancellation is $39,460. DATED: March 5, 1956 ------------- ARMSTRONG MANUFACTURING COMPANY By /s/ Lloyd E. Armstrong ------------------------------------- President /s/ E. L. Briggs ------------------------------------- Secretary -13- 14 STATE OF OREGON, ) SS. COUNTY OF MULTNOMAH ) I, Josephine L. Frederick, a notary public, do hereby certify that on this 5th day of March, 1956, personally appeared before me Lloyd E. Armstrong, who declared he is President of the corporation executing the foregoing document, and being first duly sworn, acknowledged that he signed the foregoing document in the capacity therein set forth and declared that the statements therein contained are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal, the day and year before written. /s/ Josephine L. Frederick -------------------------------------- Notary Public for Oregon My commission expires: My Commission Expires Feb. 24, 1960 -14- 15 No. O. Required by ORS 57,065 (Section 11, Chapter 549, Oregon Laws 1953). Mail to Corporation Commissioner, Salem, Oregon. There is no fee. Any corporation failing to file this document is subject to involuntary dissolution. DESIGNATION OF INITIAL REGISTERED OFFICE AND REGISTERED AGENT ARMSTRONG MANUFACTURING COMPANY, a corporation organized and existing under the laws of the State of Oregon, hereby certifies that, pursuant to a duly adopted resolution of its board of directors, the address of the registered office of the corporation in the State of Oregon shall be 2135 N.W. 21st Avenue, Portland that the registered agent of the corporation shall be Lloyd E. Armstrong; and that the address of its registered office and the address of the business office of its registered agent are identical. IN WITNESS WHEREOF, the undersigned corporation has caused this certificate to be executed in its name by its President or Secretary, this 20th day of January, 1954. ARMSTRONG MANUFACTURING COMPANY ------------------------------- [Name of corporation] By /s/ Lloyd E. Armstrong ---------------------------- President STATE OF OREGON, ) SS. COUNTY OF MULTNOMAH ) I, Josephine L. Frederick, a Notary Public, do hereby certify that on the 20th day of January, A.D. 1954, personally appeared before me Lloyd E. Armstrong, who declared he is President of the corporation executing the foregoing document, and being first duly sworn acknowledged that he signed the foregoing document in the capacity therein set forth and declared that the statements therein contained are true. -15- 16 IN WITNESS WHEREOF, I have hereunto set my hand and seal, the day and year before written. /s/ Josephine L. Frederick ---------------------------------------- Notary Public for STATE OF OREGON My Commission Expires Feb. 24, 1956 -16- 17 STATEMENT OF CANCELLATION OF REACQUIRED SHARES OF ARMSTRONG MANUFACTURING COMPANY Pursuant to the provisions of ORS 57.400 of the Oregon Business Corporation Act, the undersigned corporation submits the following statement of cancellation of reacquired shares: FIRST: The name of the corporation is Armstrong Manufacturing Company. SECOND: The number of reacquired shares canceled by resolution duly adopted by the board of directors of the corporation on February 1, 1966, is 22, itemized as follows: Class Series Number of Shares ----- ------ ---------------- $10 par value common 22 THIRD: The aggregate number of issued shares of the corporation after giving effect to such cancellation is 3,924, itemized as follows: Class Series Number of Shares ----- ------ ---------------- $10 par value common 3,924 FOURTH: The amount of the stated capital of the corporation after giving effect to such cancellation is $39,240. DATED: February 1, 1966 ---------------- ARMSTRONG MANUFACTURING COMPANY By /s/ T. C. Andrianoff ---------------------------------- President /s/ J. L. Frederick ---------------------------------- Secretary -17- 18 STATE OF OREGON, ) SS. COUNTY OF MULTNOMAH ) I, Arliss King, a notary public, do hereby certify that on this 1st day of February, 1966, personally appeared before me T. C. Andrianoff, who being by me first duly sworn, declared that he is the President of Armstrong Manufacturing Company, who signed the foregoing document as such officer of said corporation, and that the statements therein contained are true. IN WITNESS WHEREOF, I have hereunto set my hand and seal, the day and year before written. /s/ Arliss King ----------------------------------------- Notary Public for Oregon My commission expires: My Commission Expires April 15, 1963 -18- 19 ARTICLES OF MERGER OF ARMSTRONG MERGER CO. INTO ARMSTRONG MANUFACTURING COMPANY Pursuant to ORS 57.470, Armstrong Merger Co., an Oregon corporation (hereinafter "AMC"), and Armstrong Manufacturing Company, an Oregon corporation (hereinafter "Armstrong"), adopt the following Articles of Merger for the purpose of merging AMC into Armstrong. FIRST: The plan of merger is the restated plan of merger dated as of February 12, 1983, between Armstrong and AMC which is attached hereto and made a part hereof. SECOND: Armstrong has outstanding 2,316 shares of common stock entitled to vote upon the plan of merger as a single class. AMC has outstanding 2,156 shares of common stock entitled to vote upon the plan of merger as a single class. THIRD: At a meeting of the shareholders of Armstrong on March 8, 1983, held in accordance with the laws of the State of Oregon, the number of shares of common stock voted for the plan of merger was 2,291 and against the plan of merger was 0. At a meeting of the shareholders of AMC on March 8, 1983, held in accordance with the laws of the State of Oregon, the number of shares of common stock voted for the plan of merger was 2,156 and against the plan of merger was 0. We, the undersigned officers of Armstrong Merger Co. and Armstrong Manufacturing Company, declare under penalties of perjury that we have examined the foregoing and to the best of our knowledge and belief it is true, correct and complete. -19- 20 Dated this 8th day of March, 1983. ARMSTRONG MERGER CO. By /s/ Frederic B. Andrianoff -------------------------------- Fredric B. Andrianoff President and Secretary ARMSTRONG MANUFACTURING COMPANY By /s/ F. B. Andrianoff -------------------------------- F. B. Andrianoff President By /s/ Arliss King -------------------------------- Arliss King Secretary -20- 21 RESTATED PLAN OF MERGER This Restated Plan of Merger ("Plan"), dated as of February 12, 1983, between Armstrong Manufacturing Company ("Armstrong") and Armstrong Merger Co. ("AMC"), said corporations being herein sometimes individually called "Constituent Corporation" and sometimes collectively called "Constituent Corporation"; W I T N E S S E T H : WHEREAS Armstrong and AMC are corporations organized and existing under the laws of the State of Oregon; and WHEREAS the respective boards of directors of Armstrong and AMC deem it desirable and in the best interests of their respective corporations that AMC be merged with and into Armstrong pursuant to the provisions of the Oregon Business Corporation Act upon the terms and conditions hereinafter se forth, NOW, THEREFORE, it is agreed as follows: ARTICLE I Merger 1.01 Armstrong and AMC shall be merged as of the Effective Date (as defined in section 1.03 hereof) into a single surviving corporation (herein sometimes called the "Surviving Corporation"), which shall be Armstrong, one of the Constituent Corporations, which shall continue its corporate existence and remain an Oregon corporation, all on the terms and conditions herein set forth. 1.02 Prior to the Effective Date, and as a condition to the respective obligations of the Constituent Corporations, this Plan shall be approved by the shareholders of each of the Constituent Corporations as required by ORS 57.465. 1.03 The merger of AMC into Armstrong shall become effective upon the filing of articles of merger and issuance of a certificate of merger pursuant to ORS 57.470 and 57.475. The date and time of such filing and issuance is herein called the "Effective Date." ARTICLE II Name and Continued Corporate Existence of Surviving Corporation 2.01 The corporate name of Armstrong (i.e., "Armstrong Manufacturing Company"), a Constituent Corporation, whose corporate existence is to survive this merger and continue thereafter as the Surviving Corporation and its identity, existence, purposes, powers, objects, franchises, rights and immunities shall continue unaffected and unimpaired by the merger, and -21- 22 the corporate identity, existence, purpose, powers, objects, franchises, rights and immunities of AMC shall be wholly merged into Armstrong, and Armstrong shall be fully vested therewith. On the Effective Date the separate existence of AMC, except insofar as continued by law, shall cease. ARTICLE III Governing Law 3.01 The laws of the State of Oregon shall govern the Surviving Corporation. The Surviving Corporation shall have all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under the Oregon Business corporation Act. ARTICLE IV Articles of Incorporation and Bylaws of Surviving Corporation 4.01 The articles of incorporation of Armstrong as in effect immediately prior to the Effective Date shall be the articles of incorporation of the Surviving Corporation until they shall thereafter by duly altered, amended or repealed. 4.02 The bylaws of Armstrong as in effect immediately prior to the Effective Date shall be the bylaws of the Surviving Corporation until they shall thereafter by duly altered, amended or repealed. ARTICLE V Directors and Officers 5.01 The directors of Armstrong immediately prior to the Effective Date shall be the directors of the Surviving Corporation who shall continue in office as provided in the bylaws of the Surviving Corporation. 5.02 The officers of Armstrong immediately prior to the Effective Date shall be the officers of the Surviving Corporation who shall hold office as provided in the bylaws of the Surviving Corporation. -22- 23 ARTICLE VI Capital Stock of the Surviving Corporation 6.01 The authorized capital stock of the Surviving Corporation on the Effective Date shall be as set forth in the articles of incorporation of the Surviving Corporation. ARTICLE VII Conversion of Securities on Merger 7.01 The manner and basis of converting the shares of the Constituent Corporations into shares of the Surviving Corporation shall be as set forth in this Article VII. 7.02 Each share of common stock, $10 par value, of Armstrong ("Armstrong Common Stock") outstanding immediately prior to the Effective Date, shall be canceled and shall not be converted into shares or other securities of the Surviving Corporation. The holders of such shares of Armstrong Common Stock, other than AMC, shall be paid $1,600 in cash for each such share upon surrender of the certificates representing such shares and shall have no ownership interest in the Surviving Corporation. No interest shall accrue with respect to sums payable to such holders. No payment shall be made to AMC with respect to the shares of Armstrong Common Stock held by it immediately prior to the Effective Date. 7.03 Each share of common stock, $1 par value, of AMC issued and outstanding immediately prior to the Effective Date shall be converted into one share of common stock, $10 par value, of the Surviving Corporation. 7.04 Each share of Armstrong Common Stock which is issued but not outstanding immediately prior to the Effective Date shall be canceled. ARTICLE VIII Assets and Liabilities 8.01 On the Effective Date, the Surviving Corporation shall thereupon and thereafter possess all the rights, privileges, immunities and franchises, as well of a public as of a private nature of each of the Constituent Corporations; and all property, real, personal and mixed, all debts due to either of the Constituent Corporations on whatever account, including subscriptions to shares and all other choses in action, and all and every other interest of or belonging to or due to each of the Constituent Corporations shall be taken and deemed to be transferred to and vested in the Surviving Corporation without further act or deed; and the title to any real estate or any interest therein vested in either of the Constituent Corporations shall not revert or be in any way impaired by reason of the merger; and the Surviving Corporation shall thenceforth be responsible and liable for all the liabilities and obligations of each of the Constituent Corporations; and any claim existing or action or proceeding pending by or against either of the Constituent -23- 24 Corporations may be prosecuted as if the merger had not taken place, or the Surviving Corporation may be substituted in place of either of the Constituent Corporations; provided, however, that neither the rights of creditors nor any liens upon the property of either of the Constituent Corporations shall be impaired by the merger. ARTICLE IX Termination 9.01 This Plan shall automatically terminate at the close of business on June 30, 1983, if the merger provided for herein shall not have been previously consummated, unless such date is extended by the boards of directors of the Constituent Corporations. 9.02 With the approval of the boards of directors of both of the Constituent Corporations, this Plan may be abandoned by the Constituent Corporations prior to the Effective Date without liability of either party to the other party. 9.03 In the event of termination of this Plan pursuant to this Article IX, (i) this Plan shall become wholly void and of no effect, (ii) each of the parties shall pay all expenses incurred by such party in connection herewith, and (iii) there shall be no obligation or liability on the part of either party to the other. 9.04 Neither Constituent Corporation shall be obligated to consummate the merger if an order of any court shall have been entered or if there shall have been instituted or threatened before any court or governmental agency or body any action or proceeding to restrain or prohibit the merger. ARTICLE X Power of Surviving Corporation to Amend Articles of Incorporation 10.01 The Surviving Corporation reserves the right to amend, alter, change or repeal its articles of incorporation in the manner now or hereafter prescribed by statute or otherwise authorized by law and all rights and powers conferred in the articles of incorporation on shareholders, directors or officers of the Surviving Corporation or any person whomsoever are subject to this power. ARTICLE XI Amendment of Plan 11.01 With the approval of the boards of directors of both of the constituent Corporations, this Plan may be amended at any time; provided that such amendment shall not change the number of shares of common stock of the Surviving Corporation issuable hereunder, -24- 25 or change the amount payable with respect to shares of Armstrong Common Stock outstanding immediately prior to the Effective Date, unless such amendment shall have been approved and adopted by the affirmative vote of a majority of the outstanding shares of each of the Constituent Corporations. ARTICLE XII Miscellaneous 12.01 The captions of the articles hereof are for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Plan. 12.02 For the convenience of the parties and to facilitate the filing or recording of this Plan, any number of counterparts hereof may be executed and each such executed counterpart shall be deemed to be an original instrument. IN WITNESS WHEREOF, this Plan has been duly executed by the parties hereto as of the date first above written. ARMSTRONG MANUFACTURING COMPANY ARMSTRONG MERGER CO. By F. B. Andrianoff By F. B. Andrianoff ------------------------------- ----------------------------------- -25- EX-3.4 8 BY LAWS OF ARMSTRONG MANUFACTURING 1 EXHIBIT 3.4 BYLAWS OF ARMSTRONG MANUFACTURING COMPANY ARTICLE I. OFFICES The principal office of the corporation in the state of Oregon shall be located in the city of Portland, county of Multnomah. The corporation may have such other offices, either within or without the state of Oregon, as the board of directors may designate or as the business of the corporation may require from time to time. The registered office of the corporation required by the Oregon Business Corporation Act to be maintained in the state of Oregon may be, but need not be, identical with the principal office in the state of Oregon, and the address of the registered office may be changed from time to time by the board of directors. ARTICLE II. SHAREHOLDERS Section 1. ANNUAL MEETING The annual meeting of the shareholders shall be held on a business day in February in each year, after providing a minimum thirty days notice to all stockholders of both time and date of meeting. Section 2. SPECIAL MEETING Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president or by the board of directors, and shall be called by the president at the request of the holders of not less than one tenth of all the outstanding shares of the corporation entitled to vote at the meeting. Section 3. PLACE OF MEETING The board of directors may designate any place, either within or without the state of Oregon, as the place of meeting for any annual meeting or for any special meeting called by the board of directors. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or without the state of Oregon, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the registered office of the corporation in the state of Oregon. Section 4. NOTICE OF MEETING Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction of the president, or the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. 2 Section 5. QUORUM A majority of the outstanding shares of the corporation entitled to a vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 6. PROXIES At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. Section 7. VOTING OF SHARES Each outstanding share of the corporation's common stock shall be entitled to one vote upon each matter submitted to a vote at a meeting of the shareholders. The preferred shares shall not be entitled to vote, except that each outstanding preferred share shall be entitled to one vote upon each matter upon which class voting is required by law. Section 8. VOTING OF SHARES BY CERTAIN HOLDERS Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Shares of its own stock belonging to the corporation or held for its benefit by another corporation in a fiduciary capacity or held by a corporation in which the corporation holds a majority of the voting shares shall not be voted at any meeting or counted in determining the total number of outstanding shares at any given time. -2- 3 Section 9. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all the shareholders entitled to vote with respect to the subject matter thereof. ARTICLE III. BOARD OF DIRECTORS Section 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its board of directors. Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the corporation shall be between five and nine. Each director shall hold office until the next annual meeting of the shareholders and until his successor shall have been elected and qualified. In the event of the resignation or termination of any board member, the shareholders may approve the resignation/termination prior to the next annual meeting without electing an immediate successor. Directors need not be residents of the state of Oregon or shareholders of the corporation. Section 3. REGULAR MEETINGS. A regular meeting of the board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders. The board of directors may provide by resolution the time and place, either within or without the state of Oregon, for the holding of additional regular meetings without other notice than such resolution. Section 4. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the president or any two directors. The person or persons authorized to call special meetings of the board of directors may fix any place, either within or without the state of Oregon, as the place for holding any special meeting of the board of directors called by them. Section 5. NOTICE. Notice of any special meeting shall be given at least five days previously thereto by written notice delivered personally or mailed to each director at his business address, or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or wavier of notice of such meeting. -3- 4 Section 6. QUORUM. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors, but, if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. Section 7. MANNER OF ACTION. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. Section 8. VACANCIES. Any vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors shall be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose. Section 9. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken, unless his dissent shall be entered in the minutes of the meeting, or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof, or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. ARTICLE IV. OFFICERS Section 1. NUMBER. The officers of the corporation shall be a chairman of the board of directors, a president, one or more vice-presidents (the number thereof to be determined by the board of directors), a secretary and a treasurer, each of whom shall be elected by the board of directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the board of directors. Any two or more offices may be held by the same person, except the offices of president and secretary. Section 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to be elected by the board of directors shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Section 3. REMOVAL. Any officer or agent elected or appointed by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. -4- 5 Section 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification, or otherwise, may be filled by the board of directors for the unexpired portion of the term. Section 5. CHAIRMAN OF THE BOARD OF DIRECTORS. The chairman of the board of directors shall, when present, preside at all meetings of the shareholders and of the board of directors and shall perform all duties incident to such office and such other duties as may be prescribed by the board of directors from time to time. Section 6. PRESIDENT. The president shall be the principal executive officer of the corporation and, subject to the control of the board of directors, shall in general supervise and control all the business and affairs of the corporation. He shall, in the absence of the chairman of the board of directors, preside at all meetings of the shareholders and of the board of directors. He may sign, with the secretary or any other proper officer of the corporation thereunto authorized by the board of directors, certificates for shares of the corporation, and any deeds, mortgages, bonds, contracts or other instruments which the board of directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these bylaws to some other officer or agent of the corporation or shall be required by law to be otherwise signed or executed; and in general he shall perform all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time. Section 7. VICE-PRESIDENTS. In the absence of the president, or in the event of his death, inability or refusal to act, the vice-president (or, in the event there may be more than one vice-president, the vice-presidents in the order designated at the time of their election, or, in the absence of any designation, then in the order of their election) shall perform the duties of the president, and, when so acting, shall have all the powers of and be subject to all the restrictions upon the president. Any vice-president may sign, with the secretary or an assistant secretary, certificates for shares of the corporation; and shall perform such other duties as from time to time be assigned to him by the president or the board of directors. Section 8. SECRETARY. The secretary shall: (a) keep the minutes of the shareholders' and of the board of director's meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents, the execution of which on behalf of the corporation under its seal is duly authorized; (d) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (e) sign with the president, or a vice-president, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the board of directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general perform all duties incident to the office of the secretary and such other duties as from time to time may be assigned to him by the president or by the board of directors. -5- 6 Section 9. TREASURER. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the board of directors shall determine. He shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article V of these bylaws; and (b) in general perform all the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the board of directors. Section 10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant secretaries, when authorized by the board of directors, may sign with the president or a vice-president certificates for shares of the corporation, the issuance of which shall have been authorized by a resolution of the board of directors. The assistant treasurers shall respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or the treasurer, respectively, or by the president or the board of directors. Section 11. SALARIES. The salaries of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE V. CONTRACT, LOANS, CHECKS AND DEPOSITS Section 1. CONTRACTS. The board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. Section 3. CHECKS, DRAFTS, ETC. All checks, drafts and other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the board of directors. Section 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the board of directors may select. -6- 7 ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. CERTIFICATES FOR SHARE. Certificates representing shares of the corporation shall be in such form as shall be determined by the board of directors. Such certificates shall be signed by the president or a vice-president and by the secretary or an assistant secretary or facsimile signatures of said officers shall be affixed to such certificates. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor on such terms and indemnity to the corporation as the board of directors may prescribe. Section 2. TRANSFER OF SHARES. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. ARTICLE VII. INDEMNIFICATION OF DIRECTORS AND OFFICERS Each director and officer of the corporation now or hereafter in office and his heirs, executors and administrators, and each director and officer of the corporation and his heirs, executors and administrators who now acts, or shall hereafter act at the request of the corporation as director or officer of another company controlled by the corporation, shall be indemnified by the corporation against all costs, expenses and amounts or liability therefor, including counsel fees, reasonably incurred by or imposed upon him in connection with or resulting from any action, suit, proceeding or claim to which he may be made a party, or in which he may be or become involved by reason of his acts of omission or commission, or alleged acts of commission as such director or officer, or subject to the provisions hereof, any settlement thereof, whether or not he continues to be such director or officer at the time of incurring such costs, expenses or amounts, and whether or not the action or omission to act on the part of such director or officer, which is the basis of such suit, action, proceeding or claim, occurred before or after the adoption of this bylaw, provided that such indemnification shall not apply with respect to any matter as to which such director or officer shall be finally adjudged in such action, suit or proceeding to have been individually guilty of willful misfeasance or malfeasance in the performance of his duty as such director or officer, and provided, further, that the indemnification herein provided shall, with respect to any settlement of any such suit, -7- 8 action, proceeding or claim, include reimbursement of any amounts paid and expenses reasonably incurred in settling any such suit, action, proceeding or claim, when, in the judgment of the board of directors of the corporation, such settlement and reimbursement appear to be for the best interests of the corporation. The foregoing right of indemnification shall be in addition to and not exclusive of any and all other rights as to which any such director or officer may be entitled under any bylaw, agreement, vote of shareholders or otherwise. ARTICLE VIII. SEAL The seal, the impression of which appears in the margin opposite this article, is hereby adopted as the official seal of the corporation. ARTICLE IX. AMENDMENTS These bylaws may be altered, amended or repealed and new bylaws may be adopted by the board of directors at any regular or special meeting of the board of directors. -8- EX-3.5 9 CERT. OF INCORP. OF SIMONDS HOLDING 1 EXHIBIT 3.5 CERTIFICATE OF INCORPORATION OF SIMONDS HOLDING COMPANY INC. The undersigned, in order to form a corporation under and pursuant to the provisions of the General Corporation Law of the State of Delaware, does hereby certify as follows: FIRST: The name of the corporation is: Simonds Holding Company Inc. SECOND: The registered office of the corporation in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name and address of its registered agent at such address is The Corporation Trust Company. THIRD: The nature of the business to be conducted or promoted and the purposes of the corporation are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of stock which the corporation shall have the authority to issue is one hundred (100) shares of Common Stock, at $.01 par value. The following restrictions are imposed upon the transfer of shares of the Common Stock of the corporation: The corporation shall have the right to purchase, or to direct the transfer of, the shares of its Common Stock in the events and subject to the conditions and at a price fixed as provided below; each holder or shares of such Common Stock holds his shares subject to this right and by accepting the same upon original issue or subsequent transfer thereof, the stockholder agrees for himself, his legal representatives and assigns as follows: 2 In the event of any change in the ownership of any share or shares of such Common Stock (made or proposed) or in the right to vote thereon (whether by the holder's act or by death, legal disability, operation of law, legal processes, order of court, or otherwise, except by ordinary proxies or powers of attorney) the corporation has the right to purchase such share or all or any part of such shares or to require the same to be sold to a purchaser or purchasers designated by the corporation or to follow each such method in part at a price per share equal to the fair value thereof at the close of business on the last business day next preceding such event as determined by mutual agreement or, failing such agreement, by arbitration as provided below. In any such event the owner of the share or shares concerned therein (being for the purposes of these provisions, all persons having any property interest therein) shall give notice thereof in detail satisfactory to the corporation. Within ten days after receipt of said owner's notice, the corporation shall elect whether or not to exercise its said rights in respect to said shares and, if it elects to exercise them, shall give notice of its election. Failing agreement between the owner and the corporation as to the price per share to be paid, such price shall be the fair value of such shares as determined by three arbitrators, one designated within five days after the termination of said ten-day period by the registered holder of said share or shares or his legal representatives, one within said period of five days by the corporation and the third within five days after said appointment last occurring by the two so chosen. Successor arbitrators, if any shall be required shall be appointed, within reasonable time, as nearly as may be in the manner provided as to the related original appointment. No appointment shall be deemed as having been accomplished unless such arbitrator shall have accepted in writing his appointment as such within the time limited for his appointment. Notice of each appointment of an arbitrator shall be given promptly to the other parties in interest. Said -2- 3 arbitrators shall proceed promptly to determine said fair value. The determination of the fair value of said share or shares by agreement of any two of the arbitrators shall be conclusive upon all parties interest in such shares. Forthwith upon such determination the arbitrators shall mail or deliver notice of such determination to the owner (as above defined) and to the corporation. Within ten days after agreement upon said price or mailing of notice of determination of said price by arbitrators as provided below (whichever shall last occur), the shares specified therein for purchase shall be transferred to the corporation or to the purchaser or purchasers designated therein or in part to each as indicated in such notice of election against payment of said price at the principal office of the corporation. If in any of the said events, notice therefor having been given as provided above, the corporation elects in respect of any such shares or any part thereof not to exercise its said rights, or fails to exercise them or to give notice or make payment all as provided above, or waives said rights by vote or in authorized writing, then such contemplated transfer or such change may become effective as to those shares with respect to which the corporation elects not to exercise its rights or fails to exercise them or to give notice or to make payment, if consummated within thirty days after such election, failure or waiver by the corporation, or within such longer period as the corporation may authorize. If the owner's notice in respect of any of such shares of Common Stock is not received by the corporation as provided above, or if the owner fails to comply with these provisions in respect of any such shares in any other regard, the corporation, at its option and in addition to its other remedies, may suspend the rights to vote or to receive dividends on said shares, or may refuse to register on its books any transfer of said shares or otherwise to recognize any transfer or change in the ownership thereof or in the right to vote thereon, one or more, until these -3- 4 provisions are complied with to the satisfaction of the corporation; and if the required owner's notice is not received by the corporation after written demand by the corporation it may also or independently proceed as though a proper owner's notice had been received at the expiration of ten days after mailing such demand, and, if it exercises its rights with respect to said shares or any of them, the shares specified shall be transferred accordingly. In respect of these provisions with respect to the transfer of shares of Common Stock, the corporation may act by its board of directors. Any notice or demand under said provisions shall be deemed to have been sufficiently given if in writing delivered by hand or addressed by mail postpaid, to the corporation at its principal office or to the owner (as above defined) or to the holder registered on the books of the corporation (or his legal representative) of the share or shares in question at the address stated in his notice or at his address appearing on the books of the corporation. Nothing herein contained shall prevent the pledging of shares, if there is neither a transfer of the legal title thereto nor a transfer on the books of the corporation into the name of the pledgee, but no pledgee or person claiming thereunder shall be entitled to make or cause to be made any transfer of pledged shares by sale thereof or otherwise (including in this prohibition transfer on the books of the corporation into the name of the pledgee) except upon compliance herewith and any such pledge shall be subject to these conditions and restrictions. FIFTH: The name and mailing address of the incorporator is as follows: NAME MAILING ADDRESS ---- --------------- Lawrence J. Knopf Gaston & Snow One Federal Street Boston, MA 02110 -4- 5 SIXTH: All corporate powers of the corporation shall be exercised by the board of directors except as otherwise by law or herein provided. (a) Directors need not be stockholders of the corporation. (b) Subject to any limitation contained in the by-laws, the board of directors may make by-laws, and from time to time may alter, amend or repeal any by-laws, but and by-laws made by the board of directors may be altered, amended or repealed by the stockholders at any meeting of stockholders by the affirmative vote of the holders of a majority of the stock present and voting at such meeting, provided notice that an amendment is to be considered and acted upon is inserted in the notice or waiver of notice of such meeting. (c) The board of directors shall have power from time to time to fix and determine and to vary the amount of the working capital of the corporation, to direct and determine the use and disposition thereof, to set apart out of any funds of the corporation available for dividends a reserve or reserves for any proper purposes and to abolish any such reserve in the manner in which it was created. (d) The board of directors may from time to time determine whether and to what extent and at which times and places and under what conditions and regulations the accounts and books of the corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account, book or document of the corporation except as conferred by statute or as authorized by the board of directors. (e) No contract or other transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, Partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial or other interest, shall be void or voidable solely for this reason, or -5- 6 solely because the director or officer is present at or Participates in the meeting of the board or committee thereof which authorizes the contract or other transaction, or solely because his or their votes are counted for such Purpose. Provided that the material facts as to such relationship or interest and as to the contract or other transaction are disclosed or are known (1) to the board of directors or the committee, and the board or committee in good faith authorizes the contract or other transaction be the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum, or (2) to the stockholders entitled to vote thereon, and the contract or other transaction is specifically approved in good faith by vote of the stockholders. (f) Any contract, act or transaction of the corporation or of the directors may be ratified by a vote of a majority of the shares having voting power at any meeting of stockholders, or at any special meeting called for such purpose, and such ratification shall, so far as permitted by law and by this certificate of incorporation, be as valid and as binding as though ratified by every stockholder of the corporation. (g) Any vote or votes authorizing liquidation of the corporation or proceedings for its dissolution may provide, subject to the rights of creditors and rights expressly provided for particular classes or series of stocks for the distribution pro rata among the stockholders of the corporation of the assets of the corporation, wholly or in part in kind, whether such assets be in cash or other property, and may authorize the board of directors of the corporation to determine the value of the different assets of the corporation for the purpose of such liquidation and may divide or authorize the board of directors of the corporation to divide such assets or any part thereof among the stockholders of the corporation, in such manner that every stockholder will received a proportionate amount in value (determined as aforesaid) of cash or property of the -6- 7 corporation upon such liquidation or dissolution even though each stockholder may not receive a strictly proportionate part of each such asset. (h) Elections of directors need not be by ballot. (i) The corporation shall, to the extent legally permissible, indemnify each of its officers and directors against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or other proceeding in which he may be involved or with which he may be threatened, while in office or thereafter, by reason of his acts or omissions as such director or officer. SEVENTH: No holder of stock of the corporation shall be entitled as of right to purchase or subscribe for any part of any unissued stock of the corporation or any additional stock to be issued by reason of any increase of the authorized capital stock of the corporation of any class, or any bonds, certificates of indebtedness, debentures or other securities convertible into stock of the corporation, but any such unissued stock or such additional authorized issue of new stock, or such securities convertible into stock, may be issued and disposed of pursuant to resolution of the board of directors to such persons, firms, corporations or associations, and upon such terms as may be deemed advisable by the board of directors in the exercise of their discretion. EIGHTH: Meetings of stockholders may be held without the State of Delaware, if the by-laws so provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be from time to time designated by the board of directors. NINTH: The corporation reserves the right to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation in the manner now or hereafter -7- 8 prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. TENTH: A director of this corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except that this Article TENTH shall not eliminate or limit a director's liability (i) for any breach of the director's duty of loyalty to the corporation and its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of laws; (iii) under Section 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this Article TENTH to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended from time to time. Any repeal or modification of this Article TENTH shall not increase the personal liability of any director of this corporation for any act or occurrence taking place prior to such repeal or modification, or otherwise adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. -8- 9 THE UNDERSIGNED, hereby declaring and certifying that the facts stated in this Certificate of Incorporation are true, hereunto sets his hand and seal this 23rd day of March, 1988. /s/ Lawrence J. Knopf -------------------------------- Lawrence J. Knopf -9- EX-3.6 10 BY LAWS OF SIMONDS HOLDING CORP. 1 EXHIBIT 3.6 BY-LAWS OF SIMONDS HOLDING COMPANY INC. ARTICLE 1. CERTIFICATE OF INCORPORATION These by-laws, the powers of the corporation and of its directors and stockholders, and all matters concerning the conduct and regulation of the business of the corporation shall be subject to such provisions in regard thereto as are set forth in the certificate of incorporation filed pursuant to the General Corporation Law of Delaware which is hereby made a part of these by-laws. The term "certificate of incorporation" in these by-laws, unless the context requires otherwise, includes not only the original certificate of incorporation filed to create the corporation but also all other certificates, agreements of merger or consolidation, plans of reorganization, or other instruments, howsoever designated, filed pursuant to the General Corporation Law of Delaware which have the effect of amending or supplementing in some respect the corporation's original certificate of incorporation. ARTICLE II. ANNUAL MEETING An annual meeting of stockholders shall be held for the election of directors and for the transaction of any other business for the transaction of which the meeting shall have been properly convened in each year at such place, within or without the State of Delaware, and at such time as shall be fixed by the board of directors and specified in the notice of the meeting, if such date is not a legal holiday and if a legal holiday, then at the same hour on the next succeeding day not a legal holiday. Any other proper business may be transacted at the annual meeting. If the annual meeting for election of directors shall not be held on the date designated therefor, the directors shall cause the meeting to be held as soon thereafter as is convenient. ARTICLE III. SPECIAL MEETINGS OF STOCKHOLDERS Special meetings of the stockholders may be held either within or without the State of Delaware, at such time and place and for such purposes as shall be specified in a call for such meeting made by the board of directors or by a writing filed with the secretary signed by the president or by a majority of the directors. 2 ARTICLE IV. NOTICE OF STOCKHOLDERS' MEETINGS Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, which notice shall be given not less than ten nor more than fifty days before the date of the meeting, except where longer notice is required by law, to each stockholder entitled to vote at such meeting, by leaving such notice with him or by mailing it, postage prepaid, directed to him at his address as it appears upon the records of the corporation. In case of the death, absence, incapacity or refusal of the secretary, such notice may be given by a person designated either by the secretary or by the person or persons calling the meeting or by the board of directors. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. ARTICLE V. QUORUM OF STOCKHOLDERS; STOCKHOLDER LIST At any meeting of the stockholders, a majority of all shares issued and outstanding and entitled to vote upon a question to be considered at the meeting shall constitute a quorum for the consideration of such question when represented at such meeting by the holders thereof in person or by their duly constituted and authorized attorney or attorneys, but a less interest may adjourn any meeting from time to time, and the meeting may be held as adjourned without further notice. When a quorum is present at any meeting a majority of the stock so represented thereat and entitled to vote shall, except where a larger vote is required by law, by the certificate of incorporation or by these by-laws, decide any question brought before such meeting. The secretary or other officer having charge of the stock ledger shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten days prior to the meeting, either at a place within the city or town where the meeting is to be held, which place shall have been specified in the notice -2- 3 of the meeting, or, if not so specified, at the place where the meeting is to be held. Said list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders required by this Article or the books of the corporation, or the stockholders entitled to vote in person or by proxy at any meeting of stockholders. ARTICLE VI. PROXIES AND VOTING Except as otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote for each share of the capital stock held by such stockholder. Each stockholder entitled to vote at a meeting of stockholders or to express dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy but (except as otherwise expressly permitted by law) no proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period or so long as it is coupled with an interest sufficient in law to support an irrevocable power. Unless otherwise provided in the certificate of incorporation, any action required by law to, or which may, be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote therein were present and voted. Prompt notice of the taking of such action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE VII. STOCKHOLDERS' RECORD DATE In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: -3- 4 (1) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (2) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed. (3) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, provided, however, that the board of directors may fix a new record date for the adjourned meeting. ARTICLE VIII. BOARD OF DIRECTORS Except as otherwise provided by law or by the certificate of incorporation, the business and affairs of the corporation shall be managed by the board of directors. The number of directors shall be such number, not fewer than one nor more than four, as may be fixed for any corporate year and elected by the stockholders at the annual meeting. During any year the board of directors may be enlarged and additional directors elected to complete the enlarged number, to not more than the maximum number above specified, by the stockholders at any meeting or by a vote of a majority of the directors then in office. The stockholders may, at any meeting held for the purpose during such year, decrease, to not fewer than the minimum number above specified, the number of directors as thus fixed or enlarged and remove directors to the decreased number. Each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Any director may resign at any time upon written notice to the corporation. No director need be a stockholder. ARTICLE IX. COMMITTEES The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee and may define the number and qualifications which shall constitute a quorum of such -4- 5 committee. Except as otherwise limited by law, any such committee, to the extent provided in the resolution appointing such committee, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. In the absence or disqualification of a member of committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. ARTICLE X. MEETINGS OF THE BOARD OF DIRECTORS AND OF COMMITTEES Regular meetings of the board of directors may be held without call or formal notice at such places either within or without the State of Delaware and at such times as the board may by vote from time to time determine. Special meetings of the board of directors may be held at any place either within or without the State of Delaware at any time when called by the president, treasurer, secretary or two or more directors, reasonable notice of the time and place thereof being given to each director. A waiver of such notice in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to such notice. In any case it shall be deemed sufficient notice to a director to send notice by mail at least forty-eight hours, or to deliver personally or to send notice by telegram at least twenty-four hours, before the meeting, addressed to him at his usual or last known business or residence address. Unless otherwise restricted by the certificate of incorporation or by other provisions of these by-laws, (a) any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all members of the board or of such committee, as the case may be, consent thereto in writing and such writing or writings are filed with the minutes of proceedings of the board or committee, and (b) members of the board of directors or of any committee designated by the board may participate in a meeting thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. ARTICLE XI. QUORUM OF THE BOARD OF DIRECTORS Except as otherwise expressly provided in the certificate of incorporation or in these by-laws, a majority of the total number of directors at the time in office shall constitute a quorum for the transaction of business, but a smaller number of directors may adjourn any meeting from time to time. Except as otherwise so expressly provided, the vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, -5- 6 provided, that the affirmative vote in good faith of a majority of the disinterested directors, even though the disinterested directors shall be fewer than a quorum, shall be sufficient to authorize a contract or transaction in which one or more directors have interest if the material facts as to such interest and the relation of the interested directors to the contract or transaction have been disclosed or are known to the directors. ARTICLE XII. WAIVER OF NOTICE OF MEETINGS Whenever notice is required to be given under any provision of law or the certificate of incorporation or by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or the by-laws. ARTICLE XIII. OFFICERS AND AGENTS The corporation shall have a president, secretary and treasurer, who shall be chosen by the directors, each of whom shall hold his office until his successor has been chosen and qualified or until his earlier resignation or removal. The corporation may have such other officers and agents as are desired, each of whom shall be chosen by the board of directors and shall hold his office for such term and have such authority and duties as shall be determined by the board of directors. The board of directors may secure the fidelity of any or all of such officers or agents by bond or otherwise. Any number of offices may be held by the same person. Each officer shall, subject to these by-laws, have in addition to the duties and powers herein set forth, such duties and powers as the board of directors shall from time to time designate. In all cases where the duties of any officer, agent or employee are not specifically prescribed by the by-laws, or by the board of directors, such officer, agent or employee shall obey the orders and instructions of the chief executive officer. Any officer may resign at any time upon written notice to the corporation. ARTICLE XIV. PRESIDENT The president shall, subject to the direction and under the supervision of the board of directors, be the chief executive officer of the corporation, and shall have general and active control of the affairs and business of the corporation and general supervision over its officers, -6- 7 agents and employees. Except as otherwise voted by the board, he shall preside at all meetings of the stockholders and of the board of directors at which he is present. The president shall have custody of the treasurer's bond, if any. ARTICLE XV. SECRETARY The secretary shall record all the proceedings of the meetings of the stockholders and directors in a book, which shall be the property of the corporation, to be kept for that purpose; and perform such other duties as shall be assigned to him by the board of directors. In the absence of the secretary from any such meeting, a temporary secretary shall be chosen, who shall record the proceedings of such meeting in the aforesaid book. ARTICLE XVI. TREASURER The treasurer shall, subject to the direction and under the supervision of the board of directors, have the care and custody of the funds and valuable papers of the corporation, except his own bond, and he shall, except as the board of directors shall generally or in particular cases authorize the endorsement thereof in some other manner, have power to endorse for deposit or collection all notes, checks, drafts and other obligations for the payment of money to the corporation or its order. He shall keep, or cause to be kept, accurate books of account, which shall be the property of the corporation. ARTICLE XVII. REMOVALS The stockholders may, at any meeting called for the purpose, by vote of a majority of the capital stock issued and outstanding and entitled to vote thereon, remove any director from office. The board of directors may, at any meeting called for the purpose, by vote of a majority of their entire number remove from office any officer or agent of the corporation or any member of any committee appointed by the board of directors or by any committee appointed by the board of directors or by any officer or agent of the corporation. -7- 8 ARTICLE XVIII. VACANCIES Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise and newly created directorships resulting from any increase in the authorized number of directors, may be filled by a majority of the directors then in office (though less than a quorum) or by a sole remaining director and each of the incumbents so chosen shall hold office for the unexpired term in respect of which the vacancy occurred and until his successor shall have been duly elected and qualified or for such shorter period as shall be specified in the filling of such vacancy or, if such vacancy shall have occurred in the office of director, until such a successor shall have been chosen by the stockholders. ARTICLE XIX. CERTIFICATES OF STOCK Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors (if one shall be incumbent) or the president or a vice-president and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary, certifying the number of shares owned by him in the corporation. If such certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation of its employee, any other signatures on the certificate may be facsimile. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificates which the corporation shall issue to represent such class or series of stock or there shall be set forth on the face or back of the certificates which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish, without charge to each stockholder who so requests, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Any restriction imposed upon the transfer of shares or registration of transfer of shares shall be noted conspicuously on the certificate representing the shares subject to such restriction. -8- 9 ARTICLE XX. LOSS OF CERTIFICATE The corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the directors may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate in its place and upon such other terms or without any such bond which the board of directors shall prescribe. ARTICLE XXI. SEAL The corporate seal shall, subject to alteration by the board of directors, consist of a flat-faced circular die with the word "Delaware" together with the name of the corporation and the year of its organization cut or engraved thereon. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE XXII. EXECUTION OF PAPERS Except as otherwise provided in these by-laws or as the board of directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the corporation, shall be signed by the president or by the treasurer. ARTICLE XXIII. FISCAL YEAR Except as from time to time otherwise provided by the board of directors, the fiscal year of the corporation shall end on the last day of December of each year. ARTICLE XXIV. AMENDMENTS Except as otherwise provided by law or by the certificate of incorporation, these by-laws, as from time to time altered or amended, may be made, altered or amended at any annual or special meeting of the stockholders called for the purpose, of which the notice shall specify the -9- 10 subject matter of the proposed alteration or amendment or new by-law or the article or articles to be affected thereby. If the certificate of incorporation so provides, these by-laws may also be made, altered or amended by a majority of the whole number of directors. Such action may be taken at any meeting of the board of directors, of which notice shall have been given as for a meeting of stockholders. -10- EX-3.7 11 CERT. OF INCORP. OF SIMONDS INDUSTRIES 1 EXHIBIT 3.7 ARTICLES OF INCORPORATION OF SIMONDS INDUSTRIES FSC, INC. We the undersigned natural persons of lawful age, acting as incorporators of a corporation under Title 13, Virgin Islands Code, adopt the following Articles of Incorporation for such corporation. FIRST: The name of the corporation is SIMONDS INDUSTRIES FSC, INC. SECOND: The corporate purposes are: 1. General - To engage in the business of importation and exportation of goods, and in general to do all things necessary and proper in connection therewith. 2. Ancillary - To do everything necessary, proper, advisable or convenient for the accomplishment of the purposes hereinabove set forth, and to do all other things incidental thereto connected therewith which are not forbidden by statute or by these Articles. 3. Foreign Sales Corporation - To undertake the business of a Foreign Sales Corporation. 4. Business Outside Territory - To conduct and carry out its business in any state or territory of the United States or in any foreign country. 5. Other - To engage in any other business activity or enterprise not prohibited by law. THIRD: The aggregate number of shares which the corporation shall have authority to issue is one thousand (1,000) shares at no par value. FOURTH: The minimum amount of capital with which the corporation shall commence business shall be One Thousand Dollars ($1,000.00). FIFTH: The address of the initial registered office of the corporation shall be #4 Orange Grove, P.O. Box 699, Christiansted, St. Croix, U.S. Virgin Islands 00820. SIXTH: The name of the initial registered agent of the corporation is CHASE TRADE, INC., #4 Orange Grove, P.O. Box 699, Christiansted, St. Croix, U.S. Virgin Islands 00820. SEVENTH: The corporation shall have perpetual existence. 2 EIGHTH: The number of directors shall be provided by the By Laws, and shall not be less than three. NINTH: The names and addresses of the persons forming the corporation are: SANDRA L. HARRIS, MARTHA T. FRANCIS and MADELON P. TAYLOR, of #7 King Street, Christiansted, St. Croix, U.S. Virgin Islands 00820. TENTH: The corporation shall have all rights and powers granted to a corporation by law, and all powers necessary or convenient to carry out the purposes set forth in Article Second, and to act as principal, agent, partner or in any other capacity which may be authorized or approved by the Board of Directors of this corporation. IN WITNESS WHEREOF, the incorporators have signed these Articles of Incorporation at Christiansted, St. Croix, U.S. Virgin Islands, on this 3rd day of October, 1988. IN WITNESS: INCORPORATORS: /s/ Jacqueline Benjamin /s/ Sandra L. Harris - ----------------------------- -------------------------------- SANDRA L. HARRIS /s/ FLORENCE B [ ] /s/ Martha T. Francis - ----------------------------- -------------------------------- MARTHA T. FRANCIS /s/ Madelon P. Taylor -------------------------------- MADELON P. TAYLOR ACKNOWLEDGMENT TERRITORY OF THE VIRGIN ISLANDS) DIVISION OF ST. CROIX ) SS: On this 3rd day of October, 1988, before me, the undersigned officer, personally appeared SANDRA L. HARRIS, MARTHA T. FRANCIS and MADELON P. TAYLOR, known to me (or satisfactorily proven) to be the individuals whose names are subscribed to the foregoing ARTICLES OF INCORPORATION; and they acknowledged to me that they executed same freely and voluntarily for the uses and purposes therein contained. IN WITNESS WHEREOF, I hereunto set my hand and seal. /s/ [ ] -------------------------------- NOTARY PUBLIC -2- EX-3.8 12 BY-LAWS OF SIMONDS INDUSTRIES 1 EXHIBIT 3.8 BY LAWS of SIMONDS INDUSTRIES FSC, INC. ARTICLE I - OFFICERS The principal office of the corporation in the Territory of the U.S. Virgin Islands shall be located in Christiansted, St. Croix, U.S. Virgin Islands. The corporation may have such other offices, either within or without the Territory of incorporation, as the board of directors may designate or as the business of the corporation may from time to time require. ARTICLE II - STOCKHOLDERS 1. ANNUAL MEETING. The annual meeting of the stockholders shall be held on the February 15th of each year, beginning with the year 1989, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. 2. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president or by the directors, and shall be called by the president at the request of the holders of not less than one hundred percent (100%) of all the outstanding shares of the corporation entitled to vote at the meeting. 3. PLACE OF MEETING. The directors may designate any place, either within or without the Territory unless otherwise prescribed by statute, as the place of meeting for any annual meeting or for any special meeting called by the directors. A waiver of notice signed by all stockholders entitled to vote at a meeting may designate any place, either within or without the Territory, unless otherwise prescribed by statute, as the place for holding such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the corporation. 4. NOTICE OF MEETING. Written or printed notice stating the place, day and hour of the meeting and in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 30 days nor more than 120 days before the date of the meeting, either personally or by mail, by or at the direction of the president, or the secretary, or the officer or persons calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. 2 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, 30 days. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of, or to vote at, a meeting of stockholders, such books shall be closed for at least 30 days immediately preceding such meeting. In lieu of closing the stock transfer books, the directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than 30 days and in case of a meeting of stockholders, not less than 30 days prior to the date on which the particular action requiring such determination of stockholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders entitled to notice of, or to vote at, a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof. 6. VOTING LISTS. The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least 10 days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of 10 days prior to such meeting, shall be kept on file at the principal office of the corporation and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock transfer book shall be prima facie evidence as to who are the stockholders entitled to examine such list or transfer books or to vote at the meeting of stockholders. 7. QUORUM. At any meeting of stockholders 100 percent of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than said number of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 3 8. PROXIES. At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. 9. VOTING. Each stockholder entitled to vote in accordance with the terms and provisions of the Certificate of Incorporation and these By Laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder. Upon the demand of any stockholder, the vote for directors and upon any question before the meeting shall be by ballot. All elections for directors shall be decided by plurality vote; all other questions shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of this Territory. 10. ORDER OF BUSINESS. The order of business at all meetings of the stockholders shall be as follows: 1. Roll Call. 2. Proof of notice of meeting or waiver of notice. 3. Reading of minutes of preceding meeting. 4. Reports of Officers. 5. Reports of Committees. 6. Election of Directors. 7. Unfinished Business. 8. New Business. 11. INFORMAL ACTION BY STOCKHOLDERS. Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. ARTICLE III - BOARD OF DIRECTORS 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its board of directors. The directors shall in all cases act as a board, and they may adopt such rules and regulations for the conduct of their meetings and the management of the corporation as they may deem proper, not inconsistent with these By Laws and the laws of this Territory. 2. NUMBER, TENURE AND QUALIFICATIONS. The number of Directors of the corporation shall be five. Each director shall hold office until the next annual meeting of stockholders and until his successor shall have been elected and qualified. 4 3. REGULAR MEETINGS. A regular meeting of the directors shall be held without other notice than this By Law immediately after, and at the same place as, the annual meeting of stockholders. The directors may provide by resolution the time and place for the holding of additional regular meetings, without other notice than such resolution. 4. SPECIAL MEETINGS. Special meetings of the directors may be called by or at the request of the president or any two directors. The person or persons authorized to call special meetings of the directors may fix the place for holding any special meeting of the directors called by them. 5. NOTICE. Notice of any special meeting shall be given at least 30 days previously thereto by written notice delivered personally, or by telegram, or mailed to each director at his business address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting in not lawfully called or convened. 6. QUORUM. At any meeting of the directors two shall constitute a quorum for the transaction of business, but if less than said number in present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. 7. MANNER OF ACTING. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the directors. 8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the board for any reason except the removal of directors without cause may be filled by a vote of a majority of the directors then in office, although less than a quorum exists. Vacancies occurring by reason of the removal of directors without cause shall be filled by vote of the stockholders. A director elected to fill a vacancy caused by resignation, death or removal shall be elected to hold office for the unexpired term of his predecessor. 9. REMOVAL OF DIRECTORS. Any or all of the directors may be removed for cause by vote of the stockholders or by action of the board. Directors may be removed without cause only by vote of the stockholders. 5 10. RESIGNATION. A director may resign at any time by giving written notice to the board, the president or the secretary of the corporation. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the board or such officer, and the acceptance of the resignation shall not be necessary to make it effective. 11. COMPENSATION. No compensation shall be paid to directors, as such, for their services, but by resolution of the board a fixed sum and expenses for actual attendance at each regular or special meeting of the board may be authorized. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 12. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless he abstained from voting or his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. 13. EXECUTIVE AND OTHER COMMITTEES. The boards, by resolution, may designate from among its members an executive committee and other committees, each consisting of two or more directors. Each such committee shall serve at the pleasure of the board. 14. SPECIAL MEETINGS - CONFERENCE BY TELEPHONE. Special meetings of the board of directors may be held by means of telephone conferences or equipment of similar communications by means of which all directors participating in the meeting can hear each other. Participating in a meeting by telephone or similar communications equipment shall constitute presence in person at the special meeting, except where a director participated in a meeting for the sole purpose of objecting to the transaction of any business on the ground that the special meeting is not lawfully convened or called. 15. INFORMAL ACTION BY DIRECTORS. Unless otherwise provided by law, any action required to be taken at a meeting of the directors, or any other action which may be taken at a meeting of the directors, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. 6 16. DEATH OF NON-U.S. RESIDENT DIRECTOR. In the event of the death or change in residency of a director who was not a resident of the United States, the manager of the Chase Manhattan Bank, Orange Grove Branch, shall instantaneously and automatically be substituted as a director of the corporation. ARTICLE IV - OFFICERS 1. NUMBER. The officers of the corporation shall be a president, a vice president, a secretary and a treasurer, each of whom shall be elected by the directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the directors. 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to be elected by the directors shall be elected annually at the first meeting of the directors held after each annual meeting of the stockholders. Each officer shall hold office until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall resign or shall have been removed in the manner hereinafter provided. 3. REMOVAL. Any officer or agent elected or appointed by the directors may be removed by the directors whenever in their judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the directors for the unexpired portion of the term. 5. PRESIDENT. The president shall be the principal executive officer of the corporation and, subject to the control of the directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the stockholders and of the directors. He may sign, with the secretary or any other proper officer of the corporation thereunto authorized by the directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments which the directors have authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the directors or by these By Laws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the directors from time to time. 7 6. VICE PRESIDENT. In the absence of the president or in event of his death, inability or refusal to act, the vice president shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice president shall perform such other duties as from time to time may be assigned to him by the president or by the directors. 7. SECRETARY. The secretary shall keep the minutes of the stockholders' and of the directors' meetings in one or more books provided for that purpose, see that all notices are duly given in accordance with the provisions of these By Laws or as required, be custodian of the corporate records and of the seal of the corporation and keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder, have general charge of the stock transfer books of the corporation and in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the directors. 8. TREASURER. If required by the directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the directors shall determine. He shall have charge and custody of, and be responsible for, all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with these By Laws and in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the directors. 9. SALARIES. The salaries of the officers shall be fixed from time to time by the directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS 1. CONTRACTS. The directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the directors. Such authority may be general or confined to specific instances. 8 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the directors. 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the directors may select. ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER 1. CERTIFICATES FOR SHARES. Certificates representing shares of the corporation shall be in such form as shall be determined by the directors. Such certificates shall be signed by the president and by the secretary or by such other officers authorized by law and by the directors. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the stockholders, the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the directors may prescribe. 2. TRANSFERS OF SHARES. (a) Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the transfer book of the corporation which shall be kept at its principal office. (b) The corporation shall be entitled to treat the holder of record of any share as the holder in fact thereof, and accordingly, shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by the laws of this Territory. ARTICLE VII - FISCAL YEAR The fiscal year of the corporation shall begin on the date of incorporation. 9 ARTICLE VIII - DIVIDENDS The directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law. ARTICLE IX - SEAL The directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation, the Territory of incorporation, year of incorporation and the words, "Corporate Seal". ARTICLE X - WAIVER OF NOTICE Unless otherwise provided by law, whenever any notice is required to be given to any stockholder or director of the corporation under the provisions of these By Laws or under the provisions of the Articles of Incorporation, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XI - AMENDMENTS These By Laws may be altered, amended or repealed and new By Laws may be adopted by a vote of the stockholders representing a majority of all the shares issued and outstanding, at any annual stockholders' meeting or at any special stockholders' meeting when the proposed amendment has been set out in the notice of such meeting. ARTICLE XII - INDEMNIFICATION OF DIRECTORS AND OFFICERS Each director and officer of the corporation now or hereafter serving as such, shall be defended and indemnified by the corporation and the shareholders against any and all claims and liabilities to which he has or shall become subject by reason of serving or having served as such director or officer, or by reason of any action alleged to have been taken, omitted, or neglected by him as such director or officer; and the corporation shall reimburse each such person for all legal expenses and costs reasonably incurred by him in connection with any such claim or liability, provided, however, that no such person shall be indemnified against, or be reimbursed for any expense incurred in connection with any claim or liability arising out of his own willful misconduct or gross negligence. The corporation may purchase and maintain insurance to cover the liability of the corporation set forth herein. ARTICLE XIII - FSC ELECTION AND COMPLIANCE The corporation will elect to become a Foreign Sales Corporation, pursuant to the Internal Revenue Code Section 921, et seq. 10 Except in the event that "small FSC" status is elected, the meetings of the Board of Directors and Shareholders shall be held outside of the United States, and, at least once annually, a Board of Directors' meeting and a Shareholders' meeting must be held in the U.S. Virgin Islands. Any terms to the contrary contained in Article II, Paras. 3 and 11, and Article III Paras. 3, 4, 14 and 15 shall be specifically overridden by this Article XIII, except if "small FSC" status is elected. It is the intention of the corporation that these By Laws shall be interpreted and followed in such a manner that the corporation shall qualify as a Foreign Sales Corporation. Without the necessity of a meeting of the Board of Directors, the corporation shall, subsequent to its FSC election, change its fiscal year to that of the principal stockholder of the corporation, to wit: the fiscal year shall begin on the first day of January of each year. EX-4.1 13 INDENTURE DATED 7/7/98 1 EXHIBIT 4.1 ================================================================================ INDENTURE Dated as of July 7, 1998 among SIMONDS INDUSTRIES INC., as Issuer, ARMSTRONG MANUFACTURING COMPANY, INC., SIMONDS HOLDING COMPANY, INC. and SIMONDS INDUSTRIES FSC, INC., as Guarantors, and STATE STREET BANK AND TRUST COMPANY, as Trustee ---------------- up to $150,000,000 10 1/4% Senior Subordinated Notes due 2008, Series A 10 1/4% Senior Subordinated Notes due 2008, Series B ================================================================================ 2 CROSS-REFERENCE TABLE TIA Indenture Section Section - ------- ------- 310(a)(1)................................................ 7.10 (a)(2)................................................ 7.10 (a)(3)................................................ N.A. (a)(4)................................................ N.A. (a)(5)................................................ 7.10 (b)................................................... 7.08; 7.10 (c)................................................... N.A. 311(a)................................................... 7.11 (b)................................................... 7.11 8 312(a)................................................... 2.05 (b)................................................... 11.03 (c)................................................... 11.03 313(a)................................................... 7.06 (b)(1)................................................ 7.06 (b)(2)................................................ 7.06; 7.07 (c)................................................... 7.05; 7.06; 11.02 (d)................................................... 7.06 314(a)................................................... 4.08; 4.10; 11.02 (b)................................................... N.A. (c)(1)................................................ 4.08; 11.04 (c)(2)................................................ 11.04 (c)(3................................................. 4.08; 11.04 (d)................................................... N.A. (e)................................................... 11.05 (f)................................................... N.A. 315(a)................................................... 7.01(b) (b)................................................... 7.05; 11.02 (c)................................................... 7.01(a) (d)................................................... 7.01(c) (e)................................................... 6.11 316(a)(last sentence).................................... 2.09 (a)(1)(A)............................................. 6.05 (a)(1)(B)............................................. 6.04 (a)(2)................................................ N.A. (b)................................................... 6.07; 9.04 (c)................................................... 9.04 317(a)(1)................................................ 6.08 (a)(2)................................................ 6.09 (b)................................................... 2.04 318(a)................................................... 11.01 3 (c)................................................... 11.01 - --------------- "N.A." means Not Applicable. NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 4 TABLE OF CONTENTS Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions................................................. 1 SECTION 1.02. Incorporation by Reference of TIA........................... 27 SECTION 1.03. Rules of Construction....................................... 27 ARTICLE TWO THE SECURITIES SECTION 2.01. Form and Dating............................................. 28 SECTION 2.02. Execution and Authentication................................ 29 SECTION 2.03. Registrar and Paying Agent.................................. 30 SECTION 2.04. Paying Agent To Hold Assets in Trust........................ 30 SECTION 2.05. Securityholder Lists........................................ 30 SECTION 2.06. Transfer and Exchange....................................... 31 SECTION 2.07. Replacement Securities...................................... 31 SECTION 2.08. Outstanding Securities...................................... 32 SECTION 2.09. Treasury Securities......................................... 32 SECTION 2.10. Temporary Securities........................................ 33 SECTION 2.11. Cancellation................................................ 33 SECTION 2.12. Defaulted Interest.......................................... 33 SECTION 2.13. CUSIP Number................................................ 34 SECTION 2.14. Deposit of Moneys........................................... 34 SECTION 2.15. Book-Entry Provisions for Global Securities................. 34 SECTION 2.16. Registration of Transfers and Exchanges..................... 35 ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee.......................................... 40 SECTION 3.02. Selection of Securities To Be Redeemed...................... 41 SECTION 3.03. Notice of Redemption........................................ 41 -i- 5 SECTION 3.04. Effect of Notice of Redemption.............................. 42 SECTION 3.05. Deposit of Redemption Price................................. 42 SECTION 3.06. Securities Redeemed in Part................................. 43 ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Securities....................................... 43 SECTION 4.02. Maintenance of Office or Agency............................. 43 SECTION 4.03. Limitation on Incurrence of Additional Indebtedness......... 44 SECTION 4.04. Limitation on Restricted Payments........................... 45 SECTION 4.05. Corporate Existence......................................... 46 SECTION 4.06. Payment of Taxes and Other Claims........................... 47 SECTION 4.07. Maintenance of Properties and Insurance..................... 47 SECTION 4.08. Compliance Certificate; Notice of Default................... 48 SECTION 4.09. Compliance with Laws........................................ 49 SECTION 4.10. SEC Reports................................................. 49 SECTION 4.11. Waiver of Stay, Extension or Usury Laws..................... 50 SECTION 4.12. Limitation on Asset Sales................................... 50 SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries....................... 53 SECTION 4.14. Limitation on Preferred Stock of Restricted Subsidiaries............................................. 54 SECTION 4.15. Limitation on Liens......................................... 54 SECTION 4.16. [Intentionally Omitted]..................................... 55 SECTION 4.17. Prohibition on Incurrence of Senior Subordinated Debt....... 55 SECTION 4.18. Limitations on Transactions with Affiliates................. 55 SECTION 4.19. Issuance of Subsidiary Guarantees........................... 56 SECTION 4.20. [Intentionally Omitted]..................................... 57 SECTION 4.21. Conduct of Business......................................... 57 SECTION 4.22. Payments for Consent........................................ 57 SECTION 4.23. Limitation on Designations of Unrestricted Subsidiaries............................................. 58 SECTION 4.24. Change of Control........................................... 59 -ii- 6 ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Mergers, Consolidations and Sales of Assets................. 61 SECTION 5.02. Successor Corporation Substituted........................... 63 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default........................................... 64 SECTION 6.02. Acceleration................................................ 66 SECTION 6.03. Other Remedies.............................................. 67 SECTION 6.04. Waiver of Past Defaults..................................... 67 SECTION 6.05. Control by Majority......................................... 68 SECTION 6.06. Limitation on Suits......................................... 68 SECTION 6.07. Rights of Holders To Receive Payment........................ 69 SECTION 6.08. Collection Suit by Trustee.................................. 69 SECTION 6.09. Trustee May File Proofs of Claim............................ 69 SECTION 6.10. Priorities.................................................. 70 SECTION 6.11. Undertaking for Costs....................................... 70 ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee........................................... 71 SECTION 7.02. Rights of Trustee........................................... 72 SECTION 7.03. Individual Rights of Trustee................................ 74 SECTION 7.04. Trustee's Disclaimer........................................ 74 SECTION 7.05. Notice of Default........................................... 74 SECTION 7.06. Reports by Trustee to Holders............................... 75 SECTION 7.07. Compensation and Indemnity.................................. 75 SECTION 7.08. Replacement of Trustee...................................... 76 SECTION 7.09. Successor Trustee by Merger, Etc............................ 78 SECTION 7.10. Eligibility; Disqualification............................... 78 SECTION 7.11. Preferential Collection of Claims Against Company........... 78 ARTICLE EIGHT SATISFACTION AND DISCHARGE OF INDENTURE -iii- 7 SECTION 8.01. Legal Defeasance and Covenant Defeasance.................... 78 SECTION 8.02. Satisfaction and Discharge.................................. 83 SECTION 8.03. Survival of Certain Obligations............................. 83 SECTION 8.04. Acknowledgment of Discharge by Trustee...................... 84 SECTION 8.05. Application of Trust Assets................................. 84 SECTION 8.06. Repayment to the Company or Guarantors; Unclaimed Money.................................................... 84 SECTION 8.07. Reinstatement............................................... 85 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders.................................. 86 SECTION 9.02. With Consent of Holders..................................... 86 SECTION 9.03. Compliance with TIA......................................... 88 SECTION 9.04. Revocation and Effect of Consents........................... 88 SECTION 9.05. Notation on or Exchange of Securities....................... 89 SECTION 9.06. Trustee To Sign Amendments, Etc............................. 89 ARTICLE TEN GUARANTEE SECTION 10.01. Unconditional Guarantee..................................... 90 SECTION 10.02. Severability................................................ 91 SECTION 10.03. Release of a Guarantor...................................... 91 SECTION 10.04. Limitation of a Guarantor's Liability....................... 92 SECTION 10.05. Contribution................................................ 92 SECTION 10.06. Waiver of Subrogation....................................... 93 SECTION 10.07. Execution of Guarantees..................................... 93 SECTION 10.08. Waiver of Stay, Extension or Usury Laws..................... 94 ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. TIA Controls................................................ 94 SECTION 11.02. Notices..................................................... 94 SECTION 11.03. Communications by Holders with Other Holders................ 96 -iv- 8 SECTION 11.04. Certificate and Opinion as to Conditions Precedent......... 96 SECTION 11.05. Statements Required in Certificate or Opinion.............. 96 SECTION 11.06. Rules by Trustee, Paying Agent, Registrar.................. 97 SECTION 11.07. Legal Holidays............................................. 97 SECTION 11.08. Governing Law.............................................. 97 SECTION 11.09. No Adverse Interpretation of Other Agreements.............. 97 SECTION 11.10. No Recourse Against Others................................. 97 SECTION 11.11. Successors................................................. 98 SECTION 11.12. Duplicate Originals........................................ 98 SECTION 11.13. Severability............................................... 98 SECTION 11.14. Table of Contents, Headings, Etc........................... 98 ARTICLE TWELVE SUBORDINATION SECTION 12.01. Securities Subordinated to Senior Debt; Guarantees Subordinated to Guarantor Senior Debt................... 98 SECTION 12.02. No Payment on Securities in Certain Circumstances.......... 99 SECTION 12.03. Payment Over of Proceeds upon Dissolution, Etc............. 101 SECTION 12.04. Payments May Be Paid Prior to Dissolution.................. 103 SECTION 12.05. Subrogation................................................ 104 SECTION 12.06. Obligations of the Company Unconditional................... 104 SECTION 12.07. Notice to Trustee.......................................... 105 SECTION 12.08. Reliance on Judicial Order or Certificate of Liquidating Agent....................................... 105 SECTION 12.09. Trustee's Relation to Senior Debt or Guarantor Senior Debt............................................. 106 SECTION 12.10. Subordination Rights Not Impaired by Acts or Omissions of the Company or a Guarantor or Holders of Senior Debt.................................. 106 SECTION 12.11. Holders Authorize Trustee To Effectuate Subordination of Securities............................. 107 -v- 9 SECTION 12.12. This Article Twelve Not To Prevent Events of Default....... 108 SECTION 12.13. Trustee's Compensation Not Prejudiced...................... 108 SIGNATURES ................................................................ S-1 Exhibit A - Form of Series A Security Exhibit B - Form of Series B Security Exhibit C - Form of Legend for Global Securities Exhibit D - Transfer Certificate Exhibit E - Transferee Certificate for Institutional Accredited Investors Exhibit F - Transferee Certificate for Regulation S Transfers Exhibit G - Form of Guarantee Note: This Table of Contents shall not, for any purpose, be deemed to be a part of the Indenture. -vi- 10 INDENTURE dated as of July 7, 1998, among SIMONDS INDUSTRIES INC., a Delaware corporation (the "Company"), as Issuer, ARMSTRONG MANUFACTURING COMPANY, an Oregon corporation, SIMONDS HOLDING COMPANY, INC., a Delaware corporation, and SIMONDS INDUSTRIES FSC, INC., a U.S. Virgin Islands corporation, as Guarantors, and State Street Bank and Trust Company, as Trustee (the "Trustee"). The Company has duly authorized the issue of 10 1/4% Senior Subordinated Notes due 2008, Series A, and 10 1/4% Senior Subordinated Notes due 2008, Series B, and to provide therefor, the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when duly issued and executed by the Company and authenticated and delivered hereunder, the valid and binding obligations of the Company, and to make this Indenture a valid and binding agreement of the Company, have been done. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Securities: ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or at the time it merges or consolidates with the Company or any of the Restricted Subsidiaries or assumed by the Company or any Restricted Subsidiary in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such acquisition, merger or consolidation. 11 "Adjusted Net Assets" has the meaning provided in Section 10.05. "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "Affiliate Transaction" has the meaning provided in Section 4.18. "Agent" means any Registrar, Paying Agent or co-Registrar. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Restricted Subsidiary, or shall be merged with or into the Company or any Restricted Subsidiary, or (b) the acquisition by the Company or any Restricted Subsidiary of the assets of any Person (other than a Restricted Subsidiary) which constitute all or substantially all of the assets of such Person or comprises any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means any direct or indirect sale, issuance, conveyance, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer (other than the granting of a Lien in accordance with Section 4.15 hereof) for value by the Company or any of the Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Restricted Subsidiary of (a) any Capital Stock of any Restricted Subsidiary; or (b) any other property or assets of 12 the Company or any Restricted Subsidiary other than in the ordinary course of business; PROVIDED, HOWEVER, that Asset Sales shall not include (i) a transaction or series of related transactions for which the Company or the Restricted Subsidiaries receive aggregate consideration of less than $1.0 million, (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted by Article V hereof, or (iii) any Restricted Payment made in accordance with Section 4.04 hereof. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Blockage Period" has the meaning provided in Section 12.02. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Saturday, Sunday or any other day on which banking institutions in the City of New York are required or authorized by law or other governmental action to be closed. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. 13 "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the 14 Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of this Indenture); (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of this Indenture); or (iii) any Person or Group (other than the Permitted Holder(s)) shall become the beneficial owner, directly or indirectly, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company. "Change of Control Offer" has the meaning provided in Section 4.24. "Change of Control Payment Date" has the meaning provided in Section 4.24. "Commission" means the Securities and Exchange Commission, as from time to time constituted, or if at any time after the execution of this Indenture such Commission is not existing and performing the applicable duties now assigned to it, then the body or bodies performing such duties at such time. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor. "Consolidated EBITDA" means, with respect to the Company, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated 15 Net Income has been reduced thereby, (A) all income taxes of the Company and the Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary or nonrecurring gains or taxes attributable to Asset Sales outside the ordinary course of business), (B) Consolidated Interest Expense and (C) Consolidated Non-cash Charges, LESS any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for the Company and the Restricted Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to the Company, the ratio of Consolidated EBITDA of the Company during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of the Company for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a PRO FORMA basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of the Company or any of the Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter period and (ii) any Asset Sales or other dispositions or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the Company or one of the Restricted Subsidiaries (including any person who becomes a Restricted Subsidiary as a 16 result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (PROVIDED that such Consolidated EBITDA shall be included only to the extent includable pursuant to the definition of "Consolidated Net Income") attributable to the assets which are the subject of the Asset Acquisition or Asset Sale or other disposition during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date as if such Asset Sale or other disposition or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If the Company or any of the Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if the Company or any Restricted Subsidiary had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period; and (3) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. 17 "Consolidated Fixed Charges" means, with respect to the Company for any period, the sum, without duplication, of (i) Consolidated Interest Expense, plus (ii) the product of (x) the amount of all dividend payments on any series of Preferred Stock of the Company (other than dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local income tax rate of the Company, expressed as a decimal. "Consolidated Interest Expense" means, with respect to the Company for any period, the sum of, without duplication: (i) the aggregate of the interest expense of the Company and the Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without limitation, (a) any amortization of debt discount (other than any such amortization relating to Indebtedness repaid on the Issue Date), (b) the net costs under Interest Swap Obligations, (c) all capitalized interest and (d) the interest portion of any deferred payment obligation; and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and the Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to the Company, for any period, the aggregate net income (or loss) of the Company and the Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; PROVIDED that there shall be excluded therefrom (a) after-tax gains and losses from Asset Sales or abandonments or reserves relating thereto, (b) extraordinary or nonrecurring gains or losses, (c) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary or is merged or consolidated with the Company or any Restricted Subsidiary, (d) the net income (but not loss) of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a 18 contract, operation of law or otherwise, (e) the net income of any Person, other than a Restricted Subsidiary, except to the extent of cash dividends or distributions paid to the Company or to a Restricted Subsidiary by such Person, (f) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date or any such restorations which do not exceed $500,000 in the aggregate in any four fiscal quarter period, (g) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued) and (h) in the case of a successor to the Company by consolidation or merger or as a transferee of the Company's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. "Consolidated Non-cash Charges" means, with respect to the Company, for any period, the aggregate depreciation, amortization and other non-cash expenses of the Company and the Restricted Subsidiaries reducing Consolidated Net Income of the Company for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charge which requires an accrual of or a reserve for cash charges for any future period). "Covenant Defeasance" has the meaning provided in Section 8.01. "Credit Agreement" means the Credit Agreement dated as of the Issue Date, among the Company, the Guarantors, the lenders party thereto in their capacities as lenders thereunder and First Union National Bank, as agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder (PROVIDED that such increase in borrowings is 19 permitted by Section 4.03 hereof (including the definition of Permitted Indebtedness)) or adding Restricted Subsidiaries as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in currency values. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Default Notice" has the meaning provided in Section 12.02. "Depository" means, with respect to the Securities issued in the form of one or more Global Securities, The Depository Trust Company or another Person designated as Depository by the Company, which must be a clearing agency registered under the Exchange Act. "Designated Senior Debt" means (i) Indebtedness under or in respect of the Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which, at the time of determination, has an aggregate principal amount of at least $10,000,000 and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the Company. "Designation" has the meaning provided in Section 4.23. "Designation Amount" has the meaning provided in Section 4.23. 20 "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is mandatorily exchangeable for Indebtedness, or is redeemable, or exchangeable for Indebtedness, at the sole option of the holder thereof on or prior to the final maturity date of the Securities. "Domestic Wholly Owned Restricted Subsidiary" means a Wholly Owned Restricted Subsidiary incorporated or otherwise organized or existing under the laws of the United States, any State thereof, the District of Columbia or any territory or possession of the United States. "Event of Default" has the meaning provided in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto, and the rules and regulations of the Commission promulgated thereunder. "Fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. "Final Maturity Date" means July 1, 2008. "Foreign Restricted Subsidiary" means any Restricted Subsidiary that is organized or existing under the laws of any jurisdiction other than the United States, any State thereof, the District of Columbia or any territory or possession of the United States. 21 "Four Quarter Period" has the meaning provided in the definition of "Consolidated Fixed Charge Coverage Ratio" above. "Funding Guarantor" has the meaning provided in Section 10.05. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "Global Security" means a security evidencing all or a part of the Securities issued to the Depository in accordance with Section 2.01 and bearing the legend prescribed in EXHIBIT C. "Guarantee" has the meaning provided in Section 4.19. "Guarantor" means (i) each Domestic Wholly Owned Restricted Subsidiary of the Company as of the Issue Date and (ii) each other Person that in the future executes a Guarantee pursuant to Section 4.19 hereof or otherwise; PROVIDED that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its Guarantee is released in accordance with the terms of this Indenture. "Guarantor Senior Debt" means, with respect to any Guarantor, (i) the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of such Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall 22 not be senior in right of payment to the Guarantee of such Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations of every nature of the Company or any Guarantor with respect to the Credit Agreement, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, (y) all Interest Swap Obligations and (z) all obligations under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include (i) any Indebtedness of such Guarantor owing to a Subsidiary of such Guarantor or any Affiliate of such Guarantor or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of such Guarantor or any Subsidiary of such Guarantor (including, without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by such Guarantor, (vi) Indebtedness incurred in violation Section 4.03 hereof, (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to such Guarantor and (viii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of such Guarantor. "Holder" or "Securityholder" means a Person in whose name a Security is registered on the Registrar's books. "incur" has the meaning provided in Section 4.03. "Indebtedness" means, with respect to any Person, without duplication, (i) all Obligations of such Person for 23 borrowed money, (ii) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted), (v) all Obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) guarantees and other contingent obligations in respect of Indebtedness of any other Person referred to in clauses (i) through (v) above and clause (viii) below, (vii) all Obligations of any other Person of the type referred to in clauses (i) through (vi) which are secured by any Lien on any property or asset of such Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the Obligation so secured, (viii) all Obligations under currency agreements and interest swap agreements of such Person and (ix) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. 24 "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent" when used with respect to any specified Person means such a Person who (a) is in fact independent; (b) does not have any direct financial interest or any material indirect financial interest in the Company or any of its Subsidiaries, or in any Affiliate of the Company or any of its Subsidiaries; and (c) is not an officer, employee, promoter, underwriter, trustee, partner, director or Person performing similar functions for the Company or any of its Subsidiaries. Whenever it is provided in this Indenture that any Independent Person's opinion or certificate shall be furnished to the Trustee, such Person shall be appointed by the Company, and such opinion or certificate shall state that the signer has read this definition and that the signer is Independent within the meaning hereof. "Independent Financial Advisor" means a firm (i) which does not, and whose directors, officers and employees and Affiliates do not, have a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "Initial Purchasers" means Salomon Brothers Inc, First Union Capital Markets, a division of Wheat First Securities, Inc., and Schroder & Co. Inc. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Interest Payment Date" means the stated maturity of an installment of interest on the Securities. "Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to 25 receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Investment" means, with respect to any Person, (i) any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or (ii) any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any Person. "Investment" shall exclude extensions of trade credit by the Company and the Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. If the Company or any Restricted Subsidiary sells or otherwise disposes of any Capital Stock of any Restricted Subsidiary (the "Referent Subsidiary") such that, after giving effect to any such sale or disposition the Referent Subsidiary shall cease to be a Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Capital Stock of the Referent Subsidiary not sold or disposed of. "Issue Date" means the date of original issuance of the Securities. "Legal Defeasance" has the meaning provided in Section 8.01. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). 26 "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest), received by the Company or any of the Restricted Subsidiaries from such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, sales commissions and relocation expenses), (b) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements, (c) repayments of Indebtedness secured by the property or assets subject to such Asset Sale that is required to be repaid in connection with such Asset Sale and (d) appropriate amounts to be determined by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "Net Proceeds Offer" has the meaning provided in Section 4.12. "Net Proceeds Offer Amount" has the meaning provided in Section 4.12. "Net Proceeds Offer Payment Date" has the meaning provided in Section 4.12. "Net Proceeds Offer Trigger Date" has the meaning provided in Section 4.12. "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, 27 reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Controller, or the Secretary of such Person. "Officers' Certificate" means a certificate signed by two Officers of the Company. "Opinion of Counsel" means a written opinion from legal counsel which and who are acceptable to the Trustee. "Participants" has the meaning provided in Section 2.15. "Paying Agent" has the meaning provided in Section 2.03. "Permitted Holders" means (i) Fleet Venture Resources, Inc., Fleet Equity Partners VI-B, L.P., Chisholm Partners III, L.P., Kennedy Plaza Partners, Habib Y. Gorgi, Bernard V. Buonanno III, Ross B. George and Joseph L. Sylvia and (ii) any Person "controlled" (as defined in the definition of "Affiliate") by one or more Persons identified in clause (i) of this definition. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Securities, this Indenture and any Guarantees not to exceed $100,000,000 in aggregate principal amount; (ii) Indebtedness incurred pursuant to the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed the greater of (x) $30.0 million and (y) the sum of (A) 85% of the net book value of the accounts receivable of the Company and the Restricted Subsidiaries and (B) 50% of the net book value of the inventory of the Company and the Restricted Subsidiaries 28 LESS (C) the amount of Indebtedness outstanding pursuant to clause (xiii) of this definition reduced in the case of (x) by any required permanent repayments with the proceeds of Asset Sales (which are accompanied by a corresponding permanent commitment reduction) thereunder; (iii) other Indebtedness of the Company and the Restricted Subsidiaries outstanding on the Issue Date reduced by the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereon; (iv) Interest Swap Obligations of the Company covering Indebtedness of the Company or any Guarantor and Interest Swap Obligations of any Restricted Subsidiary covering Indebtedness of such Restricted Subsidiary; PROVIDED, HOWEVER, that such Interest Swap Obligations are entered into to protect the Company and the Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with this Indenture to the extent the notional principal amount of such Interest Swap Obligations does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligations relates; (v) Indebtedness under Currency Agreements; PROVIDED that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and the Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (vi) Indebtedness of a Restricted Subsidiary to the Company or a Restricted Subsidiary for so long as such Indebtedness is held by the Company or a Restricted Subsidiary, in each case subject to no Lien held by a Person other than the Company or a Restricted Subsidiary; PROVIDED that if as of any date any Person other than the Company or an a Restricted Subsidiary owns or holds any 29 such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (vii) Indebtedness of the Company to a Restricted Subsidiary for so long as such Indebtedness is held by a Restricted Subsidiary, in each case subject to no Lien; PROVIDED that (a) any Indebtedness of the Company to any Restricted Subsidiary is unsecured and (b) if as of any date any person other than a Restricted Subsidiary owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company; (viii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; PROVIDED, HOWEVER, that such Indebtedness is extinguished within five business days of incurrence; (ix) Indebtedness of the Company or any of the Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; (x) Refinancing Indebtedness; (xi) additional Indebtedness of the Company and the Guarantors in an aggregate principal amount not to exceed $10.0 million at any one time outstanding; (xii) Purchase Money Indebtedness and Capitalized Lease Obligations (and any Indebtedness incurred to Refinance such Purchase Money Indebtedness or Capitalized 30 Lease Obligations) not to exceed $10.0 million at any one time outstanding; and (xiii) Indebtedness of Foreign Restricted Subsidiaries that are not Guarantors in an aggregate principal amount at any one time outstanding not to exceed the greater of (a) $25.0 million or (b) the sum of (x) 85% of the net book value of accounts receivable of the Foreign Restricted Subsidiaries that are not Guarantors and (y) 50% of the net book value of the inventory of the Foreign Restricted Subsidiaries that are not Guarantors. "Permitted Investments" means (i) Investments by the Company or any Restricted Subsidiary in any Person that is or will become immediately after such Investment a Restricted Subsidiary or that will merge or consolidate into the Company or a Restricted Subsidiary; (ii) investments in the Company by any Restricted Subsidiary; PROVIDED that any Indebtedness evidencing such Investment is unsecured; (iii) investments in cash and Cash Equivalents; (iv) loans and advances to employees, officers and directors of the Company and the Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $1.0 million at any time outstanding; (v) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or a Restricted Subsidiary's businesses and otherwise in compliance with this Indenture; (vi) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (vii) Investments made by the Company or the Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with Section 4.12 hereof; (viii) Investments in Persons, including, without limitation, Unrestricted Subsidiaries and joint ventures, engaged in a business similar or related to the businesses in which the Company and the Restricted Subsidiaries are engaged on the Issue Date not to exceed $10.0 million at any one time outstanding; and (ix) Investments in the Notes. 31 "Permitted Liens" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or any Restricted Subsidiary shall have set aside on its books such reserves as may be required pursuant to GAAP; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (v) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not impairing in any material respect the ordinary conduct of the business of the Company or any of the Restricted Subsidiaries; 32 (vi) any interest or title of a lessor under any Capitalized Lease Obligation; PROVIDED that such Liens do not extend to any property or assets which is not leased property subject to such Capitalized Lease Obligation; (vii) purchase money Liens securing Indebtedness incurred to finance property or assets of the Company or any Restricted Subsidiary acquired in the ordinary course of business, and Liens securing Indebtedness which Refinances any such Indebtedness; PROVIDED, HOWEVER, that (A) the related purchase money Indebtedness (or Refinancing Indebtedness) shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary other than the property and assets so acquired and (B) the Lien securing the purchase money Indebtedness shall be created within 90 days of such acquisition; (viii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (ix) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (x) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of the Restricted Subsidiaries, including rights of offset and set-off; (xi) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under this Indenture; 33 (xii) Liens securing Indebtedness under Currency Agreements; (xiii) Liens securing Acquired Indebtedness (and any Indebtedness which Refinances such Acquired Indebtedness) incurred in accordance with Section 4.03; PROVIDED that (A) such Liens secured the Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary and were not granted in connection with, or in anticipation of the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary and (B) such Liens do not extend to or cover any property or assets of the Company or of any of the Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted Subsidiary; and (xiv) Liens securing Indebtedness of Foreign Restricted Subsidiaries that are not Guarantors incurred in accordance with this Indenture; PROVIDED that such Liens do not extend to any property or assets other than property or assets of Foreign Restricted Subsidiaries that are not Guarantors. "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Physical Securities" has the meaning provided in Section 2.01. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "Private Placement Legend" means the legend initially set forth on the Securities in the form set forth on EXHIBIT A. 34 "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act as interpreted by the Company's Board of Directors in consultation with its independent certified public accountants. "Public Equity Offering" has the meaning provided in Paragraph 6 of the Securities. "Purchase Agreement" means the purchase agreement dated as of June 30, 1998 by and among the Company, the Guarantors and the Initial Purchasers. "Purchase Money Indebtedness" means Indebtedness of the Company or any Restricted Subsidiary incurred for the purpose of financing all or any part of the purchase price or the cost of construction or improvement of any property, PROVIDED that the aggregate principal amount of such Indebtedness does not exceed the lesser of the fair market value of such property or such purchase price or cost. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A under the Securities Act. "Record Date" means the Record Dates specified in the Securities; PROVIDED that if any such date is not a Business Day, the Record Date shall be the first day immediately preceding such specified day that is a Business Day. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Securities. "Redemption Price," when used with respect to any Security to be redeemed, means the price fixed for such redemption, payable in immediately available funds, pursuant to this Indenture and the Securities. 35 "Reference Date" has the meaning provided in Section 4.04. "Refinance" means in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by the Company or any Restricted Subsidiary of Indebtedness incurred in accordance with Section 4.03 hereof (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (xi), (xii) or (xiii) of the definition of Permitted Indebtedness), in each case that does not (1) result in an increase in the aggregate principal amount of any Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium reasonably necessary to Refinance such Indebtedness and plus the amount of reasonable expenses incurred by the Company in connection with such Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; PROVIDED that if such Indebtedness being Refinanced is Indebtedness of the Company or a Guarantor, then such Refinancing Indebtedness shall be Indebtedness solely of the Company and/or Guarantors. "Registrar" has the meaning provided in Section 2.03. "Registration Rights Agreement" means the Registration Rights Agreement dated as of the Issue Date among the Company, the Guarantors and the Initial Purchasers. "Regulation S" means Regulation S under the Securities Act. "Replacement Assets" means assets and property that will be used in the business of the Company and/or its 36 Restricted Subsidiaries as existing on the Issue Date or in a business the same, similar or reasonably related thereto (including Capital Stock of a Person which becomes a Restricted Subsidiary if such Person is engaged in businesses which comply with Section 4.21 hereof). "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt; PROVIDED that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt in respect of any Designated Senior Debt. "Responsible Officer" shall mean, when used with respect to the Trustee, any officer in the Corporate Trust Department of the Trustee including any vice president, assistant vice president or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, and to whom any corporate trust matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Restricted Payment" has the meaning provided in Section 4.04. "Restricted Security" has the meaning set forth in Rule 144(a)(3) under the Securities Act; PROVIDED that the Trustee shall be entitled to request and conclusively rely upon an Opinion of Counsel with respect to whether any Security is a Restricted Security. "Restricted Subsidiary" means any Subsidiary of the Company that has not been designated by the Board of Directors of the Company, by a Board Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with Section 4.23 hereof. Any such Designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such covenant. 37 "Revocation" has the meaning provided in Section 4.23. "Rule 144A" means Rule 144A under the Securities Act. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. "SEC" means the Securities and Exchange Commission, as from time to time constituted, or if at any time after the execution of this Indenture such Commission is not existing and performing the applicable duties now assigned to it, then the body or bodies performing such duties at such time. "Securities" means the Series A Securities and the Series B Securities treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended, or any successor statute or statutes thereto, and the rules and regulations of the Commission promulgated thereunder. "Senior Debt" means the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Securities. Without 38 limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations of every nature of the Company under the Credit Agreement, including, without limitation, obligations to pay principal and interest reimbursement obligations under letters of credit, fees, expenses and indemnities, (y) all Interest Swap Obligations and (z) all obligations under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not include (i) any Indebtedness of the Company to a Restricted Subsidiary or any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Restricted Subsidiary (including without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed by the Company, (vi) Indebtedness incurred in violation of Section 4.03, (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company and (viii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company. "Series A Securities" means the 10 1/4% Senior Subordinated Notes due 2008, Series A, of the Company issued pursuant to this Indenture and sold pursuant to the Purchase Agreement. "Series B Securities" means the 10 1/4% Senior Subordinated Notes due 2008, Series B, of the Company to be issued in exchange for the Series A Securities pursuant to this Indenture. 39 "Significant Subsidiary" means, with respect to any Person, any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities Act. "Subsidiary", with respect to any Person, means (a) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (b) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "Surviving Entity" has the meaning provided in Section 5.01. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb), as amended, as in effect on the date of the execution of this Indenture until such time as this Indenture is qualified under the TIA, and thereafter as in effect on the date on which this Indenture is qualified under the TIA, except as otherwise provided in Section 9.03. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Unrestricted Subsidiary" means any Subsidiary of the Company designated as such pursuant to and in compliance with Section 4.23. Any such designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of such covenant. "U.S. Government Obligations" shall have the meaning provided in Section 8.01. "U.S. Legal Tender" means such coin or currency in immediately available funds of the United States of America as 40 at the time of payment shall be legal tender for the payment of public and private debts. "U.S. Physical Securities" shall have the meaning set forth in Section 2.01. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Restricted Subsidiary" of the Company means any Restricted Subsidiary of which all the outstanding voting securities (other than in the case of a Foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by the Company or any Wholly Owned Restricted Subsidiary. SECTION 1.02. INCORPORATION BY REFERENCE OF TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Holder or a Securityholder. "indenture to be qualified" means this Indenture. 41 "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company, any Guarantor and any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE TWO THE SECURITIES SECTION 2.01. FORM AND DATING. The Series A Securities and the Trustee's certificate of authentication thereof shall be substantially in the form of EXHIBIT A annexed hereto, which is hereby incorporated in and 42 expressly made a part of this Indenture. The Series B Securities and the Trustee's certificate of authentication thereof shall be substantially in the form of EXHIBIT B annexed hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements (including notations relating to any Guarantees, stock exchange rule or usage). The Company and the Trustee shall approve the form of the Securities and any notation, legend or endorsement (including notations relating to any Guarantees) on them. Each Security shall be dated the date of its issuance and shall be authenticated by the Trustee. Securities offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent Global Securities in registered form, substantially in the form set forth in EXHIBIT A, deposited with the Trustee, as custodian for the Depository, and shall bear the legend set forth on EXHIBIT C. The aggregate principal amount of any Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. Securities offered and sold in offshore transactions in reliance on Regulation S shall be issued in the form of certificated Securities in registered form in substantially the form set forth in EXHIBIT A (the "Offshore Physical Securities"). Securities offered and sold in reliance on any other exemption from registration under the Securities Act other than as described in the preceding paragraph shall be issued, and Securities offered and sold in reliance on Rule 144A may be issued, in the form of certificated Securities in registered form in substantially the form set forth in EXHIBIT A (the "U.S. Physical Securities"). The Offshore Physical Securities and the U.S. Physical Securities are sometimes collectively herein referred to as the "Physical Securities." SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers, or an Officer and an Assistant Secretary, shall sign, or one Officer shall sign and one 43 Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Securities for the Company by manual or facsimile signature. The Company's seal shall also be reproduced on the Securities. If an Officer or Assistant Secretary whose signature is on a Security was an Officer or Assistant Secretary at the time of such execution but no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. Each Guarantor shall execute its Guarantee in the manner set forth in Section 10.07. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities upon a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Securities to be authenticated, the series of Securities and the date on which the Securities are to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed $150,000,000, except as provided in Section 2.07. Upon receipt of a written order of the Company in the form of an Officers' Certificate, the Trustee shall authenticate Securities in substitution for Securities originally issued to reflect any name change of the Company. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company and Affiliates of the Company. 44 The Securities shall be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency in the Borough of Manhattan, The City of New York, where (a) Securities may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Securities may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands in respect of the Securities and this Indenture may be served. The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company, upon written notice to the Trustee, may have one or more co-Registrars and one or more additional Paying Agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional Paying Agent. The Company initially appoints the Trustee as Registrar and Paying Agent until such time as the Trustee has resigned or a successor has been appointed. Neither the Company nor any Affiliate of the Company may act as Paying Agent except as otherwise expressly provided in the form of the Security. SECTION 2.04. PAYING AGENT TO HOLD ASSETS IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, premium if any, or interest on, the Securities, and shall notify the Trustee in writing of any Default by the Company in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time, but shall be under no obligation to, during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to 45 the Paying Agent, the Paying Agent shall have no further liability for such assets. SECTION 2.05. SECURITYHOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee before each Record Date and at such other times as the Trustee may request in writing a list as of such date and in such form as the Trustee may reasonably require of the names and addresses of Holders, which list may be conclusively relied upon by the Trustee. SECTION 2.06. TRANSFER AND EXCHANGE. Subject to the provisions of Sections 2.15 and 2.16, when Securities are presented to the Registrar or a co-Registrar with a request to register the transfer of such Securities or to exchange such Securities for an equal principal amount of Securities of other authorized denominations of the same series, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; PROVIDED, HOWEVER, that the Securities surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's or co-Registrar's written request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other governmental charge payable upon exchanges or transfers pursuant to Section 2.02, 2.10, 3.06, 4.12, 4.24 or 9.05). The Registrar or co-Registrar shall not be required to register the transfer of or exchange of any 46 Security (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Securities and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Security being redeemed in part. Any Holder of a Global Security shall, by acceptance of such Global Security, agree that transfers of beneficial interests in such Global Security may be effected only through a book-entry system maintained by the Depository (or its agent), and that ownership of a beneficial interest in a Global Security shall be required to be reflected in a book entry system. SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate upon written notice from the Company a replacement Security if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee and any Agent from any loss which any of them may suffer if a Security is replaced. The Company and the Trustee may charge such Holder for their respective reasonable out-of-pocket expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security is an additional obligation of the Company. SECTION 2.08. OUTSTANDING SECURITIES. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee except those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to Section 2.09, a Security does not cease to be 47 outstanding because the Company or any of its Affiliates holds the Security. If a Security is replaced pursuant to Section 2.07 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a BONA FIDE purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.07. If on a Redemption Date or the Final Maturity Date the Paying Agent holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. TREASURY SECURITIES. 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, any Guarantor or any of their respective Affiliates shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that a Responsible Officer of the Trustee actually knows are so owned shall be disregarded. The Trustee may require an Officers' Certificate listing Securities owned by the Company, any Guarantor or any of their respective Affiliates. SECTION 2.10. TEMPORARY SECURITIES. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities upon receipt of a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of temporary Securities to 48 be authenticated and the date on which the temporary Securities are to be authenticated. 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 upon receipt of a written order of the Company pursuant to Section 2.02 definitive Securities in exchange for temporary Securities. SECTION 2.11. CANCELLATION. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel and, at the written direction of the Company, shall dispose of all Securities surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.07, the Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. If the Company or any Guarantor shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. SECTION 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Securities, it shall pay interest on overdue principal and on overdue installments of interest (without grace periods) from time to time on demand at the rate of 2% PER ANNUM in excess of the rate shown on the Security. SECTION 2.13. CUSIP NUMBER. The Company in issuing the Securities will use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to 49 Holders; PROVIDED that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. SECTION 2.14. DEPOSIT OF MONEYS. Prior to 11:00 a.m. New York City time on each Interest Payment Date and the Final Maturity Date, the Company shall deliver by wire transfer to the Paying Agent in immediately available funds money sufficient to make cash payments due on such Interest Payment Date or the Final Maturity Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date or the Final Maturity Date, as the case may be. SECTION 2.15. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES. (a) The Global Securities initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in EXHIBIT C. Members of, or participants in, the Depository ("Participants") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Security, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global 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 the Depository or impair, as between the Depository and Participants, the operation of customary practices governing the exercise of the rights of a Holder of any Security. 50 (b) Transfers of Global Securities shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Securities may be transferred or exchanged for Physical Securities in accordance with the rules and procedures of the Depository and the provisions of Section 2.16. In addition, Physical Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Securities if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for any Global Security and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depository to issue Physical Securities. (c) In connection with the transfer of Global Securities as an entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15, the Global Securities shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall upon written instructions from the Company authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Securities, an equal aggregate principal amount of Physical Securities of authorized denominations. (d) Any Physical Security constituting a Restricted Security delivered in exchange for an interest in a Global Security pursuant to paragraph (b) or (c) of this Section 2.15 shall, except as otherwise provided by Section 2.16, bear the Private Placement Legend. (e) The Holder of any Global Security may grant proxies and otherwise authorize any Person, including Participants and Persons that may hold interests through Participants, to take any action which a Holder is entitled to take under this Indenture or the Securities. 51 SECTION 2.16. REGISTRATION OF TRANSFERS AND EXCHANGES. (a) TRANSFER AND EXCHANGE OF PHYSICAL SECURITIES. When Physical Securities are presented to the Registrar with a request: (i) to register the transfer of the Physical Securities; or (ii) to exchange such Physical Securities for an equal number of Physical Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if the requirements under this Indenture as set forth in this Section 2.16 for such transactions are met; PROVIDED, HOWEVER, that the Physical Securities presented or surrendered for registration of transfer or exchange: (I) shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (II) in the case of Physical Securities the offer and sale of which have not been registered under the Securities Act, such Physical Securities shall be accompanied by an Opinion of Counsel addressed to the Registrar to the effect that such transfer and exchange is in compliance with applicable securities law and, in the sole discretion of the Company, by the following additional information and documents, as applicable: (A) if such Physical Security is being delivered to the Registrar by a holder for registration in the name of such holder, without transfer, a certification from such holder to that effect (in substantially the form of EXHIBIT D hereto); or (B) if such Physical Security is being transferred to a Qualified Institutional Buyer in 52 accordance with Rule 144A under the Securities Act, a certification to that effect (in substantially the form of EXHIBIT D hereto); or (C) if such Physical Security is being transferred to an Institutional Accredited Investor, delivery of a certification to that effect (in substantially the form of EXHIBIT D hereto) and a Transferee Certificate for Institutional Accredited Investors in substantially the form of EXHIBIT E hereto; or (D) if such Physical Security is being transferred in reliance on Regulation S, delivery of a certification to that effect (in substantially the form of EXHIBIT D hereto) and a Transferee Certificate for Regulation S Transfers in substantially the form of EXHIBIT F hereto and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or (E) if such Physical Security is being transferred in reliance on Rule 144 under the Securities Act, delivery of a certification to that effect (in substantially the form of EXHIBIT D hereto) and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or (F) if such Physical Security is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (in substantially the form of EXHIBIT D hereto) and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act. (b) RESTRICTIONS ON TRANSFER OF A PHYSICAL SECURITY FOR A BENEFICIAL INTEREST IN A GLOBAL SECURITY. A Physical 53 Security may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Registrar of a Physical Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Registrar, together with: (A) a certification, in substantially the form of EXHIBIT D hereto, that such Physical Security is being transferred to a Qualified Institutional Buyer; and (B) written instructions directing the Registrar to make, or to direct the Depository to make, an endorsement on the Global Security to reflect an increase in the aggregate amount of the Securities represented by the Global Security, then the Registrar shall cancel such Physical Security and cause, or direct the Depository to cause, in accordance with the standing instructions and procedures existing between the Depository and the Registrar, the number of Securities represented by the Global Security to be increased accordingly. If no Global Security is then outstanding, the Company shall issue and the Trustee shall upon written instructions from the Company authenticate a new Global Security in the appropriate amount. (c) TRANSFER AND EXCHANGE OF GLOBAL SECURITIES. The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depository, in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depository therefor. (d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL SECURITY FOR A PHYSICAL SECURITY. (i) Any Person having a beneficial interest in a Global Security may upon request exchange such beneficial interest for a Physical Security. Upon receipt by the 54 Registrar of written instructions or such other form of instructions as is customary for the Depository from the Depository or its nominee on behalf of any Person having a beneficial interest in a Global Security and upon receipt by the Trustee of a written order or such other form of instructions as is customary for the Depository or the Person designated by the Depository as having such a beneficial interest containing registration instructions and, in the case of any such transfer or exchange of a beneficial interest in Securities the offer and sale of which have not been registered under the Securities Act, the following additional information and documents: (A) if such beneficial interest is being transferred to the Person designated by the Depository as being the beneficial owner, a certification from such Person to that effect (in substantially the form of EXHIBIT D hereto); or (B) if such beneficial interest is being transferred to a Qualified Institutional Buyer in accordance with Rule 144A under the Securities Act, a certification to that effect (in substantially the form of EXHIBIT D hereto); or (C) if such beneficial interest is being transferred to an Institutional Accredited Investor, delivery of a certification to that effect (in substantially the form of EXHIBIT D hereto) and a Certificate for Institutional Accredited Investors in substantially the form of EXHIBIT E hereto; or (D) if such beneficial interest is being transferred in reliance on Regulation S, delivery of a certification to that effect (in substantially the form of EXHIBIT D hereto) and a Transferee Certificate for Regulation S Transfers in substantially the form of EXHIBIT F hereto and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or 55 (E) if such beneficial interest is being transferred in reliance on Rule 144 under the Securities Act, delivery of a certification to that effect (in substantially the form of EXHIBIT D hereto) and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or (F) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (in substantially the form of EXHIBIT D hereto) and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act, then the Registrar will cause, in accordance with the standing instructions and procedures existing between the Depository and the Registrar, the aggregate amount of the Global Security to be reduced and, following such reduction, the Company will execute and, upon receipt of an authentication order in the form of an Officers' Certificate, the Trustee will authenticate and deliver to the transferee a Physical Security. (ii) Securities issued in exchange for a beneficial interest in a Global Security pursuant to this Section 2.16(d) shall be registered in such names and in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Registrar in writing. The Registrar shall deliver such Physical Securities to the Persons in whose names such Physical Securities are so registered. (e) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL SECURITIES. Notwithstanding any other provisions of this Indenture, a Global Security may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee 56 of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (f) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or replacement of Securities not bearing the Private Placement Legend, the Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Registrar shall deliver only Securities that bear the Private Placement Legend unless, and the Trustee is hereby authorized to deliver Securities without the Private Placement Legend if, (i) there is delivered to the Trustee an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act or (ii) such Security has been sold pursuant to an effective registration statement under the Securities Act. (g) GENERAL. By its acceptance of any Security bearing the Private Placement Legend, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security only as provided in this Indenture. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.15 or this Section 2.16. 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. 57 ARTICLE THREE REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Securities pursuant to Paragraph 5 or Paragraph 6 of the Securities, it shall notify the Trustee in writing of the Redemption Date, the Redemption Price and the principal amount of Securities to be redeemed. The Company shall give notice of redemption to Trustee at least 45 days but not more than 60 days before the Redemption Date (unless a shorter notice shall be agreed to by the Trustee in writing), together with an Officers' Certificate stating that such redemption will comply with the conditions contained herein. SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If fewer than all of the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed, on a PRO RATA basis, by lot or by such method as the Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that if the Securities are redeemed pursuant to Paragraph 6 of the Securities, the Securities shall be redeemed solely on a PRO RATA basis or on as nearly a PRO RATA basis as is practicable (subject to the procedures of the Depository) unless the securities exchange, if any, on which the Securities are listed requires a different method. If the Securities are listed on any national securities exchange, the Company shall notify the Trustee in writing of the requirements of such exchange in respect of any redemption. The Trustee shall make the selection from the Securities outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Securities that have denominations larger than $1,000. Provisions of this 58 Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail or cause to be mailed a notice of redemption by first-class mail, postage prepaid, to each Holder whose Securities are to be redeemed. At the Company's written request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Each notice for redemption shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price and the amount of accrued interest, if any, to be paid; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price plus accrued interest, if any; (5) that, unless the Company defaults in making the redemption payment, interest on Securities called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Securities is to receive payment of the Redemption Price and accrued interest, if any, to the Redemption Date upon surrender to the Paying Agent of the Securities redeemed; (6) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the Redemption Date, and upon surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued; (7) if fewer than all the Securities are to be redeemed, the identification of the particular Securities 59 (or portion thereof) to be redeemed, as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption; and (8) the Paragraph of the Securities pursuant to which the Securities are to be redeemed. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price plus accrued interest, if any. Upon surrender to the Paying Agent, such Securities called for redemption shall be paid at the Redemption Price (which shall include accrued interest thereon to the Redemption Date), but installments of interest, the maturity of which is on or prior to the Redemption Date, shall be payable to Holders of record at the close of business on the relevant Record Dates. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to 11:00 a.m. New York City time on the Redemption Date, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price plus accrued interest, if any, of all Securities to be redeemed on that date. If the Company complies with the preceding paragraph, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, interest on the 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 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a Security that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Security or Securities equal in principal amount to the unredeemed portion of the Security surrendered. 60 ARTICLE FOUR COVENANTS SECTION 4.01. PAYMENT OF SECURITIES. The Company shall pay the principal of and interest on the Securities in the manner provided in the Securities. An installment of principal of or interest on the Securities shall be considered paid on the date it is due if the Trustee or Paying Agent holds on that date U.S. Legal Tender designated for and sufficient to pay the installment. The Company shall pay, to the extent such payments are lawful, interest on overdue principal and it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate borne by the Securities plus 2% per annum. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, The City of New York, the office or agency required under Section 2.03. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02. The Company hereby initially designates the office of the Trustee at 61 Broadway, New York, New York 10004, Attention: Corporate Trust Department, as its office or agency in the Borough of Manhattan, The City of New York. 61 SECTION 4.03. LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company or any Guarantor may incur Indebtedness (including, without limitation, Acquired Indebtedness) and the Restricted Subsidiaries may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0. No Indebtedness incurred pursuant to the Consolidated Fixed Charge Coverage Ratio test of the preceding paragraph (including, without limitation, Indebtedness under the Credit Agreement) shall reduce the amount of Indebtedness which may be incurred pursuant to any clause of the definition of Permitted Indebtedness (including, without limitation, Indebtedness under the Credit Agreement pursuant to clause (ii) of the definition of Permitted Indebtedness). Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary or which is secured by a Lien on an asset acquired by the Company or a Restricted Subsidiary (whether or not such Indebtedness is assumed by the acquiring Person) shall be deemed incurred at the time the Person becomes a Restricted Subsidiary or at the time of the asset acquisition, as the case may be. SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other 62 than dividends or distributions payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock (including any such payment made by any Person (including, without limitation, an Unrestricted Subsidiary) with the proceeds from an Investment made by the Company or a Restricted Subsidiary) to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (including any such payment made by any Person (including, without limitation, an Unrestricted Subsidiary) with the proceeds from an Investment made by the Company or a Restricted Subsidiary) or (c) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b) and (c) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing or (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.03 or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purpose, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the Issue Date and through the end of the most recent fiscal quarter for which financial statements are available prior to the date such Restricted Payment occurs (the "Reference Date" (treating such period as a single accounting period); PLUS (x) 100% of the fair market value of the aggregate net proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company or of other securities converted to Qualified Capital Stock of the Company; PLUS (y) without duplication of any amounts included in 63 clause (iii)(x) above, 100% of the fair market value of the aggregate net proceeds of any contribution to the common equity capital of the Company received by the Company from a holder of the Company's Capital Stock (excluding, in the case of clauses (iii)(x) and (y), any net proceeds from a Public Equity Offering to the extent used to redeem the Securities); PLUS (z) an amount equal to the lesser of (A) the sum of the fair market value of the Capital Stock of an Unrestricted Subsidiary owned by the Company and/or the Restricted Subsidiaries and the aggregate amount of all Indebtedness of such Unrestricted Subsidiary owed to the Company and each Restricted Subsidiary on the date of Revocation of such Unrestricted Subsidiary as an Unrestricted Subsidiary in accordance with Section 4.23 or (B) the Designation Amount with respect to such Unrestricted Subsidiary on the date of the Designation of such Subsidiary as an Unrestricted Subsidiary in accordance with Section 4.23. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration; (2) the acquisition of any shares of Capital Stock of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company; (3) so long as no Default or Event of Default shall have occurred and be continuing, repurchases of Capital Stock (or options therefor) of the Company from officers, directors, employees or consultants pursuant to equity ownership or compensation plans or stockholders agreements not to exceed $1.0 million in any year; (4) so long as no Default or Event of Default shall have occurred and be continuing, other Restricted Payments in an aggregate amount not to exceed $5.0 million; and (5) Restricted Payments made on the Issue Date in connection with the Recapitalization Distribution as defined in the Offering Memorandum relating to the Notes. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of 64 the immediately preceding paragraph, amounts expended pursuant to clauses (1), (2), (3) and (4) shall be included in such calculation. SECTION 4.05. CORPORATE EXISTENCE. Except as otherwise permitted by Article Five, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership or other existence of each of the Restricted Subsidiaries in accordance with the respective organizational documents of each Restricted Subsidiary and the rights (charter and statutory) and material franchises of the Company and each of its Restricted Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right or franchise, or the corporate existence of any Restricted Subsidiary, if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not, and will not be, adverse in any material respect to the Holders. SECTION 4.06. PAYMENT OF TAXES AND OTHER CLAIMS. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges levied or imposed upon it or any of the Restricted Subsidiaries or upon the income, profits or property of it or any of the Restricted Subsidiaries and (ii) all lawful claims for labor, materials and supplies which, in each case, if unpaid, might by law become a material liability or Lien upon the property of it or any of the Restricted Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which appropriate provision has been made. 65 SECTION 4.07. MAINTENANCE OF PROPERTIES AND INSURANCE. (1) The Company shall cause all material properties owned by or leased by it or any of the Restricted Subsidiaries used in the conduct of its business or the business of any of the Restricted Subsidiaries to be improved or maintained and kept in normal condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in its judgment may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; PROVIDED, HOWEVER, that nothing in this Section 4.07 shall prevent the Company or any of the Restricted Subsidiaries from discontinuing the use, operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Board of Directors of the Company or of the Board of Directors of any Restricted Subsidiary, or of an officer (or other agent employed by the Company or of any of the Restricted Subsidiaries) of the Company or any of its Restricted Subsidiaries having managerial responsibility for any such property, desirable in the conduct of the business of the Company or any Restricted Subsidiary, and if such discontinuance or disposal is not adverse in any material respect to the Holders. (2) The Company shall maintain, and shall cause the Restricted Subsidiaries to maintain, insurance with responsible carriers against such risks and in such amounts, and with such deductibles, retentions, self-insured amounts and co-insurance provisions, as are customarily carried by similar businesses of similar size, including property and casualty loss, workers' compensation and interruption of business insurance. SECTION 4.08. COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT. (1) The Company shall deliver to the Trustee, within 100 days after the close of each fiscal year an Officers' Certificate stating that a review of the activities of the Company has been made under the supervision of the signing 66 officers with a view to determining whether it has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of his knowledge the Company during such preceding fiscal year has kept, observed, performed and fulfilled each and every such covenant and no Default or Event of Default occurred during such year and at the date of such certificate no Default or Event of Default has occurred and is continuing or, if such signers do know of such Default or Event of Default, the certificate shall describe its status with particularity. The Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year end. (2) The annual financial statements delivered pursuant to Section 4.10 shall be accompanied by a written report of the Company's independent accountants (who shall be a firm of established national reputation) that in conducting their audit of such financial statements nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article Four, Five or Six of this Indenture insofar as they relate to accounting matters or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (3) The Company shall deliver to the Trustee, within ten days of becoming aware of any Default or Event of Default in the performance of any covenant, agreement or condition contained in this Indenture, an Officers' Certificate specifying the Default or Event of Default and describing its status with particularity. SECTION 4.09. COMPLIANCE WITH LAWS. The Company shall comply, and shall cause each of the Restricted Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities 67 thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as would not in the aggregate have a material adverse effect on the financial condition or results of operations of the Company and the Restricted Subsidiaries taken as a whole. SECTION 4.10. SEC REPORTS. (1) The Company will file with the SEC all information documents and reports to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company is subject to such filing requirements so long as the SEC will accept such filings. The Company (at its own expense) will file with the Trustee within 15 days after it files them with the SEC, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company files with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Upon qualification of this Indenture under the TIA, the Company shall also comply with the provisions of TIA ss. 314(a). (2) At the Company's expense, regardless of whether the Company is required to furnish such reports to its stockholders pursuant to the Exchange Act, the Company shall cause its consolidated financial statements, comparable to that which would have been required to appear in annual or quarterly reports, to be delivered to the Trustee and the Holders. The Company will also make such reports available to prospective purchasers of the Securities, securities analysts and broker-dealers upon their request. (3) For so long as any of the Securities remain outstanding the Company will make available to any prospective purchaser of the Securities or beneficial owner of the Securities in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act during any 68 period when the Company is not subject to Section 13 or 15(d) under the Exchange Act. SECTION 4.11. WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture, and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.12. LIMITATION ON ASSET SALES. The Company will not, and will not permit any of the Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's Board of Directors), (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash, Cash Equivalents and/or Replacement Assets and is received at the time of such disposition; and (iii) upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 360 days of receipt thereof either (A) to prepay any Senior Debt or Guarantor Senior Debt and, in the case of any Senior Debt or Guarantor Senior Debt under any revolving credit facility, effect a permanent reduction in the availability under such revolving 69 credit facility, (B) to acquire Replacement Assets, or (C) a combination of prepayment and investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 361st day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Amount") shall be applied by the Company to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date, from all Holders on a PRO RATA basis, that principal amount of Securities equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Securities to be purchased, plus accrued and unpaid interest, if any, thereon to the date of purchase; PROVIDED, HOWEVER, that if at any time any non-cash consideration received by the Company or any Restricted Subsidiary, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration) or Cash Equivalents, then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $5,000,000 resulting from one or more Asset Sales or deemed Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $5,000,000, shall be applied as required pursuant to this paragraph). In the event of the transfer of substantially all (but not all) of the property and assets of the Company and the Restricted Subsidiaries as an entirety to a Person in a 70 transaction permitted under Section 5.01, the successor corporation shall be deemed to have sold the properties and assets of the Company and the Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value (as determined in good faith by the Board of Directors of the Company) of such properties and assets of the Company or the Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. Notice of each Net Proceeds Offer pursuant to this Section 4.12 will be mailed or caused to be mailed, by first class mail, by the Company within 30 days following the Net Proceeds Offer Trigger Date to all Holders at their last registered addresses, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to Section 4.12 and that all Securities tendered in whole or in part in integral multiples of $1,000 will be accepted for payment; PROVIDED, HOWEVER, that if the principal amount of Securities tendered in a Net Proceeds Offer exceeds the aggregate amount of the Net Cash Proceeds Offer Amount, the Company shall select the Securities to be purchased on a PRO RATA basis; (2) the purchase price (including the amount of accrued interest, if any) and the Net Proceeds Offer Payment Date (which shall be at least 20 Business Days from the date of mailing of notice of such Net Proceeds Offer, or such longer period as required by law); (3) that any Security not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Security accepted for payment 71 pursuant to the Net Proceeds Offer shall cease to accrue interest after the Net Proceeds Offer Payment Date; (5) that Holders electing to have a Security purchased pursuant to a Net Proceeds Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Net Proceeds Offer Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the Business Day prior to the Net Proceeds Offer Payment Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; and (7) that Holders whose Securities are purchased only in part will be issued new Securities in a principal amount equal to the unpurchased portion of the Securities surrendered. On or before the Net Proceeds Offer Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (1) above, (ii) deposit with the Paying Agent in accordance with Section 2.14 U.S. Legal Tender sufficient to pay the purchase price plus accrued interest, if any, of all Securities to be purchased and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price plus accrued interest, if any. For purposes of this Section 4.12, the Trustee shall act as the Paying Agent. 72 The Company shall and shall cause its Subsidiaries to comply with all tender offer rules under state and Federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. To the extent that the provisions of any securities laws or regulations conflict with the foregoing provisions of this Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the foregoing provisions of this Indenture by virtue thereof. SECTION 4.13. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary; or (c) transfer any of its property or assets to the Company or any other Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reasons of: (1) applicable law; (2) this Indenture; (3) customary non-assignment provisions of any contract or any lease governing a leasehold interest of any Restricted Subsidiary; (4) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired; (5) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; (6) any other agreement entered into after the Issue Date which contains encumbrances and restrictions which are not materially more restrictive with respect to any Restricted Subsidiary than those in effect with respect to such Restricted Subsidiary pursuant to agreements as in effect on the Issue Date; (7) any instrument governing Indebtedness of a Foreign Restricted 73 Subsidiary; PROVIDED that after giving effect to the imposition of such encumbrance or restriction, the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.03; (8) customary restrictions on the transfer of any property or assets arising under a security agreement governing a Lien permitted under Section 4.15 hereof; (9) any agreement governing Refinancing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2), (4) or (5) above; PROVIDED, HOWEVER, that the provisions relating to such encumbrance or restriction contained in any such Refinancing Indebtedness are not materially more restrictive than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2), (4), (5) or (7); and (10) any agreement governing the sale or disposition of any Restricted Subsidiary which restricts dividends and distributions pending such sale or disposition. SECTION 4.14. LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will not permit any of the Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a Restricted Subsidiary) or permit any Person (other than the Company or a Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary. SECTION 4.15. LIMITATION ON LIENS. The Company will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens of any kind against or upon any property or assets of the Company or any of the Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Notes, the Notes are secured by a Lien on such property, assets or proceeds that is senior in 74 priority to such Liens and (ii) in all other cases, the Notes are equally and ratably secured, except for (A) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date; (B) Liens securing Senior Debt and Liens securing Guarantor Senior Debt; (C) Liens securing the Notes and any Guarantees; (D) Liens in favor of the Company or a Guarantor; (E) Liens securing Refinancing Indebtedness which is incurred to Refinance any Indebtedness which Refinancing Indebtedness has been secured by a Lien permitted under this Indenture and which has been incurred in accordance with the provisions of this Indenture; PROVIDED, HOWEVER, that such Liens do not extend to or cover any property or assets of the Company or any of the Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted Liens. SECTION 4.16. [INTENTIONALLY OMITTED] SECTION 4.17. PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. The Company will not, and will not permit any Guarantor to, incur or suffer to exist Indebtedness that is senior in right of payment to the Securities or the Guarantee of such Guarantor and subordinate in right of payment to any other Indebtedness of the Company or such Guarantor, as the case may be. SECTION 4.18. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each, an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate Transactions on terms that are not materially less favorable than those that would have reasonably been expected in a comparable transaction at such time on an arm's- 75 length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $1.0 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary enters into an Affiliate Transaction (or series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $10.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Trustee. (b) The restrictions set forth in clause (a) shall not apply to (i) employment, consulting and compensation arrangements and agreements of the Company or any Restricted Subsidiary consistent with past practice or approved by a majority of the disinterested members of the Board of Directors (or a committee comprised of disinterested directors); (ii) reasonable fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees, consultants or agents of the Company or any Restricted Subsidiary as determined in good faith by the Company's Board of Directors or senior management; (iii) consulting fees paid by the Company consistent with past practice; (iv) transactions exclusively between or among the Company and any of the Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries, PROVIDED such transactions are not otherwise prohibited by this Indenture; and (v) Restricted Payments or Permitted Investments permitted by this Indenture. 76 SECTION 4.19. ISSUANCE OF SUBSIDIARY GUARANTEES. If (a) any Domestic Wholly Owned Restricted Subsidiary incurs any Indebtedness (other than Indebtedness owing to the Company or a Restricted Subsidiary) or (b) any Restricted Subsidiary (including any Foreign Restricted Subsidiary) guarantees any Indebtedness (other than Indebtedness owing to the Company or a Restricted Subsidiary) of the Company or any of its Restricted Subsidiaries (other than a Subsidiary of such Restricted Subsidiary) then, in either case, the Company shall cause such Domestic Wholly Owned Restricted Subsidiary or such Restricted Subsidiary, as the case may be, to (i) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Domestic Wholly Owned Restricted Subsidiary or such Restricted Subsidiary, as the case may be, shall unconditionally guarantee (each, a "Guarantee") all of the Company's obligations under the Securities and this Indenture on the terms set forth in Article Ten and (ii) deliver to the Trustee an Opinion of Counsel (which may contain customary exceptions) that such supplemental indenture has been duly authorized, executed and delivered by such Domestic Wholly Owned Restricted Subsidiary or such Restricted Subsidiary, as the case may be, and constitutes a legal, valid, binding and enforceable obligation of such Domestic Wholly Owned Restricted Subsidiary or such Restricted Subsidiary, as the case may be. Thereafter, such Domestic Wholly Owned Restricted Subsidiary or such Restricted Subsidiary, as the case may be, shall be a Guarantor for all purposes of this Indenture. The Company may cause any other Restricted Subsidiary of the Company to issue a Guarantee and become a Guarantor. SECTION 4.20. [INTENTIONALLY OMITTED]. SECTION 4.21. CONDUCT OF BUSINESS. The Company will not, and will not permit any Restricted Subsidiary to, engage in any businesses which are not either (i) the same, similar or related to the businesses in which the Company and the Restricted Subsidiaries are 77 engaged on the Issue Date, (ii) Permitted Investments or (iii) businesses acquired through an acquisition after the Issue Date which are not material to the Company and the Restricted Subsidiaries, taken as a whole. SECTION 4.22. PAYMENTS FOR CONSENT. The Company will not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Securities for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture, the Securities or the Guarantees unless such consideration is offered to be paid to all Holders of the Securities who so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. SECTION 4.23. LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. The Company may designate any Subsidiary of the Company (other than a Subsidiary of the Company which owns Capital Stock of a Restricted Subsidiary) as an "Unrestricted Subsidiary" under this Indenture (a "Designation") only if: (a) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; and (b) the Company would be permitted under this Indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to the sum of (i) the fair market value of the Capital Stock of such Subsidiary owned by the Company and/or any of the Restricted Subsidiaries on such date and (ii) the aggregate amount of Indebtedness of such Subsidiary owed to the Company and the Restricted Subsidiaries on such date; and 78 (c) the Company would be permitted to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.03 hereof at the time of Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment in the Designation Amount pursuant to Section 4.04 hereof for all purposes of this Indenture. The Company shall not, and shall not permit any Restricted Subsidiary to, at any time (x) provide direct or indirect credit support for or a guarantee of any Indebtedness of any Unrestricted Subsidiary (including any undertaking agreement or instrument evidencing such Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly liable for any Indebtedness which provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the extent permitted under Section 4.04 hereof. The Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary ("Revocation"), whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if (a) no Default shall have occurred and be continuing at the time and after giving effect to such Revocation; and (b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of this Indenture. 79 All Designations and Revocations must be evidenced by an Officers' Certificate of the Company delivered to the Trustee certifying compliance with the foregoing provisions. SECTION 4.24. CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, the Company shall within 30 days of the Change of Control either (i) repay in full and terminate all commitments under all Indebtedness under the Credit Agreement and all other Senior Debt the terms of which require repayment upon a Change of Control or offer to repay in full and terminate all commitments under all Indebtedness under the Credit Agreement and all other such Senior Debt and to repay the Indebtedness owed to each lender which has accepted such offer or (ii) obtain the requisite consents under the Credit Agreement and all other Senior Debt to permit the repurchase of the Securities as provided below. After the Company complies with the covenant in the immediately preceding sentence, the Company shall make an offer to purchase (a "Change of Control Offer"), and shall purchase, on a Business Day not more than 60 nor less than 30 days following the occurrence of the Change of Control (the "Change of Control Payment Date"), all of the then outstanding Securities at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the Change of Control Payment Date. The Change of Control Offer shall remain open for 20 Business Days (or such longer period as may be required by law) and until the close of business on the Change of Control Payment Date. (b) Within 30 days following the date upon which the Change of Control occurred (the "Change of Control Date"), the Company shall mail, or cause to be mailed, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. The notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Change of Control Offer. Such notice shall state: 80 (1) that the Change of Control Offer is being made pursuant to this Section 4.24 and that all Securities tendered and not withdrawn will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the Change of Control Payment Date; (3) that any Security not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to a Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the Business Day prior to the Change of Control Payment Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Securities purchased; (7) that Holders whose Securities are purchased only in part will be issued new Securities in a principal amount equal to the unpurchased portion of the Securities surrendered; and (8) the circumstances and relevant facts regarding such Change of Control. 81 On or before the Change of Control Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent in accordance with Section 2.14 U.S. Legal Tender sufficient to pay the purchase price plus accrued interest, if any, of all Securities so tendered and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof being purchased by the Company. Upon receipt by the Paying Agent of the monies specified in clause (ii) above and a copy of the Officers' Certificate specified in clause (iii) above, the Paying Agent shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price plus accrued interest, if any, and the Trustee shall promptly authenticate and mail to such Holders new Securities equal in principal amount to any unpurchased portion of the Securities surrendered. Any Securities not so accepted shall be promptly mailed by the Company to the Holder thereof. For purposes of this Section 4.24, the Trustee shall act as the Paying Agent. Any amounts remaining after the purchase of all validly tendered and not validly withdrawn Securities pursuant to a Change of Control Offer shall be returned by the Trustee to the Company. The Company shall and shall cause its Subsidiaries to comply with all tender offer rules under state and Federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. To the extent that the provisions of any securities laws or regulations conflict with this Section 4.24, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.24 by virtue thereof. 82 ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. (a) The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (i) either (1) the Company shall be the surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and the Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture (in form and substance reasonably satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Securities and the performance of every covenant of the Securities, this Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.03 hereof; 83 (iii) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. (b) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. (c) No Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and this Indenture in connection with any transaction complying with the provisions of Section 4.12 will, and the Company will not cause or permit any Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Guarantor unless: (i) the entity formed by or surviving any such consolidation or merger (if other than the Guarantor) is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) such entity assumes by supplemental indenture all of the obligations of the Guarantor under this Indenture, such Guarantor's Guarantee and the Registration Rights Agreement; (iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred 84 and be continuing; (iv) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a PRO FORMA basis, the Company could satisfy the provisions of clause (a)(ii) of this Section 5.01; and (v) the Company shall have delivered to the Trustee an Officers' Certificate and Opinion of Counsel, each stating that such consolidation or merger and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. In accordance with the foregoing, upon any such consolidation, merger, conveyance, lease or transfer of all or substantially all of the assets of the Company in which the Company is not the continuing corporation, the Surviving Entity formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Securities with the same effect as if such successor had been named as the Company herein, and thereafter the predecessor corporation will be relieved of all further obligations and covenants under this Indenture, the Securities and the Registration Rights Agreement; PROVIDED that solely for purposes of computing amounts described in subclause (iii) of Section 4.04, any such Surviving Entity shall only be deemed to have succeeded to and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. 85 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if: (1) the Company fails to pay interest on any Security for a period of 30 days after the same becomes due and payable (whether or not such payment shall be prohibited by Article Twelve); or (2) the Company fails to pay the principal of any Security, when such principal becomes due and payable, whether at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Securities tendered pursuant to a Change of Control Offer or Net Proceeds Offer) (whether or not such payment shall be prohibited by Article Twelve); or (3) the Company or any Guarantor defaults in the observance or performance of any other covenant or agreement contained in this Indenture, the Securities or any Guarantee, which default continues for a period of 60 days after (x) the Company receives written notice specifying the default and requiring the Company to remedy the same from the Trustee or (y) the Company and the Trustee receive such a notice from Holders of at least 25% in principal amount of outstanding Securities (except in the case of a default with respect to Article Five, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); or (4) the Company or a Restricted Subsidiary defaults under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or of any Restricted Subsidiary (or the payment of which is 86 guaranteed by the Company or any Restricted Subsidiary) which default (a) is caused by a failure to pay principal of such Indebtedness after any applicable grace period provided in such Indebtedness on the date of such default (a "principal payment default"), or (b) results in the acceleration of such Indebtedness prior to its express maturity (and such acceleration is not rescinded, or such Indebtedness is not repaid, within 30 days) and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a principal payment default or the maturity of which has been so accelerated (and such acceleration is not rescinded, or such Indebtedness is not repaid, within 30 days), aggregates $7.5 million; or (5) the Company or any of its Restricted Subsidiaries (A) admits in writing its inability to pay its debts generally as they become due, (B) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (C) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (D) consents to the appointment of a Custodian of it or for substantially all of its property, (E) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (F) makes a general assignment for the benefit of its creditors, or (G) takes any corporate action to authorize or effect any of the foregoing; or (6) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company or any of its Significant Subsidiaries in an involuntary case or proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company or any of its Significant Subsidiaries, (B) appoint a Custodian of the Company or any of its Significant Subsidiaries or for substantially all of any of their property or (C) order 87 the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (7) one or more judgments, orders or decrees of any court or regulatory or administrative agency of competent jurisdiction for the payment of money in excess of $7.5 million not covered by adequate insurance, either individually or in the aggregate, shall be entered against the Company or any Restricted Subsidiary of the Company or any of their respective properties and shall not be discharged or fully bonded and there shall have been a period of 60 days after the date on which any period for appeal has expired and during which a stay of enforcement of such judgment, order or decree shall not be in effect; or (8) any Guarantee of a Guarantor ceases to be in full force and effect, or any Guarantee of a Guarantor is declared to be null and void and unenforceable or any Guarantee of a Guarantor is found to be invalid or any Guarantor denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of this Indenture). The Trustee shall, within 30 days after the occurrence of any Default actually known to a Responsible Officer of the Trustee, give to the holders of Securities notice of such Default; PROVIDED that, except in the case of a Default in the payment of principal of or interest on any of the Securities, the Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders of Securities. SECTION 6.02. ACCELERATION. If an Event of Default (other than an Event of Default specified in clause (5) or (6) above) occurs and is continuing, then the Trustee or the Holders of not less than 25% in aggregate principal amount of the then outstanding 88 Securities may declare the unpaid principal of, premium, if any, and accrued and unpaid interest on, all the Securities then outstanding to be immediately due and payable, by a notice in writing to the Company (and to the Trustee, if given by Holders) specifying the respective Event(s) of Default and that it is a "notice of acceleration" and upon such declaration such principal amount, premium, if any, and accrued and unpaid interest will become immediately due and payable. If an Event of Default specified in clause (5) or (6) above occurs and is continuing, all unpaid principal of, and premium, if any, and accrued and unpaid interest on, the Securities then outstanding will IPSO FACTO become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after a declaration of acceleration with respect to the Securities as described in the preceding paragraph, the Holders of a majority in principal amount of the then outstanding Securities may rescind and cancel such declaration and its consequences (a) if the rescission would not conflict with any judgment or decree, (b) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (c) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (d) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its reasonable expenses, disbursements and advances and (e) in the event of the cure or waiver of an Event of Default of the type described in clauses (5) and (6) of the description of Events of Default above, the Trustee shall have received an Officers' Certificate and an Opinion of Counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or 89 in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities, this Indenture or any Guarantee. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. Subject to Sections 6.02, 6.07 and 9.02, the Holders of not less than a majority in principal amount of the then outstanding Securities by written notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of, premium or interest on any Security as specified in clauses (1) and (2) of Section 6.01. The Company shall deliver to the Trustee an Officers' Certificate stating that the requisite percentage of Holders have consented to such waiver and attaching copies of such consents upon which the Trustee may conclusively rely. When a Default or Event of Default is waived, it is cured and ceases. SECTION 6.05. CONTROL BY MAJORITY. The Holders of not less than a majority in principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. Subject to Section 7.01, however, the Trustee may refuse to follow any direction that conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Securityholder, or that may involve the Trustee in personal liability; PROVIDED that 90 the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. In the event the Trustee takes any action or follows any direction pursuant to this Indenture, the Trustee shall be entitled to indemnification from the Company satisfactory to it in its sole discretion against any fees, loss, liability, cost or expense caused by taking such action or following such direction. SECTION 6.06. LIMITATION ON SUITS. A Securityholder may not pursue any remedy with respect to this Indenture, the Securities or any Guarantee unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holder or Holders of at least 25% in principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 30 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (5) during such 30-day period the Holder or Holders of a majority in principal amount of the outstanding Securities do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder. 91 SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of, premium and interest on a Security, on or after the respective due dates expressed in such Security, 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 the Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default in payment of principal, premium or interest specified in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, legal fees, disbursements and advances of the Trustee, its agents, nominees, custodians, counsel, accountants and experts) and the Securityholders allowed in any judicial proceedings relating to the Company, its creditors or its property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Securityholder to make such payments to the Trustee and, in the event that the Trustee shall consent 92 to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, legal fees, disbursements and advances of the Trustee, its agents, nominees, custodians and counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money or property pursuant to this Article Six, it shall pay out the money or property in the following order: First: to the Trustee for amounts owing under Section 7.07; Second: if the Holders are forced to proceed against the Company, a Guarantor or any other obligor on the Securities directly without the Trustee, to Holders for their collection costs; Third: to Holders for amounts due and unpaid on the Securities for principal, premium and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, premium and interest, respectively; and Fourth: to the Company or any Guarantors, as their respective interests may appear. The Trustee, upon prior notice to the Company, may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. 93 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 6.07, or a suit by a Holder or Holders of more than 10% in principal amount of the outstanding Securities. ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee. (a) If an Event of Default actually known to a Responsible Officer of the Trustee has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. Subject to such provisions, the Trustee shall be under no obligation to exercise any of its rights or powers under this Indenture at the request of any of the holders of Securities, unless they shall have offered to the Trustee security and indemnity satisfactory to it in its sole discretion. (b) Except during the continuance of an Event of Default actually known to a Responsible Officer of the Trustee: (1) The Trustee need perform only those duties as are specifically set forth herein and no others and no 94 implied covenants or obligations shall be read into this Indenture against the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions and such other documents delivered to it pursuant to Section 11.04 hereof furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions 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: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Trustee, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or to take or omit to take any action under this Indenture or take any action at the request or direction of Holders if it shall have reasonable grounds for believing that repayment of such funds is not assured to it or it does not receive an indemnity satisfactory to it in its sole discretion against such risk, liability, loss, fee or expense which might be incurred by it in compliance with such request or direction. 95 (e) Every provision of this Indenture that in any way relates to the Trustee is subject to this Section 7.01. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. RIGHTS OF TRUSTEE. Subject to Section 7.01: (a) The Trustee may conclusively rely and shall be protected in acting or refraining from acting 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 and an Opinion of Counsel, which shall conform to the provisions of Section 11.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may act through its attorneys, agents, custodians and nominees and shall not be responsible for the misconduct or negligence of any attorney, agent, custodian or nominee (other than such a person who is an employee of the Trustee) appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. (e) The Trustee may consult with counsel and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection 96 from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (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, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the fees, costs, expenses and liabilities which may be incurred therein or thereby. (g) Except with respect to Section 4.01, the Trustee shall not have any duty as to inquire as to the performance by the Company of its covenants or obligations under this Indenture. The Trustee shall not be deemed to have notice or any knowledge of any matter (including without limitation defaults or events of default) unless a Responsible Officer assigned to and working in the Trustee's Corporate Trust Administration has actual knowledge thereof or unless written notice thereof is received by the Trustee, attention: Corporate Trust Administration and such notice references the Securities generally, the Company or this Indenture. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries, any Guarantors and their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the 97 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 any document issued in connection with the sale of Securities (including without limitation any preliminary or final offering memorandum) or any statement in the Securities other than the Trustee's certificate of authentication. The Trustee makes no representations with respect to the effectiveness or adequacy of this Indenture. The Trustee shall not be responsible for independently ascertaining or maintaining such validity, if any, and shall be fully protected in relying upon certificates and opinions delivered to it in accordance with the terms of this Indenture. SECTION 7.05. NOTICE OF DEFAULT. If a Default or an Event of Default occurs and is continuing and a Responsible Officer of the Trustee receives actual notice of such event, the Trustee shall mail to each Securityholder, as their names and addresses appear on the Securityholder list described in Section 2.05, notice of the uncured Default or Event of Default within 30 days after the Trustee receives such notice. Except in the case of a Default or an Event of Default in payment of principal of, premium or interest on, any Security, including the failure to make payment on (i) the Change of Control Payment Date pursuant to a Change of Control Offer or (ii) the Excess Proceeds Offer Payment Date pursuant to an Excess Proceeds Offer, the Trustee may withhold the notice if and so long as the board of directors, the executive committee, or a trust committee of directors, of the Trustee in good faith determines that withholding the notice is in the interest of the Securityholders. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. This Section 7.06 shall not be operative as a part of this Indenture until this Indenture is qualified under the TIA, and, until such qualification, this Indenture shall be construed as if this Section 7.06 were not contained herein. 98 Within 60 days after each May 15 of each year beginning with 1999, the Trustee shall, to the extent that any of the events described in TIA ss. 313(a) occurred within the previous twelve months, but not otherwise, mail to each Securityholder a brief report dated as of such date that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss.ss. 313(b), 313(c) and 313(d). A copy of each report at the time of its mailing to Securityholders shall be mailed to the Company and filed with the SEC and each securities exchange, if any, on which the Securities are listed. The Company shall notify a Responsible Officer of the Trustee if the Securities become listed on any securities exchange or of any delisting thereof. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances (including reasonable fees and expenses of counsel) incurred or made by it in addition to the compensation for its services, except any such disbursements, expenses and advances as may be attributable to the Trustee's negligence or bad faith. Such expenses shall include the reasonable compensation, legal fees, disbursements and expenses of the Trustee's agents, accountants, experts, nominees, custodians and counsel and any taxes or other expenses incurred by a trust created pursuant to Section 8.01 hereof. The Company shall indemnify the Trustee, its directors, officers and employees and each predecessor trustee for, and hold it harmless against, any loss, liability or expense incurred by the Trustee without negligence or bad faith on its part arising out of or in connection with the administration of this trust and its duties under this 99 Indenture, including the reasonable expenses and attorneys' fees of defending itself against any claim of liability arising hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. However, the failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense (and may employ its own counsel) at the Company's expense. The Company need not pay for any settlement made without its written consent, which consent shall not be unreasonably withheld or delayed. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee as a result of the violation of this Indenture by the Trustee if such violation arose from the Trustee's negligence or bad faith. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a senior claim and lien prior to the Securities against all money or property held or collected by the Trustee, in its capacity as Trustee. When the Trustee incurs expenses or renders services after an Event of Default specified in clause (5) or (6) of Section 6.01 occurs, the expenses (including the reasonable fees and expenses of its agents and counsel) and the compensation for the services shall be preferred over the status of the Holders in a proceeding under any Bankruptcy Law and are intended to constitute expenses of administration under any Bankruptcy Law. The Company's obligations under this Section 7.07 and any claim arising hereunder shall survive the resignation or removal of any Trustee, the discharge of the Company's obligations pursuant to Article Eight and any rejection or termination under any Bankruptcy Law. SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any time by so notifying the Company in writing. The Holders of a majority in principal amount of the outstanding Securities may remove the Trustee by so notifying the Company and the Trustee in writing and may 100 appoint a successor trustee with the Company's consent. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes legally incapable of acting with respect to its duties hereunder. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer, after payment of all sums then owing to the Trustee pursuant to Section 7.07, all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture; PROVIDED, HOWEVER, that no Trustee under this Indenture shall be liable for any act or omission of any successor Trustee. A successor Trustee shall mail notice of its succession to each Securityholder. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Securities may petition any 101 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 replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee and the Company shall pay to any such replaced or removed Trustee all amounts owed under Section 7.07 upon such replacement or removal. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. This Indenture shall always have a Trustee who satisfies the requirement of TIA ss.ss. 310(a)(1) and 310(a)(5). The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA ss. 310(b); PROVIDED, HOWEVER, that there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company 102 are outstanding, if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee, in its capacity as Trustee hereunder, shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated. ARTICLE EIGHT SATISFACTION AND DISCHARGE OF INDENTURE SECTION 8.01. LEGAL DEFEASANCE AND COVENANT DEFEASANCE. (a) The Company may, at its option by Board Resolution, at any time, with respect to the Securities, elect to have either paragraph (b) or paragraph (c) below be applied to the outstanding Securities upon compliance with the conditions set forth in paragraph (d). (b) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (b), the Company shall be deemed to have been released and discharged from its obligations with respect to the outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of the Sections and matters under this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned, except for the following, which shall survive until otherwise terminated or discharged hereunder: (i) the rights of the Holders of outstanding Securities to receive payment in respect 103 of the principal of, premium, if any, and interest on such Securities when such payments are due, (ii) the Company's obligations to issue temporary Securities, register the transfer or exchange of any Securities, replace mutilated, destroyed, lost or stolen Securities and maintain an office or agency for payments in respect of the Securities, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv) the Legal Defeasance provisions of this Indenture. The Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) below with respect to the Securities. (c) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (c), the Company shall be released and discharged from its obligations under any covenant contained in Article Five and in Sections 4.03 through 4.24 with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Securities shall thereafter be deemed to be not "outstanding" for the purpose of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder. For this purpose, such Covenant Defeasance means that, with respect to the outstanding Securities, the Company and any Guarantor may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01(3), nor shall any event referred to in Section 6.01(4) or (7) thereafter constitute a Default or an Event of Default thereunder but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. (d) The following shall be the conditions to application of either paragraph (b) or paragraph (c) above to the outstanding Securities: 104 (1) The Company shall have irrevocably deposited in trust with the Trustee, pursuant to an irrevocable trust and security agreement in form and substance reasonably satisfactory to the Trustee, U.S. Legal Tender or direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged ("U.S. Government Obligations") maturing as to principal and interest in such amounts and at such times as are sufficient, without consideration of the reinvestment of such interest and principal and after payment of all Federal, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of Independent public accountants expressed in a written certification thereof (in form and substance reasonably satisfactory to the Trustee) delivered to the Trustee, to pay the principal of, premium, if any, and interest on all the outstanding Securities on the dates on which any such payments are due and payable in accordance with the terms of this Indenture and of the Securities; (2) Such deposits shall not cause the Trustee to have a conflicting interest as defined in and for purposes of the TIA; (3) The Trustee shall have received Officers' Certificates stating that no Default or Event of Default or event which with notice or lapse of time or both would become a Default or an Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit or, insofar as Section 6.01(5) or (6) is concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (4) The Trustee shall have received Officers' Certificates stating that such deposit will not result in a Default under this Indenture or a breach or violation 105 of, or constitute a default under, any other material instrument or agreement to which the Company or any of its Subsidiaries is a party or by which it or its property is bound; (5) (i) In the event the Company elects paragraph (b) hereof, the Company shall deliver to the Trustee an Opinion of Counsel, in form and substance reasonably satisfactory to the Trustee to the effect that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date, 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 state that Holders of the Securities will not recognize income gain or loss for Federal income tax purposes as a result of such deposit and the defeasance contemplated hereby and will be subject to Federal income taxes in the same manner and at the same times as would have been the case of such deposit and defeasance had not occurred, or (ii) in the event the Company elects paragraph (c) hereof, the Company shall deliver to the Trustee an Opinion of Counsel, in form and substance reasonably satisfactory to the Trustee, to the effect that, Holders of the Securities will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and the defeasance contemplated hereby and will be subject to Federal income tax in the same amounts and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (6) The Company shall have delivered to the Trustee an Opinion of Counsel stating that as a result of the Legal Defeasance or Covenant Defeasance, neither the Trustee nor the trust have become or are deemed to have become an "investment company" under the Investment Company Act of 1940, as amended; (7) The Company shall have delivered to the Trustee an Officers' Certificate, in form and substance reasonably satisfactory to the Trustee, stating that the deposit 106 under clause (1) was not made by the Company, a Guarantor or any Subsidiary of the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company, a Guarantor, or any Subsidiary of the Company or others; (8) The Company shall have delivered to the Trustee an Opinion of Counsel, in form and substance reasonably satisfactory to the Trustee, to the effect that, (A) the trust funds will not be subject to the rights of holders of Indebtedness of the Company or any Guarantor other than the Securities and (B) assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the deposit and that no Holder of Securities is an insider of the Company, after the passage of 90 days following the deposit, the trust funds will not be subject to any applicable bankruptcy, insolvency, reorganization or similar law affecting creditors' rights generally; (9) The Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent specified herein relating to the defeasance contemplated by this Section 8.01 have been complied with; PROVIDED, HOWEVER, that no deposit under clause (1) above shall be effective to terminate the obligations of the Company under the Securities or this Indenture prior to 90 days following any such deposit; and (10) The Company shall have paid all amounts owing to the Trustee pursuant to Section 7.07. Notwithstanding the foregoing, the Opinion of Counsel required by paragraph (5) above need not be delivered if all Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, (ii) will become due and payable on the maturity date for the securities within one year, or (iii) 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. 107 In the event all or any portion of the Securities are to be redeemed through such irrevocable trust, the Company must make arrangements satisfactory to the Trustee, at the time of such deposit, for the giving of the notice of such redemption or redemptions by the Trustee in the name and at the expense of the Company. SECTION 8.02. SATISFACTION AND DISCHARGE. In addition to the Company's rights under Section 8.01, the Company may terminate all of its obligations under this Indenture (subject to Section 8.03) when: (1) all Securities theretofore authenticated and delivered (other than Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.07) have been delivered to the Trustee for cancellation; or (2) all Securities not theretofore delivered to the Trustee for cancellation (except lost, stolen or destroyed Securities which have been replaced or paid) have been called for redemption pursuant to the terms of the Securities or have otherwise become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Securities not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Securities to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; and (3) the Company has paid or caused to be paid all other sums payable hereunder and under the Securities by the Company; and (4) there exists no Default or Event of Default under this Indenture; and 108 (5) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent specified herein relating to the satisfaction and discharge of this Indenture have been complied with; and (6) the Company shall have paid all amounts owing to the Trustee pursuant to Section 7.07. SECTION 8.03. SURVIVAL OF CERTAIN OBLIGATIONS. Notwithstanding the satisfaction and discharge of this Indenture and of the Securities referred to in Section 8.01 or 8.02, the respective obligations of the Company and the Trustee under Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.12, 2.13, 4.01, 4.02 and 6.07, Article Seven and Sections 8.05, 8.06 and 8.07 shall survive until the Securities are no longer outstanding, and thereafter the obligations of the Company and the Trustee under Sections 7.07, 8.05, 8.06 and 8.07 shall survive. Nothing contained in this Article Eight shall abrogate any of the rights, obligations or duties of the Trustee under this Indenture. SECTION 8.04. ACKNOWLEDGMENT OF DISCHARGE BY TRUSTEE. Subject to Section 8.07, after (i) the conditions of Section 8.01 or 8.02 have been satisfied, (ii) the Company has paid or caused to be paid all other sums payable hereunder by the Company, and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent referred to in clause (i) above relating to the satisfaction and discharge of this Indenture have been complied with, the Trustee upon written request shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified in Section 8.03. SECTION 8.05. APPLICATION OF TRUST ASSETS. The Trustee shall hold any U.S. Legal Tender or U.S. Government Obligations deposited with it in the irrevocable 109 trust established pursuant to Section 8.01. The Trustee shall apply the deposited U.S. Legal Tender or the U.S. Government Obligations, together with earnings thereon, through the Paying Agent, in accordance with this Indenture and the terms of the irrevocable trust agreement established pursuant to Section 8.01, to the payment of principal of and interest on the Securities. The U.S. Legal Tender or U.S. Government Obligations so held in trust and deposited with the Trustee in compliance with Section 8.01 shall not be part of the trust estate under this Indenture, but shall constitute a separate trust fund for the benefit of all Holders entitled thereto. SECTION 8.06. REPAYMENT TO THE COMPANY OR GUARANTORS; UNCLAIMED MONEY. Subject to Sections 7.07 and 8.01, the Trustee shall promptly pay to the Company, or if deposited with the Trustee by any Guarantor, to such Guarantor, upon receipt by the Trustee of an Officers' Certificate, any excess money, determined in accordance with Section 8.01, held by it at any time. The Trustee and the Paying Agent shall pay to the Company or any Guarantor, as the case may be, upon receipt by the Trustee or the Paying Agent, as the case may be, of an Officers' Certificate, any money held by it for the payment of principal, premium, if any, or interest that remains unclaimed for two years after payment to the Holders is required; PROVIDED, HOWEVER, that the Trustee and the Paying Agent before being required to make any payment may, but need not, at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein (which shall not be less than 30 days from the date of such mailing or publication and shall be at least two years after the date such money held by the Trustee for the payment of principal, premium, if any, or interest remains unclaimed), any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company or any Guarantor, as the case may be, Securityholders entitled to such money must look solely to the Company for payment as general creditors unless an applicable abandoned property law designates another 110 Person, and all liability of the Trustee or Paying Agent with respect to such money shall thereupon cease. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Indenture 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, then and only then the Company's and each Guarantor's, if any, obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had been made pursuant to this Indenture until such time as the Trustee is permitted to apply all such money or U.S. Government Obligations in accordance with this Indenture; PROVIDED, HOWEVER, that if the Company or the Guarantors, as the case may be, have made any payment of principal of, premium, if any, or interest on any Securities because of the reinstatement of their obligations, the Company or the Guarantors, as the case may be, shall be subrogated to the rights of the holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and any Guarantors (when authorized by Board Resolutions), and the Trustee, together, may amend or supplement this Indenture or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, defect or inconsistency; (2) to evidence the succession in accordance with Article Five hereof of another Person to the Company or a Guarantor and the assumption by any such successor of the 111 covenants of the Company or a Guarantor herein and in the Securities or a Guarantee, as the case may be; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; (4) to make any other change that does not materially adversely affect the rights of any Securityholders hereunder; (5) to comply with any requirements of the SEC in connection with the qualification of this Indenture under the TIA; or (6) to add or release any Guarantor pursuant to the terms of this Indenture; PROVIDED that each of the Company and any Guarantors has delivered to the Trustee an Opinion of Counsel and an Officers' Certificate, each stating that such amendment or supplement complies with the provisions of this Section 9.01. SECTION 9.02. WITH CONSENT OF HOLDERS. Subject to Section 6.07, the Company and any Guarantors (when authorized by Board Resolutions) and the Trustee, together, with the written consent of the Holder or Holders of at least a majority in aggregate principal amount of the then outstanding Securities, may amend or supplement this Indenture, the Securities and any Guarantees without notice to any other Securityholders. Subject to Section 6.07, the Holder or Holders of a majority in aggregate principal amount of the then outstanding Securities may waive compliance by the Company with any provision of this Indenture or the Securities without notice to any other Securityholder. Without the consent of each Securityholder affected, however, no amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may: (1) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver of any provision of this Indenture, the Securities or any Guarantees; 112 (2) reduce the rate or change or have the effect of changing the time for payment of interest, including default interest, on any Security; (3) reduce the principal amount of any Security; (4) change or have the effect of changing the Final Maturity Date of any Security, or alter the redemption or repurchase provisions contained in this Indenture or the Securities in a manner adverse to any Holder; (5) make any change in provisions of this Indenture protecting the right of each Holder to receive payment of principal of and interest on such Security on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of the then outstanding Securities to waive Defaults or Events of Default; (6) make any changes in Section 6.04, 6.07 or this Section 9.02; (7) make the principal of, premium or the interest on any Security payable in money other than as provided for in this Indenture as in effect on the date hereof; (8) affect the ranking of the Securities or any Guarantee, in each case in a manner adverse to the Holders; (9) amend, modify or change the obligation of the Company to make or consummate a Change of Control Offer after the occurrence of a Change of Control or make or consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or waive any default in the performance thereof or modify any of the provisions or definitions with respect to any such offers; (10) release any Guarantor from any of its obligations under its Guarantee or this Indenture otherwise than in accordance with the terms of this Indenture; or 113 (11) modify the provisions of Section 4.22 in any manner adverse to a Holder of Notes. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 9.03. COMPLIANCE WITH TIA. From the date on which this Indenture is qualified under the TIA, every amendment, waiver or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of his Security by notice to the Trustee or the Company received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled 114 to consent to any amendment, supplement or waiver. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder, unless it makes a change described in any of clauses (1) through (10) of Section 9.02, in which case, the amendment, supplement or waiver shall bind only each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; PROVIDED that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; PROVIDED 115 that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate each stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture and constituted the legal, valid and binding obligations of the Company enforceable in accordance with its terms. Such Opinion of Counsel shall be at the expense of the Company, and the Trustee shall have a lien under Section 7.07 for any such expense. ARTICLE TEN GUARANTEE SECTION 10.01. UNCONDITIONAL GUARANTEE. Each Guarantor agrees to unconditionally, jointly and severally, guarantee to each Holder of a Security authenticated and delivered by the Trustee, and to the Trustee and its successors and assigns, that: (i) the principal of, premium and interest on the Securities will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest, to the extent lawful, of the Securities and all other Obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Securities or of any such other Obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in 116 Section 10.03. Each Guarantor agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that its Guarantee will not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and each Guarantee. If any Securityholder or the Trustee is required by any court or otherwise to return to the Company, any Guarantor or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by the Company or any Guarantor to the Trustee or such Securityholder, each Guarantee to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor further agrees that, as between each Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Six for the purposes of each Guarantee notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article Six, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of its Guarantee. SECTION 10.02. SEVERABILITY. In case any provision of a Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 117 SECTION 10.03. RELEASE OF A GUARANTOR. If all or substantially all of the assets of any Guarantor or all of the Capital Stock of any Guarantor owned by the Company and/or any of the Restricted Subsidiaries is sold (including by issuance, merger, consolidation or otherwise) by the Company and/or any of the Restricted Subsidiaries in a transaction constituting an Asset Sale, and if the Net Cash Proceeds from such Asset Sale are to be used in accordance with Section 4.12, then such Guarantor (in the event of a sale or other disposition of all of the Capital Stock of such Guarantor) or the corporation or other entity acquiring such assets (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and discharged of its Obligations under its Guarantee. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate and Opinion of Counsel certifying as to the compliance with this Section 10.03. Any Guarantor not so released remains liable for the full amount of principal of and interest on the Securities as provided in this Article Ten. SECTION 10.04. LIMITATION OF A GUARANTOR'S LIABILITY. Each Guarantor and, by its acceptance hereof, each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and each Guarantor irrevocably agree that the obligations of each Guarantor under its Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor, and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee, or pursuant to Section 10.05, result in the obligations of such 118 Guarantor under its Guarantee not constituting such fraudulent transfer or conveyance. SECTION 10.05. CONTRIBUTION. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, INTER SE, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under its Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a PRO RATA amount based on the Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Securities or any other Guarantor's obligations with respect to its Guarantee. "Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under the Guarantee of such Guarantor at such date and (y) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), excluding debt in respect of the Guarantee of such Guarantor, as they become absolute and matured. SECTION 10.06. WAIVER OF SUBROGATION. Until all Guarantee Obligations are paid in full, each Guarantor hereby irrevocably waives any claims or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under its Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Securities against the Company, whether or not such claim, 119 remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Securities shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Securities, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Securities, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 10.06 is knowingly made in contemplation of such benefits. SECTION 10.07. EXECUTION OF GUARANTEES. To evidence its guarantee to the Securityholders set forth in this Article Ten, each Guarantor shall execute a Guarantee in substantially the form of EXHIBIT G attached hereto, which shall be endorsed on each Security ordered to be authenticated and delivered by the Trustee. Each Guarantor agrees that its Guarantee set forth in this Article Ten shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guarantee. Each such Guarantee shall be signed on behalf of each Guarantor by two Officers, or an Officer and an Assistant Secretary or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Guarantee prior to the authentication of the Security on which it is endorsed, and the delivery of such Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such Guarantee on behalf of such Guarantor. Such signatures upon the Guarantee may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Guarantee, and in case any such officer who shall have signed the Guarantee shall cease to be 120 such officer before the Security on which such Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Security nevertheless may be authenticated and delivered or disposed of as though the person who signed the Guarantee had not ceased to be such officer of the Guarantor. SECTION 10.08. WAIVER OF STAY, EXTENSION OR USURY LAWS. Each Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive each such Guarantor from performing its Guarantee as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) each such Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. TIA CONTROLS. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of Section 318(c) of the TIA, the imposed duties shall control. SECTION 11.02. NOTICES. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by 121 telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company or a Guarantor: Simonds Industries Inc. 135 Intervale Road Fitchburg, Massachusetts 01420 Attention: Chief Financial Officer Facsimile: (978) 343-3489 if to the Trustee: State Street Bank and Trust Company Two International Place Fourth Floor Boston, Massachusetts 02110 Attention: Corporate Trust Department Facsimile: (617) 664-5151 Each of the Company and the Trustee by written notice to each other such person may designate additional or different addresses for notices to such person. Any notice or communication to the Company or a Guarantor or the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Securityholder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. 122 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 11.03. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS. Securityholders may communicate pursuant to TIA ss. 312(b) with other Securityholders with respect to their rights under this Indenture, the Securities or any Guarantees. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA ss. 312(c). SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee at the request of the Trustee: (1) an Officers' Certificate, in form and substance 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 (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.08, shall include: 123 (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, 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 (4) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; PROVIDED, HOWEVER, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 11.06. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR. The Trustee, Paying Agent or Registrar may make reasonable rules for its functions. SECTION 11.07. LEGAL HOLIDAYS. If a payment date is not a Business Day, payment may be made on the next succeeding day that is a Business Day with the same force and effect as if made on such payment date. SECTION 11.08. GOVERNING LAW. THIS INDENTURE, THE SECURITIES AND ANY GUARANTEES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture. 124 SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret another indenture, loan or debt agreement of any of the Company or any of its Subsidiaries or any Guarantor. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.10. NO RECOURSE AGAINST OTHERS. A director, officer, employee, stockholder or incorporator, as such, of the Company or any of its Subsidiaries or any Guarantor shall not have any liability for any obligations of the Company or any Guarantor under the Securities, this Indenture or any Guarantee or for any claim based on, in respect of or by reason of such obligations or their creations. Each Securityholder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. SECTION 11.11. SUCCESSORS. All agreements of the Company and any Guarantors in this Indenture, the Securities and any Guarantees shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 11.12. DUPLICATE ORIGINALS. All parties may sign any number of copies of this Indenture. Each signed copy or counterpart shall be an original, but all of them together shall represent the same agreement. SECTION 11.13. SEVERABILITY. In case any one or more of the provisions in this Indenture, in the Securities or in any Guarantee shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining 125 provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. SECTION 11.14. TABLE OF CONTENTS, HEADINGS, ETC. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, and are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. ARTICLE TWELVE SUBORDINATION SECTION 12.01. SECURITIES SUBORDINATED TO SENIOR DEBT; GUARANTEES SUBORDINATED TO GUARANTOR SENIOR DEBT. The Company and each Guarantor covenants and agrees, and each Holder of the Securities, by its acceptance thereof, likewise covenants and agrees, that all Securities and Guarantees shall be issued subject to the provisions of this Article Twelve; and each Person holding any Security, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that the payment of all Obligations on the Securities and Guarantees by the Company and any Guarantors shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment to the prior payment in full in cash or Cash Equivalents (or such payment shall be duly provided for to the satisfaction of the holders of the Senior Debt and Guarantor Senior Debt, as the case may be) of all Obligations on the Senior Debt and Guarantor Senior Debt, as the case may be; that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Senior Debt and Guarantor Senior Debt, as the case may be, and that each holder of Senior Debt and Guarantor Senior Debt, as the case may be, whether now 126 outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Senior Debt and Guarantor Senior Debt, as the case may be, in reliance upon the covenants and provisions contained in this Indenture. SECTION 12.02. NO PAYMENT ON SECURITIES IN CERTAIN CIRCUMSTANCES. (a) If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by declaration or otherwise, of any principal of, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Senior Debt or Guarantor Senior Debt, no payment of any kind or character shall be made by or on behalf of the Company or the applicable Guarantor or any other Person on the Company's or such Guarantor's, as the case may be, behalf with respect to any Obligations on the Securities or the Guarantee of such Guarantor, as the case may be, or to acquire any of the Securities for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt, permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Debt gives written notice of the event of default to the Trustee (a "Default Notice"), then neither the Company nor any other Person on its behalf shall (x) make any payment of any kind or character with respect to any Obligations on the Securities or (y) acquire any of the Securities for cash or property or otherwise for a period of time (the "Blockage Period") terminating on the earliest to occur of (1) the date all events of default on the applicable issue of Designated Senior Debt have been cured or waived or shall have ceased to exist and the Company and the Trustee receive written notice thereof from the Representative for the applicable issue of Designated Senior Debt, (2) the Trustee receives written notice from the Representative for the applicable issue of Designated Senior Debt terminating the Blockage Period or the benefits of this sentence are waived by 127 the Representative for the applicable issue of Designated Senior Debt, (3) the applicable issue of Designated Senior Debt is discharged or paid in full in cash or Cash Equivalents or (4) the expiration of the 180-day consecutive period commencing on the date of the giving of such Default Notice. Upon the termination of such Blockage Period, the Company shall (to the extent not otherwise prohibited by this Article Twelve) promptly resume making all payments on the Securities, including all payments not made during such Blockage Period. Notwithstanding anything herein to the contrary, in no event shall a Blockage Period extend beyond 180 days from the date the payment on the Securities was due and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Debt shall be, or be made, the basis for commencement of a second Blockage Period by the Representative of such Designated Senior Debt, whether or not after a period of 360 consecutive days, unless such event of default shall have been cured or waived or ceased to exit for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions of the Designated Senior Debt under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). (b) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by Section 12.02(a), such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt or Guarantor Senior Debt, as the case may be, (PRO RATA to such holders on the basis of the respective amount of Senior Debt or Guarantor Senior Debt, as the case may be, held by such holders) as their respective interests may appear. The Trustee shall be entitled to conclusively rely on information regarding amounts then due and owing on the Senior Debt or Guarantor 128 Senior Debt, as the case may be, if any, received from the holders of Senior Debt or Guarantor Senior Debt (or their Representatives), as the case may be, or, if such information is not received from such holders or their Representatives, from the Company and only amounts included in the information provided to the Trustee shall be paid to the holders of Senior Debt or Guarantor Senior Debt, as the case may be. The Company shall keep complete and accurate records of the names, addresses and amounts owed to all holders of Senior Debt and Guarantor Senior Debt, shall produce such records to the Trustee upon request and the Trustee shall be absolutely protected in relying on such records in paying over or delivering moneys pursuant to this Article Twelve. Nothing contained in this Article Twelve shall limit or compromise the right of the Trustee or the Holders to take any action to accelerate the maturity of the Securities pursuant to Section 6.02 or to pursue any rights or remedies hereunder or otherwise; PROVIDED, HOWEVER, that all Senior Debt and Guarantor Senior Debt of the applicable Guarantor thereafter due or declared to be due shall first be paid in full in cash or Cash Equivalents before the Holders are entitled to receive any payment of any kind or character with respect to Obligations on the Securities or the Guarantee of the applicable Guarantor, as the case may be. SECTION 12.03. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. (a) Upon any payment or distribution of assets of the Company or a Guarantor of any kind or character, whether in cash, property or securities to creditors upon any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or such Guarantor or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property or such Guarantor or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be, shall first be paid in full in cash or Cash Equivalents, or such payment shall be duly 129 provided for to the satisfaction of the holders of Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be, before any payment or distribution of any kind or character is made on account of any Obligations on the Securities or the Guarantee of such Guarantor, as the case may be, or for the acquisition of any of the Securities for cash or property or otherwise. Upon any such dissolution, winding-up, liquidation, reorganization, receivership or similar proceeding, any payment or distribution of assets of the Company or a Guarantor of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee under this Indenture would be entitled, except for the provisions hereof, shall be paid by the Company or such Guarantor or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them, directly to the holders of Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be (PRO RATA to such holders on the basis of the respective amounts of Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be, held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be, may have been issued, as their respective interests may appear, for application to the payment of Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be, remaining unpaid until all such Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be, has been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be. (b) To the extent any payment of Senior Debt or Guarantor Senior Debt (whether by or on behalf of the Company or a Guarantor, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, 130 fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Debt or Guarantor Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. (c) In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company or a Guarantor of any kind or character, whether in cash, property or securities, shall be received by any Holder when such payment or distribution is prohibited by Section 12.03(a), such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be (PRO RATA to such holders on the basis of the respective amount of Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be, held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be, may have been issued, as their respective interests may appear, for application to the payment of Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be, remaining unpaid until all such Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be, has been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt or Guarantor Senior Debt of such Guarantor, as the case may be. (d) The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its assets, to another corporation upon the terms and conditions provided in Article Five hereof shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if, in the event the Company is not the surviving corporation, such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, 131 assume the Company's obligations hereunder in accordance with Article Five hereof. SECTION 12.04. PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION. Nothing contained in this Article Twelve or elsewhere in this Indenture shall prevent (i) the Company, except under the conditions described in Sections 12.02 and 12.03, from making payments at any time for the purpose of making payments of principal of and interest on the Securities, or from depositing with the Trustee any monies for such payments, or (ii) in the absence of actual knowledge by the Trustee that a given payment would be prohibited by Section 12.02 or 12.03, the application by the Trustee of any monies deposited with it for the purpose of making such payments of principal of, and interest on, the Securities to the Holders entitled thereto unless at least one Business Day prior to the date upon which such payment would otherwise become due and payable, the Trustee shall have received the written notice provided for in Section 12.02(a) or in Section 12.07. The Company shall give prompt written notice to the Trustee of any dissolution, winding-up, liquidation or reorganization of the Company. SECTION 12.05. SUBROGATION. Subject to the payment in full in cash or Cash Equivalents of all Senior Debt and Guarantor Senior Debt, the Holders shall be subrogated to the rights of the holders of Senior Debt and Guarantor Senior Debt to receive payments or distributions of cash, property or securities of the Company and such Guarantor applicable to the Senior Debt and Guarantor Senior Debt until the Securities shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of the Senior Debt and Guarantor Senior Debt by or on behalf of the Company or any Guarantor or by or on behalf of the Holders by virtue of this Article Twelve which otherwise would have been made to the Holders shall, as between the Company or any Guarantor and the Holders, be deemed to be a payment by the Company or any Guarantor to or on account of the Senior Debt or Guarantor Senior Debt, as the 132 case may be, it being understood that the provisions of this Article Twelve are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of the Senior Debt or Guarantor Senior Debt, as the case may be, on the other hand. SECTION 12.06. OBLIGATIONS OF THE COMPANY UNCONDITIONAL. Nothing contained in this Article Twelve or elsewhere in this Indenture or in the Securities or Guarantees is intended to or shall impair, as among the Company, any Guarantor, their respective creditors other than the holders of Senior Debt or Guarantor Senior Debt, and the Holders, the obligation of the Company and any Guarantors, which is absolute and unconditional, to pay to the Holders the principal of and any interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company and any Guarantors other than the holders of any Senior Debt or Guarantor Senior Debt, nor shall anything herein or therein prevent the Holders or the Trustee on their behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Twelve of the holders of Senior Debt or Guarantor Senior Debt in respect of cash, property or securities of the Company or any Guarantor received upon the exercise of any such remedy. SECTION 12.07. NOTICE TO TRUSTEE. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities pursuant to the provisions of this Article Twelve. Regardless of anything to the contrary contained in this Article Twelve or elsewhere in this Indenture, the Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to any Senior Debt or Guarantor Senior Debt or of any other facts which would prohibit the making of any payment to or by the Trustee unless 133 and until the Trustee shall have received notice in writing from the Company, or from a holder of Senior Debt or Guarantor Senior Debt or a Representative therefor, and, prior to the receipt of any such written notice, the Trustee shall be entitled to assume (in the absence of actual knowledge of a Responsible Officer to the contrary) that no such facts exist. In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Debt or Guarantor Senior Debt to participate in any payment or distribution pursuant to this Article Twelve, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amounts of Senior Debt or Guarantor Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Twelve, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such person to receive such payment. SECTION 12.08. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets of the Company or Guarantor referred to in this Article Twelve, the Trustee, subject to the provisions of Article Seven hereof, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or the Holders, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Debt or Guarantor Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Twelve. 134 SECTION 12.09. TRUSTEE'S RELATION TO SENIOR DEBT OR GUARANTOR SENIOR DEBT. The Trustee and any agent of the Company or the Trustee shall be entitled to all the rights set forth in this Article Twelve with respect to any Senior Debt or Guarantor Senior Debt which may at any time be held by it in its individual capacity or any other capacity to the same extent as any other holder of Senior Debt or Guarantor Senior Debt and nothing in this Indenture shall deprive the Trustee or any such agent of any of its rights as such holder. The Trustee shall not be liable to any holder of Senior Debt or Guarantor Senior Debt if it shall mistakenly pay over or deliver to the Holders, the Company or any other Person monies or assets to which any such holder of the Senior Debt or Guarantor Senior Debt shall be entitled by virtue of this Article Twelve. With respect to the holders of Senior Debt or Guarantor Senior Debt, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Twelve, and no implied covenants or obligations with respect to the holders of Senior Debt or Guarantor Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt or Guarantor Senior Debt. Whenever a distribution is to be made or a notice given to holders or owners of Senior Debt or Guarantor Senior Debt, the distribution may be made and the notice may be given to their Representative, if any. SECTION 12.10. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE COMPANY OR A GUARANTOR OR HOLDERS OF SENIOR DEBT. No right of any present or future holders of any Senior Debt or Guarantor Senior Debt to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or a Guarantor or by any act or failure to act, in good 135 faith, by any such holder, or by any noncompliance by the Company or a Guarantor with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt or Guarantor Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee, without incurring responsibility to the Trustee or the Holders and without impairing or releasing the subordination provided in this Article Twelve or the obligations hereunder of the Holders to the holders of the Senior Debt or Guarantor Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt or Guarantor Senior Debt, or otherwise amend or supplement in any manner Senior Debt or Guarantor Senior Debt, or any instrument evidencing or securing the same or any agreement under which Senior Debt or Guarantor Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt or Guarantor Senior Debt; (iii) release any Person liable in any manner for the payment or collection of Senior Debt or Guarantor Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company or a Guarantor or any other Person. SECTION 12.11. HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF SECURITIES. Each Holder by its acceptance of the Securities authorizes and expressly directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate, as between the holders of Senior Debt or Guarantor Senior Debt and the Holders, the subordination provided in this Article Twelve, and appoints the Trustee its attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company or a Guarantor (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards 136 liquidation of the business and assets of the Company or a Guarantor, the filing of a claim for the unpaid balance of its Securities and accrued interest in the form required in those proceedings. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Debt or Guarantor Senior Debt or their Representative are or is hereby authorized to have the right to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Securities. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Debt or Guarantor Senior Debt or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Debt or Guarantor Senior Debt or their Representative to vote in respect of the claim of any Holder in any such proceeding. SECTION 12.12. THIS ARTICLE TWELVE NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a payment on account of principal of or interest on the Securities by reason of any provision of this Article Twelve will not be construed as preventing the occurrence of an Event of Default. SECTION 12.13. TRUSTEE'S COMPENSATION NOT PREJUDICED. Nothing in this Article Twelve will apply to amounts due to the Trustee pursuant to other Sections in this Indenture. 137 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first written above. SIMONDS INDUSTRIES INC. By: ---------------------------------------- Name: Title: ARMSTRONG MANUFACTURING COMPANY By: ---------------------------------------- Name: Title: SIMONDS HOLDING COMPANY, INC. By: ---------------------------------------- Name: Title: SIMONDS INDUSTRIES FSC, INC. By: ---------------------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, as Trustee By: ---------------------------------------- Name: Title: 138 EXHIBIT A [FORM OF SERIES A SECURITY] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES TO PERSONS OTHER THAN U.S. PERSONS IN OFFSHORE TRANSACTIONS MEETING THE REQUIREMENTS OF RULE 904 UNDER REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. A-1 139 SIMONDS INDUSTRIES INC. 10 1/4% Senior Subordinated Notes due July 1, 2008, Series A CUSIP No.: No. [ ] $[ ] SIMONDS INDUSTRIES INC., a Delaware corporation (the "Company", which term includes any successor corporation), for value received promises to pay to Cede & Co. or registered assigns, the principal sum of [ ] Dollars, on July 1, 2008. Interest Payment Dates: January 1 and July 1, commencing January 1, 1999 Record Dates: December 15 and June 15 Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. A-2 140 IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: July 7, 1998 SIMONDS INDUSTRIES INC. By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: A-3 141 This is one of the 10 1/4% Senior Subordinated Notes due 2008, Series A, described in the within-mentioned Indenture. Dated: July 7, 1998 STATE STREET BANK AND TRUST COMPANY, as Trustee By: ---------------------------------------- Name: Title: A-4 142 (REVERSE OF SECURITY) SIMONDS INDUSTRIES INC. 10 1/4% Senior Subordinated Notes due July 1, 2008, Series A 1. INTEREST. SIMONDS INDUSTRIES INC., a Delaware corporation (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 semi-annually on January 1 and July 1 of each year (an "Interest Payment Date"), commencing January 1, 1999. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from July 7, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal from time to time on demand at the rate borne by the Securities plus 2% and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 2. METHOD OF PAYMENT. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Securities are canceled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. A-5 143 3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust Company (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. 4. INDENTURE. The Company issued the Securities under an Indenture, dated as of July 7, 1998 (the "Indenture"), among the Company, the Guarantors and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. 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) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and the TIA for a statement of them. The Securities are limited in aggregate principal amount to $150,000,000. 5. OPTIONAL REDEMPTION. The Securities will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after July 1, 2003 at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on July 1 of the years set forth below, plus, in each case, accrued interest thereon to the date of redemption: Year Percentage ---- ---------- 2003........................................ 105.125% 2004........................................ 103.417% 2005........................................ 101.708% 2006 and thereafter......................... 100.000% A-6 144 6. OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERING. At any time, or from time to time, on or prior to July 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined) to redeem up to 35% of the Securities issued at a redemption price equal to 110.250% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of redemption; PROVIDED that at least 65% of the principal amount of Securities remains outstanding immediately after giving effect to any such redemption. In order to effect the foregoing redemption with the net cash proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 90 days after the consummation of such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of the Company pursuant to a registration statement filed with and declared effective by the SEC in accordance with the Securities Act. 7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. Securities in denominations of $1,000 may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Securities that have denominations larger than $1,000. If any Security is to be redeemed in part only, the notice of redemption that relates to such Security shall state the portion of the principal amount thereof to be redeemed. A new Security in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Security. On and after the Redemption Date, interest will cease to accrue on Securities or portions thereof called for redemption. A-7 145 8. CHANGE OF CONTROL OFFER. Upon the occurrence of a Change of Control, the Company will be required to offer to purchase all of the outstanding Securities at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase. 9. LIMITATION ON DISPOSITION OF ASSETS. The Company is, subject to certain conditions, obligated to make an offer to purchase Securities at 100% of their principal amount plus accrued and unpaid interest to the date of repurchase with certain net cash proceeds of certain sales or other dispositions of assets in accordance with the Indenture. 10. DENOMINATIONS; TRANSFER; EXCHANGE. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption, except the unredeemed portion of any security being redeemed in part. 11. PERSONS DEEMED OWNERS. The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. UNCLAIMED FUNDS. If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Company at its request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. A-8 146 13. LEGAL DEFEASANCE AND COVENANT DEFEASANCE. The Company may be discharged from its obligations under the Indenture and the Securities except for certain provisions thereof, and may be discharged from its obligations to comply with certain covenants contained in the Indenture and the Securities, in each case upon satisfaction of certain conditions specified in the Indenture. 14. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not materially adversely affect the rights of any Holder of a Security. 15. RESTRICTIVE COVENANTS. The Indenture contains certain covenants that, among other things, limit the ability of the Company and certain of its subsidiaries to make restricted payments, to incur indebtedness, to create liens, to issue preferred or other capital stock of subsidiaries, to sell assets, to permit restrictions on dividends and other payments by subsidiaries to the Company, to consolidate, merge or sell all or substantially all of its assets, to engage in transactions with affiliates or to engage in certain businesses. The limitations are subject to a number of important qualifications and exceptions. 16. DEFAULTS AND REMEDIES. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal A-9 147 amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal, premium or interest, including an accelerated payment) if it determines that withholding notice is in their interest. 17. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries, any Guarantor and their respective Affiliates as if it were not the Trustee. 18. NO RECOURSE AGAINST OTHERS. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 19. AUTHENTICATION. This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 20. ABBREVIATIONS AND DEFINED TERMS. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= A-10 148 tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 21. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 22. REGISTRATION RIGHTS. Pursuant to the Registration Rights Agreement, the Company will be obligated upon the occurrence of certain events to consummate an exchange offer pursuant to which the Holder of this Security shall have the right to exchange this Series A Security for the Company's 10 1/4% Senior Subordinated Notes due 2008, Series B (the "Series B Securities"), which have been registered under the Securities Act, in like principal amount and having terms identical in all material respects as the Series A Securities. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 23. SUBORDINATION. The Securities are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Debt of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by his acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on his behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee his attorney-in-fact for such purposes. A-11 149 The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: SIMONDS INDUSTRIES INC., 135 Intervale Road, Fitchburg, Massachusetts 01420, Attention: Chief Financial Officer. A-12 150 GUARANTEE Each undersigned Guarantor (as defined in the Indenture referred to in the Security upon which this notation is endorsed and each referred to as the "Guarantor," which term includes any successor person under the Indenture) unconditionally guarantees on a senior subordinated basis as set forth in Article Twelve of the Indenture (such guarantee by the Guarantor being referred to herein as a "Guarantee") (i) the due and punctual payment of the principal of and interest on the Securities, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Securities, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article Ten of the Indenture and (ii) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. No stockholder, officer, director or incorporator, as such, past, present or future, of the Guarantor shall have any liability under the Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. The Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Securities upon which the Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. ARMSTRONG MANUFACTURING COMPANY By: ---------------------------------------- Name: Title: A-13 151 By: ---------------------------------------- Name: Title: A-14 152 SIMONDS HOLDING COMPANY, INC. By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: SIMONDS INDUSTRIES FSC, INC. By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: A-15 153 ASSIGNMENT FORM I or we assign and transfer this Security to ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee or transferee) ________________________________________________________________________________ (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint ________________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated: _________________ Signed: _________________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee: ___________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor reasonably acceptable to the Trustee) A-16 154 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.12 or Section 4.24 of the Indenture, check the appropriate box: Section 4.12 [ ] Section 4.24 [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.12 or Section 4.24 of the Indenture, state the amount: $_____________ Date: ________________ Your Signature: _______________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ___________________________________________________________ A-17 155 EXHIBIT B [FORM OF SERIES B SECURITY] SIMONDS INDUSTRIES INC. 10 1/4% Senior Subordinated Notes due July 1, 2008, Series B CUSIP No.: [ ] No. [ ] $[ ] SIMONDS INDUSTRIES INC., a Delaware corporation (the "Company", which term includes any successor corporation), for value received promises to pay to Cede & Co. or registered assigns, the principal sum of [ ] Dollars, on July 1, 2008. Interest Payment Dates: January 1 and July 1, commencing January 1, 1999 Record Dates: December 15 and June 15 Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. B-1 156 IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: SIMONDS INDUSTRIES INC. By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: B-2 157 This is one of the 10 1/4% Senior Subordinated Notes due 2008, Series B, described in the within-mentioned Indenture. Dated: STATE STREET BANK AND TRUST COMPANY, as Trustee By: ---------------------------------------- Authorized Signatory B-3 158 (REVERSE OF SECURITY) SIMONDS INDUSTRIES INC. 10 1/4% Senior Subordinated Notes due July 1, 2008, Series B 1. INTEREST. SIMONDS INDUSTRIES INC., a Delaware corporation (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 semi-annually on January 1 and July 1 of each year (an "Interest Payment Date"), commencing January 1, 1999. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from July 7, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal from time to time on demand at the rate borne by the Securities plus 2% and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 2. METHOD OF PAYMENT. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Securities are canceled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust Company (the "Trustee") will act as Paying Agent and Registrar. The Company B-4 159 may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. 4. INDENTURE. The Company issued the Securities under an Indenture, dated as of July 7, 1998 (the "Indenture"), among the Company, the Guarantors and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. 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. secs. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and the TIA for a statement of them. The Securities are limited in aggregate principal amount to $150,000,000. 5. OPTIONAL REDEMPTION. The Securities will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after July 1, 2003 at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on July 1 of the years set forth below, plus, in each case, accrued interest thereon to the date of redemption: Year Percentage ---- ---------- 2003........................................ 105.125% 2004........................................ 103.417% 2005........................................ 101.708% 2006 and thereafter......................... 100.000% 6. OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERING. At any time, or from time to time, on or prior to July 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined) to redeem up to 35% of the Securities issued at a redemption price equal to 110.250% of the principal amount thereof plus accrued B-5 160 and unpaid interest, if any, to the date of redemption; PROVIDED that at least 65% of the principal amount of Securities remains outstanding immediately after giving effect to any such redemption. In order to effect the foregoing redemption with the net cash proceeds of a Public Equity Offering, the Company shall send the redemption notice not later than 90 days after the consummation of such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of the Company pursuant to a registration statement filed with and declared effective by the SEC in accordance with the Securities Act. 7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's registered address. Securities in denominations of $1,000 may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Securities that have denominations larger than $1,000. If any Security is to be redeemed in part only, the notice of redemption that relates to such Security shall state the portion of the principal amount thereof to be redeemed. A new Security in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Security. On and after the Redemption Date, interest will cease to accrue on Securities or portions thereof called for redemption. 8. CHANGE OF CONTROL OFFER. Upon the occurrence of a Change of Control, the Company will be required to offer to purchase all of the outstanding Securities at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase. B-6 161 9. LIMITATION ON DISPOSITION OF ASSETS. The Company is, subject to certain conditions, obligated to make an offer to purchase Securities at 100% of their principal amount plus accrued and unpaid interest to the date of repurchase with certain net cash proceeds of certain sales or other dispositions of assets in accordance with the Indenture. 10. DENOMINATIONS; TRANSFER; EXCHANGE. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption, except the unredeemed portion of any security being redeemed in part. 11. PERSONS DEEMED OWNERS. The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. UNCLAIMED FUNDS. If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Company at its request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. 13. LEGAL DEFEASANCE AND COVENANT DEFEASANCE. The Company may be discharged from its obligations under the Indenture and the Securities except for certain provisions thereof, and may be discharged from its obligations to comply with certain covenants contained in the Indenture and the Securities, in each case upon satisfaction of certain conditions specified in the Indenture. B-7 162 14. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not materially adversely affect the rights of any Holder of a Security. 15. RESTRICTIVE COVENANTS. The Indenture contains certain covenants that, among other things, limit the ability of the Company and certain of its subsidiaries to make restricted payments, to incur indebtedness, to create liens, to issue preferred or other capital stock of subsidiaries, to sell assets, to permit restrictions on dividends and other payments by subsidiaries to the Company, to consolidate, merge or sell all or substantially all of its assets, to engage in transactions with affiliates or to engage in certain businesses. The limitations are subject to a number of important qualifications and exceptions. 16. DEFAULTS AND REMEDIES. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, B-8 163 Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal, premium or interest, including an accelerated payment) if it determines that withholding notice is in their interest. 17. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries, any Guarantor and their respective Affiliates as if it were not the Trustee. 18. NO RECOURSE AGAINST OTHERS. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 19. AUTHENTICATION. This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 20. ABBREVIATIONS AND DEFINED TERMS. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). B-9 164 21. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 22. SUBORDINATION. The Securities are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full, in cash or Cash Equivalents of all Senior Debt of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by his acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on his behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee his attorney-in-fact for such purposes. The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Indenture. Requests may be made to: SIMONDS INDUSTRIES INC., 135 Intervale Road, Fitchburg, Massachusetts 01420, Attention: Chief Financial Officer. B-10 165 GUARANTEE Each undersigned Guarantor (as defined in the Indenture referred to in the Security upon which this notation is endorsed and each referred to as the "Guarantor," which term includes any successor person under the Indenture) unconditionally guarantees on a senior subordinated basis as set forth in Article Twelve of the Indenture (such guarantee by the Guarantor being referred to herein as a "Guarantee") (i) the due and punctual payment of the principal of and interest on the Securities, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Securities, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article Ten of the Indenture and (ii) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. No stockholder, officer, director or incorporator, as such, past, present or future, of the Guarantor shall have any liability under the Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. The Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Securities upon which the Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. ARMSTRONG MANUFACTURING COMPANY By: ---------------------------------------- Name: Title: B-11 166 By: ---------------------------------------- Name: Title: B-12 167 SIMONDS HOLDING COMPANY, INC. By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: SIMONDS INDUSTRIES FSC, INC. By: ---------------------------------------- Name: Title: By: ---------------------------------------- Name: Title: B-13 168 ASSIGNMENT FORM I or we assign and transfer this Security to ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee or transferee) ________________________________________________________________________________ (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint ________________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated: _________________ Signed: _________________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee: ___________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor reasonably acceptable to the Trustee) B-14 169 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.12 or Section 4.24 of the Indenture, check the appropriate box: Section 4.12 [ ] Section 4.24 [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.12 or Section 4.24 of the Indenture, state the amount: $_____________ Date: ________________ Your Signature: _______________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ___________________________________________________________ B-15 170 EXHIBIT C FORM OF LEGEND FOR GLOBAL SECURITIES Any Global Security authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS 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. C-1 171 EXHIBIT D CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF SECURITIES Re: 10 1/4% Senior Subordinated Notes due 2008, Series A, and 10 1/4% Senior Subordinated Notes due 2008, Series B (the "Securities"), of Simonds Industries Inc. ------------------------------------------------------------ This Certificate relates to $_______ principal amount of Securities held in the form of* ___ a beneficial interest in a Global Security or* _______ Physical Securities by ______ (the "Transferor"). The Transferor:* [ ] has requested by written order that the Registrar deliver in exchange for its beneficial interest in the Global Security held by the Depositary a Physical Security or Physical Securities in definitive, registered form of authorized denominations and an aggregate number equal to its beneficial interest in such Global Security (or the portion thereof indicated above); or [ ] has requested by written order that the Registrar exchange or register the transfer of a Physical Security or Physical Securities. In connection with such request and in respect of each such Security, the Transferor does hereby certify that the Transferor is familiar with the Indenture relating to the above captioned Securities and the restrictions on transfers thereof as provided in Section 2.16 of such Indenture, and that the transfer of this Securities does not require registration under the Securities Act of 1933, as amended (the "Act") because*: [ ] Such Security is being acquired for the Transferor's own account, without transfer (in satisfaction of Section 2.16(a)(II)(A) or Section 2.16(d)(i)(A) of the Indenture). D-1 172 [ ] Such Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A. [ ] Such Security is being transferred to an institutional "accredited investor" (within the meaning of subparagraphs (a)(1), (2), (3) or (7) of Rule 501 under the Act. [ ] Such Security is being transferred in reliance on Regulation S under the Act [ ] Such Security is being transferred in reliance on Rule 144 under the Act. Such Security is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Act other than Rule 144A or Rule 144 or Regulation S under the Act to a person other than an institutional "accredited investor." --------------------------------------- [INSERT NAME OF TRANSFEROR] By: ----------------------------------- [Authorized Signatory] Date:______________ * Check applicable box. D-2 173 EXHIBIT E FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO INSTITUTIONAL ACCREDITED INVESTORS ---------------, ---- [TRUSTEE] Attention: [ ] Re: Simonds Industries Inc. (the "Company") Indenture (the "Indenture") relating to 10 1/4% Senior Subordinated Notes due 2008, Series A, or 10 1/4% Senior Subordinated Notes due 2008, Series B -------------------------------------------------------------- Ladies and Gentlemen: In connection with our proposed purchase of 10 1/4% Senior Subordinated Notes due 2008, Series A, or 10 1/4% Senior Subordinated Notes due 2008, Series B (the "Securities"), of Simonds Industries Inc. (the "Company"), we confirm that: 1. We have received such information as we deem necessary in order to make our investment decision. 2. We understand that any subsequent transfer of the Securities is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Securities except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 3. We understand that the offer and sale of the Securities have not been registered under the Securities Act, and that the Securities may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for E-1 174 which we are acting as hereinafter stated, that if we should sell any Securities, we will do so only (A) to the Company or any subsidiary thereof, (B) inside the United States in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the Trustee a signed letter substantially in the form hereof, (D) outside the United States in accordance with Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing Securities from us a notice advising such purchaser that resales of the Securities are restricted as stated herein. 4. We understand that, on any proposed resale of Securities, we will be required to furnish to the Trustee and the Company, such certification, legal opinions and other information as the Trustee and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Securities purchased by us will bear a legend to the foregoing effect. 5. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment, as the case may be. 6. We are acquiring the Securities purchased by us for our account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. E-2 175 You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferor] By: ---------------------------------------- [Authorized Signatory] E-3 176 EXHIBIT F FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH REGULATION S TRANSFERS ---------------, ---- [TRUSTEE] Attention: [ ] Re: Simonds Industries Inc. (the "Company") 10 1/4% Senior Subordinated Notes due 2008, Series A, and 10 1/4% Senior Subordinated Notes due 2008, Series B (the "Securities") --------------------------------------------------------- Dear Sirs: In connection with our proposed sale of $____________ aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Securities was not made to a person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; F-1 177 (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (5) we have advised the transferee of the transfer restrictions applicable to the Securities. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Defined terms used herein without definition have the respective meanings provided in Regulation S. Very truly yours, [Name of Transferor] By: ---------------------------------------- [Authorized Signatory] F-2 178 EXHIBIT G [FORM OF GUARANTEE] Each undersigned Guarantor (as defined in the Indenture referred to in the Security upon which this notation is endorsed and each referred to as the "Guarantor," which term includes any successor person under the Indenture) unconditionally guarantees on a senior subordinated basis as set forth in Article Twelve of the Indenture (such guarantee by the Guarantor being referred to herein as a "Guarantee") (i) the due and punctual payment of the principal of and interest on the Securities, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Securities, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article Ten of the Indenture and (ii) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. No stockholder, officer, director or incorporator, as such, past, present or future, of the Guarantor shall have any liability under the Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. The Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Securities upon which the Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. G-1 EX-4.2 14 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.2 EXHIBIT A TO PURCHASE AGREEMENT ================================================================================ 10 1/4% SENIOR SUBORDINATED NOTES DUE 2008 REGISTRATION RIGHTS AGREEMENT Dated July 7, 1998 by and among SIMONDS INDUSTRIES INC., ARMSTRONG MANUFACTURING COMPANY, SIMONDS HOLDING COMPANY, INC., and SIMONDS INDUSTRIES FSC, INC., and SALOMON BROTHERS INC, FIRST UNION CAPITAL MARKETS, a division of Wheat First Securities, Inc., and SCHRODER & CO. INC. ================================================================================ 2 This Registration Rights Agreement is made and entered into this 7th day of July, 1998, by and among Simonds Industries Inc., a Delaware corporation (the "COMPANY"), Armstrong Manufacturing Company, an Oregon corporation, Simonds Holding Company, Inc., a Delaware corporation, and Simonds Industries FSC, Inc., a U.S. Virgin Islands corporation (the "GUARANTORS" and, together with the Company, the "ISSUERS"), and Salomon Brothers Inc, First Union Capital Markets, a division of Wheat First Securities Inc., and Schroder & Co. Inc. (the "INITIAL PURCHASERS"). This Agreement is made pursuant to the Purchase Agreement, dated June 30, 1998, among the Company, the Guarantors and Initial Purchasers (the "PURCHASE AGREEMENT"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Issuers have agreed to provide the registration rights provided for in this Agreement to the Initial Purchasers and their direct and indirect transferees. The execution and delivery of this Agreement is a condition to the closing of the transactions contemplated by the Purchase Agreement. The parties hereby agree as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: ADDITIONAL INTEREST: As defined in Section 4(a) hereof. ADVICE: As defined in the last paragraph of Section 5 hereof. AFFILIATE: With respect to any specified person, "Affiliate" shall mean any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control," when used with respect to any person, means the power to direct the management and policies of such 3 person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. AGREEMENT: This Registration Rights Agreement, as the same may be amended, supplemented or modified from time to time in accordance with the terms hereof. BUSINESS DAY: Any day except a Saturday, a Sunday or a day on which banking institutions in New York, New York generally are required or authorized by law or other government action to be closed. COMPANY: As defined in the preamble hereof. CONSUMMATE OR CONSUMMATE: When used to qualify the term "Exchange Offer" shall mean validly and lawfully to issue and deliver the Exchange Notes pursuant to the Exchange Offer for all Notes validly tendered and not validly withdrawn pursuant thereto in accordance with the terms of this Agreement. CONSUMMATION DATE: The date that is 20 Business Days immediately following the date that the Exchange Registration Statement shall have been declared effective by the SEC (or such later date as shall be required by applicable law). EFFECTIVENESS PERIOD: As defined in Section 3(a) hereof. EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC pursuant thereto. EXCHANGE DATE: As defined in Section 2(d) hereof. EXCHANGE NOTES: The 10 1/4% Senior Subordinated Notes due 2008, Series B, of the Company, guaranteed on a senior subordinated basis by each of the Guarantors, that are identical to the Notes in all material respects, except that the provisions regarding restrictions on transfer shall be - 2 - 4 modified, as appropriate, and the issuance thereof pursuant to the Exchange Offer shall have been registered pursuant to an effective Registration Statement in compliance with the Securities Act. EXCHANGE OFFER: An offer to issue, in exchange for any and all of the Notes, a like aggregate principal amount of Exchange Notes, which offer shall be made by the Company pursuant to Section 2 hereof. EXCHANGE REGISTRATION STATEMENT: As defined in Section 2(a) hereof. GUARANTORS: As defined in the preamble hereof. INDEMNIFIED PERSON: As defined in Section 7(a) hereof. INDENTURE: The Indenture, dated as of July 7, 1998, among the Issuers and State Street Bank and Trust Company, as trustee thereunder, pursuant to which the Notes are issued, as amended or supplemented from time to time in accordance with the terms thereof. INITIAL PURCHASERS: As defined in the preamble hereof. ISSUE DATE: As defined in Section 2(a). ISSUERS: As defined in the preamble hereof. NOTES: The 10 1/4% Senior Subordinated Notes due 2008, Series A, of the Company, guaranteed on a senior subordinated basis by each of the Guarantors, issued pursuant to the Indenture. PARTICIPATING BROKER-DEALER: As defined in Section 2(e) hereof. PRIVATE EXCHANGE: As defined in Section 2(c) hereof. - 3 - 5 PRIVATE EXCHANGE NOTES: As defined in Section 2(c) hereof. PROSPECTUS: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Notes, Exchange Notes or Private Exchange Notes covered by such Registration Statement, and all other amendments and supplements to any such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such prospectus. REGISTRATION DEFAULT: As defined in Section 4(a) hereof. REGISTRATION STATEMENT: Any registration statement of the Company and the Guarantors that covers any of the Notes, Exchange Notes or Private Exchange Notes pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such registration statement. RULE 144: Rule 144 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. RULE 144A: Rule 144A promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. - 4 - 6 RULE 158: Rule 158 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. RULE 174: Rule 174 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. RULE 415: Rule 415 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. RULE 424: Rule 424 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC as a replacement thereto having substantially the same effect as such Rule. SEC: The Securities and Exchange Commission. SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. SHELF FILING EVENT: As defined in Section 3 hereof. SHELF REGISTRATION: As defined in Section 3 hereof. SHELF REGISTRATION STATEMENT: As defined in Section 3 hereof. SPECIAL COUNSEL: Cahill Gordon & Reindel, special counsel to the holders of Transfer Restricted Securities, or such other counsel as shall be agreed upon by the Issuers and holders of a majority in aggregate principal amount of Transfer Restricted Securities, the expenses of which holders of - 5 - 7 Transfer Restricted Securities will be reimbursed by the Issuers pursuant to Section 6 hereof. TIA: The Trust Indenture Act of 1939, as amended. TRANSFER RESTRICTED SECURITIES: The Notes, upon original issuance thereof, and at all times subsequent thereto, each Exchange Note as to which Section 3(a)(iii) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until in the case of any such Note, Exchange Note or Private Exchange Note, as the case may be, the earliest to occur of (i) the date on which any such Note has been exchanged by a person other than a Participating Broker-Dealer for an Exchange Note (other than with respect to an Exchange Note as to which Section 3(a)(iii) hereof applies) pursuant to the Exchange Offer, (ii) with respect to Exchange Notes received by Participating Broker-Dealers in the Exchange Offer, the earlier of (x) the date on which such Exchange Note has been sold by such Participating Broker-Dealer by means of the Prospectus contained in the Exchange Registration Statement and (y) the date on which the Exchange Registration Statement has been effective under the Securities Act for a period of 6 months after the Consummation Date, (iii) a Shelf Registration Statement covering such Note, Exchange Note or Private Exchange Note has been declared effective by the SEC and such Note, Exchange Note or Private Exchange Note, as the case may be, has been disposed of in accordance with such effective Shelf Registration Statement, (iv) the date on which such Note, Exchange Note or Private Exchange Note, as the case may be, is distributed to the public pursuant to Rule 144 (or any similar provisions then in effect) or is saleable pursuant to Rule 144(k) promulgated by the SEC pursuant to the Securities Act or (v) the date on which such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture or any other indenture under which such Exchange Note or Private Exchange Note was issued. TRUSTEE: The trustee under the Indenture. - 6 - 8 UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in connection with which securities are sold to an underwriter for reoffering to the public pursuant to an effective Registration Statement. 2. EXCHANGE OFFER (a) To the extent not prohibited by any applicable law or applicable interpretation of the staff of the SEC, the Issuers shall (A) prepare and, on or prior to 60 days after the date of original issuance of the Notes (the "ISSUE DATE"), file with the SEC a Registration Statement under the Securities Act with respect to an offer by the Company to the holders of the Notes to issue and deliver to such holders, in exchange for Notes, a like principal amount of Exchange Notes, (B) use their best efforts to cause the Registration Statement relating to the Exchange Offer to be declared effective by the SEC under the Securities Act on or prior to 120 days after the Issue Date, and (C) commence the Exchange Offer and use their best efforts to issue, on or prior to the Consummation Date, the Exchange Notes. The offer and sale of the Exchange Notes pursuant to the Exchange Offer shall be registered pursuant to the Securities Act on the appropriate form (the "EXCHANGE REGISTRATION STATEMENT") and duly registered or qualified under all applicable state securities or Blue Sky laws and will comply with all applicable tender offer rules and regulations under the Exchange Act and state securities or Blue Sky laws. The Exchange Offer shall not be subject to any condition, other than that the Exchange Offer does not violate any applicable law or interpretation of the staff of the SEC. Upon consummation of the Exchange Offer in accordance with this Section 2, the Issuers shall have no further registration obligations other than with respect to (i) Private Exchange Notes, (ii) Exchange Notes held by Participating Broker-Dealers and (iii) Notes or Exchange Notes as to which Section 3(a)(iii) hereof applies. No securities shall be included in the Exchange Registration Statement other than the Exchange Notes. (b) The Issuers may require each holder of Notes as a condition to its participation in the Exchange Offer to represent to the Issuers and their counsel in writing (which - 7 - 9 may be contained in the applicable letter of transmittal) that at the time of the consummation of the Exchange Offer (i) any Exchange Notes received by such holder will be acquired in the ordinary course of its business, (ii) such holder will have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes and (iii) such holder is not an Affiliate of an Issuer, or if it is an Affiliate of an Issuer, it will comply with the registration and prospectus delivery requirements of the Securities Act, to the extent applicable. (c) If, prior to consummation of the Exchange Offer, an Initial Purchaser holds any Notes acquired by it and having, or which are reasonably likely to be determined to have, the status of an unsold allotment in the initial distribution, or any other holder of Notes is not entitled to participate in the Exchange Offer, the Company upon the request of such Initial Purchaser or any such holder shall, simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to such Initial Purchaser and any such holder, in exchange (the "PRIVATE EXCHANGE") for such Notes held by such Initial Purchaser and any such holder, a like principal amount of debt securities of the Company, guaranteed by each of the Guarantors on a senior subordinated basis, that are identical in all material respects to the Exchange Notes (the "PRIVATE EXCHANGE NOTES") (and which are issued pursuant to the same indenture as the Exchange Notes). The Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes. (d) Unless the Exchange Offer would not be permitted by any applicable law or interpretation of the staff of the SEC, the Company shall mail the Exchange Offer Prospectus and appropriate accompanying documents, including appropriate letters of transmittal, to each holder of Notes providing, in addition to such other disclosures as are required by applicable law: (i) that the Exchange Offer is being made pursuant to this Agreement and that all Notes validly tendered will be accepted for exchange; - 8 - 10 (ii) the date of acceptance for exchange (the "EXCHANGE Date"), which date shall in no event be later than the Consummation Date (unless otherwise required by applicable law); (iii) that holders of Notes electing to have a Note exchanged pursuant to the Exchange Offer will be required to surrender such Note, together with the enclosed letters of transmittal, to the institution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice prior to the close of business on the Exchange Date; and (iv) that holders of Notes that do not tender all such securities pursuant to the Exchange Offer may no longer have any registration rights hereunder with respect to Notes not tendered. Promptly after the Exchange Date, the Company shall: (i) accept for exchange all Notes or portions thereof validly tendered and not validly withdrawn pursuant to the Exchange Offer or the Private Exchange; and (ii) deliver, or cause to be delivered, to the Trustee for cancellation all Notes or portions thereof so accepted for exchange by the Company, and issue, cause the Trustee under the Indenture (or the indenture pursuant to which the Exchange Notes are issued) to authenticate, and mail to each holder of Notes, Exchange Notes or Private Exchange Notes equal in principal amount to the principal amount of the Notes surrendered by such holder. (e) The Issuers and the Initial Purchasers acknowledge that the staff of the SEC has taken the position that any broker-dealer that owns Exchange Notes that were received by such broker-dealer for its own account in the Exchange Offer (a "PARTICIPATING BROKER-DEALER") may be deemed to be an "underwriter" within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange - 9 - 11 Notes (other than a resale of an unsold allotment resulting from the original offering of the Notes). The Issuers and the Initial Purchasers also acknowledge that it is the SEC staff's position that if the Prospectus contained in the Exchange Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Notes, without naming the Participating Broker-Dealers or specifying the amount of Exchange Notes owned by them, such Prospectus may be delivered by Participating Broker-Dealers to satisfy their prospectus delivery obligations under the Securities Act in connection with resales of Exchange Notes for their own accounts, so long as the Prospectus otherwise meets the requirements of the Securities Act. In light of the foregoing, if requested by a Participating Broker-Dealer, the Issuers agree (x) to use their best efforts to keep the Exchange Registration Statement continuously effective for a period of up to 6 months or such earlier date as each Participating Broker-Dealer shall have notified the Company in writing that such Participating Broker-Dealer has resold all Exchange Notes acquired in the Exchange Offer, (y) to comply with the provisions of Section 5 of this Agreement, as they relate to the Exchange Offer and the Exchange Registration Statement, and (z) to deliver to such Participating Broker-Dealer a "cold comfort" letter of the independent public accountants of the Issuers and a legal opinion as to matters reasonably requested by such Participating Broker-Dealer relating to the Exchange Registration Statement and the related Prospectus and any amendments or supplements thereto. (f) The Initial Purchasers shall have no liability to any Participating Broker-Dealer with respect to any request made pursuant to Section 2(e). (g) Interest on the Exchange Notes and the Private Exchange Notes will accrue from the last interest payment date on which interest was paid on the Notes surrendered in exchange - 10 - 12 therefor or, if no interest has been paid on the Notes, from the date of the original issuance of the Notes. (h) The Exchange Notes and the Private Exchange Notes may be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture, which in either event shall provide that the Exchange Notes shall not be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that neither the Exchange Notes, the Private Exchange Notes nor the Notes will have the right to vote or consent as a separate class on any matter. 3. SHELF REGISTRATION (a) If (i) the Company is not permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by any applicable law or applicable interpretation of the staff of the SEC or (ii) the Company has not consummated the Exchange Offer within 150 days of the Issue Date or (iii) any holder of a Note notifies the Company on or prior to the Exchange Date that (A) due to a change in law or policy it is not entitled to participate in the Exchange Offer, (B) due to a change in law or policy it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Registration Statement is not appropriate or available for such resales by such holder or (C) it is a broker-dealer that owns Notes (including an Initial Purchaser that holds Notes as part of an unsold allotment from the original offering of the Notes) acquired directly from an Issuer or an Affiliate of an Issuer or (iv) any holder of Private Exchange Notes so requests within 120 days after the consummation of the Private Exchange (each such event referred to in clauses (i) through (iv), a "SHELF FILING EVENT"), the Issuers shall cause to be filed with the SEC pursuant to Rule 415 a shelf registration statement (the "SHELF REGISTRATION STATEMENT") prior to the later of (x) 120 days after the Issue Date and (y) 90 days after the occurrence of - 11 - 13 such Shelf Filing Event, relating to all Transfer Restricted Securities (the "SHELF REGISTRATION") the holders of which have provided the information required pursuant to Section 3(b) hereof, and shall use their best efforts to have the Shelf Registration Statement declared effective by the SEC on or prior to the later of (i) 180 days after the Issue Date and (ii) 90 days after the occurrence of such Shelf Filing Event. In such circumstances, the Issuers shall use their best efforts to keep the Shelf Registration Statement continuously effective under the Securities Act, until (A) 24 months following the date on which the Shelf Registration Statement was initially declared effective (subject to extension pursuant to the last paragraph of Section 5 hereof) or (B) if sooner, the date immediately following the date that all Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant thereto (the "EFFECTIVENESS PERIOD"); PROVIDED that the Effectiveness Period shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 and as otherwise provided herein. (b) No holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such holder furnishes to the Company in writing, within 30 days after receipt of a request therefor, such information as the Company may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary prospectus included therein. No holder of Transfer Restricted Securities shall be entitled to Additional Interest pursuant to Section 4 hereof unless and until such holder shall have provided all such reasonably requested information. Each holder of Transfer Restricted Securities as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such holder not materially misleading. 4. ADDITIONAL INTEREST - 12 - 14 (a) The parties hereto agree that the holders of Transfer Restricted Securities will suffer damages if the Issuers fail to fulfill their obligations pursuant to Section 2 or Section 3, as applicable, and that it would not be feasible to ascertain the extent of such damages. Accordingly, in the event that (i) the applicable Registration Statement is not filed with the SEC on or prior to the date specified herein for such filing, (ii) the applicable Registration Statement has not been declared effective by the SEC on or prior to the date specified herein for such effectiveness after such obligation arises, (iii) if the Exchange Offer is required to be Consummated hereunder, the Company has not exchanged Exchange Notes for all Notes validly tendered and not validly withdrawn in accordance with the terms of the Exchange Offer by the Consummation Date or (iv) the applicable Registration Statement is filed and declared effective but shall thereafter cease to be effective without being succeeded immediately by any additional Registration Statement covering the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, which has been filed and declared effective (each such event referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the interest rate on Transfer Restricted Securities will increase ("ADDITIONAL INTEREST"), with respect to the first 90-day period immediately following the occurrence of such Registration Default, by 0.50% per annum and will increase by an additional 0.50% per annum with respect to each subsequent 90-day period until such Registration Default has been cured, up to a maximum amount of 1.50% per annum with respect to all Registration Defaults. Following the cure of a Registration Default, the accrual of Additional Interest with respect to such Registration Default will cease and upon the cure of all Registration Defaults the interest rate will revert to the original rate. (b) The Company shall notify the Trustee and paying agent under the Indenture (or the trustee and paying agent under such other indenture under which the Transfer Restricted Securities are issued) immediately upon the happening of each and every Registration Default. The Company shall pay the Additional Interest due on the Transfer Restricted Securities - 13 - 15 by depositing with the paying agent (which shall not be the Company for these purposes) for the Transfer Restricted Securities, in trust, for the benefit of the holders thereof, prior to l1:00 a.m. on the next interest payment date specified by the Indenture (or such other indenture), sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each interest payment date specified by the Indenture (or such other indenture) to the record holder entitled to receive the interest payment to be made on such date. Each obligation to pay Additional Interest shall be deemed to accrue from and including the applicable Registration Default. (c) The parties hereto agree that the Additional Interest provided for in this Section 4 constitutes a reasonable estimate of the damages that will be suffered by holders of Transfer Restricted Securities by reason of the happening of any Registration Default. 5. REGISTRATION PROCEDURES In connection with the Issuers' registration obligations hereunder, the Issuers shall effect such registrations on the appropriate form available for the sale of the Notes, the Exchange Notes or Private Exchange Notes, as applicable, to (i) in the case of the Exchange Offer, permit the exchange of Exchange Notes for Notes in the Exchange Offer and, if applicable, resales of Exchange Notes by Participating Broker-Dealers and (ii) in the case of a Shelf Registration, permit the sale of the applicable Transfer Restricted Securities in accordance with the method or methods of disposition thereof specified by the holders of such Transfer Restricted Securities, and pursuant thereto the Issuers shall as expeditiously as possible: (a) In the case of a Shelf Registration, a reasonable period of time prior to the initial filing of a Shelf Registration Statement or Prospectus and a reasonable period of time prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated - 14 - 16 therein by reference), furnish to the holders of the Transfer Restricted Securities included in such Shelf Registration Statement, their Special Counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such holders, their Special Counsel and such underwriters, if any, and cause the officers and directors of the Issuers, counsel to the Issuers and independent certified public accountants to the Issuers to respond to such reasonable inquiries as shall be necessary, in the opinion of respective counsel to such holders and such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act; PROVIDED that the Issuers shall not be deemed to have kept a Shelf Registration Statement effective during the applicable period if any of them voluntarily takes or fails to take any reasonable action that results in holders of the Transfer Restricted Securities covered thereby not being able to sell such Transfer Restricted Securities pursuant to Federal securities laws during that period (and the time period during which such Shelf Registration Statement is required to remain effective hereunder shall be extended by the number of days during which such holders of Transfer Restricted Securities are not able to sell such Transfer Restricted Securities). The Issuers shall not file any such Shelf Registration Statement or related Prospectus or any amendments or supplements thereto which the holders of a majority of the Transfer Restricted Securities included in such Shelf Registration Statement shall reasonably object on a timely basis; (b) Prepare and file with the SEC such amendments, including post-effective amendments, to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable time period required hereunder; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424; and - 15 - 17 comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; (c) Notify the holders of Transfer Restricted Securities to be sold or, in the case of an Exchange Offer, tendered for, their Special Counsel and the managing underwriters, if any, promptly, and (if requested by any such person), confirm such notice in writing, (i) (A) when a Prospectus or any Prospectus supplement or post-effective amendment is proposed to be filed, and (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC, any state securities commission, any other governmental agency or any court of any stop order, order or injunction suspending or enjoining the use of a Prospectus or the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Notes, Exchange Notes or Private Exchange Notes for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, and (v) of the happening of any event or information becoming known that makes any statement made in a Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that it will not contain any untrue statement of a material fact or omit to state any material fact - 16 - 18 required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of a Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (d) Use their best efforts to avoid the issuance of or, if issued, obtain the withdrawal of any order enjoining or suspending the use of a Prospectus or the effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Notes, Exchange Notes or Private Exchange Notes for sale in any jurisdiction, at the earliest practicable moment; (e) If a Shelf Registration Statement is filed pursuant to Section 3 hereof and if requested by the managing underwriters, if any, or the holders of a majority in aggregate principal amount of the Transfer Restricted Securities being sold pursuant to such Shelf Registration Statement, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, and such holders reasonably believe should be included therein, and (ii) make all required filings of such Prospectus supplement or such post-effective amendment under the Securities Act as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; PROVIDED, HOWEVER, that the Issuers shall not be required to take any action pursuant to this Section 5(e) that would, in the opinion of counsel for the Issuers, violate applicable law; (f) Upon written request to the Company, furnish to each holder of Notes, Exchange Notes or Private Exchange Notes to be exchanged or sold pursuant to a Registration Statement, their Special Counsel and each managing underwriter, if any, without charge, at least one - 17 - 19 conformed copy of such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested (including those previously furnished or incorporated by reference) as soon as practicable after the filing of such documents with the SEC; (g) Deliver to each holder of Notes, Exchange Notes or Private Exchange Notes to be exchanged or sold pursuant to a Registration Statement, their Special Counsel, and the underwriters, if any, without charge, as many copies of the Prospectus (including each form of prospectus) and each amendment or supplement thereto as such persons reasonably request; and the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling holders of Transfer Restricted Securities and the underwriters, if any, in connection with the offering and sale of the Transfer Restricted Securities covered by such Prospectus and any amendment or supplement thereto; (h) Prior to any public offering of Notes, Exchange Notes or Private Exchange Notes, use their best efforts to register or qualify or cooperate with the holders of Notes, Exchange Notes or Private Exchange Notes to be sold or tendered for, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Notes, Exchange Notes or Private Exchange Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any such holder or underwriter reasonably requests in writing; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective hereunder and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Notes, Exchange Notes or Private Exchange Notes covered by the applicable Registration - 18 - 20 Statement; PROVIDED, HOWEVER, that the Issuers shall not be required to (i) qualify generally to do business in any jurisdiction where they are not then so qualified or (ii) take any action which would subject them to general service of process or to taxation in any jurisdiction where they are not so subject; (i) In connection with any sale or transfer of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the holders thereof and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company and to enable such Transfer Restricted Securities to be in such denominations and registered in such names as the managing underwriters, if any, or such holders may request at least two Business Days prior to any sale of Transfer Restricted Securities; (j) Upon the occurrence of any event contemplated by Section 5(c)(v), as promptly as practicable, prepare a supplement or amendment, including, if appropriate, a post-effective amendment, to each Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (k) Prior to the effective date of the Exchange Registration Statement, to provide a CUSIP number for the Exchange Notes (and Private Exchange Notes, if applicable); - 19 - 21 (l) If a Shelf Registration Statement is filed pursuant to Section 3 hereof, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other reasonable actions in connection therewith (including those reasonably requested by the managing underwriters, if any, or the holders of a majority in aggregate principal amount of the Transfer Restricted Securities being sold) in order to expedite or facilitate the disposition of such Transfer Restricted Securities, and, 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 Transfer Restricted Securities and the underwriters, if any, with respect to the business of the Company and its subsidiaries (including with respect to businesses or assets acquired or to be acquired by any of them), and the Shelf Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Issuers and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and Special Counsel to the holders of the Transfer Restricted Securities being sold), addressed to each selling holder of Transfer Restricted Securities and each of the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Special Counsel and underwriters; (iii) use their best efforts to obtain customary "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data is, or is - 20 - 22 required to be, included in the Shelf Registration Statement), addressed (where reasonably possible) to each selling holder of Transfer Restricted Securities and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the selling holders and the underwriters, if any, than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to holders of a majority in aggregate principal amount of Transfer Restricted Securities covered by such Shelf Registration Statement and the managing underwriters, if any); and (v) deliver such documents and certificates as may be reasonably requested by the holders of a majority in aggregate principal amount of the Transfer Restricted Securities being sold, their Special Counsel and the managing underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Issuers; (m) In the case of a Shelf Registration, make available for inspection by a representative of the holders of Transfer Restricted Securities being sold, any underwriter participating in any such disposition of Transfer Restricted Securities, and any attorney, consultant or accountant retained by such selling holders or underwriter, at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries (including - 21 - 23 with respect to businesses and assets acquired or to be acquired to the extent that such information is available to the Company), and cause the officers, directors, agents and employees of the Company and its subsidiaries (including with respect to businesses and assets acquired or to be acquired to the extent that such information is available to the Company) to supply all information in each case reasonably requested by any such representative, underwriter, attorney, consultant or accountant in connection with such Shelf Registration; PROVIDED, HOWEVER, that such persons shall first agree in writing with the Company that any information that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to Federal securities laws in connection with the filing of the Shelf Registration Statement or the use of any Prospectus), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard such information by such person or (iv) such information becomes available to such person from a source other than the Company and its subsidiaries and such source is not bound by a confidentiality agreement; and PROVIDED, FURTHER, that the foregoing inspection and information gathering shall be coordinated by one counsel designated by and on behalf of such other persons; (n) Provide an indenture trustee for the Notes and/or the Exchange Notes and Private Exchange Notes, as the case may be, and cause an indenture to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Notes and/or the Exchange Notes and Private Exchange Notes, as the case may be; and if such indenture shall be the Indenture, in connection therewith, cooperate with the Trustee and the holders of the Notes and/or the Exchange Notes and Private Exchange Notes, 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 execute, and use - 22 - 24 its reasonable efforts to cause the Trustee to execute, all customary 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) Comply with all applicable rules and regulations of the SEC and make generally available to their securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158, no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to underwriters in a firm commitment or reasonable efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter after the effective date of a Registration Statement, which statement shall cover said period, consistent with the requirements of Rule 158; (p) Cooperate with each seller of Transfer Restricted Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Transfer Restricted Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; and (q) Use their best efforts to cause the Exchange Notes, if issued, to be listed on the New York Stock Exchange on or prior to the consummation of the Exchange Offer. The Issuers may require a holder of Transfer Restricted Securities to be included in a Registration Statement to furnish to the Issuers such information regarding the distribution of such Transfer Restricted Securities as is required by law to be disclosed in such Registration Statement - 23 - 25 and the Issuers may exclude from such Registration Statement the Transfer Restricted Securities of any holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. If any such Registration Statement refers to any holder by name or otherwise as the holder of any securities of an Issuer, then such holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such holder, to the effect that the holding by such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the Issuers' securities covered thereby and that such holding does not imply that such holder will assist in meeting any future financial requirements of the Issuers, or (ii) in the event that such reference to such holder by name or otherwise is not required by the Securities Act, the deletion of the reference to such holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. In the case of a Shelf Registration pursuant to Section 3 hereof, each holder of Transfer Restricted Securities agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv) or 5(c)(v) hereof, such holder will forthwith discontinue disposition of such Transfer Restricted Securities covered by such Registration Statement or Prospectus until such holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof, or until it is advised in writing (the "ADVICE") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. If the Company shall give any such notice, the Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each holder of Transfer Restricted Securities covered by such Registration Statement - 24 - 26 shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof or (y) the Advice, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. 6. REGISTRATION EXPENSES All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers shall be borne by the Issuers whether or not any Registration Statement is filed or becomes effective and whether or not any Notes, Exchange Notes or Private Exchange Notes are issued or sold pursuant to any Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (B) in compliance with securities or Blue Sky laws), (ii) printing expenses (including, without limitation, expenses of printing certificates for Notes, Exchange Notes and Private Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing Prospectuses), (iii) reasonable fees and disbursements of counsel for the Issuers and the Special Counsel, (iv) fees and disbursements of all independent certified public accountants referred to in Section 2(e) and Section 5(l)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (v) if required, the reasonable fees and expenses of any "qualified independent underwriter" and its counsel, and (vi) fees and expenses of all other persons retained by the Issuers. In addition, the Issuers shall pay their internal expenses (including, without limitation, all salaries and expenses of their respective officers and employees performing legal or accounting duties), the expense of any annual audit, and the fees and expenses incurred in connection with the listing of the Notes, Exchange Notes or Private Exchange Notes to be registered on any securities exchange. Notwithstanding the foregoing or anything in this - 25 - 27 Agreement to the contrary, each holder of Transfer Restricted Securities shall pay all underwriting discounts and commissions of any underwriters with respect to any Notes, Exchange Notes or Private Exchange Notes sold by it. 7. INDEMNIFICATION (a) The Issuers agree, jointly and severally, to indemnify and hold harmless (i) each Initial Purchaser, each holder of Notes, Exchange Notes and Private Exchange Notes and each Participating Broker-Dealer, (ii) each person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) any of the foregoing (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person"), and (iii) the respective officers, directors, partners, employees, representatives and agents of the Initial Purchasers, each holder of Notes, Exchange Notes and Private Exchange Notes, each Participating Broker-Dealer and any controlling person (any person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an "INDEMNIFIED PERSON"), from and against any and all losses, claims, damages, liabilities and judgments arising out of or relating to any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary prospectus or in any amendment or supplement thereto, or arising out of or relating to any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or preliminary prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Indemnified Person furnished in writing to the Issuers by or on behalf of such Indemnified Person expressly for use therein; PROVIDED that the foregoing indemnity with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Person from whom the person asserting such losses, claims, - 26 - 28 damages, liabilities and judgments purchased securities if such untrue statement or omission or alleged untrue statement or omission made in such preliminary prospectus is eliminated or remedied in the Prospectus and a copy of the Prospectus shall not have been furnished to such person in a timely manner due to the wrongful action or wrongful inaction of such Indemnified Person. (b) In case any action shall be brought against any Indemnified Person, based upon any Registration Statement or any such Prospectus or preliminary prospectus or any amendment or supplement thereto and with respect to which indemnity may be sought against the Issuers hereunder, such Indemnified Person shall promptly notify the Issuers in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person and payment of all fees and expenses. Any Indemnified Person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person, unless (i) the employment of such counsel shall have been specifically authorized in writing by the Issuers, (ii) the Company shall have failed to assume the defense and employ counsel or pay all such fees and expenses or (iii) the named parties to any such action (including any impleaded parties) include both such Indemnified Person and an Issuer and such Indemnified Person shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to any such Issuer (in which case the Company shall not have the right to assume the defense of such action on behalf of such Indemnified Person, it being understood, however, that the Issuers shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all such Indemnified Persons, which firm shall be designated in writing by such Indemnified Persons, and that all such reasonable fees - 27 - 29 and expenses shall be reimbursed as they are incurred). The Issuers shall not be liable for any settlement of any such action effected without their written consent but if settled with the written consent of the Issuers, the Issuers agree, jointly and severally, to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement. No Issuer shall, without the prior written consent of each Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. (c) In connection with any Registration Statement pursuant to which a holder of Transfer Restricted Securities offers or sells Transfer Restricted Securities, such holder agrees, severally and not jointly, to indemnify and hold harmless the Issuers, their respective directors and officers and any person controlling an Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Issuers to each Indemnified Person but only with respect to information relating to such holder furnished in writing by or on behalf of such holder expressly for use in such Registration Statement. In any such case in which any action shall be brought against an Issuer, any director or officer of an Issuer or any person controlling an Issuer based on such Registration Statement and in respect of which indemnity may be sought against a holder of Transfer Restricted Securities, such holder shall have the rights and duties given to the Issuers (except that if an Issuer shall have assumed the defense thereof, such holder shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such holder), and the Issuers, their respective directors and officers and any person controlling an Issuer shall have the rights and duties given to the Indemnified Persons by Section 7(b) hereof. - 28 - 30 (d) If the indemnification provided for in this Section 7 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to herein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by each indemnifying party on the one hand and the indemnified party on the other hand from the offering of the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be (it being expressly understood and agreed that the relative benefits received by the Issuers from the offering of the Notes, Exchange Notes or Private Exchange Notes, as the case may be, shall be the amount of the net proceeds received by the Company from the sale of the Notes to the Initial Purchasers), or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of each indemnifying party on the one hand and the indemnified party on the other hand in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of each indemnifying party on the one hand and the indemnified party on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by an indemnifying party or such indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Issuers and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by PRO RATA allocation (even if the Indemnified Person 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 in the - 29 - 31 immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, no Indemnified Person shall be required to contribute any amount in excess of the amount by which the net profits received by it in connection with the sale of the Notes, Exchange Notes or Private Exchange Notes contemplated by this Agreement exceeds the amount of any damages which such Indemnified Person 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 Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Indemnified Person's obligations to contribute pursuant to this Section 7(d) are several in proportion to the respective amount of Notes, Exchange Notes or Private Exchange Notes included in any such Registration Statement by each Indemnified Person and not joint. 8. RULES 144 AND 144A Each of Issuers shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any holder of Transfer Restricted Securities, make available other information as required by, and so long as necessary to permit, sales of its Transfer Restricted Securities pursuant to Rule 144A. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require an Issuer to register any of its securities pursuant to the Exchange Act. 9. UNDERWRITTEN REGISTRATIONS - 30 - 32 If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering, subject to the consent of the Company (which will not be unreasonably withheld or delayed). No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. MISCELLANEOUS (a) REMEDIES. In the event of a breach by an Issuer or by a holder of Notes, Exchange Notes or Private Exchange Notes of any of its obligations under this Agreement, each holder of Notes, Exchange Notes or Private Exchange Notes and each Issuer, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Subject to Section 4 hereof, the Issuers and each holder of Notes, Exchange Notes and Private Exchange Notes agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach of any of the provisions of this Agreement and each hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) NO INCONSISTENT AGREEMENTS. The Issuers will not enter into any agreement with respect to their securities that is inconsistent with the rights granted to the holders of Notes, Exchange Notes and Private Exchange Notes and - 31 - 33 Indemnified Persons in this Agreement or otherwise conflicts with the provisions hereof. Without the written consent of the holders of a majority in aggregate principal amount of the outstanding Transfer Restricted Securities, the Issuers shall not grant to any person any rights which conflict with or are inconsistent with the provisions of this Agreement. (c) NO PIGGYBACK ON REGISTRATIONS. The Issuers shall not grant to any of their securityholders (other than the holders of Transfer Restricted Securities in such capacity) the right to include any of their securities in any Registration Statement other than Transfer Restricted Securities. (d) 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, otherwise than with the prior written consent of the holders of not less than a majority of the then outstanding aggregate principal amount of Transfer Restricted Securities; PROVIDED, HOWEVER, that, for the purposes of this Agreement, Transfer Restricted Securities that are owned, directly or indirectly, by the Issuers or any of their Affiliates are not deemed outstanding. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of holders of Transfer Restricted Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other holders of Transfer Restricted Securities may be given by holders of a majority in aggregate principal amount of the Transfer Restricted Securities being sold by such holders pursuant to such Registration Statement; PROVIDED, HOWEVER, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Notwithstanding the foregoing, no amendment, modification, supplement, waiver or consent with respect to Section 7 shall be made or given otherwise than with the prior written consent of each Indemnified Person affected thereby. - 32 - 34 (e) NOTICES. All notices and other communications provided for herein shall be made in writing by hand-delivery, next-day air courier, certified first-class mail, return receipt requested, telex or telecopier: (i) if to the Issuers, as provided in the Purchase Agreement, (ii) if to the Initial Purchasers, as provided in the Purchase Agreement, or (iii) if to any other person who is then the registered holder of Notes, Exchange Notes or Private Exchange Notes, to the address of such holder as it appears in the register therefor of the Company. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being timely delivered to a next-day air courier; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; and when receipt is acknowledged by the recipient's telecopier machine, if telecopied. (f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each holder of Notes, Exchange Notes and Private Exchange Notes. The Issuers may not assign any of their rights or obligations hereunder without the prior written consent of each holder of Transfer Restricted Securities and each Indemnified Person. Notwithstanding the foregoing, no successor or assignee of an Issuer shall have any of the rights granted under this Agreement until such person shall acknowledge its rights and obligations hereunder by a signed written statement of such person's acceptance of such rights and obligations. (g) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in - 33 - 35 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. (h) GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE ISSUERS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND EACH IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. (i) SEVERABILITY. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. All references made in this Agreement to "Section" and "paragraph" refer to such Section or paragraph of this Agreement, unless expressly stated otherwise. - 34 - 36 S-1 IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of the date first written above. SIMONDS INDUSTRIES INC. By: ---------------------------------------- Name: Title: ARMSTRONG MANUFACTURING COMPANY By: ---------------------------------------- Name: Title: SIMONDS HOLDING COMPANY, INC. By: ---------------------------------------- Name: Title: SIMONDS INDUSTRIES FSC, INC. By: ---------------------------------------- Name: Title: 37 S-2 The foregoing Agreement is hereby confirmed and accepted as of the date first above written. SALOMON BROTHERS INC FIRST UNION CAPITAL MARKETS, a division of Wheat First Securities, Inc. SCHRODER & CO. INC. By: SALOMON BROTHERS INC By: ------------------------- Name: Title: EX-4.3 15 CREDIT AGREEMENT 1 EXHIBIT 4.3 CREDIT AGREEMENT Dated as of July 2, 1998 among SIMONDS INDUSTRIES INC. as Borrower, AND CERTAIN SUBSIDIARIES OF THE BORROWER FROM TIME TO TIME PARTY HERETO, as Guarantors, THE SEVERAL LENDERS FROM TIME TO TIME PARTY HERETO AND FIRST UNION NATIONAL BANK, as Agent 2 TABLE OF CONTENTS SECTION 1 DEFINITIONS....................................................1 1.1 Definitions.....................................................1 1.2 Computation of Time Periods....................................22 1.3 Accounting Terms...............................................23 SECTION 2 CREDIT FACILITIES.............................................23 2.1 Revolving Loans................................................23 2.2 Letter of Credit Subfacility...................................25 SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES................30 3.1 Default Rate...................................................30 3.2 Extension and Conversion.......................................30 3.3 Prepayments....................................................31 3.4 Termination and Reduction of Revolving Committed Amount........32 3.5 Fees...........................................................32 3.6 Capital Adequacy...............................................33 3.7 Limitation on Eurodollar Loans.................................34 3.8 Illegality.....................................................34 3.9 Requirements of Law............................................34 3.10 Treatment of Affected Loans...................................35 3.11 Taxes.........................................................36 3.12 Compensation..................................................38 3.13 Pro Rata Treatment............................................38 3.14 Sharing of Payments...........................................39 3.15 Payments, Computations, Etc...................................40 3.16 Evidence of Debt..............................................42 3.17 Assignment of Commitment Under Certain Circumstances..........42 SECTION 4 GUARANTY......................................................43 4.1 The Guaranty...................................................43 4.2 Obligations Unconditional......................................43 4.3 Reinstatement..................................................44 4.4 Certain Additional Waivers.....................................45 4.5 Remedies.......................................................45 4.6 Rights of Contribution.........................................45 4.7 Continuing Guarantee...........................................46 SECTION 5 CONDITIONS....................................................46 5.1 Closing Conditions.............................................46 5.2 Conditions to all Extensions of Credit.........................52 SECTION 6 REPRESENTATIONS AND WARRANTIES................................53 6.1 Financial Condition............................................53 6.2 No Material Change.............................................54 6.3 Organization and Good Standing.................................54 -i- 3 6.4 Power; Authorization; Enforceable Obligations..................54 6.5 No Conflicts...................................................54 6.6 No Default.....................................................55 6.7 Ownership......................................................55 6.8 Indebtedness...................................................55 6.9 Litigation.....................................................55 6.10 Taxes.........................................................55 6.11 Compliance with Law...........................................56 6.12 ERISA.........................................................56 6.13 Subsidiaries..................................................57 6.14 Governmental Regulations, Etc.................................57 6.15 Purpose of Loans and Letters of Credit........................58 6.16 Environmental Matters.........................................58 6.17 Intellectual Property.........................................59 6.18 Solvency......................................................60 6.19 Investments...................................................60 6.20 Location of Collateral........................................60 6.21 Disclosure....................................................60 6.22 No Burdensome Restrictions....................................60 6.23 Brokers' Fees.................................................61 6.24 Labor Matters.................................................61 6.25 Nature of Business............................................61 6.26 Year 2000 Compliance..........................................61 SECTION 7 AFFIRMATIVE COVENANTS.........................................61 7.1 Information Covenants..........................................61 7.2 Preservation of Existence and Franchises.......................65 7.3 Books and Records..............................................65 7.4 Compliance with Law............................................65 7.5 Payment of Taxes and Other Indebtedness........................65 7.6 Insurance......................................................66 7.7 Maintenance of Property........................................66 7.8 Performance of Obligations.....................................66 7.9 Use of Proceeds................................................67 7.10 Audits/Inspections............................................67 7.11 Financial Covenants...........................................67 7.12 Additional Credit Parties.....................................68 7.13 Pledged Assets................................................68 7.14 Year 2000 Compliance..........................................69 SECTION 8 NEGATIVE COVENANTS............................................69 8.1 Indebtedness...................................................69 8.2 Liens..........................................................70 8.3 Nature of Business.............................................70 8.4 Consolidation, Merger, Dissolution, etc........................71 8.5 Asset Dispositions.............................................71 -ii- 4 8.6 Investments....................................................72 8.7 Restricted Payments............................................72 8.8 Prepayments of Indebtedness, etc...............................72 8.9 Transactions with Affiliates...................................72 8.10 Fiscal Year; Organizational Documents.........................73 8.11 Limitation on Restricted Actions..............................73 8.12 Ownership of Subsidiaries.....................................73 8.13 Sale Leasebacks...............................................74 SECTION 9 EVENTS OF DEFAULT.............................................74 9.1 Events of Default..............................................74 9.2 Acceleration; Remedies.........................................76 SECTION 10 AGENCY PROVISIONS............................................77 10.1 Appointment, Powers and Immunities............................77 10.2 Reliance by Agent.............................................78 10.3 Defaults......................................................78 10.4 Rights as a Lender............................................78 10.5 Indemnification...............................................79 10.6 Non-Reliance on Agent and Other Lenders.......................79 10.7 Successor Agent...............................................79 SECTION 11 MISCELLANEOUS................................................80 11.1 Notices.......................................................80 11.2 Right of Set-Off; Adjustments.................................81 11.3 Benefit of Agreement..........................................81 11.4 No Waiver; Remedies Cumulative................................83 11.5 Expenses; Indemnification.....................................83 11.6 Amendments, Waivers and Consents..............................84 11.7 Counterparts..................................................85 11.8 Headings......................................................86 11.9 Survival......................................................86 11.10 Governing Law; Submission to Jurisdiction; Venue.............86 11.11 Severability.................................................87 11.12 Entirety.....................................................87 11.13 Binding Effect; Termination..................................87 11.14 Source of Funds..............................................87 11.15 Conflict.....................................................88 -iii- 5 EXHIBITS Exhibit 1.1A Form of Pledge Agreement Exhibit 1.1B Form of Security Agreement Exhibit 2.1(b)(i) Form of Notice of Borrowing Exhibit 2.1(b)(iii) Form of Notice of Account Designation Exhibit 2.1(e) Form of Revolving Note Exhibit 3.2 Form of Notice of Extension/Conversion Exhibit 3.3(a) Form of Notice of Prepayment Exhibit 5.1(d) Form of Legal Opinion Exhibit 7.1(d) Form of Officer's Compliance Certificate Exhibit 7.12 Form of Joinder Agreement Exhibit 11.3(b) Form of Assignment and Acceptance SCHEDULES Schedule 1.1A Investments Schedule 1.1B Liens Schedule 2.1(a) Lenders Schedule 6.4 Required Consents, Authorizations, Notices and Filings Schedule 6.9 Litigation Schedule 6.12 ERISA Schedule 6.13 Subsidiaries Schedule 6.16 Environmental Disclosures Schedule 6.17 Intellectual Property Schedule 6.20(a) Mortgaged Properties Schedule 6.20(b) Collateral Locations Schedule 6.20(c) Chief Executive Offices/Principal Places of Business Schedule 7.6 Insurance Schedule 8.1 Indebtedness -iv- 6 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of July 2, 1998 (as amended, modified, restated or supplemented from time to time, the "CREDIT AGREEMENT"), is by and among SIMONDS INDUSTRIES INC., a Delaware corporation (the "BORROWER"), the Guarantors (as defined herein), the Lenders (as defined herein) and FIRST UNION NATIONAL BANK, as Agent for the Lenders (in such capacity, the "AGENT"). W I T N E S S E T H WHEREAS, the Borrower has requested that the Lenders provide a $30,000,000 credit facility for the purposes hereinafter set forth; and WHEREAS, the Lenders have agreed to make the requested credit facility available to the Borrower on the terms and conditions hereinafter set forth; NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1 DEFINITIONS 1.1 DEFINITIONS. As used in this Credit Agreement, the following terms shall have the meanings specified below unless the context otherwise requires: "ACQUIRED COMPANY EBITDA" means with respect to any Person acquired in connection with a Permitted Acquisition, for any period, the sum of (i) net income (excluding extraordinary items) of such Person and its Subsidiaries on a consolidated basis PLUS (ii) an amount which in the determination of such net income has been deducted for (A) interest expense of such Person and its Subsidiaries on a consolidated basis, (B) total federal, state, local and foreign income, value added and similar taxes and (C) depreciation, amortization and other non-cash charges for such period, all as determined in accordance with GAAP. "ACQUISITION" means the acquisition by any Person of the Capital Stock or all or substantially all of the Property of another Person, whether or not involving a merger or consolidation with such Person. "ADDITIONAL CREDIT PARTY" means each Person that becomes a Guarantor after the Closing Date by execution of a Joinder Agreement. "ADJUSTED BASE RATE" means the Base Rate PLUS the Applicable Margin. "ADJUSTED EURODOLLAR RATE" means the Eurodollar Rate PLUS the Applicable Margin. 7 "AFFILIATE" means, with respect to any Person, any other Person (a) directly or indirectly controlling or controlled by or under direct or indirect common control with such Person or (b) directly or indirectly owning or holding ten percent (10%) or more of the equity interest in such Person. For purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "AGENT" shall have the meaning assigned to such term in the heading hereof, together with any successors or assigns. "AGENT'S FEE LETTER" means that certain letter agreement, dated as of June 16, 1998, between the Agent and the Borrower, as amended, modified, restated or supplemented from time to time. "AGENT'S FEES" shall have the meaning assigned to such term in Section 3.5(c). "APPLICABLE LENDING OFFICE" means, for each Lender, the office of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Borrower by written notice as the office by which its Eurodollar Loans are made and maintained. "APPLICABLE MARGIN" means, for purposes of calculating the applicable interest rate for any day for any Revolving Loan, the applicable rate of the Commitment Fee for any day for purposes of Section 3.5(a) and the applicable rate of the Standby Letter of Credit Fee for any day for purposes of Section 3.5(b)(i), the appropriate Applicable Margin corresponding to the Leverage Ratio in effect as of the most recent Calculation Date:
==================================================================================================== APPLICABLE APPLICABLE APPLICABLE MARGINEFOR APPLICABLE MARGIN FOR MARGIN FOR STANDBY MARGIN FOR PRICING LEVERAGE EURODOLLAR BASE RATE LETTER OF COMMITMENT LEVEL RATIO LOANS LOANS CREDIT FEE FEES ---------------------------------------------------------------------------------------------------- I (greater than or equal sign) 2.25% 1.00% 2.25% .50% 5.0 to 1.0 ---------------------------------------------------------------------------------------------------- II (less than sign) 5.0 to 1.0 2.00% .875% 2.00% .50% but (greater than or equal sign) 4.5 to 1.0 ---------------------------------------------------------------------------------------------------- III (less than sign) 4.5 to 1.0 1.75% .50% 1.75% .375% but (greater than or equal sign) 4.0 to 1.0 ---------------------------------------------------------------------------------------------------- IV (less than sign) 4.0 to 1.0 1.50% .25% 1.50% .375% but (greater than or equal sign) 3.5 to 1.0 ====================================================================================================
-2- 8
==================================================================================================== APPLICABLE APPLICABLE APPLICABLE MARGINEFOR APPLICABLE MARGIN FOR MARGIN FOR STANDBY MARGIN FOR PRICING LEVERAGE EURODOLLAR BASE RATE LETTER OF COMMITMENT LEVEL RATIO LOANS LOANS CREDIT FEE FEES ---------------------------------------------------------------------------------------------------- V (less than sign) 3.5 to 1.0 1.25% 0.0% 1.25% .25% ====================================================================================================
The Applicable Margins shall be determined and adjusted quarterly, on the date (each a "Calculation Date") as soon as practicable after receipt (but in any event within 5 Business Days thereafter) of the officer's certificate to be provided by the Borrower in accordance with the provisions of Section 7.1(d) for the most recently ended fiscal quarter of the Consolidated Parties, the first of which to occur on September 30, 1998, PROVIDED, HOWEVER, that (i) the initial Applicable Margins shall be based on Pricing Level I (as shown above) and shall remain at Pricing Level I until the Calculation Date immediately following September 30, 1998 and, thereafter, the Pricing Level shall be determined by the Leverage Ratio as of the last day of the most recently ended fiscal quarter of the Consolidated Parties preceding the applicable Calculation Date; PROVIDED FURTHER that if the Borrower fails to provide the officer's certificate required by Section 7.1(d) on or before the most recent Calculation Date, the Applicable Margin from such Calculation Date shall be based on Pricing Level I until such time as an appropriate officer's certificate is provided whereupon the Pricing Level shall be determined by the then current Leverage Ratio. Each Applicable Margin shall be effective from one Calculation Date until the next Calculation Date. Any adjustment in the Applicable Margins shall be applicable to all existing Loans as well as any new Loans made or issued. "ASSET DISPOSITION" means the disposition of any or all of the assets (including without limitation the Capital Stock of a Subsidiary) of any Consolidated Party whether by sale, lease, transfer or otherwise. The term "Asset Disposition" shall not include the (i) sale of inventory in the ordinary course of business or (ii) the sale or disposition of worn-out or obsolete assets no longer used or useful in the conduct of such Person's business or (iii) dispositions of assets for which Replacement Assets are acquired within 180 days of such disposition provided that such Replacement Assets are pledged to secure the Credit Party Obligations as set forth in Section 7.13. "BANKRUPTCY CODE" means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time. "BANKRUPTCY EVENT" means, with respect to any Person, the occurrence of any of the following with respect to such Person: (a) a court or governmental agency having jurisdiction in the premises shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, -3- 9 liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or ordering the winding up or liquidation of its affairs; or (b) there shall be commenced against such Person an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded for a period of sixty (60) consecutive days; or (c) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or make any general assignment for the benefit of creditors; or (d) such Person shall be unable to, or shall admit in writing its inability to, pay its debts generally as they become due. "BASE RATE" means, for any day, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus one-half of one percent (.5%) and (b) the Prime Rate for such day. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or Federal Funds Rate. "BASE RATE LOAN" means any Loan bearing interest at a rate determined by reference to the Base Rate. "BORROWER" means the Person identified as such in the heading hereof, together with any permitted successors and assigns. "BUSINESS DAY" means a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina or New York, New York are authorized or required by law to close, EXCEPT THAT, when used in connection with a Eurodollar Loan, such day shall also be a day on which dealings between banks are carried on in U.S. dollar deposits in London, England. "CALCULATION DATE" has the meaning set forth in the definition of "Applicable Margin" set forth in this Section 1.1. "CAPITAL LEASE" means, as applied to any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "CAPITAL STOCK" means (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership interests and (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. -4- 10 "CASH EQUIVALENTS" means (a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (b) U.S. dollar denominated time deposits and certificates of deposit of (i) any Lender, (ii) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (iii) any bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank being an "APPROVED BANK"), in each case with maturities of not more than 270 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody's and maturing within six months of the date of acquisition, (d) repurchase agreements with a bank or trust company (including any of the Lenders) or recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America in which any Credit Party shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations and (e) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Company Act of 1940, as amended, which are administered by reputable financial institutions having capital of at least $500,000,000 and the portfolios of which are limited to Investments of the character described in the foregoing subdivisions (a) through (d). "CHANGE OF CONTROL" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Borrower to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with Affiliates thereof; (ii) the approval by the holders of Capital Stock of the Borrower of any plan or proposal for the liquidation or dissolution of the Borrower; (iii) any Person or Group (other than the Permitted Holder(s)) shall become the beneficial owner, directly or indirectly, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Borrower or (iv) Fleet Equity Partners VI-B, L.P. and/or any of its Affiliates shall fail to own in excess of 30% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Borrower. "CLOSING DATE" means the date hereof. "CODE" means the Internal Revenue Code of 1986, as amended, and any successor statute thereto, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed also to refer to any successor sections. "COLLATERAL" means a collective reference to the collateral which is identified in, and at any time will be covered by, the Collateral Documents. -5- 11 "COLLATERAL DOCUMENTS" means a collective reference to the Security Agreement, the Pledge Agreement, the Mortgage Instruments and such other documents executed and delivered in connection with the attachment and perfection of the Agent's security interests and liens arising thereunder, including without limitation, UCC financing statements and patent and trademark filings. "COMMITMENT" means (a) with respect to each Lender, the Revolving Commitment of such Lender and (b) with respect to the Issuing Lender, the LOC Commitment. "COMMITMENT FEE" shall have the meaning assigned to such term in Section 3.5(a). "COMMITMENT FEE CALCULATION PERIOD" shall have the meaning assigned to such term in Section 3.5(a). "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, all capital expenditures of the Consolidated Parties on a consolidated basis for such period, as determined in accordance with GAAP. "CONSOLIDATED CASH TAXES" means, for any period, the aggregate of all taxes of the Consolidated Parties on a consolidated basis for such period, as determined in accordance with GAAP, to the extent the same are paid in cash during such period. "CONSOLIDATED EBITDA" means, for any period, the sum of (a) Consolidated Net Income for such period, plus (b) an amount which, in the determination of Consolidated Net Income for such period, has been deducted for (i) Consolidated Interest Expense, (ii) total accrued federal, state, local and foreign income, value added and similar taxes, (iii) depreciation, amortization and any other non-cash charges for such period, all as determined in accordance with GAAP, and (iv) expenses incurred in connection with the Related Transactions in an aggregate amount not to exceed $5,000,000. "CONSOLIDATED INTEREST EXPENSE" means, for any period, interest expense (excluding the amortization of debt discount and premium but including the interest component under Capital Leases) of the Consolidated Parties on a consolidated basis for such period, and as determined in accordance with GAAP. For purposes hereof, Consolidated Interest Expense of the Consolidated Parties for the first three complete fiscal quarters to occur after the Closing Date shall be determined by annualizing the components thereof such that Consolidated Interest Expense for the first complete fiscal quarter to occur after the Closing Date would be multiplied by four (4), the first two (2) complete fiscal quarters would be multiplied by two (2) and the first three (3) complete fiscal quarters would be multiplied by one and one-third (1 1/3). "CONSOLIDATED NET INCOME" means, for any period, net income (excluding extraordinary items) after taxes for such period of the Consolidated Parties on a consolidated basis, as determined in accordance with GAAP. "CONSOLIDATED PARTIES" means a collective reference to the Borrower and its Subsidiaries, and "CONSOLIDATED PARTY" means any one of them. -6- 12 "CONTINUE", "CONTINUATION", and "CONTINUED" shall refer to the continuation pursuant to Section 3.2 hereof of a Eurodollar Loan from one Interest Period to the next Interest Period. "CONVERT", "CONVERSION", and "CONVERTED" shall refer to a conversion pursuant to Section 3.2 or Sections 3.7 through 3.12, inclusive, of a Base Rate Loan into a Eurodollar Loan. "CREDIT DOCUMENTS" means a collective reference to this Credit Agreement, the Notes, the LOC Documents, each Joinder Agreement, the Agent's Fee Letter, the Collateral Documents and all other related agreements and documents issued or delivered hereunder or thereunder or pursuant hereto or thereto (in each case as the same may be amended, modified, restated, supplemented, extended, renewed or replaced from time to time), and "CREDIT DOCUMENT" means any one of them. "CREDIT PARTIES" means a collective reference to the Borrower and the Guarantors, and "CREDIT PARTY" means any one of them. "CREDIT PARTY OBLIGATIONS" means, without duplication, (a) all of the obligations of the Credit Parties to the Lenders (including the Issuing Lender) and the Agent, whenever arising, under this Credit Agreement, the Notes, the Collateral Documents or any of the other Credit Documents (including, but not limited to, any interest accruing after the occurrence of a Bankruptcy Event with respect to any Credit Party, regardless of whether such interest is an allowed claim under the Bankruptcy Code) and (b) all liabilities and obligations, whenever arising, owing from any Credit Party to any Lender, or any Affiliate of a Lender, arising under any Hedging Agreement. "DEFAULT" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "DEFAULTING LENDER" means, at any time, any Lender that (a) has failed to make a Loan or purchase a Participation Interest required pursuant to the terms of this Credit Agreement within one Business Day of when due, (b) other than as set forth in (a) above, has failed to pay to the Agent or any Lender an amount owed by such Lender pursuant to the terms of this Credit Agreement within one Business Day of when due, or (c) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or with respect to which (or with respect to any of assets of which) a receiver, trustee or similar official has been appointed. "DOLLARS" and "$" means dollars in lawful currency of the United States of America. "DOMESTIC SUBSIDIARY" means, with respect to any Person, any Subsidiary of such Person which is incorporated or organized under the laws of any State, possession or territory of the United States or the District of Columbia. "ELIGIBLE ASSETS" means another business or any substantial part of another business or other long term assets, in each case, in, or used or useful in, the same or a similar line of -7- 13 business as the Consolidated Parties were engaged in on the Closing Date or any reasonable extensions or expansions thereof. "ELIGIBLE ASSIGNEE" means (a) a Lender; (b) an Affiliate of a Lender; and (c) any other Person approved by the Agent (such approval not to be unreasonably withheld) and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 11.3, the Borrower (such approval not to be unreasonably withheld or delayed by the Borrower and such approval to be deemed given by the Borrower if no objection is received by the assigning Lender and the Agent from the Borrower within five Business Days after notice of such proposed assignment has been provided by the assigning Lender to the Borrower); PROVIDED, HOWEVER, that neither the Borrower nor an Affiliate of the Borrower shall qualify as an Eligible Assignee. "ELIGIBLE DOMESTIC INVENTORY" means, as of any date of determination and without duplication, the lower of the aggregate book value (based on a FIFO or a moving average cost valuation, consistently applied) or fair market value of all raw materials, work in process and finished goods inventory owned by the Borrower or any of its Domestic Subsidiaries, less appropriate reserves determined in accordance with GAAP but excluding in any event (i) inventory which is (a) not subject to a perfected, first priority Lien in favor for the Agent to secure the Credit Party Obligations or (b) subject to any other Lien that is not a Permitted Lien, (ii) inventory which fails to meet standards for sale or use imposed by governmental agencies, departments or divisions having regulatory authority over such goods, (iii) inventory which is not useable or salable at prices approximating their cost in the ordinary course of the business (including without duplication the amount of any reserves for obsolescence, unsalability or decline in value), (iv) inventory located outside of the United States, (v) inventory located at a leased location with respect to which the Agent shall not have received a landlord's waiver satisfactory to the Agent, (vi) inventory which is leased or on consignment and (vii) inventory which fails to meet such other specifications and requirements as may from time to time be established by the Agent in its reasonable discretion. "ELIGIBLE DOMESTIC RECEIVABLES" means, as of any date of determination and without duplication, the aggregate book value of all accounts receivable, receivables, and obligations for payment created or arising from the sale of inventory or the rendering of services in the ordinary course of business (collectively, the "RECEIVABLES"), owned by or owing to the Borrower or any of its Domestic Subsidiaries, net of allowances and reserves for doubtful or uncollectible accounts and sales adjustments consistent with such Person's internal policies and in any event in accordance with GAAP, but excluding in any event (i) any Receivable which is (a) not subject to a perfected, first priority Lien in favor for the Agent to secure the Credit Party Obligations or (b) subject to any other Lien that is not a Permitted Lien, (ii) Receivables which are more than 60 days past due or which are greater than 180 days past the date of invoice (net of reserves for bad debts in connection with any such Receivables), (iii) 50% of the book value of any Receivable not otherwise excluded by clause (ii) above but owing from an account debtor which is the account debtor on any existing Receivable then excluded by such clause (ii), unless the exclusion by such clause (ii) is a result of a legitimate dispute by the account debtor and the amount in dispute is less than $50,000, (iv) Receivables evidenced by notes, chattel paper or other instruments, unless such notes, chattel paper or instruments have been -8- 14 delivered to and are in the possession of the Agent, (v) Receivables owing by an account debtor which is not solvent or is subject to any bankruptcy or insolvency proceeding of any kind, (vi) Receivables which are contingent or subject to offset, deduction, counterclaim, dispute or other defense to payment, in each case to the extent of such offset, deduction, counterclaim, dispute or other defense, (vii) Receivables for which any direct or indirect Subsidiary or any Affiliate is the account debtor, and (viii) Receivables which fail to meet such other specifications and requirements as may from time to time be established by the Agent in its reasonable discretion. "ENVIRONMENTAL LAWS" means any and all lawful and applicable Federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. "ERISA AFFILIATE" means an entity which is under common control with any Credit Party within the meaning of Section 4001(a)(14) of ERISA, or is a member of a group which includes the Borrower and which is treated as a single employer under Sections 414(b) or (c) of the Code. "ERISA EVENT" means (a) with respect to any Plan, the occurrence of a Reportable Event or the substantial cessation of operations (within the meaning of Section 4062(e) of ERISA); (b) the withdrawal by any Consolidated Party or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan; (c) the distribution of a notice of intent to terminate or the actual termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA; (d) the institution of proceedings to terminate or the actual termination of a Plan by the PBGC under Section 4042 of ERISA; (e) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (f) the complete or partial withdrawal of any Consolidated Party or any ERISA Affiliate from a Multiemployer Plan; (g) the conditions for imposition of a lien under Section 302(f) of ERISA exist with respect to any Plan; or (h) the adoption of an amendment to any Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA. "EURODOLLAR LOAN" means any Loan that bears interest at a rate based upon the Eurodollar Rate. -9- 15 "EURODOLLAR RATE" means, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the quotient obtained by dividing (a) the London Interbank Offered Rate for such Eurodollar Loan for such Interest Period by (b) 1 minus the Eurodollar Reserve Requirement for such Eurodollar Loan for such Interest Period. "EURODOLLAR RESERVE REQUIREMENT" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Eurodollar Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (a) any category of liabilities which includes deposits by reference to which the Adjusted Eurodollar Rate is to be determined, or (b) any category of extensions of credit or other assets which include Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Requirement. "EVENT OF DEFAULT" means such term as defined in Section 9.1. "EXCLUDED ASSET DISPOSITION" means any Asset Disposition by any Consolidated Party to any Credit Party if the Credit Parties shall cause to be executed and delivered such documents, instruments and certificates as the Agent may request so as to cause the Credit Parties to be in compliance with the terms of Section 7.13 after giving effect to such Asset Disposition. "FEES" means all fees payable pursuant to Section 3.5. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; PROVIDED that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent (in its individual capacity) on such day on such transactions as determined by the Agent. "FIRST UNION NATIONAL BANK" means First Union National Bank and its successors. "FIXED CHARGE COVERAGE RATIO" means, as of the end of each fiscal quarter of the Consolidated Parties for the twelve month period ending on such date, the ratio of (a) Consolidated EBITDA for the applicable period to (b) the sum of (i) Consolidated Interest Expense for the applicable period PLUS (ii) Consolidated Capital Expenditures for the applicable period PLUS (iii) Consolidated Cash Taxes for the applicable period. -10- 16 "FOREIGN SUBSIDIARY" means, with respect to any Person, any Subsidiary of such Person which is not a Domestic Subsidiary of such Person. "FUNDED INDEBTEDNESS" means, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person under conditional sale or other title retention agreements relating to Property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations of such Person issued or assumed as the deferred purchase price of Property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof) which would appear as liabilities on a balance sheet of such Person, (e) all Guaranty Obligations of such Person, (f) the maximum amount of all standby letters of credit issued or bankers' acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (g) all preferred Capital Stock issued by such Person and required by the terms thereof to be redeemed, or for which mandatory sinking fund payments are due, by a fixed date, (h) Indebtedness in respect of any synthetic lease, end loaded lease financing, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product to which such Person is a party, (i) all Indebtedness of another Person of the type referred to in clauses (a)-(h) above secured by (or for which the holder of such Funded Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, Property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (j) all Guaranty Obligations of such Person with respect to Indebtedness of the type referred to in clauses (a)-(h) above of another Person and (k) Indebtedness of the type referred to in clauses (a)-(h) above of any partnership or unincorporated joint venture in which such Person is legally obligated or has a reasonable expectation of being liable with respect thereto. "GAAP" means generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.3. "GOVERNMENTAL AUTHORITY" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "GUARANTOR" means each of the Persons identified as a "Guarantor" on the signature pages hereto and each Additional Credit Party which may hereafter execute a Joinder Agreement, together with their successors and permitted assigns, and "GUARANTOR" means any one of them. "GUARANTY OBLIGATIONS" means, with respect to any Person, without duplication, any obligations of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether direct or indirect, and including without limitation any obligation, whether or not contingent, (a) to purchase any such Indebtedness or any Property constituting security therefor, (b) to advance or provide funds or -11- 17 other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency or other balance sheet condition of such other Person (including without limitation keep well agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other Person, (c) to lease or purchase Property, securities or services primarily for the purpose of assuring the holder of such Indebtedness, or (d) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof. The amount of any Guaranty Obligation hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount (or maximum principal amount, if larger) of the Indebtedness in respect of which such Guaranty Obligation is made. "HEDGING AGREEMENTS" means any interest rate protection agreement or foreign currency exchange agreement between any Consolidated Party and any Lender, or any Affiliate of a Lender. "INDEBTEDNESS" of any Person means (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person under conditional sale or other title retention agreements relating to Property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations of such Person issued or assumed as the deferred purchase price of Property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof) which would appear as liabilities on a balance sheet of such Person, (e) all obligations of such Person under take-or-pay or similar arrangements or under commodities agreements, (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, Property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) all Guaranty Obligations of such Person, (h) the principal portion of all obligations of such Person under Capital Leases, (i) all obligations of such Person under Hedging Agreements, (j) the maximum amount of all standby letters of credit issued or bankers' acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (k) all preferred Capital Stock issued by such Person and required by the terms thereof to be redeemed, or for which mandatory sinking fund payments are due, by a fixed date and (l) the Indebtedness of any partnership or unincorporated joint venture in which such Person is a general partner or a joint venturer. "INTEREST COVERAGE RATIO" means, with respect to the Consolidated Parties on a consolidated basis for the twelve month period ending on the last day of any fiscal quarter of the Consolidated Parties, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for such period. "INTEREST PAYMENT DATE" means (a) as to Base Rate Loans, the last day of each calendar quarter of the Borrower and the Maturity Date, and (b) as to Eurodollar Loans, the last day of each applicable Interest Period and the Maturity Date and in addition where the applicable -12- 18 Interest Period for a Eurodollar Loan is greater than three months, then also the date three months from the beginning of the Interest Period and each three months thereafter. "INTEREST PERIOD" means, as to Eurodollar Loans, a period of one, two, three or six months' duration, as the Borrower may elect, commencing, in each case, on the date of the borrowing (including continuations and conversions thereof); PROVIDED, HOWEVER, (a) if any Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day), (b) no Interest Period shall extend beyond the Maturity Date and (c) where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last Business Day of such calendar month. "INVESTMENT" in any Person means (a) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (excluding goods and inventory used or sold in the ordinary course of business), shares of Capital Stock, bonds, notes, debentures, partnership, joint ventures or other ownership interests or other securities of such other Person or (b) any deposit with, or advance, loan or other extension of credit to, such Person (other than deposits made in connection with the purchase of equipment or other assets in the ordinary course of business) or (c) any other capital contribution to or investment in such Person, including, without limitation, any Guaranty Obligations (including any support for a letter of credit issued on behalf of such Person) incurred for the benefit of such Person, but excluding any Restricted Payment to such Person. "ISSUING LENDER" means First Union National Bank. "ISSUING LENDER FEES" shall have the meaning assigned to such term in Section 3.5(b)(iii). "JOINDER AGREEMENT" means a Joinder Agreement substantially in the form of EXHIBIT 7.12 hereto, executed and delivered by an Additional Credit Party in accordance with the provisions of Section 7.12. "LENDER" means any of the Persons identified as a "Lender" on the signature pages hereto, and any Person which may become a Lender by way of assignment in accordance with the terms hereof, together with their successors and permitted assigns. "LETTER OF CREDIT" means any letter of credit issued by the Issuing Lender for the account of any Credit Party in accordance with the terms of Section 2.2. "LEVERAGE RATIO" means, with respect to the Consolidated Parties on a consolidated basis for the twelve month period ending on the last day of any fiscal quarter, the ratio of (a) Funded Indebtedness of the Consolidated Parties on a consolidated basis on the last day of such period to (b) Consolidated EBITDA for such period. -13- 19 "LIEN" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, priority or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the Uniform Commercial Code as adopted and in effect in the relevant jurisdiction or other similar recording or notice statute, and any lease in the nature thereof). "LOAN" or "LOANS" means the Revolving Loans (or a portion of any Revolving Loan bearing interest at the Adjusted Base Rate or the Adjusted Eurodollar Rate), individually or collectively, as appropriate. "LOC COMMITMENT" means the commitment of the Issuing Lender to issue Letters of Credit in an aggregate face amount at any time outstanding (together with the amounts of any unreimbursed drawings thereon) of up to the LOC Committed Amount. "LOC COMMITTED AMOUNT" shall have the meaning assigned to such term in Section 2.2. "LOC DOCUMENTS" means, with respect to any Letter of Credit, such Letter of Credit, any amendments thereto, any documents delivered in connection therewith, any application therefor, and any agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (a) the rights and obligations of the parties concerned or at risk or (b) any collateral security for such obligations. "LOC OBLIGATIONS" means, at any time, the sum of (a) the maximum amount which is, or at any time thereafter may become, available to be drawn under Letters of Credit then outstanding, assuming compliance with all requirements for drawings referred to in such Letters of Credit PLUS (b) the aggregate amount of all drawings under Letters of Credit honored by the Issuing Lender but not theretofore reimbursed by the Borrower. "LONDON INTERBANK OFFERED RATE" shall mean, with respect to any Eurodollar Loan for the Interest Period applicable thereto, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; PROVIDED, HOWEVER, if more than one rate is specified on Telerate Page 3750, the applicable rate shall be the arithmetic mean of all such rates. If, for any reason, such rate is not available, the term "LONDON INTERBANK OFFERED RATE" shall mean, with respect to any Eurodollar Loan for the Interest Period applicable thereto, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; PROVIDED, HOWEVER, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. -14- 20 "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the condition (financial or otherwise), operations, business, assets, liabilities or prospects of any Consolidated Party, (b) the ability of any Credit Party to perform any material obligation under the Credit Documents to which it is a party or (c) the material rights and remedies of the Lenders under the Credit Documents. "MATERIALS OF ENVIRONMENTAL CONCERN" means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Laws, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "MATURITY DATE" means July 2, 2003. "MAXIMUM BORROWING AMOUNT" means the sum of (i) 85% of Eligible Domestic Receivables PLUS (ii) 50% of Eligible Domestic Inventory PLUS (iii) $12,000,000. "MOODY'S" means Moody's Investors Service, Inc., or any successor or assignee of the business of such company in the business of rating securities. "MORTGAGE INSTRUMENTS" shall have the meaning assigned such term in Section 5.1(g). "MORTGAGE POLICIES" shall have the meaning assigned such term in Section 5.1(g). "MORTGAGED REAL PROPERTIES" shall have the meaning assigned such term in Section 5.1(g). "MULTIEMPLOYER PLAN" means a Plan which is a multiemployer plan as defined in Sections 3(37) or 4001(a)(3) of ERISA. "MULTIPLE EMPLOYER PLAN" means a Plan which any Consolidated Party or any ERISA Affiliate and at least one employer other than the Consolidated Parties or any ERISA Affiliate are contributing sponsors. "NET LEVERAGE RATIO" means, with respect to the Consolidated Parties on a consolidated basis for the twelve month period ending on the last day of any fiscal quarter, the ratio of (a) the sum of (i) Funded Indebtedness of the Consolidated Parties on the date of determination on a consolidated basis MINUS (ii) cash and Cash Equivalents of the Consolidated Parties on the date of determination on a consolidated basis to (b) Consolidated EBITDA for such period. "NOTE" or "NOTES" means the Revolving Notes, individually or collectively, as appropriate. "NOTICE OF ACCOUNT DESIGNATION" means a written notice of account designation in substantially the form of EXHIBIT 2.1(b)(iii). -15- 21 "NOTICE OF BORROWING" means a written notice of borrowing in substantially the form of EXHIBIT 2.1(b)(i), as required by Section 2.1(b)(i). "NOTICE OF EXTENSION/CONVERSION" means the written notice of extension or conversion in substantially the form of EXHIBIT 3.2, as required by Section 3.2. "NOTICE OF PREPAYMENT" means a written notice of prepayment in substantially the form of EXHIBIT 3.3(a), as required by Section 3.3(a). "OPERATING LEASE" means, as applied to any Person, any lease (including, without limitation, leases which may be terminated by the lessee at any time) of any Property (whether real, personal or mixed) which is not a Capital Lease other than any such lease in which that Person is the lessor. "OTHER TAXES" means such term as is defined in Section 3.11. "PARTICIPATION INTEREST" means a purchase by a Lender of a participation in Letters of Credit or LOC Obligations as provided in Section 2.2 or in any Loans as provided in Section 3.14. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor thereof. "PERMITTED ACQUISITIONS" means any Acquisition (i) which is in the same or a similar or a related line of business as the Borrower is engaged in as of the Closing Date or any reasonable expansions or extensions thereof, (ii) for which, on an individual basis, the consideration paid shall not, without the consent of the Required Lenders, exceed $10,000,000 (exclusive of Replacement Assets and Seller Subordinated Notes), and in an aggregate amount with respect to all such Acquisitions during the term of this Credit Agreement, for which the consideration paid shall not exceed $25,000,000 (exclusive of Replacement Assets and Seller Subordinated Notes), (iii) with respect to which a Pro Forma Compliance Certificate shall have been provided to the Agent showing that the Borrower is in compliance, on a Pro Forma Basis, with each of the other financial covenants set forth in Section 7.11, (iv) which shall not result in a Default or Event of Default, (v) with respect to which Acquired Company EBITDA is greater than $0 and (vi) which shall be in compliance with the provisions of Section 7.12 and Section 7.13. "PERMITTED HOLDERS" means (i) Fleet Venture Resources, Inc., Fleet Equity Partners VI-B, L.P., Chisholm Partners III, L.P., Kennedy Plaza Partners, Ross B. George and Joseph L. Sylvia and (ii) any Person "controlled" (as defined in the definition of "Affiliate") by one or more Persons identified in clause (i) of this definition. "PERMITTED INVESTMENTS" means Investments which are either (a) cash and Cash Equivalents, (b) accounts receivable created, acquired or made by any Consolidated Party in the ordinary course of business and payable or dischargeable in accordance with customary trade terms, (c) Investments existing as of the Closing Date and set forth in SCHEDULE 1.1A, (d) -16- 22 transactions permitted by Section 8.9, (e) advances or loans to directors, officers, employees, agents, customers or suppliers that do not exceed $500,000 in the aggregate at any one time outstanding for all of the Consolidated Parties, (f) Investments in any Credit Party, (g) Investments in Foreign Subsidiaries (excluding Permitted Acquisitions) in an aggregate amount not to exceed $10,000,000, (h) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers, (i) Investments made on or about the Closing Date in connection with the Related Transactions in an aggregate amount not to exceed $59,000,000, (j) Investments made pursuant to the Stockholders Agreement to the extent permitted under Section 8.7, (k) Permitted Acquisitions (including Investments of the Borrower in a Consolidated Party which provides funding for Permitted Acquisitions) and (l) other Investments in an aggregate amount not to exceed $500,000. "PERMITTED LIENS" means: (a) Liens in favor of the Agent to secure the Credit Party Obligations; (b) Liens (other than Liens created or imposed under ERISA) for taxes, assessments or governmental charges or levies not yet due or Liens for taxes being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the Property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof); (c) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and suppliers and other Liens imposed by law or pursuant to customary reservations or retentions of title arising in the ordinary course of business, PROVIDED that such Liens secure only amounts not yet due and payable or, if due and payable, are unfiled and no other action has been taken to enforce the same or are being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the Property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof); (d) Liens (other than Liens created or imposed under ERISA) incurred or deposits made by any Consolidated Party in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (e) Liens in connection with attachments or judgments (including judgment or appeal bonds) PROVIDED that no Event of Default shall have occurred hereunder, and PROVIDED FURTHER, that the judgments secured shall, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall have been discharged within 30 days after the expiration of any such stay; -17- 23 (f) easements, rights-of-way, restrictions (including zoning restrictions), minor defects or irregularities in title and other similar charges or encumbrances not, in any material respect, impairing the use of the encumbered Property for its intended purposes; (g) Liens on Property securing purchase money Indebtedness (including Capital Leases) to the extent permitted under Section 8.1(c), PROVIDED that any such Lien attaches to such Property concurrently with or within 30 days after the acquisition thereof; (h) any interest of title of a lessor under, and Liens arising from UCC financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to, leases permitted by this Credit Agreement; (i) normal and customary rights of setoff upon deposits of cash in favor of banks or other depository institutions PROVIDED, that no Event of Default shall have occurred hereunder; (j) Liens existing as of the Closing Date and set forth on SCHEDULE 1.1B; PROVIDED that (i) no such Lien shall at any time be extended to or cover any Property other than the Property subject thereto on the Closing Date and (ii) the principal amount of the Indebtedness secured by such Liens shall not be extended, renewed, refunded or refinanced; and (k) Liens on the assets of Foreign Subsidiaries securing Indebtedness permitted by Section 8.1(g). "PERSON" means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated) or any Governmental Authority. "PLAN" means any employee benefit plan (as defined in Section 3(3) of ERISA) which is covered by ERISA and with respect to which any Consolidated Party or any ERISA Affiliate is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" within the meaning of Section 3(5) of ERISA. "PLEDGE AGREEMENT" means the pledge agreement dated as of the Closing Date in the form of EXHIBIT 1.1A to be executed in favor of the Agent by each of the Credit Parties, as amended, modified, restated or supplemented from time to time. "PRIME RATE" means the per annum rate of interest established from time to time by First Union National Bank as its prime rate, which rate may not be the lowest rate of interest charged by First Union National Bank to its customers. "PRINCIPAL OFFICE" means the principal office of First Union National Bank, presently located at Charlotte, North Carolina. "PRO FORMA BASIS" means, with respect to any transaction, that such transaction shall be deemed to have occurred (for purposes of calculating compliance in respect of such transaction with each of the financial covenants set forth in Section 7.11 as of the most recent fiscal quarter -18- 24 end preceding the date of such transaction with respect to which the Agent has received the required financial information) as of the first day of the four fiscal-quarter period ending as of such date of determination. As used herein, "TRANSACTION" shall mean any merger or consolidation as referred to in Section 8.4 or any Permitted Acquisition as referred to in Section 8.4 or Section 8.6. Any Indebtedness incurred by the Borrower or any of its Subsidiaries in order to consummate such transaction (A) shall be deemed to have been incurred on the first day of the applicable period and (B) if such Indebtedness has a floating or formula rate, then the implied rate of interest for such Indebtedness for the applicable period for purposes of this definition shall be determined by utilizing the rate which is or would be in effect with respect to such Indebtedness as at the relevant date of determination. In connection with any calculation of the financial covenants set forth in Section 7.11 upon giving effect to a transaction on a Pro Forma Basis for purposes of Section 8.4 or Section 8.6, (1) any Indebtedness incurred by the Borrower or any of its Subsidiaries in connection with such transaction shall be deemed to have been incurred as of the first day of the applicable period and (2) income statement items (whether positive or negative) attributable to the Property acquired in such transaction shall be included to the extent relating to the relevant period. "PRO FORMA COMPLIANCE CERTIFICATE" means a certificate of the chief financial officer of the Borrower delivered to the Agent in connection with any merger or consolidation as referred to in Section 8.4 or any Permitted Acquisition as referred to in Section 8.4 or Section 8.6 and containing reasonably detailed calculations, upon giving effect to the applicable transaction on a Pro Forma Basis, of the financial covenants contained in Section 7.11 as of the most recent fiscal quarter end preceding the date of the applicable transaction with respect to which the Agent shall have received the required financial information. "PROPERTY" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "REGISTER" shall have the meaning given such term in Section 11.3(c). "REGULATION G, T, U, OR X" means Regulation G, T, U or X, respectively, of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "RELATED TRANSACTIONS" shall mean the transactions effected pursuant to (i) that certain letter agreement dated on or about the date hereof between the Borrower and Massachusetts Capital Resource Company pursuant to which the Borrower has agreed to repurchase the Borrower's Warrant dated May 26, 1995, for 5,051.94 shares of its Capital Stock, (ii) those certain letter agreements dated on or about the date hereof between the Borrower and certain of its employees pursuant to which the Borrower has agreed to repurchase stock options covering a total of 36,704.19 shares of its Capital Stock, and (iii) those certain letter agreements dated on or about the date hereof between the Borrower and certain of its stockholders pursuant to which the Borrower has agreed to repurchase a total of 114,036.31 shares of its Capital Stock. "RELEASE" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment -19- 25 (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Materials of Environmental Concern). "REPLACEMENT ASSETS" means assets and property which are acquired with proceeds from the sale or as a result of the exchange of existing assets and property and which will be used in the business of the Consolidated Parties as conducted on the Closing Date or in a business the same, similar or reasonably related thereto (including Capital Stock of a Person which becomes a Subsidiary of the Borrower if such Person is engaged in businesses which comply with Section 8.3 hereof). "REPORTABLE EVENT" means any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the notice requirement has been waived by regulation. "REQUIRED LENDERS" means, at any time, Lenders which are not Defaulting Lenders and holding in the aggregate at least 66 2/3% of (a) the Revolving Commitments (and Participation Interests therein) or (b) if the Commitments have been terminated, the outstanding Loans and Participation Interests (including the Participation Interests of the Issuing Lender in any Letters of Credit); provided, however, that if only two Lenders shall have Commitments at any time during the term of this Credit Agreement, then "Required Lenders" shall mean Lenders which are not Defaulting Lenders and holding in the aggregate at least 100% of the Revolving Commitments, or if the Revolving Commitments have been terminated, the outstanding Loans and Participation Interests. "REQUIREMENT OF LAW" means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its material property is subject. "RESPONSIBLE OFFICER" means either the president or chief financial officer of the Borrower. "RESTRICTED PAYMENT" means (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of any Consolidated Party, now or hereafter outstanding, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of any Consolidated Party, now or hereafter outstanding and (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of any Consolidated Party, now or hereafter outstanding. "REVOLVING COMMITMENT" means, with respect to each Lender, the commitment of such Lender in an aggregate principal amount at any time outstanding of up to such Lender's Revolving Commitment Percentage of the Revolving Committed Amount, (a) to make Revolving Loans in accordance with the provisions of Section 2.1(a) and (b) to purchase Participation Interests in Letters of Credit in accordance with the provisions of Section 2.2(c). -20- 26 "REVOLVING COMMITMENT PERCENTAGE" means, for any Lender, the percentage identified as its Revolving Commitment Percentage on SCHEDULE 2.1(a), as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 11.3. "REVOLVING COMMITTED AMOUNT" shall have the meaning assigned to such term in Section 2.1(a). "REVOLVING LOANS" shall have the meaning assigned to such term in Section 2.1(a). "REVOLVING NOTE" or "REVOLVING NOTES" means the promissory notes of the Borrower in favor of each of the Lenders evidencing the Revolving Loans provided pursuant to Section 2.1(e), individually or collectively, as appropriate, as such promissory notes may be amended, modified, restated, supplemented, extended, renewed or replaced from time to time. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., or any successor or assignee of the business of such division in the business of rating securities. "SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to any Consolidated Party of any Property, whether owned by such Consolidated Party as of the Closing Date or later acquired, which has been or is to be sold or transferred by such Consolidated Party to such Person or to any other Person from whom funds have been, or are to be, advanced by such Person on the security of such Property. "SECURITY AGREEMENT" means the security agreement dated as of the Closing Date in the form of EXHIBIT 1.1B to be executed in favor of the Agent by each of the Credit Parties, as amended, modified, restated or supplemented from time to time. "SELLER SUBORDINATED NOTES" means any notes issued to a seller in connection with a Permitted Acquisition provided that such notes are subordinated to Credit Party Obligations and are otherwise on terms and conditions reasonably satisfactory to the Agent. "SINGLE EMPLOYER PLAN" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan. "SOLVENT" or "SOLVENCY" means, with respect to any Person as of a particular date, that on such date (a) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature in their ordinary course, (c) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person's Property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or is to engage, (d) the fair value of the Property of such Person is greater than the total amount of liabilities, including, without limitation, -21- 27 contingent liabilities, of such Person and (e) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "STANDBY LETTER OF CREDIT FEE" shall have the meaning assigned to such term in Section 3.5(b)(i). "STOCKHOLDERS AGREEMENT" means the Stockholder Agreement dated on or about the date hereof among the Borrower and all of its stockholders. "SUBORDINATED NOTES" means those certain 10 1/4% senior subordinated notes of the Borrower in an aggregate principal amount of up to $150,000,000. "SUBSIDIARY" means, as to any Person, (a) any corporation more than 50% of whose Capital Stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries, and (b) any partnership, association, joint venture or other entity in which such Person directly or indirectly through Subsidiaries has more than 50% equity interest at any time. "TAXES" means such term as is defined in Section 3.11. "TRADE LETTER OF CREDIT FEE" shall have the meaning assigned to such term in Section 3.5(b)(ii). "VOTING STOCK" means, with respect to any Person, Capital Stock issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency. "WHOLLY OWNED SUBSIDIARY" of any Person means any Subsidiary 100% of whose Voting Stock or other equity interests is at the time owned by such Person directly or indirectly through other Wholly Owned Subsidiaries. 1.2 COMPUTATION OF TIME PERIODS. For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." -22- 28 1.3 ACCOUNTING TERMS. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. All calculations made for the purposes of determining compliance with this Credit Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with the most recent annual or quarterly financial statements delivered pursuant to Section 7.1 (or, prior to the delivery of the first financial statements pursuant to Section 7.1, consistent with the financial statements as at December 27, 1997); provided, HOWEVER, if (a) the Borrower shall object to determining such compliance on such basis at the time of delivery of such financial statements due to any change in GAAP or the rules promulgated with respect thereto or (b) the Agent or the Required Lenders shall so object in writing within 60 days after delivery of such financial statements, then such calculations shall be made on a basis consistent with the most recent financial statements delivered by the Borrower to the Lenders as to which no such objection shall have been made. Notwithstanding the above, the parties hereto acknowledge and agree that, for purposes of all calculations made under the financial covenants set forth in Section 7.11 (including without limitation for purposes of the definitions of "Applicable Margin" and "Pro Forma Basis" set forth in Section 1.1), (i) income statement items (whether positive or negative) attributable to any Person or Property acquired in any Investment transaction contemplated by Section 8.6 shall be included to the extent relating to any period applicable in such calculations occurring after the date of such transaction (and, notwithstanding the foregoing, during the first four fiscal quarters following the date of such transaction, shall be included on an annualized basis). SECTION 2 CREDIT FACILITIES 2.1 REVOLVING LOANS. (a) REVOLVING COMMITMENT. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, each Lender severally agrees to make available to the Borrower such Lender's Revolving Commitment Percentage of revolving credit loans requested by the Borrower in Dollars ("REVOLVING LOANS") from time to time from the Closing Date until the Maturity Date, or such earlier date as the Revolving Commitments shall have been terminated as provided herein for the purposes hereinafter set forth; PROVIDED, HOWEVER, that the sum of the aggregate principal amount of outstanding Revolving Loans shall not exceed THIRTY MILLION DOLLARS ($30,000,000) (provided, that until such time as the Credit Parties shall have caused the liens relating to the assets of Nothing America, Inc. in favor of Wells Fargo Bank to have been released in full, the aggregate principal amount of Revolving Loans shall not exceed $28,500,000) (as such aggregate maximum amount may be reduced from time to time as provided in Section 3.4 and Section 8.1(g), the "REVOLVING COMMITTED AMOUNT"); PROVIDED, FURTHER, (A) with regard to each Lender -23- 29 individually, such Lender's outstanding Revolving Loans shall not exceed such Lender's Revolving Commitment Percentage of the Revolving Committed Amount, and (B) the aggregate principal amount of outstanding Revolving Loans PLUS LOC Obligations outstanding shall not exceed the Revolving Committed Amount. Revolving Loans may consist of Base Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower may request, and may be repaid and reborrowed in accordance with the provisions hereof; PROVIDED, HOWEVER, that no more than 5 Eurodollar Loans shall be outstanding hereunder at any time. For purposes hereof, Eurodollar Loans with different Interest Periods shall be considered as separate Eurodollar Loans, even if they begin on the same date, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new Eurodollar Loan with a single Interest Period. Revolving Loans hereunder may be repaid and reborrowed in accordance with the provisions hereof. (b) REVOLVING LOAN BORROWINGS. (i) NOTICE OF BORROWING. The Borrower shall request a Revolving Loan borrowing by written notice (or telephonic notice promptly confirmed in writing) to the Agent not later than 11:00 A.M. (Charlotte, North Carolina time) on the Business Day prior to the date of the requested borrowing in the case of Base Rate Loans, and on the third Business Day prior to the date of the requested borrowing in the case of Eurodollar Loans. Each such request for borrowing shall be irrevocable and shall specify (A) that a Revolving Loan is requested, (B) the date of the requested borrowing (which shall be a Business Day), (C) the aggregate principal amount to be borrowed, and (D) whether the borrowing shall be comprised of Base Rate Loans, Eurodollar Loans or a combination thereof, and if Eurodollar Loans are requested, the Interest Period(s) therefor. If the Borrower shall fail to specify in any such Notice of Borrowing (I) an applicable Interest Period in the case of a Eurodollar Loan, then such notice shall be deemed to be a request for an Interest Period of one month, or (II) the type of Revolving Loan requested, then such notice shall be deemed to be a request for a Base Rate Loan hereunder. The Agent shall give notice to each affected Lender promptly upon receipt of each Notice of Borrowing pursuant to this Section 2.1(b)(i), the contents thereof and each such Lender's share of any borrowing to be made pursuant thereto. (ii) MINIMUM AMOUNTS. Each Eurodollar Loan or Base Rate Loan that is a Revolving Loan shall be in a minimum aggregate principal amount of $500,000 and integral multiples of $100,000 in excess thereof (or the remaining amount of the Revolving Committed Amount, if less). (iii) ADVANCES. Each Lender will make its Revolving Commitment Percentage of each Revolving Loan borrowing available to the Agent for the account of the Borrower as specified in Section 3.15(a), or in such other manner as the Agent may specify in writing, by 1:00 P.M. (Charlotte, North Carolina time) on the date specified in the applicable Notice of Borrowing in Dollars and in funds immediately available to the Agent. Such borrowing will then be made available to the Borrower by the Agent by crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Agent by the Lenders and in like funds as received -24- 30 by the Agent. The Borrower hereby irrevocably authorizes the Agent to, and the Agent shall, on such date disburse the proceeds of each Revolving Loan requested by the Borrower pursuant to this subsection 2.1(b)(iii) in immediately available funds by crediting or wiring such proceeds to the deposit account of the Borrower identified in the most recent Notice of Account Designation substantially in the form of EXHIBIT 2.1(b)(iii) hereto (a "Notice of Account Designation") delivered by the Borrower to the Agent or as may be otherwise agreed upon the Borrower and the Agent from time to time. (c) REPAYMENT. The principal amount of all Revolving Loans shall be due and payable in full on the Maturity Date, unless accelerated sooner pursuant to Section 9.2. (d) INTEREST. Subject to the provisions of Section 3.1, (i) BASE RATE LOANS. During such periods as Revolving Loans shall be comprised in whole or in part of Base Rate Loans, such Base Rate Loans shall bear interest at a per annum rate equal to the Adjusted Base Rate. (ii) EURODOLLAR LOANS. During such periods as Revolving Loans shall be comprised in whole or in part of Eurodollar Loans, such Eurodollar Loans shall bear interest at a per annum rate equal to the Adjusted Eurodollar Rate. Interest on Revolving Loans shall be payable in arrears on each applicable Interest Payment Date (or at such other times as may be specified herein). (e) REVOLVING NOTES. The Revolving Loans made by each Lender shall be evidenced by a duly executed promissory note of the Borrower to such Lender in an original principal amount equal to such Lender's Revolving Commitment Percentage of the Revolving Committed Amount and in substantially the form of EXHIBIT 2.1(e). 2.2 LETTER OF CREDIT SUBFACILITY. (a) ISSUANCE. Subject to the terms and conditions hereof and of the LOC Documents, if any, and any other terms and conditions which the Issuing Lender may reasonably require and in reliance upon the representations and warranties set forth herein, the Issuing Lender agrees to issue, and each Lender severally agrees to participate in the issuance by the Issuing Lender of, standby and trade Letters of Credit in Dollars from time to time from the Closing Date until the Maturity Date as the Borrower may request, in a form acceptable to the Issuing Lender; PROVIDED, HOWEVER, that (i) the LOC Obligations outstanding shall not at any time exceed THREE MILLION DOLLARS ($3,000,000) (the "LOC COMMITTED AMOUNT") and (ii) the sum of the aggregate principal amount of outstanding Revolving Loans PLUS LOC Obligations outstanding shall not at any time exceed the Revolving Committed Amount. No Letter of Credit shall (x) unless otherwise agreed by the Agent, have an original expiry date more than one year from the date of issuance or (y) as originally issued or as extended, have an expiry date extending beyond the Maturity Date. Each Letter of Credit shall -25- 31 comply with the related LOC Documents. The issuance and expiry dates of each Letter of Credit shall be a Business Day. (b) NOTICE AND REPORTS. The request for the issuance of a Letter of Credit shall be submitted by the Borrower to the Issuing Lender at least three (3) Business Days prior to the requested date of issuance. The Issuing Lender will, at least quarterly and more frequently upon request, disseminate to each of the Lenders a detailed report specifying the Letters of Credit which are then issued and outstanding and any activity with respect thereto which may have occurred since the date of the prior report, and including therein, among other things, the beneficiary, the face amount and the expiry date, as well as any payment or expirations which may have occurred. (c) PARTICIPATION. Each Lender, upon issuance of a Letter of Credit, shall be deemed to have purchased without recourse a Participation Interest from the applicable Issuing Lender in such Letter of Credit and the obligations arising thereunder and any collateral relating thereto, in each case in an amount equal to its pro rata share of the obligations under such Letter of Credit (based on the respective Revolving Commitment Percentages of the Lenders) and shall absolutely, unconditionally and irrevocably assume and be obligated to pay to the Issuing Lender and discharge when due, its pro rata share of the obligations arising under such Letter of Credit. Without limiting the scope and nature of each Lender's Participation Interest in any Letter of Credit, to the extent that the Issuing Lender has not been reimbursed as required hereunder or under any such Letter of Credit, each such Lender shall pay to the Issuing Lender its pro rata share of such unreimbursed drawing in same day funds on the day of notification by the Issuing Lender of an unreimbursed drawing pursuant to the provisions of subsection (d) below. The obligation of each Lender to so reimburse the Issuing Lender shall be absolute and unconditional and shall not be affected by the occurrence of a Default, an Event of Default or any other occurrence or event. Any such reimbursement shall not relieve or otherwise impair the obligation of the Borrower to reimburse the Issuing Lender under any Letter of Credit, together with interest as hereinafter provided. (d) REIMBURSEMENT. In the event of any drawing under any Letter of Credit, the Issuing Lender will promptly notify the Borrower. Unless the Borrower shall immediately notify the Issuing Lender that the Borrower intends to otherwise reimburse the Issuing Lender for such drawing, the Borrower shall be deemed to have requested that the Lenders make a Revolving Loan in the amount of the drawing as provided in subsection (e) below on the related Letter of Credit, the proceeds of which will be used to satisfy the related reimbursement obligations. The Borrower promises to reimburse the Issuing Lender on the day of drawing under any Letter of Credit (either with the proceeds of a Revolving Loan obtained hereunder or otherwise) in same day funds. If the Borrower shall fail to reimburse the Issuing Lender as provided hereinabove, the unreimbursed amount of such drawing shall bear interest at a per annum rate equal to the Base Rate PLUS 2%. The Borrower's reimbursement obligations hereunder shall be absolute and unconditional under all circumstances irrespective of any rights of setoff, counterclaim or defense to payment the Borrower may claim or have against the Issuing Lender, the Agent, the Lenders, the beneficiary of the Letter of Credit drawn upon or any other Person, including without limitation any defense based on any failure of the Borrower or any other Credit Party to receive consideration or the legality, validity, regularity or -26- 32 unenforceability of the Letter of Credit. The Issuing Lender will promptly notify the other Lenders of the amount of any unreimbursed drawing and each Lender shall promptly pay to the Agent for the account of the Issuing Lender in Dollars and in immediately available funds, the amount of such Lender's pro rata share of such unreimbursed drawing. Such payment shall be made on the day such notice is received by such Lender from the Issuing Lender if such notice is received at or before 2:00 P.M. (Charlotte, North Carolina time) otherwise such payment shall be made at or before 12:00 Noon (Charlotte, North Carolina time) on the Business Day next succeeding the day such notice is received. If such Lender does not pay such amount to the Issuing Lender in full upon such request, such Lender shall, on demand, pay to the Agent for the account of the Issuing Lender interest on the unpaid amount during the period from the date of such drawing until such Lender pays such amount to the Issuing Lender in full at a rate per annum equal to, if paid within two (2) Business Days of the date that such Lender is required to make payments of such amount pursuant to the preceding sentence, the Federal Funds Rate and thereafter at a rate equal to the Base Rate. Each Lender's obligation to make such payment to the Issuing Lender, and the right of the Issuing Lender to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and without regard to the termination of this Credit Agreement or the Commitments hereunder, the existence of a Default or Event of Default or the acceleration of the obligations of the Borrower hereunder and shall be made without any offset, abatement, withholding or reduction whatsoever. Simultaneously with the making of each such payment by a Lender to the Issuing Lender, such Lender shall, automatically and without any further action on the part of the Issuing Lender or such Lender, acquire a Participation Interest in an amount equal to such payment (excluding the portion of such payment constituting interest owing to the Issuing Lender) in the related unreimbursed drawing portion of the LOC Obligation and in the interest thereon and in the related LOC Documents, and shall have a claim against the Borrower with respect thereto. (e) REPAYMENT WITH REVOLVING LOANS. On any day on which the Borrower shall have requested, or been deemed to have requested, a Revolving Loan advance to reimburse a drawing under a Letter of Credit, the Agent shall give notice to the Lenders that a Revolving Loan has been requested or deemed requested by the Borrower to be made in connection with a drawing under a Letter of Credit, in which case a Revolving Loan advance comprised of Base Rate Loans (or Eurodollar Loans to the extent the Borrower has complied with the procedures of Section 2.1(b)(i) with respect thereto) shall be immediately made to the Borrower by all Lenders (notwithstanding any termination of the Commitments pursuant to Section 9.2) PRO RATA based on the respective Revolving Commitment Percentages of the Lenders (determined before giving effect to any termination of the Commitments pursuant to Section 9.2) and the proceeds thereof shall be paid directly to the Issuing Lender for application to the respective LOC Obligations. Each such Lender hereby irrevocably agrees to make its pro rata share of each such Revolving Loan immediately upon any such request or deemed request in the amount, in the manner and on the date specified in the preceding sentence NOTWITHSTANDING (i) the amount of such borrowing may not comply with the minimum amount for advances of Revolving Loans otherwise required hereunder, (ii) whether any conditions specified in Section 5.2 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) failure for any such request or deemed request for Revolving Loan to be made by the time otherwise required hereunder, (v) whether the date of such borrowing is a date on which Revolving Loans are -27- 33 otherwise permitted to be made hereunder or (vi) any termination of the Commitments relating thereto immediately prior to or contemporaneously with such borrowing. In the event that any Revolving Loan cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to the Borrower or any Credit Party), then each such Lender hereby agrees that it shall forthwith purchase (as of the date such borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) from the Issuing Lender such Participation Interests in the outstanding LOC Obligations as shall be necessary to cause each such Lender to share in such LOC Obligations ratably (based upon the respective Revolving Commitment Percentages of the Lenders (determined before giving effect to any termination of the Commitments pursuant to Section 9.2)), PROVIDED that at the time any purchase of Participation Interests pursuant to this sentence is actually made, the purchasing Lender shall be required to pay to the Issuing Lender, to the extent not paid to the Issuer by the Borrower in accordance with the terms of subsection (d) above, interest on the principal amount of Participation Interests purchased for each day from and including the day upon which such borrowing would otherwise have occurred to but excluding the date of payment for such Participation Interests, at the rate equal to, if paid within two (2) Business Days of the date of the Revolving Loan advance, the Federal Funds Rate, and thereafter at a rate equal to the Base Rate. (f) DESIGNATION OF CONSOLIDATED PARTIES AS ACCOUNT PARTIES. Notwithstanding anything to the contrary set forth in this Credit Agreement, including without limitation Section 2.2(a), a Letter of Credit issued hereunder may contain a statement to the effect that such Letter of Credit is issued for the account of a Consolidated Party other than the Borrower, provided that notwithstanding such statement, the Borrower shall be the actual account party for all purposes of this Credit Agreement for such Letter of Credit and such statement shall not affect the Borrower's reimbursement obligations hereunder with respect to such Letter of Credit. (g) RENEWAL, EXTENSION. The renewal or extension of any Letter of Credit shall, for purposes hereof, be treated in all respects the same as the issuance of a new Letter of Credit hereunder. (h) UNIFORM CUSTOMS AND PRACTICES. The Issuing Lender may have the Letters of Credit be subject to The Uniform Customs and Practice for Documentary Credits, as published as of the date of issue by the International Chamber of Commerce (the "UCP"), in which case the UCP may be incorporated therein and deemed in all respects to be a part thereof. (i) INDEMNIFICATION; NATURE OF ISSUING LENDER'S DUTIES. (i) In addition to its other obligations under this Section 2.2, the Borrower hereby agrees to pay, and protect, indemnify and save each Lender harmless from and against, any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) that such Lender may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit or (B) the failure of such Lender to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de -28- 34 jure or de facto government or Governmental Authority (all such acts or omissions, herein called "Government Acts"). (ii) As between the Borrower and the Lenders (including the Issuing Lender), the Borrower shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. No Lender (including the Issuing Lender) shall be responsible: (A) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (C) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (D) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under a Letter of Credit or of the proceeds thereof; and (E) for any consequences arising from causes beyond the control of such Lender, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of the Issuing Lender's rights or powers hereunder. (iii) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by any Lender (including the Issuing Lender), under or in connection with any Letter of Credit or the related certificates, if taken or omitted in good faith, shall not put such Lender under any resulting liability to the Borrower or any other Credit Party. It is the intention of the parties that this Credit Agreement shall be construed and applied to protect and indemnify each Lender (including the Issuing Lender) against any and all risks involved in the issuance of the Letters of Credit, all of which risks are hereby assumed by the Borrower (on behalf of itself and each of the other Credit Parties), including, without limitation, any and all Government Acts. No Lender (including the Issuing Lender) shall, in any way, be liable for any failure by such Lender or anyone else to pay any drawing under any Letter of Credit as a result of any Government Acts or any other cause beyond the control of such Lender. (iv) Nothing in this subsection (i) is intended to limit the reimbursement obligations of the Borrower contained in subsection (d) above. The obligations of the Borrower under this subsection (i) shall survive the termination of this Credit Agreement. No act or omissions of any current or prior beneficiary of a Letter of Credit shall in any way affect or impair the rights of the Lenders (including the Issuing Lender) to enforce any right, power or benefit under this Credit Agreement. (v) Notwithstanding anything to the contrary contained in this subsection (i), the Borrower shall have no obligation to indemnify any Lender (including the Issuing Lender) in respect of any liability incurred by such Lender (A) arising solely out of the gross negligence or willful misconduct of such Lender, as determined by a court of -29- 35 competent jurisdiction, or (B) caused by such Lender's failure to pay under any Letter of Credit after presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit, as determined by a court of competent jurisdiction, unless such payment is prohibited by any law, regulation, court order or decree. (j) RESPONSIBILITY OF ISSUING LENDER. It is expressly understood and agreed that the obligations of the Issuing Lender hereunder to the Lenders are only those expressly set forth in this Credit Agreement and that the Issuing Lender shall be entitled to assume that the conditions precedent set forth in Section 5.2 have been satisfied unless it shall have acquired actual knowledge that any such condition precedent has not been satisfied; PROVIDED, HOWEVER, that nothing set forth in this Section 2.2 shall be deemed to prejudice the right of any Lender to recover from the Issuing Lender any amounts made available by such Lender to the Issuing Lender pursuant to this Section 2.2 in the event that it is determined by a court of competent jurisdiction that the payment with respect to a Letter of Credit constituted gross negligence or willful misconduct on the part of the Issuing Lender. (k) CONFLICT WITH LOC DOCUMENTS. In the event of any conflict between this Credit Agreement and any LOC Document (including any letter of credit application), this Credit Agreement shall control. SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES 3.1 DEFAULT RATE. Upon the occurrence, and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall bear interest, payable on demand, at a per annum rate equal to the Base Rate PLUS 2%. 3.2 EXTENSION AND CONVERSION. Subject to the terms of Section 5.2, the Borrower shall have the option, on any Business Day, to extend existing Loans into a subsequent permissible Interest Period or to convert Loans into Loans of another interest rate type; PROVIDED, HOWEVER, that (i) except as provided in Section 3.8, Eurodollar Loans may be converted into Base Rate Loans only on the last day of the Interest Period applicable thereto, (ii) Eurodollar Loans may be extended, and Base Rate Loans may be converted into Eurodollar Loans, only if no Default or Event of Default is in existence on the date of extension or conversion, (iii) Loans extended as, or converted into, Eurodollar Loans shall be subject to the terms of the definition of "INTEREST PERIOD" set forth in Section 1.1 and shall be in such minimum amounts as provided in Section 2.1(b)(ii), or (iv) no more than 5 Eurodollar Loans shall be outstanding hereunder at any time (it being understood that, for purposes hereof, Eurodollar Loans with different Interest Periods shall be considered as separate Eurodollar Loans, even if they begin on the same date, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at -30- 36 the end of existing Interest Periods to constitute a new Eurodollar Loan with a single Interest Period) and (v) any request for extension or conversion of a Eurodollar Loan which shall fail to specify an Interest Period shall be deemed to be a request for an Interest Period of one month. Each such extension or conversion shall be effected by the Borrower by giving a Notice of Extension/Conversion (or telephonic notice promptly confirmed in writing) to the office of the Agent specified in specified in SCHEDULE 2.1(a), or at such other office as the Agent may designate in writing, prior to 11:00 A.M. (Charlotte, North Carolina time) on the Business Day of, in the case of the conversion of a Eurodollar Loan into a Base Rate Loan, and on the third Business Day prior to, in the case of the extension of a Eurodollar Loan as, or conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed extension or conversion, specifying the date of the proposed extension or conversion, the Loans to be so extended or converted, the types of Loans into which such Loans are to be converted and, if appropriate, the applicable Interest Periods with respect thereto. Each request for extension or conversion shall be irrevocable and shall constitute a representation and warranty by the Borrower of the matters specified in subsections (b), (c) and (d) of Section 5.2. In the event the Borrower fails to request extension or conversion of any Eurodollar Loan in accordance with this Section, or any such conversion or extension is not permitted or required by this Section, then such Eurodollar Loan shall be automatically converted into a Base Rate Loan at the end of the Interest Period applicable thereto. The Agent shall give each Lender notice as promptly as practicable of any such proposed extension or conversion affecting any Loan. 3.3 PREPAYMENTS. (a) VOLUNTARY PREPAYMENTS. Upon the written notice (or telephonic notice promptly confirmed in writing) in the form attached hereto as EXHIBIT 3.3(a) (a "NOTICE OF PREPAYMENT") to the Agent not later than 11:00 A.M. (Charlotte, North Carolina time) on the date which is 3 Business Days prior to the date of the prepayment in the case of Eurodollar Loans (which, to the extent any Eurodollar Loan outstanding shall be greater than $600,000 shall be in a minimum amount of $100,000 (i.e.- a $700,000 Loan could be reduced to $600,000) but in the event that any Eurodollar Loan shall be $500,000 then such payment shall be in a minimum amount of $500,000), and on the Business Day prior to the date of prepayment in the case of Base Rate Loans (which shall be in a minimum amount of $100,000), the Borrower shall have the right to prepay Loans in whole or in part from time to time without premium or penalty. Subject to the foregoing terms, amounts prepaid under this Section 3.3(a) in each case shall be applied first to Base Rate Loans and then to Eurodollar Loans in direct order of Interest Period maturities. All prepayments under this Section 3.3(a) shall be subject to Section 3.12. (b) MANDATORY PREPAYMENTS. (i) REVOLVING COMMITTED AMOUNT. If at any time, the sum of the aggregate principal amount of outstanding Revolving Loans PLUS LOC Obligations outstanding shall exceed the Revolving Committed Amount, the Borrower immediately shall prepay the Revolving Loans and (after all Revolving Loans have been repaid) cash collateralize the LOC Obligations, in an amount sufficient to eliminate such excess. (ii) APPLICATION OF MANDATORY PREPAYMENTS. All amounts required to be paid pursuant to this Section 3.3(b) shall be applied first to Base Rate Loans and then -31- 37 to Eurodollar Loans in direct order of Interest Period maturities. All prepayments under this Section 3.3(b) shall be subject to Section 3.12. 3.4 TERMINATION AND REDUCTION OF REVOLVING COMMITTED AMOUNT. (a) VOLUNTARY REDUCTIONS. The Borrower may from time to time permanently reduce or terminate the Revolving Committed Amount in whole or in part (in minimum aggregate amounts of $1,000,000 or in integral multiples of $100,000 in excess thereof (or, if less, the full remaining amount of the then applicable Revolving Committed Amount)) upon five Business Days' prior written notice to the Agent; PROVIDED, HOWEVER, no such termination or reduction shall be made which would cause the aggregate principal amount of outstanding Revolving Loans PLUS LOC Obligations outstanding to exceed the Revolving Committed Amount, unless, concurrently with such termination or reduction, the Revolving Loans are repaid to the extent necessary to eliminate such excess. The Agent shall promptly notify each affected Lender of receipt by the Agent of any notice from the Borrower pursuant to this Section 3.4(a). (b) MATURITY DATE. The Revolving Commitments of the Lenders and the LOC Commitment of the Issuing Lender shall automatically terminate on (i) the Maturity Date or (ii) the date upon which Indebtedness incurred pursuant to Section 8.1(g) shall cause the Revolving Committed Amount to be reduced to $0. (c) GENERAL. The Borrower shall pay to the Agent for the account of the Lenders in accordance with the terms of Section 3.5(a), on the date of each termination or reduction of the Revolving Committed Amount, the Commitment Fee accrued through the date of such termination or reduction on the amount of the Revolving Committed Amount so terminated or reduced. 3.5 FEES. (a) COMMITMENT FEE. In consideration of the Revolving Commitments of the Lenders hereunder, the Borrower agrees to pay to the Agent for the account of each Lender a fee (the "COMMITMENT FEE") on such Lender's Revolving Credit Percentage of the unused portion of the Revolving Committed Amount computed at a per annum rate for each day during the applicable Commitment Fee Calculation Period (hereinafter defined) at a rate equal to the Applicable Margin in effect from time to time. The Commitment Fee shall commence to accrue on the Closing Date and shall be due and payable in arrears on the last Business Day of each March, June, September and December (and any date that the Revolving Committed Amount is reduced as provided in Section 3.4(a) and the Maturity Date) for the immediately preceding quarter (or portion thereof) (each such quarter or portion thereof for which the Commitment Fee is payable hereunder being herein referred to as an "COMMITMENT FEE CALCULATION PERIOD"), beginning with the first of such dates to occur after the Closing Date. (b) LETTER OF CREDIT FEES. -32- 38 (i) LETTER OF CREDIT ISSUANCE FEE. In consideration of the issuance of standby Letters of Credit hereunder, the Borrower promises to pay to the Agent for the account of each Lender a fee (the "STANDBY LETTER OF CREDIT FEE") on such Lender's Revolving Commitment Percentage of the average daily maximum amount available to be drawn under each such standby Letter of Credit computed at a per annum rate for each day from the date of issuance to the date of expiration equal to the Applicable Margin. The Standby Letter of Credit Fee will be payable quarterly in arrears on the last Business Day of each March, June, September and December for the immediately preceding quarter (or a portion thereof). (ii) TRADE LETTER OF CREDIT DRAWING FEE. In consideration of the issuance of trade Letters of Credit hereunder, the Borrower promises to pay to the Agent for the account of each Lender at the time of such issuance a fee (the "TRADE LETTER OF CREDIT FEE") equal to one quarter of one percent (1/4%) on such Lender's Revolving Commitment Percentage of the amount of each drawing under any such trade Letter of Credit. The Trade Letter of Credit Fee will be payable quarterly in arrears on the last Business Day of each March, June, September and December for the immediately preceding quarter (or a portion thereof). (iii)ISSUING LENDER FEES. In addition to the Standby Letter of Credit Fee payable pursuant to clause (i) above and the Trade Letter of Credit Fee payable pursuant to clause (ii) above, the Borrower promises to pay to the Issuing Lender for its own account without sharing by the other Lenders the letter of credit fronting and negotiation fees equal to one-eighth of one percent (1/8%) of the face amount of such Letter of Credit and the customary charges from time to time of the Issuing Lender with respect to the issuance, amendment, transfer, administration, cancellation and conversion of, and drawings under, such Letters of Credit (collectively, the "ISSUING LENDER FEES"). (c) ADMINISTRATIVE FEES. The Borrower agrees to pay to the Agent, for its own account, as applicable, the fees referred to in the Agent's Fee Letter (collectively, the "AGENT'S FEES"). 3.6 CAPITAL ADEQUACY. If any Lender has determined, after the date hereof, that the adoption or the becoming effective of, or any change in, or any change by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof in the interpretation or administration of, any applicable law, rule or regulation regarding capital adequacy, or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's policies with respect to -33- 39 capital adequacy), then, upon notice from such Lender to the Borrower (such notice to be given within six calendar months of the Lender's determination thereof), the Borrower shall be obligated to pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. Each determination by any such Lender of amounts owing under this Section shall, absent manifest error, be conclusive and binding on the parties hereto. 3.7 LIMITATION ON EURODOLLAR LOANS. If on or prior to the first day of any Interest Period for any Eurodollar Loan: (a) the Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) the Required Lenders determine (which determination shall be conclusive) and notify the Agent that the Eurodollar Rate will not adequately and fairly reflect the cost to the Lenders of funding Eurodollar Loans for such Interest Period; then the Agent shall give the Borrower prompt notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans, Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans, either prepay such Eurodollar Loans or Convert such Eurodollar Loans into Base Rate Loans in accordance with the terms of this Credit Agreement. 3.8 ILLEGALITY. Notwithstanding any other provision of this Credit Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain, or fund Eurodollar Loans hereunder, then such Lender shall promptly notify the Borrower thereof and such Lender's obligation to make or Continue Eurodollar Loans and to Convert Base Rate Loans into Eurodollar Loans shall be suspended until such time as such Lender may again make, maintain, and fund Eurodollar Loans (in which case the provisions of Section 3.10 shall be applicable). 3.9 REQUIREMENTS OF LAW. (a) If, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank, or comparable agency: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Eurodollar Loans, its Notes, or its obligation to make Eurodollar Loans, or change the basis of taxation of any amounts payable to such Lender (or its -34- 40 Applicable Lending Office) under this Credit Agreement or its Notes in respect of any Eurodollar Loans (other than taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Eurodollar Reserve Requirement utilized in the determination of the Adjusted Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Commitment of such Lender hereunder; or (iii) shall impose on such Lender (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting this Credit Agreement or its Notes or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making, Converting into, Continuing, or maintaining any Eurodollar Loans or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Credit Agreement or its Notes with respect to any Eurodollar Loans, then the Borrower shall pay to such Lender on demand (such demand to be made within six calendar months of the Lender's determination thereof) such amount or amounts as will compensate such Lender for such increased cost or reduction. If any Lender requests compensation by the Borrower under this Section 3.9(a), the Borrower may, by notice to such Lender (with a copy to the Agent), suspend the obligation of such Lender to make or Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 3.10 shall be applicable); PROVIDED that such suspension shall not affect the right of such Lender to receive the compensation so requested. (b) Each Lender shall promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section 3.9 and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under Section 3.6 or under this Section 3.9 shall furnish to the Borrower and the Agent a statement setting forth the additional amount or amounts to be paid to it hereunder which shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. 3.10 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to make any Eurodollar Loan or to Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be suspended pursuant to Section 3.8 or 3.9 hereof, such Lender's Eurodollar Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for such Eurodollar Loans (or, in the case of a Conversion required by Section 3.8 hereof, on such earlier date as such Lender may specify to the Borrower with a copy to -35- 41 the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 3.8 or 3.9 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Eurodollar Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Eurodollar Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Eurodollar Loans shall be made or Continued instead as Base Rate Loans, and all Base Rate Loans of such Lender that would otherwise be Converted into Eurodollar Loans shall remain as Base Rate Loans. If such Lender gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 3.8 or 3.9 hereof that gave rise to the Conversion of such Lender's Eurodollar Loans pursuant to this Section 3.10 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Eurodollar Loans made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Eurodollar Loans and by such Lender are held pro rata (as to principal amounts, interest rate basis, and Interest Periods) in accordance with their respective Commitments. 3.11 TAXES. (a) Any and all payments by the Borrower to or for the account of any Lender or the Agent hereunder or under any other Credit Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, EXCLUDING, in the case of each Lender and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender (or its Applicable Lending Office) or the Agent (as the case may be) is organized or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "TAXES"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable under this Credit Agreement or any other Credit Document to any Lender or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.11) such Lender or the Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 11.1, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Credit Agreement or any other Credit Document or -36- 42 from the execution or delivery of, or otherwise with respect to, this Credit Agreement or any other Credit Document (hereinafter referred to as "OTHER TAXES"). (c) The Borrower agrees to indemnify each Lender and the Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 3.11) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. (d) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Credit Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower or the Agent (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Credit Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Lender is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Credit Agreement or any of the other Credit Documents. (e) For any period with respect to which a Lender has failed to provide the Borrower and the Agent with the appropriate form pursuant to Section 3.11(d) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 3.11(a), 3.11(b) or 3.11(c) with respect to Taxes imposed by the United States; PROVIDED, HOWEVER, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section 3.11, then such Lender will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Lender, is not otherwise disadvantageous to such Lender. (g) Within thirty (30) days after the date of any payment of Taxes, the Borrower shall furnish to the Agent the original or a certified copy of a receipt evidencing such payment. -37- 43 (h) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 3.11 shall survive the repayment of the Loans, LOC Obligations and other obligations under the Credit Documents and the termination of the Commitments hereunder. 3.12 COMPENSATION. Upon the request of any Lender, the Borrower shall pay to such Lender such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost, or expense incurred by it as a result of: (a) any payment, prepayment, or Conversion of a Eurodollar Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 9.2) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Section 5 to be satisfied) to borrow, Convert, Continue, or prepay a Eurodollar Loan on the date for such borrowing, Conversion, Continuation, or prepayment specified in the relevant notice of borrowing, prepayment, Continuation, or Conversion under this Credit Agreement. With respect to Eurodollar Loans, such indemnification may include an amount equal to the excess, if any, of (a) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of the applicable Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Eurodollar Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (b) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market. The covenants of the Borrower set forth in this Section 3.12 shall survive the repayment of the Loans, LOC Obligations and other obligations under the Credit Documents and the termination of the Commitments hereunder. 3.13 PRO RATA TREATMENT. Except to the extent otherwise provided herein: (a) LOANS. Each Loan, each payment or (subject to the terms of Section 3.3) prepayment of principal of any Loan or reimbursement obligations arising from drawings under Letters of Credit, each payment of interest on the Loans or reimbursement obligations arising from drawings under Letters of Credit, each payment of Commitment Fees, each payment of the Standby Letter of Credit Fee, each payment of the Trade Letter of Credit Fee, each reduction of the Revolving Committed Amount and each conversion or extension of any Loan, shall be allocated pro rata among the Lenders in accordance with the respective principal amounts of their outstanding Loans and Participation Interests. -38- 44 (b) ADVANCES. No Lender shall be responsible for the failure or delay by any other Lender in its obligation to make its ratable share of a borrowing hereunder; PROVIDED, HOWEVER, that the failure of any Lender to fulfill its obligations hereunder shall not relieve any other Lender of its obligations hereunder. Unless the Agent shall have been notified by any Lender prior to the date of any requested borrowing that such Lender does not intend to make available to the Agent its ratable share of such borrowing to be made on such date, the Agent may assume that such Lender has made such amount available to the Agent on the date of such borrowing, and the Agent in reliance upon such assumption, may (in its sole discretion but without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent, the Agent shall be able to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent will promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Agent. The Agent shall also be entitled to recover from the Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to the Borrower to the date such corresponding amount is recovered by the Agent at a per annum rate equal to (i) from the Borrower at the applicable rate for the applicable borrowing pursuant to the Notice of Borrowing and (ii) from a Lender at the Federal Funds Rate. Any such payment by the Borrower shall not operate to relieve any Lender of its obligations hereunder. 3.14 SHARING OF PAYMENTS. The Lenders agree among themselves that, in the event that any Lender shall obtain payment in respect of any Loan, LOC Obligations or any other obligation owing to such Lender under this Credit Agreement through the exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, in excess of its pro rata share of such payment as provided for in this Credit Agreement, such Lender shall promptly purchase from the other Lenders a Participation Interest in such Loans, LOC Obligations and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Lenders share such payment in accordance with their respective ratable shares as provided for in this Credit Agreement. The Lenders further agree among themselves that if payment to a Lender obtained by such Lender through the exercise of a right of setoff, banker's lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be restored, each Lender which shall have shared the benefit of such payment shall, by repurchase of a Participation Interest theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Lender whose payment shall have been rescinded or otherwise restored. The Borrower agrees that any Lender so purchasing such a Participation Interest may, to the fullest extent permitted by law, exercise all rights of payment, including setoff, banker's lien or counterclaim, with respect to such Participation Interest as fully as if such Lender were a holder of such Loan, LOC Obligations or other obligation in the amount of such Participation Interest. Except as otherwise expressly provided in this Credit Agreement, if any Lender or the Agent shall fail to remit to the Agent or any other Lender an amount payable by such Lender or the Agent to the Agent or such other Lender pursuant to -39- 45 this Credit Agreement on the date when such amount is due, such payments shall be made together with interest thereon for each day from the date such amount is due until the date such amount is paid to the Agent or such other Lender at a rate per annum equal to the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.14 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this Section 3.14 to share in the benefits of any recovery on such secured claim. 3.15 PAYMENTS, COMPUTATIONS, ETC. (a) Except as otherwise specifically provided herein, all payments hereunder shall be made to the Agent in Dollars in immediately available funds, without offset, deduction, counterclaim or withholding of any kind, at the Agent's office specified in SCHEDULE 2.1(a) not later than 2:00 P.M. (Charlotte, North Carolina time) on the date when due. Payments received after such time shall be deemed to have been received on the next succeeding Business Day. The Agent may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Borrower maintained with the Agent (with notice to the Borrower). The Borrower shall, at the time it makes any payment under this Credit Agreement, specify to the Agent the Loans, LOC Obligations, Fees, interest or other amounts payable by the Borrower hereunder to which such payment is to be applied (and in the event that it fails so to specify, or if such application would be inconsistent with the terms hereof, the Agent shall distribute such payment to the Lenders in such manner as the Agent may determine to be appropriate in respect of obligations owing by the Borrower hereunder, subject to the terms of Section 3.13(a)). The Agent will distribute such payments to such Lenders, if any such payment is received prior to 12:00 Noon (Charlotte, North Carolina time) on a Business Day in like funds as received prior to the end of such Business Day and otherwise the Agent will distribute such payment to such Lenders on the next succeeding Business Day. Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day (subject to accrual of interest and Fees for the period of such extension), except that in the case of Eurodollar Loans, if the extension would cause the payment to be made in the next following calendar month, then such payment shall instead be made on the next preceding Business Day. Except as expressly provided otherwise herein, all computations of interest and fees shall be made on the basis of actual number of days elapsed over a year of 360 days, except with respect to computation of interest on Base Rate Loans which (unless the Base Rate is determined by reference to the Federal Funds Rate) shall be calculated based on a year of 365 or 366 days, as appropriate. Interest shall accrue from and include the date of borrowing, but exclude the date of payment. (b) ALLOCATION OF PAYMENTS AFTER EVENT OF DEFAULT. Notwithstanding any other provisions of this Credit Agreement to the contrary, after the occurrence and during the continuance of an Event of Default, all amounts collected or received by the Agent or any Lender on account of the Credit Party Obligations or any other amounts outstanding under any of the Credit Documents or in respect of the Collateral shall be paid over or delivered as follows: -40- 46 FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys' fees) of the Agent in connection with enforcing the rights of the Lenders under the Credit Documents and any protective advances made by the Agent with respect to the Collateral under or pursuant to the terms of the Collateral Documents; SECOND, to payment of any fees owed to the Agent; THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation, reasonable attorneys' fees) of each of the Lenders payable pursuant to the terms of the Credit Documents in connection with enforcing its rights under the Credit Documents or otherwise with respect to the Credit Party Obligations owing to such Lender; FOURTH, to the payment of all of the Credit Party Obligations consisting of accrued fees and interest; FIFTH, to the payment of the outstanding principal amount of the Credit Party Obligations (including the payment or cash collateralization of the outstanding LOC Obligations); SIXTH, to all other Credit Party Obligations and other obligations which shall have become due and payable under the Credit Documents or otherwise and not repaid pursuant to clauses "FIRST" through "FIFTH" above; and SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus. In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category; (ii) each of the Lenders shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Loans and LOC Obligations held by such Lender bears to the aggregate then outstanding Loans and LOC Obligations) of amounts available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH" and "SIXTH" above; and (iii) to the extent that any amounts available for distribution pursuant to clause "FIFTH" above are attributable to the issued but undrawn amount of outstanding Letters of Credit, such amounts shall be held by the Agent in a cash collateral account and applied (A) first, to reimburse the Issuing Lender from time to time for any drawings under such Letters of Credit and (B) then, following the expiration of all Letters of Credit, to all other obligations of the types described in clauses "FIFTH" and "SIXTH" above in the manner provided in this Section 3.15(b). -41- 47 3.16 EVIDENCE OF DEBT. (a) Each Lender shall maintain an account or accounts evidencing each Loan made by such Lender to the Borrower from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Credit Agreement. Each Lender will make reasonable efforts to maintain the accuracy of its account or accounts and to promptly update its account or accounts from time to time, as necessary. (b) The Agent shall maintain the Register pursuant to Section 11.3(c), and a subaccount for each Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount, type and Interest Period of each such Loan hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable to each Lender hereunder and (iii) the amount of any sum received by the Agent hereunder from or for the account of the Borrower and each Lender's share thereof. The Agent will make reasonable efforts to maintain the accuracy of the subaccounts referred to in the preceding sentence and to promptly update such subaccounts from time to time, as necessary. (c) The entries made in the accounts, Register and subaccounts maintained pursuant to subsection (b) of this Section 3.16 (and, if consistent with the entries of the Agent, subsection (a)) shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; PROVIDED, HOWEVER, that the failure of any Lender or the Agent to maintain any such account, such Register or such subaccount, as applicable, or any error therein, shall not in any manner affect the obligation of the Borrower to repay the Loans made by such Lender in accordance with the terms hereof. 3.17 ASSIGNMENT OF COMMITMENT UNDER CERTAIN CIRCUMSTANCES In the event (a) any Lender requests compensation pursuant to Section 3.12, (b) any Lender delivers a notice described in Sections 3.6, 3.8 or 3.9 or (c) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority on account of any Lender pursuant to Section 3.11, the Borrower may, at its sole expense and effort (including with respect to the processing and recordation fee referred to in Section 11.3), upon notice to such Lender and the Agent, require such Lender to transfer and assign, without recourse (in accordance with and subject to the restrictions contained in Section 11.3), all of its interests, rights and obligations under this Agreement to an Eligible Assignee that shall assume such assigned obligations (which assignee may be another Lender, if a Lender accepts such assignment), PROVIDED that (A) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, (B) no Event of Default shall have occurred and be continuing and (C) the Borrower or such assignee shall have paid to the affected Lender in immediately available funds an amount equal to the sum of 100% of the principal of and interest accrued to the date of such payment on the outstanding Loans of such Lender, respectively, plus all Fees and other amounts accrued for the account of such Lender hereunder (including any amounts under Sections 3.6, 3.9, 3.11 and 3.12); PROVIDED FURTHER that if prior to any such assignment the circumstances or event that resulted in such Lender's request or notice under Sections 3.6, 3.8 or 3.9 or demand for additional amounts under Section 3.11 or 3.12, as the case may be, shall cease to exist or become inapplicable for any reason or if such Lender shall waive its rights in -42- 48 respect of such circumstances or event under Section 3.6, 3.8, 3.9, 3.11 or 3.12 as the case may be, then such Lender shall not thereafter be required to make such assignment hereunder. SECTION 4 GUARANTY 4.1 THE GUARANTY. Each of the Guarantors hereby jointly and severally guarantees to each Lender, each Affiliate of a Lender that enters into a Hedging Agreement, and the Agent as hereinafter provided the prompt payment of the Credit Party Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of the Credit Party Obligations are not paid in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise), the Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Credit Party Obligations, the same will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of such extension or renewal. Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents or Hedging Agreements, the obligations of each Guarantor hereunder shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance under Section 548 of the Bankruptcy Code or any comparable provisions of any applicable state law. 4.2 OBLIGATIONS UNCONDITIONAL. The obligations of the Guarantors under Section 4.1 are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Credit Documents or Hedging Agreements, or any other agreement or instrument referred to therein, or any substitution, release, impairment or exchange of any other guarantee of or security for any of the Credit Party Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 4.2 that the obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Guarantor agrees that such Guarantor shall have no right of subrogation, indemnity, reimbursement or contribution against the Borrower or any other Guarantor of the Credit Party Obligations for amounts paid under this Section 4 until such time as the Lenders (and any Affiliates of Lenders entering into Hedging Agreements) have been paid in full, all Commitments under this Credit Agreement have been terminated and no Person or Governmental Authority shall have any right to request any return or reimbursement of funds from the Lenders in connection with monies received under the Credit Documents or Hedging Agreements. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter -43- 49 or impair the liability of any Guarantor hereunder which shall remain absolute and unconditional as described above: (a) at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Credit Party Obligations shall be extended, or such performance or compliance shall be waived; (b) any of the acts mentioned in any of the provisions of any of the Credit Documents, any Hedging Agreement or any other agreement or instrument referred to in the Credit Documents or Hedging Agreements shall be done or omitted; (c) the maturity of any of the Credit Party Obligations shall be accelerated, or any of the Credit Party Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Credit Documents, any Hedging Agreement or any other agreement or instrument referred to in the Credit Documents or Hedging Agreements shall be waived or any other guarantee of any of the Credit Party Obligations or any security therefor shall be released, impaired or exchanged in whole or in part or otherwise dealt with; (d) any Lien granted to, or in favor of, the Agent or any Lender or Lenders as security for any of the Credit Party Obligations shall fail to attach or be perfected; or (e) any of the Credit Party Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor). With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Lender exhaust any right, power or remedy or proceed against any Person under any of the Credit Documents, any Hedging Agreement or any other agreement or instrument referred to in the Credit Documents or Hedging Agreements, or against any other Person under any other guarantee of, or security for, any of the Credit Party Obligations. 4.3 REINSTATEMENT. The obligations of the Guarantors under this Section 4 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Credit Party Obligations is rescinded or must be otherwise restored by any holder of any of the Credit Party Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each Guarantor agrees that it will indemnify the Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees and expenses of counsel) incurred by the Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. -44- 50 4.4 CERTAIN ADDITIONAL WAIVERS. Without limiting the generality of the provisions of this Section 4, each Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. secs. 26-7 through 26-9, inclusive, to the extent applicable. Each Guarantor further agrees that such Guarantor shall have no right of recourse to security for the Credit Party Obligations, except through the exercise of rights of subrogation pursuant to Section 4.2 and through the exercise of rights of contribution pursuant to Section 4.6. 4.5 REMEDIES. The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Agent and the Lenders, on the other hand, the Credit Party Obligations may be declared to be forthwith due and payable as provided in Section 9.2 (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 9.2) for purposes of Section 4.1 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Credit Party Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Credit Party Obligations being deemed to have become automatically due and payable), the Credit Party Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of Section 4.1. The Guarantors acknowledge and agree that their obligations hereunder are secured in accordance with the terms of the Security Agreements and the other Collateral Documents and that the Lenders may exercise their remedies thereunder in accordance with the terms thereof. 4.6 RIGHTS OF CONTRIBUTION. The Guarantors hereby agree as among themselves that, if any Guarantor shall make an Excess Payment (as defined below), such Guarantor shall have a right of contribution from each other Guarantor in an amount equal to such other Guarantor's Contribution Share (as defined below) of such Excess Payment. The payment obligations of any Guarantor under this Section 4.6 shall be subordinate and subject in right of payment to the prior payment in full to the Agent and the Lenders of the Guaranteed Obligations, and none of the Guarantors shall exercise any right or remedy under this Section 4.6 against any other Guarantor until payment and satisfaction in full of all of such Guaranteed Obligations. For purposes of this Section 4.6, (a) "GUARANTEED OBLIGATIONS" shall mean any obligations arising under the other provisions of this Section 4; (b) "EXCESS PAYMENT" shall mean the amount paid by any Guarantor in excess of its Pro Rata Share of any Guaranteed Obligations; (c) "PRO RATA SHARE" shall mean, for any Guarantor in respect of any payment of Guaranteed Obligations, the ratio (expressed as a percentage) as of the date of such payment of Guaranteed Obligations of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of the Borrower and all of the Guarantors exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrower and the Guarantors hereunder) of the Borrower and all of the Guarantors; PROVIDED, HOWEVER, that, for purposes of calculating the Pro Rata Shares of the Guarantors in respect of any payment of Guaranteed Obligations, any Guarantor that became a Guarantor subsequent to the date of any such payment shall -45- 51 be deemed to have been a Guarantor on the date of such payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such payment; and (d) "CONTRIBUTION SHARE" shall mean, for any Guarantor in respect of any Excess Payment made by any other Guarantor, the ratio (expressed as a percentage) as of the date of such Excess Payment of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of the Borrower and all of the Guarantors other than the maker of such Excess Payment exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrower and the Guarantors hereunder) of the Borrower and all of the Guarantors other than the maker of such Excess Payment; PROVIDED, HOWEVER, that, for purposes of calculating the Contribution Shares of the Guarantors in respect of any Excess Payment, any Guarantor that became a Guarantor subsequent to the date of any such Excess Payment shall be deemed to have been a Guarantor on the date of such Excess Payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such Excess Payment. This Section 4.6 shall not be deemed to affect any right of subrogation, indemnity, reimbursement or contribution that any Guarantor may have under applicable law against the Borrower in respect of any payment of Guaranteed Obligations. Notwithstanding the foregoing, all rights of contribution against any Guarantor shall terminate from and after such time, if ever, that such Guarantor shall be relieved of its obligations pursuant to Section 8.4. 4.7 CONTINUING GUARANTEE. The guarantee in this Section 4 is a continuing guarantee, and shall apply to all Credit Party Obligations whenever arising. SECTION 5 CONDITIONS 5.1 CLOSING CONDITIONS. The obligation of the Lenders to enter into this Credit Agreement and to make the initial Loans or the Issuing Lender to issue the initial Letter of Credit, whichever shall occur first, shall be subject to satisfaction of the following conditions (in form and substance acceptable to the Lenders): (a) EXECUTED CREDIT DOCUMENTS. Receipt by the Agent of duly executed copies of: (i) this Credit Agreement; (ii) the Notes; (iii) the Collateral Documents and (iv) all other Credit Documents, each in form and substance acceptable to the Lenders in their sole discretion. (b) CORPORATE DOCUMENTS. Receipt by the Agent of the following: -46- 52 (i) CHARTER DOCUMENTS. Copies of the articles or certificates of incorporation or other charter documents of each Credit Party certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation and certified by a secretary or assistant secretary of such Credit Party to be true and correct as of the Closing Date. (ii) BYLAWS. A copy of the bylaws of each Credit Party certified by a secretary or assistant secretary of such Credit Party to be true and correct as of the Closing Date. (iii) RESOLUTIONS. Copies of resolutions of the Board of Directors of each Credit Party approving and adopting the Credit Documents to which it is a party, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary of such Credit Party to be true and correct and in force and effect as of the Closing Date. (iv) GOOD STANDING. Copies of (A) certificates of good standing, existence or its equivalent with respect to each Credit Party certified as of a recent date by the appropriate Governmental Authorities of the state or other jurisdiction of incorporation and each other jurisdiction in which the failure to so qualify and be in good standing could have a Material Adverse Effect and (B) to the extent available, a certificate indicating payment of all corporate franchise taxes certified as of a recent date by the appropriate governmental taxing authorities. (v) INCUMBENCY. An incumbency certificate of each Credit Party certified by a secretary or assistant secretary to be true and correct as of the Closing Date. (c) FINANCIAL STATEMENTS. Receipt by the Agent and the Lenders of (i) the consolidated and consolidating financial statements of the Borrower and its Subsidiaries, including balance sheets and income and cash flow statements for the fiscal quarter ended March 31, 1998, (ii) satisfactory projections including balance sheets and income and cash flow statements for each twelve month period through December 31, 2004 and (iii) such other information relating to the Borrower and its Subsidiaries as the Agent may reasonably require in connection with the structuring and syndication of credit facilities of the type described herein. (d) OPINIONS OF COUNSThe Agent shall have received favorable opinions dated as of the Closing Date of counsel to the Credit Parties addressed to the Lenders with respect to the Credit Parties, the Credit Documents and such other matters as the Lenders shall request. (e) ENVIRONMENTAL REPORTS. Receipt by the Agent in form and substance satisfactory to it of environmental assessment reports and related documents of a recent date with respect to all Real Properties and all other material real property owned or leased by a Consolidated Party. (f) PERSONAL PROPERTY COLLATERAL. The Agent shall have received: -47- 53 (i) searches of Uniform Commercial Code filings in the jurisdiction of the chief executive office of each Credit Party and each jurisdiction where any Collateral is located or where a filing would need to be made in order to perfect the Agent's security interest in the Collateral, copies of the financing statements on file in such jurisdictions and evidence that no Liens exist other than Permitted Liens; (ii) duly executed UCC financing statements for each appropriate jurisdiction as is necessary, in the Agent's sole discretion, to perfect the Agent's security interest in the Collateral; (iii) searches of ownership of intellectual property in the appropriate governmental offices and such patent/trademark/copyright filings as requested by the Agent in order to perfect the Agent's security interest in the Collateral; (iv) all stock certificates evidencing the Capital Stock pledged to the Agent pursuant to the Pledge Agreement, together with duly executed in blank undated stock powers attached thereto (unless, with respect to the pledged Capital Stock of any Foreign Subsidiary, such stock powers are deemed unnecessary by the Agent in its reasonable discretion under the law of the jurisdiction of incorporation of such Person); (v) such patent/trademark/copyright filings as requested by the Agent in order to perfect the Agent's security interest in the Collateral; (vi) all instruments and chattel paper in the possession of any of the Credit Parties, together with allonges or assignments as may be necessary or appropriate to perfect the Agent's security interest in the Collateral; and (vii) duly executed consents as are necessary, in the Agent's sole discretion, to perfect the Lenders' security interest in the Collateral. (g) REAL PROPERTY COLLATERAL. The Agent shall have received, in form and substance reasonably satisfactory to the Agent: (i) fully executed and notarized mortgages, deeds of trust or deeds to secure debt (each, as the same may be amended, modified, restated or supplemented from time to time, a "MORTGAGE INSTRUMENT" and collectively the "MORTGAGE INSTRUMENTS") encumbering the fee interest and/or leasehold interest of any Credit Party (to the extent deemed material by the Agent) in each real property asset designated in SCHEDULE 6.19(a) (each a "MORTGAGED PROPERTY" and collectively the "MORTGAGED REAL Properties"); (ii) a title report obtained by the Credit Parties to the extent deemed necessary by the Agent) in respect of each of the Mortgaged Properties; (iii) in the case of each material real property leasehold interest of any Credit Party constituting Mortgaged Property, (a) such estoppel letters, consents and waivers -48- 54 from the landlords on such real property as may be required by the Agent, which estoppel letters shall be in the form and substance reasonably satisfactory to the Agent and (b) evidence that the applicable lease, a memorandum of lease with respect thereto, or other evidence of such lease in form and substance reasonably satisfactory to the Agent, has been or will be recorded in all places to the extent necessary or desirable, in the reasonable judgment of the Agent, so as to enable the Mortgage Instrument encumbering such leasehold interest to effectively create a valid and enforceable first priority lien (subject to Permitted Liens) on such leasehold interest in favor of the Agent (or such other Person as may be required or desired under local law) for the benefit of Lenders; (iv) the Agent shall have received, and the title insurance company issuing the policy referred to in Section 5.1(i) (the "TITLE INSURANCE COMPANY") shall have received, maps or plats of an as-built survey of the sites of the real property covered by the Mortgage Instruments certified to the Agent and the Title Insurance Company in a manner reasonably satisfactory to each of the agent and the Title Insurance Company, dated a date reasonably satisfactory to the Agent and the Title Insurance Company by an independent professional licensed land surveyor, which maps or plats and the surveys on which they are based shall be made in accordance with standards that enable the Title Insurance Company to issue the policies referred to in Section 5.1(i)(v) below without exception for "Survey matters", except for matters as are reasonably acceptable to the Agent; (v) ALTA mortgagee title insurance policies issued by First American Title Insurance Company (the "MORTGAGE POLICIES"), in amounts not less than the respective amounts designated in SCHEDULE 6.19(a) with respect to any particular Mortgaged Property, assuring the Agent that each of the Mortgage Instruments creates a valid and enforceable first priority mortgage lien on the applicable Mortgaged Property, free and clear of all defects and encumbrances except Permitted Liens, which Mortgage Policies shall be in form and substance reasonably satisfactory to the Agent and shall provide for affirmative insurance and such reinsurance as the Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to the Agent; (vi) Evidence, which may be in the form of a letter from an insurance broker or a municipal engineer or certified on a survey, as to whether (a) any Mortgaged Property (an "FLOOD HAZARD Property") is in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards and (b) the community in which such Flood Hazard Property is located is participating in the National Flood Insurance Program; (vii) If there are any Flood Hazard Properties, a Credit Party's written acknowledgment of receipt of written notification from the Agent (a) as to the existence of each such Flood Hazard Property and (b) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program; -49- 55 (viii) If there are maps or plats of an as-built survey of the sites of the Mortgaged Properties certified to the Agent and the Title Insurance Company in a manner reasonably satisfactory to them, dated a date satisfactory to the Agent and the Title Insurance Company by an independent professional licensed land surveyor reasonably satisfactory to the Agent and the Title Insurance Company, which maps or plats and the surveys on which they are based shall be sufficient to delete any standard printed survey exception contained in the applicable title policy and be made in accordance with the Minimum Standard Detail Requirements for Land Title Surveys jointly established and adopted by the American Land Title Association and the American Congress on Surveying and Mapping in 1992 or 1997, and, without limiting the generality of the foregoing, there shall be surveyed and shown on such maps, plats or surveys the following: (A) the locations on such sites of all the buildings, structures and other improvements and the established building setback lines; (B) the lines of streets abutting the sites and width thereof; (C) all access and other easements appurtenant to the sites necessary to use the sites; (D) all roadways, paths, driveways, easements, encroachments and overhanging projections and similar encumbrances affecting the site, whether recorded, apparent from a physical inspection of the sites or otherwise known to the surveyor; (E) any encroachments on any adjoining property by the building structures and improvements on the sites; and (F) if the site is described as being on a filed map, a legend relating the survey to said map; and (ix) Evidence reasonably satisfactory to the Agent that each of the Mortgaged Properties, and the uses of the Mortgaged Properties, are in compliance in all material respects with all applicable laws, regulations and ordinances including without limitation health and environmental protection laws. (h) PRIORITY OF LIENS. The Agent shall have received satisfactory evidence that (i) the Agent, on behalf of the Lenders, holds a perfected, first priority Lien on all Collateral and (ii) none of the Collateral is subject to any other Liens other than Permitted Liens. (i) EVIDENCE OF INSURANCE. Receipt by the Agent of copies of insurance policies or certificates of insurance of the Consolidated Parties evidencing liability and casualty insurance meeting the requirements set forth in the Credit Documents, including, but not limited to, naming the Agent as sole loss payee on behalf of the Lenders. (j) CORPORATE STRUCTURE. The corporate capital and ownership structure of the Consolidated Parties shall be as described in SCHEDULE 5.1(j). (k) GOVERNMENT CONSENT. Receipt by the Agent of evidence that all governmental, shareholder and material third party consents and approvals necessary or desirable in connection with the related financings and other transactions contemplated hereby have been obtained. (l) MATERIAL ADVERSE EFFECT. No material adverse change shall have occurred since December 27, 1997 in the condition (financial or otherwise), business, management or prospects of the Consolidated Parties taken as a whole. -50- 56 (m) LITIGATION. There shall not exist any pending or threatened action, suit, investigation or proceeding against a Consolidated Party that could reasonably be expected to have a Material Adverse Effect. (n) SUBORDINATED NOTES. The Borrower shall have received not less than $100,000,000 in cash proceeds from the issuance of unsecured senior subordinated notes which shall have a maturity of not less than ten years from the date of closing and which shall be otherwise on terms and conditions acceptable to the Agent. (o) EQUITY CONTRIBUTION. The Borrower shall have received new cash equity in the amount of at least $18,500,000 (with total equity (which shall include new equity plus the value of retained shares) to be in an amount not less than $35,000,000) and shall have made all payments in connection with the Related Transactions in an aggregate amount not to exceed $59,100,000. (p) OTHER INDEBTEDNESS. Receipt by the Agent of evidence that the Consolidated Parties shall have no Funded Indebtedness other than the Indebtedness under the Credit Documents and the Subordinated Notes. (q) OFFICER'S CERTIFICATES. The Agent shall have received a certificate or certificates executed by a Responsible Officer of the Borrower as of the Closing Date stating that (i) all governmental, shareholder and third party consents and approvals, if any, with respect to the Credit Documents and the transactions contemplated thereby have been obtained, (ii) each Consolidated Party is in compliance with all existing financial obligations, (iii) no action, suit, investigation or proceeding is pending or threatened in any court or before any arbitrator or governmental instrumentality that purports to affect any Consolidated Party or any transaction contemplated by the Credit Documents, if such action, suit, investigation or proceeding would reasonably be expected to have a Material Adverse Effect, and (iv) immediately after giving effect to this Credit Agreement, the other Credit Documents and all the transactions contemplated therein to occur on such date, (A) each of the Credit Parties is Solvent, (B) no Default or Event of Default exists, (C) all representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects, and (D) the Credit Parties are in compliance with each of the financial covenants set forth in Section 7.11. (r) EXISTING CREDIT AGREEMENT. The Agent shall have received satisfactory evidence that the Existing Credit Agreement has been terminated. (s) FEES AND EXPENSES. Payment by the Credit Parties of all fees and expenses owed by them to the Lenders and the Agent, including, without limitation, payment to the Agent of the fees set forth in the Fee Letter. (t) OTHER. Receipt by the Lenders of such other documents, instruments, agreements or information as reasonably requested by any Lender, including, but not limited to, information regarding litigation, tax, accounting, labor, insurance, pension liabilities (actual or -51- 57 contingent), real estate leases, material contracts, debt agreements, property ownership and contingent liabilities of the Consolidated Parties. 5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT. The obligations of each Lender to make, convert or extend any Loan and of the Issuing Lender to issue or extend any Letter of Credit (including the initial Loans and the initial Letter of Credit) are subject to satisfaction of the following conditions in addition to satisfaction on the Closing Date of the conditions set forth in Section 5.1: (a) The Borrower shall have delivered (i) in the case of any Revolving Loan, an appropriate Notice of Borrowing or Notice of Extension/Conversion or (ii) in the case of any Letter of Credit, the Issuing Lender shall have received an appropriate request for issuance in accordance with the provisions of Section 2.2(b); (b) The representations and warranties set forth in Section 6 shall, subject to the limitations set forth therein, be true and correct in all material respects as of such date (except for those which expressly relate to an earlier date); (c) There shall not have been commenced against any Credit Party an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded; (d) No Default or Event of Default shall have occurred and be continuing either prior to or after giving effect thereto; (e) No material adverse change shall have occurred since December 27, 1997 financial or otherwise), business, management or prospects of the Consolidated Parties taken as a whole; and (f) Immediately after giving effect to the making of such Loan (and the application of the proceeds thereof) or to the issuance of such Letter of Credit, as the case may be, (i) the sum of the aggregate principal amount of outstanding Revolving Loans PLUS LOC Obligations outstanding shall not exceed the Revolving Committed Amount, and (ii) the LOC Obligations shall not exceed the LOC Committed Amount. The delivery of each Notice of Borrowing, each Notice of Extension/Conversion and each request for a Letter of Credit pursuant to Section 2.2(b) shall constitute a representation and warranty by the Borrower of the correctness of the matters specified in subsections (b), (c), (d), (e) and (f) above. -52- 58 SECTION 6 REPRESENTATIONS AND WARRANTIES The Credit Parties hereby represent to the Agent and each Lender that: 6.1 FINANCIAL CONDITION. (a) The audited consolidated balance sheet of the Consolidated Parties as of December 27, 1997 and the audited consolidated statements of earnings and statements of cash flows for the years ended December 31, 1996 and December 31, 1995 and the reviewed statements of earnings and statements of cash flows for the three month period ended March 31, 1998 have heretofore been furnished to each Lender. Such audited financial statements (including the notes thereto) (i) have been audited by Arthur Andersen, L.L.P., (ii) have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby and (iii) present fairly (on the basis disclosed in the footnotes to such financial statements) in all material respects the consolidated financial condition, results of operations and cash flows of the Consolidated Parties as of such date and for such periods. The unaudited interim balance sheets of the Consolidated Parties as at the end of, and the related unaudited interim statements of earnings and of cash flows for, each fiscal month and quarterly period ended after December 31, 1997 and prior to the Closing Date (other than the month and quarterly period ending June 30, 1998) have heretofore been furnished to each Lender. Such interim financial statements for each such quarterly period, (i) have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby (subject to the absence of footnotes and changes resulting from audit and normal year-end audit adjustments) and (ii) present fairly (on the basis disclosed in the footnotes to such financial statements) in all material respects the consolidated financial condition, results of operations and cash flows of the Consolidated Parties as of such date and for such periods. During the period from December 31, 1997 to and including the Closing Date, there has been no sale, transfer or other disposition by any Consolidated Party of any material part of the business or property of the Consolidated Parties, taken as a whole, and no purchase or other acquisition by any of them of any business or property (including any capital stock of any other person) material in relation to the consolidated financial condition of the Consolidated Parties, taken as a whole, in each case, which, is not reflected in the foregoing financial statements or in the notes thereto and has not otherwise been disclosed in writing to the Lenders on or prior to the Closing Date. (b) The financial statements delivered to the Lenders pursuant to Section 7.1(a), (i) have been prepared in accordance with GAAP (except as may otherwise be permitted under Section 7.1(a)) and (ii) present fairly (on the basis disclosed in the footnotes to such financial statements) in all material respects the consolidated financial condition, results of operations and cash flows of the Consolidated Parties as of such date and for such periods. -53- 59 6.2 NO MATERIAL CHANGE. Since December 27, 1997, (a) there has been no development or event relating to or affecting a Consolidated Party which has had or would reasonably be expected to have a Material Adverse Effect and (b) except as otherwise permitted under this Credit Agreement, no dividends or other distributions have been declared, paid or made upon the Capital Stock in a Consolidated Party nor has any of the Capital Stock in a Consolidated Party been redeemed, retired, purchased or otherwise acquired for value. 6.3 ORGANIZATION AND GOOD STANDING. Each of the Consolidated Parties (a) is duly organized, validly existing and is in good standing under the laws of the jurisdiction of its incorporation or organization, (b) has the corporate or other necessary power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged and (c) is duly qualified as a foreign entity and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, other than in such jurisdictions where the failure to be so qualified and in good standing could reasonably be expected to have a Material Adverse Effect. 6.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each of the Credit Parties has the corporate or other necessary power and authority, and the legal right, to make, deliver and perform the Credit Documents to which it is a party, and in the case of the Borrower, to obtain extensions of credit hereunder, and has taken all necessary corporate action to authorize the borrowings and other extensions of credit on the terms and conditions of this Credit Agreement and to authorize the execution, delivery and performance of the Credit Documents to which it is a party. No consent or authorization of, filing with, notice to or other similar act by or in respect of, any Governmental Authority or any other Person is required to be obtained or made by or on behalf of any Credit Party in connection with the borrowings or other extensions of credit hereunder or with the execution, delivery, performance, validity or enforceability of the Credit Documents to which such Credit Party is a party, except for (a) consents, authorizations, notices and filings described in SCHEDULE 6.4, all of which have been obtained or made or have the status described in such SCHEDULE 6.4 and (b) filings to perfect the Liens created by the Collateral Documents. This Credit Agreement has been, and each other Credit Document to which any Credit Party is a party will be, duly executed and delivered on behalf of the Credit Parties. This Credit Agreement constitutes, and each other Credit Document to which any Credit Party is a party when executed and delivered will constitute, a legal, valid and binding obligation of such Credit Party enforceable against such party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 6.5 NO CONFLICTS. Neither the execution and delivery of the Credit Documents, nor the consummation of the transactions contemplated therein, nor performance of and compliance with the terms and provisions -54- 60 thereof by such Credit Party will (a) violate or conflict with any provision of its articles or certificate of incorporation or bylaws or other organizational or governing documents of such Person, (b) violate, contravene or materially conflict with any Requirement of Law or any other law, regulation (including, without limitation, Regulation U or Regulation X), order, writ, judgment, injunction, decree or permit applicable to it, (c) violate, contravene or conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which it is a party or by which it may be bound, the violation of which would reasonably be expected to have a Material Adverse Effect, or (d) result in or require the creation of any Lien (other than those contemplated in or created in connection with the Credit Documents) upon or with respect to its properties. 6.6 NO DEFAULT. No Consolidated Party is in default in any respect under any contract, lease, loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which it is a party or by which any of its properties is bound which default could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred or exists except as previously disclosed in writing to the Lenders. 6.7 OWNERSHIP. Each Consolidated Party is the owner of, and has good and marketable title to, all of its respective assets and none of such assets is subject to any Lien other than Permitted Liens. 6.8 INDEBTEDNESS. Except as otherwise permitted under Section 8.1, the Consolidated Parties have no Indebtedness. 6.9 LITIGATION. There are no actions, suits or legal, equitable, arbitration or administrative proceedings, pending or, to the knowledge of any Credit Party, threatened against any Consolidated Party which could reasonably be expected to have a Material Adverse Effect. Set forth on SCHEDULE 6.9 is a listing of all outstanding matters of litigation with respect to which any Consolidated Party is involved. SCHEDULE 6.9 may be updated from time to time by the Borrower by giving notice thereof to the Agent. 6.10 TAXES. Each Consolidated Party has filed, or caused to be filed, all tax returns (federal, state, local and foreign) required to be filed and paid (a) all amounts of taxes shown thereon to be due (including interest and penalties) and (b) all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owing by it, except for such taxes (i) which are not yet delinquent or (ii) that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with -55- 61 GAAP. No Credit Party is aware as of the Closing Date of any proposed tax assessments against it or any other Consolidated Party. 6.11 COMPLIANCE WITH LAW. Each Consolidated Party is in compliance with all Requirements of Law and all other laws, rules, regulations, orders and decrees (including without limitation Environmental Laws) applicable to it, or to its properties, unless such failure to comply could not be reasonably expected to have a Material Adverse Effect. No Requirement of Law would be reasonably expected to cause a Material Adverse Effect. 6.12 ERISA. (a) During the five-year period prior to the date on which this representation is made or deemed made: (i) no ERISA Event has occurred, and, to the best knowledge of the Credit Parties, no event or condition has occurred or exists as a result of which any ERISA Event could reasonably be expected to occur, with respect to any Plan; (ii) no "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, has occurred with respect to any Plan; (iii) each Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws; and (iv) no lien in favor of the PBGC or a Plan has arisen or is reasonably likely to arise on account of any Plan. (b) The actuarial present value of all "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA), whether or not vested, under each Single Employer Plan, as of the last annual valuation date prior to the date on which this representation is made or deemed made (determined, in each case, utilizing the actuarial assumptions used in such Plan's most recent actuarial valuation report), did not exceed as of such valuation date the fair market value of the assets of such Plan. (c) Neither any Consolidated Party nor any ERISA Affiliate has incurred, or, to the best knowledge of the Credit Parties, could be reasonably expected to incur, any withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither any Consolidated Party nor any ERISA Affiliate would become subject to any withdrawal liability under ERISA if any Consolidated Party or any ERISA Affiliate were to withdraw completely from all Multiemployer Plans and Multiple Employer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. Neither any Consolidated Party nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or has been terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best knowledge of the Credit Parties, reasonably expected to be in reorganization, insolvent, or terminated. (d) No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a -56- 62 Plan which has subjected or may subject any Consolidated Party or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which any Consolidated Party or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability. (e) Neither any Consolidated Party nor any ERISA Affiliates has any material liability with respect to "expected post-retirement benefit obligations" within the meaning of the Financial Accounting Standards Board Statement 106. 6.13 SUBSIDIARIES. Set forth on SCHEDULE 6.13 is a complete and accurate list of all Subsidiaries of each Consolidated Party. Information on SCHEDULE 6.13 includes jurisdiction of incorporation, the number of shares of each class of Capital Stock outstanding, the number and percentage of outstanding shares of each class owned (directly or indirectly) by such Consolidated Party; and the number and effect, if exercised, of all outstanding options, warrants, rights of conversion or purchase and all other similar rights with respect thereto. The outstanding Capital Stock of all such Subsidiaries is validly issued, fully paid and non-assessable and is owned by each such Consolidated Party, directly or indirectly, free and clear of all Liens (other than those arising under or contemplated in connection with the Credit Documents). Other than as set forth in SCHEDULE 6.13, no Consolidated Party has outstanding any securities convertible into or exchangeable for its Capital Stock nor does any such Person have outstanding any rights to subscribe for or to purchase or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to its Capital Stock. SCHEDULE 6.13 may be updated from time to time by the Borrower by giving written notice thereof to the Agent. 6.14 GOVERNMENTAL REGULATIONS, ETC. (a) No part of the Letters of Credit or proceeds of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation G or Regulation U, or for the purpose of purchasing or carrying or trading in any securities. If requested by any Lender or the Agent, the Borrower will furnish to the Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in Regulation U. No indebtedness being reduced or retired out of the proceeds of the Loans was or will be incurred for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U or any "margin security" within the meaning of Regulation T. "Margin stock" within the meaning of Regulation U does not constitute more than 25% of the value of the consolidated assets of the Consolidated Parties. None of the transactions contemplated by this Credit Agreement (including, without limitation, the direct or indirect use of the proceeds of the Loans) will violate or result in a violation of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or regulations issued pursuant thereto, or Regulation G, T, U or X. (b) No Consolidated Party is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940, each as amended. In addition, no Consolidated Party is (i) an "investment company" registered or -57- 63 required to be registered under the Investment Company Act of 1940, as amended, and is not controlled by such a company, or (ii) a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. (c) No director, executive officer or principal shareholder of any Consolidated Party is a director, executive officer or principal shareholder of any Lender. For the purposes hereof the terms "director", "executive officer" and "principal shareholder" (when used with reference to any Lender) have the respective meanings assigned thereto in Regulation O issued by the Board of Governors of the Federal Reserve System. (d) Each Consolidated Party has obtained and holds in full force and effect, all material franchises, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals which are necessary for the ownership of its respective Property and to the conduct of its respective businesses as presently conducted. (e) No Consolidated Party is in violation of any applicable statute, regulation or ordinance of the United States of America, or of any state, city, town, municipality, county or any other jurisdiction, or of any agency thereof (including without limitation, environmental laws and regulations), which violation could reasonably be expected to have a Material Adverse Effect. (f) Each Consolidated Party is current with all material reports and documents, if any, required to be filed with any state or federal securities commission or similar agency and is in full compliance in all material respects with all applicable rules and regulations of such commissions. 6.15 PURPOSE OF LOANS AND LETTERS OF CREDIT. The proceeds of the Loans hereunder shall be used solely by the Borrower to (a) refinance existing Indebtedness and (b) provide for working capital and for Permitted Acquisitions. The Letters of Credit shall be used only for or in connection with appeal bonds, reimbursement obligations arising in connection with surety and reclamation bonds, reinsurance, domestic or international trade transactions and obligations not otherwise aforementioned relating to transactions entered into by the applicable account party in the ordinary course of business. 6.16 ENVIRONMENTAL MATTERS. To the knowledge of each Credit Party, set forth on SCHEDULE 6.16 is a listing of each environmental matter affecting any real property owned or leased by any Consolidated Party. None of the items set forth on SCHEDULE 6.16 could reasonably be expected to have a Material Adverse Effect. With respect to each other real property owned or leased by any Consolidated Party: -58- 64 (a) Each of the facilities and properties owned, leased or operated by the Consolidated Parties (the "PROPERTIES") and all operations at the Properties are in compliance with all applicable Environmental Laws, and there is no material violation of any Environmental Law with respect to the Properties or the businesses operated by the Consolidated Parties (the "BUSINESSES"), and to the knowledge of the Credit Parties there are no conditions relating to the Businesses or Properties that could give rise to a material liability under any applicable Environmental Laws. (b) None of the Properties contains, or to the knowledge of the Credit Parties has previously contained, any Materials of Environmental Concern at, on or under the Properties in amounts or concentrations that constitute or constituted a material violation of, or could give rise to a material liability under, Environmental Laws. (c) No Consolidated Party has received any written or verbal notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Businesses, nor does any Consolidated Party have knowledge or reason to believe that any such notice will be received or is being threatened. (d) Materials of Environmental Concern have not been transported or disposed of from the Properties, or generated, treated, stored or disposed of at, on or under any of the Properties or any other location, in each case by or on behalf of any Consolidated Party in material violation of, or in a manner that could reasonably be expected to give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the best knowledge of any Credit Party, threatened, under any Environmental Law to which any Consolidated Party is or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Consolidated Parties, the Properties or the Businesses. (f) There has been no release or, threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations (including, without limitation, disposal) of any Consolidated Party in connection with the Properties or otherwise in connection with the Businesses, in a material violation of or in amounts or in a manner that could reasonably be expected to give rise to a material liability under Environmental Laws. 6.17 INTELLECTUAL PROPERTY. Each Consolidated Party owns, or has the legal right to use, all trademarks, tradenames, copyrights, technology, know-how and processes (the "INTELLECTUAL PROPERTY") necessary for each of them to conduct its business as currently conducted except for those the failure to own or have such legal right to use could not reasonably be expected to have a Material Adverse Effect. Set forth on -59- 65 SCHEDULE 6.17 is a list of all Intellectual Property owned by each Consolidated Party or that any Consolidated Party has the right to use. Except as provided on SCHEDULE 6.17, no claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does any Credit Party know of any such claim, and to the Credit Parties' knowledge the use of such Intellectual Property by any Consolidated Party does not infringe on the rights of any Person, except for such claims and infringements that in the aggregate, would not reasonably be expected to not have a Material Adverse Effect. SCHEDULE 6.17 may be updated from time to time by the Borrower by giving written notice thereof to the Agent. 6.18 SOLVENCY. Each Credit Party is and, after consummation of the transactions contemplated by this Credit Agreement will be Solvent. 6.19 INVESTMENTS. All Investments of each Consolidated Party are Permitted Investments. 6.20 LOCATION OF COLLATERAL. Set forth on SCHEDULE 6.20(a) is a list of all Mortgaged Properties with street address, county and state where located. Set forth on SCHEDULE 6.20(b) is a list of all locations where any tangible personal property of a Consolidated Party is located, including county and state where located. Set forth on SCHEDULE 6.20(c) is the chief executive office and principal place of business of each Consolidated Party. SCHEDULE 6.20(a), 6.20(b) and 6.20(c) may be updated from time to time by the Borrower giving written notice thereof to the Agent. 6.21 DISCLOSURE. Neither this Credit Agreement nor any financial statements delivered to the Lenders nor any other document, certificate or statement furnished to the Lenders by or on behalf of any Consolidated Party in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein or herein not misleading. 6.22 NO BURDENSOME RESTRICTIONS. No Consolidated Party is a party to any agreement or instrument or subject to any other obligation or any charter or corporate restriction or any provision of any applicable law, rule or regulation which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. -60- 66 6.23 BROKERS' FEES. No Consolidated Party has any obligation to any Person in respect of any finder's, broker's, investment banking or other similar fee in connection with any of the transactions contemplated under the Credit Documents. 6.24 LABOR MATTERS. Except as set forth on SCHEDULE 6.24, there are no collective bargaining agreements or Multiemployer Plans covering the employees of a Consolidated Party as of the Closing Date and none of the Consolidated Parties has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years. 6.25 NATURE OF BUSINESS. As of the Closing Date, the Consolidated Parties are engaged in the business of cutting tool manufacturing and distribution. 6.26 YEAR 2000 COMPLIANCE. The Borrower has (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by the Borrower or any of its Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan in accordance with such timetable. The Borrower believes that all computer applications that are material to its or any of its Subsidiaries' business and operations will on a timely basis be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure to do so could not reasonably be expected to have Material Adverse Effect. SECTION 7 AFFIRMATIVE COVENANTS Each Credit Party hereby covenants and agrees that so long as this Credit Agreement is in effect or any amounts payable hereunder or under any other Credit Document shall remain outstanding, and until all of the Commitments hereunder shall have terminated: 7.1 INFORMATION COVENANTS. The Borrower will furnish, or cause to be furnished, to the Agent and each of the Lenders: (a) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in any event within 90 days after the close of each fiscal year of the Consolidated Parties, (i) a consolidated balance -61- 67 sheet of the Consolidated Parties, as of the end of such fiscal year, together with related consolidated statements of operations and shareholders' equity and consolidated cash flows for such fiscal year, setting forth in comparative form consolidated figures for the preceding fiscal year, all such financial information described above to be in reasonable form and detail and audited by independent certified public accountants of recognized national standing reasonably acceptable to the Agent and whose opinion shall be to the effect that such financial statements have been prepared in accordance with GAAP (except for changes with which such accountants concur) and shall not be limited as to the scope of the audit or qualified as to the status of the Consolidated Parties as a going concern and (ii) an unaudited consolidating balance sheet and statement of operations of the Consolidated Parties, as of the end of such fiscal year. (b) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and in any event within 45 days after the close of each fiscal quarter of the Consolidated Parties (other than the fourth fiscal quarter, in which case 90 days after the end thereof) a consolidated balance sheet of the Consolidated Parties, as of the end of such fiscal quarter, together with related consolidated statements of operations and shareholders' equity and consolidated cash flows for such fiscal quarter in each case setting forth in comparative form consolidated figures for the corresponding period of the preceding fiscal year, all such financial information described above to be in reasonable form and detail and reasonably acceptable to the Agent, and accompanied by a certificate of a Responsible Officer to the effect that such quarterly financial statements fairly present in all material respects the financial condition of the Consolidated Parties and have been prepared in accordance with GAAP, subject to the absence of footnotes and changes resulting from audit and normal year-end audit adjustments. (c) MONTHLY FINANCIAL STATEMENTS. As soon as available, and in any event within 30 days after the end of each month of the Consolidated Parties, a copy of the Borrower's monthly management summary. (d) OFFICER'S CERTIFICATE. At the time of delivery of the financial statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate of a Responsible Officer substantially in the form of EXHIBIT 7.1(d), (i) demonstrating, with respect to the annual and quarterly statements only, compliance with the financial covenants contained in Section 7.11 by calculation thereof as of the end of each such fiscal period and (ii) stating that no Default or Event of Default exists, or if any Default or Event of Default does exist, specifying the nature and extent thereof and what action the Credit Parties propose to take with respect thereto. (e) ANNUAL BUSINESS PLAN AND BUDGETS. Within 60 days after the end of each fiscal year of the Borrower, beginning with the fiscal year ending January 2, 1999 an annual business plan and budget of the Consolidated Parties containing, among other things, pro forma financial statements for the next fiscal year. (f) COMPLIANCE WITH CERTAIN PROVISIONS OF THE CREDIT AGREEMENT. Within 90 days after the end of each fiscal year of the Borrower, a certificate containing information regarding the amount of all Asset Dispositions that were made during the prior fiscal year. -62- 68 (g) ACCOUNTANT'S CERTIFICATE. Within the period for delivery of the annual financial statements provided in Section 7.1(a), a report of the accountants conducting the annual audit stating that they have reviewed Sections 7.11, 8.1, 8.5, 8.6 and 8.7 of this Credit Agreement and stating further whether, in the course of their audit, they have become aware of any non-compliance with any of the terms, covenants, provisions or conditions of Sections 7.11, 8.1, 8.5, 8.6 or 8.7 of this Credit Agreement insofar as such non-compliance relates to accounting matters and, if any such non-compliance exists, specifying the nature and extent thereof. (h) AUDITOR'S REPORTS. Promptly upon receipt thereof, a copy of any other report or "management letter" submitted by independent accountants to any Consolidated Party in connection with any annual, interim or special audit of the books of such Person. (i) REPORTS. Promptly upon transmission or receipt thereof, (i) copies of any filings and registrations with, and reports to or from, the Securities and Exchange Commission, or any successor agency, and copies of all financial statements, proxy statements, notices and reports as any Consolidated Party shall send to its shareholders or to a holder of any Indebtedness owed by any Consolidated Party in its capacity as such a holder and (ii) upon the request of the Agent, all reports and written information to and from the United States Environmental Protection Agency, or any state or local agency responsible for environmental matters, the United States Occupational Health and Safety Administration, or any state or local agency responsible for health and safety matters, or any successor agencies or authorities concerning environmental, health or safety matters. (j) NOTICES. Upon obtaining knowledge thereof, the Borrower will give written notice to the Agent immediately of (i) the occurrence of an event or condition consisting of a Default or Event of Default, specifying the nature and existence thereof and what action the Credit Parties propose to take with respect thereto, and (ii) the occurrence of any of the following with respect to any Consolidated Party (A) the pendency or commencement of any litigation, arbitral or governmental proceeding against such Person which if adversely determined is likely to have a Material Adverse Effect, (B) the institution of any proceedings against such Person with respect to, or the receipt of notice by such Person of potential liability or responsibility for violation, or alleged violation of any federal, state or local law, rule or regulation, including but not limited to, Environmental Laws, the violation of which could reasonably be expected to have a Material Adverse Effect, or (C) any notice or determination concerning the imposition of any withdrawal liability by a Multiemployer Plan against such Person or any ERISA Affiliate, the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA or the termination of any Plan. (k) ERISA. Upon obtaining knowledge thereof, the Borrower will give written notice to the Agent promptly (and in any event within five business days) of: (i) of any event or condition, including, but not limited to, any Reportable Event, that constitutes, or might reasonably lead to, an ERISA Event; (ii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against the Borrower or any of its ERISA Affiliates, or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA); (iii) the failure -63- 69 to make full payment on or before the due date (including extensions) thereof of all amounts which any Consolidated Party or any ERISA Affiliate is required to contribute to each Plan pursuant to its terms and as required to meet the minimum funding standard set forth in ERISA and the Code with respect thereto; or (iv) any change in the funding status of any Plan that could have a Material Adverse Effect, together with a description of any such event or condition or a copy of any such notice and a statement by the chief financial officer of the Borrower briefly setting forth the details regarding such event, condition, or notice, and the action, if any, which has been or is being taken or is proposed to be taken by the Credit Parties with respect thereto. Promptly upon request, the Credit Parties shall furnish the Agent and the Lenders with such additional information concerning any Plan as may be reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Code, respectively, for each "plan year" (within the meaning of Section 3(39) of ERISA). (l) ENVIRONMENTAL. (i) Upon the reasonable written request of the Agent (which in any event, provided no Default or Event of Default shall have occurred and be continuing, shall not exceed more than one time in any 3 year period) the Credit Parties will furnish or cause to be furnished to the Agent, at the Borrower's expense, a report of an environmental assessment of reasonable scope, form and depth, (including, where appropriate, invasive soil or groundwater sampling) by a consultant reasonably acceptable to the Agent as to the nature and extent of the presence of any Materials of Environmental Concern on any Properties (as defined in Section 6.16) and as to the compliance by any Consolidated Party with Environmental Laws at such Properties. If the Credit Parties fail to deliver such an environmental report within seventy-five (75) days after receipt of such written request then the Agent may arrange for same, and the Consolidated Parties hereby grant to the Agent and their representatives access to the Properties to reasonably undertake such an assessment (including, where appropriate, invasive soil or groundwater sampling). The reasonable cost of any assessment arranged for by the Agent pursuant to this provision will be payable by the Borrower on demand and added to the obligations secured by the Collateral Documents. (ii) The Consolidated Parties will conduct and complete all investigations, studies, sampling, and testing and all remedial, removal, and other actions necessary to address all Materials of Environmental Concern on, from or affecting any of the Properties to the extent necessary to be in compliance with all Environmental Laws and with the validly issued orders and directives of all Governmental Authorities with jurisdiction over such Properties to the extent any failure could reasonably be expected to have a Material Adverse Effect. (m) ADDITIONAL PATENTS AND TRADEMARKS. At the time of delivery of the financial statements and reports provided for in Section 7.1(a), a report signed by the chief financial officer or treasurer of the Borrower setting forth (i) a list of registration numbers for all patents, trademarks, service marks, tradenames and copyrights awarded to any Consolidated Party since -64- 70 the last day of the immediately preceding fiscal year and (ii) a list of all patent applications, trademark applications, service mark applications, trade name applications and copyright applications submitted by any Consolidated Party since the last day of the immediately preceding fiscal year and the status of each such application, all in such form as shall be reasonably satisfactory to the Agent. (n) OTHER INFORMATION. With reasonable promptness upon any such request, such other information regarding the business, properties or financial condition of any Consolidated Party as the Agent or the Required Lenders may reasonably request. 7.2 PRESERVATION OF EXISTENCE AND FRANCHISES. Except as a result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted under Section 8.4 or Section 8.5, each Credit Party will, and will cause each of its Subsidiaries to, do all things necessary to preserve and keep in full force and effect its existence, rights, franchises and authority. 7.3 BOOKS AND RECORDS. Each Credit Party will, and will cause each of its Subsidiaries to, keep complete and accurate books and records of its transactions in accordance with good accounting practices on the basis of GAAP (including the establishment and maintenance of appropriate reserves). 7.4 COMPLIANCE WITH LAW. Each Credit Party will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders, and all applicable restrictions imposed by all Governmental Authorities, applicable to it and its Property if noncompliance with any such law, rule, regulation, order or restriction could reasonably be expected to have a Material Adverse Effect. 7.5 PAYMENT OF TAXES AND OTHER INDEBTEDNESS. Each Credit Party will, and will cause each of its Subsidiaries to, pay and discharge (a) all taxes, assessments and governmental charges or levies imposed upon it, or upon its income or profits, or upon any of its properties, before they shall become delinquent, (b) all lawful claims (including claims for labor, materials and supplies) which, if unpaid, might give rise to a Lien upon any of its properties, and (c) except as prohibited hereunder, all of its other Indebtedness as it shall become due; PROVIDED, HOWEVER, that no Consolidated Party shall be required to pay any such tax, assessment, charge, levy, claim or Indebtedness which is being contested in good faith by appropriate proceedings and as to which adequate reserves therefor have been established in accordance with GAAP, unless the failure to make any such payment (i) could give rise to an immediate right to foreclose on a Lien securing such amounts or (ii) could reasonably be expected to have a Material Adverse Effect. -65- 71 7.6 INSURANCE. Each Credit Party will, and will cause each of its Subsidiaries to, at all times maintain in full force and effect insurance (including worker's compensation insurance, liability insurance, casualty insurance and business interruption insurance) in such amounts, covering such risks and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice (or as otherwise required by the Collateral Documents). The Agent shall be named as loss payee or mortgagee, as its interest may appear, and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral, and each provider of any such insurance shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to the Agent, that it will give the Agent thirty (30) days prior written notice before any such policy or policies shall be altered or canceled, and that no act or default of any Consolidated Party or any other Person shall affect the rights of the Agent under such policy or policies. The present insurance coverage of the Consolidated Parties is outlined as to carrier, policy number, expiration date, type and amount on SCHEDULE 7.6. In case of any material loss, damage to or destruction of the Collateral of any Credit Party or any part thereof, such Credit Party shall promptly give written notice thereof to the Agent generally describing the nature and extent of such damage or destruction. In case of any loss, damage to or destruction of the Collateral of any Credit Party or any part thereof, such Credit Party, whether or not the insurance proceeds, if any, received on account of such damage or destruction shall be sufficient for that purpose, at such Credit Party's cost and expense, will promptly repair or replace the Collateral of such Credit Party so lost, damaged or destroyed; PROVIDED, HOWEVER, that such Credit Party need not repair or replace the Collateral of such Credit Party so lost, damaged or destroyed to the extent that (i) the failure to make such repair or replacement is desirable to the proper conduct of the business of such Credit Party in the ordinary course and otherwise in the best interest of such Credit Party and (ii) the value of such insurance proceeds received by the Borrower shall not exceed $250,000 in the aggregate. 7.7 MAINTENANCE OF PROPERTY. Each Credit Party will, and will cause each of its Subsidiaries to, maintain and preserve its properties and equipment material to the conduct of its business in good repair, working order and condition, normal wear and tear and casualty and condemnation excepted, and will make, or cause to be made, to such properties and equipment from time to time all repairs, renewals, replacements, extensions, additions, betterments and improvements thereto as may be needed or proper, to the extent and in the manner customary for companies in similar businesses. 7.8 PERFORMANCE OF OBLIGATIONS. Each Credit Party will, and will cause each of its Subsidiaries to, perform in all material respects all of its obligations under the terms of all material agreements, indentures, mortgages, security agreements or other debt instruments to which it is a party or by which it is bound. -66- 72 7.9 USE OF PROCEEDS. The Borrower will use the proceeds of the Loans and will use the Letters of Credit solely for the purposes set forth in Section 6.15. 7.10 AUDITS/INSPECTIONS. Upon reasonable notice and during normal business hours, each Credit Party will, and will cause each of its Subsidiaries to, permit representatives appointed by the Agent, including, without limitation, independent accountants, agents, attorneys, and appraisers to visit and inspect its property, including its books and records, its accounts receivable and inventory, its facilities and its other business assets, and to make photocopies or photographs thereof and to write down and record any information such representative obtains and shall permit the Agent or its representatives to investigate and verify the accuracy of information provided to the Lenders and to discuss all such matters with the officers, employees and representatives of such Person. The Credit Parties agree that the Agent, and its representatives, may conduct an annual audit of the Collateral, at the expense of the Borrower, provided that such expense shall not be in excess of $5000 annually. 7.11 FINANCIAL COVENANTS. (a) FIXED CHARGE COVERAGE RATIO. The Fixed Charge Coverage Ratio, as of the last day of each fiscal quarter of the Consolidated Parties for each date of determination occurring during each of the periods listed below, shall be greater than or equal to: Period Ratio ------ ----- Closing Date through December 31, 1999 1.00 to 1.0 January 1, 2000 and thereafter 1.10 to 1.0 (b) NET LEVERAGE RATIO. The Net Leverage Ratio, as of the last day of each fiscal quarter of the Consolidated Parties, for each date of determination occurring during each of the periods listed below, shall be less than or equal to: Period Ratio ------ ----- Closing Date through December 31, 1998 5.50 to 1.0 January 1, 1999 through December 31, 1999 5.00 to 1.0 January 1, 2000 and thereafter 4.75 to 1.0 (c) INTEREST COVERAGE RATIO. The Interest Coverage Ratio, as of the last day of each fiscal quarter of the Consolidated Parties for each date of determination occurring during each of the periods listed below, shall be greater than or equal to: -67- 73 Period Ratio ------ ----- Closing Date through December 31, 1998 1.50 to 1.0 January 1, 1999 through December 31, 1999 1.65 to 1.0 January 1, 2000 and thereafter 1.80 to 1.0 (d) MAXIMUM BORROWING AMOUNT. The aggregate amount of outstanding Revolving Loans PLUS LOC Obligations outstanding as of the last day of each fiscal quarter of the Consolidated Parties shall not exceed the Maximum Borrowing Amount. 7.12 ADDITIONAL CREDIT PARTIES. As soon as practicable and in any event within 60 days after any Person becomes a Subsidiary of any Credit Party, the Borrower shall provide the Agent with written notice thereof setting forth information in reasonable detail describing all of the assets of such Person and shall (a) if such Person is a Domestic Subsidiary of a Credit Party, cause such Person to execute a Joinder Agreement in substantially the same form as EXHIBIT 7.12, (b) cause 100% (if such Person is a Domestic Subsidiary of a Credit Party) or 65% (if such Person is a direct Foreign Subsidiary of a Credit Party) of the Capital Stock of such Person to be delivered to the Agent (together with undated stock powers signed in blank (unless, with respect to a Foreign Subsidiary, such stock powers are deemed unnecessary by the Agent in its reasonable discretion under the law of the jurisdiction of incorporation of such Person)) and pledged to the Agent pursuant to an appropriate pledge agreement(s) in substantially the form of the Pledge Agreement and otherwise in form acceptable to the Agent and (c) cause such Person to (i) if such Person owns or leases any real property located in the United States of America or deemed to be material by the Agent or the Required Lenders in its or their sole reasonable discretion, deliver to the Agent with respect to such real property documents, instruments and other items of the types required to be delivered by the Agent all in form, content and scope reasonably satisfactory to the Agent and (ii) deliver such other documentation as the Agent may reasonably request in connection with the foregoing, including, without limitation, appropriate UCC-1 financing statements, real estate title insurance policies, environmental reports, landlord's waivers, certified resolutions and other organizational and authorizing documents of such Person, favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above and the perfection of the Agent's liens thereunder) and other items of the types required to be delivered pursuant to Section 5.1(e), all in form, content and scope reasonably satisfactory to the Agent. 7.13 PLEDGED ASSETS. Each Credit Party will, and will cause each of its Subsidiaries to, cause (a) all of its owned personal property located in the United States and (b) to the extent deemed to be material by the Agent or the Required Lenders in its or their sole reasonable discretion, all of its other owned personal property, to be subject at all times to first priority, perfected Liens in favor of the Agent pursuant to the terms and conditions of the Collateral Documents or, with respect to any such property acquired subsequent to the Closing Date, such other additional security documents as the Agent shall reasonably request. In furtherance of the foregoing terms of this Section 7.13, the Borrower agrees to promptly provide the Agent with written notice of the acquisition by, or the entering into a lease by, any Credit Party of any asset(s) having a market value greater than $500,000, setting forth in reasonable detail the -68- 74 location and a description of the asset(s) so acquired. Without limiting the generality of the above, the Credit Parties will cause 100% of the Capital Stock or other equity interest in each of their direct or indirect Domestic Subsidiaries and 65% of the Capital Stock or other equity interest in each of their direct Foreign Subsidiaries to be subject at all times to a first priority, perfected Lien in favor of the Agent pursuant to the terms and conditions of the Collateral Documents or such other security documents as the Agent shall reasonably request. If, subsequent to the Closing Date, a Credit Party shall acquire any intellectual property, securities, instruments, chattel paper or other personal property required to be delivered to the Agent as Collateral hereunder or under any of the Collateral Documents, the Borrower shall promptly (and in any event within five (5) Business Days) after any responsible officer of a Credit Party acquires knowledge of same notify the Agent of same. 7.14 YEAR 2000 COMPLIANCE. The Borrower will promptly notify the Agent in the event that the Borrower discovers or determines that any computer application that is material to its or any of its Subsidiaries business and operations will not be Year 2000 compliant (as such term is defined in Section 6.25), except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. SECTION 8 NEGATIVE COVENANTS Each Credit Party hereby covenants and agrees that, so long as this Credit Agreement is in effect or any amounts payable hereunder or under any other Credit Document shall remain outstanding, and until all of the Commitments hereunder shall have terminated: 8.1 INDEBTEDNESS. The Credit Parties will not permit any Consolidated Party to contract, create, incur, assume or permit to exist any Indebtedness, except: (a) Indebtedness arising under this Credit Agreement and the other Credit Documents; (b) Indebtedness of the Borrower and its Subsidiaries set forth in SCHEDULE 8.1 (and renewals, refinancings and extensions thereof on terms and conditions not materially less favorable to the Borrower or its Subsidiaries, as applicable, than such existing Indebtedness); (c) purchase money Indebtedness (including Capital Leases) hereafter incurred by the Borrower or any of its Subsidiaries to finance the purchase of fixed assets PROVIDED that (i) the total of all such Indebtedness for all such Persons taken together shall not exceed an aggregate principal amount of $4,000,000 at any one time (including any such Indebtedness referred to in subsection (b) above); (ii) such Indebtedness when incurred shall not exceed the purchase price of -69- 75 the asset(s) financed; and (iii) no such Indebtedness shall be refinanced for a principal amount in excess of the principal balance outstanding thereon at the time of such refinancing; (d) obligations of the Borrower or any of its Subsidiaries in respect of Hedging Agreements entered into in order to manage existing or anticipated interest rate or exchange rate risks and not for speculative purposes; (e) intercompany Indebtedness arising out of loans and advances permitted under Section 8.6; (f) Indebtedness in respect of the Subordinated Notes; (g) Indebtedness of Foreign Subsidiaries so long as, with respect to each such Foreign Subsidiary, such Indebtedness does not exceed the sum of (i) 85% of such Foreign Subsidiary's accounts receivable plus (ii) 60% of such Foreign Subsidiary's inventory; provided, however, upon notice to the Agent, any Foreign Subsidiary may incur additional Indebtedness in excess of the amount set forth herein provided that if such additional Indebtedness shall be so incurred, the Revolving Committed Amount hereunder shall be reduced on a dollar for dollar basis therewith. (h) in addition to the Indebtedness otherwise permitted by this Section 8.1, other Indebtedness hereafter incurred by the Borrower or any of its Subsidiaries in an aggregate amount not to exceed $500,000 at any time outstanding; (i) Indebtedness consisting of Seller Subordinated Notes incurred in connection with Permitted Acquisitions as permitted by Section 8.6; and (j) Indebtedness assumed in connection with a Permitted Acquisition as permitted by Section 8.6, and any refinancing, refunding, renewal or extension thereof, PROVIDED that (i) such Indebtedness was in existence as of the date of the acquisition and was not incurred or assumed in contemplation thereof and (ii) the amount of any such Indebtedness shall not be increased in connection with any refinancing, refunding, renewal or extension. 8.2 LIENS. The Credit Parties will not permit any Consolidated Party to contract, create, incur, assume or permit to exist any Lien with respect to any of its Property, whether now owned or after acquired, except for Permitted Liens. 8.3 NATURE OF BUSINESS. The Credit Parties will not permit any Consolidated Party to substantively alter the character or conduct of the business conducted by such Person as of the Closing Date or any related expansion (including by way of acquisition of a business engaged in the same or a similar line of business or otherwise) or extension thereof. -70- 76 8.4 CONSOLIDATION, MERGER, DISSOLUTION, ETC. Except in connection with an Asset Disposition permitted by the terms of Section 8.5, the Credit Parties will not permit any Consolidated Party to enter into any transaction of merger or consolidation or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution); PROVIDED that, notwithstanding the foregoing provisions of this Section 8.4, (a) the Borrower may merge or consolidate with any of its Subsidiaries provided that (i) the Borrower shall be the continuing or surviving corporation, (ii) the Credit Parties shall cause to be executed and delivered such documents, instruments and certificates as the Agent may request so as to cause the Credit Parties to be in compliance with the terms of Section 7.13 after giving effect to such transaction and (iii) the Borrower shall have delivered to the Agent a Pro Forma Compliance Certificate demonstrating that, upon giving effect on a Pro Forma Basis to such transaction, no Default or Event of Default would exist, (b) any Credit Party other than the Borrower may merge or consolidate with any other Credit Party other than the Borrower PROVIDED that (i) the Credit Parties shall cause to be executed and delivered such documents, instruments and certificates as the Agent may request so as to cause the Credit Parties to be in compliance with the terms of Section 7.13 after giving effect to such transaction and (ii) the Borrower shall have delivered to the Agent a Pro Forma Compliance Certificate demonstrating that, upon giving effect on a Pro Forma Basis to such transaction, no Default or Event of Default would exist, (c) any Consolidated Party which is not a Credit Party may be merged or consolidated with or into any Credit Party other than the Borrower PROVIDED that (i) such Credit Party shall be the continuing or surviving corporation, (ii) the Credit Parties shall cause to be executed and delivered such documents, instruments and certificates as the Agent may request so as to cause the Credit Parties to be in compliance with the terms of Section 7.13 after giving effect to such transaction and (iii) the Borrower shall have delivered to the Agent a Pro Forma Compliance Certificate demonstrating that, upon giving effect on a Pro Forma Basis to such transaction, no Default or Event of Default would exist, (d) any Consolidated Party which is not a Credit Party may be merged or consolidated with or into any other Consolidated Party which is not a Credit Party PROVIDED the Borrower shall have delivered to the Agent a Pro Forma Compliance Certificate demonstrating that, upon giving effect on a Pro Forma Basis to such transaction, no Default or Event of Default would exist and (e) the Borrower may engage in Permitted Acquisitions. 8.5 ASSET DISPOSITIONS. The Credit Parties will not permit any Consolidated Party to make any Asset Disposition (including, without limitation, any Sale and Leaseback Transaction) other than Excluded Asset Dispositions unless (a) the consideration paid in connection therewith is cash or Cash Equivalents and/or Replacement Assets, (b) if such transaction is a Sale and Leaseback Transaction, such transaction is permitted by the terms of Section 8.12, (c) the aggregate net book value of all of the assets sold or otherwise disposed of by the Consolidated Parties in all such transactions (excluding assets with respect to which Replacement Assets are acquired) after the Closing Date shall not exceed $1,000,000. Upon a sale of assets or the sale of Capital Stock of a Consolidated Party permitted by this Section 8.5, the Agent shall (to the extent applicable) deliver to the Borrower, upon the Borrower's request and at the Borrower's expense, such documentation as is reasonably necessary to evidence the release of the Agent's security interest, if any, in such assets or Capital Stock, including, without limitation, amendments or terminations of UCC financing statements, if any, the return of stock -71- 77 certificates, if any, and the release of such Subsidiary from all of its obligations, if any, under the Credit Documents. 8.6 INVESTMENTS. The Credit Parties will not permit any Consolidated Party to make Investments in or to any Person, except for Permitted Investments. 8.7 RESTRICTED PAYMENTS. The Credit Parties will not permit any Consolidated Party to, directly or indirectly, declare, order, make or set apart any sum for or pay any Restricted Payment (other than payments relating to the Related Transactions which shall occur on or about the Closing Date), except (a) to make dividends payable solely in the same class of Capital Stock of such Person, (b) to make dividends or other distributions payable to the Borrower (directly or indirectly through Subsidiaries) or by one Subsidiary to another Subsidiary which is its parent, (c) as permitted by Section 8.9, and (d) so long as no Default or Event of Default shall have occurred and be continuing, to make payments pursuant to the Stockholders Agreement in an aggregate amount not to exceed $4,000,000. 8.8 PREPAYMENTS OF INDEBTEDNESS, ETC. The Credit Parties will not permit any Consolidated Party to (a) after the issuance thereof, amend or modify (or permit the amendment or modification of) any of the terms of any Indebtedness if such amendment or modification would add or change any terms in a manner adverse to the issuer of such Indebtedness, or shorten the final maturity or average life to maturity or require any payment to be made sooner than originally scheduled or increase the interest rate applicable thereto or change any subordination provision thereof, or (b) if any Default or Event of Default has occurred and is continuing or would be directly or indirectly caused as a result thereof, make (or give any notice with respect thereto) any voluntary or optional payment or prepayment or redemption or acquisition for value of (including without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due), refund, refinance or exchange of any other Indebtedness. 8.9 TRANSACTIONS WITH AFFILIATES. Except as described on SCHEDULE 8.9, the Credit Parties will not permit any Consolidated Party to enter into or permit to exist any transaction or series of transactions with any officer, director, shareholder, Subsidiary or Affiliate of such Person other than (a) loans or advances to any Credit Party, (b) transfers of cash and assets to any Credit Party, (c) transactions permitted by Section 8.1, Section 8.4, Section 8.5, Section 8.6, or Section 8.7, (d) normal compensation benefits, business expense advances and reimbursement of expenses of officers and directors and (e) except as otherwise specifically limited in this Credit Agreement, other transactions which are entered into in the ordinary course of such Person's business on terms and conditions substantially as favorable to such Person as would be obtainable by it in a comparable arms-length transaction with a Person other than an officer, director, shareholder, Subsidiary or Affiliate. -72- 78 8.10 FISCAL YEAR; ORGANIZATIONAL DOCUMENTS. The Credit Parties will not permit any Consolidated Party to change its fiscal year (provided that any Subsidiary of the Borrower may change its fiscal year to match that of the Borrower) or amend, modify or change its articles of incorporation (or corporate charter or other similar organizational document) or bylaws (or other similar document) without the prior written consent of the Required Lenders. 8.11 LIMITATION ON RESTRICTED ACTIONS. The Credit Parties will not permit any Consolidated Party to (a) directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Person to (i) pay dividends or make any other distributions to any Credit Party on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, (ii) pay any Indebtedness or other obligation owed to any Credit Party, (iii) make loans or advances to any Credit Party, (iv) sell, lease or transfer any of its properties or assets to any Credit Party, or (v) act as a Guarantor and pledge its assets pursuant to the Credit Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except (in respect of any of the matters referred to in clauses (i)-(v) above) for such encumbrances or restrictions existing under or by reason of (A) this Credit Agreement and the other Credit Documents, (B) applicable law, (C) the indenture pursuant to which the Subordinated Notes are issued (as in existence on the Closing Date) or (D) any document or instrument governing Indebtedness incurred pursuant to Section 8.1(c) or 8.1(g), PROVIDED, HOWEVER, that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith; and provided, further, that no such lien shall encumber any of the Consolidated Parties' fee simple owned real property or leasehold assets, or (b) enter into, assume or become subject to any agreement prohibiting or otherwise restricting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, or requiring the grant of any security for such obligation if security is given for some other obligation, except (i) pursuant to this Credit Agreement and the other Credit Documents, (ii) the indenture pursuant to which the Subordinated Notes are issued (as in existence on the Closing Date) and (iii) pursuant to any document or instrument governing Indebtedness incurred pursuant to Section 8.1(c) or 8.1(g), PROVIDED, HOWEVER, that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith. 8.12 OWNERSHIP OF SUBSIDIARIES. Notwithstanding any other provisions of this Credit Agreement to the contrary, the Credit Parties will not permit any Consolidated Party to (a) permit any Person (other than the Borrower or any Wholly-Owned Subsidiary of the Borrower) to own any Capital Stock of any Subsidiary of the Borrower, (b) permit any Subsidiary of the Borrower to issue Capital Stock (except to the Borrower or to a Wholly-Owned Subsidiary of the Borrower), (c) permit, create, incur, assume or suffer to exist any -73- 79 Lien thereon, in each case except (i) except to qualify directors where required by applicable law or to satisfy other requirements of applicable law with respect to the ownership of Capital Stock of Foreign Subsidiaries, (ii) except as a result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted under Section 8.4 or Section 8.5 or (iii) except for Permitted Liens and (d) notwithstanding anything to the contrary contained in clause (b) above, permit any Subsidiary of the Borrower to issue any shares of preferred Capital Stock. 8.13 SALE LEASEBACKS. Except in connection with a transaction permitted by Section 8.1(c), the Credit Parties will not permit any Consolidated Party to, directly or indirectly, become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (whether real, personal or mixed), whether now owned or hereafter acquired, (a) which such Consolidated Party has sold or transferred or is to sell or transfer to a Person which is not a Consolidated Party or (b) which such Consolidated Party intends to use for substantially the same purpose as any other Property which has been sold or is to be sold or transferred by such Consolidated Party to another Person which is not a Consolidated Party in connection with such lease. SECTION 9 EVENTS OF DEFAULT 9.1 EVENTS OF DEFAULT. An Event of Default shall exist upon the occurrence of any of the following specified events (each an "EVENT OF DEFAULT"): (a) PAYMENT. Any Credit Party shall (i) default in the payment when due of any principal of any of the Loans or of any reimbursement obligations arising from drawings under Letters of Credit, or (ii) default, and such default shall continue for three (3) or more Business Days, in the payment when due of any interest on the Loans or on any reimbursement obligations arising from drawings under Letters of Credit, or of any Fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith or therewith; or (b) REPRESENTATIONS. Any representation, warranty or statement made or deemed to be made by any Credit Party herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made; or -74- 80 (c) COVENANTS. Any Credit Party shall (i) default in the due performance or observance of any term, covenant or agreement contained in Sections 7.2, 7.9, 7.11, 7.12, 7.13 or 8.1 through 8.13, inclusive; (ii) default in the due performance or observance of any term, covenant or agreement contained in Sections 7.1(a), (b), (c) or (d) and such default shall continue unremedied for a period of at least 10 days after the earlier of a responsible officer of a Credit Party becoming aware of such default or notice thereof by the Agent; or (iii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b), (c)(i) or (c)(ii) of this Section 9.1) contained in this Credit Agreement and such default shall continue unremedied for a period of at least 30 days after the earlier of a responsible officer of a Credit Party becoming aware of such default or notice thereof by the Agent; or (d) OTHER CREDIT DOCUMENTS. (i) Any Credit Party shall default in the due performance or observance of any term, covenant or agreement in any of the other Credit Documents (subject to applicable grace or cure periods, if any), or (ii) except as a result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted under Section 8.4 or Section 8.5, any Credit Document shall fail to be in full force and effect or to give the Agent and/or the Lenders the Liens, rights, powers and privileges purported to be created thereby, or any Credit Party shall so state in writing; or (e) GUARANTIES. Except as the result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted under Section 8.4 or Section 8.5, the guaranty given by any Guarantor hereunder (including any Additional Credit Party) or any provision thereof shall cease to be in full force and effect, or any Guarantor (including any Additional Credit Party) hereunder or any Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under such guaranty, or any Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any guaranty; or (f) BANKRUPTCY, ETC. Any Bankruptcy Event shall occur with respect to any Consolidated Party; or (g) DEFAULTS UNDER OTHER AGREEMENTS. (i) Any Consolidated Party shall default in the performance or observance (beyond the applicable grace period with respect thereto, if any) or any material obligation or condition of any contract or lease material to the Consolidated Parties; or (ii) With respect to any Indebtedness (other than Indebtedness outstanding under this Credit Agreement) in excess of $250,000 in the aggregate for the Consolidated Parties taken as a whole, (A) any Consolidated Party shall (1) default in any payment (beyond the applicable grace period with respect thereto, if any) with -75- 81 respect to any such Indebtedness, or (2) the occurrence and continuance of a default in the observance or performance relating to such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or condition exist, the effect of which default or other event or condition is to cause, or permit, the holder or holders of such Indebtedness (or trustee or agent on behalf of such holders) to cause (determined without regard to whether any notice or lapse of time is required), any such Indebtedness to become due prior to its stated maturity; or (B) any such Indebtedness shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof; or (h) JUDGMENTS. One or more judgments or decrees shall be entered against one or more of the Consolidated Parties involving a liability of $500,000 or more in the aggregate (to the extent not paid or fully covered by insurance provided by a carrier who has acknowledged coverage and has the ability to perform) and any such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 30 days from the entry thereof; or (i) ERISA. Any of the following events or conditions, if such event or condition could have a Material Adverse Effect: (i) any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, shall exist with respect to any Plan, or any lien shall arise on the assets of any Consolidated Party or any ERISA Affiliate in favor of the PBGC or a Plan; (ii) an ERISA Event shall occur with respect to a Single Employer Plan, which is, in the reasonable opinion of the Agent, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (iii) an ERISA Event shall occur with respect to a Multiemployer Plan or Multiple Employer Plan, which is, in the reasonable opinion of the Agent, likely to result in (A) the termination of such Plan for purposes of Title IV of ERISA, or (B) any Consolidated Party or any ERISA Affiliate incurring any liability in connection with a withdrawal from, reorganization of (within the meaning of Section 4241 of ERISA), or insolvency or (within the meaning of Section 4245 of ERISA) such Plan; or (iv) any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility shall occur which may subject any Consolidated Party or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which any Consolidated Party or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability; or (j) OWNERSHIP. There shall occur a Change of Control. 9.2 ACCELERATION; REMEDIES. Upon the occurrence of an Event of Default, and at any time thereafter unless and until such Event of Default has been waived by the requisite Lenders (pursuant to the voting requirements of Section 11.6) or cured to the satisfaction of the requisite Lenders (pursuant to the voting procedures in Section 11.6), the Agent shall, upon the request and direction of the Required Lenders, by written notice to the Credit Parties take any of the following actions: -76- 82 (a) TERMINATION OF COMMITMENTS. Declare the Commitments terminated whereupon the Commitments shall be immediately terminated. (b) ACCELERATION. Declare the unpaid principal of and any accrued interest in respect of all Loans, any reimbursement obligations arising from drawings under Letters of Credit and any and all other indebtedness or obligations of any and every kind owing by the Borrower to the Agent and/or any of the Lenders hereunder to be due whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. (c) CASH COLLATERAL. Direct the Borrower to pay (and the Borrower agrees that upon receipt of such notice, or upon the occurrence of an Event of Default under Section 9.1(f), it will immediately pay) to the Agent additional cash, to be held by the Agent, for the benefit of the Lenders, in a cash collateral account as additional security for the LOC Obligations in respect of subsequent drawings under all then outstanding Letters of Credit in an amount equal to the maximum aggregate amount which may be drawn under all Letters of Credits then outstanding. (d) ENFORCEMENT OF RIGHTS. Enforce any and all rights and interests created and existing under the Credit Documents including, without limitation, all rights and remedies existing under the Collateral Documents, all rights and remedies against a Guarantor and all rights of set-off. Notwithstanding the foregoing, if an Event of Default specified in Section 9.1(f) shall occur, then the Commitments shall automatically terminate and all Loans, all reimbursement obligations arising from drawings under Letters of Credit, all accrued interest in respect thereof, all accrued and unpaid Fees and other indebtedness or obligations owing to the Agent and/or any of the Lenders hereunder automatically shall immediately become due and payable without the giving of any notice or other action by the Agent or the Lenders. SECTION 10 AGENCY PROVISIONS 10.1 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent under this Credit Agreement and the other Credit Documents with such powers and discretion as are specifically delegated to the Agent by the terms of this Credit Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 10.5 and the first sentence of Section 10.6 hereof shall include its Affiliates and its own and its Affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Credit Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible to the Lenders for any recital, statement, -77- 83 representation, or warranty (whether written or oral) made in or in connection with any Credit Document or any certificate or other document referred to or provided for in, or received by any of them under, any Credit Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Credit Document, or any other document referred to or provided for therein or for any failure by any Credit Party or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Credit Party or the satisfaction of any condition or to inspect the property (including the books and records) of any Credit Party or any of its Subsidiaries or Affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Credit Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Credit Document, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. 10.2 RELIANCE BY AGENT. The Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telecopy) believed by it in good faith to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any Credit Party), independent accountants, and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until the Agent receives and accepts an Assignment and Acceptance executed in accordance with Section 11.3(b) hereof. As to any matters not expressly provided for by this Credit Agreement, the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding on all of the Lenders; PROVIDED, HOWEVER, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to any Credit Document or applicable law or unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. 10.3 DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received written notice from a Lender or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to Section 10.2 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders. 10.4 RIGHTS AS A LENDER. With respect to its Commitment and the Loans made by it, First Union National Bank (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers -78- 84 hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. First Union National Bank (and any successor acting as Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any Credit Party or any of its Subsidiaries or Affiliates as if it were not acting as Agent, and First Union National Bank (and any successor acting as Agent) and its Affiliates may accept fees and other consideration from any Credit Party or any of its Subsidiaries or Affiliates for services in connection with this Credit Agreement or otherwise without having to account for the same to the Lenders. 10.5 INDEMNIFICATION. The Lenders agree to indemnify the Agent (to the extent not reimbursed under Section 11.5 hereof, but without limiting the obligations of the Borrower under such Section) ratably in accordance with their respective Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Lender) in any way relating to or arising out of any Credit Document or the transactions contemplated thereby or any action taken or omitted by the Agent under any Credit Document; PROVIDED that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any costs or expenses payable by the Borrower under Section 11.5, to the extent that the Agent is not promptly reimbursed for such costs and expenses by the Borrower. The agreements in this Section 10.5 shall survive the repayment of the Loans, LOC Obligations and other obligations under the Credit Documents and the termination of the Commitments hereunder. 10.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Credit Parties and their Subsidiaries and decision to enter into this Credit Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Credit Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of any Credit Party or any of its Subsidiaries or Affiliates that may come into the possession of the Agent or any of its Affiliates. 10.7 SUCCESSOR AGENT. The Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Agent. If -79- 85 no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a commercial bank organized under the laws of the United States of America having combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 10 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. SECTION 11 MISCELLANEOUS 11.1 NOTICES. Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (a) when delivered, (b) when transmitted via telecopy (or other facsimile device) to the number set out below, (c) the Business Day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service, or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address, in the case of the Borrower, Guarantors and the Agent, set forth below, and, in the case of the Lenders, set forth on SCHEDULE 2.1(a), or at such other address as such party may specify by written notice to the other parties hereto: if to the Borrower or the Guarantors: Simonds Industries, Inc. 135 Intervale Road Fitchburg, Massachusetts 01420 Attn: Joseph L. Sylvia Telephone: (978) 343-3731 Telecopy: (978) 343-3489 if to the Agent: First Union National Bank 301 South College Street, DC-5 5th Floor Charlotte, North Carolina 28288-0737 Attn: Tom Lauer Telephone: (704) 383-4993 Telecopy: (704) 374-3300 -80- 86 with a copy to: First Union National Bank One First Union Center NC-0680 301 South College Street Charlotte, NC 28288 Attn: Kevin Stephens Telephone: (704) 383-3721 Telecopy: (704) 383-2802 11.2 RIGHT OF SET-OFF; ADJUSTMENTS. Upon the occurrence and during the continuance of any Event of Default, each Lender (and each of its Affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender (or any of its Affiliates) to or for the credit or the account of any Credit Party against any and all of the obligations of such Person now or hereafter existing under this Credit Agreement, under the Notes, under any other Credit Document or otherwise, irrespective of whether such Lender shall have made any demand under hereunder or thereunder and although such obligations may be unmatured. Each Lender agrees promptly to notify any affected Credit Party after any such set-off and application made by such Lender; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 11.2 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. 11.3 BENEFIT OF AGREEMENT. (a) This Credit Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; PROVIDED that none of the Credit Parties may assign or transfer any of its interests and obligations without prior written consent of the Lenders; PROVIDED FURTHER that the rights of each Lender to transfer, assign or grant participations in its rights and/or obligations hereunder shall be limited as set forth in this Section 11.3. (b) Upon the consent of the Agent, which consent shall not be unreasonably withheld, each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Credit Agreement (including, without limitation, all or a portion of its Loans, its Notes, and its Commitment); PROVIDED, HOWEVER, that (i) each such assignment shall be to an Eligible Assignee; (ii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Credit Agreement, any such partial assignment shall be in an amount at least equal to $5,000,000 (or, if less, the remaining -81- 87 amount of the Commitment being assigned by such Lender) or an integral multiple of $1,000,000 in excess thereof; (iii) each such assignment by a Lender shall be of a constant, and not varying, percentage of its rights and obligations under this Credit Agreement and the Notes; and (iv) the parties to such assignment shall execute and deliver to the Agent for its acceptance an Assignment and Acceptance in the form of EXHIBIT 11.3(b) hereto, together with any Note subject to such assignment and a processing fee of $3,500. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Credit Agreement. Upon the consummation of any assignment pursuant to this Section 11.3(b), the assignor, the Agent and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 3.11. (c) The Agent shall maintain at its address referred to in Section 11.1 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit 11.3(b) hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (e) Each Lender may sell participations to one or more Persons in all or a portion of its rights and obligations under this Credit Agreement (including all or a portion of its Commitment and its Loans); PROVIDED, HOWEVER, that (i) such Lender's obligations under this Credit Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Sections 3.7 through 3.12, inclusive, and the right of set-off contained in Section 11.2, and (iv) the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights -82- 88 and obligations under this Credit Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Notes and to approve any amendment, modification, or waiver of any provision of this Credit Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Notes, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Notes, or extending its Commitment). (f) Notwithstanding any other provision set forth in this Credit Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (g) Any Lender may furnish any information concerning the Borrower or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 11.14 hereof. 11.4 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of the Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Agent or any Lender and any of the Credit Parties shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle the Borrower or any other Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent or the Lenders to any other or further action in any circumstances without notice or demand. 11.5 EXPENSES; INDEMNIFICATION. (a) The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation, execution, delivery, administration, modification, and amendment of this Credit Agreement, the other Credit Documents, and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of counsel for the Agent (including the cost of internal counsel) with respect thereto and with respect to advising the Agent as to its rights and responsibilities under the Credit Documents. The Borrower further agrees to pay on demand all costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable attorneys' fees and expenses and the cost of internal counsel), in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Credit Documents and the other documents to be delivered hereunder. -83 89 (b) The Borrower agrees to indemnify and hold harmless the Agent and each Lender and each of their Affiliates and their respective officers, directors, employees, agents, and advisors (each, an "INDEMNIFIED PARTY") from and against any and all claims, damages, losses, liabilities, costs, and expenses (including, without limitation, reasonable attorneys' fees) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation, or proceeding or preparation of defense in connection therewith) the Credit Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans, except to the extent such claim, damage, loss, liability, cost, or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 11.5 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower agrees not to assert any claim against the Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys, agents, and advisers, on any theory of liability, for special, indirect, consequential, or punitive damages arising out of or otherwise relating to the Credit Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans. (c) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 11.5 shall survive the repayment of the Loans, LOC Obligations and other obligations under the Credit Documents and the termination of the Commitments hereunder. 11.6 AMENDMENTS, WAIVERS AND CONSENTS. Neither this Credit Agreement nor any other Credit Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in writing entered into by, or approved in writing by, the Required Lenders and the Borrower, PROVIDED, HOWEVER, that: (a) without the consent of each Lender affected thereby, (i) extend the final maturity of any Loan or the time of payment of any reimbursement obligation, or any portion thereof, arising from drawings under Letters of Credit, (ii) reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) thereon or Fees hereunder, (iii) reduce or waive the principal amount of any Loan or of any reimbursement obligation, or any portion thereof, arising from drawings under Letters of Credit, -84- 90 (iv) increase the Commitment of a Lender over the amount thereof in effect (it being understood and agreed that a waiver of any Default or Event of Default or mandatory reduction in the Commitments shall not constitute a change in the terms of any Commitment of any Lender), (v) except as the result of or in connection with an Asset Disposition permitted by Section 8.5, release all or substantially all of the Collateral, (vi) except as the result of or in connection with a dissolution, merger or disposition of a Subsidiary permitted under Section 8.4, release the Borrower or substantially all of the other Credit Parties from its or their obligations under the Credit Documents, (vii) amend, modify or waive any provision of this Section 11.6 or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 9.1(a), 11.2, 11.3, 11.5 or 11.9, (viii) reduce any percentage specified in, or otherwise modify, the definition of Required Lenders, or (ix) consent to the assignment or transfer by the Borrower or all or substantially all of the other Credit Parties of any of its or their rights and obligations under (or in respect of) the Credit Documents except as permitted thereby; (b) without the consent of the Agent, no provision of Section 10 may be amended; (c) without the consent of the Issuing Lender, no provision of Section 2.2 may be amended. Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, (x) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein and (y) the Required Lenders may consent to allow a Credit Party to use cash collateral in the context of a bankruptcy or insolvency proceeding. 11.7 COUNTERPARTS. This Credit Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Credit Agreement to produce or account for more than one such counterpart for each of the parties hereto. Delivery by facsimile by any of the parties hereto of an executed counterpart of this Credit Agreement shall be as effective as an original executed counterpart hereof and shall be deemed a representation that an original executed counterpart hereof will be delivered. -85- 91 11.8 HEADINGS. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement. 11.9 SURVIVAL. All indemnities set forth herein, including, without limitation, in Section 2.2(i), 3.11, 3.12, 10.5 or 11.5 shall survive the execution and delivery of this Credit Agreement, the making of the Loans, the issuance of the Letters of Credit, the repayment of the Loans, LOC Obligations and other obligations under the Credit Documents and the termination of the Commitments hereunder, and all representations and warranties made by the Credit Parties herein shall survive delivery of the Notes and the making of the Loans hereunder. 11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. Any legal action or proceeding with respect to this Credit Agreement or any other Credit Document may be brought in the courts of the State of North Carolina in Mecklenburg County, or of the United States for the Western District of North Carolina, and, by execution and delivery of this Credit Agreement, each of the Credit Parties hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the nonexclusive jurisdiction of such courts. Each of the Credit Parties further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address set out for notices pursuant to Section 11.1, such service to become effective three (3) days after such mailing. Nothing herein shall affect the right of the Agent or any Lender to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against any Credit Party in any other jurisdiction. (b) Each of the Credit Parties hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Credit Agreement or any other Credit Document brought in the courts referred to in subsection (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE LENDERS, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. -86- 92 11.11 SEVERABILITY. If any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 11.12 ENTIRETY. This Credit Agreement together with the other Credit Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein. 11.13 BINDING EFFECT; TERMINATION. (a) This Credit Agreement shall become effective at such time on or after the Closing Date when it shall have been executed by the Borrower, the Guarantors and the Agent, and the Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of each Lender, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrower, the Guarantors, the Agent and each Lender and their respective successors and assigns. (b) The term of this Credit Agreement shall be until no Loans, LOC Obligations or any other amounts payable hereunder or under any of the other Credit Documents shall remain outstanding, no Letters of Credit shall be outstanding, all of the Credit Party Obligations have been irrevocably satisfied in full and all of the Commitments hereunder shall have expired or been terminated. 11.14 SOURCE OF FUNDS. Each of the Lenders hereby represents and warrants to the Borrower that at least one of the following statements is an accurate representation as to the source of funds to be used by such Lender in connection with the financing hereunder: (a) no part of such funds constitutes assets allocated to any separate account maintained by such Lender in which any employee benefit plan (or its related trust) has any interest; (b) to the extent that any part of such funds constitutes assets allocated to any separate account maintained by such Lender, such Lender has disclosed to the Borrower the name of each employee benefit plan whose assets in such account exceed 10% of the total assets of such account as of the date of such purchase (and, for purposes of this subsection (b), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); -87- 93 (c) to the extent that any part of such funds constitutes assets of an insurance company's general account, such insurance company has complied with all of the requirements of the regulations issued under Section 401(c)(1)(A) of ERISA; or (d) such funds constitute assets of one or more specific benefit plans which such Lender has identified in writing to the Borrower. As used in this Section 11.14, the terms "employee benefit plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 11.15 CONFLICT. To the extent that there is a conflict or inconsistency between any provision hereof, on the one hand, and any provision of any Credit Document, on the other hand, this Credit Agreement shall control. [Signature Page to Follow] -88- 94 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written. BORROWER: SIMONDS INDUSTRIES INC. - --------- a Delaware corporation By: _________________________________________ Name: _______________________________________ Title: ______________________________________ GUARANTORS: ARMSTRONG MANUFACTURING COMPANY - ----------- By: _________________________________________ Name: _______________________________________ Title: ______________________________________ SIMONDS HOLDING COMPANY, INC. By: _________________________________________ Name: _______________________________________ Title: ______________________________________ SIMONDS INDUSTRIES FSC, INC. By: _________________________________________ Name: _______________________________________ Title: ______________________________________ NOTTING AMERICA, INC. By: _________________________________________ Name: _______________________________________ Title: ______________________________________ 95 LENDERS: FIRST UNION NATIONAL BANK, - -------- individually in its capacity as a Lender and in its capacity as Agent By: _________________________________________ Name: _______________________________________ Title: ______________________________________ HELLER FINANCIAL, INC. By: _________________________________________ Name: _______________________________________ Title: ______________________________________ 96 EXHIBIT 1.1A FORM OF PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (this "PLEDGE AGREEMENT") is entered into as of July 2, 1998 among SIMONDS INDUSTRIES INC., a [DELAWARE] corporation (the "BORROWER"), the Guarantors indicated on the signature pages hereto (individually a "GUARANTOR" and collectively the "GUARANTORS", together with the Borrower, individually a "PLEDGOR" and collectively the "PLEDGORS") and FIRST UNION NATIONAL BANK, in its capacity as agent (in such capacity, the "AGENT") for the lenders from time to time party to the Credit Agreement described below (the "LENDERS"). RECITALS WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof (as amended, modified, extended, renewed or replaced from time to time, the "CREDIT AGREEMENT") among the Borrower, the Guarantors, the Lenders and the Agent, the Lenders have agreed to make Loans and issue Letters of Credit upon the terms and subject to the conditions set forth therein; and WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement and the obligations of the Lenders to make their respective Loans and to issue Letters of Credit under the Credit Agreement that the Pledgors shall have executed and delivered this Pledge Agreement to the Agent for the ratable benefit of the Lenders. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Credit Agreement. For purposes of this Pledge Agreement, the term "Lender" shall include any Affiliate of any Lender which has entered into a Hedging Agreement with the Borrower. 2. PLEDGE AND GRANT OF SECURITY INTEREST. To secure the prompt payment and performance in full when due, whether by lapse of time or otherwise, of the Pledgor Obligations (as defined in Section 3 hereof), each Pledgor hereby pledges and assigns to the Agent, for the benefit of the Lenders, and grants to the Agent, for the benefit of the Lenders, a continuing security interest in any and all right, title and interest of such Pledgor in and to the following, whether now owned or existing or owned, acquired, or arising hereafter (collectively, the "PLEDGED COLLATERAL"): (a) PLEDGED SHARES. (i) 100% (or, if less, the full amount owned by such Pledgor) of the issued and outstanding shares of capital stock owned by such Pledgor of each Domestic Subsidiary set forth on SCHEDULE 2(A) attached hereto and (ii) 65% (or, if less, the full amount owned by such Pledgor) of the issued and outstanding shares of each class of capital stock or other ownership interests entitled to vote (within the meaning of Treas. Reg. Section 1.956- 97 2(c)(2)) ("VOTING EQUITY") and 100% (or, if less, the full amount owned by such Pledgor) of the issued and outstanding shares of each class of capital stock or other ownership interests not entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) ("NON-VOTING EQUITY") owned by such Pledgor of each Foreign Subsidiary set forth on SCHEDULE 2(a) attached hereto, in each case together with the certificates (or other agreements or instruments), if any, representing such shares, and all options and other rights, contractual or otherwise, with respect thereto (collectively, together with the shares of capital stock described in Section 2(b) and 2(c) below, the "PLEDGED SHARES"), including, but not limited to, the following: (y) all shares or securities representing a dividend on any of the Pledged Shares, or representing a distribution or return of capital upon or in respect of the Pledged Shares, or resulting from a stock split, revision, reclassification or other exchange therefor, and any subscriptions, warrants, rights or options issued to the holder of, or otherwise in respect of, the Pledged Shares; and (z) without affecting the obligations of the Pledgors under any provision prohibiting such action hereunder or under the Credit Agreement, in the event of any consolidation or merger involving the issuer of any Pledged Shares and in which such issuer is not the surviving corporation, all shares of each class of the capital stock of the successor corporation formed by or resulting from such consolidation or merger. (b) ADDITIONAL SHARES. With respect to the Borrower and the Guarantors, 100% (or, if less, the full amount owned by such Pledgor) of the issued and outstanding shares of capital stock owned by such Pledgor of any Person which hereafter becomes a Domestic Subsidiary and 65% (or, if less, the full amount owned by such Pledgor) of the Voting Equity and 100% (or, if less, the full amount owned by such Pledgor) of the Non-Voting Equity owned by such Pledgor of any Person which hereafter becomes a Foreign Subsidiary, including, without limitation, the certificates representing such shares. (c) OTHER EQUITY INTERESTS. Any and all other Capital Stock of the Borrower and the Guarantors in any Domestic Subsidiary or any Foreign Subsidiary. (d) PROCEEDS. All proceeds and products of the foregoing, however and whenever acquired and in whatever form. Without limiting the generality of the foregoing, it is hereby specifically understood and agreed that a Pledgor may from time to time hereafter deliver additional shares of stock to the Agent as collateral security for the Pledgor Obligations. Upon delivery to the Agent, such additional shares of stock shall be deemed to be part of the Pledged Collateral of such Pledgor and shall be subject to the terms of this Pledge Agreement whether or not SCHEDULE 2(a) is amended to refer to such additional shares. 3. SECURITY FOR PLEDGOR OBLIGATIONS. The security interest created hereby in the Pledged Collateral of each Pledgor constitutes continuing collateral security for all of the following, whether now existing or hereafter incurred (the "PLEDGOR OBLIGATIONS"): 98 (a) In the case of the Borrower, the prompt performance and observance by the Borrower of all obligations of the Borrower under the Credit Agreement, the Notes, this Pledge Agreement and the other Credit Documents to which the Borrower is a party; (b) In the case of the Guarantors, the prompt performance and observance by the Guarantors of all obligations of the Guarantors under the Credit Agreement, this Pledge Agreement and the other Credit Documents to which any Guarantor is a party, including, without limitation, its guaranty obligations arising under Section 4 of the Credit Agreement; and (c) All other indebtedness, liabilities and obligations of any kind or nature, now existing or hereafter arising, owing from any Pledgor to any Lender or the Agent, howsoever evidenced, created, incurred or acquired, whether primary, secondary, direct, contingent, or joint and several, including, without limitation, all liabilities arising under Hedging Agreements and all obligations and liabilities incurred in connection with collecting and enforcing the Pledgor Obligations. 4. DELIVERY OF THE PLEDGED COLLATERAL. Each Pledgor hereby agrees that: (a) Each Pledgor shall deliver to the Agent (i) simultaneously with or prior to the execution and delivery of this Pledge Agreement, all certificates representing the Pledged Shares of such Pledgor and (ii) promptly upon the receipt thereof by or on behalf of a Pledgor, all other certificates and instruments constituting Pledged Collateral of a Pledgor. Prior to delivery to the Agent, all such certificates and instruments constituting Pledged Collateral of a Pledgor shall be held in trust by such Pledgor for the benefit of the Agent pursuant hereto. All such certificates shall be delivered in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank, substantially in the form provided in EXHIBIT 4(a) attached hereto. (b) ADDITIONAL SECURITIES. If such Pledgor shall receive by virtue of its being or having been the owner of any Pledged Collateral, any (i) stock certificate, including without limitation, any certificate representing a stock dividend or distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock splits, spin-off or split-off, promissory notes or other instrument; (ii) option or right, whether as an addition to, substitution for, or an exchange for, any Pledged Collateral or otherwise; (iii) dividends payable in securities; or (iv) distributions of securities in connection with a partial or total liquidation, dissolution or reduction of capital, capital surplus or paid-in surplus, then such Pledgor shall receive such stock certificate, instrument, option, right or distribution in trust for the benefit of the Agent, shall segregate it from such Pledgor's other property and shall deliver it forthwith to the Agent in the exact form received together with any necessary endorsement and/or appropriate stock power duly executed in blank, substantially in the form provided in EXHIBIT 4(a), to be held by the Agent as Pledged Collateral and as further collateral security for the Pledgor Obligations. 99 (c) FINANCING STATEMENTS. Each Pledgor shall execute and deliver to the Agent such UCC or other applicable financing statements as may be reasonably requested by the Agent in order to perfect and protect the security interest created hereby in the Pledged Collateral of such Pledgor. 5. REPRESENTATIONS AND WARRANTIES. Each Pledgor hereby represents and warrants to the Agent, for the benefit of the Lenders, that so long as any of the Pledgor Obligations remain outstanding or any Credit Document or Hedging Agreement is in effect or any Letter of Credit shall remain outstanding, and until all of the Commitments shall have been terminated: (a) AUTHORIZATION OF PLEDGED SHARES. The Pledged Shares are duly authorized and validly issued, are fully paid and nonassessable and are not subject to the preemptive rights of any Person. All other shares of stock constituting Pledged Collateral will be duly authorized and validly issued, fully paid and nonassessable and not subject to the preemptive rights of any Person. (b) TITLE. Each Pledgor has good and indefeasible title to the Pledged Collateral of such Pledgor and will at all times be the legal and beneficial owner of such Pledged Collateral free and clear of any Lien, other than Permitted Liens. There exists no "adverse claim" within the meaning of Section 8-302 of the Uniform Commercial Code as in effect in the State of North Carolina (the "UCC") with respect to the Pledged Shares of such Pledgor. (c) EXERCISING OF RIGHTS. The exercise by the Agent of its rights and remedies hereunder will not violate any law or governmental regulation or any material contractual restriction binding on or affecting a Pledgor or any of its property. (d) PLEDGOR'S AUTHORITY. No authorization, approval or action by, and no notice or filing with any Governmental Authority or with the issuer of any Pledged Stock is required either (i) for the pledge made by a Pledgor or for the granting of the security interest by a Pledgor pursuant to this Pledge Agreement or (ii) for the exercise by the Agent or the Lenders of their rights and remedies hereunder (except as may be required by laws affecting the offering and sale of securities). (e) SECURITY INTEREST/PRIORITY. This Pledge Agreement creates a valid security interest in favor of the Agent for the benefit of the Lenders, in the Pledged Collateral. The taking possession by the Agent of the certificates representing the Pledged Shares and all other certificates and instruments constituting Pledged Collateral will perfect and establish the first priority of the Agent's security interest in the Pledged Shares and, when properly perfected by filing or registration, in all other Pledged Collateral represented by such Pledged Shares and instruments securing the Pledgor Obligations. Except as set forth in this Section 5(e), no action is necessary to perfect or otherwise protect such security interest. (f) NO OTHER SHARES. Except as set forth on SCHEDULE 2(a) attached hereto, no Pledgor owns any shares of stock of the Borrower or any of its Subsidiaries. 100 6. COVENANTS. Each Pledgor hereby covenants, that so long as any of the Pledgor Obligations remain outstanding or any Credit Document or Hedging Agreement is in effect or any Letter of Credit shall remain outstanding, and until all of the Commitments shall have been terminated, such Pledgor shall: (a) BOOKS AND RECORDS. Mark its books and records (and shall cause the issuer of the Pledged Shares of such Pledgor to mark its books and records) to reflect the security interest granted to the Agent, for the benefit of the Lenders, pursuant to this Pledge Agreement. (b) DEFENSE OF TITLE. Warrant and defend title to and ownership of the Pledged Collateral of such Pledgor at its own expense against the claims and demands of all other parties claiming an interest therein, keep the Pledged Collateral free from all Liens, except for Permitted Liens, and not sell, exchange, transfer, assign, lease or otherwise dispose of Pledged Collateral of such Pledgor or any interest therein, except as permitted under the Credit Agreement and the other Credit Documents. (c) FURTHER ASSURANCES. Promptly execute and deliver at its expense all further instruments and documents and take all further action that may be necessary and desirable or that the Agent may reasonably request in order to (i) perfect and protect the security interest created hereby in the Pledged Collateral of such Pledgor (including without limitation any and all action necessary to satisfy the Agent that the Agent has obtained a first priority perfected security interest in any capital stock); (ii) enable the Agent to exercise and enforce its rights and remedies hereunder in respect of the Pledged Collateral of such Pledgor; and (iii) otherwise effect the purposes of this Pledge Agreement, including, without limitation and if requested by the Agent, delivering to the Agent irrevocable proxies in respect of the Pledged Collateral of such Pledgor. (d) AMENDMENTS. Not make or consent to any amendment or other modification or waiver with respect to any of the Pledged Collateral of such Pledgor or enter into any agreement or allow to exist any restriction with respect to any of the Pledged Collateral of such Pledgor other than pursuant hereto or as may be permitted under the Credit Agreement. (e) COMPLIANCE WITH SECURITIES LAWS. File all reports and other information now or hereafter required to be filed by such Pledgor with the United States Securities and Exchange Commission and any other state, federal or foreign agency in connection with the ownership of the Pledged Collateral of such Pledgor. 7. ADVANCES BY LENDERS. On failure of any Pledgor to perform any of the covenants and agreements contained herein, the Agent may, at its sole option and in its sole discretion, perform the same and in so doing may expend such sums as the Agent may reasonably deem advisable in the performance thereof, including, without limitation, the payment of any insurance premiums, the payment of any taxes, a payment to obtain a release of a Lien or potential Lien, expenditures made in defending against any adverse claim and all other expenditures which the Agent or the Lenders may make for the protection of the security hereof or which may be compelled to make by operation of law. All such sums and amounts so expended shall be repayable by the Pledgors on a joint and several basis promptly upon timely notice 101 thereof and demand therefor, shall constitute additional Pledgor Obligations and shall bear interest from the date said amounts are expended at the default rate specified in SECTION 3.1 of the Credit Agreement for Revolving Loans that are Base Rate Loans. No such performance of any covenant or agreement by the Agent or the Lenders on behalf of any Pledgor, and no such advance or expenditure therefor, shall relieve the Pledgors of any default under the terms of this Pledge Agreement, the other Credit Documents or any Hedging Agreement. The Lenders may make any payment hereby authorized in accordance with any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien, title or claim except to the extent such payment is being contested in good faith by a Pledgor in appropriate proceedings and against which adequate reserves are being maintained in accordance with GAAP. 8. EVENTS OF DEFAULT. The occurrence of an event which under the Credit Agreement would constitute an Event of Default shall be an Event of Default hereunder (an "EVENT OF DEFAULT"). 9. REMEDIES. (a) GENERAL REMEDIES. Upon the occurrence of an Event of Default and during the continuation thereof, the Agent and the Lenders shall have, in respect of the Pledged Collateral of any Pledgor, in addition to the rights and remedies provided herein, in the Credit Documents, in the Hedging Agreements or by law, the rights and remedies of a secured party under the UCC or any other applicable law. (b) SALE OF PLEDGED COLLATERAL. Upon the occurrence of an Event of Default and during the continuation thereof, without limiting the generality of this Section and without notice, the Agent may, in its sole discretion, sell or otherwise dispose of or realize upon the Pledged Collateral, or any part thereof, in one or more parcels, at public or private sale, at any exchange or broker's board or elsewhere, at such price or prices and on such other terms as the Agent may deem commercially reasonable, for cash, credit or for future delivery or otherwise in accordance with applicable law. To the extent permitted by law, any Lender may in such event, bid for the purchase of such securities. Each Pledgor agrees that, to the extent notice of sale shall be required by law and has not been waived by such Pledgor, any requirement of reasonable notice shall be met if notice, specifying the place of any public sale or the time after which any private sale is to be made, is personally served on or mailed, postage prepaid, to such Pledgor, in accordance with the notice provisions of SECTION 11.1 of the Credit Agreement (at least 10 days before the time of such sale. The Agent shall not be obligated to make any sale of Pledged Collateral of such Pledgor regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (c) PRIVATE SALE. Upon the occurrence of an Event of Default and during the continuation thereof, the Pledgors recognize that the Agent may deem it impracticable to effect a public sale of all or any part of the Pledged Shares or any of the securities constituting Pledged Collateral and that the Agent may, therefore, determine to make one or more private 102 sales of any such securities to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Pledgor acknowledges that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the foregoing, agrees that such private sale shall be deemed to have been made in a commercially reasonable manner and that the Agent shall have no obligation to delay sale of any such securities for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act of 1933. Each Pledgor further acknowledges and agrees that any offer to sell such securities which has been (i) publicly advertised on a bona fide basis in a newspaper or other publication of general circulation in the financial community of New York, New York (to the extent that such offer may be advertised without prior registration under the Securities Act of 1933), or (ii) made privately in the manner described above shall be deemed to involve a "public sale" under the UCC, notwithstanding that such sale may not constitute a "public offering" under the Securities Act of 1933, and the Agent may, in such event, bid for the purchase of such securities. (d) RETENTION OF PLEDGED COLLATERAL. In addition to the rights and remedies hereunder, upon the occurrence of an Event of Default, the Agent may, after providing the notices required by Section 9-505(2) of the UCC or otherwise complying with the requirements of applicable law of the relevant jurisdiction, retain all or any portion of the Pledged Collateral in satisfaction of the Pledgor Obligations. Unless and until the Agent shall have provided such notices, however, the Agent shall not be deemed to have retained any Pledged Collateral in satisfaction of any Pledgor Obligations for any reason. (e) DEFICIENCY. In the event that the proceeds of any sale, collection or realization are insufficient to pay all amounts to which the Agent or the Lenders are legally entitled, the Pledgors shall be jointly and severally liable for the deficiency, together with interest thereon at the default rate specified in SECTION 3.1 of the Credit Agreement for Revolving Loans that are Base Rate Loans, together with the costs of collection and the reasonable fees of any attorneys employed by the Agent to collect such deficiency. Any surplus remaining after the full payment and satisfaction of the Pledgor Obligations shall be returned to the Pledgors or to whomsoever a court of competent jurisdiction shall determine to be entitled thereto. 10. RIGHTS OF THE AGENT. (a) POWER OF ATTORNEY. In addition to other powers of attorney contained herein, each Pledgor hereby designates and appoints the Agent, on behalf of the Lenders, and each of its designees or agents as attorney-in-fact of such Pledgor, irrevocably and with power of substitution, with authority to take any or all of the following actions upon the occurrence and during the continuance of an Event of Default: (i) to demand, collect, settle, compromise, adjust and give discharges and releases concerning the Pledged Collateral of such Pledgor, all as the Agent may reasonably determine; 103 (ii) to commence and prosecute any actions at any court for the purposes of collecting any of the Pledged Collateral of such Pledgor and enforcing any other right in respect thereof; (iii) to defend, settle or compromise any action brought and, in connection therewith, give such discharge or release as the Agent may deem reasonably appropriate; (iv) to pay or discharge taxes, liens, security interests, or other encumbrances levied or placed on or threatened against the Pledged Collateral of such Pledgor; (v) to direct any parties liable for any payment under any of the Pledged Collateral to make payment of any and all monies due and to become due thereunder directly to the Agent or as the Agent shall direct; (vi) to receive payment of and receipt for any and all monies, claims, and other amounts due and to become due at any time in respect of or arising out of any Pledged Collateral of such Pledgor; (vii) to sign and endorse any drafts, assignments, proxies, stock powers, verifications, notices and other documents relating to the Pledged Collateral of such Pledgor; (viii) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as the Agent may deem reasonably appropriate; (ix) execute and deliver all assignments, conveyances, statements, financing statements, renewal financing statements, pledge agreements, affidavits, notices and other agreements, instruments and documents that the Agent may determine necessary in order to perfect and maintain the security interests and liens granted in this Pledge Agreement and in order to fully consummate all of the transactions contemplated therein; (x) to exchange any of the Pledged Collateral of such Pledgor or other property upon any merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof and, in connection therewith, deposit any of the Pledged Collateral of such Pledgor with any committee, depository, transfer agent, registrar or other designated agency upon such terms as the Agent may determine; (xi) to vote for a shareholder resolution, or to sign an instrument in writing, sanctioning the transfer of any or all of the Pledged Shares of such Pledgor into the name of the Agent or one or more of the Lenders or into the name of any transferee 104 to whom the Pledged Shares of such Pledgor or any part thereof may be sold pursuant to Section 9 hereof; and (xii) to do and perform all such other acts and things as the Agent may reasonably deem to be necessary, proper or convenient in connection with the Pledged Collateral of such Pledgor. This power of attorney is a power coupled with an interest and shall be irrevocable (i) for so long as any of the Pledgor Obligations remain outstanding, any Credit Document or any Hedging Agreement is in effect or any Letter of Credit shall remain outstanding and (ii) until all of the Commitments shall have been terminated. The Agent shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to the Agent in this Pledge Agreement, and shall not be liable for any failure to do so or any delay in doing so. The Agent shall not be liable for any act or omission or for any error of judgment or any mistake of fact or law in its individual capacity or its capacity as attorney-in-fact except acts or omissions resulting from its gross negligence or willful misconduct. This power of attorney is conferred on the Agent solely to protect, preserve and realize upon its security interest in Pledged Collateral. (b) PERFORMANCE BY THE AGENT OF PLEDGOR'S OBLIGATIONS. If any Pledgor fails to perform any agreement or obligation contained herein, the Agent itself may perform, or cause performance of, such agreement or obligation, and the expenses of the Agent incurred in connection therewith shall be payable by the Pledgors on a joint and several basis pursuant to Section 13 hereof. (c) ASSIGNMENT BY THE AGENT. The Agent may from time to time assign the Pledgor Obligations and any portion thereof and/or the Pledged Collateral and any portion thereof, and the assignee shall be entitled to all of the rights and remedies of the Agent under this Pledge Agreement in relation thereto. (d) THE AGENT'S DUTY OF CARE. Other than the exercise of reasonable care to assure the safe custody of the Pledged Collateral while being held by the Agent hereunder, the Agent shall have no duty or liability to preserve rights pertaining thereto, it being understood and agreed that Pledgors shall be responsible for preservation of all rights in the Pledged Collateral of such Pledgor, and the Agent shall be relieved of all responsibility for Pledged Collateral upon surrendering it or tendering the surrender of it to the Pledgors. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equal to that which the Agent accords its own property, which shall be no less than the treatment employed by a reasonable and prudent agent in the industry, it being understood that the Agent shall not have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not the Agent has or is deemed to have knowledge of such matters; or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. 105 (e) VOTING RIGHTS IN RESPECT OF THE PLEDGED COLLATERAL. (i) So long as no Event of Default shall have occurred and be continuing, to the extent permitted by law, each Pledgor may exercise any and all voting and other consensual rights pertaining to the Pledged Collateral of such Pledgor or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement or the Credit Agreement; and (ii) Upon the occurrence and during the continuance of an Event of Default, all rights of a Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to paragraph (i) of this Section shall cease and all such rights shall thereupon become vested in the Agent which shall then have the sole right to exercise such voting and other consensual rights. (f) DIVIDEND RIGHTS IN RESPECT OF THE PLEDGED COLLATERAL. (i) So long as no Event of Default shall have occurred and be continuing and subject to Section 4(b) hereof, each Pledgor may receive and retain any and all dividends (other than stock dividends and other dividends constituting Pledged Collateral which are addressed hereinabove) or interest paid in respect of the Pledged Collateral to the extent they are allowed under the Credit Agreement. (ii) Upon the occurrence and during the continuance of an Event of Default: (A) all rights of a Pledgor to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to paragraph (i) of this Section shall cease and all such rights shall thereupon be vested in the Agent which shall then have the sole right to receive and hold as Pledged Collateral such dividends and interest payments; and (B) all dividends and interest payments which are received by a Pledgor contrary to the provisions of paragraph (A) of this Section shall be received in trust for the benefit of the Agent, shall be segregated from other property or funds of such Pledgor, and shall be forthwith paid over to the Agent as Pledged Collateral in the exact form received, to be held by the Agent as Pledged Collateral and as further collateral security for the Pledgor Obligations. (g) RELEASE OF PLEDGED COLLATERAL. The Agent may release any of the Pledged Collateral from this Pledge Agreement or may substitute any of the Pledged Collateral for other Pledged Collateral without altering, varying or diminishing in any way the force, effect, lien, pledge or security interest of this Pledge Agreement as to any Pledged Collateral not expressly released or substituted, and this Pledge Agreement shall continue as a first priority lien on all Pledged Collateral not expressly released or substituted. 106 11. RIGHTS OF REQUIRED LENDERS. All rights of the Agent hereunder, if not exercised by the Agent, may be exercised by the Required Lenders. 12. APPLICATION OF PROCEEDS. Upon the occurrence and during the continuance of an Event of Default, any payments in respect of the Pledgor Obligations and any proceeds of any Pledged Collateral, when received by the Agent or any of the Lenders in cash or its equivalent, will be applied in reduction of the Pledgor Obligations in the order set forth in SECTION 3.15(b) of the Credit Agreement, and each Pledgor irrevocably waives the right to direct the application of such payments and proceeds and acknowledges and agrees that the Agent shall have the continuing and exclusive right to apply and reapply any and all such payments and proceeds in the Agent's sole discretion, notwithstanding any entry to the contrary upon any of its books and records. 13. COSTS OF COUNSEL. If at any time hereafter, whether upon the occurrence of an Event of Default or not, the Agent employs counsel to prepare or consider amendments, waivers or consents with respect to this Pledge Agreement, or to take action or make a response in or with respect to any legal or arbitral proceeding relating to this Pledge Agreement or relating to the Pledged Collateral, or to protect the Pledged Collateral or exercise any rights or remedies under this Pledge Agreement or with respect to the Pledged Collateral, then the Pledgors agree to promptly pay upon demand any and all such reasonable documented costs and expenses of the Agent or the Lenders, all of which costs and expenses shall constitute Pledgor Obligations hereunder. 14. CONTINUING AGREEMENT. (a) This Pledge Agreement shall be a continuing agreement in every respect and shall remain in full force and effect so long as any of the Pledgor Obligations remain outstanding or any Credit Document or Hedging Agreement is in effect or any Letter of Credit shall remain outstanding, and until all of the Commitments thereunder shall have terminated (other than any obligations with respect to the indemnities and the representations and warranties set forth in the Credit Documents). Upon such payment and termination, this Pledge Agreement shall be automatically terminated and the Agent and the Lenders shall, upon the request and at the expense of the Pledgors, forthwith release all of its liens and security interests hereunder and shall execute and deliver all UCC termination statements and/or other documents reasonably requested by the Pledgors evidencing such termination. Notwithstanding the foregoing all releases and indemnities provided hereunder shall survive termination of this Pledge Agreement. (b) This Pledge Agreement shall continue to be effective or be automatically reinstated, as the case may be, if at any time payment, in whole or in part, of any of the Pledgor Obligations is rescinded or must otherwise be restored or returned by the Agent or any Lender as a preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar law, all as though such payment had not been made; provided that in the event payment of all or any part of the Pledgor Obligations is rescinded or must be restored or returned, all reasonable costs and expenses (including without limitation any reasonable legal fees and disbursements) incurred by the Agent or any Lender in defending and enforcing such reinstatement shall be deemed to be included as a part of the Pledgor Obligations. 107 15. AMENDMENTS; WAIVERS; MODIFICATIONS. This Pledge Agreement and the provisions hereof may not be amended, waived, modified, changed, discharged or terminated except as set forth in SECTION 11.6 of the Credit Agreement. 16. SUCCESSORS IN INTEREST. This Pledge Agreement shall create a continuing security interest in the Collateral and shall be binding upon each Pledgor, its successors and assigns and shall inure, together with the rights and remedies of the Agent and the Lenders hereunder, to the benefit of the Agent and the Lenders and their successors and permitted assigns; PROVIDED, HOWEVER, that none of the Pledgors may assign its rights or delegate its duties hereunder without the prior written consent of each Lender or the Required Lenders, as required by the Credit Agreement. To the fullest extent permitted by law, each Pledgor hereby releases the Agent and each Lender, and its successors and assigns, from any liability for any act or omission relating to this Pledge Agreement or the Collateral, except for any liability arising from the gross negligence or willful misconduct of the Agent, or such Lender, or its officers, employees or agents. 17. NOTICES. All notices required or permitted to be given under this Pledge Agreement shall be in conformance with SECTION 11.1 of the Credit Agreement. 18. COUNTERPARTS. This Pledge Agreement may be executed in any number of counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Pledge Agreement to produce or account for more than one such counterpart. 19. HEADINGS. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Pledge Agreement. 20. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. Any legal action or proceeding with respect to this Pledge Agreement may be brought in the courts of the State of North Carolina, or of the United States for the Western District of North Carolina, and, by execution and delivery of this Pledge Agreement, each Pledgor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of such courts. Each Pledgor further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address for notices pursuant to SECTION 11.1 of the Credit Agreement, such service to become effective 30 days after such mailing. Nothing herein shall affect the right of the Agent to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against any Pledgor in any other jurisdiction. 108 (b) Each Pledgor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Pledge Agreement brought in the courts referred to in subsection (a) hereof and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 21. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES TO THIS PLEDGE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 22. SEVERABILITY. If any provision of any of the Pledge Agreement is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 23. ENTIRETY. This Pledge Agreement, the other Credit Documents and the Hedging Agreements represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents, the Hedging Agreements or the transactions contemplated herein and therein. 24. SURVIVAL. All representations and warranties of the Pledgors hereunder shall survive the execution and delivery of this Pledge Agreement, the other Credit Documents and the Hedging Agreements, the delivery of the Notes and the making of the Loans and the issuance of the Letters of Credit under the Credit Agreement. 25. OTHER SECURITY. To the extent that any of the Pledgor Obligations are now or hereafter secured by property other than the Pledged Collateral (including, without limitation, real and other personal property owned by a Pledgor), or by a guarantee, endorsement or property of any other Person, then the Agent and the Lenders shall have the right to proceed against such other property, guarantee or endorsement upon the occurrence of any Event of Default, and the Agent and the Lenders have the right, in their sole discretion, to determine which rights, security, liens, security interests or remedies the Agent and the Lenders shall at any time pursue, relinquish, subordinate, modify or take with respect thereto, without in any way modifying or affecting any of them or any of the Agent's and the Lenders' rights or the Pledgor Obligations under this Pledge Agreement, under any other of the Credit Documents or under any Hedging Agreement. 109 26. OBLIGATIONS OF PLEDGORS. (a) Each of the Pledgors is accepting joint and several liability hereunder in consideration of the financial accommodation to be provided by the Lenders under the Credit Agreement, for the mutual benefit, directly and indirectly, of each of the Pledgors and in consideration of the undertakings of each of the Pledgors to accept joint and several liability for the obligations of each of them. (b) Each of the Pledgors, jointly and severally hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Pledgors with respect to the payment and performance of all of the Pledgor Obligations arising under this Pledge Agreement, the other Credit Documents and the Hedging Agreements, it being the intention of the parties hereto that all the Pledgor Obligations shall be the joint and several obligations of each of the Pledgors without preferences or distinction among them. (c) Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the obligations of a Guarantor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code). 110 Each of the parties hereto has caused a counterpart of this Pledge Agreement to be duly executed and delivered as of the date first above written. BORROWER: SIMONDS INDUSTRIES INC., - --------- a Delaware corporation By: __________________________ Name: ________________________ Title: _______________________ GUARANTORS: - ----------- ______________________________ By: __________________________ Name: ________________________ Title: _______________________ ______________________________ By: __________________________ Name: ________________________ Title: _______________________ ______________________________ By: __________________________ Name: ________________________ Title: _______________________ 111 Accepted and agreed to in Charlotte, North Carolina as of the date first above written. FIRST UNION NATIONAL BANK, as Agent By: __________________________ Name: ________________________ Title: _______________________ 112 SCHEDULE 2(a) to Pledge Agreement dated as of _______________, 1998 in favor of First Union National Bank as Agent PLEDGED STOCK PLEDGOR: Number of Certificate Percentage Name of Subsidiary Shares Number Ownership - ------------------ ------ ------ --------- Number of Certificate Percentage Shares Number Ownership ------ ------ --------- 113 EXHIBIT 4(a) to Pledge Agreement dated as of ________________, 1998 in favor of First Union National Bank as Agent IRREVOCABLE STOCK POWER FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to the following shares of capital stock of _____________________, a ____________ corporation: No. of Shares Certificate No. ------------- --------------- and irrevocably appoints __________________________________ its agent and attorney-in-fact to transfer all or any part of such capital stock and to take all necessary and appropriate action to effect any such transfer. The agent and attorney-in-fact may substitute and appoint one or more persons to act for him. The effectiveness of a transfer pursuant to this stock power shall be subject to any and all transfer restrictions referenced on the face of the certificates evidencing such interest or in the certificate of incorporation or bylaws of the subject corporation, to the extent they may from time to time exist. ________________, a ______________ corporation By: ____________________________ Name: __________________________ Title: _________________________ 114 EXHIBIT 1.1B FORM OF SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "SECURITY AGREEMENT") is entered into as of July 2, 1998 among SIMONDS INDUSTRIES INC., a [DELAWARE] corporation (the "BORROWER"), the Guarantors indicated on the signature pages hereto (individually a "GUARANTOR" and collectively the "GUARANTORS"; together with the Borrower, individually an "OBLIGOR" and collectively the "OBLIGORS") and FIRST UNION NATIONAL BANK, in its capacity as agent (in such capacity, the "AGENT") for the lenders from time to time party to the Credit Agreement described below (the "LENDERS"). RECITALS WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof (as amended, modified, extended, renewed or replaced from time to time, the "CREDIT AGREEMENT"), among the Borrower, the Guarantors, the Lenders and the Agent, the Lenders have agreed to make Loans and issue Letters of Credit upon the terms and subject to the conditions set forth therein; and WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement and the obligations of the Lenders to make their respective Loans and to issue Letters of Credit under the Credit Agreement that the Obligors shall have executed and delivered this Security Agreement to the Agent for the ratable benefit of the Lenders. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. (a) Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Credit Agreement, and the following terms which are defined in the Uniform Commercial Code in effect in the State of North Carolina on the date hereof are used herein as so defined: Accounts, Chattel Paper, Deposit Accounts, Documents, Equipment, Farm Products, Fixtures, General Intangibles, Instruments, Inventory, Investment Property and Proceeds. For purposes of this Security Agreement, the term "Lender" shall include any Affiliate of any Lender which has entered into a Hedging Agreement with the Borrower. (b) In addition, the following terms shall have the following meanings: "COPYRIGHT LICENSES": any written agreement, naming any Obligor as licensor, granting any right under any Copyright including, without limitation, any thereof referred to in SCHEDULE 6.17 to the Credit Agreement. "COPYRIGHTS": (a) all registered United States copyrights in all Works, now existing or hereafter created or acquired, all registrations and recordings thereof, and all applications in 115 connection therewith, including, without limitation, registrations, recordings and applications in the United States Copyright office including, without limitation, any thereof referred to in SCHEDULE 6.17 to the Credit Agreement, and (b) all renewals thereof including, without limitation, any thereof referred to in SCHEDULE 6.17 to the Credit Agreement. "PATENT LICENSE": all agreements, whether written or oral, providing for the grant by or to an Obligor of any right to manufacture, use or sell any invention covered by a Patent, including, without limitation, any thereof referred to in SCHEDULE 6.17 to the Credit Agreement. "PATENTS": (a) all letters patent of the United States or any other country and all reissues and extensions thereof, including, without limitation, any thereof referred to in SCHEDULE 6.17 to the Credit Agreement, and (b) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including, without limitation, any thereof referred to in SCHEDULE 6.17 to the Credit Agreement. "SECURED OBLIGATIONS": the collective reference to the following: (a) In the case of the Borrower, the prompt performance and observance by the Borrower of all obligations of the Borrower under the Credit Agreement, the Notes, this Security Agreement and the other Credit Documents to which the Borrower is a party; (b) In the case of the Guarantors, the prompt performance and observance by the Guarantors of all obligations of the Guarantors under the Credit Agreement, this Security Agreement and the other Credit Documents to which any Guarantor is a party, including, without limitation, its guaranty obligations arising under Section 4 of the Credit Agreement; and (c) All other indebtedness, liabilities and obligations of any kind or nature, now existing or hereafter arising, owing from any Obligor to any Lender or the Agent, howsoever evidenced, created, incurred or acquired, whether primary, secondary, direct, contingent, or joint and several, including, without limitation, all liabilities arising under Hedging Agreements and all obligations and liabilities incurred in connection with collecting and enforcing the Secured Obligations. "TRADEMARK LICENSE": means any agreement, written or oral, providing for the grant by or to an Obligor of any right to use any Trademark, including, without limitation, any thereof referred to in SCHEDULE 6.17 to the Credit Agreement. "TRADEMARKS": (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and the goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or 116 otherwise, including, without limitation, any thereof referred to in SCHEDULE 6.17 to the Credit Agreement, and (b) all renewals thereof. "WORK": any work which is subject to copyright protection pursuant to Title 17 of the United States Code. 2. GRANT OF SECURITY INTEREST IN THE COLLATERAL. To secure the prompt payment and performance in full when due, whether by lapse of time, acceleration or otherwise, of the Secured Obligations, each Obligor hereby grants to the Agent, for the benefit of the Lenders, a continuing security interest in, and a right to set off against, any and all right, title and interest of such Obligor in and to the following, whether now owned or existing or owned, acquired, or arising hereafter (collectively, the "COLLATERAL"): (a) all Accounts; (b) all Chattel Paper; (c) all Copyrights; (d) all Copyright Licenses; (e) all Deposit Accounts; (f) all Documents; (g) all Equipment; (h) all Fixtures; (i) all General Intangibles; (j) all Instruments; (k) all Inventory; (l) Investment Property; (m) all Patents; (n) all Patent Licenses; (o) all Trademarks; (p) all Trademark Licenses; 117 (q) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks, and related data processing software (owned by such Obligor or in which it has an interest) that at any time evidence or contain information relating to any Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon; and (r) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. The Obligors and the Agent, on behalf of the Lenders, hereby acknowledge and agree that the security interest created hereby in the Collateral (i) constitutes continuing collateral security for all of the Secured Obligations, whether now existing or hereafter arising and (ii) is not to be construed as an assignment of any Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks or Trademark Licenses. 3. PROVISIONS RELATING TO ACCOUNTS. (a) Anything herein to the contrary notwithstanding, each of the Obligors shall remain liable under each of the Accounts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account. Neither the Agent nor any Lender shall have any obligation or liability under any Account (or any agreement giving rise thereto) by reason of or arising out of this Security Agreement or the receipt by the Agent or any Lender of any payment relating to such Account pursuant hereto, nor shall the Agent or any Lender be obligated in any manner to perform any of the obligations of an Obligor under or pursuant to any Account (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) Once during each calendar year or at any time after the occurrence and during the continuation of an Event of Default, the Agent shall have the right, but not the obligation, to make test verifications of the Accounts in any manner and through any medium that it reasonably considers advisable, and the Obligors shall furnish all such assistance and information as the Agent may require in connection with such test verifications. At any time and from time to time, upon the Agent's request and at the expense of the Obligors, the Obligors shall cause independent public accountants or others satisfactory to the Agent to furnish to the Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts. The Agent in its own name or in the name of others may communicate with account debtors on the Accounts to verify with them to the Agent's satisfaction the existence, amount and terms of any Accounts. 4. REPRESENTATIONS AND WARRANTIES. Each Obligor hereby represents and warrants to the Agent, for the benefit of the Lenders, that so long as any of the Secured Obligations remain outstanding 118 or any Credit Document or Hedging Agreement is in effect or any Letter of Credit shall remain outstanding, and until all of the Commitments shall have been terminated: (a) CHIEF EXECUTIVE OFFICE; BOOKS & RECORDS. Each Obligor's chief executive office and chief place of business is (and for the prior four months have been) located at the locations set forth on SCHEDULE 6.20(c) to the Credit Agreement, and each Obligor keeps its books and records at such locations. (b) LOCATION OF COLLATERAL. The location of all Collateral owned by each Obligor is as shown on SCHEDULE 6.20(B) to the Credit Agreement. (c) OWNERSHIP. Each Obligor is the legal and beneficial owner of its Collateral and has the right to pledge, sell, assign or transfer the same. Each Obligor's legal name is as shown in this Security Agreement and no Obligor has in the past four months changed its name, been party to a merger, consolidation or other change in structure or used any tradename. (d) SECURITY INTEREST/PRIORITY. This Security Agreement creates a valid security interest in favor of the Agent, for the benefit of the Lenders, in the Collateral of such Obligor and, when properly perfected by filing, shall constitute a valid perfected security interest in such Collateral, to the extent such security can be perfected by filing under the UCC, free and clear of all Liens except for Permitted Liens. (e) FARM PRODUCTS. None of the Collateral constitutes, or is the Proceeds of, Farm Products. (f) ACCOUNTS. (i) Each Account of the Obligors and the papers and documents relating thereto are genuine and in all material respects what they purport to be, (ii) each Account arises out of (A) a bona fide sale of goods sold and delivered by such Obligor (or is in the process of being delivered) or (B) services theretofore actually rendered by such Obligor to, the account debtor named therein, (iii) no Account of an Obligor is evidenced by any Instrument or Chattel Paper unless such Instrument or Chattel Paper has been theretofore endorsed over and delivered to the Agent and (iv) no surety bond was required or given in connection with any Account of an Obligor or the contracts or purchase orders out of which they arose. (g) INVENTORY. No Inventory is held by an Obligor pursuant to consignment, sale or return, sale on approval or similar arrangement. (h) COPYRIGHTS, PATENTS AND TRADEMARKS. (i) SCHEDULE 6.17 to the Credit Agreement includes all Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses owned by the Obligors in their own names as of the date hereof. 119 (ii) To the best of each Obligor's knowledge, each Copyright, Patent and Trademark of such Obligor is valid, subsisting, unexpired, enforceable and has not been abandoned. (iii) Except as set forth in SCHEDULE 6.17 to the Credit Agreement, none of such Copyrights, Patents and Trademarks is the subject of any licensing or franchise agreement. (iv) No holding, decision or judgment has been rendered by any Governmental Authority which would limit, cancel or question the validity of any Copyright, Patent or Trademark. (v) To the best of each Obligor's knowledge, no action or proceeding is pending seeking to limit, cancel or question the validity of any Copyright, Patent or Trademark, or which, if adversely determined, would have a material adverse effect on the value of any Copyright, Patent or Trademark. (vi) All applications pertaining to the Copyrights, Patents and Trademarks of each Obligor have been duly and properly filed, and all registrations or letters pertaining to such Copyrights, Patents and Trademarks have been duly and properly filed and issued, and all of such Copyrights, Patents and Trademarks are valid and enforceable. (vii) No Obligor has made any assignment or agreement in conflict with the security interest in the Copyrights, Patents or Trademarks of each Obligor hereunder. 5. COVENANTS. Each Obligor covenants that, so long as any of the Secured Obligations remain outstanding or any Credit Document or Hedging Agreement is in effect or any Letter of Credit shall remain outstanding, and until all of the Commitments shall have been terminated, such Obligor shall: (a) OTHER LIENS. Defend the Collateral against the claims and demands of all other parties claiming an interest therein, keep the Collateral free from all Liens, except for Permitted Liens, and not sell, exchange, transfer, assign, lease or otherwise dispose of the Collateral or any interest therein, except as permitted under the Credit Agreement. (b) PRESERVATION OF COLLATERAL. Keep the Collateral in good order, condition and repair and not use the Collateral in violation of the provisions of this Security Agreement or any other agreement relating to the Collateral or any policy insuring the Collateral or any applicable statute, law, bylaw, rule, regulation or ordinance. (c) INSTRUMENTS/CHATTEL PAPER. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Chattel Paper, immediately deliver such Instrument or Chattel Paper to the Agent, duly indorsed in a manner satisfactory to the Agent, to be held as Collateral pursuant to this Security Agreement. 120 (d) CHANGE IN LOCATION. Not, without providing 30 days prior written notice to the Agent and without filing such amendments to any previously filed financing statements as the Agent may require, (a) change the location of its chief executive office and chief place of business (as well as its books and records) from the locations set forth on SCHEDULE 6.20(c) to the Credit Agreement, (b) change the location of its Collateral from the locations set forth for such Obligor on SCHEDULE 6.20(b) to the Credit Agreement, or (c) change its name, be party to a merger, consolidation or other change in structure or use any tradename. (e) INSPECTION. Upon reasonable notice, and during reasonable hours, at all times allow the Agent or its representatives to visit and inspect the Collateral as set forth in SECTION 7.10 of the Credit Agreement. (f) PERFECTION OF SECURITY INTEREST. Execute and deliver to the Agent such agreements, assignments or instruments (including affidavits, notices, reaffirmations and amendments and restatements of existing documents, as the Agent may reasonably request) and do all such other things as the Agent may reasonably deem necessary or appropriate (i) to assure to the Agent its security interests hereunder, including (A) such financing statements (including renewal statements) or amendments thereof or supplements thereto or other instruments as the Agent may from time to time reasonably request in order to perfect and maintain the security interests granted hereunder in accordance with the UCC, (B) with regard to Copyrights, a Notice of Grant of Security Interest in Copyrights in the form of SCHEDULE 5(f)(i) ATTACHED HERETO, (C) with regard to Patents, a Notice of Grant of Security Interest in Patents for filing with the United States Patent and Trademark Office in the form of SCHEDULE 5(f)(ii) attached hereto and (D) with regard to Trademarks, a Notice of Grant of Security Interest in Trademarks for filing with the United States Patent and Trademark Office in the form of SCHEDULE 5(f)(iii) attached hereto, (ii) to consummate the transactions contemplated hereby and (iii) to otherwise protect and assure the Agent of its rights and interests hereunder. To that end, each Obligor agrees that the Agent may file one or more financing statements disclosing the Agent's security interest in any or all of the Collateral of such Obligor without, to the extent permitted by law, such Obligor's signature thereon, and further each Obligor also hereby irrevocably makes, constitutes and appoints the Agent, its nominee or any other person whom the Agent may designate, as such Obligor's attorney in fact with full power and for the limited purpose to sign in the name of such Obligor any such financing statements, or amendments and supplements to financing statements, renewal financing statements, notices or any similar documents which in the Agent's reasonable discretion would be necessary, appropriate or convenient in order to perfect and maintain perfection of the security interests granted hereunder, such power, being coupled with an interest, being and remaining irrevocable so long as the Credit Agreement is in effect or any amounts payable thereunder or under any other Credit Document, any Letter of Credit or any Hedging Agreement shall remain outstanding, and until all of the Commitments thereunder shall have terminated. Each Obligor hereby agrees that a carbon, photographic or other reproduction of this Security Agreement or any such financing statement is sufficient for filing as a financing statement by the Agent without notice thereof to such Obligor wherever the Agent may in its sole discretion desire to file the same. In the event for any reason the law of any jurisdiction other than North Carolina becomes or is applicable to the Collateral of any Obligor or any part thereof, or to any of the Secured 121 Obligations, such Obligor agrees to execute and deliver all such instruments and to do all such other things as the Agent in its sole discretion reasonably deems necessary or appropriate to preserve, protect and enforce the security interests of the Agent under the law of such other jurisdiction (and, if an Obligor shall fail to do so promptly upon the request of the Agent, then the Agent may execute any and all such requested documents on behalf of such Obligor pursuant to the power of attorney granted hereinabove). If any Collateral is in the possession or control of an Obligor's agents and the Agent so requests, such Obligor agrees to notify such agents in writing of the Agent's security interest therein and, upon the Agent's request, instruct them to hold all such Collateral for the Lenders' account and subject to the Agent's instructions. Each Obligor agrees to mark its books and records to reflect the security interest of the Agent in the Collateral. (g) TREATMENT OF ACCOUNTS. Not grant or extend the time for payment of any Account, or compromise or settle any Account for less than the full amount thereof, or release any person or property, in whole or in part, from payment thereof, or allow any credit or discount thereon, other than as normal and customary in the ordinary course of an Obligor's business. (h) COVENANTS RELATING TO COPYRIGHTS. (i) Employ the Copyright for each Work with such notice of copyright as may be required by law to secure copyright protection. (ii) Not do any act or knowingly omit to do any act whereby any material Copyright may become invalidated and (A) not do any act, or knowingly omit to do any act, whereby any material Copyright may become injected into the public domain; (B) notify the Agent immediately if it knows, or has reason to know, that any material Copyright may become injected into the public domain or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any court or tribunal in the United States or any other country) regarding an Obligor's ownership of any such Copyright or its validity; (C) take all necessary steps as it shall deem appropriate under the circumstances, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of each material Copyright owned by an Obligor including, without limitation, filing of applications for renewal where necessary; and (D) promptly notify the Agent of any material infringement of any material Copyright of an Obligor of which it becomes aware and take such actions as it shall reasonably deem appropriate under the circumstances to protect such Copyright, including, where appropriate, the bringing of suit for infringement, seeking injunctive relief and seeking to recover any and all damages for such infringement. (iii) Not make any assignment or agreement in conflict with the security interest in the Copyrights of each Obligor hereunder. (i) COVENANTS RELATING TO PATENTS AND TRADEMARKS. 122 (i) (A) Continue to use each Trademark on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (B) maintain as in the past the quality of products and services offered under such Trademark, (C) employ such Trademark with the appropriate notice of registration, (D) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Agent, for the ratable benefit of the Lenders, shall obtain a perfected security interest in such mark pursuant to this Security Agreement, and (E) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any Trademark may become invalidated. (ii) Not do any act, or omit to do any act, whereby any Patent may become abandoned or dedicated. (iii) Notify the Agent and the Lenders immediately if it knows, or has reason to know, that any application or registration relating to any Patent or Trademark may become abandoned or dedicated, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office or any court or tribunal in any country) regarding an Obligor's ownership of any Patent or Trademark or its right to register the same or to keep and maintain the same. (iv) Whenever an Obligor, either by itself or through an agent, employee, licensee or designee, shall file an application for the registration of any Patent or Trademark with the United States Patent and Trademark Office or any similar office or agency in any other country or any political subdivision thereof, an Obligor shall report such filing to the Agent and the Lenders within five Business Days after the last day of the fiscal quarter in which such filing occurs. Upon request of the Agent, an Obligor shall execute and deliver any and all agreements, instruments, documents and papers as the Agent may request to evidence the Agent's and the Lenders' security interest in any Patent or Trademark and the goodwill and general intangibles of an Obligor relating thereto or represented thereby. (v) Take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of all Patents and Trademarks, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability. (vi) Promptly notify the Agent and the Lenders after it learns that any Patent or Trademark included in the Collateral is infringed, misappropriated or diluted by a third party and promptly sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such 123 infringement, misappropriation or dilution, or take such other actions as it shall reasonably deem appropriate under the circumstances to protect such Patent or Trademark. (vii) Not make any assignment or agreement in conflict with the security interest in the Patents or Trademarks of each Obligor hereunder. (j) NEW PATENTS, COPYRIGHTS AND TRADEMARKS. Promptly provide the Agent with (i) a listing of all applications, if any, for new Copyrights, Patents or Trademarks (together with a listing of the issuance of registrations or letters on present applications), which new applications and issued registrations or letters shall be subject to the terms and conditions hereunder, and (ii) (A) with respect to Copyrights, a duly executed Notice of Security Interest in Copyrights, (B) with respect to Patents, a duly executed Notice of Security Interest in Patents, (C) with respect to Trademarks, a duly executed Notice of Security Interest in Trademarks or (D) such other duly executed documents as the Agent may request in a form acceptable to counsel for the Agent and suitable for recording to evidence the security interest in the Copyright, Patent or Trademark which is the subject of such new application. (k) INSURANCE. Insure, repair and replace the Collateral of such Obligor as set forth in the Credit Agreement. All insurance proceeds shall be subject to the security interest of the Agent hereunder. 6. ADVANCES BY LENDERS. On failure of any Obligor to perform any of the covenants and agreements contained herein, the Agent may, at its sole option and in its sole discretion, perform the same and in so doing may expend such sums as the Agent may reasonably deem advisable in the performance thereof, including, without limitation, the payment of any insurance premiums, the payment of any taxes, a payment to obtain a release of a Lien or potential Lien, expenditures made in defending against any adverse claim and all other expenditures which the Agent or the Lenders may make for the protection of the security hereof or which may be compelled to make by operation of law. All such sums and amounts so expended shall be repayable by the Obligors on a joint and several basis promptly upon timely notice thereof and demand therefor, shall constitute additional Secured Obligations and shall bear interest from the date said amounts are expended at the default rate specified in SECTION 3.1 of the Credit Agreement for Revolving Loans that are Base Rate Loans. No such performance of any covenant or agreement by the Agent or the Lenders on behalf of any Obligor, and no such advance or expenditure therefor, shall relieve the Obligors of any default under the terms of this Security Agreement, the other Credit Documents or any Hedging Agreement. The Lenders may make any payment hereby authorized in accordance with any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien, title or claim except to the extent such payment is being contested in good faith by an Obligor in appropriate proceedings and against which adequate reserves are being maintained in accordance with GAAP. 124 7. EVENTS OF DEFAULT. The occurrence of an event which under the Credit Agreement would constitute an Event of Default shall be an Event of Default hereunder (an "EVENT OF DEFAULT"). 8. REMEDIES. (a) GENERAL REMEDIES. Upon the occurrence of an Event of Default and during continuation thereof, the Lenders shall have, in addition to the rights and remedies provided herein, in the Credit Documents, in the Hedging Agreements or by law (including, but not limited to, the rights and remedies set forth in the Uniform Commercial Code of the jurisdiction applicable to the affected Collateral), the rights and remedies of a secured party under the UCC (regardless of whether the UCC is the law of the jurisdiction where the rights and remedies are asserted and regardless of whether the UCC applies to the affected Collateral), and further, the Agent may, with or without judicial process or the aid and assistance of others, (i) enter on any premises on which any of the Collateral may be located and, without resistance or interference by the Obligors, take possession of the Collateral, (ii) dispose of any Collateral on any such premises, (iii) require the Obligors to assemble and make available to the Agent at the expense of the Obligors any Collateral at any place and time designated by the Agent which is reasonably convenient to both parties, (iv) remove any Collateral from any such premises for the purpose of effecting sale or other disposition thereof, and/or (v) without demand and without advertisement, notice, hearing or process of law, all of which each of the Obligors hereby waives to the fullest extent permitted by law, at any place and time or times, sell and deliver any or all Collateral held by or for it at public or private sale, by one or more contracts, in one or more parcels, for cash, upon credit or otherwise, at such prices and upon such terms as the Agent deems advisable, in its sole discretion (subject to any and all mandatory legal requirements). In addition to all other sums due the Agent and the Lenders with respect to the Secured Obligations, the Obligors shall pay the Agent and each of the Lenders all reasonable documented costs and expenses incurred by the Agent or any such Lender, including, but not limited to, reasonable attorneys' fees and court costs, in obtaining or liquidating the Collateral, in enforcing payment of the Secured Obligations, or in the prosecution or defense of any action or proceeding by or against the Agent or the Lenders or the Obligors concerning any matter arising out of or connected with this Security Agreement, any Collateral or the Secured Obligations, including, without limitation, any of the foregoing arising in, arising under or related to a case under the Bankruptcy Code. To the extent the rights of notice cannot be legally waived hereunder, each Obligor agrees that any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Borrower in accordance with the notice provisions of SECTION 11.1 of the Credit Agreement at least 10 days before the time of sale or other event giving rise to the requirement of such notice. The Agent and the Lenders shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. To the extent permitted by law, any Lender may be a purchaser at any such sale. To the extent permitted by applicable law, each of the Obligors hereby waives all of its rights of redemption with respect to any such sale. Subject to the provisions of applicable law, the Agent and the Lenders may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, to the extent permitted by law, be made at the time 125 and place to which the sale was postponed, or the Agent and the Lenders may further postpone such sale by announcement made at such time and place. (b) REMEDIES RELATING TO ACCOUNTS. Upon the occurrence of an Event of Default and during the continuation thereof, whether or not the Agent has exercised any or all of its rights and remedies hereunder, each Obligor will promptly upon request of the Agent instruct all account debtors to remit all payments in respect of Accounts to a mailing location selected by the Agent. In addition, the Agent or its designee may notify any Obligor's customers and account debtors that the Accounts of such Obligor have been assigned to the Agent or of the Agent's security interest therein, and may (either in its own name or in the name of an Obligor or both) demand, collect (including without limitation by way of a lockbox arrangement), receive, take receipt for, sell, sue for, compound, settle, compromise and give acquittance for any and all amounts due or to become due on any Account, and, in the Agent's discretion, file any claim or take any other action or proceeding to protect and realize upon the security interest of the Lenders in the Accounts. Each Obligor acknowledges and agrees that the Proceeds of its Accounts remitted to or on behalf of the Agent in accordance with the provisions hereof shall be solely for the Agent's own convenience and that such Obligor shall not have any right, title or interest in such Accounts or in any such other amounts except as expressly provided herein. The Agent and the Lenders shall have no liability or responsibility to any Obligor for acceptance of a check, draft or other order for payment of money bearing the legend "payment in full" or words of similar import or any other restrictive legend or endorsement or be responsible for determining the correctness of any remittance. Each Obligor hereby agrees to indemnify the Agent and the Lenders from and against all liabilities, damages, losses, actions, claims, judgments, costs, expenses, charges and reasonable attorneys' fees suffered or incurred by the Agent or the Lenders (each, an "INDEMNIFIED PARTY") because of the maintenance of the foregoing arrangements except as relating to or arising out of the gross negligence or willful misconduct of an Indemnified Party or its officers, employees or agents. In the case of any investigation, litigation or other proceeding, the foregoing indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by an Obligor, its directors, shareholders or creditors or an Indemnified Party or any other Person or any other Indemnified Party is otherwise a party thereto. (c) ACCESS. In addition to the rights and remedies hereunder, upon the occurrence of an Event of Default and during the continuance thereof, the Agent shall have the right to enter and remain upon the various premises of the Obligors without cost or charge to the Agent, and use the same, together with materials, supplies, books and records of the Obligors for the purpose of collecting and liquidating the Collateral, or for preparing for sale and conducting the sale of the Collateral, whether by foreclosure, auction or otherwise. In addition, the Agent may remove Collateral, or any part thereof, from such premises and/or any records with respect thereto, in order to effectively collect or liquidate such Collateral. (d) NONEXCLUSIVE NATURE OF REMEDIES. Failure by the Agent or the Lenders to exercise any right, remedy or option under this Security Agreement, any other Credit Document, any Hedging Agreement or as provided by law, or any delay by the Agent or the Lenders in exercising the same, shall not operate as a waiver of any such right, remedy or option. No waiver hereunder shall be effective unless it is in writing, signed by the party against whom such waiver 126 is sought to be enforced and then only to the extent specifically stated, which in the case of the Agent or the Lenders shall only be granted as provided herein. To the extent permitted by law, neither the Agent, the Lenders, nor any party acting as attorney for the Agent or the Lenders, shall be liable hereunder for any acts or omissions or for any error of judgment or mistake of fact or law other than their gross negligence or willful misconduct hereunder. The rights and remedies of the Agents and the Lenders under this Security Agreement shall be cumulative and not exclusive of any other right or remedy which the Agent or the Lenders may have. (e) RETENTION OF COLLATERAL. The Agent may, after providing the notices required by Section 9-505(2) of the UCC or otherwise complying with the requirements of applicable law of the relevant jurisdiction, to the extent the Agent is in possession of any of the Collateral, retain the Collateral in satisfaction of the Secured Obligations. Unless and until the Agent shall have provided such notices, however, the Agent shall not be deemed to have retained any Collateral in satisfaction of any Secured Obligations for any reason. (f) DEFICIENCY. In the event that the proceeds of any sale, collection or realization are insufficient to pay all amounts to which the Agent or the Lenders are legally entitled, the Obligors shall be jointly and severally liable for the deficiency, together with interest thereon at the default rate specified in SECTION 3.1 of the Credit Agreement for Revolving Loans that are Base Rate Loans, together with the costs of collection and the reasonable fees of any attorneys employed by the Agent to collect such deficiency. Any surplus remaining after the full payment and satisfaction of the Secured Obligations shall be returned to the Obligors or to whomsoever a court of competent jurisdiction shall determine to be entitled thereto. 9. RIGHTS OF THE AGENT. (a) POWER OF ATTORNEY. In addition to other powers of attorney contained herein, each Obligor hereby designates and appoints the Agent, on behalf of the Lenders, and each of its designees or agents, as attorney-in-fact of such Obligor, irrevocably and with power of substitution, with authority to take any or all of the following actions upon the occurrence and during the continuance of an Event of Default: (i) to demand, collect, settle, compromise, adjust, give discharges and releases, all as the Agent may reasonably determine; (ii) to commence and prosecute any actions at any court for the purposes of collecting any Collateral and enforcing any other right in respect thereof; (iii) to defend, settle or compromise any action brought and, in connection therewith, give such discharge or release as the Agent may deem reasonably appropriate; (iv) receive, open and dispose of mail addressed to an Obligor and endorse checks, notes, drafts, acceptances, money orders, bills of lading, 127 warehouse receipts or other instruments or documents evidencing payment, shipment or storage of the goods giving rise to the Collateral of such Obligor on behalf of and in the name of such Obligor, or securing, or relating to such Collateral; (v) sell, assign, transfer, make any agreement in respect of, or otherwise deal with or exercise rights in respect of, any Collateral or the goods or services which have given rise thereto, as fully and completely as though the Agent were the absolute owner thereof for all purposes; (vi) adjust and settle claims under any insurance policy relating thereto; (vii) execute and deliver all assignments, conveyances, statements, financing statements, renewal financing statements, security agreements, affidavits, notices and other agreements, instruments and documents that the Agent may determine necessary in order to perfect and maintain the security interests and liens granted in this Security Agreement and in order to fully consummate all of the transactions contemplated therein; (viii) institute any foreclosure proceedings that the Agent may deem appropriate; and (ix) do and perform all such other acts and things as the Agent may reasonably deem to be necessary, proper or convenient in connection with the Collateral. This power of attorney is a power coupled with an interest and shall be irrevocable (i) for so long as any of the Secured Obligations remain outstanding, any Credit Document or any Hedging Agreement is in effect or any Letter of Credit shall remain outstanding and (ii) until all of the Commitments shall have been terminated. The Agent shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to the Agent in this Security Agreement, and shall not be liable for any failure to do so or any delay in doing so. The Agent shall not be liable for any act or omission or for any error of judgment or any mistake of fact or law in its individual capacity or its capacity as attorney-in-fact except acts or omissions resulting from its gross negligence or willful misconduct. This power of attorney is conferred on the Agent solely to protect, preserve and realize upon its security interest in the Collateral. (b) PERFORMANCE BY THE AGENT OF OBLIGATIONS. If any Obligor fails to perform any agreement or obligation contained herein, the Agent itself may perform, or cause performance of, such agreement or obligation, and the expenses of the Agent incurred in connection therewith shall be payable by the Obligors on a joint and several basis pursuant to Section 11 hereof. (c) ASSIGNMENT BY THE AGENT. The Agent may from time to time assign the Secured Obligations and any portion thereof and/or the Collateral and any portion thereof, and the assignee 128 shall be entitled to all of the rights and remedies of the Agent under this Security Agreement in relation thereto. (d) THE AGENT'S DUTY OF CARE. Other than the exercise of reasonable care to assure the safe custody of the Collateral while being held by the Agent hereunder, the Agent shall have no duty or liability to preserve rights pertaining thereto, it being understood and agreed that the Obligors shall be responsible for preservation of all rights in the Collateral, and the Agent shall be relieved of all responsibility for the Collateral upon surrendering it or tendering the surrender of it to the Obligors. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Agent accords its own property, which shall be no less than the treatment employed by a reasonable and prudent agent in the industry, it being understood that the Agent shall not have responsibility for taking any necessary steps to preserve rights against any parties with respect to any of the Collateral. 10. APPLICATION OF PROCEEDS. Upon the occurrence and during the continuance of an Event of Default, any payments in respect of the Secured Obligations and any proceeds of the Collateral, when received by the Agent or any of the Lenders in cash or its equivalent, will be applied in reduction of the Secured Obligations in the order set forth in SECTION 3.15(b) of the Credit Agreement, and each Obligor irrevocably waives the right to direct the application of such payments and proceeds and acknowledges and agrees that the Agent shall have the continuing and exclusive right to apply and reapply any and all such payments and proceeds in the Agent's sole discretion, notwithstanding any entry to the contrary upon any of its books and records. 11. COSTS OF COUNSEL. If at any time hereafter, whether upon the occurrence of an Event of Default or not, the Agent employs counsel to prepare or consider amendments, waivers or consents with respect to this Security Agreement, or to take action or make a response in or with respect to any legal or arbitral proceeding relating to this Security Agreement or relating to the Collateral, or to protect the Collateral or exercise any rights or remedies under this Security Agreement or with respect to the Collateral, then the Obligors agree to promptly pay upon demand any and all such reasonable documented costs and expenses of the Agent or the Lenders, all of which costs and expenses shall constitute Secured Obligations hereunder. 12. CONTINUING AGREEMENT. (a) This Security Agreement shall be a continuing agreement in every respect and shall remain in full force and effect so long as any of the Secured Obligations remain outstanding or any Credit Document or Hedging Agreement is in effect or any Letter of Credit shall remain outstanding, and until all of the Commitments thereunder shall have terminated (other than any obligations with respect to the indemnities and the representations and warranties set forth in the Credit Documents). Upon such payment and termination, this Security Agreement shall be automatically terminated and the Agent and the Lenders shall, upon the request and at the expense of the Obligors, forthwith release all of its liens and security interests hereunder and shall execute and deliver all UCC termination statements and/or other documents reasonably requested by the 129 Obligors evidencing such termination. Notwithstanding the foregoing all releases and indemnities provided hereunder shall survive termination of this Security Agreement. (b) This Security Agreement shall continue to be effective or be automatically reinstated, as the case may be, if at any time payment, in whole or in part, of any of the Secured Obligations is rescinded or must otherwise be restored or returned by the Agent or any Lender as a preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar law, all as though such payment had not been made; provided that in the event payment of all or any part of the Secured Obligations is rescinded or must be restored or returned, all reasonable costs and expenses (including without limitation any reasonable legal fees and disbursements) incurred by the Agent or any Lender in defending and enforcing such reinstatement shall be deemed to be included as a part of the Secured Obligations. 13. AMENDMENTS; WAIVERS; MODIFICATIONS. This Security Agreement and the provisions hereof may not be amended, waived, modified, changed, discharged or terminated except as set forth in SECTION 11.6 of the Credit Agreement. 14. SUCCESSORS IN INTEREST. This Security Agreement shall create a continuing security interest in the Collateral and shall be binding upon each Obligor, its successors and assigns and shall inure, together with the rights and remedies of the Agent and the Lenders hereunder, to the benefit of the Agent and the Lenders and their successors and permitted assigns; PROVIDED, HOWEVER, that none of the Obligors may assign its rights or delegate its duties hereunder without the prior written consent of each Lender or the Required Lenders, as required by the Credit Agreement. To the fullest extent permitted by law, each Obligor hereby releases the Agent and each Lender, and its successors and assigns, from any liability for any act or omission relating to this Security Agreement or the Collateral, except for any liability arising from the gross negligence or willful misconduct of the Agent, or such Lender, or its officers, employees or agents. 15. NOTICES. All notices required or permitted to be given under this Security Agreement shall be in conformance with SECTION 11.1 of the Credit Agreement. 16. COUNTERPARTS. This Security Agreement may be executed in any number of counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Security Agreement to produce or account for more than one such counterpart. 17. HEADINGS. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Security Agreement. 18. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a) THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE 130 STATE OF NORTH CAROLINA. Any legal action or proceeding with respect to this Security Agreement may be brought in the courts of the State of North Carolina, or of the United States for the Western District of North Carolina, and, by execution and delivery of this Security Agreement, each Obligor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of such courts. Each Obligor further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address for notices pursuant to SECTION 11.1 of the Credit Agreement, such service to become effective 30 days after such mailing. Nothing herein shall affect the right of the Agent to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against any Obligor in any other jurisdiction. (b) Each Obligor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Security Agreement brought in the courts referred to in subsection (a) hereof and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 19. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES TO THIS SECURITY AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 20. SEVERABILITY. If any provision of any of the Security Agreement is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 21. ENTIRETY. This Security Agreement, the other Credit Documents and the Hedging Agreements represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents, the Hedging Agreements or the transactions contemplated herein and therein. 22. SURVIVAL. All representations and warranties of the Obligors hereunder shall survive the execution and delivery of this Security Agreement, the other Credit Documents and the Hedging Agreements, the delivery of the Notes and the making of the Loans and the issuance of the Letters of Credit under the Credit Agreement. 23. OTHER SECURITY. To the extent that any of the Secured Obligations are now or hereafter secured by property other than the Collateral (including, without limitation, real property and securities owned by an Obligor), or by a guarantee, endorsement or property of any other Person, then the Agent 131 and the Lenders shall have the right to proceed against such other property, guarantee or endorsement upon the occurrence of any Event of Default, and the Agent and the Lenders have the right, in their sole discretion, to determine which rights, security, liens, security interests or remedies the Agent and the Lenders shall at any time pursue, relinquish, subordinate, modify or take with respect thereto, without in any way modifying or affecting any of them or any of the Agent's and the Lenders' rights or the Secured Obligations under this Security Agreement, under any other of the Credit Documents or under any Hedging Agreement. 24. JOINT AND SEVERAL OBLIGATIONS OF OBLIGORS. (a) Each of the Obligors is accepting joint and several liability hereunder in consideration of the financial accommodation to be provided by the Lenders under the Credit Agreement, for the mutual benefit, directly and indirectly, of each of the Obligors and in consideration of the undertakings of each of the Obligors to accept joint and several liability for the obligations of each of them. (b) Each of the Obligors jointly and severally hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Obligors with respect to the payment and performance of all of the Secured Obligations arising under this Security Agreement, the other Credit Documents and the Hedging Agreements, it being the intention of the parties hereto that all the Obligations shall be the joint and several obligations of each of the Obligors without preferences or distinction among them. (c) Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the obligations of a Guarantor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code). 25. RIGHTS OF REQUIRED LENDERS. All rights of the Agent hereunder, if not exercised by the Agent, may be exercised by the Required Lenders. [remainder of page intentionally left blank] 132 Each of the parties hereto has caused a counterpart of this Security Agreement to be duly executed and delivered as of the date first above written. BORROWER: SIMONDS INDUSTRIES INC., - --------- a [DELAWARE] corporation By: _______________________________ Title: ____________________________ GUARANTORS: - ----------- ___________________________________ By: _______________________________ Name: _____________________________ Title: ____________________________ ___________________________________ By: _______________________________ Name: _____________________________ Title: ____________________________ ___________________________________ By: _______________________________ Name: _____________________________ Title: ____________________________ Accepted and agreed to in Charlotte, North Carolina as of the date first above written. FIRST UNION NATIONAL BANK, Agent By: _______________________________ Name: _____________________________ Title: ____________________________ 133 SCHEDULE 5(f)(i) NOTICE OF GRANT OF SECURITY INTEREST IN COPYRIGHTS United States Copyright Office Gentlemen: Please be advised that pursuant to the Security Agreement dated as of July 2, 1998 (as the same may be amended, modified, extended or restated from time to time, the "SECURITY AGREEMENT") by and among the Obligors party thereto (each an "OBLIGOR" and collectively, the "OBLIGORS") and First Union National Bank, as Agent (the "AGENT") for the lenders referenced therein (the "LENDERS"), the undersigned Obligor has granted a continuing security interest in and continuing lien upon, the copyrights and copyright applications shown below to the Agent for the ratable benefit of the Lenders: COPYRIGHTS Date of Copyright No. Description of Copyright Copyright ------------- ------------------------ --------- COPYRIGHT APPLICATIONS Copyright Description of Copyright Date of Copyright Applications No. Applied for Applications ---------------- ----------- ------------ 134 The Obligors and the Agent, on behalf of the Lenders, hereby acknowledge and agree that the security interest in the foregoing copyrights and copyright applications (i) may only be terminated in accordance with the terms of the Security Agreement and (ii) is not to be construed as an assignment of any copyright or copyright application. Very truly yours, __________________________________ [Obligor] By: ______________________________ Name: ____________________________ Title: ___________________________ Acknowledged and Accepted: FIRST UNION NATIONAL BANK, as Agent By: ___________________________ Name: _________________________ Title: ________________________ 135 SCHEDULE 5(f)(ii) NOTICE OF GRANT OF SECURITY INTEREST IN PATENTS United States Patent and Trademark Office Gentlemen: Please be advised that pursuant to the Security Agreement dated as of July 2, 1998 (the "SECURITY AGREEMENT") by and among the Obligors party thereto (each an "OBLIGOR" and collectively, the "OBLIGORS") and First Union National Bank, as Agent (the "AGENT") for the lenders referenced therein (the "Lenders"), the undersigned Obligor has granted a continuing security interest in and continuing lien upon, the patents and patent applications shown below to the Agent for the ratable benefit of the Lenders: PATENTS Description of Patent Date of Patent No. Item Patent ---------- -------------------- ------ PATENT APPLICATIONS Patent Description of Patent Date of Patent Applications No. Applied For Applications ---------------- ----------- ------------ 136 The Obligors and the Agent, on behalf of the Lenders, hereby acknowledge and agree that the security interest in the foregoing patents and patent applications (i) may only be terminated in accordance with the terms of the Security Agreement and (ii) is not to be construed as an assignment of any patent or patent application. Very truly yours, __________________________________ [Obligor] By: ______________________________ Name: ____________________________ Title: ___________________________ Acknowledged and Accepted: FIRST UNION NATIONAL BANK, as Agent By: _____________________________ Name: ___________________________ Title: __________________________ 137 SCHEDULE 5(f)(iii) NOTICE OF GRANT OF SECURITY INTEREST IN TRADEMARKS United States Patent and Trademark Office Gentlemen: Please be advised that pursuant to the Security Agreement dated as of July 2, 1998 (the "SECURITY AGREEMENT") by and among the Obligors party thereto (each an "OBLIGOR" and collectively, the "OBLIGORS") and First Union National Bank, as Agent (the "AGENT") for the lenders referenced therein (the "Lenders"), the undersigned Obligor has granted a continuing security interest in and continuing lien upon, the trademarks and trademark applications shown below to the Agent for the ratable benefit of the Lenders: TRADEMARKS Description of Trademark Date of Trademark No. Item Trademark ------------- ---- --------- TRADEMARK APPLICATIONS Trademark Description of Trademark Date of Trademark Applications No. Applied For Applications ---------------- ----------- ------------ 138 The Obligors and the Agent, on behalf of the Lenders, hereby acknowledge and agree that the security interest in the foregoing trademarks and trademark applications (i) may only be terminated in accordance with the terms of the Security Agreement and (ii) is not to be construed as an assignment of any trademark or trademark application. Very truly yours, __________________________________ [Obligor] By: ______________________________ Name: ____________________________ Title: ___________________________ Acknowledged and Accepted: FIRST UNION NATIONAL BANK, as Agent By: ___________________________ Name: _________________________ Title: ________________________ 139 EXHIBIT 2.1(b)(i) FORM OF NOTICE OF BORROWING First Union National Bank, as Agent for the Lenders One First Union Center, NC-0680 301 South College Street Charlotte, North Carolina 28288-0608 Attn: Syndication Agency Services Ladies and Gentlemen: The undersigned, SIMONDS INDUSTRIES INC. (the "BORROWER"), refers to the Credit Agreement dated as of July 2, 1998 (as amended, modified, restated or supplemented from time to time, the "CREDIT AGREEMENT"), among the Borrower, the Guarantors, the Lenders and First Union National Bank, as Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Borrower hereby gives notice pursuant to Section 3.2 of the Credit Agreement that it requests a Revolving Loan advance under the Credit Agreement, and in connection therewith sets forth below the terms on which such Loan advance is requested to be made: (A) Date of Borrowing (which is a Business Day) _______________________ (B) Principal Amount of Borrowing _______________________ (C) Interest rate basis _______________________ (D) Interest Period and the last day thereof _______________________ In accordance with the requirements of Section 5.2, the Borrower hereby reaffirms the representations and warranties set forth in the Credit Agreement as provided in subsection (b) of such Section, and confirms that the matters referenced in subsections (b), (c) and (d) of such Section, are true and correct. SIMONDS INDUSTRIES INC. By: _____________________ Name: ___________________ Title: __________________ 140 EXHIBIT 2.1(b)(iii) NOTICE OF ACCOUNT DESIGNATION Dated July 2, 1998 First Union National Bank One First Union Center, NC-0680 301 South College Street Charlotte, North Carolina 28288-0608 Attn: Syndication Agency Services Ladies and Gentlemen: This Notice of Account Designation is delivered to you by Simonds Industries Inc. (the "Company"), a corporation organized under the laws of Delaware, under Section 2.1 of the Credit Agreement dated as of July 2, 1998 (as amended, restated or otherwise modified, the "Credit Agreement") by and among the Borrower party thereto, the Guarantors party thereto, the Lenders party thereto and First Union National Bank, as Agent. The Agent is hereby authorized to disburse all Loan proceeds into the following account, unless the Company shall designate, in writing to the Agent, one or more other accounts: Name of Bank:____________________________________ ABA Routing Number:______________________________ Account Number:__________________________________ Notwithstanding the foregoing, on the closing date of the Credit Agreement, funds borrowed under the Credit Agreement shall be sent to the institutions and/or persons designated on the attached payment instructions. IN WITNESS WHEREOF, the undersigned has executed this Notice of Account Designation this 2nd day of July, 1998 [CORPORATE SEAL] Simonds Industries Inc. By:_____________________________ Name: Title: 141 EXHIBIT 2.1(e) FORM OF REVOLVING NOTE $_________________ July 2, 1998 FOR VALUE RECEIVED, SIMONDS INDUSTRIES INC., a [DELAWARE] corporation (the "BORROWER"), hereby promises to pay to the order of __________________________, its successors and assigns (the "LENDER"), at the office of First Union National Bank, as Agent (the "AGENT"), at ____________________, Charlotte, North Carolina 282__ (or at such other place or places as the holder hereof may designate), at the times set forth in the Credit Agreement dated as of the date hereof among the Borrower, the Guarantors, the Lenders and the Agent (as it may be as amended, modified, restated or supplemented from time to time, the "CREDIT AGREEMENT"; all capitalized terms not otherwise defined herein shall have the meanings set forth in the Credit Agreement), but in no event later than the Maturity Date, in Dollars and in immediately available funds, the principal amount of ________________________ DOLLARS ($____________) or, if less than such principal amount, the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower pursuant to the Credit Agreement, and to pay interest from the date hereof on the unpaid principal amount hereof, in like money, at said office, on the dates and at the rates selected in accordance with Section 2.1(d) of the Credit Agreement. Upon the occurrence and during the continuance of an Event of Default, the balance outstanding hereunder shall bear interest as provided in Section 3.1 of the Credit Agreement. Further, in the event the payment of all sums due hereunder is accelerated under the terms of the Credit Agreement, this Note, and all other indebtedness of the Borrower to the Lender shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees. All borrowings evidenced by this Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on SCHEDULE A attached hereto and incorporated herein by reference, or on a continuation thereof which shall be attached hereto and made a part hereof; PROVIDED, HOWEVER, that any failure to endorse such information on such schedule or continuation thereof shall not in any manner affect the obligation of the Borrower to make payments of principal and interest in accordance with the terms of this Note. 142 This Note and the Loans evidenced hereby may be transferred in whole or in part only by registration of such transfer on the Register maintained by or on behalf of the Borrower as provided in Section 11.3(c) of the Credit Agreement. IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed by its duly authorized officer as of the day and year first above written. SIMONDS INDUSTRIES INC. By: __________________________ Name: ________________________ Title: _______________________ 143 SCHEDULE A TO THE REVOLVING NOTE OF ______________ DATED July 2, 1998 Unpaid Name of Type Principal Person of Interest Payments Balance Making Date Loan Period Principal Interof of Note Notation - ---- ---- ------ --------- ------- ------- -------- 144 EXHIBIT 3.2 FORM OF NOTICE OF EXTENSION/CONVERSION First Union National Bank, as Agent for the Lenders ______________________ ______________________ ______________________ Charlotte, North Carolina 282__ Attention: _____________ Ladies and Gentlemen: The undersigned, SIMONDS INDUSTRIES INC. (the "BORROWER"), refers to the Credit Agreement dated as of July 2, 1998 (as amended, modified, restated or supplemented from time to time, the "CREDIT AGREEMENT"), among the Borrower, the Guarantors, the Lenders and First Union National Bank, as Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Borrower hereby gives notice pursuant to Section 3.2 of the Credit Agreement that it requests an extension or conversion of a Revolving Loan outstanding under the Credit Agreement, and in connection therewith sets forth below the terms on which such extension or conversion is requested to be made: (A) Date of Extension or Conversion (which is the last day of the the applicable Interest Period) _______________________ (B) Principal Amount of Extension or Conversion _______________________ (C) Interest rate basis _______________________ (D) Interest Period and the last day thereof _______________________ In accordance with the requirements of Section 5.2, the Borrower hereby reaffirms the representations and warranties set forth in the Credit Agreement as provided in subsection (b) of such Section, and confirms that the matters referenced in subsections (c), (d), (e) and (f) of such Section, are true and correct. SIMONDS INDUSTRIES INC. By: __________________________ Name: ________________________ Title: _______________________ 145 EXHIBIT 7.1(d) FORM OF OFFICER'S COMPLIANCE CERTIFICATE For the fiscal quarter ended _________________, 19___. I, ______________________, [Title] of SIMONDS INDUSTRIES INC. (the "BORROWER") hereby certify that, to the best of my knowledge and belief, with respect to that certain Credit Agreement dated as of July 2, 1998 (as amended, modified, restated or supplemented from time to time, the "CREDIT AGREEMENT"; all of the defined terms in the Credit Agreement are incorporated herein by reference) among the Borrower, the Guarantors, the Lenders and First Union National Bank, as Agent: a. The company-prepared financial statements which accompany this certificate are true and correct in all material respects and have been prepared in accordance with GAAP applied on a consistent basis, subject to changes resulting from normal year-end audit adjustments. b. Since ___________ (the date of the last similar certification, or, if none, the Closing Date) no Default or Event of Default has occurred under the Credit Agreement; and Delivered herewith are detailed calculations demonstrating compliance by the Credit Parties with the financial covenants contained in Section 7.11 of the Credit Agreement as of the end of the fiscal period referred to above. This ______ day of ___________, 19__. SIMONDS INDUSTRIES INC. By: ___________________________ Name: _________________________ Title: ________________________ 146 ATTACHMENT TO OFFICER'S CERTIFICATE COMPUTATION OF FINANCIAL COVENANTS 147 EXHIBIT 7.12 FORM OF JOINDER AGREEMENT THIS JOINDER AGREEMENT (the "AGREEMENT"), dated as of _____________, 19__, is by and between _____________________, a ___________________ (the "SUBSIDIARY"), and FIRST UNION NATIONAL BANK, in its capacity as Agent under that certain Credit Agreement (as it may be amended, modified, restated or supplemented from time to time, the "CREDIT AGREEMENT"), dated as of July 2, 1998, by and among SIMONDS INDUSTRIES INC., a [DELAWARE] corporation (the "BORROWER"), the Guarantors, the Lenders and First Union National Bank, as Agent. All of the defined terms in the Credit Agreement are incorporated herein by reference. The Subsidiary is an Additional Credit Party, and, consequently, the Credit Parties are required by Section 7.12 of the Credit Agreement to cause the Subsidiary to become a "GUARANTOR". Accordingly, the Subsidiary hereby agrees as follows with the Agent, for the benefit of the Lenders: 1. The Subsidiary hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Subsidiary will be deemed to be a party to the Credit Agreement and a "Guarantor" for all purposes of the Credit Agreement, and shall have all of the obligations of a Guarantor thereunder as if it had executed the Credit Agreement. The Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions applicable to the Guarantors contained in the Credit Agreement. Without limiting the generality of the foregoing terms of this paragraph 1, the Subsidiary hereby (i) jointly and severally together with the other Guarantors, guarantees to each Lender and the Agent, as provided in Section 4 of the Credit Agreement, the prompt payment and performance of the Credit Party Obligations in full when due (whether at stated maturity, as a mandatory prepayment, by acceleration or otherwise) strictly in accordance with the terms thereof. 2. The Subsidiary hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Subsidiary will be deemed to be a party to the Security Agreement, and shall have all the obligations of an "Obligor" (as such term is defined in the Security Agreement) thereunder as if it had executed the Security Agreement. The Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Security Agreement. Without limiting generality of the foregoing terms of this paragraph 2, the Subsidiary hereby grants to the Agent, for the benefit of the Lenders [and the Senior Noteholders], a continuing security interest in, and a right of set off against any and all right, title and interest of the Subsidiary in and to the Collateral (as such term is defined in Section 2 of the Security Agreement) of the Subsidiary. The Subsidiary hereby represents and warrants to the Agent that: (i) The Subsidiary's chief executive office and chief place of business are (and for the prior four months have been) located at the locations set forth on SCHEDULE 1 attached hereto and the Subsidiary keeps its books and records at such locations. 148 (ii) The type of Collateral owned by the Subsidiary and the location of all Collateral owned by the Subsidiary is as shown on SCHEDULE 2 attached hereto. (iii) The Subsidiary's legal name is as shown in this Agreement and the Subsidiary has not in the past four months changed its name, been party to a merger, consolidation or other change in structure or used any tradename except as set forth in SCHEDULE 3 attached hereto. (iv) The patents and trademarks listed on SCHEDULE 4 attached hereto constitute all of the registrations and applications for the patents and trademarks owned by the Subsidiary. 3. The Subsidiary hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Subsidiary will be deemed to be a party to the Pledge Agreement, and shall have all the obligations of a "Pledgor" thereunder as if it had executed the Pledge Agreement. The Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by, all the terms, provisions and conditions contained in the Pledge Agreement. Without limiting the generality of the foregoing terms of this paragraph 3, the Subsidiary hereby pledges and assigns to the Agent, for the benefit of the Lenders [and the Senior Noteholders], and grants to the Agent, for the benefit of the Lenders [and the Senior Noteholders], a continuing security interest in any and all right, title and interest of the Subsidiary in and to Pledged Shares (as such term is defined in Section 2 of the Pledge Agreement) listed on SCHEDULE 5 attached hereto and the other Pledged Collateral (as such term is defined in Section 2 of the Pledge Agreement). 4. If the Subsidiary is not incorporated or organized under the laws of any State of the United States or the District of Columbia, then the Subsidiary hereby agrees as follows: (i) (A) Without limiting the generality of subsections (a) and (b) of Section 11.10 of the Credit Agreement, the Subsidiary agrees that any controversy or claim with respect to it arising out of or relating to the Credit Agreement or the other Credit Documents may, at the option of the Agent and the Lenders, be settled immediately by submitting the same to binding arbitration in the City of Charlotte, North Carolina (or such other place as the parties may agree) in accordance with the Commercial Arbitration Rules then obtaining of the American Arbitration Association. Upon the request and submission of any controversy or claim for arbitration hereunder, the Agent shall give the Subsidiary not less than 45 days written notice of the request for arbitration, the nature of the controversy or claim, and the time and place set for arbitration. The Subsidiary agrees that such notice is reasonable to enable it sufficient time to prepare and present its case before the arbitration panel. Judgment on the award rendered by the arbitration panel may be entered in any court in which any action could have been brought or maintained pursuant to subparagraph (ii) below, including without limitation any court of the State of North Carolina or any Federal court sitting in the State of North Carolina. The expenses of arbitration shall be paid by the Subsidiary. (B) The provisions of subparagraph (A) above are intended to comply with the requirements of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"). To the extent that any provisions of such subparagraph (A) are not 149 consistent with or fail to conform to the requirements set out in the Convention, such subparagraph (A) shall be deemed amended to conform to the requirements of the Convention. (C) The Subsidiary hereby specifically consents and submits to the jurisdiction of the courts of the State of North Carolina and courts of the United States located in the State of North Carolina for purposes of entry of a judgment or arbitration award entered by the arbitration panel. (D) The Subsidiary hereby irrevocably appoints ________________, with an address on the date hereof at __________________________________ (the "North Carolina Process Agent"), as process agent in its name, place and stead to receive and forward service of any and all writs, summonses and other legal process in any suit, action or proceeding brought in the State of North Carolina, agrees that such service in any such suit, action or proceeding may be made upon the North Carolina Process Agent and agrees to take all such action as may be necessary to continue said appointment in full force and effect or to appoint another agent so that the Subsidiary will at all times have an agent in the State of North Carolina for service of process for the above purposes. (ii) The guarantee of the Subsidiary pursuant to the Credit Agreement is (in part) an international transaction in which payment of dollars in Charlotte, North Carolina, is of the essence, and dollars shall be the currency of account in all events. The payment obligation of the Subsidiary shall not be discharged by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on prompt conversion to dollars and transfer to Charlotte, North Carolina, under normal banking procedures does not yield the amount of dollars in Charlotte, North Carolina due hereunder. In the event that any payment by the Subsidiary, whether pursuant to a judgment or otherwise, upon conversion and transfer does not result in payment of such amount of dollars in Charlotte, North Carolina, the Agent and the Lenders shall have a separate cause of action against the Subsidiary for the additional amount necessary to yield the amount due and owing to the Agent and the Lenders.] 5. The address of the Subsidiary for purposes of all notices and other communications is ____________________, ____________________________, Attention of ______________ (Facsimile No. ____________). 6. The Subsidiary hereby waives acceptance by the Agent and the Lenders of the guaranty by the Subsidiary under Section 4 of the Credit Agreement upon the execution of this Agreement by the Subsidiary. 7. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute one contract. 8. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of North Carolina. 150 IN WITNESS WHEREOF, the Subsidiary has caused this Joinder Agreement to be duly executed by its authorized officers, and the Agent, for the benefit of the Lenders, has caused the same to be accepted by its authorized officer, as of the day and year first above written. [SUBSIDIARY] By:_____________________________________ Name: __________________________________ Title: _________________________________ Acknowledged and accepted: FIRST UNION NATIONAL BANK, as Agent By:_____________________________________ Name: __________________________________ Title: _________________________________ 151 SCHEDULE 1 TO FORM OF JOINDER AGREEMENT [Chief Executive Office and Chief Place of Business of Subsidiary] 152 SCHEDULE 2 TO FORM OF JOINDER AGREEMENT [Types and Locations of Collateral] 153 SCHEDULE 3 TO FORM OF JOINDER AGREEMENT [Tradenames] 154 SCHEDULE 4 TO FORM OF JOINDER AGREEMENT [Patents and Trademarks] 155 SCHEDULE 5 TO FORM OF JOINDER AGREEMENT [Pledged Shares] 156 EXHIBIT 11.3(b) FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit Agreement dated as of July 2, 1998, as amended and modified from time to time thereafter (the "CREDIT Agreement") among Simonds Industries Inc., the other Credit Parties party thereto, the Lenders party thereto and First Union National Bank, as Agent. Terms defined in the Credit Agreement are used herein with the same meanings. The "Assignor" and the "Assignee" referred to on Schedule 1 agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, without recourse and without representation or warranty except as expressly set forth herein, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement and the other Credit Documents as of the date hereof equal to the percentage interest specified on Schedule 1 of all outstanding rights and obligations under the Credit Agreement and the other Credit Documents. After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Loans owing to the Assignee will be as set forth on Schedule 1. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Documents or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or the performance or observance by any Credit Party of any of its obligations under the Credit Documents or any other instrument or document furnished pursuant thereto; and (iv) attaches the Notes held by the Assignor and requests that the Agent exchange such Notes for new Notes payable to the order of the Assignee in an amount equal to the Commitment assumed by the Assignee pursuant hereto and to the Assignor in an amount equal to the Commitment retained by the Assignor, if any, as specified on Schedule 1. 157 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 7.1 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service or other forms required under Section 3.11. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date for this Assignment and Acceptance (the "EFFECTIVE Date") shall be the date of acceptance hereof by the Agent, unless otherwise specified on Schedule 1. 5. Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of North Carolina. 8. This Assignment and Acceptance may be executed in any number of counterparts and by different 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. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. 158 IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date hereof. ____________________, as Assignor By:_____________________________________ Name: __________________________________ Title: _________________________________ _____________________, as Assignee By:_____________________________________ Name: __________________________________ Title: _________________________________ Notice address of Assignee: [Assignee] Attn: __________________________________ Telephone: (___) _______________________ Telecopy: (___) ________________________ CONSENTED TO: FIRST UNION NATIONAL BANK, * as Agent By:_____________________________________ Name: __________________________________ Title: _________________________________ SIMONDS INDUSTRIES INC. By:_____________________________________ Name: __________________________________ Title: _________________________________ - -------- * Required if the Assignee is an Eligible Assignee solely by reason of clause (iii) of the definition of "Eligible Assignee." 159 SCHEDULE 1 to ASSIGNMENT AND ACCEPTANCE (a) Date of Assignment: (b) Legal Name of Assignor: (c) Legal Name of Assignee: (d) Effective Date of Assignment : (e) Revolving Commitment Percentage Assigned (expressed as a percentage set forth to at least 8 decimals) % (f) Revolving Commitment Percentage of Assignee after giving effect to this Assignment and Acceptance as of the Effective Date (set forth to at least 8 decimals) % (g) Revolving Commitment Percentage of Assignor after giving effect to this Assignment and Acceptance as of the Effective Date (set forth to at least 8 decimals) % (h) Revolving Committed Amount as of Effective Date $_____________ (i) Dollar Amount of Assignor's Revolving Commitment Percentage as of the Effective Date (the amount set forth in (h) multiplied by the percentage set forth in (g)) $_____________ (j) Dollar Amount of Assignee's Revolving Commitment Percentage as of the Effective Date (the amount set forth in (h) multiplied by the percentage set forth in (f)) $_____________ EX-4.4 16 TERM LOAN & WORKING CAPITAL LINE OF GERMAN SUB 1 Exhibit 4.4 CREDIT AGREEMENT dated February 23, 1993 relating to DM 4,200,000 Term Loan DM 5,500,000 Working Capital Line between WESPA Metallsagenfabrik Simonds Industries GmbH as Borrower and The First National Bank of Boston Zweigniederlassung Frankfurt as Lender - -------------------------------------------------------------------------------- HENGELER MUELLER WEITZEL WIRTZ Frankfurt am Main 2 THIS AGREEMENT is made on February 23, 1993 between (1) WESPA Metallsagenfabrik Simonds Industries GmbH, Lochmuhle 3, 3509 Spangenberg, registered in the Commercial Register of the Lower District Court (Amtsgericht) Melsungen under No. HRB 1321 (the "Borrower"); and (2) The First National Bank of Boston Zweignieder-lassung Frankfurt, Friedrich-Ebert-Anlage 2-14 (City-Haus), 6000 Frankfurt am Main (the "Bank"). THE PARTIES AGREE AS FOLLOWS: 1. DEFINITIONS "AS-IF-OPENING-BALANCE-SHEET" means the As-If-Opening-Balance-Sheet prepared in accordance with GAAP and correctly translated from the "Als-Ob-Eroffnungsbilanz" as of the Balance Sheet Date prepared by Arthur Andersen & Co. GmbH Wirtschafts-prufungsgesellschaft Steuerberatungsgesellschaft, Frankfurt am Main. "BALANCE SHEET DATE" means January 1, 1992 which is the date of the As-If-Opening-Balance-Sheet of the Borrower. "BANKING DAY" means any day on which banks are open for business in Frankfurt am Main. "BORROWING BASE REPORT" means a report with respect to a Borrowing Base of the Borrower in the form of SCHEDULE 2. "BORROWING BASE" means, at any time of determination, an amount equal to the sum of the following: (a) eighty percent (80 %) of the Eligible Receivables, plus (b) fifty percent (50 %) of the Eligible Inventory provided that the maximum amount of 50 % of Eligible Inventory to be taken into account for calculating the Borrowing Base shall be DM 2,250,000. "CLOSING FEE" means the fee in the amount of U.S.$ 30,000 payable by the Borrower to The First National Bank of Boston, Boston Office, Eastern Commercial III, and to be deducted by the Bank from the disbursements to be made on the Disbursement Date. "CONSOLIDATED TANGIBLE NET WORTH" means, at any date as of which the amount thereof shall be determined, the consolidated total assets of the Borrower and its Subsidiaries (carried on the books and records of the Borrower in accordance with GAAP) MINUS (i) the sum of any amounts attributable to (a) goodwill, (b) intangible items such as unamortized debt discount and expense, patents, trade and service marks and names, copyrights and research and development expenses except prepaid expenses, (c) all reserves not already deducted from assets, (d) any write-up in the book value of assets resulting from any revaluation thereof subsequent to the Balance Sheet Date (other than any write-up in the book value of inventory if and to the extent 3 permitted in accordance with GAAP) and (e) the value of any minority interests in Subsidiaries AND (ii) Consolidated Total Liabilities, PLUS any Subordinated Intercompany Debt. "CONSOLIDATED TOTAL LIABILITIES" means, at any date as of which the amount thereof shall be determined, all obligations that should, in accordance with GAAP, be classified as liabilities on the consolidated balance sheet of the Borrower and its Subsidiaries, including in any event all Indebtedness. "DISBURSEMENT DATE" means the date on which the Term Loan and certain drawings under the Working Capital Line Facility are to be disbursed. "DM" means Deutsche Mark. "EBIT" means for any period an amount equal to Net Income for such period, plus the following, to the extent deducted in computing such Net Income: (i) interest on Indebtedness for borrowed money, (ii) taxes and (iii) all extraordinary items. "ELIGIBLE INVENTORY" means, at any given time, the lesser of (a) the fair market value of, or (b) the amounts shown on the books and records of the Borrower (valued on a first-in first-out basis, in accordance with GAAP) in respect of, all inventory owned by the Borrower which is held for sale or which consists of raw materials or work-in-progress, and which: (i) is subject to a valid, first priority (except for Permitted Liens) security transfer of title in favour of the Bank under the Security Transfer Agreement; (ii) is in good saleable condition, is not deteriorating in quality and is not obsolete; (iii) is owned by the Borrower free and clear of all liens, security interests or encumbrances whatsoever other than those in favour of the Bank and Permitted Liens, less the aggregate amount of accounts payable relating to the Eligible Inventory (whereby accounts payable to Simonds Industries, Inc. for the delivery of goods which relate to Eligible Inventory shall not be deducted). "ELIGIBLE RECEIVABLES" means, at any given time, the aggregate amount of all accounts receivable (including bills of exchange) carried on the books and records of the Borrower in accordance with GAAP arising in the ordinary course of business of the Borrower, less all reserves with respect to such accounts receivable and less any and all offsets, right of retention, counterclaims or other contras in respect thereof, and which accounts receivable (i) are originally due in accordance with the standard terms presently extended by the Borrower payable within no more than one hundred and twenty (120) days of the date of invoice, and are not past due by more than thirty (30) days; 2 4 (ii) constitute the valid, binding and legally enforceable obligation of the obligor thereon, and are not expressly subordinated to any other claims against such obligor; (iii) are not evidenced by any instrument, unless for the benefit of the Bank or the Borrower; (iv) are owned by the Borrower free and clear of all liens, security interests or encumbrances whatsoever, other than those in favour of the Bank and Permitted Liens; (v) are not the subject of a return, rejection, loss of or damage to the goods, the sale of which gave rise to the account receivable, or any request for credit or adjustment, or any other dispute with the obligor of the account receivable; (vi) are from an obligor on the account receivable which is creditworthy in the reasonable business judgment of the Bank; (vii) are not accounts receivable from an obligor which is subject to or for which a petition has been filed by itself or any third party, for relief under any existing of future law relating to bankruptcy, composition, insolvency, reorganization or relief of debtors, made a general assignment for the benefit of creditors, suspended business operations, became insolvent, called a meeting of its creditors for the purpose of obtaining any financial concession or accommodation, or had or suffered a receiver or a trustee to be appointed for all or a significant portion of its assets or affairs; (viii) are subject to a valid, first priority security interest (except for Permitted Liens) in favour of the Bank pursuant to the Global Assignment Agreement; and (ix) are otherwise satisfactory to the Bank, in its sole discretion, using reasonable business judgment. plus bills of exchange which have been, and for as long as they remain to be, accepted by the Bank under the discount credit according to Clause 3.2.5 below. For the purpose of this definition, to the extent that the Borrower is at any time directly or contingently indebted for any reason to any obligor, the accounts receivable owing to the Borrower by such obligor shall be deemed to be subject to an offset, right of retention, counterclaim or other contra in the amount of such indebtedness. "EVENT OF DEFAULT" means any of the events specified in Clause 12. 3 5 "FLEET AGREEMENT" means the Amended and Restated Credit Agreement dated as of November 1, 1991 between Fleet Bank of Massachusetts, N.A and Simonds Industries, Inc. as amended, supplemented, restated or novated from time to time. "GAAP" means generally accepted accounting principals as in effect from time to time in the United States of America, which shall include the official interpretations thereof by the Financial Accounting Standards Board, consistently applied. "GLOBAL ASSIGNMENT AGREEMENT" means the global assignment agreement between the Borrower and the Bank. "GUARANTEES" means the guarantees dated as of January 29, 1993 by Simonds Holding Company Inc. and Simonds Industries Inc. in favour of the Bank. "GUARANTORS" means Simonds Holding Company Inc. and Simonds Industries Inc. "INDEBTEDNESS" means, with respect to any person or entity, and includes, without duplication, all obligations of such person or entity which in accordance with GAAP shall be classified upon a balance sheet as liabilities of such person or entity, and in any event includes all (i) obligations of such person or entity for borrowed money or which has been incurred in connection with the acquisition of property or assets, (ii) obligations secured by any lien or other charge upon property or assets owned by such person or entity, even though such person or entity has not assumed or become liable for the payment of such obligations, (iii) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such person or entity, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, (iv) guaranties of obligations of others for borrowed money, and (v) rentals on any capitalized lease. "INTEREST PERIOD" means any interest period relating to the Term Loan as specified in Clause 7.1.1. "LAND CHARGES VOLKSBANK HESSISCH-LICHTENAU" means the following land charges (Grundschulden) granted in favour of Volksbank Hessisch-Lichtenau eG, Hessisch-Lichtenau: (i) registered in Division III of the Land Register of the Lower District Court (Amtsgericht) Melsungen vol. 95, folio 3071 (before vol. 60, folio 2042), with respect to any or all of the real properties - con. no. 1: Jahnstra(beta)e, district of Spangenberg, lot 5, parcel 91/1, 1.600 square Meters (before con. no. 25 in vol. 60, folio 2042: Am Muhlgraben); - con. no. 2: Heinrich-Bender-Stra(beta)e 7, district of Spangenberg, lot 22, parcel 19/1, 1.561 square Meters (before con. no. 17 in vol. 60, folio 2042); 4 6 - con. no. 3: Heinrich-Bender-Stra(beta)e 7, district of Spangenberg, lot 22, parcel 20, 396 square Meters (before con. no. 20 of vol. 60, folio 2042: In der Aue) in the following amounts: - con. no. 1 (before con. no. 5 of vol. 60, folio 2042): land charge in the amount of DM 150,000; - con. no. 2 (before con. no. 6 of vol. 60, folio 2042): land charge in the amount of DM 50,000; - con. no. 3 (before con. no. 16 of vol. 60, folio 2042): land charge in the amount of DM 200,000; - con. no. 4 (before con. no. 18 of vol. 60, folio 2042): land charge in the amount of DM 200,000; - con. no. 5 (before con. no. 19 of vol. 60, folio 2042): land charge in the amount of DM 400,000; (ii) registered in Division III of the Land Register of the Lower District Court (Amtsgericht) Melsungen vol. 59, folio 1978, with respect to any or all of the real properties - con. no. 4: Lochmuhle 3-7, district of Spangenberg, lot 5, parcel 92/1, 2.445 square Meters; - con. no. 5: Adam-Schenk-Stra(beta)e, district of Spangenberg, lot 4, parcel 54/5, 16 square Meters; and Lochmuhle 3-7, district of Spangenberg, lot 5, parcel 92/8, 4.290 square Meters in the following amounts: - con. no. 1: land charge in the amount of DM 70,000; - con. no. 2: land charge in the amount of DM 130,000; - con. no. 3: land charge in the amount of DM 100,000; - con. no. 4: land charge in the amount of DM 950,000; - con. no. 5: land charge in the amount of DM 600,000; - con. no. 6: land charge in the amount of DM 400,000; 5 7 - con. no. 7: land charge in the amount of DM 200,000. "LOAN DOCUMENT" or "LOAN DOCUMENTS" means, as the case may be, any or all of the Security Transfer Agreement, Global Assignment Agreement, Trade Mark Assignment Agreement, Guarantees, Share Pledge Agreement, Assignment of Land Charges Hessisch-Lichtenau, Simonds Holding Statement of Subordination, Simonds Industries Statement of Subordination, Term Loan Notice of Drawing, Repayment Notice of Drawing, any other notice of drawing hereunder, Borrowing Base Report, form for the opening of accounts with the Bank, or any other contract, agreement, or instrument in relation to this Agreement to which the Borrower and/or the Guarantors are or will become a party. "NET INCOME" means the consolidated gross revenues of the Borrower and its subsidiaries for the period in question, less all expenses and other proper charges (including taxes on income), all determined in accordance with US-GAAP. "PERMITTED LIENS" means (i) any judicial liens in favour of third parties (e.g. taxes, landlords, warehouses) arising by operation of law; (ii) any liens on goods supplied to the Borrower arising from a retention of title (Eigentumsvorbehalt) imposed by the suppliers of the Borrower in connection with the supply of goods in the ordinary course of business of the Borrower; (iii) any security transfers, assignments for security purposes, land charges, pledges, or other encumbrances created by the Borrower in favour of third parties in connection with indebtedness for borrowed money as permitted pursuant to Clause 9.1 below or on any of the fixed assets or inventory or accounts receivable of the Borrower released pursuant to the respective provisions of the Security Transfer Agreement, the Global Assignment Agreement and the Trade Mark Assignment Agreement. "REAL ESTATE" means the real estate owned by the Borrower and registered in: (i) the Land Register of the Lower District Court (Amtsgericht) Melsungen vol. 95, folio 3071 (before vol. 60, folio 2042), - con. no. 1: Jahnstra(beta)e, district of Spangenberg, lot 5, parcel 91/1, 1.600 square Meters (before con. no. 25 in vol. 60, folio 2042: Am Muhlgraben); - con. no. 2: Heinrich-Bender-Stra(beta)e 7, district of Spangenberg, lot 22, parcel 19/1, 1.561 square Meters (before con. no. 17 in vol. 60, folio 2042); 6 8 - con. no. 3: Heinrich-Bender-Stra(beta)e 7, district of Spangenberg, lot 22, parcel 20, 396 square Meters (before con. no. 20 of vol. 60, folio 2042: In der Aue) (ii) the Land Register of the Lower District Court (Amtsgericht) Melsungen vol. 59, folio 1978, - con. 4: Lochmuhle 3-7, district of Spangenberg, lot 5, parcel 92/1, 2.445 square Meters ; - con. no. 5: Adam-Schenk-Stra(beta)e, district of Spangenberg, lot 4, parcel 54/5, 16 square Meters; - Lochmuhle 3-7, district of Spangenberg, lot 5, parcel 92/8, 4.290 square Meters; and - con. no. 6: Lochmuhle 3-7, district of Spangenberg, lot 5, parcel 92/10. "SECURITY TRANSFER AGREEMENT" means the security transfer agreement between the Borrower and the Bank. "SHARE PLEDGE AGREEMENT" means the share pledge agreement between Simonds Industries Inc. and Simonds Holding Company Inc. as pledgors and the Bank as pledgee concerning a pledge over all shares in the Borrower. "SIMONDS HOLDING STATEMENT OF SUBORDINATION" means the statement of subordination by Simonds Holding Company Inc. in favor of the Bank. "SIMONDS INDUSTRIES STATEMENT OF SUBORDINATION" means the statement of subordination by Simonds Industries Inc. in favour of the Bank. "SUBORDINATED INTERCOMPANY DEBT" means indebtedness owed to Simonds Industries Inc. or directly or indirectly wholly owned subsidiaries of Simonds Industries Inc. the payment of principal of and interest on which is expressly subordinated in right of payment, in form and on terms approved by the Bank in writing, to the prior payment in full of any outstandings owed by the Borrower to the Bank, and includes in particular, but without limitation, the Indebtedness subordinated by the Simonds Holding Statement of Subordination and the Simonds Industries Statement of Subordination. "SUBSIDIARY" means any corporation, association, joint stock company, business trust or other similar organization of which 50% or more of the ordinary voting power for the election of a majority of the members of the board of directors or other governing body of such entity is held or controlled by the Borrower or a Subsidiary of the Borrower; or any other such organization the management of which is directly or indirectly controlled by the Borrower or a Subsidiary of the Borrower through the exercise of voting power or otherwise; or any joint venture, whether incorporated or not, in which the Borrower has a 50% ownership interest. 7 9 "TERM LOAN" means the term loan in the nominal amount of DM 4,200,000. "TERM LOAN NOTICE OF DRAWING" means the notice of drawing of the Borrower with respect to the Term Loan. "TOTAL LIABILITIES" means all liabilities of the Borrower as determined in accordance with GAAP. "TRADE MARK ASSIGNMENT AGREEMENT" means the trade mark assignment agreement between the Borrower and the Bank. "WORKING CAPITAL LINE FACILITY" means the working capital line facility granted by the Bank to the Borrower in the aggregate nominal amount of DM 5,500,000. 2. THE TERM LOAN 2.1 TERM LOAN: The Bank shall make the Term Loan available to the Borrower in one amount. 2.2 PURPOSE: The Borrower shall apply the proceeds of the disbursement of the Term Loan exclusively to 2.2.1 firstly, to the extent necessary after having made full use of an amount of DM 3,380,000 which will be drawn by the Borrower under the Working Capital Line Facility on the basis of the Borrowing Base as of the Disbursement Date for the repayments (including the guarantees required from the Bank for outstanding bills of exchange) to Volksbank Spangenberg Zweigniederlassung der Volksbank Hess.-Lichtenau eG and Kreissparkasse Kassel pursuant to Clause 3.2 below, to the repayment of any residual amounts still outstanding with the same; and 2.2.2 secondly, to the extent of the unused portion of the Term Loan after payments pursuant to Clause 2.2.1 above, to the payment of all accrued interest and the partial repayment of principal of the intercompany loan extended to the Borrower by Simonds Holding Company Inc. pursuant to the Intercompany Loan Agreement dated January 21, 1992 in the principal amount of U.S. $2,533,376.00. 2.3 The Bank is hereby unconditionally and irrevocably instructed by the Borrower to disburse the usable amount of the Term Loan by purchasing, with the DM amount drawn, U.S. Dollars in Frankfurt am Main at the spot rate prevailing at the time of drawing, and by remitting the U.S. Dollar amount to Simonds Holding Company Inc. in partial discharge of the claim of Simonds Holding Company Inc. against the Borrower for payment of accrued interest and repayment of capital on the intercompany loan specified in Clause 2.2.2 above, all in accordance with the Term Loan Notice of Drawing. 3. THE WORKING CAPITAL LINE FACILITY 8 10 3.1 FACILITY: The Bank shall grant the Borrower the Working Capital Line Facility. 3.2 PURPOSE: The Borrower shall apply the proceeds of drawings under the Working Capital Line Facility as follows: 3.2.1 The Borrower shall repay (or use) an amount equalling the amount notified by Volksbank Spangenberg Zweigniederlassung der Volksbank Hess.-Lichtenau eG, Spangenberg, to the Bank as of the Disbursement Date (or any other date specified by the aforementioned bank) to be the aggregate amount of repayable outstanding sums (or sums required by such bank to be guaranteed by the Bank with respect to outstanding bills of exchange) of principal, interest, fees and other amounts under the credit agreement (Kreditvertrag) no. 20 0686 made between Volksbank Spangenberg Zweigniederlassung der Volksbank Hess.-Lichtenau eG as lender and the Borrower as borrower and dated September 27, 1990. 3.2.2 The Borrower shall repay (or use) an amount equalling the amount notified by Kreissparkasse Kassel, Kassel, to the Bank as of the Disbursement Date (or any other date specified by the aforementioned bank) to be the aggregate amount of repayable outstanding sums (or sums required by such bank to be guaranteed by the Bank with respect to outstanding bills of exchange) of principal, interest, fees and other amounts under the credit agreement (Universalvertrag fur Geschaftskredite) customer no. 86058 made between Kreissparkasse Kassel as lender and the Borrower as borrower and dated January 23, 1992. 3.2.3 With respect to the amounts specified pursuant to Clauses 3.2.1 and 3.2.2 above, the Bank is hereby unconditionally and irrevocably instructed by the Borrower to disburse the aforesaid amounts under the Working Capital Line Facility (or any amounts drawn with respect to the repayments specified pursuant to Clauses 3.2.1 and 3.2.2 above under the Term Loan pursuant to Clause 2.2.1 above) directly to Volksbank Spangenberg Zweigniederlassung der Volksbank Hess-Lichtenau and Kreissparkasse Kassel, respectively. 3.2.4 Except for the amounts specified in Clauses 3.2.1 and 3.2.2 above, the Borrower shall apply the proceeds of any drawings under the Working Capital Line Facility exclusively to the financing of its day to day business operations. 3.2.5 From the Working Capital Line Facility, an amount of up to DM 1,000,000 may be drawn by the Borrower as discount credit against presentation by the Borrower to the Bank of bills of exchange (Wechsel) under the following terms and conditions: 3.2.5.1 The Bank may decide on the acceptance of bills of exchange on a case by case basis. The Bank will in any event only accept bills of exchange which have a maximum maturity of no more than ninety (90) days and which are 9 11 (except where otherwise agreed by the Bank on a case by case basis) acceptable for rediscount by the Deutsche Bundesbank. 3.2.5.2 If no special agreement is made, bills of exchange shall be deemed accepted by the Bank for collection purposes only, but not for discounting by the Bank. 3.2.5.3 If no special agreement is made, the Bank shall be authorized to present bills of exchange for payment at maturity or to rediscount bills of exchange with the Deutsche Bundesbank. 3.2.5.4 The Bank shall be authorized to return bills of exchange to the Borrower and to debit the account of the Borrower accordingly (including any loss of interest or other damage suffered by the Bank) if: (i) the Bank will become aware of any circumstances which, in the reasonable discretion of the Bank, give rise to believe that any of the obligors under the bill of exchange is not or no longer in a position to honour the bill of exchange at maturity; or (ii) the bill of exchange will be protested by any of the obligors thereunder; or (iii) any bill of exchange rediscounted by the Bank with the Deutsche Bundesbank will be returned by the Deutsche Bundesbank to the Bank thereafter on the basis that the bill of exchange is found by the Deutsche Bundesbank not to be suitable for rediscount; or (iv) the bill of exchange will not be honoured in the full amount against presentation at maturity; or (v) the proceeds from presentation of the bill of exchange cannot be collected at maturity by the Bank in full due to any legislative or governmental act; or (vi) the Bank will not or not timely be in a position, for reasons for which the Bank is not responsible, to present the bill of exchange for payment at maturity. 3.2.5.5 At the time of accepting delivery of a bill of exchange for collection, the Bank shall acquire title to the bill of exchange for security purposes. At the time of accepting delivery of a bill of exchange for discount, the Bank shall acquire unrestricted legal title to the bill of exchange. If the Bank will be entitled to return any discounted bill of exchange to the Borrower and to debit 10 12 the account of the Borrower accordingly, the Bank shall retain title to the bill of exchange for security purposes. 3.2.5.6 When acquiring title to a bill of exchange, the Bank shall also acquire title to the claims underlying the bill of exchange (assignment for security purposes). 3.2.5.7 The transfer of title to the bills of exchange and the assignment of security purposes of the underlying claims shall serve the purpose of securing all claims the Bank may have against the Borrower as a result of any event entitling the Bank to return the bill of exchange to the Borrower. 4. DISBURSEMENTS 4.1 DISBURSEMENT OF TERM LOAN: Subject to the exception granted in Clause 4.3 below with respect to the repayment to be made to Volksbank Spangenberg Zweigniederlassung der Volksbank Hess.-Lichtenau eG, the Borrower shall on the Disbursement Date draw the Term Loan in one amount. The Bank shall only be obliged to disburse the Term Loan if all of the following conditions have been met in full: 4.1.1 REPRESENTATION, WARRANTIES, AGREEMENTS: As of the Disbursement Date, the representations, warranties and agreements of the Borrower in this Agreement and in any of the other Loan Documents to which the Borrower is or is to become a party, and of the Guarantors in the Guarantees are true and accurate in all respects and have been duly complied with. 4.1.2 TERM LOAN NOTICE OF DRAWING: The Bank shall have received not later than 10 a.m. (Frankfurt time) on the second Banking Day prior to the Disbursement Date the Term Loan Notice of Drawing certifying that, as of the Disbursement Date, the representations, warranties and agreements of the Borrower in this Agreement and in any of the other Loan Documents to which the Borrower is or is to become a party and of the Guarantors in the Guarantee are true and accurate in all respects and have been duly complied with, and that no Event of Default has occurred. 4.1.3 AGREEMENTS EXECUTED: On or prior to the Disbursement Date, all agreements and documents listed in SCHEDULE 1 hereto have been, in form and contents satisfactory to the Bank, duly executed, delivered and exchanged by all parties thereto, and where indicated delivered to the Bank in the original or where appropriate in copy. 4.1.4 CLOSING FEE: On or prior to the Disbursement Date, the Bank shall have the right to withhold the Closing Fee free of any counterclaim or right of set-off. 4.2 DRAWINGS UNDER THE WORKING CAPITAL LINE FACILITY: On the Disbursement Date or any other date specified by Volksbank Spangenberg Zweigniederlassung der Volksbank Hessisch-Lichtenau eG or Kreissparkasse Kassel the Borrower shall draw the amounts specified 11 13 pursuant to Clauses 3.2.1 and 3.2.2 above and shall be entitled on or after the Disbursement Date to draw other amounts under the Working Capital Line Facility. To the extent requested by the Borrower the Bank shall provide guarantees to Volksbank Spangenberg Zweigniederlassung der Volksbank Hessisch-Lichtenau e.G. and Kreissparkasse Kassel for liabilities of the Borrower to these credit institutions resulting from bills of exchange up to a maximum amount of DM 180,000 in the case of Volksbank Spangenberg Zweigniederlassung der Volksbank Hessisch-Lichtenau e.G. and DM 100,000 in the case of Kreissparkasse Kassel. For the time and to the extent that liabilities of the Borrower to Volksbank Spangenberg Zweigniederlassung der Volksbank Hessisch-Lichtenau e.G. and Kreissparkasse Kassel resulting from bills of exchange are existing, the granting of guarantees by the Bank concerning such liabilities is deemed to be a drawing under the Working Capital Line Facility. The Bank shall only be obliged to disburse any amounts and to make any guarantees under the Working Capital Line Facility if: 4.2.1 CONDITIONS FOR TERM LOAN: all of the conditions specified in Clause 4.1 above have been met in full; and 4.2.2 REPAYMENT NOTICE OF DRAWING: the Bank shall have received not later than 10 a.m. (Frankfurt time) on the second Banking Day prior to the Disbursement Date the Repayment Notice of Drawing; and 4.2.3 DISBURSEMENT OF TERM LOAN: the Term Loan has been disbursed upon the fulfilment of all conditions precedent thereto. 4.3 WAIVER: The Bank may in its free discretion and upon terms as it deems appropriate, waive the compliance with the whole or any of the conditions precedent for disbursement set forth in Clauses 4.1 and 4.2 above. Until the Bank will be in receipt of satisfactory evidence of the execution of the Assignment of Land Charges Hessisch-Lichtenau and the statement of Volksbank Spangenberg Zweigniederlassung der Volksbank Hess.-Lichtenau eG pursuant to Clause 3.2.1 in form and contents satisfactory to the Bank, the Bank shall have the right to withhold from the Term Loan and/or the Working Capital Line Facility such amounts as will in the discretion of the Bank be necessary to make the payments (or give the guarantees with respect to outstanding bills of exchange) required to be made to induce Volksbank Spangenberg Zweigniederlassung der Volksbank Hess.-Lichtenau eG to execute the Assignment of Land Charges Hessisch-Lichtenau (albeit in escrow) and the statement pursuant to Clause 3.2.1 in form and substance satisfactory to the Bank. 5. REPAYMENT OF TERM LOAN 5.1 REPAYMENTS: Subject as otherwise provided in this Agreement, the Term Loan shall be repaid in 28 equal quarterly installments in the amount of DM 150,000 each, the first of which shall be payable on March 31, 1993 and the last of which shall be payable on December 31, 1999. 5.2 PREPAYMENTS: The Borrower shall be entitled to prepay at the end of an Interest Period principal amounts of the Term Loan in the minimum amount of DM 100,000 or integral 12 14 multiples thereof. Any notice of prepayment shall be irrevocable and shall be given at least one month prior to the date of prepayment. Any prepayment will be applied to any outstanding ordinary installments of repayment in inverse order of maturity. 5.3 NO REBORROWINGS: Any amounts repaid pursuant to Clauses 5.1 or 5.2 above may not be reborrowed. 6. AVAILABILITY, REPAYMENT AND CANCELLATION OF WORKING CAPITAL LINE FACILITY 6.1 CURRENT CHECKING ACCOUNT: The Borrower shall open a current checking account (Kontokorrentkonto) at the office of the Bank in Frankfurt am Main by completing standard documentation required in accordance with usual practice of the Bank. 6.2 DRAWINGS: Subject always to Clause 6.4 below, the Borrower shall be entitled to borrow, repay and reborrow any amounts made available under the Working Capital Line Facility, provided, however, that the aggregate amounts of outstandings (principal, interest and fees and charges) with respect to discount credit pursuant to Clause 3.2.5 above may at no time exceed DM 1,000,000, and further provided that the aggregate amount of outstandings (principal, interest and fees and charges) may in total at no time exceed DM 5,500,000. 6.3 CANCELLATION OF WORKING CAPITAL LINE FACILITY: The Working Capital Line Facility is made available to the Borrower on an on demand basis and may be cancelled by the Bank at any time in whole or in part. Upon receipt of a written notice from the Bank to the effect that the Working Capital Line Facility shall be cancelled in its entirety or reduced to a certain maximum amount, the Borrower shall repay to the Bank within five (5) Banking Days from receipt of such notice any amounts outstanding under the Working Capital Line Facility, including accrued interest and fees and charges, which are in excess of the newly determined maximum amount (which may be a nil amount) of the Working Capital Line Facility. The Working Capital Line Facility will automatically terminate on December 31, 1999 (or any other earlier date on which the Term Loan will be repaid) on which date all outstanding amounts under the Working Capital Line Facility including accrued interest and fees and charges shall become due and payable to the Bank. 6.4 BORROWING BASE: The aggregate amount of outstandings (principal, interest, fees and charges) under the Working Capital Line Facility may at no time exceed the Borrowing Base. If at any time the aggregate outstanding amount will exceed the Borrowing Base for any reason whatsoever, the Borrower shall immediately notify the Bank thereof and shall within five (5) days pay the amount of such excess to the Bank. 7. INTEREST 7.1 TERM LOAN: The Term Loan shall bear interest as follows: 13 15 7.1.1 INTEREST PERIODS: Interest shall be calculated and payable by reference to successive Interest Periods. Each Interest Period shall be of 1, 2, 3 or 6 months' duration as selected by the Borrower in the Term Loan Notice of Drawing or thereafter in a notice received by the Bank not later than 10 a.m. (Frankfurt time) on the second Banking Day prior to the first day of the Interest Period, provided that 7.1.1.1 if the Borrower fails to select the duration of the next applicable Interest Period in accordance with the provisions of this Clause 7.1.1, such Interest Period shall be for a period of three (3) months; 7.1.1.2 each subsequent Interest Period shall commence on the day immediately following the expiry of the preceding Interest Period; 7.1.1.3 if an Interest Period would otherwise end on a day which is not a Banking Day, such Interest Period shall end on the next Banking Day in the same calendar month or, if none, on the immediately preceding Banking Day. 7.1.2 INTEREST RATE: The Interest rate shall be calculated as follows: 7.1.2.1 Unless otherwise provided in this Agreement the rate of interest for the Term Loan applicable to each Interest Period shall be the rate of 1.5 % p.a. (one and one half of one percent per annum) above the Frankfurt InterBank Offered Rate ("FIBOR") relating to such Interest Period. FIBOR shall mean the rate p.a. at which prime banks are being offered deposits in Deutsche Mark for like periods in the Frankfurt InterBank Market as quoted on Telerate Screen Page No. 2200 at or about 11 a.m. Frankfurt time on the third Banking Day prior to the first day of such Interest Period. 7.1.2.2 If, for any reason, the quotation pursuant to Clause 7.1.2.1 shall not be available, then interest relating to such Interest Period shall be determined by the Bank which determination shall be conclusive and binding on the Borrower as being the arithmetic mean rounded upwards to the nearest 1/16 of one percent of the rates p.a. at which the Bank is being offered similar amounts for similar periods in Deutsche Mark by prime banks in the Frankfurt InterBank Market at or about 11 a.m. Frankfurt time on the second Banking Day prior to the first day of such Interest Period. 7.1.2.3 INTEREST PAYMENTS: Interest for each Interest Period shall be payable in arrears on the last day of the respective Interest Period. 7.2 WORKING CAPITAL LINE FACILITY: Any drawings under the Working Capital Line Facility shall bear interest as follows: 7.2.1 DISCOUNT CREDIT: Any amounts drawn under the Working Capital Line Facility with respect to discount credit pursuant to Clause 3.2.5 shall bear interest at the 14 16 rate per annum equal to the Discount Rate (Diskontsatz), as fixed by the Deutsche Bundesbank from time to time, plus 1.25%. 7.2.2 OTHER DRAWINGS: Any other amounts drawn under the Working Capital Line Facility pursuant to Clauses 3.2.1, 3.2.2 and 3.2.4 above shall bear interest 7.2.2.1 up to an amount of drawings of no more than DM 4,000,000 at the rate per annum equal to the annual rate of interest announced from time to time by the Bank as its "best offered overdraft rate" for loans in Deutsche Mark plus 0.25%; and 7.2.2.2 if and for so long as the aggregate amount of drawings exceeds DM 4,000,000, with respect to the excess amount at the rate per annum equal to the annual rate of interest announced from time to time by the Bank as its "best offered overdraft rate" for loans in Deutsche Mark plus 0.50%. 7.2.3 DRAWINGS FOR GUARANTEES: For any drawings under the Working Capital Line Facility for amounts which shall be guaranteed by the Bank to Volksbank Spangenberg Zweigniederlassung der Volksbank Hessisch-Lichtenau eG or Kreissparkasse Kassel for outstanding bills of exchange pursuant to Clauses 3.2.1 or 3.2.2 above, the Bank shall receive, in lieu of interest thereon, a guarantee fee at the rate of 0.25% per annum. Any provisions of this Agreement applicable to interest on drawings under the Working Capital Line Facility shall apply mutatis mutandis to such fee. 7.2.4 INTEREST PAYMENTS: Interest shall be payable monthly in arrears at the end of each calendar month. 7.3 INTEREST CALCULATION: All calculations of interest on the Term Loan or drawings under the Working Capital Line Facility shall be based on a 360-day year and on the actual amount of days elapsed on which the respective amounts of principal were outstanding. 8. CERTAIN COMMON PROVISIONS 8.1 MANDATORY PREPAYMENT FOLLOWING CHANGE OF OWNERSHIP: In the event that the Borrower ceases to be a directly or indirectly wholly owned subsidiary of Simonds Industries Inc. or any corporation, partnership or other entity which is wholly owned by Simonds Industries Inc., the Borrower shall repay, immediately upon the occurrence of such event, all principal and accrued interest and any other sums outstanding under the Term Loan and pursuant to all drawings made under the Working Capital Line Facility. 8.2 PAYMENTS DUE ON NON-BUSINESS DAY: Except as otherwise specifically provided herein, whenever a payment to be made hereunder becomes due on a day which is not a Banking Day, the due date for such payment shall be extended to the next succeeding day which is a Banking Day, and interest shall accrue during such extension. 15 17 8.3 CHANGE IN MARKET CONDITIONS: In the event that the Bank shall determine that adequate and reasonable methods do not exist for ascertaining the FIBOR applicable to the Term Loan, the Bank shall forthwith give written notice of such determination (which shall be conclusive and binding on the Borrower) at least one (1) Banking Day prior to the first day of the Interest Period concerned. In such event, the Bank shall negotiate with the Borrower with a view to agreeing on an alternative basis for calculating the interest payable on and/or for making, maintaining and/or funding of the Term Loan. Any alternative basis agreed in writing by the Bank and the Borrower within two (2) weeks of the Bank's notification shall take effect in accordance with its terms. If an alternative basis is not so agreed, the Borrower shall immediately prepay the Term Loan together with accrued interest at the rate per annum equal to the rate specified by the Bank to be an interest rate equivalent to the cost to the Bank of funding plus 1.5%. 8.4 ILLEGALITY: If any introduction of or change in any law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful, or any central bank or other fiscal, monetary or other governmental authority having jurisdiction over the Bank shall assert that it is unlawful, for the Bank to make or maintain the Term Loan and/or the Working Capital Line Facility, the Bank shall forthwith give written notice to the Borrower. In such event, any amounts outstanding under the Term Loan or drawn under the working Capital Line Facility shall be prepaid by the Borrower together with accrued interest and any other amounts outstanding at the last day of the current Interest Period applicable to the Term Loan or at such earlier date as may be required by law. 8.5 INCREASED COSTS: If any introduction of or change in any law, regulation, treaty or directive or in the interpretation or application thereof, or any request, directive, instruction or notice hereafter made upon or otherwise issued to the Bank by any central bank or other fiscal, monetary or other governmental authority, shall: 8.5.1 hereafter subject the Bank to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Agreement (other than taxes on income or profit of the Bank); or 8.5.2 materially change the basis of taxation (except for changes in taxes on income or profit of the Bank) of payments to the Bank of the principal of or interest on any amounts outstanding under this Agreement; or 8.5.3 impose or increase or render applicable any deposit, reserve, assessment, liquidity, or other similar requirements against assets held by, or deposits in or for the account of, or loans by, or commitments of, or bankers acceptances created by, the Bank; or 8.5.4 impose on the Bank any other conditions or requirements with respect to this Agreement, and 8.5.5 the result of the foregoing is 16 18 (i) to increase the cost to the Bank of making, funding, issuing, renewing, extending or maintaining the Term Loan or any drawings under the Working Capital Line Facility; or (ii) to reduce the amount of principal, interest or other amounts payable to the Bank under this Agreement; or (iii) to require the Bank to make any payment or to forego any interest or other sum payable under this Agreement, the amount of which payment or foregone interest or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by the Bank from the Borrower under this Agreement, 8.5.6 then, and in each such case, the Borrower shall, upon demand by the Bank, at any time and from time to time and as often as the occasion therefor may arise, pay to the Bank such additional amounts as will be sufficient to compensate the Bank for such additional cost, reduction, payment or foregone interest or other sum, as determined by the Bank which determination by the Bank shall be conclusive and binding on the Borrower, safe for manifest error. 8.6 CAPITAL ADEQUACY: If the Bank shall have determined that any present or future applicable law, regulation, guideline, directive or request (whether or not having force of law) regarding capital requirements for banks or bank holding companies, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any of the foregoing, imposes or increases a requirement by the Bank to allocate capital resources to the Bank's commitment to make, or to the Bank's maintenance of, loans hereunder, which has or would have the effect of reducing the return on the Bank's capital to a level below that which the Bank could have achieved (taking into consideration the Bank's then existing policies with respect to capital adequacy and assuming full utilization of the Bank's capital) but for such applicability, change, interpretation or compliance, by any amount deemed by the Bank to be material, the Bank shall promptly after its determination of such occurrence give written notice thereof to the Borrower. The Borrower and the Bank shall thereafter attempt to negotiate in good faith an adjustment to the compensation payable hereunder which will adequately compensate the Bank for such reduction. If the Borrower and the Bank are unable to agree to such adjustment within two (2) weeks of the day on which the Borrower receives such notice, then commencing on the date of such notice (but not earlier than the effective date of any such applicability, change, interpretation or compliance), the amounts payable hereunder shall increase by an amount which will, in the Bank's reasonable determination, compensate the Bank for such reduction, the Bank's determination of such amount to be conclusive and binding on the Borrower, absent manifest error. In determining such amount, the Bank may use any reasonable methods of averaging, allocating or attributing such reduction among its customers. 17 19 8.7 INTEREST ON OVERDUE AMOUNTS: Interest on overdue amounts shall be calculated as follows: 8.7.1 INTEREST ON OVERDUE PRINCIPAL: If the Borrower shall fail to pay any amount of principal or any other sums (except for interest) payable by it under this Agreement on the due date thereof, the Borrower shall pay interest on the overdue amount, for the period from the due date until the date of receipt of payment of the overdue amount, at the rate per annum equalling the interest rate applicable to the overdue amount under this Agreement plus 3%. 8.7.2 INTEREST ON OVERDUE INTEREST: If the Borrower shall fail to pay any amount of interest on the due date thereof, the Borrower shall pay contractual damages with respect to such overdue amount to be calculated in accordance with Clause 8.7.1 above. 8.7.3 FURTHER DAMAGES: The right of the Bank to demand compensation for further damages suffered by reason of the delay in payment shall remain unprejudiced. 8.7.4 ASSIGNMENT OF SUBORDINATED LOANS: The Borrower already here and now assigns for security purposes to the Bank and the Bank accepts such assignment of, any and all claims the Borrower may have (i) against Simonds Holding Company Inc. or any successor or assign with respect to the intercompany loan governed by the Simonds Holding Statement of Subordination; or (ii) against Simonds Industries Inc. or any successor or assign with respect to the Simonds Industries Statement of Subordination for repayment of any amounts paid by the Borrower to Simonds Holding Company Inc. and/or Simonds Industries Inc., as the case may be, in violation of the subordination provided in the Simonds Holding Statement of Subordination or the Simonds Industries Statement of Subordination. 8.8 CERTIFICATES CONCLUSIVE: Any certificate, calculation, determination, notification, opinion or selection of the Bank provided for or referred to in this Agreement, shall be conclusive and binding on the Borrower, save for manifest error. 8.9 INDEMNITY: The Borrower agrees to indemnify the Bank and to hold the Bank harmless from any loss or expense that the Bank may sustain or incur as a consequence of a delay in payment by the Borrower in payment of principal or interest on the Term Loan or drawings under the Working Capital Line Facility, including any such loss or expense arising from interest or fees payable by the Bank to lenders of funds obtained by it in order to maintain its refinancing. 8.10 GENERAL INDEMNIFICATION: Save for cases of willful misconduct or gross negligence on the part of the Bank, the Borrower agrees to indemnify and hold harmless the Bank from and against any and all claims, actions and suits, whether groundless or otherwise, 18 20 and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Agreement or any of the other Loan Documents to which the Borrower is or is to become a party or the transactions evidenced thereby. 9. COVENANTS The Borrower undertakes towards the Bank that, for so long as any sum remains to be payable by the Borrower under or in connection with this Agreement: 9.1 FINANCIAL COVENANTS: The Borrower will ensure that it meets and will meet at all times the following financial covenants: 9.1.1 MINIMUM NET INCOME: The Net Income of the Borrower during two consecutive calendar quarters shall not fall below zero. The Borrower shall submit on an ongoing basis to the Bank within forty-five (45) days after the end of the last preceding calendar quarter (beginning with the calendar quarter ending on March 31, 1993), for the last preceding two calendar quarters, such financial data and information, prepared in accordance with GAAP consistently applied, from which the Bank is able to verify whether the covenant pursuant to sentence 1 above has been met. 9.1.2 INTEREST COVERAGE: The Borrower will not permit the ratio of (a) EBIT to (b) the total expense of the Borrower for interest on Indebtedness for borrowed money (whether or not, with respect to subordinated debt, payment thereof is prohibited and not paid by reason of any applicable subordination) to be less than 1.25:1. The Borrower shall submit on an ongoing basis to the Bank, within forty-five (45) days after the end of the last preceding calendar quarter, for the last preceding four calendar quarters (beginning with the calendar quarter ending on March 31, 1993 and cumulatively built-up until four calendar quarters shall have been completed) such financial data and information prepared in accordance with GAAP consistently applied, from which the Bank is able to verify whether the covenant pursuant to sentence 1 above has been met. 9.1.3 TOTAL LIABILITIES TO NET WORTH: The Borrower will not permit the ratio of (a) Total Consolidated Liabilities (excluding any Subordinated Intercompany Debt) to (b) Consolidated Tangible Net Worth (excluding any adjustments for exchange rate fluctuations and plus any Subordinated Intercompany Debt) to be more than as set forth below during the periods set forth below: For The Periods: Maximum Ratio ---------------- ------------- 1/1/93 - 12/31/93 5.5:1 1/1/94 - 12/31/94 5.5:1 1/1/95 - 12/31/95 5.0:1 1/1/96 - 12/31/96 4.0:1 1/1/97 - 12/31/97 and thereafter 3.0:1 19 21 The Borrower shall submit on an ongoing basis to the Bank, within forty-five (45) days after the end of the last preceding calendar quarter, for such last preceding calendar quarter (beginning with the calendar quarter ending on March 31, 1993) such financial data and information, prepared in accordance with GAAP consistently applied, from which the Bank is able to verify whether the covenant pursuant to sentence 1 above has been met. 9.2 FINANCIAL STATEMENTS: The Borrower will deliver to the Bank two (2) copies of the following: 9.2.1 as soon as available and in any event at least thirty (30) days prior to the beginning of the next fiscal year its annual budget including business projections for the next fiscal year; 9.2.2 as soon as available and in any event within ninety (90) days after the end of each fiscal year its audited annual financial statements prepared in accordance with German law and generally accepted accounting principles consistently applied, as well as a translation thereof into annual financial statements following U.S. formate and in accordance with GAAP consistently applied; 9.2.3 as soon as available and in any event within forty-five (45) days after the end of each calendar quarter (or quarter of a fiscal year deviating from the calendar year) quarterly financial statements prepared in accordance with GAAP consistently applied; 9.2.4 as soon as available and in any event within two (2) weeks after the end of each calendar month, a Borrowing Base Report; 9.2.5 from time to time upon request by the Bank, such other financial data and information (including, without limitation accountants' management letters and such other information regarding the business and affairs and conditions, financial or otherwise, of the Borrower) as the Bank may reasonably request. 9.3 INSPECTION OF PROPERTIES AND BOOKS: The Borrower shall permit the Bank to visit and inspect the properties of the Borrower, to examine the books and ledgers of the Borrower (and make copies thereof and extracts therefrom), and to discuss the affairs, finances and accounts of the Borrower with, and to be advised as to the same by, its officers, employees and independent public accountants (such accountants being hereby authorized by the Borrower to so discuss and advise), all at such times and intervals as the Bank may reasonably request, but at least twice in each calendar year. In connection with any such inspections or discussions, the Bank, on behalf of itself or any representative authorized by it, agrees to treat as confidential any non-public information that the Borrower shall designate as confidential information, provided, however, that this Clause 9.3 shall not affect the disclosure by the Bank of information required to be disclosed to its auditors, regulatory agencies or pursuant to any legal process or by virtue of any other law, regulation, order or interpretation. 20 22 9.4 INSURANCE: The Borrower shall take out and maintain with financially sound and reputable insurers insurance with respect to its business and in particular its assets (in particular the Real Estate) against such casualties and contingencies as shall be in accordance with sound business practices and in amounts, containing such terms, and for such periods as may be reasonably satisfactory to the Bank. The Borrower hereby assigns for security purposes to the Bank all present and future claims of the Borrower against insurers. The Borrower shall inform the insurers of (i) the Bank's entitlement to any and all rights under the insurance contracts, and (ii) the Bank's exclusive assumption of the rights, and not of the obligations, under the insurance contracts. The Borrower shall request the insurers to provide the Bank with according security notes. In the event that the Borrower shall not insure, or not sufficiently insure, the risks concerned, the Bank shall be entitled to do so at the Borrower's risk and expense. If so requested by the Bank, the Borrower shall take out the insurance in favour of the party concerned, or naming the bank as insured party. 9.5 TAXES AND OTHER COSTS: The Borrower shall (i) duly file all returns and other forms when the same are due for filing with respect to, and will (ii) duly pay and discharge before the same shall become overdue, all taxes, duties, assessments and other governmental charges imposed upon it and its properties, in particular real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labour, materials and supplies that, if unpaid might by law result in a lien or other encumbrance upon any of its properties. 9.6 COMPLIANCE WITH LAWS AND CONTRACTS: The Borrower shall at all times fully comply with (i) all applicable laws and regulations wherever its business is conducted, including all environmental laws, (ii) all contracts, all agreements and instruments by which it or any of its properties may be bound, and (iii) all applicable decrees, orders or judgments, in each case where non-compliance could reasonably be expected to have an adverse effect on the Borrower or its business. 9.7 FURTHER ASSURANCES: The Borrower shall fully cooperate with the Bank and execute such further instruments and documents as the Bank shall reasonably request to carry out to its satisfaction and to implement, the transactions contemplated in this Agreement any other Loan Documents. 9.8 NOTICE OF DEFAULT: The Borrower shall promptly notify the Bank in writing of the occurrence of any Event of Default. If any person shall give any notice or take any other action in respect of a claimed default under this Agreement, or any other note, evidence of indebtedness, indenture or other obligation to which the Borrower is a party or obligor, whether as principal or surety, the Borrower shall forthwith give written notice of the action and the nature of the claimed default in reasonable detail. 9.9 NOTICE OF LITIGATION AND CLAIMS: The Borrower shall, immediately upon become aware thereof, notify the Bank in writing of any pending or threatened litigation, judgment, administrative order, setoff, claims, withholdings or other defenses with an individual value of 21 23 DM 100,000 or more to which the Borrower or any of its properties are or may become subject, describing the nature thereof in reasonable detail. 9.10 RESTRICTIONS ON SALE AND LEASE BACK: The Borrower shall not enter into any arrangement, directly or indirectly, whereby the Borrower shall sell or transfer any property, in particular real property, owned by it in order then or thereafter to lease such property or other property that the Borrower intends to use for substantially the same purpose as the property being sold or transferred, except for any such sale and lease back transactions entered into with Simonds Industries Inc. or directly or indirectly wholly owned subsidiaries of Simonds Industries Inc., which shall provide for a subordination of the claims of the other party, and which shall require the express prior and written consent of the Bank which consent shall not be unreasonably withheld. 9.11 CONSOLIDATION, MERGER AND SALE OF ASSETS: The Borrower shall not merge or consolidate into or with any other person or convey, sell, lease or otherwise dispose of all or substantially all of its assets. 9.12 LIQUIDATION: The Borrower shall not liquidate, dissolve or wind up its affairs nor institute, consent to or fail promptly to contest proceedings for any such purpose. 9.13 LOCAL BANK ACCOUNTS: The Borrower shall have the right to maintain current accounts with Volksbank Hessisch-Lichtenau eG and/or Kreissparkasse Kassel and/or Raiffeisenbank Spangenberg, Commerzbank Kassel, Deutsche Bank Kassel, for the operation of its day-to-day business operations. With the express prior and written consent of the Bank (which consent shall not be unreasonably withheld) the Borrower shall have the right to open other current accounts with other local banks for the operation of its day-to-day business operations. Within two (2) weeks after the end of each calendar month the Borrower shall (i) report to the Bank the balance on each of such local current accounts by delivery to the Bank of the originals of the statements of account received by the Borrower from such banks, and (ii) remit to its current account with the Bank any credit balances standing on such local current accounts which are in excess of an aggregate amount of DM 300,000. 10. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Bank as follows: 10.1 INCORPORATION; EXISTENCE: The Borrower is a company with limited liability (GmbH) duly established and validly existing under the laws of the Federal Republic of Germany. True and complete copies of the Articles of Association as well as of the extract from the Commercial Register of the Borrower reflecting the current state of registrations and facts which require registration will be delivered by the Borrower on or prior to the Disbursement Date. The Borrower does not hold any participations (shares, voting rights, silent partnerships, etc.) in any corporation, partnership, or other entity. 22 24 10.2 AUTHORIZATION: The execution, delivery and performance of this Agreement and the other Loan Documents to which the Borrower is or is to become a party and the transactions contemplated hereby and thereby (i) are within the corporate authority and legal right of the Borrower, (ii) have been duly authorized by all necessary corporate proceedings, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Borrower is subject or any judgment, order, writ, injunction, license or permit applicable to the Borrower, and (iv) do not conflict with any provision of the Articles of Association of the Borrower of, or any agreement or other instrument binding upon, the Borrower. 10.3 ENFORCEABILITY: The execution and delivery of this Agreement and the other Loan Documents to which the Borrower is or is to become a party will result in valid and legally binding obligations of the Borrower enforceable against the Borrower in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 10.4 GOVERNMENTAL APPROVALS: The execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents to which the Borrower is or is to become a party and the transactions contemplated hereby and thereby do not require the Borrower to obtain the approval or consent of, to make a filing with, or to perform or obtain the performance of any other act by or in respect of any governmental agency or authority. 10.5 TITLE TO PROPERTIES; LEASES: Except for the assets specifically excluded from the transfer of title for security purposes pursuant to Exhibit 4 to the Security Transfer Agreement, the Borrower owns all of the assets reflected in the As-If-Opening-Balance-Sheet of the Borrower as at the Balance Sheet Date or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no rights of others, including any mortgages, land charges, leases, conditional sales agreements, title retention agreements, liens, charges or other encumbrances, except for Permitted Liens. The Borrower enjoys peaceful and undisturbed possession under all leases under which it is operating, and all said leases are valid and subsisting and in full force and effect. 10.6 FINANCIAL STATEMENTS; SOLVENCY: 10.6.1 The Borrower has furnished to the Bank the As-If-Opening-Balance-Sheet as at the Balance Sheet Date. The Als-Ob-Eroffnungsbilanz has been prepared in accordance with applicable law and generally accepted accounting principles in Germany consistently applied and is correct and complete in all material respects and fairly presents the financial condition of the Borrower as at the Balance Sheet Date. The Als-Ob-Eroffnungsbilanz has been correctly translated into the As-If-Opening-Balance-Sheet in compliance with U.S. formate and GAAP. There are no contingent liabilities of the Borrower as of the Balance Sheet Date or incurred thereafter involving material 23 25 amounts, known to the Borrower and not disclosed in said balance sheets and the related notes thereto. 10.6.2 The Borrower (both before and after giving effect to the transactions contemplated hereby) is solvent, has assets having a fair value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured, and has, and will have, access to adequate capital for the conduct of its business and the ability to pay its debts from time to time incurred in connection therewith as such debts mature. 10.7 NO MATERIAL CHANGES, ETC.: Since the Balance Sheet Date there has occurred (a) no materially adverse change in the financial condition or business or prospects of the Borrower as shown on or reflected in the As-If-Opening-Balance-Sheet as at the Balance Sheet Date, or (b) no change which could reasonably be expected to affect materially and adversely the projections of cash flow for the fiscal year ending December 31, 1993. 10.8 FRANCHISES, PATENTS, COPYRIGHTS, ETC.: The Borrower possesses or has a valid right to use all franchises, patents, copyrights, inventions, technology, trademark registrations, trademarks, trade names, trade secrets, service marks, licenses and permits, and rights in respect of the foregoing and patent and trademark applications and rights in respect thereto (collectively, the "Proprietary Rights"), adequate for the conduct of its business substantially as now conducted without known conflict with any rights of others. The Borrower is not aware of any existing or threatened infringement or misappropriation of (a) any Proprietary Rights of others, or (b) any Proprietary Rights of the Borrower by others, in any way which could reasonably be expected to have a material adverse effect on the business, assets or condition or prospects, financial or otherwise, of the Borrower. 10.9 NO LITIGATION: There are no actions, suits, proceedings or investigations of any kind with a value of DM 100,000 or more in the individual case pending or, to the best of the Borrower's knowledge, threatened against the Borrower before any court, tribunal or administrative agency or board that, if adversely determined, could reasonably be expected, either in any case or in the aggregate, to materially adversely affect the properties, assets, financial condition or business or prospects of the Borrower or materially impair the right of the Borrower to carry on business substantially as now conducted by it, or result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the balance sheet of the Borrower, or which question the validity of this Agreement or any of the other Loan Documents to which the Borrower is or is to become a party, or any action taken or to be taken pursuant hereto or thereto. 10.10 NO MATERIALLY ADVERSE CONTRACTS, ETC.: The Borrower is not a party to any contract or agreement that has or, to the best of the Borrower's knowledge, is expected to have any materially adverse effect on the business or prospects of the Borrower. 10.11 COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC.: The Borrower is not in violation of any provision of its corporate documents, or any agreement or instrument to which it is subject 24 26 or by which it or any of its properties are bound, or any law, rule, regulation, decree, order, judgment, statute license, in any of the foregoing cases in a manner that could result in the imposition of substantial penalties or could reasonably be expected to materially and adversely affect the financial condition, properties or business of the Borrower or the Borrower's ability to perform the obligations hereunder. 10.12 TAX STATUS: The Borrower (a) made or filed all tax returns (including, without limitation, all VAT tax returns), reports and declarations required by any jurisdiction to which it is subject, or properly filed for and received extensions with respect thereto which are still in full force and effect and which have been fully complied with in all material respects, (b) paid all taxes and other governmental duties or charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith by appropriate proceedings and for which adequate reserves, to the extent required by applicable law or generally accepted accounting principles in Germany, have been established, and (c) set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes or other governmental duties or charges in any material amount claimed to be due by any taxing or other authority of any jurisdiction, and the officers of the Borrower know of no basis for any such claim. 10.13 NO EVENT OF DEFAULT: No Event of Default has occurred and is continuing. 10.14 ABSENCE OF FINANCING STATEMENTS, ETC.: Except with respect to Permitted Liens, there is no financing statement, security agreement, real estate mortgage or other document filed or recorded with any filing records, registry or other public office, or otherwise created by the Borrower that purports to cover, affect or give notice of any present or possible future lien on, or security interest or charge in, any assets or property of the Borrower or rights thereunder. 10.15 ARM'S LENGTH TRANSACTIONS: All transactions between the Borrower and the Guarantors or any other affiliate are made and carried out upon terms no more or less favourable than the Borrower could obtain from third parties (arm's length). 10.16 REAL ESTATE: The Real Estate, the buildings erected thereon, and all other fixtures and fittings thereof, have been properly maintained, and no substantial maintenance or repair is outstanding. The buildings have been erected in accordance with applicable formal and substantive building laws and regulations, and comply with generally accepted standards of technique and construction. 10.17 ENVIRONMENTAL COMPLIANCE: 10.17.1 The Borrower is not in violation of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters. 10.17.2 No portion of any of the Real Estate has been used for the handling, processing, storage or disposal of hazardous substances and no underground tank or other 25 27 underground storage receptacle for hazardous substances is located on such properties; (ii) in the course of its activities, the Borrower has not generated or is generating any hazardous waste on any of the Real Estate; and (iii) there have been no releases (i.e., any past or present releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping) of hazardous substances by the Borrower on, upon or into any of the Real Estate, which releases could have an adverse effect on the value of such properties. In addition, to the best of the Borrower's knowledge, there have been no such releases on, upon or into any real property in the vicinity of any of the Real Estate that, through soil or groundwater contamination, may be located on and that could reasonably be expected to have a materially adverse effect on the value of any of the Real Estate. 10.18 DISCLOSURE: No representation or warranty made by the Borrower in this Agreement or any of the Loan Documents to which the Borrower is or is to become a party or in any other document furnished from time to time in connection herewith or therewith contains any misrepresentation of a material fact or omits to state any material fact necessary to make the statements herein or therein not misleading. There is no fact known to the Borrower that materially adversely affects, the business, property or financial condition or prospects of the Borrower. 10.19 REPETITION: Each of the above representations and warranties will be correct and complied with in all respects at any point in time so long as any sum remains to be lent or remains payable under this Agreement or any of the Loan Documents to which the Borrower is or is to become a party as if repeated by reference to the then existing circumstances, except that each reference to Financial Statements in Clause 10.6 shall be construed as a reference to the then latest available annual financial statements. 11. SURVIVAL OF COVENANTS; DISCLOSURE 11.1 SURVIVAL OF COVENANTS: All covenants, agreements, representations and warranties made herein, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower pursuant thereto shall be deemed to have been relied upon by the Bank, notwithstanding any investigation heretofore or hereafter made by it, and shall survive the making by the Bank of the Term Loan or other extension of credit, as herein contemplated, and shall continue in full force and effect so long as any obligation of the Borrower under this Agreement or any Loan Document remains outstanding or the Bank has any obligation to extend credit thereunder. All statements contained in any certificate or other paper delivered to the Bank at any time by or on behalf of the Borrower pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower hereunder. 11.2 DISCLOSURE: The circumstances correctly and completely disclosed in SCHEDULE 3 hereto shall not constitute a breach of any of the representations and warranties set forth in Clause 10 above, provided, however, that (i) the storing and ground tanks described in items 2 and 3 of Schedule 3 are not in violation of the representations and warranties given in Clause 26 28 10.17.1 above, and (ii) if any of the circumstances described in item 1 of Schedule 3 individually, or all of the circumstances described in item 1 of Schedule 3 in the aggregate, require the Borrower to spend (as capital expenditure, fine, fees, or otherwise) an amount or amounts in the aggregate of DM 150,000 or more, the circumstances or any of them shall, although disclosed, constitute an Event of Default in the meaning of Clause 12 below. 12. DEFAULT 12.1 EVENTS OF DEFAULT: Each of the following events shall constitute an Event of Default: 12.1.1 NON-PAYMENT: The Borrower will not pay when and in the manner provided in this Agreement or any other Loan Document to which the Borrower is or is to become a party any sums payable to the Bank. 12.1.2 BREACH OF WARRANTY: Any representation, warranty or statement by the Borrower in this Agreement or any other Loan Document to which the Borrower is or is to become a party is not complied with or is or proves to have been incorrect in any respect when made or, if it had been made on a later date by reference to the circumstances then existing, would have been incorrect in any respect on that later date, provided, that in the event of a breach of any of the warranties specified in Clause 10.5 or 10.17 (which breach must not have a value of DM 100,000 or more in the individual case) the Borrower shall have the right to cure the breach within two (2) weeks upon becoming aware thereof exercising the care of a prudent businessman. 12.1.3 BREACH OF UNDERTAKING: The Borrower will not perform or comply with any one or more of its obligations under Clause 9 above, provided, that in the event of a breach of the covenants undertaken by the Borrower in Clause 9.6 above (which breach must not have a value of DM 100,000 or more in the individual case) the Borrower shall have the right to cure the breach within two (2) weeks upon becoming aware thereof exercising the care of a prudent businessman. 12.1.4 BREACH OF OTHER OBLIGATION: The Borrower will not perform or comply with any one or more of its other obligations under or in connection with this Agreement or any of the other Loan Documents to which the Borrower is or is to become a party, except for minor defects which shall be cured by the Borrower promptly upon the occurrence thereof. 12.1.5 BREACH OF GUARANTEE; CROSS DEFAULT: Any of the Guarantors will not perform or comply with any one or more of its obligations under or in connection with the Guarantee or any other contract, agreement, or other arrangement with the Bank; or any condition or event will occur which constitutes a default or which, with the giving of notice or the lapse of time, or both, constitutes a default under the terms of the Fleet Agreement or the MCRC Agreement. 27 29 12.1.6 SHAREHOLDER OF THE BORROWER: The Borrower ceases to be a directly or indirectly wholly owned subsidiary of Simonds Industries Inc. 12.1.7 INSOLVENCY: The Borrower or any of the Guarantors becomes insolvent, is unable to pay its debts as they fall due, stops, suspends or threatens to stop or suspend payment of all or a material part of its debts, begins negotiations or takes any proceedings or other step with a view to re-adjustment, rescheduling or deferral of all of its indebtedness (or of any part of its indebtedness which it will or might otherwise be unable to pay when due) or proposes or makes a general assignment or an arrangement or composition with or for the benefit of its creditors or a moratorium is agreed or declared in respect of or affecting all or a material part of the indebtedness of the Borrower or any of the Guarantors. 12.1.8 SECURITY ENFORCEABLE: Any present or future security on or over the assets of the Borrower or any of the Guarantors becomes enforceable. 12.1.9 DISSOLUTION: Any step is taken by any person for the dissolution or bankruptcy or composition proceedings of the Borrower or any of the Guarantors or for the appointment of a receiver, trustee or similar officer of the Borrower or any of the Guarantors or of any of their respective assets. 12.1.10 AUTHORIZATIONS AND CONSENTS: Any action or condition at any time required to be taken, fulfilled or done for any of the purposes of this Agreement or any of the Loan Documents is not taken, fulfilled or done or any such consent is not complied with. 12.1.11 ANALOGOUS EVENTS: Any event occurs which, under the law of any relevant jurisdiction, has an analogous or equivalent effect to any of the events specified in this Clause 12. 12.1.12 MATERIAL ADVERSE CHANGE: Any event occurs or circumstances arise which give(s) reasonable grounds in the opinion of the Bank for believing that the Borrower or any of the Guarantors may not (or may be unable to) perform or comply with any one or more of their respective obligations under this Agreement, the Guarantee or any other Loan Document. 12.1.13 FAILURE TO REFINANCE: Volksbank Spangenberg Zweigniederlassung der Volksbank Hessisch-Lichtenau eG will not, in form and contents satisfactory to the Bank, execute the Assignment of Land Charges Hessisch-Lichtenau and the statement pursuant to Clause 3.2.1 within two (2) weeks from the date of this Agreement. 12.2 CANCELLATION/ACCELERATION: At any time upon the occurrence of an Event of Default and for as long as the same remains to be continuing, the Bank shall be entitled, by written notice to the Borrower to declare: 28 30 12.2.1 the Working Capital Line Facility to be cancelled, whereupon it shall be cancelled; and/or 12.2.2 the Term Loan and any amounts outstanding under the Working Capital Line Facility to be immediately due and payable, whereupon they shall become so due and payable. 13. EXPENSES Whether or not the Term Loan or any amounts under the Working Capital Line Facility will be disbursed under this Agreement, the Borrower shall pay: 13.1 INITIAL EXPENSES: on demand, all costs and expenses (including taxes thereon and fees for legal and other professional advisers) incurred by the Bank in connection with the preparation, negotiation, entering into of this Agreement and the other Loan Document and/or any amendment of or waiver in respect of this Agreement and the other Loan Document; and 13.2 ENFORCEMENT EXPENSES: on demand, all costs and expenses (including taxes thereon and fees for legal and other professional advisers) incurred by the Bank in protecting or enforcing any rights under or in connection with this Agreement and/or the other Loan Documents and/or any amendment or waiver thereof. 14. ASSIGNMENT 14.1 BENEFIT AND BURDEN OF THIS AGREEMENT: This Agreement and the other Loan Documents shall benefit and be binding on the parties, their respective successors and any permitted assignee or transferee of some or all of a party's rights or obligations thereunder. Any reference in this Agreement to any party shall be construed accordingly. 14.2 BORROWER: The Borrower may not assign or transfer all or part of its rights or obligations under this Agreement or any other Loan Document to which the Borrower is or is to become a party. 14.3 BANK: The Bank may assign or otherwise transfer its rights and obligations under this Agreement and the other Loan Documents, or sell participations in any interest therein, to any other person or entity, and such other person or entity shall thereupon become vested, to the extent set forth in the agreement evidencing such assignment, transfer or participation, with all the rights and obligations of the Bank in respect thereof. However, under no circumstances shall the Bank (i) hold less than 50% of the total outstandings from the Borrower under or in connection with this Agreement at the time of the assignment, transfer or sale of participation, or (ii) substitute any other institution as the agent (of a group of lenders) for purposes of this Agreement. 15. COMMUNICATIONS 29 31 15.1 ADDRESSES: Each communication under this Agreement shall be made by telex, telefax (to be followed by a hard copy) or otherwise in writing. Each communication or document to be delivered to any party under this Agreement shall be sent to that party at the telex or telefax number or address, and marked for the attention of the person (if any), from time to time designated by that party to the other party. The initial telex or telefax number, address and person (if any) so designated by each party are as follows: THE BORROWER: WESPA Metallsagenfabrik Simonds Industries GmbH Lochmuhle 3 3509 Spangenberg Telex Nr.: 99939 wespa d Telefax Nr.: 05663/50666 Attn.: Geschaftsfuhrung THE BANK: The First National Bank of Boston Zweigniederlassung Frankfurt Friedrich-Ebert-Anlage 2-14 (City-Haus) 6000 Frankfurt am Main Telefax Nr.: 069/7545-240 Attn.: Commercial Banking 15.2 LANGUAGE: All communications and documents shall be in English. 16. MISCELLANEOUS 16.1 CONDITION PRECEDENT: The validity and becoming effective of this Agreement is conditional upon the execution, in form and substance satisfactory to the Bank, of an intercreditor agreement between the Bank (Boston Office) and Fleet Bank of Massachusetts, N.A. 16.2 NO IMPLIED WAIVERS, REMEDIES CUMULATIVE: No failure on the part of the Bank to exercise, and no delay on its part in exercising, any right or remedy under this Agreement or the other Loan Documents will operate as a waiver thereof, nor will any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. The rights and remedies provided in this Agreement or the other Loan Documents are cumulative and not exclusive of any rights or remedies provided by law. 16.3 FORM: This Agreement supersedes all prior negotiations and agreements between the parties concerning the subject matter of this Agreement and can be modified or amended only by written instrument signed by all parties unless a stricter form is required by mandatory law. This form requirement shall also apply to any change, modification or waiver of the form requirement set forth in the preceding sentence. 30 32 16.4 SEVERABILITY: Should any or several provisions of this Agreement be or become invalid or impracticable in whole or in part, this shall not affect the validity of the remaining provisions of this Agreement. In this event, the invalid or impracticable provision is deemed replaced by a provision which corresponds to the spirit and the purpose of the invalid or impracticable provision to the greatest extent possible. In the event of gaps in this Agreement, if any, the gap shall be deemed filled by such provisions which the parties would have reasonably agreed upon in the light of the spirit and purpose reflected in this Agreement had they been aware of the gap at the outset. 16.5 COUNTERPARTS: This Agreement may be signed in any number of counterparts, all of which taken together and when delivered to the Bank shall constitute one and the same instrument. 16.6 GENERAL BUSINESS TERMS: To the extent no provision has been made in this Agreement, the General Business Terms of the Bank shall apply to this Agreement a copy of which is attached hereto as SCHEDULE 4. 16.7 GOVERNING LAW: This Agreement shall be governed by and construed in accordance with the laws of the Federal Republic of Germany. 16.8 JURISDICTION: In relation to any legal action or proceedings arising out of or in connection with this Agreement, the Borrower irrevocably and for the benefit of the Bank submits to the jurisdiction of the District Court (Landgericht) in Frankfurt am Main. 16.9 SUBMISSION NOT TO AFFECT: This submission shall not affect the right of the Bank to take proceedings in any other competent jurisdiction. 16.10 SERVICE OF PROCESS: The Borrower hereby accepts its appointment as agent for service of process for Simonds Holding Company Inc. or Simonds Industries Inc. in certain of the Loan Documents. WESPA Metallsagenfabrik Simonds Industries GmbH by: /s/ - ----------------------------------------- The First National Bank of Boston by: /s/ - ----------------------------------------- 31 EX-4.5 17 PROMISSORY NOTES OF SIMONDS UK HOLDINGS 1 EXHIBIT 4.5 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES EXHIBIT 1.3(ii) - PROMISSORY NOTE DATED ___________ MAY, 1998 INSTRUMENT CONSTITUTING THE ISSUE OF (POUND)L,000,000 LOAN NOTES 1998 (SERIES 1) OF TIME ECLIPSE LIMITED SI HOLDING CORPORATION, GUARANTOR 2 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES TABLE OF CONTENTS PARTIES OPERATIVE PROVISIONS 1. DEFINITIONS AND INTERPRETATIONS 2. AMOUNT AND STATUS OF NOTES 3. INTEREST 4. REDEMPTION OF NOTES 5. CERTIFICATES 6. SURRENDER AND CANCELLATION 7. REPRESENTATIONS AND WARRANTIES 8. COVENANTS OF THE COMPANY 9. EVENTS OF DEFAULT 10 REGISTRATION 11. TITLE OF NOTEHOLDERS 12. TRANSFER OF NOTES 13. TRANSMISSION OF NOTES 14. PRESCRIPTION 15. MEETINGS 16. ALTERATION OF THIS INSTRUMENT 17. FURTHER LOAN CAPITAL 18. NOTICES 19. GENERAL 20. SET OFF 21. EVIDENCE 22. LAW SCHEDULE 1 SCHEDULE 2 GUARANTY 3 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES _____________ MAY 1998 PARTIES TIME ECLIPSE LIMITED (NO. 3494408) WHOSE REGISTERED OFFICE IS AT UNIT 3 MOTORWAY INDUSTRIAL ESTATE, SHEFFIELD S9 1DH ENGLAND (HEREINAFTER, THE "COMPANY") SI HOLDING CORPORATION, AS GUARANTOR A DELAWARE CORPORATION WITH PRINCIPAL OFFICES AT 900 MARKET STREET, WILMINGTON, DE USA INTRODUCTION (A) Pursuant to its Memorandum and Articles of Association, and by resolution of its board of directors, dated April ____, 1998, the Company resolved to create, and by this Instrument, to constitute (pound)1,000,000 in nominal amount of Loan Notes 1998 (Series 1). (B) This Instrument and the Schedules constitute the Notes. OPERATIVE PROVISIONS 1.0 DEFINITIONS AND INTERPRETATIONS. 1.1 In this Instrument and the Schedules, the following expressions, unless the content requires otherwise: "Business Day" means a day (excluding Saturdays, Sundays and any public holiday) on which banks are open for business in the City of London; "Directors" means the board of directors of the Company for the time being; "Certificate" means a certificate for Notes issued in accordance with Clause 2 and substantially in the form set out in Schedule 1; "Event of Default" means any of the events provided for in Clause 9; "Extraordinary Resolution" means a resolution passed on a show of hands by a majority of not less than three-quarters of the Noteholders present and voting at a meeting of Noteholders, or if a poll is demanded, either by the chairman of the meeting or by Noteholders 4 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES holding not less than one-tenth in nominal amount of the Notes for the time being outstanding, by a majority of not less than three-quarters in number of the votes given on that poll; "Guaranty" means a guarantee of even date provided by the Guarantor to the Noteholders for certain obligations of the Company under the Notes, a copy of which is annexed as Schedule 2; "Guarantor" means SI Holding Corporation, a corporation organized and existing under the laws of Delaware, USA; "Notes" means the (pound)l,000,000 Loan Notes 1998 (Series 1) of the Company constituted by this Instrument or the nominal amount of them for the time being outstanding or as the context may require a specific portion of them, which Notes are given by the Company in partial consideration of its purchase of all the outstanding and issued shares of the W. Notting Limited pursuant to the Share Purchase Agreement; "Noteholders" means the several persons for the time being entered in the Register as holders of the Notes, which Noteholders are all the selling holders of all the outstanding and issued shares of W. Notting Limited; "Noteholders' Solicitors" means Shoosmiths & Harrison, Lockhouse, Castle Meadow Road, Nottingham NG2 1AG ENGLAND. "Pounds Sterling" and "(pound)" mean the lawful currency from time to time of the United Kingdom; "Register" means the register of Notes and Noteholders to be maintained by the Company pursuant to Clause 10; "Repayment Date" means 30 April 1999; "Share Purchase Agreement" means a certain share sale and purchase agreement dated the date hereof and made between Company and all the shareholders of W. Notting Limited, which shareholders are all the present Noteholders, pursuant to which the Company is purchasing all the outstanding and issued shares of W. Notting Limited; "Subsidiary" means a subsidiary within the meaning of Section 736 of the Companies Act 1985; and 1.2 Words denoting the singular shall include the plural and vice versa. Words denoting the masculine gender shall include the feminine and neuter genders and vice versa. 2 5 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES References to persons shall include bodies corporate, unincorporated associations and partnerships. References to any statute or statutory provision shall include any statute or statutory provision which amends, consolidates, extends or replaces the same. 1.3 Words and phrases defined in the Companies Act 1985 shall, save as expressly provided in this Instrument, have the same meanings in this Instrument and the Schedules. 1.4 References to Clauses and Schedules shall be to Clauses of, and the Schedules to, this Instrument. Headings in this Instrument are inserted for ease of reference only and shall not affect its interpretation. 1.5 The word "redemption" includes purchase and repayment, and the words "redeem" or "redeemed" shall be construed accordingly. 1.6 The words "this Instrument" refer to the provisions of this Instrument and the Schedules to the Instrument (as from time to time modified under the terms of this Instrument) and any deed expressed to be supplemental to this Instrument. 2.0 AMOUNT AND STATUS OF NOTES. 2.1 The principal amount of the Notes is limited to (pound)l,000,000. The Notes shall be issued in denominations and integral multiples of (pound)1 in nominal amount, subject to, and with the benefit of, the provisions of this Instrument. All the obligations and covenants contained in this Instrument shall be binding on the Company and the Noteholders, and all persons claiming through them. 2.2 The Notes constitute direct, unconditional, unsecured and unsubordinated obligations of the Company and rank, and will rank, pari passu without any discrimination or preference among themselves and (except for statutory preferred debt) at least pari passu with all other unsecured indebtedness, which is not subordinated, of the Company. 2.3 The Notes and certain interest and other sums payable under, or in respect of, the Notes shall be guaranteed by the Guarantor pursuant to the Guaranty. 2.4 The Notes shall not be offered to the public for subscription or purchase and shall not be capable of being dealt in on any stock exchange in the United Kingdom or elsewhere. No application has been, or shall be, made to any stock exchange for permission to deal in or for the listing or quotation of the Notes. 3 6 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES 3.0 INTEREST. 3.1 The Notes will carry interest at eight and one-half percent (8.5%) per annum. Such interest will accrue daily, from the date hereof, in arrears on the basis of a year of 365 days. The first accrued interest payment will be payable on 31 October 1998. Interest accruing after 31 October 1998 will be payable in arrears on 30 April 1999. 3.2 For so long as interest payable on the Notes is by law payable under deduction or withholding of tax, the Company shall deliver up to the Noteholders, in respect of the interest paid to the Noteholders, within 14 days after payment of any such interest, a certificate as to the gross amount of such payment and the amount of tax deducted or withheld. 3.3 Subject to the provisions of Clause 3.2 and Clause 20, save as otherwise required by law, all payments, whether of principal, interest or other amounts due in relation to the Notes, shall be paid in full, free of any withholding, deduction, set-off or counterclaim. 4.0 REDEMPTION OF NOTES. 4.1 All Notes not previously redeemed by the Company in accordance with the provisions of this Instrument will be repaid in Pounds Sterling together with accrued interest (after deduction of tax under Clause 3.2 and set-off under Clause 20) on the Repayment Date. 4.2 The Notes shall not be subject to redemption by the Company prior to the Repayment Date. 4.3 The Notes shall, subject to Clause 9 relating to Events of Default, be subject to call for redemption by any Noteholder subsequent to the Repayment Date. 4.4 Payment of all or part of the principal and accrued interest on any Notes may be made by cheque or telegraphic transfer, or any other method of payment agreed between the Company and the Noteholders, from time to time, to the bank account designated for such purpose with the Noteholders' Solicitors. Every such cheque may be sent through the post at the risk of the holder, or joint holders, to the address of the Noteholders' Solicitors. 5.0 CERTIFICATES. 5.1 The Company shall issue duly executed Certificates for the Notes. The Certificates shall be in the form, or substantially in the form, set out in Schedule I and shall have attached to each of them a copy of this Instrument. 4 7 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES 5.2 The Certificates for the Notes shall be issued in accordance with the provisions of the Articles of Association for the time being of the Company relating to the issue of certificates for securities of the Company. 5.3 Each Noteholder, or the joint holders, of any Note shall be entitled without charge to one Certificate for the total amount of the Note registered in his name, or their names, or, if he or they desire, to several such certificates each for a part (being (pound)l in nominal value of the Notes or an integral multiple thereof) of the Notes so registered upon payment of the sum of (pound)l for every Certificate beyond the first. Any Certificate in the names of such joint holders of any Note shall be delivered to the first named of such joint holders in the Register unless all such joint holders otherwise specify in writing to the Company. 5.4 If any Certificate is defaced, worn out, lost or destroyed, the Company shall issue a new Certificate on payment of such fee not exceeding (pound)1 and on such terms (if any) as the directors may require as to indemnity and evidence of defacement, wearing out, loss or destruction. In the case of defacement or wearing out, the defaced or worn out Certificate shall be surrendered and canceled before the new Certificate is issued. In the case of loss or destruction, the person availing himself of the provisions of this Clause shall also pay to the Company (if demanded) all reasonable expenses incidental to the investigation of evidence of loss or destruction and the preparation of any form of indemnity. There shall be entered in the Register particulars of the issue of any new Certificate and any indemnity. 6.0 SURRENDER AND CANCELLATION. 6.1 Notes shall only be redeemed against surrender of the relevant Certificate(s) for cancellation in the case of full redemption and for the enfacement of a memorandum of the amount and date of redemption in the case of partial redemption. 6.2 All Notes redeemed by the Company under the provisions of this Instrument shall be canceled and shall not be reissued. 7.0 Warranties. The Company warrants to each Noteholder that at the date hereof: 7.1 Company has full power to issue and perform its obligations under the Notes, to borrow and repay up to the maximum amount of the Notes and has obtained, and will maintain in effect, all consents necessary for the foregoing purposes. 7.2 The issue of the Notes does not and will not constitute an event of default under any agreement, document or instrument to which it is a party, or a breach of its Memorandum of Association. 7.3 No event has occurred which constitutes an Event of Default. 5 8 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES 8.0 COVENANTS BY THE COMPANY. So long as any of the Notes remains outstanding, the Company covenants as follows: 8.1 Company will at all times perform and comply with its obligations set out in this Instrument and the Certificates. 8.2 Company will at all times carry on and conduct its affairs in a proper and efficient manner. 8.3 Company will send to the Noteholders' Solicitors free of charge a copy of every balance sheet, profit and loss account report, circular, notice and document issued or sent generally to the members, or holders of securities other than its members, of the Company in each case as soon as practical after issue or publication. 8.4 Company will procure a consolidated balance sheet of the Company and its Affiliates, including the Guarantor, to be prepared and audited in respect of each of its financial periods and copies be sent to the Noteholders's Solicitors within 120 days of the end of each financial period. 8.5 Company will not take any steps or actions which impair or adversely affect the enforceability of this Instrument. 9.0 EVENTS OF DEFAULT. 9.1 The Notes shall become immediately repayable, together with any accrued interest (after deductions permitted in this Instrument) up to, but excluding, the date of redemption on the occurrence of any of the following events, to the extent that any of these events continues to exist after the Sellers' Committee (as defined in the Share Purchase Agreement) has provided written notice of same to the Company: 9.1.1 any principal or interest on any Note is not paid within 7 days of its due date for payment; or 9.1.2 the Company fails to comply with any other terms of this Instrument or the Notes and that failure is not remedied or, where capable of remedy, remains unremedied for twenty-one (21) days; or 9.1.3 the Company ceases, or threatens to cease, to carry on its business or a substantial part of its business, except as a result of a winding up pursuant to a scheme previously approved by Extraordinary Resolution of the Noteholders; or 6 9 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES 9.1.4 the Company is, or is adjudicated or found to be, insolvent or is (or is deemed to be) unable to, or admits inability to, pay its debts (within the meaning of Section 123(l) of the Insolvency Act 1986) or proposes or enters into any composition or other arrangement for the benefit of its creditors generally; or 9.1.5 any order is made by any competent court or any resolution is passed by the Company for the winding up or dissolution, or for the appointment of a liquidator of the Company (except for the purpose of a solvent amalgamation or reconstruction previously approved by Extraordinary Resolution of the Noteholders); or 9.1.6 any encumbrancer takes possession, or a receiver, administrative receiver, manager or sequestrator is appointed of the whole or any substantial part of the undertaking or assets of the company, or distress or other process is levied or enforced upon any of the assets, rights or revenues of the Company and any such action is not lifted or discharged within fourteen (14) days; or 9.1.7 any order is made by any competent court for the appointment of an administrator in relation to the Company. 9.2 The Company shall forthwith give notice to each Noteholder of the happening of any event mentioned in Clause 9.1, et seq, upon becoming aware of same. 10.0 REGISTRATION. 10.1 Every Noteholder shall receive, on the date hereof, a Certificate stating the nominal amount of the Note held by him/her/it. Every Certificate shall bear a denoting number. Joint Noteholders will be entitled only to one (1) Certificate in respect of the Note held by them jointly, and the same will be delivered to the first named of such joint holders. 10.2 The Company shall at all times maintain the Register at its registered office or at such other place as the Company may from time to time decide, and there shall be entered in the Register (i) the names and addresses of the Noteholders; (ii) the amount of the Notes held by each registered holder; (iii) the date at which the name of every such registered holder is entered in respect of the Notes standing in his name; (iv) the endorsements in respect of each Note; and (v) the serial number of each Certificate issued and its date of issue. 10.3 Each Noteholder shall notify the Company of any change of his name or address, and the Company, upon receiving such notification, shall alter the Register accordingly. 10.4 The Register shall at all times prescribed by law be open for inspection by the Noteholders, or any of them, or in the case of a corporation by any person authorized in writing 7 10 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES by the Noteholder, provided that the Register may be closed by the Company for not more than thirty (30) days in any one calendar year. 11.0 TITLE OF NOTEHOLDERS. 11.1 The Company will recognize the registered holder(s) of any Notes as the absolute owner(s) and as alone entitled to receive and give effectual discharge for the monies comprised therein. The Company will not be bound to take notice of, or to see to the execution of, any trust, whether express, implied or constructive, to which any Notes may be subject. The receipt of the holder(s) for the moneys payable on repayment, and of a holder (or in the case of joint holdings of any one of the holders) for interest, shall be a good discharge to the Company notwithstanding any notice it may have, whether express or otherwise, of the right, title, interest or claim of any other person to, or in, such Notes, interest or moneys. No notice of any trust, whether express, implied or constructive, in respect of any Notes, shall (except as provided by statute or as required by an order of a court of competent jurisdiction) be entered on the Register. 11.2 Every Noteholder shall be entitled to the principal amount of his Notes and accrued interest (after deductions permitted in this Instrument) free from all claims, liens, charges, encumbrances and any equity set-off or cross-claim on the part of the Company against the original or any intermediate holder of the Notes, except as expressly provided otherwise in this Instrument. 11.3 If several persons are entered in the Register as joint holders of any Notes, the receipt by any one of such persons for any monies from time to time payable in respect of such Notes shall be as effective a discharge to the Company as if the person signing such receipt were the sole registered holder of such Notes. 11.4 The Company shall recognize the executors and administrators of a sole registered holder of a Note as the only persons having any title or interest in such Note on the death of such Noteholder. The Company shall recognize the survivor or survivors of joint registered holders of a Note as the only person or persons having any title or interest in such Note on the death of one or more of such joint registered holders. 12.0 TRANSFER OF NOTES. The Notes are not assignable or otherwise transferable. 13.0 TRANSMISSION OF NOTES. Any person becoming entitled to any Notes in consequence of the death or bankruptcy of any Noteholder, or of any other event giving rise to the transmission of such Notes by operation of law, may be registered as the holder thereof upon such evidence of his title being produced as the directors of Company may reasonably require. The Company may in its sole discretion, retain any payments on such a Note until the person entitled to be registered under this Clause has been duly registered under the provisions of this Instrument. 8 11 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES 14.0 PRESCRIPTION. The Company shall be discharged from its obligation to pay principal on the Notes, or accrued interest thereon, to the extent that the relevant Notes have not been surrendered to the Company by, or payment has been made by a Pounds Sterling cheque which remains uncashed at, the end of the period of twelve (12) years from the due date in respect of such payment. 15.0 MEETINGS. 15.1 The Company may at any time convene a meeting of the Noteholders by giving at least twenty-one (21) days' prior written notice of the meeting to Noteholders. A meeting shall have power by an Extraordinary Resolution to sanction with the consent of the Company any modification, abrogation or compromise in respect of the rights of the Noteholders against the Company. A resolution in writing signed by the holders of at least three-quarters in nominal amount of the Notes shall be as effective as an Extraordinary Resolution duly passed at a meeting of the Noteholders. 15.2 Any meeting for the purpose of Clause 15.1 shall (unless otherwise specifically provided) be convened, conducted and held in all respects as nearly as possible in the same way as shall be provided by the Articles of Association of the Company with regard to general meetings, but: 15.2.1 a member of the Company shall not be entitled to receive notice of, or to attend or vote, at any such meeting unless he be a Noteholder; 15.2.2 the quorum at any such meeting shall be persons holding or representing by proxy, one-third in nominal amount of the Notes (but if at any adjourned meeting a quorum, as so defined, is not present, those Noteholders who are present shall be a quorum), and 15.2.3 if a poll is demanded, each (pound)1 in nominal amount of Notes held shall confer one (1) vote. In the case of joint holders, the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose, seniority shall be determined by the order in which the names stand in the Register in respect of the joint holding. A person appointed to act as a proxy need not be a Noteholder. 15.3 If within fifteen (15) minutes from the time appointed for the meeting, a quorum is not present, the meeting shall stand adjourned to such day (not being less than fourteen nor more than twenty-eight days after the date of the meeting from which such adjournment takes place), time and place as the chairman of the meeting shall direct. At least seven (7) days' notice shall be given of an adjourned meeting, and such notice shall state that the Noteholders present, 9 12 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES whatever their number, or the Notes held or represented by them, will constitute a quorum for all purposes. 16.0 ALTERATION OF THIS INSTRUMENT. The provisions of this Instrument, and the conditions on which the Notes are held, may be altered, abrogated or added to with the consent in writing of the Company and an Extraordinary Resolution of the Noteholders. 17.0 FURTHER LOAN CAPITAL. The Company reserves absolutely and unconditionally the power to create and issue at its discretion from time to time further loan capital ranking pari passu with, or subordinate to the Notes, for cash or otherwise, at par or at a premium or discount, and with or without rights of conversion into, or subscription for, shares of the Company and carrying such rights as to premium, interest, maturity, repayment and otherwise as the Company shall think fit. 18.0 NOTICES. Any notice under, or in respect of, this Instrument shall be provided as set forth in SECTION 7.3 of the Share Purchase Agreement: to Company, as to Purchaser in said Share Purchase Agreement, and to Noteholders, as to Sellers in said Share Purchase Agreement with respect to notices relating to Warranties, the Tax Covenant or the Indemnified Liabilities, as defined in the Share Purchase Agreement. 19.0 GENERAL. A copy of this Instrument shall be supplied free of charge to each Noteholder on receipt by the Company of a written request from such Noteholder. 20.0 SET-OFF. Amounts otherwise due the Noteholders hereunder are subject to the right of set-off in favor of the Company as set forth in the Share Purchase Agreement. 21.0 LAW. This Instrument, the Schedules and the Notes shall be governed by, and construed in accordance with, English law. The Company, the Guarantor and the Noteholders accept the non-exclusive jurisdiction of the appropriate court of law in England in relation to all matters, claims or disputes arising out of, or in connection with, the terms of this Instrument and the Notes. 10 13 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES IN WITNESS WHEREOF, this Instrument has been executed and delivered as a DEED by the company on the day and year first above written. EXECUTED as a deed by Time Eclipse Limited) acting by ) - ---------------------------- Joseph L Sylvia Managing Director ATTEST, - ---------------------------- David P. Witman Secretary Secretary 11 14 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES SCHEDULE 1 - THE CERTIFICATES SERIES 1 Each holder of the Notes shall be entitled to a Certificate stating the amount of the Notes held by him. Every Certificate shall be in the following, or substantially the following, form and shall be executed and delivered by the Company. CERTIFICATE NO. ____ CERTIFICATE FOR (POUND) __________ NOMINAL OF NOTES (THE "NOMINAL AMOUNT") TIME ECLIPSE LIMITED (THE "COMPANY") (INCORPORATED UNDER THE COMPANIES ACT 1985, 1989) (REGISTERED NO. _________) (POUND)1,000,000 LOAN NOTES 1998 SERIES 1 (THE "NOTES") Issued under the authority of the Memorandum and Articles of Association of the Company and pursuant to a resolution of its board of directors passed on this date. THIS IS TO CERTIFY THAT ________________________________ of ____________________________________________________ is/are the registered holder(s) of the above stated Nominal Amount of the Notes, fully paid, constituted by an Instrument entered into by the Company on this date (the "Instrument") and are issued with the benefit of, and subject to, the provisions contained in the Instrument, a copy of which may be obtained from the Company. 12 15 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES Words and expressions defined in the Instrument shall have the same meanings in this Certificate. DATED: ______ May 1998 Executed and delivered as a deed by Time Eclipse Limited, by ----------------------------- Joseph L. Sylvia Managing Director ATTEST, ----------------------------- David P. Witman Secretary Notes: 1. The Notes are redeemable in accordance with the terms and conditions contained in the Instrument which is available from the Company. 2. Subject to the terms of the Instrument, the Notes are subject to restrictions against disposals. ISSUED IN ENGLAND 13 16 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES
Noteholders Nominal Amounts - ----------- --------------- Georgina Miller 122,060 Penelope Christine Gaisford St. Lawrence 117,394 Platinum Holdings Limited 89,487 Marcris Holdings Limited 82,929 Valerie Drew 67,572 Ronald Francis Kirby 57,492 Thomas Nigel Miller 56,929 Lady Davis 52,296 Joanna Marie Drew 50,778 Bibury Investment Holding Inc. 44,875 Timothy Douglas Ian Drew 39,791 Patrick Arnold Drew 34,926 G. Miller and Dr. T.N. Miller 26,092 Dagmar Paton 23,948 Paul Malcolm Ruse 14,746 Paul Sewell 13,097 Hon L. Miller 12,127 Dennis Stephen Parker 10,672 Kenneth Trickett 9,944 Michael Johnson 6,791 Timothy John Drew 6,156 David Graham Drew 5,748 Marcus Guy Drew 5,457 Christopher Marcus Roy Drew 5,457 Robin Patrick Barry Drew 5,457 Sally Elizabeth Drew 5,161 Simon Drew 5,161 M.T. Roxby Bott 4,800 Mary Thorndike Drew 3,490 John Greville Drew 2,910 Jane Elisabeth Merrick-Johnson 2,910 Elena F.L. Miller 2,425 David E.B. Miller 2,425 Avril J.V. Miller 2,425 Alexander H.J. Miller 2,425 Matthew T.V. Miller 2,425 J.T. Gaisford St. Lawrence 728 Nicholas Blews Robotham 486 Total (pound)1,000,000
14 17 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES SCHEDULE 2 - THE GUARANTY SERIES 1 The Guaranty is as set forth in SECTION 7.17 of the Share Purchase Agreement, incorporated herein by reference. DATED: ____ May 1998 Executed and delivered as a deed by SI Holding Corporation, by ----------------------------- Joseph L Sylvia Director/Chief Financial Officer /Executive Vice President ATTEST, ----------------------------- David P. Witman Secretary 15 18 W. NOTTING LIMITED SHARE PURCHASE AGREEMENT DATED MAY___, 1998 EXHIBITS AND SCHEDULES July 22, 1998 Mr. Michael Johnson The Needham Partnership 9 Needham Road London, W I I 2RP England Dear Michael: On behalf of the Sellers, Paul Sewell has just delivered to us for our review the Completion Financial Statement, copy attached, as well as his analysis of the adjustment to be made to the Purchase Price in accordance with Section 1.2 of the Share Purchase Agreement. We have reviewed the Completion Financial Statement and are in agreement with it. Accordingly, Section 1. 1 of the Share Purchase Agreement is hereby modified to restate the Purchase Price at GBP 4,144,581 in that the Section 1.2 adjustment off the Completion Financial Statement is GBP 105,419. Consistently then, the amount of the Note as set forth in Section 1.3(ii) of the Share Purchase Agreement, as well as the principal amount on the Note itself, is hereby restated as BGP 894,581. Attached hereto as EXHIBIT A is the revised Schedule of Noteholders under the Note which should be attached to the original Note in substitution for the former Schedule of Noteholders. Best regards, JJ.L. Sylvia JLS/bm Attachments cc: R. George D. Witman H. Gorgi R. Small D. Tilly N. Thorne 16 19 17 EX-4.6 18 PURCHASE AGREEMENT DATED 6/30/98 1 EXHIBIT 4.6 $100,000,000 SIMONDS INDUSTRIES INC. 10 1/4% SENIOR SUBORDINATED NOTES DUE 2008 PURCHASE AGREEMENT June 30, 1998 SALOMON BROTHERS INC FIRST UNION CAPITAL MARKETS, a division of Wheat First Securities, Inc. SCHRODER & CO. INC. c/o Salomon Brothers Inc Seven World Trade Center New York, New York 10048 Dear Sirs: SIMONDS INDUSTRIES INC., a Delaware corporation (the "Company"), proposes, upon the terms and conditions set forth herein, to issue and sell to Salomon Brothers Inc, First Union Capital Markets, a division of Wheat First Securities, Inc., and Schroder & Co. Inc. (the "Initial Purchasers") $100,000,000 aggregate principal amount of its 10 1/4% Senior Subordinated Notes due 2008 (the "Notes"). The Notes will be guaranteed (each, a "Guarantee") on a senior subordinated basis by each of Armstrong Manufacturing Company, an Oregon corporation, Simonds Holding Company, Inc., a Delaware corporation, and Simonds Industries FSC, Inc., a U.S. Virgin Islands corporation (each, a "Guarantor"). The Notes and the Guarantees are referred to herein as the "Securities." The Securities will be issued pursuant to an indenture, to be dated as of July 7, 1998 (the "Indenture"), among the Company, the Guarantors and State Street Bank and Trust Company, as trustee (the "Trustee"). The Company and the Guarantors wish to confirm as follows their agreement with the Initial Purchasers in connection with the purchase and resale of the Securities. 2 1. PRELIMINARY OFFERING MEMORANDUM AND OFFERING MEMORANDUM. The Securities will be offered and sold to the Initial Purchasers without registration under the Securities Act of 1933, as amended (the "Act"), in reliance on an exemption pursuant to Section 4(2) under the Act and the rules and regulations promulgated thereunder. The Company has prepared a preliminary offering memorandum, dated June 15, 1998 (the "Preliminary Offering Memorandum"), and an offering memorandum, dated June 30, 1998 (the "Offering Memorandum"), setting forth information regarding the Company and the Securities. Unless stated herein to the contrary, all references herein to the Offering Memorandum are to the Offering Memorandum at the date thereof and are not meant to include any supplement or amendment subsequent thereto. The Company hereby confirms that it has authorized the use of the Preliminary Offering Memorandum and the Offering Memorandum in connection with the offering and resale of the Securities by the Initial Purchasers on the terms and subject to the conditions set forth herein. The Company understands that the Initial Purchasers propose to make offers and sales ("Exempt Resales") of the Securities purchased by the Initial Purchasers hereunder only on the terms and in the manner set forth in the Offering Memorandum and Section 2 hereof, as soon as the Initial Purchasers deem advisable after this Agreement has been executed and delivered, (i) to persons in the United States whom the Initial Purchasers reasonably believe to be qualified institutional buyers ("Qualified Institutional Buyers") as defined in Rule 144A under the Act, as such rule may be amended from time to time ("Rule 144A"), in transactions under Rule 144A and (ii) outside the United States to persons other than U.S. persons in reliance upon and in compliance with Regulation S under the Act, as such regulation may be amended from time to time ("Regulation S"). The persons specified in clauses (i) and (ii) are referred to herein as the "Eligible Purchasers." As used herein, the terms "United States" and "U.S. persons" have the respective meanings given them in Regulation S. - 2 - 3 It is understood and acknowledged that upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Act, each of the Securities (and each security issued in exchange therefor or in substitution thereof) shall bear the following legend: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AN "ACCREDITED INVESTOR")) OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES TO PERSONS OTHER THAN U.S. PERSONS IN OFFSHORE TRANSACTIONS MEETING THE REQUIREMENTS OF RULE 904 UNDER REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE - 3 - 4 THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. It is also understood and acknowledged that holders (including subsequent transferees) of the Securities will have the registration rights set forth in the registration rights agreement (the "Registration Rights Agreement") substantially in the form attached hereto as EXHIBIT A to be dated as of the Closing Date (as defined) by and among the Company, the Guarantors and the Initial Purchasers. 2. AGREEMENTS TO SELL, PURCHASE AND RESELL. (a) The Company hereby agrees, upon the basis of the representations, warranties and agreements of the Initial Purchasers herein contained and subject to all the terms and conditions set forth herein, to issue and sell to the Initial Purchasers and, upon the basis of the representations, warranties and agreements of the Company and the Guarantors herein contained and subject to all the terms and conditions set forth herein, each Initial Purchaser, severally and not jointly, agrees to purchase from the Company that principal amount of Notes set forth opposite the name of such Initial Purchaser on SCHEDULE I attached hereto at a purchase price of 97% of the principal amount thereof. (b) Each Initial Purchaser represents and warrants to the Company and the Guarantors that it is a Qualified Institutional Buyer with such knowledge and experience in financial and business matters as are necessary to evaluate the merits and risks of an investment in the Securities, it has received all of the information it considers necessary or appropriate for deciding whether to make an investment in the Securities, and has advised the Company that it proposes to offer the Securities for resale upon the terms and conditions set forth in this Agreement and in the Offering Memorandum in Exempt Resales. Each Initial Purchaser hereby represents and warrants to, and agrees with, the Company and the Guarantors that it (i) will not solicit offers for, or offer to sell, the Securities by means of any form of general solicitation or general advertising or in any manner involving a public - 4 - 5 offering within the meaning of Section 4(2) of the Act (including, but not limited to, (A) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (B) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising; PROVIDED, HOWEVER, that such limitation shall not preclude the Initial Purchasers from placing any tombstone announcement with respect to the resale by the Initial Purchasers of the Securities, PROVIDED that such announcement is not prohibited by (and is in compliance with) Regulation S), and (ii) will solicit offers for the Securities only from, and will offer, sell or deliver the Securities as part of its initial offering, only to (A) persons in the United States whom such Initial Purchaser reasonably believes to be Qualified Institutional Buyers purchasing for their own accounts, or if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to such Initial Purchaser that each such account is a Qualified Institutional Buyer, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, in each case, in transactions under Rule 144A and (B) outside the United States to persons other than U.S. persons in reliance on Regulation S. Each Initial Purchaser has advised the Company that it will offer the Securities to Eligible Purchasers at a price initially equal to 100% of the principal amount thereof, plus accrued interest, if any, from the date of original issuance of the Securities. (c) Each Initial Purchaser represents and warrants that (i) it has not offered or sold, and will not offer or sell, directly or indirectly, any of the Securities in the United Kingdom by means of any document, other than to persons whose ordinary business it is to buy or sell shares or debentures whether as principal or agent (except in circumstances which do not constitute an offer to the public within the meaning of the Companies Act 1985), (ii) it has complied with and will comply with all applicable provisions of the Financial Services Act of 1986 with respect to anything done by such Initial Purchaser in relation to the Securities - 5 - 6 in, from or otherwise involving the United Kingdom and (iii) it has only issued or passed on and will only issue or pass on in or from the United Kingdom to any persons any document received by such Initial Purchaser in connection with the issue of the Securities if the recipient is of a kind described in Article 9(3) of the Financial Services Act of 1986 (Investment Advertisements) (Exemptions) Order 1988, as amended. (d) Each Initial Purchaser represents and warrants that with respect to Securities offered and sold or to be offered and sold pursuant to Regulation S it has offered and sold the Securities and agrees that it will offer and sell the Securities (i) as part of its initial distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering of the Securities and the Closing Date, only in accordance with Rule 903 of Regulation S. Accordingly, each Initial Purchaser represents, warrants and agrees that with respect to Securities offered and sold or to be offered and sold pursuant to Regulation S none of it, its affiliates or any persons acting on its behalf or on behalf of its affiliates have engaged or will engage in any directed selling efforts in the United States with respect to the Securities, and it and its affiliates have complied and will comply with the offering restrictions requirements of Regulation S. Each Initial Purchaser agrees that, at or prior to confirmation of any sale of Securities pursuant to Regulation S, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases such Securities from it during the restricted period a confirmation or notice to substantially the following effect: The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their initial distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, except in either case in accordance with Regulation S - 6 - 7 or Rule 144A under the Securities Act. Terms used above have the respective meanings given to them in Regulation S under the Securities Act. Each Initial Purchaser understands that the Company and, for the purposes of the opinions to be delivered to the Initial Purchasers pursuant to Section 7(d) and 7(e) hereof, counsel to the Company and counsel to the Initial Purchasers will rely upon the accuracy and truth of the foregoing representations and agreements and each Initial Purchaser hereby consents to such reliance. 3. DELIVERY OF THE SECURITIES AND PAYMENT THEREFOR. Delivery to the Initial Purchasers of and payment for the Securities shall be made at the office of Cahill Gordon & Reindel, 80 Pine Street, New York, New York at 9:00 a.m., New York City time, on July 7, 1998 (the "Closing Date"). The place of closing for the Securities and the Closing Date may be varied by agreement between the Initial Purchasers and the Company. The Securities will be delivered to the Initial Purchasers against payment of the purchase price therefor by federal funds certified check or wire transfer, in each case, of immediately available funds payable in accordance with written instructions from the Company. The Securities will be evidenced by one or more global securities (each, a "Global Security") and/or by additional certificated securities, and will be registered, in the case of a Global Security, in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC"), and in the other cases, in such names and in such denominations as the Initial Purchasers shall request prior to 1:00 p.m., New York City time, on the business day preceding the Closing Date. The Securities to be delivered to the Initial Purchasers shall be made available to the Initial Purchasers in New York City for inspection and packaging not later than 9:30 a.m., New York City time, on the business day next preceding the Closing Date. - 7 - 8 4. AGREEMENTS OF THE COMPANY AND THE GUARANTORS. The Company and the Guarantors agree with the Initial Purchasers as follows: (a) Until the completion of the distribution of the Securities by the Initial Purchasers to Eligible Purchasers, the Company will advise the Initial Purchasers promptly and, if requested, will confirm such advice in writing, of any material adverse change in the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and its Subsidiaries (as defined), taken as a whole, or of the happening of any event or the existence of any condition which requires any amendment or supplement to the Offering Memorandum (as then amended or supplemented) so that the Offering Memorandum (x) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (y) will comply with applicable law. (b) The Company will furnish to the Initial Purchasers, without charge, such number of copies of the Offering Memorandum, as they may then be amended or supplemented, as they may reasonably request. (c) The Company will not make any amendment or supplement to the Preliminary Offering Memorandum or to the Offering Memorandum of which the Initial Purchasers shall not previously have been advised or to which they shall object in writing after being so advised unless, in the opinion of counsel to the Company, such amendment or supplement is necessary to comply with applicable law. (d) Prior to the execution and delivery of this Agreement, the Company has delivered or will deliver to the Initial Purchasers, without charge, in such reasonable quantities as the Initial Purchasers shall have requested or may hereafter request, copies of the Preliminary Offering Memorandum. The Company consents to the use, in - 8 - 9 accordance with the securities or Blue Sky laws of the jurisdictions in which the Securities are offered by the Initial Purchasers and by dealers, prior to the date of the Offering Memorandum, of each Preliminary Offering Memorandum so furnished by the Company. The Company consents to the use of the Offering Memorandum (and of any amendment or supplement thereto prepared in accordance with Section 4(c)) in accordance with the securities or Blue Sky laws of the jurisdictions in which the Securities are offered by the Initial Purchasers and by all dealers to whom Securities may be sold, in connection with the offering and sale of the Securities. (e) If, at any time prior to completion of the distribution of the Securities by the Initial Purchasers to Eligible Purchasers, any event shall occur or condition shall exist that in the judgment of the Company or in the opinion of the Initial Purchasers based on advice of counsel requires any amendment or supplement to the Offering Memorandum (as then amended or supplemented) so that the Offering Memorandum (x) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (y) will comply with applicable law, the Company will, in each such case subject to Section 4(c), forthwith prepare an appropriate supplement or amendment thereto, and will expeditiously furnish to the Initial Purchasers that number of copies thereof as they shall reasonably request. (f) The Company will cooperate with the Initial Purchasers and with their counsel in connection with the qualification of the Securities for offering and sale by the Initial Purchasers and by dealers under the securities or Blue Sky laws of such jurisdictions as the Initial Purchasers may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such qualification; PROVIDED that in no event shall the Company be obligated -9- 10 to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject. (g) So long as any of the Securities are outstanding, the Company will furnish to the Initial Purchasers (i) as soon as reasonably practicable, a copy of each report of the Company filed with the Securities and Exchange Commission (the "Commission") and (ii) from time to time such other information concerning the Company as the Initial Purchasers may reasonably request. (h) The Company will apply the proceeds from the sale of the Securities to be sold by it hereunder in accordance with the description set forth under "Use of Proceeds" in the Offering Memorandum. (i) The Company has not taken, nor will it take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Securities to facilitate the sale or resale of the Securities. Except as permitted by the Act, the Company will not distribute any offering material in connection with the Exempt Resales. Except following the effectiveness of the Exchange Offer Registration Statement or the Shelf Registration Statement (each as defined in the Registration Rights Agreement), the Company will not solicit any offers to buy and will not offer to sell the Securities by means of any form of general solicitation or general advertising (within the meaning of Regulation D under the Act) or by means of any directed selling efforts (as defined under Regulation S and the Commission's releases related thereto). (j) The Company will assist the Initial Purchasers in causing the Securities to be eligible for trading on the PORTAL market. -10- 11 (k) From and after the Closing Date, so long as any of the Securities are outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Act or, if earlier, until two years after the Closing Date, and during any period in which the Company is not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company will furnish to holders of the Securities and prospective purchasers of Securities designated by such holders, upon request of such holders or such prospective purchasers, the information required to be delivered pursuant to Rule 144A(d)(4) under the Act to permit compliance with Rule 144A in connection with resales of the Securities. (l) The Company agrees not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Act) that would be integrated with the sale of the Securities in a manner that would require the registration under the Act of the sale by the Company to the Initial Purchasers or by the Initial Purchasers to the Eligible Purchasers of the Securities. (m) The Company and the Guarantors agree to comply with all of the terms and conditions of the Registration Rights Agreement, and all agreements set forth in the representation letters of the Company to DTC relating to the approval of the Securities by DTC for "book entry" transfer. (n) The Company agrees that not later than any registration of the Securities pursuant to the Registration Rights Agreement, or at such earlier time as may be so required, the Company shall use its best efforts to cause the Indenture to be qualified under the Trust Indenture Act of 1939 (the "1939 Act") and will cause to be entered into any necessary supplemental indentures in connection therewith. (o) The Company shall not resell any Securities that have been acquired by it. -11- 12 (p) Prior to the Closing Date, the Company will furnish to the Initial Purchasers, as soon as reasonably practicable after they have been prepared, a copy of any unaudited interim consolidated financial statements of the Company for any period subsequent to the period covered by the most recent consolidated financial statements of the Company appearing in the Offering Memorandum. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE GUARANTORS. The Company and the Guarantors, jointly and severally, represent and warrant to the Initial Purchasers that: (a) No order or decree preventing the use of the Preliminary Offering Memorandum or the Offering Memorandum or any amendment or supplement thereto, or any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act, has been issued and no proceeding for any such purpose has been commenced or is pending or, to the knowledge of the Company, is threatened. (b) The Preliminary Offering Memorandum and the Offering Memorandum, as of their respective dates, and the Offering Memorandum, as of the Closing Date, did not or will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that this representation and warranty does not apply to statements in the Preliminary Offering Memorandum and Offering Memorandum made in reliance upon and in conformity with information relating to the Initial Purchasers furnished to the Company in writing by the Initial Purchasers through Salomon Brothers Inc expressly for use therein. (c) As of the Closing Date, the Indenture will have been duly and validly authorized by the Company and the Guarantors and, upon its execution and delivery by the Company and the Guarantors, and assuming due -12- 13 authorization, execution and delivery by the Trustee, will be a valid and binding agreement of the Company and the Guarantors, enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity; the Indenture conforms in all material respects to the description thereof in the Offering Memorandum; and no qualification of the Indenture under the 1939 Act is required in connection with the offer and sale of the Securities contemplated hereby or in connection with the Exempt Resales. (d) As of the Closing Date, the Notes and the Guarantees will have been duly authorized by the Company and the Guarantors, respectively, and, when executed by the Company and the Guarantors, respectively, and (in the case of the Notes) authenticated by the Trustee in accordance with the Indenture and delivered to the Initial Purchasers against payment therefor in accordance with the terms hereof, will have been validly issued and delivered, and will constitute valid and binding obligations of the Company and the Guarantors, respectively, entitled to the benefits of the Indenture and enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity; and the Securities conform in all material respects to the description thereof in the Offering Memorandum. (e) Each direct and indirect subsidiary of the Company is set forth on SCHEDULE II attached hereto (each, a "Subsidiary"). All the outstanding shares of capital stock of the Company and each Subsidiary have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights. -13- 14 (f) Each of the Company and the Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify would not reasonably be expected to have a material adverse effect on the condition (financial or other), business, prospects, properties net worth or results of operations of the Company and the Subsidiaries, taken as a whole (a "Material Adverse Effect"). (g) There are no legal or governmental proceedings pending against the Company or any Subsidiary or, to the knowledge of the Company, threatened against any of them or to which the Company or any Subsidiary or to which any of the respective properties of the Company or any Subsidiary is subject which are not disclosed in the Offering Memorandum and which, if adversely decided, would cause a Material Adverse Effect or materially adversely affect the issuance of the Securities or the consummation of any of the transactions contemplated by this Agreement, the Indenture, the Securities or the Registration Rights Agreement (collectively, the "Transaction Documents"). There are no agreements, contracts, indentures, leases or other instruments of the Company or any Subsidiary that are material to the Company and the Subsidiaries, taken as a whole, which are not described in the Offering Memorandum. Except as disclosed in the Offering Memorandum, neither the Company nor any Subsidiary is involved in any strike, job action or labor dispute with any group of its employees which would reasonably be expected to have a Material Adverse Effect, and, to the knowledge of the Company, no such action or dispute is threatened. -14- 15 (h) None of the Company or any Subsidiary is (x) in violation of its certificate or articles of incorporation or bylaws or other organizational documents, or of any law, ordinance, administrative or governmental rule or regulation applicable to it or of any decree of any court or governmental agency or body having jurisdiction over it, except where any such violation or violations in the aggregate could not reasonably be expected to have a Material Adverse Effect, or (y) in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any agreement, indenture, lease or other instrument to which the Company or any Subsidiary is a party or by which any of them or any of their respective properties may be bound, except as disclosed in the Offering Memorandum or where any such default or defaults in the aggregate would not reasonably be expected to have a Material Adverse Effect. (i) None of (x) the issuance, offer, sale or delivery of the Securities, (y) the execution, delivery or performance of the Transaction Documents by the Company or any Subsidiary to the extent a party thereto, or (z) the consummation by the Company or any Subsidiary of the transactions contemplated hereby or thereby (i) requires any consent, approval, authorization or other order of, or registration or filing with (each, a "Consent"), any court, regulatory body, administrative agency or other governmental body, agency or official (except such Consents as may have been obtained or may be required in connection with the registration under the Act of the Securities in accordance with the Registration Rights Agreement, the qualification of the Indenture under the 1939 Act and except for compliance with the securities or Blue Sky laws of various jurisdictions or the failure to obtain which could not reasonably be expected to have a Material Adverse Effect or materially adversely affect the consummation of the transactions contemplated by the Transaction Documents) or conflicts or will conflict with or constitutes or will constitute a breach of, or a -15- 16 default under, the certificate or articles of incorporation or bylaws, or other organizational documents, of the Company or any Subsidiary, except any such conflicts and breaches that in the aggregate could not reasonably be expected to have a Material Adverse Effect, or (ii) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, any agreement, indenture, lease or other instrument to which the Company or any Subsidiary is a party or by which any of them or any of their respective properties may be bound, except as disclosed in the Offering Memorandum or any such conflicts, breaches or defaults that in the aggregate could not reasonably be expected to have a Material Adverse Effect, or (iii) violates or will violate any statute, law, regulation or judgment, injunction, order or decree applicable to the Company or any Subsidiary or any of their respective properties, except any such violations that in the aggregate could not reasonably be expected to have a Material Adverse Effect, or (iv) will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary pursuant to the terms of any agreement or instrument to which any of them is a party or by which any of them may be bound or to which any of their property or assets is subject, other than liens, charges and encumbrances disclosed in the Offering Memorandum or which could not in the aggregate be expected to have a Material Adverse Effect. (j) To the Company's knowledge, Arthur Andersen LLP, who have certified the financial statements of the Company, included as part of the Offering Memorandum, are independent public accountants under Rule 101 of the AICPA's Code of Professional Conduct and its interpretations and rulings. (k) The financial statements of the Company included in the Offering Memorandum, together with the related notes thereto, present fairly the financial position, results of operations and cash flows of the Company at the dates and for the periods to which they relate, and have -16- 17 been prepared in accordance with generally accepted accounting principles applied on a consistent basis ("GAAP"). The PRO FORMA financial statements and other PRO FORMA financial information (including the notes thereto) included in the Offering Memorandum (A) present fairly on the basis stated the information shown therein, (B) have been prepared in accordance with applicable requirements of Rule 11-02 of Regulation S-X promulgated under the Act and (C) have been properly computed on the basis described therein. The assumptions used in the preparation of the PRO FORMA financial statements and other PRO FORMA financial information included in the Offering Memorandum are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (l) Each of the Company and the Guarantors has all the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the Registration Rights Agreement; the execution and delivery of, and the performance by each of the Company and the Guarantors of its obligations under, this Agreement and the Registration Rights Agreement have been duly and validly authorized by the Company and the Guarantors and each of this Agreement and, as of the Closing Date, the Registration Rights Agreement will have been duly executed and delivered by each of the Company and the Guarantors and will constitute the valid and legally binding agreement of each of the Company and the Guarantors, enforceable against the Company and the Guarantors in accordance with its terms, except as the enforcement hereof and thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity, and except as rights to indemnity and contribution hereunder and thereunder may be limited by Federal or state securities laws or principles of public policy. (m) Except as disclosed in the Offering Memorandum, subsequent to the date as of which such information is -17- 18 given in the Offering Memorandum, neither the Company nor any Subsidiary has incurred any liability or obligation, direct or contingent, or entered into any transaction, not in the ordinary course of business, that is material or will be material to the Company and the Subsidiaries, taken as a whole, and there has not been any material change in the capital stock, or material increase in the short-term or long-term debt of the Company or any Subsidiary. (n) Each of the Company and the Subsidiaries has good and marketable title to all property (real and personal) described in the Offering Memorandum as being owned by it, free and clear of all liens, claims, security interests or other encumbrances, except such as are described in the Offering Memorandum or could not, in the aggregate, reasonably be expected to have a Material Adverse Effect, and all the property described in the Offering Memorandum as being held under lease by each of the Company and the Subsidiaries is held by it under valid, subsisting and enforceable leases, except as the enforcement thereof may be limited by bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity. (o) Except as permitted by the Act, the Company has not distributed and, prior to the later to occur of the Closing Date and completion of the distribution of the Securities, will not distribute any offering material in connection with the offering and sale of the Securities other than the Preliminary Offering Memorandum and Offering Memorandum (and any amendment or supplement thereto in accordance with Section 4(c) hereof). (p) Each of the Company and the Subsidiaries has such permits, licenses, franchises, certificates of need and other approvals or authorizations of governmental or regulatory authorities ("Permits") as are necessary under applicable law to own their respective properties and to conduct their respective businesses in the manner -18- 19 described in the Offering Memorandum, except to the extent that the failure to have such Permits could not reasonably be expected to have a Material Adverse Effect; each of the Company and the Subsidiaries has fulfilled and performed in all material respects all its obligations with respect to the Permits, and, to the knowledge of the Company, no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be set forth in the Offering Memorandum and except to the extent that any such revocation or termination, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (q) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions of the Company and the Subsidiaries are executed in accordance with management's general or specific authorization; (ii) transactions of the Company and the Subsidiaries are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets of the Company and the Subsidiaries is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets of the Company and the Subsidiaries is compared with existing assets of the Company and the Subsidiaries at reasonable intervals and appropriate action is taken with respect to any differences. (r) Neither the Company nor any Subsidiary nor, to the knowledge of the Company, any employee or agent of the Company or any Subsidiary has made any payment of funds or received or retained any funds in violation of any law, rule or regulation, which violation could reasonably be expected to have a Material Adverse Effect. -19- 20 (s) Except as disclosed in the Offering Memorandum, the Company and the Subsidiaries have filed all tax returns required to be filed (other than filings being contested in good faith), which returns are true and correct in all material respects, and neither of the Company nor any Subsidiary is in default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto (other than taxes being contested in good faith), except where the failure to file such returns and make such payments (whether or not being contested in good faith) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (t) No holder of any security of the Company (other than holders of the Securities) has any right to request or demand registration of any security of the Company because of the consummation of the transactions contemplated by the Transaction Documents. (u) Each of the Company and the Subsidiaries owns or possesses adequate rights to use all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Offering Memorandum as being owned by it or necessary for the conduct of its business, and the Company has not received notice of any claim to the contrary (a "Claim") or any challenge (a "Challenge") by any other person to the rights of each of the Company and the Subsidiaries with respect to the foregoing, except for such Claims and Challenges which could not reasonably be expected to have a Material Adverse Effect. (v) The Company is not and, upon sale of the Securities to be issued and sold hereby in accordance herewith and the application of the net proceeds to the Company of such sale as described in the Offering Memorandum under the caption "Use of Proceeds," will not be an "investment company" within the meaning of the Investment Company Act of 1940, as amended. -20- 21 (w) When the Securities are issued and delivered pursuant to this Agreement, such Securities will not be of the same class (within the meaning of Rule 144A(d)(3) under the Act) as any security of the Company that is listed on a national securities exchange registered under Section 6 of the Exchange Act or that is quoted in a United States automated interdealer quotation system. (x) None of the Company nor any of its affiliates (as defined in Rule 501(b) of Regulation D under the Act) has directly, or through any agent (PROVIDED that no representation is made as to the Initial Purchasers or any person acting on their behalf), (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Act) which is or will be integrated with the offering and sale of the Securities in a manner that would require the registration of the Securities under the Act or (ii) engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Act) in connection with the offering of the Securities. (y) Assuming (i) the representations and warranties of the Initial Purchasers in Section 2 hereof are true and correct in all material respects, (ii) each Initial Purchaser complies with the covenants set forth in Section 2 hereof, (iii) compliance by each Initial Purchaser with the offering and transfer procedures and restrictions described in the Offering Memorandum, (iv) the accuracy of the representations and warranties deemed to be made in the Offering Memorandum by purchasers to whom the Initial Purchasers initially resell Securities, and (v) purchasers to whom the Initial Purchasers initially resell Securities receive a copy of the Offering Memorandum prior to such sale, the purchase and sale of the Securities pursuant hereto (including the Initial Purchasers' proposed offering of the Securities on the terms and in the manner set forth in the Offering Memorandum and Section 2 hereof) do not require registration under the Act. -21- 22 (z) The execution and delivery of this Agreement and the other Transaction Documents and the sale of the Securities to the Initial Purchasers by the Company and by the Initial Purchasers to Eligible Purchasers in accordance with the terms hereof will not result in any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code. The representations made by the Company in the preceding sentence are made in reliance upon and subject to the accuracy of, and compliance with, the representations and covenants made or deemed made by the Eligible Purchasers as set forth in the Offering Memorandum under the section entitled "Transfer Restrictions." (aa) Except as disclosed or contemplated by the Offering Memorandum, each of the Company and the Subsidiaries is in compliance with, and not subject to any liability under, any applicable federal, state, local and foreign statute, regulation, rule, codes, ordinances, directives and orders relating to pollution or to protection of public or employee health or safety or to the environment, including, without limitation, those that relate to any Hazardous Material (as defined herein ("Environmental Laws")), except, in each case, where noncompliance or liability, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. The term "Hazardous Material" means any pollutant, contaminant or waste, or any hazardous, dangerous, or toxic chemical, material, waste, substance or constituent subject to regulation under any Environmental Law. (bb) Immediately after the consummation of the purchase and sale of the Securities, the fair value and present fair saleable value of the assets of the Company will exceed the sum of its stated liabilities and identified contingent liabilities; the Company is not, nor will it be, after giving effect to the consummation of such transactions, (i) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (ii) unable to pay its debts -22- 23 (contingent or otherwise) as they mature or (iii) otherwise insolvent. 6. INDEMNIFICATION AND CONTRIBUTION. (a) The Company and the Guarantors agree to jointly and severally indemnify and hold harmless each Initial Purchaser and each person, if any, who controls an Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and out-of-pocket expenses (including reasonable costs of investigation) incurred by any such persons arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum or Offering Memorandum or in any amendment or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to an Initial Purchaser furnished in writing to the Company by an Initial Purchaser, through Salomon Brothers Inc, expressly for use in connection therewith; PROVIDED, HOWEVER, that the indemnification contained in this paragraph (a) with respect to the Preliminary Offering Memorandum shall not inure to the benefit of an Initial Purchaser on account of any such loss, claim, damage, liability or expense arising from the sale of the Securities by such Initial Purchaser to any person if the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in the Preliminary Offering Memorandum was corrected in the Offering Memorandum and such Initial Purchaser sold Securities to that person without sending or giving, at or prior to the written confirmation of such sale, a copy of the Offering Memorandum (as then amended or supplemented). The foregoing indemnity agreement shall be in -23- 24 addition to any liability which the Company or a Guarantor may otherwise have. (b) If any action, suit or proceeding shall be brought against an Initial Purchaser or any person who controls an Initial Purchaser in respect of which indemnity may be sought against the Company and the Guarantors in accordance with this Section 6, such Initial Purchaser or any such person who controls such Initial Purchaser shall promptly notify in writing the Company, and the Company and the Guarantors shall assume the defense thereof, including the employment of counsel reasonably acceptable to such Initial Purchaser or such person who controls such Initial Purchaser and payment of all fees and expenses relating to the assumption of the defense by the Company and the Guarantors. An Initial Purchaser or any person who controls an Initial Purchaser shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Initial Purchaser or any such person who controls an Initial Purchaser unless (i) the Company has agreed in writing to pay such fees and expenses, (ii) the Company has failed to assume the defense and employ counsel on a timely basis or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both such Initial Purchaser or any such person who controls an Initial Purchaser and the Company or a Guarantor and such Initial Purchaser or any such person who controls an Initial Purchaser shall have been advised by its counsel that representation of such indemnified party and the Company or a Guarantor by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the Company shall not have the right to assume the defense of such action, suit or proceeding (a "Conflicted Action") on behalf of such Initial Purchaser or any such person who controls an Initial Purchaser). It is understood, however, that the Company and the Guarantors shall, in connection with any such Conflicted Action, be liable for the reasonable fees and expenses of a -24- 25 single counsel (in addition to any local counsel) for the Initial Purchasers and each such person who controls an Initial Purchaser, which firm shall be designated in writing by Salomon Brothers Inc, and that all such reasonable fees and expenses shall be reimbursed as incurred as provided in paragraph (a) hereof. The Company and the Guarantors shall not be liable for any settlement of any such action, suit or proceeding effected without the written consent of the Company, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the Company and the Guarantors agree to jointly and severally indemnify and hold harmless the Initial Purchasers, to the extent provided in paragraph (a), and any person who controls an Initial Purchaser from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment. (c) Each Initial Purchaser, severally and not jointly, agrees to indemnify and hold harmless the Company, each Guarantor, their respective directors and officers and any person who controls the Company or a Guarantor within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to the same extent as the indemnity from the Company and the Guarantors to the Initial Purchasers set forth in paragraph (a) hereof, but only with respect to information relating to such Initial Purchaser furnished in writing by such Initial Purchaser expressly for use in the Preliminary Offering Memorandum or Offering Memorandum or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against the Company or a Guarantor, any of their respective directors or officers or any such controlling person based on the Preliminary Offering Memorandum or Offering Memorandum, or any amendment or supplement thereto, and in respect of which indemnity may be sought against an Initial Purchaser pursuant to this paragraph (c), such Initial Purchaser shall have the rights and duties given to the Company and the Guarantors by paragraph (b) above (except that if the Company or a Guarantor shall have assumed the defense thereof, such Initial Purchaser shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at -25- 26 such Initial Purchaser's expense), and the Company, each Guarantor, their respective directors and officers and any such controlling person shall have the rights and duties given to the Initial Purchasers by paragraph (b) above. The foregoing indemnity agreement shall be in addition to any liability which an Initial Purchaser may otherwise have. (d) If the indemnification provided for in this Section 6 is unavailable to an indemnified party under paragraphs (a) or (c) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors on the one hand and an Initial Purchaser on the other hand from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Guarantors on the one hand and an Initial Purchaser on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantors on the one hand and an Initial Purchaser on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by such Initial Purchaser, in each case as set forth in the table on the cover page of the Offering Memorandum. The relative fault of the Company and the Guarantors on the one hand and an Initial Purchaser on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or a Guarantor on the one hand or by such Initial Purchaser on the -26- 27 other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company, the Guarantors and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by a pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other out-of-pocket expenses reasonably incurred by such indemnified party in connection with investigating any claim or defending any such action, suit or proceeding. Notwithstanding the provisions of this Section 6, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price of the Securities purchased by it 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 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 6 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 6 and the representations and warranties of the Company and the Guarantors set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of an Initial Purchaser or any person who controls an Initial Purchaser, the Company, the Guarantors, their respective directors or officers or any person controlling the Company or a Guarantor, (ii) acceptance -27- 28 of any Securities and payment therefor hereunder and (iii) any termination of this Agreement. A successor to an Initial Purchaser or any person who controls an Initial Purchaser, or to the Company, any of the Guarantors, their respective directors or officers or any person controlling the Company or a Guarantor, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 6. (g) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. 7. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS. The obligations of each Initial Purchaser to purchase and pay for the Securities to be purchased by it on the Closing Date hereunder are subject to the fulfillment, in such Initial Purchaser's sole discretion, of the following conditions: (a) At the time of execution of this Agreement and on the Closing Date, no order or decree preventing the use of the Offering Memorandum or any amendment or supplement thereto, or any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued and no proceedings for those purposes shall have been commenced or shall be pending or, to the knowledge of the Company, threatened. No order suspending the sale of the Securities in any jurisdiction shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, threatened. -28- 29 (b) On the Closing Date, the Company shall have delivered to the Initial Purchasers a true, correct and complete copy of the credit agreement (the "Credit Agreement") dated as of July 7, 1998 by and among the Company, the Guarantors, the lenders party thereto in their capacities as lenders thereunder and First Union National Bank, as agent; on and as of the Closing Date (after giving effect to the consummation of the transactions contemplated by this Agreement), there shall not exist any condition which would constitute a Default or an Event of Default (as defined in the Credit Agreement). (c) Subsequent to the date hereof, (i) except as disclosed or contemplated in the Offering Memorandum, there shall not have occurred any material adverse change in the condition (financial or other), business, prospects, properties, assets, net worth or results of operations of the Company and the Subsidiaries, taken as a whole, which, in the opinion of the Initial Purchasers, would materially adversely affect the market for the Securities, or (ii) the Offering Memorandum shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, if amending or supplementing the Offering Memorandum to correct any such misstatement or omission could, in the sole judgment of the Initial Purchasers, materially adversely affect the marketability of the Securities. (d) The Initial Purchasers shall have received on the Closing Date an opinion from each of Edwards & Angell and Wellesley Law Associates, counsel for the Company, dated the Closing Date and addressed to the Initial Purchasers, substantially in the form of, respectively, EXHIBIT B-1 and EXHIBIT B-2 hereto. (e) The Initial Purchasers shall have received on the Closing Date an opinion of Cahill Gordon & Reindel, -29- 30 counsel for the Initial Purchasers, dated the Closing Date, and addressed to the Initial Purchasers, with respect to such matters as the Initial Purchasers may request. (f) The Initial Purchasers shall have received "cold comfort" letters addressed to the Initial Purchasers, and dated the date hereof and the Closing Date, from Arthur Andersen LLP, substantially in the forms heretofore approved by the Initial Purchasers. (g) (i) There shall not have been any change in the capital stock of the Company or any Subsidiary nor any material increase in the short-term or long-term debt of the Company or any Subsidiary from that set forth or contemplated in the Offering Memorandum; (ii) except as disclosed or contemplated by the Offering Memorandum, the Company and the Subsidiaries shall not have any liabilities or obligations, direct or contingent (whether or not in the ordinary course of business), that are material to the Company and the Subsidiaries, taken as a whole; (iii) all the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date; and (iv) the Initial Purchasers shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the chief accounting officer of each of the Company and the Guarantors (or such other officers as are acceptable to the Initial Purchasers), to the effect set forth in this Section 7(g) and in Section 7(h) hereof. (h) The Company and the Guarantors shall not have failed at or prior to the Closing Date to have performed or complied with any of their respective agreements herein contained and required to be performed or complied with by them hereunder at or prior to the Closing Date. (i) There shall not have been any announcement by any "nationally recognized statistical rating -30- 31 organization," as defined for purposes of Rule 436(g) under the Act, that (i) it is downgrading its rating assigned to any class of securities of the Company (including the Securities), or (ii) it is reviewing its ratings assigned to any class of securities of the Company (including the Securities) with a view to possible downgrading, with negative implications or direction not determined. (j) The Securities shall have been approved for trading on PORTAL. (k) The Company shall have taken all necessary acts to (i) repay all of the indebtedness for money borrowed of the Company and the Subsidiaries indicated as being repaid in the Offering Memorandum under the caption "Selected Pro Forma Financial Data" immediately prior to the issuance of the Securities and (ii) terminate the related credit agreements. (l) The Company shall have received a solvency opinion from Houlihan, Lokey, Howard & Zukin Financial Advisors, Inc., which solvency opinion shall be in form and substance reasonably satisfactory to the Initial Purchasers. (m) The Company and the Guarantors shall have furnished or caused to be furnished to the Initial Purchasers such further certificates and customary closing documents as the Initial Purchasers shall have reasonably requested. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to the Initial Purchasers. Any certificate or document signed by any officer of the Company or a Guarantor and delivered to the Initial Purchasers, or to counsel for the Initial Purchasers, shall be deemed a representation and warranty by the Company or such -31- 32 Guarantor to the Initial Purchasers as to the statements made therein. 8. EXPENSES. (a) Whether or not the purchase and sale of the Securities hereunder is consummated or this Agreement is terminated pursuant to Section 9 hereof, the Company agrees to pay the following costs and expenses and all other costs and expenses incident to the performance by it of its obligations hereunder: (i) the printing or reproduction of the Preliminary Offering Memorandum and the Offering Memorandum (including financial statements thereto), and each amendment or supplement to any of them, this Agreement, the Registration Rights Agreement and the Indenture; (ii) the delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Offering Memorandum, the Preliminary Offering Memorandum and all amendments or supplements thereto as may be reasonably requested for use in connection with the offering and sale of the Securities; (iii) the printing, authentication, issuance and delivery of certificates for the Securities, including any stamp taxes in connection with the original issuance and sale of the Securities; (iv) the printing (or reproduction) and delivery of the preliminary and supplemental Blue Sky Memoranda and all other agreements and documents printed (or reproduced) and delivered in connection with the offering of the Securities; (v) the application for quotation of the Securities on PORTAL; (vi) the qualification of the Securities for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 4(f) hereof (including the reasonable fees, expenses and disbursements of counsel for the Initial Purchasers not in excess of $5,000 (relating to the preparation, printing or reproduction, and delivery of the preliminary and supplemental Blue Sky Memoranda and such qualification); and (vii) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company. (b) If the purchase and sale of the Securities hereunder is not consummated because any condition to the -32- 33 obligations of the Initial Purchasers set forth in Section 7 hereof is not satisfied, because this Agreement is terminated because of any failure, refusal or inability on the part of the Company and the Guarantors to perform all obligations and satisfy all conditions on their part to be performed or satisfied hereunder other than by reason of a default by any Initial Purchaser in payment for the Securities on the Closing Date, the Company shall reimburse the Initial Purchasers promptly upon demand for all reasonable out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by it in connection with the proposed purchase and sale of the Securities and the other transactions contemplated hereby; PROVIDED that any defaulting Initial Purchaser shall reimburse the Company upon demand for all reasonable out-of-pocket expenses (including reasonable fees and expenses for law and accounting services and printing costs) that shall have been incurred by it in connection with the proposed purchase and sale of the Securities and the transactions contemplated hereby. 9. TERMINATION OF AGREEMENT. (a) This Agreement shall be subject to termination in the absolute discretion of the Initial Purchasers, without liability on the part of the Initial Purchasers to the Company and the Guarantors, by notice to the Company, if prior to the Closing Date, (i) trading in securities generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq National Market shall have been suspended or materially limited, (ii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York state authorities or (iii) there shall have occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions, the effect of which on the financial markets of the United States or the market for the Securities is such as to make it, in the sole judgment of the Initial Purchasers, impracticable or inadvisable to commence or continue the offering of the Securities on the terms set forth on the cover page of the Offering Memorandum or to enforce contracts for the resale of the Securities by the Initial Purchasers. Notice of such -33- 34 termination may be given to the Company by telegram, telecopy or telephone and shall be subsequently confirmed by letter. (b) If any Initial Purchaser shall fail to purchase and pay for any of the Securities agreed to be purchased by such Initial Purchaser hereunder and such failure to purchase shall constitute a default in the performance of its obligations under this Agreement, the remaining Initial Purchaser or Initial Purchasers, as the case may be, shall be obligated to take up and pay for the Securities which the defaulting Initial Purchaser agreed but failed to purchase; PROVIDED, HOWEVER, that in the event that the aggregate principal amount of Securities which the defaulting Initial Purchaser agreed but failed to purchase shall exceed 10% of the aggregate principal amount of Securities set forth in Schedule I hereto, the remaining Initial Purchaser shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such non-defaulting Initial Purchaser does not purchase all the Securities, this Agreement will terminate without liability to the non-defaulting Initial Purchaser or the Company and the Guarantors. In the event of a default by any Initial Purchaser as set forth in this Section 9(b), the Closing Date shall be postponed for such period, not exceeding seven days, as the non-defaulting Initial Purchaser shall determine in order that the required changes in the Offering Memorandum or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Initial Purchaser of its liability, if any, to the Company and the Guarantors or the non-defaulting Initial Purchaser for damages occasioned by its default hereunder. 10. INFORMATION FURNISHED BY THE INITIAL PURCHASERS. The statements set forth in the stabilization legend on the inside front cover, the last paragraph on the cover page and in the third paragraph under the caption "Plan of Distribution" in the Preliminary Offering Memorandum and Offering Memorandum, constitute the only information furnished by the Initial Purchasers as such information is referred to in Sections 5(b) and 6 hereof. -34- 35 11. MISCELLANEOUS. Except as otherwise provided herein, notice given pursuant to any provision of this Agreement shall be in writing and shall be delivered (i) if to the Company and the Guarantors, at Simonds Industries Inc., 135 Intervale Road, Fitchburg, MA 01420, Attention: Chief Financial Officer, or (ii) if to the Initial Purchasers, to Salomon Brothers Inc, Seven World Trade Center, New York, NY 10048, Attention: Manager, Investment Banking Division. This Agreement has been and is made solely for the benefit of the Initial Purchasers, the Company and the Guarantors, and their respective directors, officers and the controlling persons referred to in Section 6 hereof and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. Neither the term "successor" nor the terms "successors and assigns" as used in this Agreement shall include a purchaser from an Initial Purchaser of any of the Securities in its status as such purchaser. 12. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. This Agreement may be signed in various counterparts which together constitute one and the same instrument. -35- 36 Please confirm that the foregoing correctly sets forth the agreement among the Company, the Guarantors and the Initial Purchasers. Very truly yours, THE COMPANY: SIMONDS INDUSTRIES INC. By: ____________________________ Name: Title: THE GUARANTORS: ARMSTRONG MANUFACTURING COMPANY By: ____________________________ Name: Title: SIMONDS INDUSTRIES FSC, INC. By: ____________________________ Name: Title: SIMONDS HOLDING COMPANY, INC. By: ____________________________ Name: Title: 37 Confirmed as of the date first above mentioned. SALOMON BROTHERS INC FIRST UNION CAPITAL MARKETS, a division of Wheat First Securities, Inc. SCHRODER & CO. INC. By: SALOMON BROTHERS INC By: _____________________________ Name: Title: - 2 - 38 SCHEDULE I Principal Amount of Notes Initial Purchasers to be Purchased - ------------------ --------------- Salomon Brothers Inc...................................... $ 50,000,000 First Union Capital Markets............................... 30,000,000 Schroder & Co. Inc........................................ 20,000,000 ------------ $100,000,000 ============ 39 SCHEDULE II SUBSIDIARIES
OWNED BY AND JURISDICTION OF NAME PERCENTAGE OWNED INCORPORATION - ---- ---------------- ------------- Simonds Holding Company, Inc. Simonds Industries Inc.........100.00% Delaware Simonds Industries FSC, Inc. Simonds Industries Inc.........100.00% US Virgin Islands Simonds Industries Limited Simonds Holding Company, Inc...100.00% United Kingdom Simonds Industries Inc. Simonds Holding Company, Inc...100.00% Ontario, Canada Kowin-Simonds, Inc. Kowin Development Corporation...25.00% Delaware Croft Investments Ltd...........25.00% Simonds Industries Inc..........50.00% Wespa Metallsagen-fabrik Simonds Holding Company, Inc....71.43% Germany Simonds Industries GmbH Simonds Canada Inc..............28.57% Strongbridge Limited Simonds Industries Inc.........100.00% Ontario, Canada Armstrong Manufacturing Company Simonds Holding Company, Inc...100.00% Oregon
40
Notting UK Limited Simonds Industries Inc.........100.00% United Kingdom Notting Canada, Inc. Simonds Industries Inc.........100.00% Ontario, Canada Notting America, Inc. Notting Canada, Inc............100.00% New York Servitroquel S.A. Simonds Industries Inc..........99.99% Spain Notting Canada, Inc..............0.01% Notting de Mexico S.A. Notting Canada, Inc.............26.00% Mexico (this subsidiary is inactive, without employees, assets, liabilities or operations) ComputerCarton Limited Simonds Industries Inc.........100.00% United Kingdom
- 2 - 41 EXHIBIT B-1 TO PURCHASE AGREEMENT FORM OF OPINION [LETTERHEAD OF EDWARDS & ANGELL] 1. No qualification of the Indenture under the 1939 Act is required in connection with the offer and sale of the Securities as contemplated by the Purchase Agreement. 2. Assuming (i) the representations and warranties of the Company in Section 5 of the Purchase Agreement are true and correct, (ii) the representations and warranties of the Initial Purchasers in Section 2 of the Purchase Agreement are true and correct, (iii) the Company complies with the covenants set forth in Section 4 of the Purchase Agreement, (iv) the Initial Purchasers comply with the covenants set forth in Section 2 of the Purchase Agreement, (v) the Initial Purchasers comply with the offering and transfer procedures and restrictions described in the Offering Memorandum, (vi) the representations and warranties deemed to be made in the Offering Memorandum by purchasers to whom the Initial Purchasers initially resell Securities are true and correct, and (vii) purchasers to whom the Initial Purchasers initially resell Securities receive a copy of the Offering Memorandum prior to such sale, the purchase and sale of the Securities pursuant to the Purchase Agreement (including the Initial Purchasers' offering and sale of the Securities on the terms and in the manner set forth in the Offering Memorandum and Section 2 of the Purchase Agreement) do not require registration under the Act. 3. The Indenture, the Securities, the Registration Rights Agreement and the Guarantees conform in all material 42 respects to the descriptions thereof contained in the Offering Memorandum. 4. The Company is not, nor immediately after the sale of the Securities to be sold under the Purchase Agreement and the application of the proceeds from such sale (as described in the Offering Memorandum under the caption "Use of Proceeds") will it be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 5. Neither the consummation of the transactions contemplated by the Purchase Agreement nor the sale, issuance, execution or delivery of the Securities will violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve system. We have participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company, representatives of the Initial Purchasers and counsel for the Initial Purchasers at which conferences the contents of the Offering Memorandum and related matters were discussed, and, although we have not independently verified and are not passing upon and assume no responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Memorandum (except to the extent specified in paragraph 3), and that our judgment as to materiality is, to the extent we deem proper, based in part upon the views of appropriate officers and other representatives of the Company, nothing has come to our attention that leads us to believe that the Offering Memorandum, as of its date or as of the date hereof, contained or contains 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 contained therein, in light of the circumstances under which they were made, not misleading (it being understood that we express no opinion with respect to the financial statements and related notes thereto and the other financial, statistical and accounting data included in the Offering Memorandum). - 2 - 43 EXHIBIT B-2 TO PURCHASE AGREEMENT FORM OF OPINION [LETTERHEAD OF WELLESLEY LAW ASSOCIATES] 1. The Company has the requisite corporate power and authority to execute, deliver and perform its obligations under the Indenture; the execution and delivery of, and the performance by the Company of its obligations under the Indenture have been duly and validly authorized by the Company; and the Indenture has been duly executed and delivered by the Company and, assuming due authorization, execution and delivery by the Trustee, constitutes the valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity. 2. Each of the Guarantors has the requisite corporate or partnership power and authority to execute, deliver and perform its obligations under the Indenture; the execution and delivery of, and the performance by each of the Guarantors of its obligations under, the Indenture have been duly and validly authorized by each Guarantor; and the Indenture has been duly executed and delivered by each Guarantor and, assuming due authorization, execution and delivery by the Trustee, the Indenture constitutes the valid and binding agreement of each Guarantor, enforceable against each Guarantor in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity. 44 3. The Notes have been duly authorized by the Company and, when authenticated by the Trustee in accordance with the Indenture and delivered to the Initial Purchasers against payment therefor in accordance with the terms of the Purchase Agreement, will have been validly issued and delivered, and will constitute valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity. 4. The Guarantees have been duly authorized by each Guarantor and, when delivered to the Initial Purchasers against payment therefor in accordance with the terms of the Purchase Agreement, will have been validly delivered, and each Guarantee will constitute a valid and binding obligation of each Guarantor entitled to the benefits of the Indenture and enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity. 5. All the outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights. All of the outstanding interests in the Guarantors have been validly issued, are fully paid and nonassessable. 6. Each of the Company and the Guarantors is validly existing and in good standing under the laws of its jurisdiction of incorporation or organization with requisite power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction where the nature of its properties or the conduct of its business requires such registration or qualification, except where the -2- 45 failure so to register or qualify could not reasonably be expected to have a Material Adverse Effect. 7. To our knowledge, (i) none of the Company or the Subsidiaries is in violation of its certificates or articles of incorporation or by-laws or other organizational documents, or of any law, ordinance, administrative or governmental rule or regulation known to us to be applicable to it or of any decree of any court or governmental agency or body known to us as having jurisdiction over the Company or any Subsidiary, except where any such violation or violations in the aggregate could not reasonably be expected to have a Material Adverse Effect and (ii) none of the Company or any Subsidiary is in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any agreement, indenture, lease or other instrument known to us to which the Company or any Subsidiary is a party or by which any of them or any of their respective properties may be bound, except as disclosed in the Offering Memorandum or where any such default or defaults in the aggregate could not reasonably be expected to have a Material Adverse Effect. 8. To our knowledge none of (x) the issuance, offer, sale or delivery of the Securities, (y) the execution, delivery or performance of the Transaction Documents by the Company or any Subsidiary, to the extent a party thereto, or (z) the consummation by the Company or any Subsidiary of any of the transactions contemplated by the Transaction Documents, (i) requires any consent, approval, authorization or other order of, or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may have been obtained or may be required in connection with the registration under the Act of the Securities in accordance with the Registration Rights Agreement, the qualification of the Indenture under the 1939 Act and except for compliance with the securities or Blue Sky laws of various jurisdictions), (ii) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the certificate or articles of incorporation or by-laws, or other organizational documents, of the Company or -3- 46 any Subsidiary, except any such conflicts, breaches and defaults that in the aggregate could not reasonably be expected to have a Material Adverse Effect, (iii) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, any agreement, indenture, lease or other instrument known to us to which the Company or any Subsidiary is a party or by which any of them or any of their respective properties may be bound, except as disclosed in the Offering Memorandum or any such conflicts, breaches and defaults that in the aggregate could not reasonably be expected to have a Material Adverse Effect, (iv) violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree known to us to be applicable to the Company or any Subsidiary or any of their respective properties, except any such violations that in the aggregate could not reasonably be expected to have a Material Adverse Effect, or (v) will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary pursuant to the terms of any agreement or instrument to which any of them is a party or by which any of them may be bound or to which any of their property or assets is subject, other than as disclosed in the Offering Memorandum. 9. The Company has the requisite corporate power and authority to execute, deliver and perform its obligations under the Purchase Agreement and the Registration Rights Agreement; the execution and delivery of, and the performance by the Company of its obligations under, the Purchase Agreement and the Registration Rights Agreement have been duly and validly authorized by the Company, and each of the Purchase Agreement and the Registration Rights Agreement has been duly executed and delivered by the Company. The Registration Rights Agreement constitutes the valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity, and except as rights to indemnity and contribution thereunder -4- 47 may be limited by Federal or state securities laws or principles of public policy. 10. Each Guarantor has the requisite power and authority to execute, deliver and perform its obligations under the Purchase Agreement and the Registration Rights Agreement; the execution and delivery of, and the performance by each Guarantor of its obligations under, the Purchase Agreement and the Registration Rights Agreement has been duly executed and delivered by each Guarantor. The Registration Rights Agreement constitutes the valid and legally binding agreement of each Guarantor, enforceable against each Guarantor in accordance with its terms, except as the enforcement thereof may be limited by creditors' rights generally and subject to the applicability of general principles of equity, and except as rights to indemnity and contribution thereunder may be limited by Federal or state securities laws or principles of public policy. 11. To our knowledge, there are no legal governmental proceedings involving or affecting the Company or any Subsidiary or any of their respective properties or assets which would be required to be described in a prospectus pursuant to the Act that are not described in the Offering Memorandum, nor are there any material contracts or other documents which would be required to be described in a prospectus pursuant to the Act that are not described in the Offering Memorandum. We have participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company, representatives of the Initial Purchasers and counsel for the Initial Purchasers at which conferences the contents of the Offering Memorandum and related matters were discussed, and, although we have not independently verified and are not passing upon and assume no responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Memorandum, and that our judgment as to materiality is, to the extent we deem proper, based in part upon the views of appropriate officers and other representatives of the Company, -5- 48 nothing has come to our attention that leads us to believe that the Offering Memorandum, as of its date or as of the date hereof, contained or contains 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 contained therein, in light of the circumstances under which they were made, not misleading (it being understood that we express no opinion with respect to the financial statements and related notes thereto and the other financial, statistical and accounting data included in the Offering Memorandum). -6- EX-5.1 19 OPINION OF WELLESLEY LAW ASSOCIATES 1 EXHIBIT 5.1 September 3, 1998 Simonds Industries, Inc. 135 Intervale Road Fitchburg, MA 01420 Ladies and Gentlemen: We have acted as counsel to Simonds Industries, Inc., a Delaware corporation (the "Company"), and to its subsidiaries, Armstrong Manufacturing Company, Simonds Holding Company, Inc., and Simonds Industries FSC, Inc. (collectively, the "Guarantors") in connection with a Registration Statement on Form S-4 (the "Registration Statement") to be filed by the Company and the Guarantors with the Securities and Exchange Commission relating to (i) the proposed issuance by the Company of up to $100,000,000 aggregate principal amount of its new 10-1/4% Senior Subordinated Notes due 2008 registered under the Securities Act of 1933, as amended (the "Exchange Notes"), in exchange for a like principal amount of the Company's outstanding 10-1/4% Senior Subordinated Notes due 2008, which have not been so registered (the "Original Notes") (the "Exchange Offer"), and (ii) the guarantees of the Exchange Notes by the Guarantors (the "Guarantees"). The Exchange Notes will be issued under an Indenture dated as of July 7, 1998 (the "Indenture") among the Company, the Guarantors and State Street Bank and Trust Company, as trustee. We have examined and relied upon the information set forth in the Registration Statement and such other documents and records as we have deemed necessary. In addition, as to questions of fact material to our opinion, we have relied upon certificates of officers of the Company and the Guarantors and public officials. In the course of our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. In making our examination of documents executed by parties other than the Company and the Guarantors, we have assumed that such parties had the power to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, and execution and delivery by such parties of such documents and the validity and binding effect thereof on such parties. We express no opinion as to the laws of any jurisdiction other than those of The Commonwealth of Massachusetts, the General Corporation Law of the State of Delaware and the federal laws of the United States of America. We call your attention to the fact that each of the Indenture, the Exchange Notes and the Guarantees provides that it is to be governed by the internal laws of the State of New York. We are of the opinion that a Massachusetts court or a federal court sitting in Massachusetts would, under conflict of 2 law principles observed by the courts of Massachusetts, give effect to such provisions. For purposes of the opinion provided herein, we have assumed with your permission that the Indenture, the Exchange Notes and the Guarantees provide that they are to be governed by and construed in accordance with the domestic substantive laws of The Commonwealth of Massachusetts. Based upon the foregoing, we are of the opinion that the Exchange Notes and the Guarantees have been duly authorized by all requisite corporate action of the Company and the Guarantors, as the case may be, and, when executed and authenticated in the manner provided for in the Indenture and delivered against surrender and cancellation of a like aggregate principal amount of Original Notes as contemplated in the Registration Rights Agreement, dated July 7, 1998, among the Company, the Guarantors and the Initial Purchasers named therein, the Exchange Notes will constitute valid and binding obligations of the Company and the Guarantors, as the case may be, entitled to the benefits of the Indenture and enforceable against the Company and the Guarantors, as the case may be, in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting creditors' rights generally or by general equitable principles (regardless of whether considered in a proceeding in equity or at law). We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" contained in the Prospectus included therein. Very truly yours, /s/ Wellesley Law Associates -2- EX-5.2 20 OPINION OF EDWARDS & ANGELL, LLP 1 EXHIBIT 5.2 September 3, 1998 Simonds Industries, Inc. 135 Intervale Road Fitchburg, MA 01420 Ladies and Gentlemen: We have acted as counsel to Simonds Industries, Inc., a Delaware corporation (the "Company"), and to its subsidiaries, Armstrong Manufacturing Company, Simonds Holding Company, Inc., and Simonds Industries FSC, Inc. (collectively, the "Guarantors") in connection with a Registration Statement on Form S-4 (the "Registration Statement") to be filed by the Company and the Guarantors with the Securities and Exchange Commission relating to (i) the proposed issuance by the Company of up to $100,000,000 aggregate principal amount of its new 10-1/4% Senior Subordinated Notes due 2008 registered under the Securities Act of 1933, as amended (the "Exchange Notes"), in exchange for a like principal amount of the Company's outstanding 10-1/4% Senior Subordinated Notes due 2008, which have not been so registered (the "Original Notes") (the "Exchange Offer"), and (ii) the guarantees of the Exchange Notes by the Guarantors (the "Guarantees"). The Exchange Notes will be issued under an Indenture dated as of July 7, 1998 (the "Indenture") among the Company, the Guarantors and State Street Bank and Trust Company, as trustee. We have examined and relied upon the information set forth in the Registration Statement and such other documents and records as we have deemed necessary. In addition, as to questions of fact material to our opinion, we have relied upon certificates of officers of the Company and the Guarantors and public officials. In the course of our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. In making our examination of documents executed by parties other than the Company and the Guarantors, we have assumed that such parties had the power to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, and execution and delivery by such parties of such documents and the validity and binding effect thereof on such parties. Based upon the foregoing, we are of the opinion that the Exchange Notes and the Guarantees have been duly authorized by all requisite corporate action of the Company and the Guarantors, as the case may be, and, when executed and authenticated in the manner provided for in the Indenture and delivered against surrender and cancellation of a like aggregate principal amount of Original Notes as contemplated in the Registration 2 Rights Agreement, dated July 7, 1998, among the Company, the Guarantors and the Initial Purchasers named therein, the Exchange Notes will constitute valid and binding obligations of the Company and the Guarantors, as the case may be, entitled to the benefits of the Indenture and enforceable against the Company and the Guarantors, as the case may be, in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting creditors' rights generally or by general equitable principles (regardless of whether considered in a proceeding in equity or at law). We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" contained in the Prospectus included therein. Very truly yours, /s/ Edwards & Angell, LLP -2- EX-10.1 21 EMPLOYMENT & NON-COMPETITION AGREEMENT-R. GEORGE 1 EXHIBIT 10.1 EMPLOYMENT AND NON-COMPETITION AGREEMENT EMPLOYMENT AND NON-COMPETITION AGREEMENT, dated as of May 26, 1995, by and between SIMONDS INDUSTRIES, INC., a Delaware corporation (the "Company"), and Ross B. George of Fitchburg, Massachusetts ("Employee"). W I T N E S S E T H: WHEREAS, the Company, SI Holding Corporation ("Holding"), the Company's common stockholders (the "Stockholders") (including Employee), and certain other parties, have entered into that certain Stock Purchase Agreement dated as of May 26, 1995 (the "Stock Purchase Agreement") pursuant to which Holding has agreed to purchase from the Stockholders all of the outstanding common stock of the Company; and WHEREAS, the closing of the transactions under the Stock Purchase Agreement is taking place on the date hereof; and WHEREAS, the parties hereto acknowledge that Holding is making its investment in the Company in part in reliance upon the Employee's expertise and knowledge in the industries in which the Company shall conduct its business; and WHEREAS, Employee has agreed to enter into this Agreement in order to assure company of Employee's continued expertise and involvement in the conduct of the Company's business, subject to the terms and conditions as hereinafter provided; and WHEREAS, the Company desires to employ Employee as Chief Executive Officer of the Company and Employee desires to be employed by the Company in such capacity, upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.01 CAUSE. Cause shall mean (a) an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against the Company by Employee as determined by the Company's Board of Directors in its reasonable discretion, (b) any intentional, knowing or reckless action or inaction by Employee which causes the breach of a representation, warranty or covenant by the Company or any Management Stockholder under any of the Related Agreements (as such terms are defined in the Stockholder Agreement), (c) conviction of Employee by a court of competent jurisdiction of or a plea of guilty or nolo contendere by Employee to any felony or crime involving moral turpitude, (d) the habitual drug addiction or intoxication of Employee, (e) the willful failure or refusal of Employee to perform his duties under the terms of his employment with the Company, including the willful failure or refusal of Employee to follow the instructions 2 of the Company's Board of Directors, (f) the breach by Employee of any terms of this Agreement (including, without limitation, the breach of any non-competition, non-disclosure, or other restrictive covenants), or (g) the breach by Employee of any of the covenants, terms, and provisions of Sections 3.1, 5 and 7 of the Stockholder Agreement. 1.02 CONTRACT TERM. "Contract Term" shall mean the period commencing on the Effective Date and expiring five (5) years after the Effective Date. 1.03 DIRECTORS. "Directors" shall mean the Board of Directors of the Company. 1.04 DISABILITY. Employee shall be deemed to have a disability if an independent medical doctor (selected by the Company's health or disability insurer) certifies that such Employee has for six (6) months, consecutive or non-consecutive, in any twelve (12) month period been disabled in such a manner that he is unable to perform the essential functions of his then current position. Any refusal by Employee to submit to a medical examination for the purpose of certifying disability shall be deemed to constitute conclusive evidence of such Employee's disability. 1.05. EFFECTIVE DATE. "Effective Date" shall mean the date of this Agreement. 1.06 STOCKHOLDER AGREEMENT. "Stockholder Agreement" means that certain stockholder agreement by and among the common shareholders of Holding dated as of May 26, 1995. ARTICLE II EMPLOYMENT AND SERVICES 2.01 CAPACITY AND SERVICES. The Company hereby employs Employee to serve in the capacity of Chief Executive Officer of the Company, and Employee hereby accepts such employment, upon the terms and conditions set forth in this Agreement. During the period the Employee is employed by the Company, Employee shall devote substantially all of his attention and energies on a full-time basis to the business and affairs of the Company and use his best efforts to promote its interests; provided, however, that Employee may devote reasonable periods of time for personal purposes, trade associations and charitable activities consistent with past practices so long as such purposes or activities do not (i) cause or result in a breach of Article III hereof or (ii) adversely affect the interests of the Company or materially detract from or interfere with the performance of the services otherwise required to be performed by Employee as set forth herein. While the Employee is employed by the Company, Employee shall neither accept nor hold any other employment without approval of the Directors. In his capacity as Chief Executive Officer of the Company, Employee shall be responsible for the supervision and control over, and responsibility for, the financial affairs and operations of the Company, and shall have such other powers and duties as determined by the Directors from time to time. Such services to be provided by Employee hereunder shall be provided for the benefit of the Company without regard to whether any of the Company's operations are conducted directly by the Company, through Holding, or through any subsidiaries, joint ventures or unincorporated division of the Company. While the Employee is employed by the Company, the Company shall provide -2- 3 Employee with an office and support staff reasonably necessary for the proper performance of his duties hereunder and consistent with the past practices of the Company. 2.02 LIMITATION ON AUTHORITY OF EMPLOYEE. The authority of Employee as Chief Executive Officer of the Company shall have such limitations as shall be prescribed by the Directors. 2.03 BASE SALARY. The Company shall pay Employee a salary, determined on an annual basis by the Directors, for the services rendered by Employee to the Company while the Employee is employed by the Company (the "Base Salary"). Employee's Base Salary shall in no event be less than his annual salary in effect on May 26, 1995, as adjusted by any increases during the term of this Agreement, and shall be amortized for payment upon such dates as Company customarily pays its employees. 2.04 BONUS. While the Employee is employed by the Company, Employee shall be entitled to participate in any bonus plan approved by the Directors. 2.05 FRINGE BENEFITS. While the Employee is employed by the Company, Employee shall be entitled to such employee fringe benefits as are set forth in the Company's Standard Executive Benefits Program, with present provisions as set forth generally in Exhibit A attached hereto. Additionally, Employee shall be entitled to a Company vehicle approved by the Directors as to make and model. If Employee recognizes additional taxable income as a result of use of a Company vehicle, Company shall pay Employee such additional amount as shall be necessary to cover such additional tax on a grossed up basis. Employee's participation in any benefit program shall be at the same level of employee/employer contribution as has been set for all participants in such plan. 2.06 BUSINESS EXPENSES. While the Employee is employed by the Company, the Company will reimburse Employee for all reasonable travel and out-of-pocket expenses actually incurred by him, consistent with past practices of the Company, or as otherwise directed by the Directors for the purpose of and in connection with performing his services to the Company hereunder. Such reimbursement shall be made upon presentation by Employee to the Company of vouchers or other statements itemizing such expenses in reasonable detail. 2.07 DEATH OR DISABILITY. In the event of the death or Disability of Employee while the Employee is employed by the Company, the Company shall have no further obligations or liability to Employee hereunder, except to pay to Employee or Employee's estate (i) the amount of Employee's Base Salary in effect as of the date of death or Disability earned but unpaid to the date of Employee's death or Disability (including Base Salary for a period of ninety (90) days between date of Disability and the commencement of disability insurance benefits under the Company's policy), plus (ii) any unpaid bonus declared or to be declared by the Directors for prior periods and for the period in which his death or Disability shall occur (prorated to the date of such death or Disability), plus (iii) any unreimbursed business expenses incurred by Employee prior to his death or Disability and presented for payment pursuant to Section 2.06 hereof. -3- 4 2.08 VOLUNTARY TERMINATION BY EMPLOYEE OR TERMINATION FOR CAUSE. In the event the Employee voluntarily terminates his employment with the Company or the Employee's employment with the Company is terminated for Cause, the Company shall have no further obligations or liability to Employee hereunder, except to pay to Employee (in addition to and without regard for benefits, if any, due or to become due under any insurance, retirement or other similar plan of the Company or any other person or entity) (i) the amount of Employee's Base Salary in effect as of the date of termination earned but unpaid to the date of such termination, PLUS (ii) any unreimbursed business expenses incurred by Employee prior to such termination and presented for payment pursuant to Section 2.06 hereof. 2.09 TERMINATION NOT FOR CAUSE. In the event the Company terminates the Employee's employment with the Company for any reason other than as set forth in Sections 2.07 or 2.08 above, the Company shall have no further obligations or liability to Employee hereunder, except to pay to Employee (in addition to benefits, if any, due or to become due under any insurance, retirement or other similar plan of the company or any other person or entity) (i) the amount of Employee's Base Salary in effect as of the date of termination earned but unpaid to the date of such termination, PLUS (ii) any unpaid bonus declared or to be declared by the Directors for prior periods and for the period in which such termination shall occur (pro-rated to the date of such termination), PLUS (iii) any unreimbursed business expenses incurred by Employee prior to his termination and presented for payment pursuant to Section 2.06 hereof, PLUS (iv) amounts payable pursuant to this Agreement as if the Employee was still employed by the Company. 2.10 NOTICE AND POST-TERMINATION ARRANGEMENTS. (a) Employee may terminate Employee's employment under this Agreement only upon at least ninety (90) days' prior written notice. (b) Upon Company's termination of this Agreement under Section 2.08 or 2.09 HEREOF, Company may require that Employee remain actively on the job for a period ending ninety (90) days from the date of termination, with full Base Salary and fringe benefits (subject to Section 2.10(d)), but Employee shall have no right to remain on the job upon receipt of such notice. (c) Subject to Section 2.10(d), Company shall have the right to continue Employee's Base Salary and fringe benefits for a period designated by Company but not to exceed two (2) years subsequent to the effective date of (i) any termination under Section 2.08 or 2.09 or (ii) the expiration of the term of this Agreement; provided, however, that Company shall so notify Employee within ninety (90) days after the effective date of any termination under Section 2.08 or 2.09 hereof. (d) Company shall have the option at any time to make a lump sum payment of all amounts due Employee as Base Salary during any period or part thereof for which Company has elected to continue Employee's Base Salary under Section 2.10(c) hereof. -4- 5 ARTICLE III CONFIDENTIALITY AND NONCOMPETITION The parties acknowledge that the Company presently conducts business throughout the United States, Canada and Europe. Further, the parties acknowledge that Employee is extremely knowledgeable about Company's services, pricing, operations and customers. 3.01 CONFIDENTIALITY. Under no circumstances and at no time, during or after the Employee's employment with the Company, shall Employee in any manner whether directly or indirectly, use for his own benefit or the benefit of any other person, firm, entity or corporation or disclose, divulge, render or offer, any knowledge or information with respect to the confidential affairs or plans, trade secrets or know-how of the Company and its subsidiaries and affiliates, including, without limitation, any work product prepared by the Employee in the course of his employment with the Company ("Confidential Information"), except on behalf of the Company in the course of the proper performance of his duties hereunder. Employee acknowledges and agrees that any and all such Confidential Information will be received and held by him in a confidential capacity, and that disclosure of such Confidential Information would pose a direct threat to the Company in the hands of its competitors. For purposes of this section 3.01, the term "Confidential Information" shall not include any information which is generally available to the public other than as a result of a disclosure by Employee. 3.02 COVENANT NOT TO COMPETE. (a) During such time as the Employee is employed by the Company and for such period after termination or expiration of this Agreement as Company has elected to continue Employee's Base Salary under Section 2.10(c) or make a Lump Sum Payment under Section 2.10(d), Employee hereby agrees that Employee will not, singly, jointly, or as an employee, agent or partner of any partnership or as an officer, agent, employee, director, stockholder (except for not more than one percent (1%) of the outstanding stock of any company listed on a national securities exchange or actively traded in the over-the-counter market) or investor in any other corporation or entity, or as a consultant, advisor, or independent contractor to any such partnership, corporation or entity, or in any other capacity, directly, indirectly or beneficially,: (i) own, manage, operate, join, control, or participate in the ownership, management, operation, or control of, or work for (as an employee, agent, consultant, advisor or independent contractor), or permit the use of his name by, or provide financial or other assistance to, any person, partnership, corporation, or entity which is in direct or indirect competition within the United States or Canada (the "Protected Territory") with the business as conducted by the Company on the date hereof or at any time during Employee's employment with the Company; (ii) induce or attempt to induce any person who, on the date hereof or at any time during Employee's employment with the Company, is an employee of the Company, to terminate his or her employment with the Company, except in the proper performance of his duties hereunder; or -5- 6 (iii) induce or attempt to induce any person, business, or entity which is a contracting party with the Company or any of its affiliates, as of the date hereof or at any time during Employee's employment with the Company (a "Customer"), to terminate or modify in any way adverse to the interests of the Company, any written or oral agreement or understanding with the Company, except in the proper performance of his duties hereunder, and if any Customer attempts to induce or solicit the Employee to perform or provide any services for it other than in connection with the Company's or its affiliates' activities, Employee shall immediately reject such offer or solicitation and inform such Customer of the restrictions and obligations imposed on the Employee by this Agreement. (b) The Company and Employee agree that the covenants set forth in this Section 3.02 have been negotiated with advice of counsel in the course of the negotiation and execution of the Stock Purchase Agreement, which endeavor shall result in the receipt by Employee of greater tangible and intangible benefits than would otherwise accrue to him, and therefore the Company and Employee agree that these covenants should and shall be enforced to the fullest extent permitted by law. Accordingly, if in any judicial or similar proceeding a court or any similar judicial body shall determine that such covenant is unenforceable because it covers too extensive a geographical area or survives too long a period of time, or for any other reason, then the parties intend that such covenant shall be deemed to cover only such maximum geographical area and maximum period of time and shall otherwise be deemed to be limited in such manner as will permit enforceability by such court or similar body. 3.03 SPECIFIC PERFORMANCE. Employee agrees that his breach of the provisions of Sections 3.01 or 3.02 above will cause irreparable damage to the Company and that the recovery by the Company of money damages will not constitute an adequate remedy for such breach. Accordingly, Employee agrees that the provisions of Sections 3.01 or 3.02 above may be specifically enforced against him in addition to any other rights or remedies available to the Company on account of any such breach, and Employee expressly waives the defense in any equitable proceeding that there is an adequate remedy at law for any such breach. ARTICLE IV MISCELLANEOUS 4.01 TERMINATION OF PRIOR AGREEMENTS. This Agreement is intended to supersede all prior employment agreements between Company and Employee. By execution of this Agreement, Employee and Company hereby terminate that certain Employment Agreement between Company and Employee dated January 20, 1989 and all other prior employment agreements, which shall be of no further force and effect. 4.02 ASSIGNMENT. This Agreement is personal to Employee and shall not be assigned, transferred, hypothecated, pledged or in any way encumbered by him; PROVIDED, that the rights and obligations of Employee hereunder shall be binding upon, and inure to the benefit of, Employee's estate. This Agreement shall be binding upon, and inure to the benefit of, the Company's successors and assigns. -6- 7 4.03 AMENDMENT. This Agreement may not be amended, modified or supplemented in any respect except by written agreement entered into by the parties hereto. 4.04 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts without resort to its conflict of laws rules. 4.05 COUNTERPART; HEADINGS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The headings of the Articles and Sections of this Agreement are inserted for convenience only and shall not constitute a part hereof. 4.06 ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties pertaining to the subject matter contained in it. 4.07 NOTICES. All notices given hereunder shall be in writing and shall be delivered personally or sent by prepaid registered or certified mail, return receipt requested, or by nationally recognized overnight courier service, and addressed as follows: If to the Company: Simonds Industries, Inc. 135 Intervale Road Fitchburg, MA 01420 With a copy to each of: SI Holding Corporation c/o Fleet Venture Resources, Inc. 111 Westminster Street Providence, RI 02903 Attention: Habib Y. Gorgi, Executive Vice President Hinckley, Allen & Snyder 1500 Fleet Center Providence, RI 02903 Attention: Richard G. Small, Esq. If to Employee: Ross B. George Chief Executive Officer Simonds Industries, Inc. 135 Intervale Road Fitchburg, MA 01420 -7- 8 All notices shall be deemed to be given on the date received at the address of the addressee, or, if delivered personally, on the date delivered. 4.08 SEVERABILITY. Any provision of this Agreement which is held by a court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction(s) shall be, as to auch jurisdiction(s), ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. IN WITNESS WHEREOF, Employee has executed this Agreement and the Company has caused this Agreement to be executed as an instrument under seal as of the day and year first above written. SIMONDS INDUSTRIES, INC. By: -------------------------------- Title: Executive Vice President/CFO ------------------------------- Ross B. George -8- 9 EXHIBIT A [Standard Executive Benefits Program] 10 FIRST AMENDMENT TO EMPLOYMENT AND NON-COMPETITION AGREEMENT This First Amendment to that certain Employment and Non-Competition Agreement (the "Agreement"), dated as of May 26, 1995, by and between Simonds Industries Inc., a Delaware corporation (the "Company") as successor by merger to the company formerly known as Simonds Industries Inc. ("Old Simonds"), and Ross B. George of Fitchburg, Massachusetts ("Employee"). W I T N E S S E T H: WHEREAS, the Company is the successor by merger to Old Simonds, and as a result thereof is a party to the Agreement; and WHEREAS, the Company and the Employee wish to amend the Agreement in the manner set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree to amend the Agreement as follows: 1. Section 1.02 is amended in its entirety to provide as follows: "1.02 CONTRACT TERM. "Contract Term" shall mean the period commencing on May 26, 1995 through May 25, 2000, and continuing thereafter until terminated as set forth herein." 2. Section 2.09 is amended in its entirety to provide as follows: "2.09 TERMINATION NOT FOR CAUSE. At any time after May 25, 2000, the Company may terminate the Employee's employment with the Company for any reason other than as set forth in Sections 2.07 or 2.08 above, and have no further obligations or liability to Employee hereunder, except (A) to pay to Employee (in addition to benefits, if any, due or to become due under any insurance, retirement or other similar plan of the Company or any other person or entity) (i) the amount of Employee's Base Salary in effect as of the date of termination for a period of one year after the date of such termination payable as if Employee was still employed by the Company, PLUS, (ii) any unpaid bonus declared or to be declared by the Directors for prior periods, PLUS (iii) any unreimbursed business expenses incurred by Employee prior to his termination and presented for payment pursuant to Section 2.06 hereof, and (B) to provide Employee continued coverage under the Company's Standard Executive Benefits Program in effect with respect to 11 Employee as of the date of termination for a period of one year after the date of such termination." 3. Section 2.10(b) is amended in its entirety to provide as follows: "(b) Upon Company's termination of this Agreement under Sections 2.08 or 2.09, Company may require that Employee remain actively on the job for a period ending ninety (90) days from the date of termination, with full Base Salary and fringe benefits pursuant to Section 2.09 (subject to Section 2.10(d)), but Employee shall have no right to remain on the job upon receipt of such notice." 4. Section 4.07 is amended in its entirety to provide as follows: "4.07 NOTICES. All notices given hereunder shall be in writing and shall be delivered personally or sent by prepaid registered or certified mail, return receipt requested, or by nationally recognized overnight courier service, and addressed as follows: If to the Company: Simonds Industries Inc. 135 Intervale Road Fitchburg, MA 01420 With a copy to each of: Fleet Venture Resources, Inc. 50 Kennedy Plaza, Suite 1200 Providence, RI 02903 Attention: Habib Y. Gorgi, President Edwards & Angell, LLP One BankBoston Plaza Providence, RI 02903 Attention: Richard G. Small, Esq. If to Employee: Ross B. George Chief Executive Officer Simonds Industries Inc. 135 Intervale Road Fitchburg, MA 01420 -2- 12 All notices shall be deemed to be given on the date received at the address of the addressee, or, if delivered personally, on the date delivered." IN WITNESS WHEREOF, Employee has executed this First Amendment to the Agreement and the Company has caused this Agreement to be executed as an instrument under seal as of this 7th day of July, 1998. Simonds Industries Inc. By: _________________________________ Title: ______________________________ _____________________________________ Ross B. George -3- 13 EXHIBIT A --------- [Standard Executive Benefits Program] EX-10.2 22 EMPLOYMENT & NON COMPETITION AGREEMENT-J.SYLVIA 1 EXHIBIT 10.2 EMPLOYMENT AND NON-COMPETITION AGREEMENT EMPLOYMENT AND NON-COMPETITION AGREEMENT, dated as of May 26, 1995, by and between SIMONDS INDUSTRIES, INC., a Delaware corporation (the "Company"), and Joseph L. Sylvia of Princeton, Massachusetts ("Employee"). W I T N E S S E T H: WHEREAS, the Company, SI Holding Corporation ("Holding"), the Company's common stockholders (the "Stockholders") (including Employee), and certain other parties, have entered into that certain Stock Purchase Agreement dated as of May 26, 1995 (the "Stock Purchase Agreement") pursuant to which Holding has agreed to purchase from the Stockholders all of the outstanding common stock of the Company; and WHEREAS, the closing of the transactions under the Stock Purchase Agreement is taking place on the date hereof; and WHEREAS, the parties hereto acknowledge that Holding is making its investment in the Company in part in reliance upon the Employee's expertise and knowledge in the industries in which the Company shall conduct its business; and WHEREAS, Employee has agreed to enter into this Agreement in order to assure company of Employee's continued expertise and involvement in the conduct of the Company's business, subject to the terms and conditions as hereinafter provided; and WHEREAS, the Company desires to employ Employee as Chief Financial Officer/Executive Vice President of the Company and Employee desires to be employed by the Company in such capacity, upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.01 CAUSE. Cause shall mean (a) an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against the Company by Employee, as determined by the Company's Board of Directors in its reasonable discretion, (b) any intentional, knowing or reckless action or inaction by Employee which causes the breach of a representation, warranty or covenant by the Company or any Management Stockholder under any of the Related Agreements (as such terms are defined in the Stockholder Agreement), (c) conviction of Employee by a court of competent jurisdiction of or a plea of guilty or nolo contendere by Employee to any felony or crime involving moral turpitude, (d) the habitual drug addiction or intoxication of Employee, (e) the willful failure or refusal of Employee to perform his duties under the terms of his employment with the Company, including the willful failure or refusal of Employee to follow the instructions 2 of the Company's Board of Directors, (f) the breach by Employee of any terms of this Agreement (including, without limitation, the breach of any non-competition, non-disclosure, or other restrictive covenants), or (g) the breach by Employee of any of the covenants, terms, and provisions of Sections 3.1, 5 and 7 of the Stockholder Agreement. 1.02 CONTRACT TERM. "Contract Term" shall mean the period commencing on the Effective Date and expiring five (5) years after the Effective Date. 1.03 DIRECTORS. "Directors" shall mean the Board of Directors of the Company. 1.04 DISABILITY. Employee shall be deemed to have a disability if an independent medical doctor (selected by the Company's health or disability insurer) certifies that such Employee has for six (6) months, consecutive or non-consecutive, in any twelve (12) month period been disabled in such a manner that he is unable to perform the essential functions of his then current position. Any refusal by Employee to submit to a medical examination for the purpose of certifying disability shall be deemed to constitute conclusive evidence of such Employee's disability. 1.05. EFFECTIVE DATE. "Effective Date" shall mean the date of this Agreement. 1.06 STOCKHOLDER AGREEMENT. "Stockholder Agreement" means that certain stockholder agreement by and among the common shareholders of Holding dated as of May 26, 1995. ARTICLE II EMPLOYMENT AND SERVICES 2.01 CAPACITY AND SERVICES. The Company hereby employs Employee to serve in the capacity of Chief Financial Officer/Executive Vice President of the Company, and Employee hereby accepts such employment, upon the terms and conditions set forth in this Agreement. During the period the Employee is employed by the Company, Employee shall devote substantially all of his attention and energies on a full-time basis to the business and affairs of the Company and use his best efforts to promote its interests; provided, however, that Employee may devote reasonable periods of time for personal purposes, trade associations and charitable activities consistent with past practices so long as such purposes or activities do not (i) cause or result in a breach of Article III hereof or (ii) adversely affect the interests of the Company or materially detract from or interfere with the performance of the services otherwise required to be performed by Employee as set forth herein. While the Employee is employed by the Company, Employee shall neither accept nor hold any other employment without approval of the Directors. In his capacity as Chief Financial Officer/Executive Vice President of the Company, Employee shall be responsible for the supervision and control over, and responsibility for, the financial affairs and operations of the Company, and shall have such other powers and duties as determined by the Directors from time to time. Such services to be provided by Employee hereunder shall be provided for the benefit of the Company without regard to whether any of the -2- 3 Company's operations are conducted directly by the Company, through Holding, or through any subsidiaries, joint ventures or unincorporated division of the Company. While the Employee is employed by the Company, the Company shall provide Employee with an office and support staff reasonably necessary for the proper performance of his duties hereunder and consistent with the past practices of the Company. 2.02 LIMITATION ON AUTHORITY OF EMPLOYEE. The authority of Employee as Chief Financial Officer/Executive Vice President of the Company shall have such limitations as shall be prescribed by the Directors. 2.03 BASE SALARY. The Company shall pay Employee a salary, determined on an annual basis by the Directors, for the services rendered by Employee to the Company while the Employee is employed by the Company (the "Base Salary"). Employee's Base Salary shall in no event be less than his annual salary in effect on May 26, 1995, as adjusted by any increases during the term of this Agreement, and shall be amortized for payment upon such dates as Company customarily pays its employees. 2.04 BONUS. While the Employee is employed by the Company, Employee shall be entitled to participate in any bonus plan approved by the Directors. 2.05 FRINGE BENEFITS. While the Employee is employed by the Company, Employee shall be entitled to such employee fringe benefits as are set forth in the Company's Standard Executive Benefits Program, with present provisions as set forth generally in EXHIBIT A attached hereto. Additionally, Employee shall be entitled to a Company vehicle approved by the Directors as to make and model. If Employee recognizes additional taxable income as a result of use of a Company vehicle, Company shall pay Employee such additional amount as shall be necessary to cover such additional tax on a grossed up basis. Employee's participation in any benefit program shall be at the same level of employee/employer contribution as has been set for all participants in such plan. 2.06 BUSINESS EXPENSES. While the Employee is employed by the Company, the Company will reimburse Employee for all reasonable travel and out-of-pocket expenses actually incurred by him, consistent with past practices of the Company, or as otherwise directed by the Directors for the purpose of and in connection with performing his services to the Company hereunder. Such reimbursement shall be made upon presentation by Employee to the Company of vouchers or other statements itemizing such expenses in reasonable detail. 2.07 DEATH OR DISABILITY. In the event of the death or Disability of Employee while the Employee is employed by the Company, the Company shall have no further obligations or liability to Employee hereunder, except to pay to Employee or Employee's estate (i) the amount of Employee's Base Salary in effect as of the date of death or Disability earned but unpaid to the date of Employee's death or Disability (including Base Salary for a period of ninety (90) days between date of Disability and the commencement of disability insurance benefits under the Company's policy), PLUS (ii) any unpaid bonus declared or to be declared by the Directors for prior periods and for the period in which his death or Disability shall occur (prorated to the date -3- 4 of such death or Disability), PLUS (iii) any unreimbursed business expenses incurred by Employee prior to his death or Disability and presented for payment pursuant to Section 2.06 hereof. 2.08 VOLUNTARY TERMINATION BY EMPLOYEE OR TERMINATION FOR CAUSE. In the event the Employee voluntarily terminates his employment with the Company or the Employee's employment with the Company is terminated for Cause, the Company shall have no further obligations or liability to Employee hereunder, except to pay to Employee (in addition to and without regard for benefits, if any, due or to become due under any insurance, retirement or other similar plan of the Company or any other person or entity) (i) the amount of Employee's Base Salary in effect as of the date of termination earned but unpaid to the date of such termination, PLUS (ii) any unreimbursed business expenses incurred by Employee prior to such termination and presented for payment pursuant to Section 2.06 hereof. 2.09 TERMINATION NOT FOR CAUSE. In the event the Company terminates the Employee's employment with the Company for any reason other than as set forth in Sections 2.07 or 2.08 above, the Company shall have no further obligations or liability to Employee hereunder, except to pay to Employee (in addition to benefits, if any, due or to become due under any insurance, retirement or other similar plan of the company or any other person or entity) (i) the amount of Employee's Base Salary in effect as of the date of termination earned but unpaid to the date of such termination, PLUS (ii) any unpaid bonus declared or to be declared by the Directors for prior periods and for the period in which such termination shall occur (pro-rated to the date of such termination), PLUS (iii) any unreimbursed business expenses incurred by Employee prior to his termination and presented for payment pursuant to Section 2.06 hereof, PLUS (iv) amounts payable pursuant to this Agreement as if the Employee was still employed by the Company. 2.10 NOTICE AND POST-TERMINATION ARRANGEMENTS. (a) Employee may terminate Employee's employment under this Agreement only upon at least ninety (90) days' prior written notice. (b) Upon Company's termination of this Agreement under Section 2.08 or 2.09 hereof, Company may require that Employee remain actively on the job for a period ending ninety (90) days from the date of termination, with full Base Salary and fringe benefits (subject to Section 2.10(d)), but Employee shall have no right to remain on the job upon receipt of such notice. (c) Subject to Section 2.10(d), Company shall have the right to continue Employee's Base Salary and fringe benefits for a period designated by Company but not to exceed two (2) years subsequent to the effective date of (i) any termination under Section 2.08 or 2.09 or (ii) the expiration of the term of this Agreement; provided, however, that Company shall so notify Employee within ninety (90) days after the effective date of any termination under Section 2.08 or 2.09 hereof. -4- 5 (d) Company shall have the option at any time to make a lump sum payment of all amounts due Employee as Base Salary during any period or part thereof for which Company has elected to continue Employee's Base Salary under Section 2.10(c) hereof. ARTICLE III CONFIDENTIALITY AND NONCOMPETITION The parties acknowledge that the Company presently conducts business throughout the United States, Canada and Europe. Further, the parties acknowledge that Employee is extremely knowledgeable about Company's services, pricing, operations and customers. 3.01 CONFIDENTIALITY. Under no circumstances and at no time, during or after the Employee's employment with the Company, shall Employee in any manner whether directly or indirectly, use for his own benefit or the benefit of any other person, firm, entity or corporation or disclose, divulge, render or offer, any knowledge or information with respect to the confidential affairs or plans, trade secrets or know-how of the Company and its subsidiaries and affiliates, including, without limitation, any work product prepared by the Employee in the course of his employment with the Company ("Confidential Information"), except on behalf of the Company in the course of the proper performance of his duties hereunder. Employee acknowledges and agrees that any and all such Confidential Information will be received and held by him in a confidential capacity, and that disclosure of such Confidential Information would pose a direct threat to the Company in the hands of its competitors. For purposes of this Section 3.01, the term "Confidential Information" shall not include any information which is generally available to the public other than as a result of a disclosure by Employee. 3.02 COVENANT NOT TO COMPETE. (a) During such time as the Employee is employed by the Company and for such period after termination or expiration of this Agreement as Company has elected to continue Employee's Base Salary under Section 2.10(c) or make a Lump Sum Payment under Section 2.10(d), Employee hereby agrees that Employee will not, singly, jointly, or as an employee, agent or partner of any partnership or as an officer, agent, employee, director, stockholder (except for not more than one percent (1%) of the outstanding stock of any company listed on a national securities exchange or actively traded in the over-the-counter market) or investor in any other corporation or entity, or as a consultant, advisor, or independent contractor to any such partnership, corporation or entity, or in any other capacity, directly, indirectly or beneficially: (i) own, manage, operate, join, control, or participate in the ownership, management, operation, or control of, or work for (as an employee, agent, consultant, advisor or independent contractor), or permit the use of his name by, or provide financial or other assistance to, any person, partnership, corporation, or entity which is in direct or indirect competition within the United States or Canada (the "Protected Territory") with the business as conducted by the -5- 6 Company on the date hereof or at any time during Employee's employment with the Company; (ii) induce or attempt to induce any person who, on the date hereof or at any time during Employee's employment with the Company, is an employee of the Company, to terminate his or her employment with the Company, except in the proper performance of his duties hereunder; or (iii) induce or attempt to induce any person, business, or entity which is a contracting party with the Company or any of its affiliates, as of the date hereof or at any time during Employee's employment with the Company (a "Customer"), to terminate or modify in any way adverse to the interests of the Company, any written or oral agreement or understanding with the Company, except in the proper performance of his duties hereunder, and if any Customer attempts to induce or solicit the Employee to perform or provide any services for it other than in connection with the Company's or its affiliates' activities, Employee shall immediately reject such offer or solicitation and inform such Customer of the restrictions and obligations imposed on the Employee by this Agreement. (b) The Company and Employee agree that the covenants set forth in this Section 3.02 have been negotiated with advice of counsel in the course of the negotiation and execution of the Stock Purchase Agreement, which endeavor shall result in the receipt by Employee of greater tangible and intangible benefits than would otherwise accrue to him, and therefore the Company and Employee agree that these covenants should and shall be enforced to the fullest extent permitted by law. Accordingly, if in any judicial or similar proceeding a court or any similar judicial body shall determine that such covenant is unenforceable because it covers too extensive a geographical area or survives too long a period of time, or for any other reason, then the parties intend that such covenant shall be deemed to cover only such maximum geographical area and maximum period of time and shall otherwise be deemed to be limited in such manner as will permit enforceability by such court or similar body. 3.03 SPECIFIC PERFORMANCE. Employee agrees that his breach of the provisions of Sections 3.01 or 3.02 above will cause irreparable damage to the Company and that the recovery by the Company of money damages will not constitute an adequate remedy for such breach. Accordingly, Employee agrees that the provisions of Sections 3.01 or 3.02 above may be specifically enforced against him in addition to any other rights or remedies available to the Company on account of any such breach, and Employee expressly waives the defense in any equitable proceeding that there is an adequate remedy at law for any such breach. ARTICLE IV MISCELLANEOUS 4.01 TERMINATION OF PRIOR AGREEMENTS. This Agreement is intended to supersede all prior employment agreements between Company and Employee. By execution of this -6- 7 Agreement, Employee and Company hereby terminate that certain Employment Agreement between Company and Employee dated January 20, 1989 and all other prior employment agreements, which shall be of no further force and effect. 4.02 ASSIGNMENT. This Agreement is personal to Employee and shall not assigned, transferred, hypothecated, pledged or in any way encumbered by him; PROVIDED, that the rights and obligations of Employee hereunder shall be binding upon, and inure to the benefit of, Employee's estate. This Agreement shall be binding upon, and inure to the benefit of, the Company's successors and assigns. 4.03 AMENDMENT. This Agreement may not be amended, modified or supplemented in any respect except by written agreement entered into by the parties hereto. 4.04 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts without resort to its conflict of laws rules. 4.05 COUNTERPART; HEADINGS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The headings of the Articles and Sections of this Agreement are inserted for convenience only and shall not constitute a part hereof. 4.06 ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties pertaining to the subject matter contained in it. 4.07 NOTICES. All notices given hereunder shall be in writing and shall be delivered personally or sent by prepaid registered or certified mail, return receipt requested, or by nationally recognized overnight courier service, and addressed as follows: If to the Company: Simonds Industries, Inc. 135 Intervale Road Fitchburg, MA 01420 With a copy to each of: SI Holding Corporation c/o Fleet Venture Resources, Inc. 111 Westminster Street Providence, RI 02903 Attention: Habib Y. Gorgi, Executive Vice President -7- 8 Hinckley, Allen & Snyder 1500 Fleet Center Providence, RI 02903 Attention: Richard G. Small, Esq. If to Employee: Joseph L. Sylvia Chief Financial Officer/Executive Vice President Simonds Industries, Inc. 135 Intervale Road Fitchburg, MA 01420 All notices shall be deemed to be given on the date received at the address of the addressee, or, if delivered personally, on the date delivered. 4.08 SEVERABILITY. Any provision of this Agreement which is held by a court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. IN WITNESS WHEREOF, Employee has executed this Agreement and the Company has caused this Agreement to be executed as an instrument under seal as of the day and year first above written. SIMONDS INDUSTRIES, INC. By: --------------------- Title: President/CEO ------------------------ Joseph L. Sylvia -8- 9 EXHIBIT A [Standard Executive Benefits Program] -9- 10 FIRST AMENDMENT TO EMPLOYMENT AND NON-COMPETITION AGREEMENT This First Amendment to that certain Employment and Non-Competition Agreement (the "Agreement), dated as of May 26, 1995, by and between Simonds Industries Inc., a Delaware corporation (the "Company") as successor by merger to the company formerly known as Simonds Industries Inc. ("Old Simonds"), and Joseph L. Sylvia of Fitchburg, Massachusetts ("Employee"). W I T N E S S E T H: WHEREAS, the Company is the successor by merger to Old Simonds, and as a result thereof is a party to the Agreement; and WHEREAS, the Company and the Employee wish to amend the Agreement in the manner set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree to amend the Agreement as follows: 1. Section 1.02 is amended in its entirety to provide as follows: "1.02 CONTRACT TERM. "Contract Term" shall mean the period commencing on May 26, 1995 through May 25, 2000, and continuing thereafter until terminated as set forth herein." 2. Section 2.09 is amended in its entirety to provide as follows: "2.09 TERMINATION NOT FOR CAUSE. After May 25, 2000, the Company may terminate the Employee's employment with the Company for any reason other than as set forth in Sections 2.07 or 2.08 above, and have no further obligations or liability to Employee hereunder, except (A) to pay to Employee (in addition to benefits, if any, due or to become due under any insurance, retirement or other similar plan of the Company or any other person or entity) (i) the amount of Employee's Base Salary in effect as of the date of termination for a period of one year after the date of such termination payable as if Employee was still employed by the Company, PLUS, (ii) any unpaid bonus declared or to be declared by the Directors for prior periods, PLUS (iii) any unreimbursed business expenses incurred by Employee prior to his termination and presented for payment pursuant to Section 2.06 hereof, and (B) to provide Employee continued coverage under the Company's Standard Executive Benefits Program in effect with respect to Employee as of the date of termination for a period of one year after the date of such termination." 11 3. Section 2.10(b) is amended in its entirety to provide as follows: "(b) Upon Company's termination of this Agreement under Sections 2.08 or 2.09, Company may require that Employee remain actively on the job for a period ending ninety (90) days from the date of termination, with full Base Salary and fringe benefits pursuant to Section 2.09 (subject to Section 2.10(d)), but Employee shall have no right to remain on the job upon receipt of such notice." 4. Section 4.07 is amended in its entirety to provide as follows: "4.07 NOTICES. All notices given hereunder shall be in writing and shall be delivered personally or sent by prepaid registered or certified mail, return receipt requested, or by nationally recognized overnight courier service, and addressed as follows: If to the Company: Simonds Industries Inc. 135 Intervale Road Fitchburg, MA 01420 With a copy to each of: Fleet Venture Resources, Inc. 50 Kennedy Plaza, Suite 1200 Providence, RI 02903 Attention: Habib Y. Gorgi, President Edwards & Angell, LLP One BankBoston Plaza Providence, RI 02903 Attention: Richard G. Small, Esq. If to Employee: Joseph L. Sylvia Executive Vice President and Chief Financial Officer Simonds Industries Inc. 135 Intervale Road Fitchburg, MA 01420 -2- 12 All notices shall be deemed to be given on the date received at the address of the addressee, or, if delivered personally, on the date delivered." IN WITNESS WHEREOF, Employee has executed this First Amendment to the Agreement and the Company has caused this Agreement to be executed as an instrument under seal as of the 7th day of July, 1998. Simonds Industries Inc. By: _________________________________ Title: ______________________________ _____________________________________ Joseph L. Sylvia -3- 13 EXHIBIT A --------- [Standard Executive Benefits Program] EX-10.3 23 EMPLOYMENT AGREEMENT WITH R. DEEDRICK 1 EXHIBIT 10.3 SIMONDS INDUSTRIES INC. EMPLOYMENT AGREEMENT This Agreement is made this 1st day of June, 1993, by and between Simonds Industries Inc., a corporation organized and existing under the laws of Delaware ("Company") with principal offices in Fitchburg, Massachusetts, and Robert Deedrick, an individual with principal residency in Massachusetts ("Employee"). Company hereby agrees to employ Employee, and Employee hereby accepts such employment with Company upon the following terms and conditions: 1.0 POSITION AND TITLE. Employee's job title is Vice President of Manufacturing. He is directly responsible to the President. 2.0 TERM. The term of this Agreement shall commence on the date hereof and shall continue evergreen hereafter until terminated by either party as provided hereinafter; provided, however, that the provisions of Paragraph 7 shall survive the termination of this Agreement. 3.0 BASE COMPENSATION. As Base Compensation, Employee shall be paid his current rate of compensation upon such dates as Company customarily pays its executive employees. Employee's Base Compensation shall be reviewed in accordance with standard corporate policy and procedure. 4.0 BONUS. Employee shall be entitled to participate in any Executive Bonus Plan approved by the Board of Directors for Company executives in general. While there are no guarantees that there will be a bonus plan in any particular year, or that any bonus plan will be funded at any particular level, Employee is to participate in any such plan without discrimination. 5.0 BENEFITS. Employee shall be entitled to participate in any Executive Benefits Program approved by the Board of Directors for Company executives in general. Additionally, Employee shall be entitled to a Company vehicle approved by the President as to make, model, and equipment. Employee's participation in any benefit program shall be at the same level of employee/employer contribution as has been set for all participants in such plans, in accordance with applicable law. 6.0 TERMINATION (a) Employee may terminate Employee's employment under this Agreement only upon at least ninety (90) days' prior written notice given to Company. (b) Company may terminate this Agreement only upon at least one (1) year's prior written notice given to Employee. Company may require that Employee remain 2 actively on the job for a period ending ninety (90) days from the date of such notice, but Employee shall have no right to remain on the job upon receipt of such notice. (c) Company and Employee agree that these termination provisions are fair and reasonable, and that any termination hereof in accordance herewith shall be without recourse against the terminating party, subject to the provisions of section 7.0, et seq., hereof. 7.0 CONFIDENTIALITY; NON-COMPETITION. Employee acknowledges and agrees that his position with the Company is unique and of singular importance to the success of the Company. In connection with his performance of duties hereunder, Employee will necessarily be entrusted with information which are confidential and proprietary trade secrets of the Company. Employee acknowledges and agrees that the release of any such information or materials to a third party, without the express written consent of the company, would cause immediate and irreparable harm to the Company. 7.1 Employee shall not disclose to any third party any information or materials of the Company to the extent that same are proprietary to, or the "trade secrets" of the Company without limitation as to time. 7.2 Employee shall not compete, directly or indirectly, in North America, as an employee, agent, consultant, owner, partner or otherwise in any business entity, in the business engaged in by the Company and shall not offer to deal with (in his individual capacity or on behalf of any entity in which he is a shareholder, partner or otherwise has an ownership interest or by which he is employed), directly or indirectly, nor deal with, directly or indirectly, any entity or product which competes with, or materially replicates, any product or service (or is a reasonable extension of such product or service) currently offered by Company, for so long as Employee receives compensation and benefits from Company and for a period of one year thereafter (provided, however, that nothing contained herein shall prevent or restrict Employee from owning or acquiring, directly or indirectly, not more than five percent (5%) of the securities of any publicly traded company for the sole purpose of passive investment); and 7.3 Employee shall not solicit the employees or former employees of the Company for the purpose of competing with the Company for so long as Employee is restricted from competing with Company pursuant to the preceding paragraph. 8.0 MISCELLANEOUS 8.1 This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of Massachusetts, whose courts shall be the exclusive judicial forum for any and all disputes arising herefrom. -2- 3 8.2 This Agreement constitutes the sole and entire, integrated agreement by and between the parties with respect to the subject matter hereof, and the parties agree that upon the execution and effectiveness of this Agreement, all prior understandings and agreements (whether written or oral) between Company and Employee regarding Employee's employment by Company shall automatically be terminated. It may not be modified except in a writing signed by both parties. Rights may not be assigned, nor duties delegated, hereunder except in a writing signed by both parties. 8.3 The provisions of the Agreement are intended to be severable, and should any court of competent jurisdiction find unenforceable any provision(s) hereof, the same shall be stricken and the remaining provisions shall continue to be the enforceable agreement of the parties. 8.4 All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service, if served personally on the party to whom notice is to be given, or on the third day after mailing, if mailed to the party to whom notice is to be given, by registered or certified first class mail, postage prepaid, return receipt requested, or on the date of telecopying, if sent by telecopy, or on the day after mailing, if mailed by overnight courier service and properly addressed. IN WITNESS WHEREOF, the parties have hereunto subscribed on the date first above written. Simonds Industries Inc. by: /s/ Ross B. George /s/ Robert Deedrick ------------------ ------------------- Ross B. George Robert Deedrick President Employee -3- EX-10.4 24 EMPLOYMENT AGREEMENT WITH J. PALMER 1 EXHIBIT 10.4 SIMONDS INDUSTRIES INC. EMPLOYMENT AGREEMENT This Agreement is made this 31st day of March, 1995, by and between Simonds Industries Inc., a corporation organized and existing under the laws of Delaware ["Company"] with principal offices in Fitchburg, Massachusetts, and James Palmer, an individual with principal residency in Massachusetts ["Employee"]. Company hereby agrees to employ Employee, and Employee hereby accepts such employment with Company upon the following terms and conditions: 1.0 POSITION AND TITLE. Employee's job title is Vice President of Sales and Marketing - Metal Products. He is directly responsible to the President. 2.0 TERM. The term of this Agreement shall commence on the date hereof and shall continue evergreen hereafter until terminated by either party as provided hereinafter; provided, however, that the provisions of Paragraph 7 shall survive the termination of this Agreement. 3.0 BASE COMPENSATION. As Base Compensation, Employee shall be paid an annualized salary of $103,500 upon such dates as Company customarily pays its executive employees. Employee's Base Compensation shall be reviewed in accordance with standard corporate policy and procedure. 4.0 BONUS. Employee shall be entitled to participate in any Executive Bonus Plan approved by the board of directors for Company executives in general. While there are no guarantees that there will be a bonus plan in any particular year, or that any bonus plan will be funded at any particular level, Employee is to participate in any such plan without discrimination. 5.0 BENEFITS. Employee shall be entitled to participate in any Executive Benefits Program approved by the board of directors for Company executives in general. Additionally, Employee shall be entitled to a Company vehicle approved by the President as to make, model and equipment. Employee's participation in any benefit program shall be at the same level of employee/employer contribution as has been set for all participants in such plans, in accordance with applicable law. 6.0 TERMINATION. (a) Employee may terminate Employee's employment under this Agreement only upon at least ninety (90) days' prior written notice given to Company. (b) Company may terminate this Agreement only upon at least one (1) year's prior written notice given to Employee. Company may require that Employee remain actively on the job for a period ending ninety (90) days from the date of such notice, but Employee shall have no right to remain on the job upon receipt of such notice. 2 (c) Company and Employee agree that these termination provisions are fair and reasonable, and that any termination hereof in accordance herewith shall be without recourse against the terminating party, subject to the provisions of section 7.0, et seq., hereof. 7.0 CONFIDENTIALITY; NON-COMPETITION. Employee acknowledges and agrees that his position with the Company is unique and of singular importance to the success of the Company. In connection with his performance of duties hereunder, Employee will necessarily be entrusted with information which are confidential and proprietary trade secrets of the Company. Employee acknowledges and agrees that the release of any such information or materials to a third party, without the express written consent of the Company, would cause immediate and irreparable harm to the Company. 7.1 Employee shall not disclose to any third party any information or materials of the Company to the extent that same are proprietary to, or the "trade secrets" of the Company without limitation as to time. 7.2 Employee shall not compete, directly or indirectly, in North America, as an employee, agent, consultant, owner, partner or otherwise in any business entity, in the business engaged in by the Company and shall not offer to deal with (in his individual capacity or on behalf of any entity in which he is a shareholder, partner or otherwise has an ownership interest or by which he is employed), directly or indirectly, nor deal with, directly or indirectly, any entity or product which competes with, or materially replicates, any product or service (or is a reasonable extension of such product or service) currently offered by Company, for so long as Employee receives compensation and benefits from Company and for a period of one year thereafter (provided, however, that nothing contained herein shall prevent or restrict Employee from, owning or acquiring, directly or indirectly, not more than five percent (5%) of the securities of any publicly traded company for the sole purpose of passive investment); and 7.3 Employee shall not solicit the employees or former employees of the Company for the purpose of competing with the Company for so long as Employee is restricted from competing with Company pursuant to the preceding paragraph. 8.0 MISCELLANEOUS. 8.1 This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of Massachusetts, whose courts shall be the exclusive judicial forum for any and all disputes arising herefrom. 8.2 This Agreement constitutes the sole and entire, integrated agreement by and between the parties with respect to the subject matter hereof, and the parties agree that upon the execution and effectiveness of this Agreement, all prior understandings and agreements (whether written or oral) between Company and Employee regarding Employee's employment by Company shall automatically be terminated. It may not be modified except in a writing signed by both parties. Rights may not be assigned, nor duties delegated, hereunder except in a writing signed by both parties. -2- 3 8.3 The provisions of this Agreement are intended to be severable, and should any court of competent jurisdiction find unenforceable any provision(s) hereof, the same shall be stricken and the remaining provisions shall continue to be the enforceable agreement of the parties. 8.4 All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service, if served personally on the party to whom notice is to be given, or on the third day after mailing, if mailed to the party to whom notice is to be given, by registered or certified first class mail, postage prepaid, return receipt requested, or on the date of telecopying, if sent by telecopy, or on the day after mailing, if mailed by overnight courier service and properly addressed. IN WITNESS WHEREOF, the parties have hereunto subscribed on the date first above-written, Simonds Industries Inc. By ___________________________ _______________________ Ross B. George James Palmer President Employee -3- EX-10.5 25 EMPLOYMENT AGREEMENT WITH R. RICHARD 1 EXHIBIT 10-5 SIMONDS INDUSTRIES INC. EMPLOYMENT AGREEMENT This Agreement is made this 7th day of May, 1992, by and between Simonds Industries Inc., a corporation organized and existing under the laws of Delaware ["Company"] with principal offices in Fitchburg, Massachusetts, and Roland Richard, an individual with principal residency in Massachusetts ["Employee"]. Company hereby agrees to employ Employee, and Employee hereby accepts such employment with Company upon the following terms and conditions: 1.0 POSITION AND TITLE. Employee's job title shall be Vice President (Wood). He shall be directly responsible to the President. 2.0 TERM. The term of this Agreement shall commence on the date hereof and shall continue evergreen hereafter until terminated by either party as provided hereinafter; provided, however, that the provisions of Paragraph 7 shall survive the termination of this Agreement. 3.0 BASE COMPENSATION. As Base Compensation, Employee shall be paid his current rate of compensation upon such dates as Company customarily pays its executive employees. Employee's Base Compensation shall be reviewed and set in accordance with standard corporate policy and procedure. 4.0 BONUS. Employee shall be entitled to participate in any Executive Bonus Plan approved by the board of directors for Company executives in general. While there are no guarantees that there will be a bonus plan in any particular year, or that any bonus plan will be funded at any particular level, Employee is to participate in any such plan without discrimination. 5.0 BENEFITS. Employee shall be entitled to participate in any Executive Benefits Program approved by the board of directors for Company executives in general. Additionally, Employee shall be entitled to a Company vehicle approved by the President as to make, model and equipment. Employee's participation in any benefit program shall be at the same level of employee/employer contribution as has been set for all participants in such plans, in accordance with applicable law. 6.0 TERMINATION. (a) Employee may terminate Employee's employment under this Agreement only upon at least ninety (90) days' prior written notice given to Company. (b) Company may terminate this Agreement only upon at least one (1) year's prior written notice given to Employee. Company may require that Employee remain actively on the job for a period ending ninety (90) days from the date of such notice, but Employee shall have no right to remain on the job upon receipt of such notice. 2 (c) Company and Employee agree that these termination provisions are fair and reasonable, and that any termination hereof, in accordance herewith, shall be without recourse against the terminating party, subject to the provisions of section 7.0, et seq., hereof. 7.0 CONFIDENTIALITY; NON-COMPETITION. Employee acknowledges and agrees that his position with the Company is unique and of singular importance to the success of the Company. In connection with his performance of duties hereunder, Employee will necessarily be entrusted with information which are confidential and proprietary trade secrets of the Company. Employee acknowledges and agrees that the release of any such information or materials to a third party, without the express written consent of the Company, would cause immediate and irreparable harm to the Company. 7.1 Employee shall not disclose to any third party any information or materials of the Company to the extent that same are proprietary to, or the "trade secrets" of the Company without limitation as to time. 7.2 Employee shall not compete, directly or indirectly, in North America, as an employee, agent, consultant, owner, partner or otherwise in any business entity, in the business engaged in by the Company and shall not offer to deal with (in his individual capacity or on behalf of any entity in which he is a shareholder, partner or otherwise has an ownership interest or by which he is employed), directly or indirectly, nor deal with, directly or indirectly, any entity or product which competes with, or materially replicates, any product or service (or is a reasonable extension of such product or service) currently offered by Company, for so long as Employee receives compensation and benefits from Company (provided, however, that nothing contained herein shall prevent or restrict Employee from owning or acquiring, directly or indirectly, not more than five percent (5%) of the securities of any publicly traded company for the sole purpose of passive investment); and 7.3 Employee shall not solicit the employees or former employees of the Company for the purpose of competing with the Company for so long as Employee is restricted from competing with Company pursuant to the preceding paragraph. 8.0 MISCELLANEOUS. 8.1 This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of Massachusetts, whose courts shall be the exclusive judicial forum for any and all disputes arising herefrom. 8.2 This Agreement constitutes the sole and entire, integrated agreement by and between the parties with respect to the subject matter hereof, and the parties agree that upon the execution and effectiveness of this Agreement, all prior understandings and agreements (whether written or oral) between Company and Employee regarding Employee's employment by Company shall automatically be terminated. It may not be modified except in a writing signed by both parties. -2- 3 8.3 The provisions of this Agreement are intended to be severable, and should any court of competent jurisdiction find unenforceable any provision(s) hereof, the same shall be stricken and the remaining provisions shall continue to be the enforceable agreement of the parties. 8.4 All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service, if served personally on the party to whom notice is to be given, or on the third day after mailing, if mailed to the party to whom notice is to be given, by registered or certified first class mail, postage prepaid, return receipt requested, or on the date of telecopying, if sent by telecopy, or on the day after mailing, if mailed by overnight courier service and properly addressed. IN WITNESS WHEREOF, the parties have hereunto subscribed on the date first above-written. Simonds Industries Inc. By ___________________________ ______________________________ Ross B. George Roland Richard President Employee -3- EX-10.6 26 EMPLOYMENT AGREEMENT WITH F.A. DEVILLING, III 1 EXHIBIT 10.6 SIMONDS INDUSTRIES INC. EMPLOYMENT AGREEMENT This Agreement is made this 14th day of November, 1995, by and between Simonds Industries Inc., a corporation organized and existing under the laws of Delaware ["Company"] with principal offices in Fitchburg, Massachusetts, and F.A. DeVilling, III, an individual with principal residency in Massachusetts ["Employee"]. Company hereby agrees to employ Employee, and Employee hereby accepts such employment with Company upon the following terms and conditions: 1.0 POSITION AND TITLE. Employee's job title is Vice President-Business Development. He is directly responsible to the President. 2.0 TERM. The term of this Agreement shall commence on the date hereof and shall continue evergreen hereafter until terminated by either party as provided hereinafter; provided, however, that the provisions of Paragraph 7 shall survive the termination of this Agreement. 3.0 BASE COMPENSATION. As Base Compensation, Employee shall be paid an annualized salary of $110,000 upon such dates as Company customarily pays its executive employees. Employee's Base Compensation shall be reviewed in accordance with standard corporate policy and procedure. 4.0 BONUS. Employee shall be entitled to participate in any Executive Bonus Plan approved by the board of directors for Company executives in general. While there are no guarantees that there will be a bonus plan in any particular year, or that any bonus plan will be funded at any particular level, Employee is to participate in any such plan without discrimination. 5.0 BENEFITS. Employee shall be entitled to participate in any Executive Benefits Program approved by the board of directors for Company executives in general. Additionally, Employee shall be entitled to a Company vehicle approved by the President as to make, model and equipment. Employee's participation in any benefit program shall be at the same level of employee/employer contribution as has been set for all participants in such plans, in accordance with applicable law. 6.0 TERMINATION. (a) Employee may terminate Employee's employment under this Agreement only upon at least ninety (90) days' prior written notice given to Company. (b) Company may terminate this Agreement only upon at least one (1) year's prior written notice given to Employee. Company may require that Employee remain actively on the job for a period ending ninety (90) days from the date of such notice, but Employee shall have no right to remain on the job upon receipt of such notice. 2 (c) Company and Employee agree that these termination provisions are fair and reasonable, and that any termination hereof in accordance herewith shall be without recourse against the terminating party, subject to the provisions of section 7.0, et seq., hereof. 7.0 CONFIDENTIALITY; NON-COMPETITION. Employee acknowledges and agrees that his position with the Company is unique and of singular importance to the success of the Company. In connection with his performance of duties hereunder, Employee will necessarily be entrusted with information which are confidential and proprietary trade secrets of the Company. Employee acknowledges and agrees that the release of any such information or materials to a third party, without the express written consent of the Company, would cause immediate and irreparable harm to the Company. 7.1 Employee shall not disclose to any third party any information or materials of the Company to the extent that same are proprietary to, or the "trade secrets" of the Company without limitation as to time. 7.2 Employee shall not compete, directly or indirectly, in North America, as an employee, agent, consultant, owner, partner or otherwise in any business entity, in the business engaged in by the Company and shall not offer to deal with (in his individual capacity or on behalf of any entity in which he is a shareholder, partner or otherwise has an ownership interest or by which he is employed), directly or indirectly, nor deal with, directly or indirectly, any entity or product which competes with, or materially replicates, any product or service (or is a reasonable extension of such product or service) currently offered by Company, for so long as Employee receives compensation and benefits from Company and for a period of one year thereafter (provided, however, that nothing contained herein shall prevent or restrict Employee from owning or acquiring, directly or indirectly, not more than five percent (5%) of the securities of any publicly traded company for the sole purpose of passive investment); and 7.3 Employee shall not solicit the employees or former employees of the Company for the purpose of competing with the Company for so long as Employee is restricted from competing with Company pursuant to the preceding paragraph. 8.0 MISCELLANEOUS. 8.1 This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of Massachusetts, whose courts shall be the exclusive judicial forum for any and all disputes arising herefrom. 8.2 This Agreement constitutes the sole and entire, integrated agreement by and between the parties with respect to the subject matter hereof, and the parties agree that upon the execution and effectiveness of this Agreement, all prior understandings and agreements (whether written or oral) between Company and Employee regarding Employee's employment by Company shall automatically be terminated. It may not be modified except in a writing signed by both parties. Rights may not be assigned, nor duties delegated, hereunder except in a writing signed by both parties. -2- 3 8.3 The provisions of this Agreement are intended to be severable, and should any court of competent jurisdiction find unenforceable any provision(s) hereof, the same shall be stricken and the remaining provisions shall continue to be the enforceable agreement of the parties. 8.4 All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service, if served personally on the party to whom notice is to be given, or on the third day after mailing, if mailed to the party to whom notice is to be given, by registered or certified first class mail, postage prepaid, return receipt requested, or on the date of telecopying, if sent by telecopy, or on the day after mailing, if mailed by overnight courier service and properly addressed. IN WITNESS WHEREOF, the parties have hereunto subscribed on the date first above-written, Simonds Industries Inc. By ___________________________ ________________________ Ross B. George F. A. DeVilling, III President Employee -3- EX-10.7 27 EMPLOYMENT AGREEMENT WITH R. OWENS 1 EXHIBIT 10.7 SIMONDS INDUSTRIES INC. EMPLOYMENT AGREEMENT This Agreement is made this 31st day of March, 1998, by and between Simonds Industries Inc., a corporation organized and existing under the laws of Delaware ["Company"] with principal offices in Fitchburg, Massachusetts, and Ronald Owens, an individual with principal residency in Florida ["Employee"]. Company hereby agrees to employ Employee, and Employee hereby accepts such employment with Company upon the following terms and conditions: 1.0 POSITION AND TITLE. Employee's job title is Vice President of Business Development. He is directly responsible to the President. 2.0 TERM. The term of this Agreement shall commence on the date hereof and shall continue hereafter for a period of one (1) year or until sooner terminated by either party as provided hereinafter; provided, however, that the provisions of Paragraph 7 shall survive the termination of this Agreement. At lease ninety (90) days prior to the expiration of this Agreement, Company and Employee will meet to discuss a possible longer-term agreement, and, if both parties agree, will negotiate reasonably with one another toward a longer-term agreement. 3.0 BASE COMPENSATION. As Base Compensation, Employee shall be paid the annualized amount of $120,000 upon such dates as Company customarily pays its executive employees. Employee's Base Compensation shall be reviewed and adjusted periodically in accordance with standard corporate policy and procedure. 4.0 BONUS. Employee shall be entitled to participate in any Executive Bonus Plan [a "Plan"] approved from time to time by the board of directors for Company executives in general. While there are no guarantees that there will be a Plan in any particular year, or that any Plan will be funded or paid at any particular level, Employee is to participate in any such Plan without discrimination, subject always to the provisions of any such Plan. The terms and conditions of any Plan are incorporated herein by reference during the term of such Plan. 5.0 BENEFITS. Employee shall be entitled to participate in any executive benefits programs approved by the board of directors for Company executives in general [the "Benefits"]. Employee's participation in any benefit program shall be at the same level of employee/employer contribution as has been set for all participants in such plans, in accordance with applicable law. 6.0 AUTOMOBILE. During the course of his active employment with Company and primarily for business purposes, Employee shall be entitled to the use of a Company vehicle approved by the President. The use of a Company vehicle is not a "Benefit" for purposes of Section 8.2 and will be discontinued immediately when Employee is no longer actively conducting business on behalf of the Company for any reason whatsoever. 2 7.0 TERMINATION. 7.1 Employee may terminate Employee's employment under this Agreement, with cause, only upon at least ninety (90) days' prior written notice given to Company. 7.2 Company may terminate this Agreement, with cause, only upon at least thirty (30) days' prior written notice given to Employee. Company may require that Employee remain actively on the job during such notice period, but Employee shall have no right to remain on the job upon receipt of such notice. 7.3 Company and Employee agree that these termination provisions are fair and reasonable, and that any termination hereof in accordance herewith shall be without recourse against the terminating party, subject to the provisions of section 8.0, et seq., hereof. Employee accepts the provisions of this Agreement in lieu of, and Employee hereby waives, any standard policy severance to which Employee might otherwise be entitled upon termination of employment. 8.0 CONFIDENTIALITY, NON-COMPETITION. Employee acknowledges and agrees that his position with the Company is unique and of singular importance to the success of the Company. In connection with his performance of duties hereunder, Employee will necessarily be entrusted with information which are confidential and proprietary trade secrets of the Company. Employee acknowledges and agrees that the release of any such information or materials to a third party, without the express written consent of the Company, would cause immediate and irreparable harm to the Company. 8.1 Employee shall not disclose to any third party any information or materials of the Company to the extent that same are proprietary to, or the "trade secrets" of the Company without limitation as to time. 8.2 Employee shall not compete, directly or indirectly, in North America, as an employee, agent, consultant, owner, partner or otherwise in any business entity, in the business engaged in by the Company and shall not offer to deal with (in his individual capacity or on behalf of any entity in which he is a shareholder, partner or otherwise has an ownership interest or by which he is employed), directly or indirectly, nor deal with, directly or indirectly, any entity or product which competes with, or materially replicates, any product or service (or is a reasonable extension of such product or service) currently offered by Company, for so long as Employee receives Base Compensation and Benefits from Company and for a period of one year thereafter (provided, however, that nothing contained herein shall prevent or restrict Employee from owning or acquiring, directly or indirectly, not more than five percent (5%) of the securities of any publicly traded company for the sole purpose of passive investment); and 8.3 Employee shall not solicit the employees or former employees of the Company for the purpose of competing with the Company for so long as Employee is restricted from competing with Company pursuant to the preceding paragraph. -2- 3 9.0 MISCELLANEOUS. 9.1 This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of Massachusetts, whose courts shall be the exclusive judicial forum for any and all disputes arising herefrom. 9.2 This Agreement constitutes the sole and entire, integrated agreement by and between the parties with respect to the subject matter hereof, and the parties agree that upon the execution and effectiveness of this Agreement, all prior understandings and agreements (whether written or oral) between Company and Employee regarding Employee's compensation, benefits, severance, rights upon termination and employment by Company are hereby terminated. This Agreement may not be modified except in a writing signed by both parties. Rights may not be assigned, nor duties delegated, hereunder except in a writing signed by both parties. 9.3 The provisions of this Agreement are intended to be severable, and should any court of competent jurisdiction find unenforceable any provision(s) hereof, the same shall be stricken and the remaining provisions shall continue to be the enforceable agreement of the parties. 9.4 All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service, if served personally on the party to whom notice is to be given, or on the third day after mailing, if mailed to the party to whom notice is to be given, by registered or certified first class mail, postage prepaid, return receipt requested, or on the date of telecopying, if sent by telecopy, or on the day after mailing, if mailed by overnight courier service and properly addressed. IN WITNESS WHEREOF, the parties have hereunto subscribed on the date first above-written. Simond Industries Inc. By _________________________ ___________________________ Ross B. George Ronald Owens President Employee -3- EX-10.8 28 SIMONDS INDUSTRIES STOCK INCENTIVE PLAN 1 EXHIBIT 10.8 SIMONDS INDUSTRIES INC. AMENDED AND RESTATED 1998 STOCK INCENTIVE PLAN 1. NAME AND PURPOSE. This Plan shall be known as the Amended and Restated Simonds Industries Inc. 1998 Stock Incentive Plan (the "Plan"). This Plan amends and restates in its entirety the Simonds Industries Inc. 1998 Stock Incentive Plan dated July 7, 1998. The purpose of the Plan is to advance the interests of Simonds Industries Inc. (the "Company") by providing material incentive for the continued services of key and valuable employees and directors of the Company and its affiliates. Awards under the Plan may be granted in the form of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended or non-qualified stock options. 2. DEFINITIONS. When used herein, the following terms shall have the meanings provided below: "Board" shall mean the Board of Directors of the Company. "Cause" shall have the meaning given such term in the Stockholder Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" shall mean the Compensation Committee of the Board. "Common Shares" shall mean shares of the Company's common stock, $.01 par value, or such other securities of the Company as may be designated by the Committee from time to time. "Company" shall mean Simonds Industries Inc., a Delaware corporation. "Disability" shall have the meaning given such term in Section 22(e)(3) of the Code. "Eligible Employee" shall mean an employee of the Company or of any affiliate, or any non-employee who provides services to the Company or any affiliate. "Fair Market Value" of the Common Shares shall mean the market value as determined by the Committee in its sole discretion, unless the Common Shares are traded on a national exchange, in which case fair market value for any given day shall mean the average of the high and low prices of the Common Shares reported by such applicable exchange on the next preceding trading day. "Grant Date" shall mean the date any Option is granted and becomes effective. 2 "Incentive Stock Option" shall mean the right to purchase Common Shares from the Company that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. "Initial Public Offering" shall mean an initial public offering of any class of stock of the Company. "Liquidity Event" shall mean Approved Sale as defined in Section 5 of the Stockholder Agreement. "Management Options" shall mean options with respect to 4,393.75 Common Shares reserved for issuance hereunder awarded to management employees as provided herein. "Non-Qualified Stock Option" shall mean a right to purchase Common Shares from the Company that is not intended to be an Incentive Stock Option. "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option issued pursuant to the Plan. "Optionee" shall mean an Eligible Employee who has received an Option under the Plan. "Plan" shall mean this Simonds Industries Inc. 1998 Amended and Restated Stock Incentive Plan. "Stockholder Agreement" shall mean that certain stockholder agreement by and among the Company and all of its stockholders dated July 7, 1998, as amended from time to time. 3. ADMINISTRATION. The Plan shall be administered by the Committee. The Committee may establish, subject to the provisions of the Plan, such rules and regulations as it deems necessary for the proper administration of the Plan, and make such determinations and take such actions in connection therewith or in relation to the Plan as it deems necessary or advisable, consistent with the Plan. 4. ELIGIBILITY. Options may be granted to Eligible Employees as determined by the Committee in its sole discretion, subject to the recommendations of the Chief Executive Officer of the Company as provided in Paragraph 6 hereof. 5. SHARES SUBJECT TO THE PLAN. (a) The Common Shares to be issued and delivered by the Company upon exercise of Options granted under the Plan may be either authorized but unissued shares or treasury shares. (b) The aggregate number of Common Shares of the Company which may be issued under the Plan shall not exceed 9,361.07 Common Shares; subject, however, to the adjustment provided in Paragraph 9(b) in the event of certain changes in the Company's capital structure. -2- 3 As of the date hereof, options with respect to 573.58 Common Shares have been awarded. No Option may be granted under this Plan which could cause such maximum limit to be exceeded. (c) Common Shares covered by an Option which is terminated, no longer exercisable or is otherwise forfeited with respect to such shares shall again be available for issuance under this Plan. 6. GRANT OF OPTIONS. The Committee may, from time to time, in its sole discretion, grant Options to Eligible Employees, subject to the terms and conditions provided herein. Notwithstanding the foregoing, no later than October 7, 1998, the Committee shall grant the Management Options to management employees in each amounts as determined by the Committee, subject to the recommendations of the Chief Executive Officer of the Company. 7. TERMS AND CONDITIONS OF OPTION. Except as otherwise provided by the Committee in its discretion, all Options granted under the Plan shall be subject to the foregoing and following limitations and requirements: (a) OPTION PRICE: The purchase price per share for Common Shares covered by Options shall be determined by the Committee. Notwithstanding the foregoing, in the case of an Incentive Stock Option, the purchase price shall not be less than 100% of the Fair Market Value on the Grant Date (110% in the case of a 10% stockholder). (b) TERM OF OPTIONS. Subject to Paragraph 7(f) below, the period of each Option shall be ten (10) years, unless in the case of any Non-Qualified Option such term is extended by the Committee in its discretion. (c) 10% STOCKHOLDER: Notwithstanding any other provision of this Plan, the purchase price per share of an Incentive Stock Option granted to an Eligible Employee who, at the time such Option is granted, owns shares possessing more than 10% of the total combined voting power of all classes of shares of the Company or its affiliates shall be at least 110% of the Fair Market Value of the Common Shares subject to the Option as of the date of grant. In addition, any such Incentive Stock Option may not be exercised after the expiration of five years from the date the Option is granted. (d) VESTING OF OPTIONS. (i) Unless otherwise decided by the Committee, Options shall become exercisable in three equal installments as follows: one-third on the Grant Date, one-third on the first anniversary of the Grant Date, and one-third on the second anniversary of the Grant Date. Unless the Committee decides otherwise, an Optionee whose employment with the Company and/or its Affiliates terminates for any reason prior to vesting will forfeit all unvested Options. (ii) Unless otherwise decided by the Committee, in the event of death or Disability of the Optionee, or the occurrence of a Liquidity Event while the Optionee is still employed by the Company and its affiliates, Options shall become immediately exercisable in full. -3- 4 (e) GRANT LIMITATION: The aggregate fair market value of Common Shares with respect to which Incentive Stock Options are exercisable for the first time by any Eligible Employee during any calendar year (determined at the time the Incentive Stock Option is granted) shall not exceed $100,000. (f) TERMINATION OF OPTIONS BY REASON OF TERMINATION OF EMPLOYMENT: Unless the Committee decides otherwise, if an Optionee's employment with the Company and/or its affiliates is terminated by the Company for reasons other than Cause, all unvested Options shall immediately terminate, and any remaining Options shall terminate if not exercised before the expiration of 30 days following such termination of employment, or such earlier time as may be applicable under Paragraph 7(b) above. If an Optionee's employment with the Company and/or its affiliates is terminated by reason of death or Disability, all unvested Options shall become immediately vested, and all Options shall terminate if not exercised before the expiration of 60 days following the date of death or termination by reason of Disability, or at such earlier time as may be applicable under Paragraph 7(b) above. If the Optionee's employment is terminated for Cause as determined by the Committee in its sole discretion, or if the Optionee voluntarily terminates employment, all of the Optionee's Options, including vested Options, shall immediately terminate. (g) NON-TRANSFERABILITY: Each Option and all rights thereunder shall be exercisable during the Optionee's lifetime only by him and shall be non-assignable and non-transferable by the Optionee except, in the event of the Optionee's death, by will or by the laws of descent and distribution; provided, however, that in the case of a Non-Qualified Option, such Option may be gifted to a family member or a trust or partnership for the benefit of a family member. For purposes of this paragraph, "family member" means a spouse, parent, child, grandchild, step-child or step-grandchild. In the event the death of an Optionee occurs, the representative or representatives of the Optionee's estate, or the person or persons who acquired (by bequest or inheritance) the rights to exercise the Options may exercise such Options in whole or in part prior to the expiration of the applicable exercise period, as specified in Paragraphs 7(b) and 7(f) above. (h) MORE THAN ONE OPTION GRANTED TO AN OPTIONEE: More than one Option may be granted to an Optionee under this Plan and both Non-Qualified Options and Incentive Stock Options may be granted to an Optionee. (i) COMPLIANCE WITH SECURITIES LAWS: Options granted and shares issued by the Company upon exercise of Options shall be granted and issued only in full compliance with all applicable securities laws, including laws, rules and regulations of the Securities and Exchange Commission and applicable state Blue Sky Laws. With respect thereto, the Committee may impose such conditions on transfer, restrictions and limitations as it may deem necessary and appropriate to assure compliance with such applicable securities laws. (j) MODIFICATION OR CANCELLATION OF OPTION: The Committee shall have the authority to effect, at any time and from time to time, with the consent of the affected Optionee or Optionees, the modification of the terms of any Option agreement (subject to the limitations hereof), -4- 5 including the acceleration of the exercisability of any Option for any reason including a change in the control or ownership of the Company, a Liquidity Event, or the cancellation of any or all outstanding Options granted under this Plan. (k) DISPOSITION OF SHARES: No Option granted under this Plan shall qualify as an Incentive Stock Option if the Common Shares acquired pursuant to the exercise of the Option are transferred, other than by will or by the laws of descent and distribution, within two years of the date such Option was granted or within one year after the transfer of Common Shares to the employee pursuant to such exercise. 8. METHOD OF EXERCISE. An Option granted under this Plan may be exercised by written notice to the Committee, signed by the Optionee, or by such other person as is entitled to exercise such Option. The notice of exercise shall state the number of Common Shares in respect of which the Option is being exercised, and shall either be accompanied by the payment of the full purchase price for such shares, or shall fix a date (not more than ten business days from the date of such notice) for the payment of the full purchase price of the shares being purchased. The purchase price shall be paid in cash (including personal check). In addition, as a condition of exercise, the Optionee or such other person who may be entitled to exercise an Option shall enter into the Stockholder Agreement or any other applicable stockholder agreement then existing between the Company and its stockholders. A certificate or certificates for the Common Shares of the Company purchased through the exercise of an Option shall be issued in regular course after the exercise of the Option and payment therefore, and the execution of any applicable stockholders agreement. During the Option period no person entitled to exercise any Option granted under this Plan shall have any of the rights or privileges of a stockholder with respect to any Common Shares issuable upon exercise of such Option until certificates representing such Common Shares shall have been issued and delivered. 9. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. (a) The existence of outstanding Options shall not affect in any way the right or ability of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, common stock, preferred or prior preference stock ahead of or affecting the Common Shares or the rights hereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business or substantially all of the outstanding stock of the Company, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) If the Company shall effect a subdivision, consolidation or reclassification of shares or other capital readjustment or recapitalization, the payment of a stock dividend, or other increase or reduction of the number of Common Shares outstanding, without receiving compensation therefor in money, services or property, then the number, class, and per share price of the Common Shares covered by Options shall be appropriately adjusted in such a manner as to entitle an Optionee to receive upon exercise of an Option, for the same aggregate cash -5- 6 consideration, the same total number and class of shares as he would have received as a result of the event requiring the adjustment. (c) Upon the occurrence of a Liquidity Event, all outstanding Options shall become immediately exercisable as provided in Paragraph 7(d)(ii). Unless the Committee determines otherwise, all outstanding Options shall expire as of the effective date of such Liquidity Event, provided that (x) notice of such Liquidity Event shall be given to such Optionee at least 30 days prior to the effective date thereof, and (y) an Optionee shall have the right to exercise the Options, after giving effect to the acceleration of vesting described in Paragraph 7(d)(ii) hereof, during the 30-day period preceding the effective date of such Liquidity Event, and participate in such Liquidity Event on the same terms and conditions as other holders of Common Shares as provided in Section 5.1 of the Stockholder Agreement. (d) In the event of any Initial Public Offering of any class of common stock of the Company ("IPO Stock") during the term of any outstanding Option, then the number, class and per share price of Common Shares subject to any outstanding Option issued pursuant to this Plan shall be appropriately adjusted in such a manner as to entitle an Optionee to receive upon exercise of such Option, for the same aggregate cash consideration, shares of IPO Stock which, in the judgment of the Committee, are substantially equivalent in value to the Common Shares. Subsequent to the Initial Public Offering, all outstanding Options may be exercised to the extent vested in whole or in part prior to the expiration of the applicable exercise period as provided in Paragraphs 7(b) and 7(f) above. (e) Except as hereinbefore expressly provided, the issue by the Company of shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Common Shares then subject to outstanding Options. 10. AMENDMENT OR TERMINATION. The Committee may terminate this Plan at any time, and may amend the Plan at any time or from time to time; provided, however, that any amendment that would increase the aggregate number of Common Shares that may be issued under the Plan, materially increase the benefits accruing to employees under the Plan, or materially modify the requirements as to eligibility for participation in the Plan shall be subject to the approval of the Company stockholders to the extent required by Code Section 422, other applicable laws or any other governing rules or regulations except that such increase or modification that may result from adjustments authorized by Paragraph 9 does not require such approval. If the Plan is terminated, any unexercised Option shall continue to be exercisable in accordance with its terms, except as provided in Paragraph 9(c). 11. COMPANY RESPONSIBILITY. All expenses of this Plan, including the cost of maintaining records, shall be borne by the Company. The Company shall have no responsibility -6- 7 or liability (other than under applicable securities laws) for any act or thing done or left undone with respect to the price, time, quantity, or other conditions and circumstances of the purchase of Common Shares under the terms of the Plan, so long as the Company acts in good faith. 12. TAX WITHHOLDING. Any grant of an Option hereunder shall provide as determined by the Committee for appropriate arrangements for the satisfaction by the Company and the Optionee of all federal, state, local or other income excise or employment taxes or tax withholding requirements applicable to the exercise of the Option or the later disposition of the Common Shares thereby acquired and all such additional taxes or amounts as determined by the Committee in its discretion, including, without limitation, the right of the Company or any Affiliate to receive transfers of Common Shares or other property from the Optionee or to deduct or withhold in the form of shares from any transfer to an Optionee, in such amount or amounts deemed required or appropriate by the Committee in its sole and absolute discretion. 13. IMPLIED CONSENT. Every Optionee, by the acceptance of an Option under this Plan shall be deemed to have consented to be bound, on his own behalf and on behalf of his heirs, assigns, and legal representatives, by all of the terms and conditions of this Plan. 14. NO EFFECT ON EMPLOYMENT STATUS. The fact that an employee has been granted an Option under this Plan shall not limit or otherwise qualify the right of the Company to terminate such employee's employment at any time. 15. DURATION AND TERMINATION OF THE PLAN. The Plan shall become effective as of the date hereof. No Incentive Stock Option shall be granted subsequent to the tenth anniversary of the date hereof, or subsequent to any earlier date as of which the Plan is terminated pursuant to Paragraph 10. 16. DELAWARE LAW TO GOVERN. This Plan shall be construed and administered in accordance with and governed by the laws of the State of Delaware. IN WITNESS WHEREOF, the Company has caused this Amended and Restated 1998 Stock Incentive Plan to be executed by its duly authorized officer as of this __ day of August, 1998. SIMONDS INDUSTRIES INC. By: _________________________________ Title:____________________________ -7- EX-10.9 29 ESCROW AGREEMENT DATED 5/26/95 1 EXHIBIT 10.9 ESCROW AGREEMENT This Escrow Agreement (the "Escrow Agreement") is made and entered into as of May __, 1995, by and between SI Holding Corporation, a Delaware corporation (the "Purchaser"), Simonds Industries Inc., a Delaware corporation (the "Company"), Charles W. Doulton (the "Representative"), Massachusetts Capital Resource Company ("MCRC"), all the shareholders of Simonds Industries Inc. (the "Shareholders"), Charles W. Doulton and Paul D. Petricca (the "Option Holders"), and Fleet Bank of Massachusetts, N.A. (the "Escrow Agent"). RECITALS A. Pursuant to a certain Stock Purchase Agreement dated May _, 1995 (the "Stock Purchase Agreement"), by and among Purchaser, MCRC, the Option Holders and the Shareholders and the Company, Purchaser shall acquire one hundred percent (100%) of the common stock of the Company (the "Acquisition"). The Shareholders, MCRC and the Option Holders are referred to as the "Indemnifying Parties." B. The Escrow Agreement is entered into pursuant to, and as a condition precedent to the closing of the transactions contemplated by, the Stock Purchase Agreement (the "Closing"). C. Capitalized terms used herein, unless otherwise defined herein, shall have the meanings assigned to them in the Stock Purchase Agreement. AGREEMENTS Accordingly, in consideration of the recitals, and of the respective agreements and covenants contained herein, and intending to be legally bound hereby, the parties agree as follows: ARTICLE I 1.1 INDEMNITY ESCROW FUNDS. At the Closing, and only if the Closing occurs, Purchaser shall deliver the Indemnity Escrow Funds, totalling Three Million Two Hundred Fifty Thousand Dollars ($3,250,000) to the Escrow Agent pursuant to Sections 2.01(i), 3.03(i) and 3.08(i) of the Stock Purchase Agreement in immediately available funds into an account designated by the Escrow Agent. 1.1.1 The Indemnity Escrow Funds shall be held by the Escrow Agent in a separate account (the "Escrow Account") for the benefit of the Company, the Shareholders, MCRC and the Option Holders, as provided in this Escrow Agreement. 1.1.2 The Escrow Agent shall maintain for each contributing Shareholder, MCRC and Option Holder (each, an "Indemnifying Party") an account (each, an "Indemnifying Party's Account") reflecting (i) such Indemnifying Party's allocable portion of the Indemnity Escrow Funds hereunder, plus (ii) all amounts earned on such Indemnifying Party's Account, less 2 (iii) the portion of all amounts distributed pursuant hereto as allocated to such Indemnifying Party's Account, and less (iv) the portion of the Escrow Agent Fees and Expenses (as hereinafter defined) allocable to such Indemnifying Party's Account. 1.2 ACCEPTANCE OF APPOINTMENT AS ESCROW AGENT. The Escrow Agent, by signing this Escrow Agreement, accepts the appointment as Escrow Agent and agrees to hold and distribute all Indemnity Escrow Funds in accordance with the terms of this Escrow Agreement. 1.3 DISTRIBUTIONS; INVESTMENTS. 1.3.1 Pending disbursement of the Indemnity Escrow Funds, the Escrow Agent shall invest such funds in Permitted Investments (as defined hereinafter). All interest and other income earned on the Indemnity Escrow Funds shall, until disbursed, constitute part of the Indemnity Escrow Funds and shall, pending disbursement, be invested in Permitted Investments. For purposes of this Escrow Agreement, "Permitted Investments" shall mean (i) money market funds consisting of short-term U.S. Treasury securities, (ii) obligations of or guaranteed by the United States of America or any agency thereof, either outright or in connection with repurchase agreements covering such obligations, or obligations of or guaranteed by any state or political subdivision thereof with a maturity not less than one (1) year from the date of investment, (iii) certificates of deposit or bankers' acceptances issued by the Escrow Agent or by any other national or state-chartered bank having total assets of at least $500,000,000 with a maturity not later than one (1) year from the date of investment, and (iv) such other investments as may be specified from time to time to the Escrow Agent by written instructions from the Representative. 1.3.2 As and when any amount is needed for a payment under this Escrow Agreement, the Escrow Agent shall cause a sufficient amount of the Permitted Investments to be converted into cash. Upon the advice and reasonable consent of the Representative, the Escrow Agent shall select the investments or types of investments to be so converted. 1.3.3 Notwithstanding any other provision hereof, the Escrow Agent shall distribute to each of the Indemnifying Parties, on an annual basis on or before the 15th day of March, an amount equal to forty percent (40%) of such Indemnifying Party's pro rata gain from the income earned on the Indemnity Escrow Funds held in the Indemnifying Party's Account for the preceding calendar year. 1.3.4 For tax purposes, the Indemnity Escrow Funds shall be property of the Company; however, all interest, dividends and other income earned on the Indemnity Escrow Funds shall be income of the Indemnifying Parties, and all parties hereto shall file all Tax Returns consistent with such treatment. 1.4 DISTRIBUTION OF ESCROW FUNDS TO [INDEMNITEE] INDEMNIFIED PARTYS. The Escrow Agent shall disburse to the applicable Indemnified Party such portion of the Indemnity Escrow Funds as may be necessary to pay the Damages, as defined in Section 2. 1, below, for which the Indemnified Party is entitled to reimbursement pursuant to Article X of the Stock Purchase Agreement. Any amount distributed pursuant to this Section 1.4.1 shall be allocated among, and -2- 3 deducted from, the Indemnifying Parties' Accounts on a pro rata basis, based upon a fraction (expressed as a percentage), the numerator of which is equal to the original dollar amount of each such Indemnifying Party's Account and the denominator of which is Three Million Two Hundred Fifty Thousand (the "Indemnifying Party's Percentage"). Any payment to be made pursuant hereto shall be made not more than thirty (30) days after the first to occur of (i) the delivery to the Escrow Agent of written instructions signed by the Representative specifying an amount to be paid from the Escrow Funds to the Company or (ii) the delivery to the Escrow Agent and the Representative of a copy of a Final Determination establishing the Indemnified Party's right to reimbursement under this Escrow Agreement with respect to such Damages. A "Final Determination" shall mean a final judgment of a court of competent jurisdiction or an administrative agency having the authority to determine the amount of, and liability with respect to, the item resulting in Damages for which reimbursement is sought hereunder and the denial of, or expiration of all rights to, appeal related thereto. 1.5 SEGREGATION OF THE ESCROW FUNDS. 1.5.1 Notwithstanding any other provision of this Escrow Agreement to the contrary, the Escrow Agent shall restrict such portion of the Indemnity Escrow Funds as may be necessary to satisfy in full all Pending Claims (as hereinafter defined), and shall hold such portion in accordance with this Section. "Pending Claims" shall mean unresolved Claims that are the subject of Claim Notices, as hereinafter defined, properly delivered hereunder. 1.5.2 Any portion of the Indemnity Escrow Funds restricted under Section 1.5.1 shall continue to be restricted by the Escrow Agent until the Escrow Agent is directed to release such Indemnity Escrow Funds by written instructions signed by Purchaser and the Representative. 1.6 DISTRIBUTION OF ESCROW FUNDS TO INDEMNIFYING PARTIES. Not later than the fifth (5th) business day after the Expiration Date, the Escrow Agent shall distribute to the Indemnifying Parties in accordance with the Indemnifying Party's Accounts, the remaining Indemnity Escrow Funds minus the sum of any Indemnity Escrow Funds that are then being restricted with respect to Pending Claims under Section 1.5. "Expiration Date" shall mean the date which is THREE (3) YEARS following the Closing. Any amounts segregated with respect to Pending Claims on the Expiration Date shall be released as provided in Section 1.5.2 and promptly thereafter distributed as provided in this Section 1.6. ARTICLE II 2.1 CLAIMS AGAINST THE ESCROW FUNDS. 2.1.1 From and after the Closing, but subject to the conditions and limitations set forth in this Escrow Agreement and the Stock Purchase Agreement, Purchaser and/or Company, and their respective successors and assigns (collectively, the "Indemnified Parties") -3- 4 shall be entitled to reimbursement out of the Indemnity Escrow Funds for any and all losses, damages, costs, expenses, fines, penalties, settlement payments and expenses, liabilities, obligations and claims of any kind, including, without limitation, reasonable attorneys' fees and other legal and professional costs and expenses (collectively, "Damages") actually incurred or suffered, and paid to a third party, by an Indemnified Party to the extent resulting from either or both of the Indemnified Liabilities described in section 10.01(a)(iii) and (iv) of the Stock Purchase Agreement [collectively, the "Claims"]; provided, however, Indemnified Parties shall not be entitled to reimbursement out of Indemnity Escrow Funds unless and until Indemnified Parties' Damages exceed $100,000, as more fully provided in Section 10.01(b) of the Stock Purchase Agreement, in which event the Indemnified Parties will be entitled to make a Claim to the extent of such excess. The aggregate of all Claims paid hereunder shall not exceed Three Million Two Hundred Fifty Thousand Dollars ($3,250,000). 2.1.2 In calculating any Damage payable pursuant to Section 2.1.1, any amount payable shall be reduced by the amount of any insurance or third party recoveries of any Indemnified Party less any costs, expenses allocable portions of premiums or taxes incurred in connection therewith. 2.2 NOTICE OF CLAIMS; OTHER PROCEDURES. 2.2.1 In the event that any action, claim or demand is asserted against or sought to be collected from any Indemnified Party for which the Indemnified Party intends to assert a right of reimbursement from the Indemnity Escrow Funds, such Indemnified Party shall notify the Representative and the Escrow Agent with reasonable promptness of such Claim, prior to the Expiration Date, specifying, to the extent known, the nature, circumstances and the amount of such Claim (a "Claim Notice"). The Representative shall have thirty (30) days from his receipt of a Claim Notice (the "Claim Notice Period") to notify Indemnified Parties and the Escrow Agent (i) that the Representative disputes the Indemnified Party's right of reimbursement from the Escrow Funds with respect to such Claim, or (ii) that the Representative does not dispute such right of reimbursement. No timely response from the Representative shall be deemed to be a dispute of a Claim. 2.2.2 If the Representative notifies the Indemnified Party and the Escrow Agent within the Claim Notice Period that the Representative does not dispute the Indemnified Party's right of reimbursement, the Indemnified Party may proceed to pay, defend or settle the Claim, in its reasonable discretion, and the Representative shall promptly reimburse such Damages. The Representative may participate in, but not control, any defense or settlement, at his sole cost and expense. 2.2.3 If the Representative disputes the Indemnified Party's right of reimbursement with respect to a Claim, the parties shall attempt in good faith to resolve the issue amicably and fairly. Failing amicable private resolution, the matter shall be resolved by way of binding arbitration in Boston, Massachusetts, pursuant to the Commercial Rules of Arbitration of the American Arbitration Association. Unless the Representative has timely disputed the Indemnified Party's right to reimbursement for a Claim, Indemnified Party shall be entitled to -4- 5 reimbursement out of Indemnity Escrow Funds for such defense. If the Representative disputes a Claim, he may still participate in, but not control, the defense or settlement of such Claim at the Representative's sole cost and expense. 2.3 SURVIVAL OF CLAIMS. Any claim for reimbursement from the Indemnity Escrow Funds that is not asserted in accordance herewith prior to 5:00 p.m. (E.S.T.) on the Expiration Date may not be pursued and shall be irrevocably waived. ARTICLE III 3.1 APPOINTMENT OF REPRESENTATIVE. 3.1.1 The Representative, Charles W. Doulton, is hereby appointed, pursuant to the Stock Purchase Agreement, as agent and representative of the Indemnifying Partys as of the Closing Date. The Representative is hereby authorized and empowered by the Indemnifying Parties to perform the obligations and exercise the rights of the Representative as set forth in this Escrow Agreement and the Stock Purchase Agreement and agrees to abide by the terms and provisions of this Escrow Agreement and the Stock Purchase Agreement. Upon the resignation of Charles W. Doulton, whether by death, disability or otherwise, he shall be replaced by Robert P. Henderson. Upon the resignation of Robert P. Henderson, he shall be replaced by the affirmative vote of seventy-five percent (75 %) or more of the total number of Indemnifying Parties. Any person who becomes a replacement Representative shall execute a counterpart of this Escrow Agreement to evidence his/her agreement with the terms and conditions of this Escrow Agreement. 3.1.2 The Representative shall, after the Closing, (i) receive all information and notices required under the Stock Purchase Agreement and this Escrow Agreement on behalf of the Indemnifying Parties and copy each Indemnifying Party on all notices or correspondence from or to any Indemnified Party; (ii) take, on behalf of the Indemnifying Parties, any action he may deem appropriate with respect to any dispute arising out of or relating to the Stock Purchase Agreement or this Escrow Agreement; and (iii) execute and deliver all instruments and documents of every kind incident to the foregoing. 3.1.3 The Representative may confer with counsel with respect to any question relating to his duties or responsibilities under the Stock Purchase Agreement or this Escrow Agreement. The Representative shall not be liable or responsible for anything done or omitted to be done by him in good faith or on the advice of counsel. 3.1.4 The Representative shall be paid no fee for his services under this Escrow Agreement, but he shall be entitled to reimbursement for reasonable expenses (including the reasonable fees and disbursements of his counsel) actually incurred by the Representative in connection with his duties under this Escrow Agreement (collectively, the "Representative Fees and Expenses"). All Representative Fees and Expenses shall be paid first out of interest, dividends, and other income earned on the Escrow Funds and then, to the extent of any shortfall, pro rata, by the Indemnifying Parties. -5- 6 ARTICLE IV 4.1 RIGHTS AND RESPONSIBILITIES OF THE ESCROW AGENT. 4.1.1 The duties and responsibilities of the Escrow Agent shall be limited to those expressly set forth in this Escrow Agreement, and it shall not be subject to, nor obligated to recognize, any other agreement between, or direction or instruction of, any or all of the parties to this Escrow Agreement. 4.1.2 If any Indemnity Escrow Funds are at any time attached, garnished or levied upon under any court order or in case the payment of any such Indemnity Escrow Funds shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made or entered by any court affecting such Indemnity Escrow Funds or any part thereof, then and in any of such events, the Escrow Agent is authorized, in its sole discretion, to rely upon and comply with any such order, writ, judgment or decree which it is advised by legal counsel is binding upon it. If the Escrow Agent complies with any such order, writ, judgment or decree, it shall not be liable to any of the parties to this Escrow Agreement or to any other person by reason of such compliance even though such order, writ, judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated. 4.1.3 The Escrow Agent shall not be liable for any act taken or omitted under this Escrow Agreement if taken, or omitted by it in good faith and in the exercise of reasonable care under the circumstances. The Escrow Agent shall also be fully protected in relying upon any written notice, demand, certificate or document which it in good faith believes to be genuine. 4.1.4 The Escrow Agent, and any successor Escrow Agent, may resign at any time as Escrow Agent hereunder by giving at least thirty (30) days written notice to the Company, the Representative and each Indemnified Party. Upon such resignation and the appointment of a successor Escrow Agent, the resigning Escrow Agent shall be absolved from any and all liability in connection with the exercise of its powers and duties as Escrow Agent hereunder except for liability arising in connection with its negligence or willful misconduct. Upon their receipt of notice of resignation from the Escrow Agent, the Company, the Representative and each Indemnified Party shall use reasonable efforts jointly to designate a successor Escrow Agent. In the event such parties do not agree upon a successor Escrow Agent within thirty (30) days after the receipt of such notice, the Escrow Agent so resigning may petition any court of competent jurisdiction for the appointment of a successor Escrow Agent or other appropriate relief and any such resulting appointment shall be binding upon all parties hereto. By mutual agreement, the Company, the Representative and each Indemnified Party shall have the right at any time upon not less than ten (10) days' prior written notice to the Escrow Agent to terminate their appointment of the Escrow Agent, or successor Escrow Agent, as Escrow Agent. The Escrow Agent or successor Escrow Agent shall continue to act as Escrow Agent until a successor is appointed and qualified to act as Escrow Agent. -6- 7 4.2 FEES AND EXPENSES OF ESCROW AGENT. 4.2.1 The Escrow Agent shall (a) be paid a fee for its services under this Escrow Agreement as provided by Exhibit A and (b) be entitled to reimbursement for reasonable expenses (including the reasonable fees and disbursements of its counsel) actually incurred by the Escrow Agent in connection with its duties under this Escrow Agreement (collectively, the "Escrow Agent Fees and Expenses"). All Escrow Agent Fees and Expenses shall be paid first out of interest, dividends, and other income earned on the Escrow Funds and then, to the extent of any shortfall, pro rata, by the Indemnifying Parties. ARTICLE V 5.1 NOTICES. All notices, requests, consents or other communications required or permitted under this Escrow Agreement shall be in writing and shall be deemed to have been duly given or delivered by any party (a) when received by such party if delivered by hand, (b) upon confirmation when delivered by telecopy, (c) within one day after being sent by recognized overnight delivery service, or (d) within three business days after being mailed by first-class mail, postage prepaid, and in each case addressed as follows: (i) if to Buyers or to any Indemnified Party: SI Holding Corporation c/o Fleet Venture Resources, Inc. 111 Westminster Street Providence, RI 02903 Attention: Mr. Habib Y. Gorgi, Executive Vice President with a copy to: Hinckley, Allen & Snyder 1500 Fleet Center Providence, RI 02903 Attention: Mr. Richard G. Small, Esq. (ii) if to the Indemnifying Parties or the Representative, to: Charles W. Doulton Players' Club, Unit 106D 1425 Gulf of Mexico Drive Longboat Key, FL 34228 -7- 8 with a copy to: Chmielinski, Wilchins & Witman, P.A. 36 Washington Street, Suite 70-90 Wellesley Hills, MA 02181-1904 Attention: David P. Witman, Esq. (iii) if to the Escrow Agent, to: Fleet Bank of Massachusetts, N.A. Trust Department 28 State Street Boston, MA 02110 Attention: Timothy Donmoyer Any party by written notice to the other parties pursuant to this Section may change the address or the persons to whom notices or copies thereof shall be directed. 5.2 ASSIGNMENT. This Escrow Agreement and the rights and duties hereunder shall be binding upon and inure to the benefit of the parties hereto and the successors and assigns of each of the parties to this Escrow Agreement. No rights, obligations or liabilities hereunder shall be assignable by any party without the prior written consent of the other parties, except that any Indemnified Party may assign its rights under this Escrow Agreement without obtaining the prior written consent of the other parties hereto to any person who acquires (whether in a single transaction or a series of related transactions) (i) all or substantially all of the assets of any such Indemnified Party or (ii) a majority of the outstanding capital stock of any such Indemnified Party. Notwithstanding the foregoing, any Indemnified Party may make a collateral assignment of its rights under this Agreement to any institutional lender who provides funds to any such Indemnified Party for the consummation of the Acquisition. Representative agrees to execute acknowledgments of such assignment(s) and collateral assignments in such forms as such Indemnified Party's institutional lender(s) may from time to time reasonably request. 5.3 AMENDMENT. This Escrow Agreement may be amended or modified only by an instrument in writing duly executed by all the parties to this Escrow Agreement. 5.4 WAIVERS. Any waiver by any party hereto of any breach of or failure to comply with any provision of this Escrow Agreement by any other party hereto shall be in writing and shall not be construed as, or constitute, a continuing waiver of such provision, or a waiver of any other breach of, or failure to comply with, any other provision of this Escrow Agreement. 5.5 CONSTRUCTION. This Escrow Agreement shall be construed and enforced in accordance with and governed by the internal substantive laws of the Commonwealth of Massachusetts. The headings in this Escrow Agreement are solely for convenience of reference and shall not be given any effect in the construction or interpretation of this Escrow Agreement. -8- 9 Unless otherwise stated, references to Sections and Exhibits are references to Sections and Exhibits of this Escrow Agreement. 5.6 THIRD PARTIES. Nothing expressed or implied in this Escrow Agreement is intended, or shall be construed, to confer upon or give any person or entity other than the Indemnified Parties, the Representative, the Indemnifying Parties and the Escrow Agent any rights or remedies under, or by reason of, this Escrow Agreement. 5.7 TERMINATION. This Escrow Agreement shall terminate at the time of the final distribution by the Escrow Agent of all Escrow Funds in accordance with the provisions of this Escrow Agreement. 5.8 COUNTERPARTS. This Escrow Agreement may be executed in one or more counterparts, each of which shall be deemed any original and all of which together shall constitute a single instrument. 5.9 WAIVER OF OFFSET RIGHTS. The Escrow Agent hereby waives any and all rights to offset that it may have against the Escrow Funds including, without limitation, claims arising as a result of any claims, amounts, liabilities, costs, expenses, damages, or other losses that the Escrow Agent may be otherwise entitled to collect from any party to this Agreement or any [Indemnitor] Indemnifying Party. IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be executed by their duly authorized officers as of the day and year first above written. PURCHASER: SI Holding Corporation By:_______________________________ Habib Y. Gorgi Executive Vice President COMPANY: Simonds Industries Inc. By:_______________________________ Ross B. George President -9- 10 REPRESENTATIVE: __________________________________ Charles W. Doulton OPTION HOLDERS: __________________________________ Charles W. Doulton __________________________________ Paul D. Petricca MASSACHUSETTS CAPITAL RESOURCE COMPANY, INC. By:_______________________________ Richard Anderson Vice President ESCROW AGENT: Fleet Bank of Massachusetts, N.A. By:_______________________________ Name: Title: SHAREHOLDERS: Greylock Capital Limited Partnership By:_______________________________ Robert P. Henderson Managing Partner Greylock Investment Limited Partnership By:_______________________________ Robert P. Henderson General Partner -10- 11 Doulton Children's Trust, FOB Kara By:_______________________________ Priscilla A. Doulton as Trustee __________________________________ Charles W. Doulton __________________________________ Priscilla A. Doulton __________________________________ Bettina E. Doulton __________________________________ Ross B. George __________________________________ Mildred George __________________________________ Joseph L. Sylvia __________________________________ Robert W. Deedrick __________________________________ Harry H. Rogers __________________________________ Brian Loveridge Norval Morey Family Trust, By:_______________________________ Norval Morey, as Trustee __________________________________ John E. Halloran __________________________________ Charles C. Lundstrom -11- EX-10.10 30 LABOR AGREEMENT-LOCAL 7896 1 Exhibit 10.10 THIS AGREEMENT DATED MAY 5, 1997, IS BETWEEN SIMONDS INDUSTRIES INC., AND/OR ITS SUCCESSORS, FOR ITS PLANT LOCATED AT FITCHBURG, MASSACHUSETTS (HEREINAFTER REFERRED TO AS THE "COMPANY") AND UNITED STEELWORKERS OF AMERICA, AFL-CIO, AND/OR ITS SUCCESSORS, ON BEHALF OF LOCAL 7896 (HEREINAFTER REFERRED TO AS THE "UNION"). ARTICLE I RECOGNITION The Company recognizes the Union as the sole and exclusive collective-bargaining representative for all production and maintenance employees in the bargaining unit as determined by the National Labor Relations Board in case No. I-RC-11519 with respect to rates of pay, wages, hours of employment and other conditions of employment. ARTICLE II PURPOSE AND INTENT The purpose of the Company and the Union in entering into this Labor Agreement is to set forth their agreement on rates of pay, wages, hours of work, and other conditions of employment so as to promote orderly and peaceful relations with the employees, to achieve uninterrupted operation in the plant, and to achieve the highest level of employee performance consistent with safety, good health, and sustained effort. The Company and the Union encourage the highest possible degree of friendly, cooperative relationships between their respective representatives at all levels and with and between all employees. The officers of the Company and the Union realize that this goal depends on more than words in a labor agreement, that it depends primarily on attitudes between people in their respective organization and at all levels of responsibility. They believe that proper attitudes must be based on full understanding and regard for the respective rights and responsibilities of both the company and the Union. They believe also that proper attitudes are of major importance in the plant where day-to-day operations and administration of this Agreement demand fairness and understanding. They believe that these attitudes can be encouraged best when it is made clear that the Company and Union officials, whose duties involved negotiation of this Agreement, are not anti-union or anti-company but are sincerely concerned with the best interests and well being of the business of all employees. ARTICLE III MANAGEMENT RESPONSIBILITY Subject to the provisions of this Labor Agreement, the Company retains the exclusive rights to manage the business and the plant and to direct the working forces. The Company, in the exercise of its rights, shall observe the provisions of the Agreement. The rights to manage the business and plant and to direct the working forces include but are not limited to the right to hire, suspend or discharge for proper cause, or to transfer, and the right to relieve employees from duty because of lack of work or for other legitimate reasons. 2 ARTICLE IV SUPERVISORS WORKING A supervisor shall act in a supervisory capacity and shall not perform the work regularly performed by bargaining unit employees. However, this provision shall not be deemed to prohibit a supervisor from performing the work of bargaining unit employees in emergency situations, in situations where an employee encounters difficulty in the performance of his work, or in situations where he is instructing employees in the use of tools or in the methods of performing work. Nor shall a supervisor or engineering or laboratory personnel be prohibited from performing experimental work, special mechanical work or other research work considered necessary by the Company for the improvement of its products or of its manufacturing methods. ARTICLE V UNION SECURITY A. MEMBERSHIP IN UNION (1) As a condition of employment, all employees covered by this Agreement, as defined in Article I (in case of new employees, ninety (90) days after the date of hiring and subsequent to the effective date of this Agreement) shall become and remain members of the Union to the extent of paying or tendering initiation fees and membership dues uniformly levied against all members during the term of this Agreement. (2) The Union may not discriminate against applicants for membership in the Union and the requirements of membership in the Union as a condition of employment shall be considered fulfilled by the payment or tender of payment of initiation fees and membership dues uniformly levied against all members. (3) Any employee who fails to maintain his obligations under the provisions of the Article shall not be retained in the employ of the Company, provided that the Union shall have notified the Company and the employee in writing of such default, and said employee shall have failed to remedy the same within thirty (30) days after receipt of such notice. (4) The provisions of this Article shall not apply to any employee in the bargaining unit to whom membership in the Union is denied or whose membership therein has been terminated for reasons other than the failure of such employee to tender the initiation fees and membership dues uniformly levied against all members. (5) Application for membership form shall be as agreed to in writing by the Company and Union. -2- 3 (6) The Union will furnish the Company with the names of all members paying dues directly to the Union within sixty (60) days following the effective date of this Agreement, and each thirty (30) days thereafter during the term thereof. (7) Any disputes arising as to an employee's membership in, or tender or payment of membership dues to the Union shall be a subject for the grievance procedure, including arbitration. B. CHECKOFF (1) The Company will check off monthly dues, assessments and initiation fees each as designated by the International Treasurer of the Union, as membership dues in the Union, on the basis of individually signed voluntary checkoff authorization cards in forms agreed to by the Company and the Union. The monthly membership dues for each employee who has provided a voluntary checkoff authorization card shall be an amount equal to 1.3% of said members total earnings during the month provided that monthly dues shall not be less than $5.00 and provided further that monthly dues shall not be more than 2.5 times the member's average hourly earnings. (2) Deductions on the basis of authorization cards submitted to the company shall commence with respect to dues for the month in which the Company receives such authorization card or in which such card becomes effective, whichever is later. Dues for a given month shall be deducted from the second pay closed and calculated in the succeeding month. (3) In cases of earnings insufficient to cover deduction of dues, the dues shall be deducted from the next pay in which there are sufficient earnings, or a double deduction may be made from the second pay of the following month, provided, however, that the accumulation of dues shall be limited to two months. The International Treasurer of the Union shall be provided with a list of those employees for whom double deduction has been made. (4) The Union will be notified of the reason for nontransmission of dues in case of layoff, discharge, resignation, leave of absence, sick leave, retirement, death, insufficient earnings. (5) Unless the Company is otherwise notified, the only Union membership dues to be deducted for payment to the Union from the pay of the employee who has finished. an authorization shall be monthly Union dues. With respect to check off authorization cards submitted directly to the Company, the Company will deduct initiation fees unless specifically requested not to do so by the International Treasurer of the Union after such checkoff authorization cards have become effective. The International Treasurer of the Union shall be provided with a list of -3- 4 those employees for whom initiation fees have been deducted under this paragraph. (6) Dues deducted by the Company in accordance with the foregoing shall be remitted to the International Union Treasurer on a monthly basis. C. SAVINGS CLAUSES The provisions of this Section and of the cards for membership application and dues checkoff shall be effective in accordance and consistent with applicable provisions of Federal Law. The Union shall indemnify and save the Company harmless against any and all claims, demands, suits, or other forms of liability that shall arise out of or by reason of action taken or not taken by the Company for the purpose of complying with any of the provisions of this Section, or in reliance of any list, notice or assignment furnished under any of such provisions. ARTICLE VI HOURS OF WORK SECTION 1 - SCOPE This section defines the normal hours of work and shall not be construed as a guarantee of hours of work per day or per week, or days of work per week. SECTION 2 (a) The normal work week for employees covered by this Agreement shall be forty (40) hours per week eight (8) consecutive per day, not including any unpaid meal, but including one 10 minute break and two 5 minute wash-up periods (before lunch and before the end of the shifts), five (5) days per week, Monday to Friday, inclusive. In the event of a reduction of hours from the normal work week for (4) consecutive weeks, then the junior employee in the classification will be laid off from that affected position, so as to provide (40) hours of work for the senior employee. (b) The normal work day is the 24-hour period beginning with the regularly assigned starting time of the work shift. The work week starts with the regularly assigned work shift on Monday except for employees who are assigned to the third shift, whose work week begins on Sunday night. (c) Determination of the starting times shall be made by the company and schedules may be changed by the Company from time to time to suit varying conditions of the business; provided however, that indiscriminate changes shall not be made in such schedules and provided further that changes deemed necessary by the -4- 5 Company shall be discussed with the plant representatives of the Union prior to the change and as far in advance of such changes as is possible. Notice of Saturday and Sunday overtime work shall be given before the work period ends on Thursday. The third shift notification will be given when feasible by 7:00 A.M. Thursday morning on a tentative basis. SECTION 3 (a) All hours worked in excess of eight (8) in any one day and all hours worked on Saturday shall be paid for at the rate of time and one-half (1-1/2). (b) All hours worked on Sunday will be paid for at the rate of double time except for employees who are assigned to third shift, whose work week begins at 10:30 P.M. or 11:00 P.M. on Sunday. (c) All hours worked in excess of forty (40) in any work week will be paid for at the rate of time and one-half (1-1/2). (d) Time and one-half (1-1/2) shall be paid for hours worked on Company paid holidays set forth in Article XVI of this Agreement plus holiday pay. (e) 1. Anyone called in prior to his scheduled starting time shall be paid time and one-half (1-1/2) for hours worked prior to his starting time. 2. An employee called in and who reports to work shall be guaranteed four (4) hours pay at the applicable rate for that day. 3. Any employee who without prior notice from the Company not to do so, reports for work and finds his regular work not available shall be given not less than four (4) hours work and shall be compensated at his standard hourly wage rate. If such work is not available, he shall receive four (4) hours pay at his standard hourly wage rate, provided, however, that this provision shall not apply if: (a) an employee has been absent and returns to work without having notified his foreman at least twelve (12) hours prior to his scheduled starting time as to when he will return to work, or (b) a breakdown or suspension of operations occurs because of lack of power, act of God, fire, flood, or other cause beyond the Company's control. 4. If an employee cannot report for his/her scheduled shift, the Company must be notified at least ten (10) minutes prior to the start of the shift -5- 6 unless a legitimate reason exists preventing the employee from giving such notification. Appropriate voice mail phone numbers will be posted. SECTION 4 There shall be no duplication or pyramiding of overtime or premium rates of pay so that when the particular work falls within two or more overtime or other premium classifications, either under this Agreement or as a matter of law, only the single highest applicable overtime or other premium rate shall be paid. SECTION 5 (a) The Company may require an employee to work a reasonable amount of overtime in accordance with operational requirements. Employees will be expected to meet overtime schedules when given a reasonable notice. (b) Consistent with operating requirements and efficiency, overtime shall be distributed reasonably equitably among those employees within the department in the job classification where the overtime is involved, providing the employees are qualified to do the work, and among those that do not have a high absentee record. If there is an insufficient number of employees who regularly hold the classification to fulfill overtime requirements, then the overtime will be distributed reasonably equitably among the other qualified employees in the department. Records maintained by the Foreman on distribution of overtime will be available to the area representative upon request. Line supervisors will update overtime records on a weekly basis. This record will show assigned job code and will be made available to the area Union representative upon request. The Company and the Union agree that when the Company determines that an employee is absent to the extent where it will affect whether or not the employee is scheduled for overtime, the Company will notify the employee that the Company has determined that absenteeism is becoming excessive and that further absences (whether full days or partial days and regardless of a doctor' s excuse) in future weeks will cause the employee not to be scheduled for overtime for which he would normally be scheduled. Such notice shall be verbally given with a memo to the file. The Union and the employee may obtain copy of this note upon request. (c) The remedy for improper distribution of overtime shall be the granting of future available overtime work and shall not be pay for unworked time. (d) Notice of Saturday and Sunday overtime work shall be given before the work period ends on Thursday; the third shift notification will be given at the beginning of the shift on Thursday night. -6- 7 SECTION 6 - INVENTORY WORK The Company shall have the right to assign as many employees from a particular department to perform inventory work in that department. Should employees be needed to perform inventory work in a particular department in addition to those employees from that department, the Company will offer the work to employees in departments other than the particular department in accordance with seniority. If not enough employees are willing to perform such work, the Company will have the right to assign employees to perform the work in reverse order of seniority. Employees performing inventory work will be paid at their current job rate. SECTION 7 - TRAVEL TIME In order to clarify the policy with regard to payment to Bargaining Unit employees traveling on special assignment, we have prepared the rules shown below. 1 Employees will be paid for travel time to and from the location of the special assignment. Travel time will be measured from the residence or from the normal work location should the employee leave from there. 2. Travel time which occurs during the employee's normal workday will be paid at the appropriate CWS rate in each case. 3. Travel time which occurs during times other than the employee's normal workday and between workdays (Saturday and Sunday) will be paid at base rate. The usual provisions for time and one-half and double time will apply to travel time outside the normal workday. 4. Travel time will only be paid when other than the normal work day is involved or when the assignment and travel time combined exceed eight hours during the normal work day. ARTICLE VII SENIORITY The parties recognize that promotional opportunity and job security in event of promotions, decrease in forces, and recalls after layoffs should increase in proportion of length of continuous service, and that in the administration of this Article the intent will be that wherever practical full consideration shall be given continuous service in such cases. 1. It is understood and agreed that in all cases of: -7- 8 (A) Promotion, the following factors as listed below shall be considered; however, only where factors 1 and 2 are relatively equal shall length of continuous service be the determining factor: 1. Ability to perform the work, 2. Physical fitness, 3. Continuous service. (B) Decrease in forces or recalls after layoffs the following factors as listed below shall be considered; however, only where both factors 1 and 2 are relatively equal shall continuous service be the determining factor: 1. Ability to perform the work, 2. Physical fitness, 3. Continuous service. (C) Seniority is defined as the length of an employee's continuous service at Simonds Industries Inc., Fitchburg, Massachusetts, from his latest effective date of employment or re employment as measured in years, months, and days. However, it is understood by both parties that any employee who, prior to this Agreement transferred to Fitchburg from another location of the Company, has been credited with continuous service for the time worked at such other Company location from his latest effective date or employment or re-employment. In those instances where two or more employees have the same date of hire, seniority will be determined by clock number, the lower number having the greater length of service. The Company agrees that for the purpose of bidding, bumping, and vacation accrual, service with Simonds Cutting Tools shall be recognized for those Simonds Cutting Tools employees who were hired at the time of the transfer of assets to Simonds Industries. (D) Seniority shall be applied in individual departments which are listed in Exhibit B. Revision of such list of departments, which is for seniority purposes only, shall be subject to the grievance procedure. (E) There is a 90-day probationary period for all new employees. There is no seniority during the probation period. A new employee who is retained in employment after the end of his probationary period will have seniority effective as of his first day of work. Absences for any reason considered to be excessive, will be added to the 90-day probationary period. The Company has sole discretion to dismiss a probationary employee and such dismissal shall not be subject to the grievance procedure. II. When a reduction of forces is made the following applies: -8- 9 (A) On jobs which traditionally are plant-wide in nature such as anvil men, maintenance trades, etc. and on special skill jobs as listed below, employees shall be removed from the job classification in reverse order of seniority. The least senior employee in the classification may, if he had previously been qualified in another classification, bump into that classification provided he has the seniority and provided he can requalify with minimal training (1 week or less), or he may displace an employee in the list of designated pool jobs. (Exhibit F). Special Skill Jobs: E.D.M. Operator Anvil Man - Specialty Anvil Man - Metal Saws E.B. Welder Q.C. Technician (B) In the case of a reduction in work force, an employee being laid off from his incumbent job will have, in addition to his/her normal bumping rights, under Section (C), the option to displace the least senior active employee in the same grade within his/her group as stipulated below. If that employee does not exercise this option, only the employee he bumps will have this additional option. If an employee exercises this option, the company will provide the normal training time for he/she to learn the new job. Skilled craft and special skill jobs are exempt from bump under this paragraph. Lines will be grouped as follows for the purpose of implementing this option. Line 8 Lines 4, 10, 11, 12, 13, 16, 18, 19, 26 & 39 Lines 42, 43, 45, 46, 47, 48, 49, 56 & 80 (C) Employees working on jobs in departments shown in Exhibit B shall be removed from the department in the reverse order of seniority. An employee who is laid off from his department may exercise his seniority as follows. Under the following options numbered 1, 2, and 4, the laid off employee will always displace the least senior employee. However, if an 11-7 shift is operating for the bumped position, the laid off employee will be allowed to exercise shift seniority. If this results in the displacement of any employee, said employee will be assigned by supervision to another shift. 1. He may displace a less senior employee whose job he previously performed, provided he can requalify with minimal training (one week or less), or 2. He may displace a less senior employee occupying a job which is related in management's opinion, provided he can qualify with minimal training of one week or less, or -9- 10 3. He may displace the least senior employee in his department provided he can qualify with minimal training in one week or less, or: 4. He may displace an employee in the list of designated pool jobs. (Exhibit F). 5. In lieu of lay-off employees having ten (10) or more years of service, may displace the least senior employee in the plant. However, in the event of a permanent elimination of a bargaining unit job or the phase out of a job within the Fitchburg facility, subsequent to the decision to eliminate a manufacturing line, an affected employee will not be required to meet the ten (10) year provision. This section will only be used as a final option and excludes displacing skilled trades or special skilled jobs as defined in the agreement. 6. Employees can be given an extension of training time up to a maximum of five (5) days if reasonable progress is being shown on the new job. 7. Junior employees who cannot exercise any of the above options will be given five days notice of layoff whenever practical. 8. Any employee who is affected by a reduction in force may elect lay-off status rather than exercise his seniority to displace another employee. An employee making such election shall have recall rights limited to the job from which he was laid off, provided, that he may reinstate his general recall rights by so notifying the Personnel Department in writing, in which case he must await his turn for recall in order of seniority. 9. A non-probationary employee who has been placed on lay-off from their incumbent job and who has exercised his/her seniority rights, will not lose recall rights to their incumbent job if they refuse recall to a job held after their lay-off from their incumbent position. However, recall rights will be lost to specific job he/she was recalled to. 10. It is understood that most employees when faced with exercising bumping rights will select their options immediately. Those employees who cannot decide immediately will be given 48 hours to do so; they will be notified after the first 24 hours that they must decide within the remaining 24 hour period. 11. An employee must promptly report any change of address in writing to the Personnel Office and the Company shall be entitled to use the last address shown on its records in sending notices or letters. -10- 11 12. Temporary lay-offs for a period of not more than five (5) working days shall not be subject to the provisions of this article. 13. Any employee promoted to a position outside of the bargaining unit as defined in Article I shall have a period of twelve (12) months during which he may return to the bargaining unit with full credit for his seniority. Thereafter he would start as a new employee if returned to the bargaining unit. 14. Seniority is terminated by any one of the following occurrences: (A) Quitting Note: Voluntary termination shall be in writing no later than 24 hours of such action. Employees agreeing to this will sign and date with the Union President or agreed designee as a signed witness. Employees who fail to report for their next scheduled shift or 24 hours, whichever is longer, after having voluntarily left their job shall be deemed voluntary quits. (B) Discharge (C) Failure to report to work following expiration of vacation or leave of absence unless such failure to report is for a legitimate reason. (D) Failure to report to work after a layoff within 72 hours of his being notified by a registered letter or telegram sent to the employee's last address of record unless prevented by sickness or some other legitimate reason. In the event the employee is working elsewhere at the time of recall, he must give notice to the Company within 72 hours of his intention to return to work and must report for work within ten (10) days of his notice of recall. (E) When an individual on lay off is recalled to a temporary position the following procedure will apply: 1. An individual may refuse recall to a temporary position without jeopardizing seniority if there is a valid reason involved. 2. When an individual is recalled to a temporary position, said employee must remain on the temporary position until the assignment is completed. If a less senior employee is recalled to a permanent position that would have been offered to the employee holding the temporary position, upon completion, may exercise his/her normal bumping -11- 12 rights. If said employee who was temporarily recalled has no options under the normal bumping procedure he or she may bump the most junior permanently recalled employee whose job said temporary employee would have been offered if not temporarily recalled. 3. As a last alternative a senior employee may bump a junior employee recalled to a temporary position provided he/she can perform the job in five days or less. This condition will be explained to employees recalled to temporary positions. (F) Absence because of sickness for a period exceeding two (2) years. Absence due to compensable disability incurred during the course of employment shall not terminate seniority provided such individual returns to work within ten (10) calendar days following the judgment of a one time compensation settlement. Said employee must be medically cleared to return to their incumbent job. (G) Lay-off for a period as shown below (upon completion of the probationary period): Up to 1 Year Service 12 months 1 - 2 Years of Service 24 months 2 Years and Over 30 months Note: (Employees of record as of the date of this labor agreement will retain (30) months of recall rights.) 15. When there is a decrease of forces, top seniority shall be recognized to employees then holding the following Union offices: President Vice-President Recording Secretary Financial Secretary Treasurer -12- 13 and four (4) Grievance Committeemen, provided however, they have completed two (2) or more years of continuous service with the Company and provided further they are competent to perform the remaining work to be done in their Department or area of representation. The Union will keep the Company continuously informed of the names of individuals occupying the above Union positions. III. The Company will recall employees to permanent job openings with preference to the most senior employee who held the position as his/her last job prior to bump or lay-off or his/her incumbent job. This procedure will continue by seniority until the recall list is exhausted. ARTICLE VIII JOB POSTING VACANCIES (1) In the event a permanent job vacancy arises within a department or line (as defined in Exhibit B), the Company will post notice thereof for bid within that department or line and plant wide simultaneously. Employees permanently assigned to the line or department where the opening occurs, as well as those laid off employees assigned to the line from more than one (1) year who bid for the position, will be given preference over those employees who submit plant wide bids. In both instances, senior employees shall be given preference. (2) In the event a permanent job vacancy arises on a job not covered by Exhibit B, the Company shall post notice thereof for bid provided the vacancy was not caused by a bid for another job. (3) Permanent vacancies other than the above mentioned shall be filled through the pre-bid procedure. (4) New employees will not be eligible to participate in the Job posting procedure for a period of six (6) months. Nothing in this Article shall require the Company to fill a vacancy which it does not desire to fill. BIDDING Subject to the provisions set forth in Article VII, an employee may bid on a posted job by submitting a written request to the Personnel Department within forty-eight (48) hours from the time of posting, exclusive of Saturdays, Sundays, and paid holidays. If an employee applies for a job in accordance with pre-bid procedure and that job is subsequently posted, the employee's pre-bid application will be the equivalent of a bid and the employee will automatically be -13- 14 considered for the job. Should a period in excess of thirty (30) days elapse from the date the original bid was first posted and having failed to select a successful bidder, the position will be re-posted. PRE-BIDDING Employees may pre-bid for any job in the bargaining unit by completing an application. A copy will be retained by the Company, the employee, and the Union. Each month or at such longer intervals as the Company and Union may mutually agree upon the Company will publish an up-to-date list with a copy to the Union showing the names of all prebidders for each job in the plant. The Company will select the successful bidder, or pre bidder, in accordance with Section I (A) - Seniority (Article VII) and post the name of such employee on the bulletin board, with a copy to the Union on the first of each month for the previous month. If a dispute arises as to whether an employee has the ability to perform the job, he shall be given a trial period of not more than ten (10) work days provided, however, that this period may be extended by mutual agreement between the Company and the Union. A successful bidder who fails to demonstrate the ability to perform the job will first be given five (5) days prior consultation that he/she may be disqualified. If disqualified, he/she shall be returned to their former job and shift as held prior to the bid, provided he/she is more senior than the employee now in this position. All subsequently displaced employees will exercise this option. If an employee does not have the seniority to exercise the above option, he/she shall first be assigned to an open available job. If there is no available job to which the employee may be assigned, said employee will displace the least senior employee in the plant holding a job other than those in the skilled crafts, trades, Exhibit E, or those mutually agreed upon as being special skills jobs. If there are no qualified eligible bidders or pre-bidders for the posted job or if an employee has failed to demonstrate the ability to perform the job, the Company shall undertake to train the senior employee for the position to be filled provided, however, that this obligation shall not extend to a Skilled Trades Classification, as listed in Article X of this Agreement. In such cases, the Company may hire from the outside at its discretion. A successful bidder or pre-bidder shall not be permitted to transfer to another job as a result of a bid or pre-bid for a period of six (6) months, plus training time, unless the job vacancy is in the employees regular line of progression. However, during the term Of this Agreement, employees will only be allowed one successful lateral bid. Employees who successfully bid or pre-bid into a job designated as "Special Skill Jobs" shall not be permitted to transfer to another job as a result of a bid or pre-bid for a period of twelve (12) months (See Exhibit E for "Special Skill Jobs" listing). However, a successful bidder or pre-bidder will be allowed one additional successful bid during the normal instruction period (which usually is eight weeks time) connected with training -14- 15 a replacement and prior to physically transferring to the new position. (Unless an unusual circumstance arises which extends the period of time). Should an employee elect to bid again during the instruction period, prior to transfer, and is successful, he or she must accept the second successfully bid position. (The next senior bidder will automatically be in line for consideration regarding the original posting provided that a period in excess of 30 days has not elapsed.) The pre-bid of an employee who refuses promotion to a job under this Section will be removed from the pre-bid file for such job. An employee to be again eligible must resubmit his pre-bid application. When it is necessary to fill a temporary vacancy, such a vacancy shall to the greatest degree consistent with the efficiency of the operation, availability of replacement, and the safety of employees, be filled on the basis of departmental upgrading procedures, which provide that senior employees shall be given preference. However, in case of a permanent vacancy on a job, prior assignment of a junior employee to a temporary vacancy on such job shall not be used as a presumption of greater ability in favor of such junior employee if such temporary vacancy was not made available to the senior employee. Temporary transfers, for reasons other than illness/injury, will be no longer than ninety (90) consecutive calendar days. In making a temporary transfer for more than one full shift, the Company will first consider the senior active incumbent job holder who presently is in a lower graded position. Nothing in this Article will require the Company to keep an employee on a job for which he is not qualified. The Company will review applications for lateral or downward bids where physical hardship is involved and may award such bids after review. When a job becomes temporarily vacant due to the critical illness of an employee, and it is questionable as to whether the employee will return to that specific job, the Company will post the job as though it were a permanent position. It is also understood that should the ill employee recover and return to work, physically able to perform said job, he will displace the operator that replaced him via the job posting regardless of seniority. The successful bidder will be entitled to the usual rights connected with a job bid award with the exception of the return of the recovered employee and the displacement aspect mentioned above. The successful bidder cannot be displaced during a reduction of the work force except by an employee who has previously held the position or who currently occupies a position that in Management's opinion is job related. If this employee is the least senior in the plant, he/she will be displaced prior to a more senior employee becoming unemployed unless the employee occupies a skilled trades or special skills job as defined in the agreement. Bidding Rights -15- 16 - If ill/injured employee returns and displaces said employee, the bid lock-in will not exceed six months regardless of job level. - If ill/injured employee does not return to the position the bidding restriction will be per contract 6 mos., 12 mos., etc. The conditions of this agreement will be made known to the successful bidder in such cases. When an employee is medically cleared to return to work after extended illness and cannot perform his own job because of physical limitations, the following may apply: A. He will displace the less senior employee to him holding a job classification that the company feels he can perform satisfactorily which complies with his medical clearance. B. If satisfactory performance is attained, this position will then become the employee's permanent Job classification. This understanding is intended to apply primarily to employees covered under the Accident and Sickness Program. The same will apply to employees receiving medical clearance from industrial injury who have the capability of performing satisfactorily on a consistent basis. The displaced employee will then exercise his options as set forth in the reduction of work force section of Article VII, (Seniority). C. The Company and the Union agree that the Company may, at it's discretion, establish and fill temporary light duty jobs for the purpose of providing such work for employees who are on Workman's Compensation, and have medical restrictions. Such temporary positions will not be available as an option in the normal bidding and bumping procedures, since these are not permanent positions. The company agrees to discuss the creation of such jobs with the Union prior to filling the positions. Nothing in this agreement is intended to displace an active employee from his regular job. These jobs will be graded according to the C.W.S. Job Evaluation System and paid according to the contractual wage agreement. In the case of a reduction in work force, the Company will attempt to relocate temporary light duty employees where possible in order to retain active employees. ARTICLE IX WAGES 1. The following hourly wage rates will remain in effect from May 5, 1997 through May 3, 1998, for all employees on the hourly payroll. Grade 1 $10.90 Grade 2 $11.85 -16- 17 Grade 3 $12.85 Grade 4 $13.90 Grade 5 $15.00 Effective May 4, 1998, all rates will increase by $.35/hr. Effective May 3, 1999, all rates will increase by an additional $.45/hr. 2. If a bargaining unit employee is overpaid due to a mechanical or systems error, over which he/she has no control, and it is determined that the overpayment was not significantly obvious so as to alert the employee to the problem, the Company will limit the moneys to be recovered to that amount overpaid to the employee during the twelve months preceding the date the error was discovered. 3. It is mutually agreed that temporary transfer situations shall be paid as follows: a. Company convenience - employees transferred will be paid the rate of his own job or the rate to which transferred, whichever is higher. b. Lack of work placements - employees transferred will be paid the grade of the job to which transferred. c. The higher rate will apply only to transfers which are for a period of one hour or longer. d. When overtime is not available in an employee's classification and the employees voluntarily agrees to work in a different classification, he/she will be paid the rate of the job. Company will consider all qualified volunteers on an equitable basis. ARTICLE X JOB EVALUATION PRINCIPLES OF THE C.W.S. EVALUATION PLAN A. STANDARD HOURLY WAGE SCALE 1. The standard hourly wage scales of rates for the respective job classes and the effective dates thereof shall be those set forth in Exhibit A of this Agreement. 2. The (5) pay grades shall relate to the (21) C.W.S. job grades as follows: PAY GRADE C.W.S. JOB GRADE 1 1-4 2 5-8 3 9-12 -17- 18 4 13-16 5 17-21 B. NEW AND CHANGED JOBS 1. All Bargaining Unit jobs that have been described and evaluated by the Job Evaluation Committee in accordance with the provisions of the C.W.S. Manual for Job Classification of Production and Maintenance Jobs (Updated as of 1/l/63). 2. The job descriptions and classifications will become effective with respect to an employee when that employee's job is covered by the CWS Job Evaluation Plan and shall continue in effect unless: (a) The Company changes the job content (requirements of the job as to the training, skill, responsibility, effort, and working conditions) to the extent of one full job class or more; (b) The job is terminated or not occupied during a period of one year; or: (c) The description and classification are changed in accordance with mutual agreement of officially designated representatives of the Company and the Union. 3. When and if from time to time the Company, at its discretion, establishes a new job or changes the job content (requirements of the job as to training, skill, responsibility, effort, and working conditions) of an existing job to the extent of one full job class or more, a new job description and classification for the new or changed job shall be established in accordance with the following procedure: (a) The Company Job Evaluation Committee will develop a description and classification of the job in accordance with provisions of the Manual. (b) The proposed description and classification will be submitted to the Grievance Committee for approval, and the standard hourly wage scale rate for the job class to which the job is thus assigned shall apply in accordance with the provisions of the Manual. (c) If the Company and the Union are unable to agree upon the description and classification, the Company shall install the proposed classification and the standard hourly wage scale rate for the job class to which the job is thus assigned shall apply. The employee or employees affected may at any time within thirty (30) days from date of installation file a grievance -18- 19 alleging that the job is improperly classified under the job description and classification of the Manual. Thereupon the Grievance Committee shall prepare and mutually sign a stipulation setting forth the factors and factor coding which are in dispute. Such grievance shall be entered in the 2nd step of the Grievance Procedure and settled in accordance with the Job Description provisions of the Manual. If the grievance is submitted to the Arbitration Procedure, the decision shall be effective as of the date when the new job was established or the change or changes installed but in no event earlier than thirty (30) days prior to the date on which the grievance was filed. (d) In the event the Company does not develop a new job description and classification, the employee or employees affected or the Grievance Committee may, if filed promptly, process a grievance under the grievance procedure of this Agreement requesting that a job description and classification be developed and installed in accordance with applicable provisions of the Manual. C. CHANGED JOBS OF LESS THEN ONE JOB CLASS 1. When Management changes a job, but the job content change is less than one full job class, a supplementary record shall be established to maintain the job description and classification on a current basis and to enable subsequent adjustment of the job description and classification for an accumulation of small job content changes as follows: (a) Management shall prepare, on the form set forth, a record of the change involved, such record to become a supplement to the job description and classification and be transmitted to the appropriate Union representative through the procedure of this manual. This record shall contain statement of the additions to or deletions from the job description, the factor classifications in effect before the job was changed, the proposed new factor classifications and the net total change. (b) When and if an accumulation of such fractional job content changes equals one full job class or more, a new job description and classification for the job shall be established in accordance with this manual. 2. When Management terminates a job, or a job is not occupied during a period of one year, a record as to cancellation of the applicable job description and classification shall be established as follows: (a) Management shall prepare, on the form set forth in this manual, a record of the canceled job description and classification. This record shall contain identification of the job, and statement of causes for cancellation of the job description and classification, such as: job terminated, job not occupied during period of one year; etc. -19- 20 (b) Such record shall be transmitted to the appropriate Union representative through the procedure of this manual. 3. When Management changes the identification details relative to a given job, such as name of the department or sub-division, or plant title or code of the job, a record as to such change shall be established as follows: (a) Management shall prepare, in the form set forth in this manual, a record of the identification change. The heading of the record shall show the identification details of the job prior to change, and the changes to be made shall be enumerated under the caption of "Description Change." (b) Such record shall be transmitted to the appropriate Union representative of the employees affected through the procedure of this manual. D. SKILLED TRADES CLASSIFICATIONS AND TRAINEES Skilled Trades Classifications will be considered to be: Tool and Die Maker Toolmaker Machinist Electrician - Electronic Electrician - Shop Electrician - Instrument Technician Millwright Machinist Welder Die Sinker ARTICLE XI PRODUCTIVITY IMPROVEMENT PLAN The Company and Union recognize the need to encourage and reward productivity. The procedure for recognizing and rewarding improvements in productivity shall be the Productivity Gainsharing Plan. The productivity gainsharing plan shall be a plant wide bonus plan based on the productivity of the direct labor bargaining unit employees. The clock hours of new hires will not be included in the calculation of the productivity index for their first four (4) weeks of employment. -20- 21 The clock hours of non-probationary employees who, because of a bump or bid, require training by a trainer will not be included in the calculation of the productivity index for up to five (5) days of training. The measure of productivity shall be an index equal to the amount of earned direct labor hours divided by the total clock hours of direct labor employees. Earned direct labor hours shall be defined as the standard hours assigned to the productive labor operations. These operations are assigned to labor account 000. Other operations such as setups, book allowances, etc., are not considered as earned direct labor even though they have a labor standard. Total clock hours shall be defined as all the clock hours of those employees classified as direct, regardless of whom time was spent. The productivity index shall be computed for each calendar quarter. Bonus computation will be based on a comparison of the quarterly index to the base index. The base index shall be .830 effective 5/2/94. The bonus plan shall be a 90% Gainsharing Plan. For each 1% change in the index, a .9% payment will be awarded. If the productivity index for a quarter is higher than the base index a bonus payment shall be issued. FORMULA: Quarterly Index - 1 x .9 + Bonus % --------------- Base Index EXAMPLE: 1.00 = (1.25) - 1 = 18.4% ---- ---------- .830 All bargaining unit employees will receive a bonus payment equal to their straight time earnings during Bonus Quarter times bonus %. If the quarterly index is lower than the base index, a pay deduction shall be computed using the same procedure. In order to encourage true productivity gains the following practices shall apply. 1. Labor standards will be frozen at base levels. Any improvements in productivity, regardless of the source, shall enhance the bonus opportunity. Methods changes that are detrimental to quality, safety or machine operation will not be allowed. -21- 22 2. New standards will be established for new products and new equipment. Previously established Industrial Engineering practices shall be employed. The clock hours spent on new equipment or new products shall not be used in the bonus computation until such time as standards are issued. Operators on new equipment or new products shall receive bonus payments. 3. Direct Earned Hours for unacceptable quality work due to operator error will not be used in the computation. The productivity gainsharing plan described above shall become effective on the effective date of the labor agreement between the Union and Simonds Industries Inc. Simonds Industries Inc. and the Union mutually encourages ongoing productivity gains. The Company will endeavor to work with the Union to refine, modify or improve this plan and/or devise alternate plans which promote productivity gains. ARTICLE XII GRIEVANCE AND ARBITRATION PROCEDURE SECTION 1. SETTLEMENT OF GRIEVANCES A. An employee having a request or complaint shall first present it to his foreman. The employee may ask his Union Representative to accompany him in his discussion with the foreman. B. A grievance is defined as any dispute between the Company and the Union, or between the Company and any of its employees, arising during the term of this Agreement and involving an alleged violation of the terms of this Agreement or an alleged failure to comply with the Agreement, or a dispute as to its interpretation or application. C. Any grievance, as above defined, shall be processed in the following manner: STEP 1 The employee, or the Union Representative, shall first verbally present the grievance to his foreman within five (5) working days after occurrence of the event or the date on which the employee knew or could have known of the event and the foreman shall give his answer within five (5) working days. If the grievance cannot be resolved orally, the employee or his Union Representative shall submit the grievance to his foreman promptly in writing on a form agreed to by the parties and provided by the Company for this purpose. The grievance form shall be dated and signed by the employee or his union representative. The foreman shall provide an answer to the employee or his union representative in writing within five (5) working days of his receipt of the grievance form. STEP 2 If the Union wishes to appeal the grievance further, the designated management representative shall be notified by the grievance committeeperson within five (5) -22- 23 working days after receipt of the foreman's answer. The designated management representative shall meet with the appropriate grievance committeeperson within five (5) working days after receipt of notice from the Union. The Company's answer shall be given in writing within five (5) working days after the meeting with the committeeperson. STEP 3 The grievance, to be considered further, must appear on the agenda for the next scheduled third step grievance meeting. If not, the grievance shall. be considered settled on the basis of the Company's Step 2 answer. Agendas shall be exchanged three (3) working days prior to the monthly grievance meeting. The Director of Industrial Relations, or his representative, shall meet with the Grievance Committee, including the President of the Local Union, as an ex-official member of such Committee, and the Staff Representative, at the next scheduled grievance meeting. The Company's answer shall be given in writing within seven (7) working days after the meeting on the grievance. SECTION 2. ARBITRATION A. If either the Union or the Company wishes to appeal the grievance further, it shall notify the other party in writing on its desire to submit the matter to arbitration. Such notice must be received within fifteen (15) working days after receipt by the Union of the Company's answer at Step 3. If the parties are unable to agree on an Arbitrator within five (5) working days after notice to the Company, the matter shall be referred to the American Arbitration Association. B. The Arbitrator shall be without authority to change, alter or amend the terms of this Agreement. In no event shall any disposition or award upon any grievance be made retroactive for any period longer than thirty (30) calendar days prior to the date the grievance was filed in writing in Step 1. The fees and expenses of the Arbitrator shall be shared equally by the parties and the decision of the Arbitrator shall be final and binding upon both parties, including the grievance. The voluntary labor arbitration rules of the American Arbitration Association shall govern the selection of an Arbitrator and all proceedings. ARTICLE XIII REPRESENTATION SECTION 1 The company will carry on all Union relations through the accredited Staff Representative, Grievance Committee, and accredited Representatives of the Union. -23- 24 SECTION 2 The Company agrees to recognize Union representation. Defined areas and the number of Representatives recognized may be changed upon prior written mutual agreement of the Company and the Union. Areas of representation will be posted on the Union bulletin board. SECTION 3 The Local Union will notify the Company in writing of the name and status of any Union officials referred to herein and notify the Company in writing of any revisions in such. The Company will give the Local Union President a similar notice on changes in supervision and area supervised. SECTION 4 The Company will recognize a Union grievance committee consisting of four (4) members. The Union shall furnish the Company, in writing, with the names of such members. SECTION 5 The Company agrees to recognize alternate members of the Grievance Committee and alternate representatives, providing such individuals are replacing absent accredited committee members or representatives for a period of five working days or more and providing advance written notice is given by the Union of the name of the individual. SECTION 6 Grievance Committeepersons, with the permission of the foremen, shall be afforded reasonable time off without pay to investigate or process grievances. It is understood that such activities shall not interfere with production. SECTION 7 Requested quarterly meetings between the Grievance Committee and the Company will be at a time and place designated by the Company. ARTICLE XIV DISCIPLINE SECTION 1 The Company shall have the right, at any time, to adopt reasonable rules and regulations. All employees shall be subject to such rules and regulations. -24- 25 In enforcing such rules and regulations, or other accepted standards of industrial behavior, the Company has the right to discharge, suspend, or otherwise discipline for just cause. In determining the appropriate discipline in case of a violation, the Company shall exercise its discretion subject to the provisions of this Agreement and shall advise the Union of any formal disciplinary action taken against an employee. Such action shall be subject to the grievance and arbitration procedure except in the case of a probationary employee. When disciplinary hearings involve a Company Department Head, the Union will be given reasonable notice of said hearing. if said hearing is for an 11 - 7 shift employee, the Union will be notified of said hearing by 2 PM on the day before the hearing. SECTION 2 Where the Company decides to discharge or suspend an employee with seniority, the employee and the Union shall be so notified and the reasons therefor. In no case will the employee be peremptorily discharged, but shall first be suspended for five (5) working days, during which time there shall be a hearing attended by the employee and representatives of the Company and the Union. Before the end of the five (5) working day period the Company shall decide whether the suspension is to be revoked, extended, or converted into a discharge. The employee may challenge the Company's action through the grievance procedure, commencing at Step 2, by submitting a written grievance in the usual form to the Management representative. ARTICLE XV VACATION SECTION 1 The vacation year will be the period from June 1 to May 31 of the following year. The vacation qualifying period will be the 12 months (June 1 - May 31) preceding the vacation year. SECTION 2 To be eligible for a vacation in any vacation year during the term of this Agreement, the employee must: (a) have one year or more of continuous service, (b) have performed work in at least 50% of the pay periods in the vacation qualifying period, except that in the case of an employee who completes one year of continuous service in the vacation year, he shall have performed work in at least 50% of the pay periods during the twelve (12) months following the date of hire of his last continuous employment. An employee who qualifies for the first year anniversary vacation week in the month of May, will be allowed to take vacation during the anniversary week provided there is no scheduling problem. However, should vacation scheduling problems arise during the month of May, said employee(s) may receive vacation pay in their anniversary week, and -25- 26 schedule the vacation time during Plant Shutdown or take both vacation pay and time during Plant Shutdown. Time an employee spends on vacation or on an injury compensable under Workman's Compensation shall be considered as time worked except to the extent provided in Section 11. In the event of an employee's vacation is scheduled during a period when he or she is out on a bona fide A & S claim or industrial accident, if the employee so requests, the company will endeavor to schedule time off, if possible, consistent with production needs and at the approval of supervision. It is agreed that there will be no duplication of pay in such instances. An employee with more than one year of continuous service who is ineligible for a vacation because of failure to perform work in at least 50% of the pay periods in the vacation qualifying period due to layoff or sickness shall be entitled to one week's vacation, if he has performed work in at least 50% of the pay periods in the twelve (12) months preceding January of the vacation year. An elected Union Official may count time off work on Union business towards said 50% of pay periods. Days lost as a result of a bona fide injury or illness compensable under workers' compensation or A and S, will count toward fulfilling the eligibility requirements for vacation pay only for the vacation year in which the original precipitating event occurred. Such pay will be paid upon the return to work of said employee. Employees returning to work following such an occurrence, will be required to work fifty percent (50%) of the then current remaining eligibility period in order to qualify for vacation for the current year. SECTION 3 An eligible employee who has attained the years of continuous service indicated in the following schedule in any vacation year shall receive a vacation corresponding to such years of continuous service as shown in the following schedule: 1 or more years continuous service 1 Week 3 or more years continuous service 2 Weeks 7 or more years continuous service 3 Weeks 15 or more years continuous service 4 Weeks 25 or more years continuous service 5 Weeks The Company will allow "patch time", for vacation only, for those active employees who originally took the "window" in 1988. SECTION 4 There shall be no duplication of either vacation eligibility or vacation payment for any employee in any vacation year. No vacation time may be accumulated from one year to the next. -26- 27 SECTION 5 The Company shall have the option to schedule vacation shutdowns according to the needs of the business. In the event of one or more scheduled plant vacation shutdowns within the vacation year, employees other than those employees scheduled to work may have in the case of a second shutdown, their vacation time scheduled during such shutdown period. Employees entitled to additional vacation beyond the period of plant vacation shutdowns will have their vacations scheduled at other times during the vacation year, consistent with the preference of longer service employees and consistent with operating requirements. The Company will give notice in January of any vacation shutdown to be scheduled in June, July, or August. Such shut-down shall be considered vacation for all eligible employees not scheduled to work during this period. A planned program of scheduling all additional vacation time available will then be undertaken and completed in the first quarter of each calendar year. The company will consider an employee's request to work a double shift so as to prepare for a Holiday or scheduled vacation. Should a request of this nature be approved by supervision it is understood that all premium pay normally associated with working these additional hours would be waived. A request of this nature may be considered in emergency situations if approved by supervision. In all such requests safety and health aspects will be a factor. Any such request will be brought to the attention of the area union representative. Those employees scheduled to work production during shutdown will be given the option to take vacation or work with the general maintenance crew, if in fact production work is not available. It is understood that general maintenance work will be paid as stipulated in the contract. SECTION 6 A. Extra maintenance crew help will be recruited using a voluntary sign-up sheet. Selection will be based on seniority and future production requirements. After exhausting the voluntary list, a mandatory crew, assignments will be made using reverse seniority. Volunteers will be allowed to schedule their vacation at a later date. This procedure does not apply to employees with less than two (2) weeks of earned vacation. B. It is agreed that general maintenance (Shutdown), grade 6, will be included as a permanent job in the CWS structure. This job will only include those employees performing the general maintenance duties during the vacation shutdown period. This job will not include those employees working their regular job during the vacation shutdown period. SECTION 7 A. The vacation pay will be based on 40 hours. Beginning with the vacation year 6/1/95, vacation pay will be calculated using average hours for the preceding -27- 28 vacation qualifying period (June - May). Said pay will be based on 40 hours minimum, 44 hours maximum. B. The vacation pay will be at the individual employee's average earned straight time hourly rate, including shift premiums, based on the period between January 1 and May 31 preceding the vacation year. SECTION 8 When a paid holiday falls within the vacation week, the employee affected shall have the option of receiving the Holiday Pay with no additional time off or taking an additional day's vacation. Should the employee elect to take the additional day, one week's prior notice must be given to supervision, and the additional day must be either the scheduled work day immediately preceding the vacation week or the scheduled work day immediately following the vacation week. SECTION 9 Persons having military obligations are not obligated to schedule their vacations to coincide with training periods. Should a plant vacation shutdown happen to coincide with such a training period, the vacation may be taken at some later date, or he may receive vacation pay in lieu if he chooses. SECTION 10 The Company and the Union intend that to the greatest extent possible, eligible employees shall receive the benefit of vacation from work. However, it is recognized that operating requirements may make it necessary to require that some employees postpone their vacation to a later date or to request that some employees work and receive a vacation allowance in lieu of actual vacation time. The Company and an individual employee may mutually agree that vacation payment will be made in lieu of actual time off from work. SECTION 11 In the event of termination for any reason, an employee will be paid for any unpaid vacation for which he is eligible. In the event of termination due to retirement for any reason, a retiring employee will not be eligible for vacation or vacation pay unless he qualifies under Section 2 using the full 52 pay periods qualifying period; provided, however, that only for employees retiring between January 1 and May 31, they may be eligible for vacation as follows: -28- 29 (1) If the employee's retirement is due to normal retirement at age 65, he will be eligible for vacation if he actively performs work in 50% of the pay periods between June 1 and the date of his normal retirement; or (2) If the employee's retirement is for any reason, prior to normal retirement at age 65, he will be eligible for vacation on a pro-rata basis (using the number of pay periods considered as time worked as the numerator and 52 as the denominator of the fraction) but the time such an employee spends on vacation between June 1 and the date of his retirement will not be considered as time worked. ARTICLE XVI HOLIDAYS SECTION 1 The days on which the following holidays are observed shall be paid holidays for employees who meet the eligibility requirements: New Year's Day Washington's Birthday Good Friday Memorial Day July 4th Labor Day Thanksgiving Day Day after Thanksgiving Christmas Day 1 Personal Floating Holiday Employee's Birthday An eligible employee shall receive average straight time hourly rate for the ten (10) weeks preceding the holiday. This average does include shift differential, if applicable. SECTION 2 In order to be eligible for holiday pay, an employee must meet the following requirements: (a) Be a full-time employee (b) Work his scheduled work day before and his scheduled work day after the holiday, unless excused by the Company for a legitimate reason. (c) He must have performed work sometime during the calendar week in which the holiday is observed, or the calendar week prior thereto unless his failure to meet this requirement is caused by absence because of (1) a continuous period of verified personal illness in which -29- 30 case he shall be eligible for payment for the paid holidays set forth above which fall during such period, but only up to a maximum of 52 weeks from the last day worked, (2) jury duty, (3) military encampment, (4) paid vacation. (d) Should the Company schedule work for the 3-11 shift on Christmas or New Year's Eve, it will be optional. SECTION 3 An employee working on a holiday shall receive holiday pay and in addition shall be paid one and one-half times his average earned straight time hourly rate for hours worked on the holiday. An employee who works on a scheduled holiday and who requests another day off at no pay in place of that holiday, at the time of the scheduled holiday work, the Company wherever possible will endeavor to provide that time off consistent with production needs. If this request is granted, the day off will be scheduled within the next three month period. An employee's birthday holiday may be scheduled from the Friday before to the Monday following if the employees foreman agrees but, in that event, the employee shall not be entitled to time and one-half under this section if he works on his birthday. SECTION 4 Should an employee scheduled to work on a holiday fail to report for work without reasonable excuse, he will forfeit his right to holiday pay as herein above provided. SECTION 5 Probationary employees will receive holiday pay for those holidays occurring during their probationary period only after successfully completing their probation. SECTION 6 Employees receiving a workers' compensation payment for a Company paid holiday, will not be eligible to receive a duplicate payment from the Company. ARTICLE XVII HEALTH AND SAFETY SECTION 1 The Company will continue to make systematic safety inspections, and to provide safety devices, guards, and medical service to minimize accidents and health hazards on its premises. -30- 31 SECTION 2 The Union will cooperate with the Company in the continuing objective to eliminate accident and health hazards. To this end, an advisory joint health and safety committee will be established consisting of (3) members appointed by the Union and at least (3) by the Company. This group shall meet at least monthly to review ways of meeting the stated objective. The agenda for the meeting will be prepared by the Company and will include subjects proposed by the Union representatives. It is understood that with respect to the addition of the 11:00 P.M. - 7:00 A.M. Safety Committee person, the following method of pay will apply when this individual is required to make a special off-shift trip to the plant so as to attend the monthly safety meeting. The 11:00 P.M. - 7:00 A.M. Safety Committee Person will receive his/her base rate for the time spent in attendance at the safety meeting. This understanding pertains to the 11:00 P.M. - 7:00 A.M. shift Safety Committee Person only, and will not set a precedent with respect to any committee or individual. ARTICLE XVIII JURY DUTY A non-probationary employee, who is called for jury service or - who is subpoenaed as a witness shall be excused from work for the days on which he is required to report for jury duty or serve as a witness. Service, as used herein, includes required reporting for jury duty or witness service when summoned, whether or not he is used. Such employee shall receive, for each such day of service, on which he otherwise would have been scheduled to work the difference between the rate of his regularly assigned classification for the period worked prior to such service and the payment he receives for such service (not including travel pay). The employee will present proof that he did serve or report as a juror or was subpoenaed and reported as a witness and the amount of the pay, if any, received therefor. An employee will be expected to report for scheduled work on days he is not required to report for jury or witness service. ARTICLE XIX LEAVE OF ABSENCE SECTION 1 A leave of absence for personal reasons may be granted an employee by the Company in its discretion. A leave of absence may be granted for any period up to six (6) months, and provided written application is made and approved before a previous leave has expired, may be extended for further six (6) months or shorter periods. The Union will be notified of any such leave. SECTION 2 Seniority will accumulate during an approved leave of absence. -31- 32 SECTION 3 An employee on leave of absence shall have life insurance, group hospital and medical insurance coverage to the end of the month in which his leave commenced. The employee shall be permitted to continue his life insurance, group hospital and medical insurance for the balance of his leave provided he pays the appropriate premium. SECTION 4 Employees receiving workers' compensation or sickness and accident benefits, will have twelve (12) months of medical coverage from the date of the original qualifying event with appropriate co-pay required. This continuation coverage shall run coterminously with the first twelve (12) months of the company's obligations under COBRA; however, no additional premiums beyond those paid by active employees shall be assessed until the 13th month of the continuation period, as permitted by COBRA. ARTICLE XX MILITARY SERVICE SECTION 1 A non-probationary employee who is required to attend an encampment of the Reserve of the Armed Forces or the National Guard shall be paid, for a period not to exceed two weeks in any calendar year, the difference between the amount paid by the Government (not including travel, subsistence and quarters allowance) and the amount calculated by the Company according to the following formula: such pay shall be based on the number of days such employee would have worked had he not been attending such encampment during such two weeks (plus any Holiday in such two weeks which he would not have worked) and the pay for each such day shall be eight (8) times his average straight time hourly (including shift premium) rate during the last payroll period worked prior to the encampment. If the period of such encampment exceeds two weeks in any calendar year, the period on which such pay shall be based will be the first two weeks he would have worked during such period. SECTION 2 A non-probationary employee who is placed on leave of absence for the purpose of entering the Armed Forces for active duty voluntarily or involuntarily, shall accumulate seniority while fulfilling this obligation. In order to retain this accumulated seniority, the employee must report to the Personnel Department within ninety days of his discharge with a certificate to the effect that he has satisfactorily completed his active duty. The employee will then be returned to work in line with his seniority. -32- 33 SECTION 3 An employee who, after being honorably discharged from the Armed Services of the United States is reinstated in employment pursuant to applicable statute, shall be entitled to vacation pay or allowance in and for the vacation year of reinstatement based upon his continuous service eligibility, without regard to any other requirement. ARTICLE XXI ALLOWANCE FOR FUNERAL LEAVE When a non-probationary employee is absent due to the death and funeral of his or her legal spouse, mother, father, mother-in-law, father-in-law, son, daughter, brother or sister (including stepfather, stepmother, stepchildren, stepbrother, stepsister when they have lived with the employee in an immediate family relationship), an employee, upon request, will be excused and paid for up to a maximum of three (3) shifts for which he was scheduled (or for such fewer scheduled shifts as the employee may be absent) which fall within a three (3) consecutive work day period, provided, however, that one such funeral leave day shall be the day of the funeral and it is established that the employee attended the funeral. When a non-probationary employee is absent due to the death of his sister-in-law, brother-in-law, the employee, upon request, will be excused and paid for up to a maximum of one (1) shift (Grandparents, two (2) shifts); for which he/she was scheduled, provided, however, that the day shall be the day of the funeral and it is established that the employee attended the funeral. If there is no funeral service at the time of death, attendance at a Memorial Service conducted within six months of the death may be substituted. Payment shall be eight times his average straight-time hourly earnings. An employee will not receive funeral pay when it duplicates pay received for time not worked for any other reason. ARTICLE XXII DISCRIMINATION It is the continuing policy of the Company and the Union that there shall be no discrimination with regard to race, color, religious belief, national origin, age or sex. ARTICLE XXIII BULLETIN BOARDS The Union shall have the right to post notices on specific bulletin boards provided for that purpose. Copies of all such notices shall be submitted to a designated representative of Management prior to posting and shall be restricted to: (1) notices of meetings of the Union, (2) notices of its election, (3) notices of its appointments to office and the results of election, and (4) notices of its social, educational or recreational affairs. ARTICLE XXIV STRIKES AND LOCKOUTS -33- 34 SECTION 1 During the term of this Agreement there shall be no strike walkout, slowdown or picketing or any concerted action, by the Union or any employee or group of employees, which may interfere with operations. Any employee participating in such violation shall be subject to immediate discharge or other disciplinary action. If any of the acts prohibited by the first paragraph occur, the Union promptly after the beginning of such violation shall disavow any part in such action and its officers shall take reasonably positive steps to have employees cease such action immediately. SECTION 2 There shall be no lockout by the Company during the term of this Agreement. ARTICLE XXV PRIOR GRIEVANCE No grievance alleged because of conditions existing prior to the date of this contract shall be presented for adjustment in the Grievance Procedure except insofar as the conditions upon which said grievance is based continue in effect and are the proper subject of a grievance under this Agreement. ARTICLE XXVI INSURANCE An exhibit setting forth agreements relating to Non-Occupational Disability Insurance, Life Insurance and Hospital and Surgical Insurance attached hereto as Exhibit C is hereby incorporated by reference and made part of this Agreement. ARTICLE XXVII PENSIONS An agreement relating to pensions attached hereto as Exhibit D is hereby incorporated by reference and made part of this Agreement. -34- 35 ARTICLE XXVIII MISCELLANEOUS SALE OF COMPANY The Company shall require, as a condition of the sale of the Company or of the Fitchburg Facility, any successor employer to recognize the Union as the collective bargaining representative of its employees, rehire all employees, and abide by all the terms and conditions of this Agreement. ARTICLE XXIX SUB-CONTRACTING In the event the Company finds it necessary to sub-contract work out which is customarily performed by the bargaining unit at the Fitchburg facility, it will give notice to the Union prior to subcontracting the work. Further, the Company will discuss the economic and business reasons of the decisions to sub-contract with the Union and make a good faith effort to have the work to be sub-contracted done by active bargaining unit employees. The Company, however, reserves the right to sub-contract bargaining unit work if business and economic reasons deem it appropriate to do so. ARTICLE XXX TERMINATION This Agreement shall be effective for the period from May 5 1997, to 11:59 P.M. of April 30, 2000 and from year to year thereafter unless either party gives at least 60 days notice in writing to the other party prior to April 30, 2000 or 60 days notice in writing prior to any subsequent anniversary date of this Agreement of the desire of such party to terminate or modify this Agreement. In witness whereof the parties by their respective representatives thereunto duly authorized have caused this Agreement to be executed on the day and year first above written, at Fitchburg, Massachusetts. STEELWORKERS COMPANY Charles McLaughlin Robert Deedrick Steven Meattey James Carnivale Ronald Richards Ronald Larsen William Brown John Kifer Ronald Davis John Jordan Richard Hautala Louis Alberghini Richard Souliere -35- 36 EXHIBIT A STANDARD HOURLY WAGE SCALE The following hourly wage rates will remain in effect from May 5, 1997 through May 3, 1998. C.W.S. RATE PAY GRADE RATE 1-4 1 $10.90 5-8 2 $11.85 9-12 3 $12.85 13-16 4 $13.90 17-21 5 $15.00 An adder will be paid to 2nd and 3rd shift employees. 2nd shift $.25 per hour 3rd shift .35 per hour Effective May 4, 1998, all rates will increased by $.35/hr. Effective May 3, 1999, all rates will increase by an additional $.45/per hour. 37 EXHIBIT B SENIORITY DEPARTMENTS Line 4 Customer Products Line 8 Bits and Shanks Line 10 Hand Hacksaws Line 11 Heat Treat Line 12 Power Hacksaws Line 13 Steel Rule Line 16 Inserted Tooth Metal Saws Line 18 Carbon Band Line 19 Weld Edge Band Line 25 Toothing Department Line 26 Carbide Tip Bandsaws Line 39 Eastern Sales Line 42 Tool Crib Line 43 Tool Department Line 45 Machine Shop Line 46 Electrical Shop Line 47 Millwrights Line 48 Yard Line 49 Housekeeping Line 56 Raw Stock/ Receiving/Wheel Storage/Rotoclone Line 80 Shipping 38 EXHIBIT C INSURANCE This shall confirm that insurance coverages are in place for medical, dental, ortho, A & S, Life, AD & D, and Retiree Medical. There will be no employee co-pay for medical insurance premiums through 12/31/97 and no employee co-pay for dental insurance premiums through 12/31/98. Also, the Company will increase its monetary contribution to cover any increases in the Fallon HMO effective January 1, 1998 and January 1, 1999 and January 1, 2000. Any monetary increase required on these dates will not exceed six percent (6%) of the premium then in effect. Additionally, the Company will make a similar monetary contribution, with a like restriction, for premium increases experienced with Delta Dental on January 1, 1999 and January 1, 2000. Any increases over and above the said six percent (6%) shall be absorbed by the employee. In the event that a monetary increase does not reach the said six percent (6%) level in a particular insurance plan year, the excess dollar amount for that particular year is carried forward to offset any monetary increases over and above the six percent (6%) level of the ensuing plan years during the life of this Labor Agreement. Under no circumstances will any carry over extend beyond the termination date of this Agreement. It is also mutually agreed that all non-probationary employees at the time of lay off will be covered under the group medical plan for two months from the end of the month of lay off. This understanding will provide all laid off employees while unemployed the same amount of coverage, and will no longer involve the 10th of the month billing cycle as a determining factor. Highlights of the benefits provided are as follows: Fallon - HMO (See Company provided Handbook). Dental - Delta Effective 1/1/98 - $50.00 Deductible x 3 $1,500 Dental Coverage per person/per calendar year $1,000 Ortho Lifetime Maximum Employees opting not to participate in the Simonds Industries Inc. medical and/or dental program will receive 25% of any premium savings. A&S $300 Weekly Indemnity for up to 26 weeks. Beginning l/l/98, Weekly Indemnity is increased to $320. Beginning 1/l/99, Weekly Indemnity is increased to $340. Beginning 1/l/2000, Weekly Indemnity is increased to $350. 39 Eligibility is from the first day of accident, provided employee is absent from work seven (7) days, and 8th day of illness. Life Insurance Effective May 5, 1997 $14,000 Member Effective May 5, 1998 $18,000 Member Effective May 5, 1999 $20,000 Member AD & D - 2 times the benefit A bargaining unit employee shall have the option to purchase additional life insurance coverage over and above the basic life insurance benefit by contributing an amount equal to the Company premium required to be paid to the carrier on a monthly cost per thousand basis. An employee shall be able to exercise this option up to a maximum of $12,000.00 additional life insurance coverage. New employees must enroll for coverage at time of hire. Retiree Medical Insurance - for employees retiring between ages 62-65. The Company will contribute $100 per month towards medical insurance until the retiree reaches the age of 65. The above listing does not describe all of the terms and benefits. Those are described in the summary plan description booklets and are subject to the terms of the supplemental agreement. -39- 40 EXHIBIT D-PENSIONS U.1.U. PENSION CONTRACT This shall confirm that there exists a supplementary agreement between Simonds Industries Inc. and the U.1.U Pension Trust. This agreement outlines the company's obligation to the trust as follows: 1. Effective May 2, 1994, the company shall contribute 6% of base pay for all employees completing 10 years of service with Simonds Cutting Tools/Simonds Industries Inc. 2. The company shall contribute 5% of base pay for all other employees. The parties agree that base pay shall be defined as total gross wages, including overtime, holidays, vacation, but excluding suggestion or safety awards, and productivity gainsharing bonuses. The U.1.U. Pension Trust defines normal retirement at 65 years of age with 5 years of covered service and defines early retirement at 60 years of age again with 5 years of covered service. 41 EXHIBIT E SPECIAL SKILL JOBS REQUIRING EXTENDED TRAINING PERIODS JOB TITLE CODE Grinder, Form, Surface, Bevel 04-02 Filler, Specialty & Fitter - Circular Saws 04-09 Heat Treater, B & S 08-03 Drop Forge Operator 08-11 Group Leader Drop Hamm 08-21 Group Leader In-Line and Inspect 08-24 Q.C. Technician - Wood 08-30 Grinder - Bevel - Six Head 13-03 E.D.M. Operator 13-21 Broacher - Vertical 18-01 E.B. Welder #2 19-02 Shot Peen & Temper 19-08 Fenn Rolling Machine 19-12 Key Man Composite Bandsaw Area 19-15 Milling Machine Operator Toothing 19-17 Setting Push Type and Deburr 19-18 Key Man Bandsaw Milling Area 19-20 Q.C. Technician - Metal 19-30 CNC Grinder Operator 19-31 Weld and Fit CTMB 26-01 Leadman Carbide Tipped Metal Band 26-02 Group Leader Cutter Grind 43-16 Utility Shipper 80-07 NOTE: JOB 18-08, SETTER ROTARY WILL BE DESIGNATED AS SPECIAL SKILLS WHEN ELECTRONIC NON-CONTACT GAUGING SYSTEM IS OPERATIONAL. It is agreed that future jobs requiring extended training period will be evaluated, and by mutual agreement will be added to this category if they qualify as "Special Skill Jobs". 42 EXHIBIT F (POOL JOBS) Grinder, Finish Bits 08-04 Milling Machine Operator - Butts 08-10 Boxer Bandsaw 18-16 Deburr Operator 18-18 Boxer, Wrapper 39-03 Janitor 49-01 EXHIBIT G This shall confirm that there will exist a 401K Savings Plan which will be established as soon as practical following Contract ratification. Features of the plan will include: - Participation by Fitchburg Bargaining Unit employees of record as of 5/5/97. All new bargaining unit employees may participate following probation. - The Plan is non-contributory by the Company. - The Plan will be administered by the currently established Corporate Plan Administration Committee. - Maximum contributions by employees will be as legally allowed. - Plan will have specific loan provisions. - Participants will be allowed to direct their contributions into various investment vehicles. - Participants will be fully vested. - Once established, a complete plan description will be available as legally required. LETTER OF UNDERSTANDING The Company and the Union agree to form a joint committee for the purpose of monitoring dental and health insurance cost containment. Any new plans investigated shall mirror all existing coverages. No changes in existing coverages will be made without the written authorization of the Company and the Union. 43 LETTER OF UNDERSTANDING The Company will undertake to direct supervisors that "performing the work of bargaining unit employees in emergency situations" must be invoked only in the case of a bona fide emergency where the safety of employees or the potential loss of production capability is eminent. LETTER OF UNDERSTANDING The clock hours of employees in Job Codes 19-15, Keyman Composite Bandsaw Area and 19-20, Keyman Milling Area, will be classified as Direct for purposes of Productivity Index calculation. -43- EX-10.11 31 AGREEMENT DATED 4/6/98-LOCAL 2737-16 1 Exhibit 10.11 AGREEMENT LOCAL NO. #2737-16 (1) THIS AGREEMENT, dated April 6th, 1998 hereinafter referred to as the Basic Agreement, between Simonds Industries Inc., Newcomerstown, Ohio or its successors (hereinafter referred to as the Company) and the United Steelworkers of America, AFL-CIO (hereinafter referred to as the Union). ARTICLE I RECOGNITION (2) Section 1. The Company recognizes the Union as the exclusive bargaining agent for collective bargaining purposes for all of its production and maintenance employees, excluding executives, draftsmen, engineers, foremen, assistant foremen, watchmen, gatemen, timekeepers and clerical employees. (3) Section 2. As a condition of employment, all employees shall become and remain members of the Union in good standing in accordance with the constitution and by-laws of the Union during the life of this agreement. New employees, no later than fifty five (55) working days worked after the date of hiring shall, as a condition of continuous employment, become and remain members of the Union in good standing in accordance with the constitution and by-laws of the Union during the life of the Agreement. (4) Section 3. The Company shall deduct from the pay for the third full payroll period each month, the Union dues for each month, initiation fee if owing, and assessments, and remit same to the International Treasurer of the Union upon the basis of, and for the term of individually signed voluntary checkoff authorization cards heretofore and hereafter submitted to the Company. (5) Section 4. The Company shall require, as a condition of the sale of the Company or of the Newcomerstown facility, any successor employer to recognize the Union as the Collective Bargaining Representative of its employees, rehire all employees, and abide by all the terms and conditions of this agreement. (6) The International Treasurer shall be the sole person to certify the dues and assessments due to the Union by the employees. (7) The Union shall indemnify and save the Company harmless from any claims, suits, demands or other forms of liability that shall arise out of reliance upon certified list furnished to the Company by the Union for the purpose of complying with the provisions of this Agreement. 2 ARTICLE II PURPOSE AND INTENT (8) The purpose of the Company and the Union in entering into this Labor Agreement is to set forth their agreement on rates of pay, wages, hours of work, and other conditions of employment so as to promote orderly and peaceful relations with the employees, to achieve uninterrupted operation in the plant, and to achieve the highest level of employee performance consistent with safety, good health, and sustained effort. (9) The Company and the Union encourage the highest possible degree of friendly, cooperative relationships between their respective representatives at all levels and with and between all employees. The officers of the Company and the Union realize that this goal depends on more than words in a labor agreement, that it depends primarily on attitudes between people in their respective organizations and at all levels of responsibility. They believe that proper attitudes must be based on full understanding of and regard for the respective rights and responsibilities of both the Company and the Union. They believe also that proper attitudes are of major importance in the plant where day-to-day operations and administration of this Agreement demand fairness and understanding. They believe that these attitudes can be encouraged best when it is made clear that Company and Union officials whose duties involved negotiation of this Agreement, are not anti-Union or anti-Company but are sincerely concerned with the best interests and well-being of the business and all employees. ARTICLE III MANAGEMENT RIGHTS (10) Subject to the provisions of this Labor Agreement, the Company retains the right to manage the business and the plant and to direct the working forces. The Company, in the exercise of its rights, shall observe the provisions of the Agreement. The rights to manage the business and plant and to direct the working forces include but are not limited to the right to hire, suspend, or discharge for proper cause, or to transfer, and the right to relieve employees from duty because of lack of work or for other legitimate reasons. (11) It is agreed that in the exercise of such direction of the working force, discrimination will not be used against employees. ARTICLE IV NON-BARGAINING UNIT PERSONNEL WORKING (12) It is agreed that Non-Bargaining Unit Personnel shall not perform work of the type normally performed by the employees within the collective bargaining unit, except in cases of emergency, machine development, instructing employees and developmental experimental work. Developmental experimental work includes work on developing new jobs or methods, in experimenting with new tooling for equipment which has previously been placed in service, and -2- 3 work on equipment which has not yet been placed in service. Other experimental work can be performed by Non-Bargaining Unit Personnel providing bargaining unit employees are present. All violations of this Article will be subject to the grievance and arbitration procedure and, if found in favor of the Union, the grievant will be paid for any lost time. ARTICLE V WAGES (13) Section 1. Labor Grades and evaluated base rates under this contract are effective on the dates as follows:
Labor Grade 4/6/98 4/6/99 4/6/2000 ----------- ------ ------ -------- 1 $10.90 $11.25 $11.60 2 $11.40 $11.75 $12.10 3 $11.90 $12.25 $12.60 4 $12.40 $12.75 $13.10 5 $12.90 $13.25 $13.60
(14) Section 2. SHIFT DIFFERENTIAL For the purpose of computing shift differentials, the starting time or the various shifts shall be as follows: First Shift - 6:00 a.m. to 8:00 a.m. Second Shift - 2:00 p.m. to 4:00 p.m. Third Shift - 10:00 p.m. to 12 Midnight (15) An employee regularly scheduled for the day shift who completes his regular eight hour shift and after leaving the Company's premises is called back within the same work day shall be paid the applicable shift differential for the hours worked on the shift for which he is called back. (16) An employee regularly scheduled for work and who completes his regular eight hour shift and continues to work the succeeding shift in excess of four (4) hours, shall be paid the applicable shift differential for all hours worked over four in the succeeding shift. An employee regularly scheduled for work on the third shift and who completes his regular eight hour shift and continues to work the succeeding shift will carry his applicable shift differential for all hours worked overtime on the said succeeding shift. For hours worked on the second shift there shall be paid a premium of 20 cents per hour. For hours worked on the third shift there shall be paid a premium of 26 cents per hour. Shift differential shall be included in the calculations of overtime compensation. (17) Section 3. INVENTORY PAY. Employees engaged in taking inventory will be paid the equivalent of labor grade two. All employees however, who operate fork trucks during inventory will be paid the evaluated CWS rate for such work while they are assigned to it. Employees who -3- 4 volunteer to work in their own department will be given preference to do so by seniority. Employees who volunteer on a plant-wide basis will be scheduled as needed. Employees shall, in reverse order of seniority, by required to accept the scheduled inventory work and will be paid the inventory rate. Probationary employees may be scheduled for inventory work. It will sometimes be necessary to take a limited inventory such as steel, stockroom, boxing and shipping supplies, etc. In such cases the Company will ask in order of seniority, qualified employees to take such inventory. If enough employees are not scheduled in this manner the Company will assign the work in reverse order of seniority to qualified employees. (Determining who is qualified for such limited inventory the Company and Union shall mutually agree). (18) Section 4. GRIEVANCE COMMITTEE PAY. When the Company is responsible for paying for the participation of Union Grievance committee members in regular grievance committee meetings, grievance committee members will be paid at base rate. The Company and Union will alternate the responsibility for paying for their participation in regular grievance committee meetings. The hours so paid will be excluded from any calculation of average pay for members of the grievance committee. In an attempt to reduce the number of representatives attending grievance meetings, the Union will propose a change to their by-laws that would automatically add the unit chairman to the committee. This change would insure that there would be no more than five (5) representatives at these meetings. ARTICLE VI HOURS OF WORK (19) Section 1. The normal hours of work shall be eight (8) hours per day and forty (40) hours per week. The normal workday shall be eight (8) hours of work in a 24-hour period. The daily hours of work shall be consecutive except for such lunch periods as may be provided in accordance with practice heretofore prevailing in the plant. Nothing in this Article will be construed as a guarantee of hours of work per day or per week. (20) Section 2. All employees should be scheduled on the basis of a normal work week of five (5) consecutive work days Monday through Friday. This section does not apply to continuous operations. Third shift normal work week will begin between 10:00 p.m. and midnight Sunday and end between 6:00 a.m. to 8:00 a.m. on Friday. (21) Section 3. A - There shall be no change in the daily hours of work unless such change be first discussed with the Union Committee in an attempt to secure mutual agreement between the Company and the Union. Both parties have agreed that during the term of this agreement, the Company may schedule the Saturday start time to begin at 5:00 a.m. (22) B - No continuous operations currently exist in the bargaining unit. No continuous operations will be commenced unless the Union agrees prior to the initiation of the continuous operation. If a continuous operation is instituted by the Company without the agreement of the Union, such action will be subject to the grievance and arbitration procedure. -4- 5 (23) Section 4. A - Hours worked in excess of eight (8) in any 24-hour period shall be paid at time and one-half; provided, however, that in computing the hours which will be paid for at time and one-half under this provision hours paid for at regular rates for funeral leave, jury duty, Union business or reporting pay will be counted as having been worked; provided, further that, in any event, this provision does not apply where an employee bids to a different shift or otherwise changes shifts voluntarily. Employees who bid or bump to a different shift will be moved to their new job on Monday whenever possible. (24) B - Hours worked in excess of a total of forty (40) hours in a work week shall be paid at time and one-half. For the purpose of this provision, a work week is 168 consecutive hours beginning with the starting time of the shift starting the nearest to 12:01 a.m. Monday. (25) C - Payment of overtime or premium rates shall not be duplicated for the same hours worked, but the higher of the applicable rates shall be used. Hours compensated for at overtime or premium rates shall not be counted further for any purpose in determining overtime liability under the same or any other provisions. (26) Section 5. PREMIUM PAY. Time and one-half shall be paid for work performed on Saturday and double time for work performed on Sunday as such. This section does not apply to continuous operations. Premium pay as provided in this section shall not apply to hours worked on the third shift which begins between 10:00 p.m. and midnight Sunday and ends between 6:00 a.m. and 8:00 a.m. on Monday. However, premium pay of time and one-half provided in this section will apply for hours worked on the third shift which begins between 10:00 p.m. and midnight Friday and ends between 6:00 a.m. and 8:00 a.m. Saturday. A third shift employee who receives overtime pay for hours worked after the end of his straight time shift on Saturday, shall not receive the Saturday premium pay provided in this section for such hours. (27) Section 6. SUNDAY PREMIUM. All hours worked by an employee on Sunday which are not paid for on an overtime basis shall be paid at one and one-half times the employees' evaluated base rate. For the purpose of this provision, Sunday shall be considered to be the 24 hours beginning with the shift starting the nearest to 12:01 a.m. Sunday. (28) Section 7. REPORTING PAY. Employees scheduled to work or who are notified to report for work and report or report and start to work shall be guaranteed a minimum of four hours pay at the evaluated base rate of the job they are currently performing. An operator who refuses work and requests a pass card due to illness, may be required to obtain a doctor's certificate (at the Company's expense) before returning to work. (29) In all situations (except as defined in paragraphs 31 and 32) when an employee is assigned (by loaning, transfer, or out of work placement) to another job, he shall receive the evaluated base rate of his regularly assigned job title, or the job he is transferred to, whichever is higher. If an employee is transferred to a job that is a part of a combination job, and that employee is qualified on all portions of the combination job, they will receive the combination rate. -5- 6 (30) Employees who are requested to return to work after completing their shift and have left the premises, shall be guaranteed (4) hours of pay to be paid in the following manner: a. If an employee is required to work more than (2) hours, all (4) hours will be paid at one and one-half times their base rate. b. If an employee is required to work less than (2) hours, the first (2) hours will be paid at one and one-half times their base rate, while the second (2) hours will be paid at their base rate only. OUT OF WORK SITUATIONS (31) After the first four (4) hours, out of work employees will receive the evaluated base rate of his regularly assigned job, or the job he is assigned to, whichever is higher. If an employee opts to go home after (4) hours, he will be subject to the rules of the absentee policy. DOUBLE LOANS (32) After the first four (4) hours, any employee who is being double loaned will have the option of continuing with the present transfer at the higher of the two base rates, or, if his regular job is still occupied, he may refuse the transfer/loan and go home for the remainder of the day. (33) Employees refusing any job during the first four hours will not receive the benefits of the four-hour guarantee. (34) It is agreed that the Company shall not be liable for such guaranteed reporting pay if the failure to supply work is due to fire, flood, storm or other Acts of God, sabotage, power breakdown, or major mechanical breakdowns beyond the control of the Company. In any event, the Company will make a reasonable attempt to contact the employees involved to preclude their reporting to work. The attempt will be verified by another person when practical. (35) Section 8. SATURDAY WORK AND DAILY OVERTIME. A - The Company will post a sign-up sheet for Saturday Work, by department, by 1:00 p.m. Wednesday in each week it anticipates requiring Saturday work. Each employee who desires to work on Saturday must sign the list before 8:00 a.m. Thursday and indicate whether he wishes to work only on the job number he is working by bid, bump, or placement, or whether he will accept any job in the department for which he is qualified. The Company will remove the sign-up sheets between 8:00 a.m. and 9:00 a.m. Thursday and thereafter schedule employees for Saturday work in the following order: (36) 1 - Employees who have indicated on the sign-up sheet that they will work on their job number will first be assigned to work the machines they are working by bid, bump or placement at the time they are scheduled on their regular shifts on Saturday if these machines are scheduled; -6- 7 provided, however, that employees will be assigned under this subparagraph according to seniority, most senior employee regardless of shift first, and that each employee will be assigned to his regular shift if possible. (37) 2 - Employees who have indicated on the sign-up sheet they will work on their job number but who are not assigned under subparagraph (1) will be assigned to Saturday work on their job number if such work is scheduled; provided that employees will be assigned under this subparagraph according to seniority, most senior employee regardless of shift first, and that each employee will be assigned to his regular shift if possible. (38) 3 - Stand-in operators who have indicated on the sign-up sheet that they will work on their job numbers will be assigned to Saturday work to any job they have previously performed within their job number; provided that employees will be assigned under this subparagraph according to seniority, most senior employee regardless of shift first, and that each employee will be assigned to his regular shift if possible. (39) 4 - The Company will assign Saturday work which is not assigned under subparagraphs (1), (2), or (3) to any employee in the department who is qualified to perform the work and who has indicated on the sign-up sheet that he will accept such assignment; provided that employees will be assigned under this subparagraph according to seniority, most senior employee regardless of shift first, and that each employee will be assigned to his regular shift if possible. (40) 5 - If all Saturday work is not assigned under subparagraphs (1), (2), (3) and (4), the Company may, at its option, assign such work to the least senior unscheduled employee in the department, regardless of shift, who holds the job number by bid, bump or placement. Any employee assigned to work under this subparagraph must work, except as provided in paragraph C. (41) First shift employees will be notified they are scheduled for Saturday work not later than 3:30 p.m. Thursday of that week. Second shift employees will be notified they are scheduled for Saturday work not later than 7:30 p.m. Thursday of that week. The Saturday overtime schedule will be posted in (3) areas: (1) Main Entrance Bulletin Board, (2) Bulletin Board outside Control #2 office, and (3) Bulletin Board between Dept. #4 and Dept. #7. (42) If an operator has been bypassed for Saturday overtime, he must notify his supervisor of the error on Thursday or Friday. If the decision is still not to work that employee, and it is later proven that he was entitled to the overtime, he will be awarded the corrective pay. If however, an employee waits until Monday to notify the Company that he was bypassed, and it is determined that he is correct, this employee will work the next nonscheduled available overtime that is convenient for both the employee and the Company. (43) When an employee signs the sign-up sheet but is then absent on Thursday and Friday, he must call his supervisor for notification of work. If he is told that he is not scheduled and it is later determined that he was entitled to work, he will be awarded the respective overtime pay. -7- 8 (44) An employee who is off for Union business must give advance notification to his supervisor of his intention to work weekend overtime. With such notice, this foregoes signing of the sign-up sheet. (45) B - Assign daily overtime by seniority to the person who has the job by bid, bump or placement. This applies only when the employee has previously performed work on the job in question. If not assigned in this manner, then require the least senior employee in the department who holds the job by bid, bump or placement. (46) Employees are responsible for notifying their supervisor of all work centers within a job number that they have previously performed. The supervisor will then confirm their qualifications. In the event of a disagreement, attempts will be made by the employee, shop steward, and supervisor to resolve any differences. (47) Employees will be notified they are scheduled for daily overtime the day before the overtime is required except in an emergency. (48) C - Any employee scheduled for Saturday work or daily overtime under paragraphs A or B of this Section who does not report for work or does not work the full scheduled period will be subject to discipline, unless excused by his foreman or other member of management for a legitimate personal reason which would result in an undue hardship. No other excuse is necessary if a doctor's certificate showing personal or family accident or illness is presented by such employee. Immediate family is as defined in Article VII, Section 2. If a scheduled employee is excused under this paragraph or fails to report on Saturday, the Company shall have the right to schedule any employee it chooses without regard to other provisions of this Section. (49) D - Sunday work, if required, shall be subject to the same procedures set forth in this Section for Saturday work. (50) E - In the interest of insuring that the proper employee is scheduled for overtime, the department stewards and the Union Committee will cooperate with the Company to insure proper scheduling. The Company will make every effort to schedule overtime work to correspond with planned production needs. ARTICLE VII ALLOWED HOURS (51) Section 1. ALLOWANCE FOR JURY DUTY. A non-probationary employee who is called for jury service or subpoenaed as a witness shall be excused from work for the days on which he serves and he shall receive for each day of service as a juror or witness, on which he otherwise would have been scheduled to work, the difference between 8 times his evaluated base rate and the payment he receives for such service, subject to the provisions listed below. Time off from work in order for an employee to give a deposition will not be paid under this provision. If a second or third shift employee is summoned for jury duty in either Guernsey, Tuscarawas, or -8- 9 Coshocton County, and is excused by the courts by 11:00 a.m., they must report to work at the normal start time. (52) A - The employees must notify their supervisor as soon as possible after receipt of notice of selection for jury service or to serve as a witness. (53) B - The employee will present proof of service and the amount of pay received therefore. (54) Section 2. ALLOWANCE FOR FUNERAL LEAVE. Three days funeral leave will be guaranteed to non-probationary employees (upon request) in case of death of the employee's mother, father, sister, brother, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, and daughter-in-law, in immediate marriage relationship, grandchild or grandparent of the employee or his spouse, or when they have lived with the employee in an immediate family relationship, the employee's stepmother, stepfather, stepbrother, and stepsister in order for the employee to attend the funeral. It is understood that a brother-in-law or sister-in-law of an employee in the immediate marriage relationship will be defined as an employee's brother or sister's spouse, or an employee's brother or sister and his or her spouse. (4) days will be granted (upon request) in case of death of the employee's legal spouse, son or daughter, including stepchildren (when they have lived with the employee in an immediate family relationship). (55) All funeral leaves shall be taken on consecutive scheduled working days provided that one such scheduled working day shall be the day of the funeral and it is established that the employee attended the funeral. (56) For those funeral leaves which are limited to three days, employees may have as their last day the day of the funeral or the day following the funeral at the employees option. (57) For each day of such authorized leave, the Company will pay for the normally scheduled hours not exceeding eight (8) at the employee's previous week's pay performance. Proof may be required by the Company of the relationship and that the funeral was attended by the employee; if not attended, or if the requested proof is not forthcoming or satisfactory, there shall be no eligibility for any funeral leave pay. Funeral leave pay shall not apply to Saturday, unless scheduled to work, Sunday, observed holidays set forth in Article XII, time when the employee is on vacation, any period when the employee is eligible for Workman's Compensation or nonoccupational disability benefits, or when it duplicates pay received for time not worked for any other reason. (58) Section 3. INJURY AT WORK. Any employee who may be injured while engaged in work properly assigned to him and who must leave work because of the injury shall receive pay at his evaluated base rate for the balance of the regularly scheduled shift on which he is injured. (59) The employee shall normally visit a Doctor immediately upon leaving work. If this is not practical due to the hour of the day or night or for other legitimate reasons, he shall visit a Doctor as soon as possible after leaving work. Upon return, he shall bring a statement from the Doctor specifying the injury and extent of the injury and that he is physically able to perform his job. -9- 10 ARTICLE VIII LEAVING DEPARTMENT (60) All employees are required to remain in their respective departments during working hours unless permission is granted to go into another department or they are required to do so due to the nature of their work. Union Committeemen and Officers of the Local shall have the right to go into other departments for reasonable periods of time on legitimate Union business. However, so that there is no interference with orderly operations, they must obtain permission from their supervisor before leaving the department and must record their name, the time they leave, and the time they return on a sign-out sheet. ARTICLE IX SENIORITY (61) Section 1. SENIORITY STATUS OF EMPLOYEES. An employee's seniority shall be his total continuous unbroken service with the Company since his last date of hire. (62) The parties recognize that promotional opportunities and job security, in event of promotions, decreases of forces and rehiring after lay-offs, should be increased in proportion to length of continuous service, and that in the administration of this Article the intent will be that, consistent with the provision of this section, full consideration will be given continuous service. (63) In recognition, however, of the responsibility of the Company for the efficient operation of the plant, it is understood and agreed that in all cases of: (64) A - Promotion (except promotions to positions not included in the categories represented by the Union, as set forth in Article I, Section 1) - the factors listed below shall be considered; however, only where factors "a" and "b" are relatively equal shall length of continuous service be the determining factor: (65) 1 - Ability to perform the work. 2 - Physical fitness. 3 - Continuous service. B. Decreases in forces or rehiring after layoff - the factors listed below shall be considered; however, only where both factors "a" and "b" are relatively equal shall continuous service be the determining factor: 1 - Ability to perform the work. 2 - Physical fitness. 3 - Continuous service. (66) C - In the operation of A, "Promotions" and B, "Decreases in forces or rehiring after lay-off", above, it is agreed that Management may pass over an employee with greater seniority -10- 11 when in its opinion the employee does not possess the apparent qualifications to perform the duties of the job in question in a satisfactory manner. If the Company desires to pass over an employee, with greater seniority, it must first notify the Chairman of the Grievance Committee or his designee. The Union Committee will have the right to have a meeting with the Company to consider the matter prior to such action being taken. It is agreed that if the Union Committee shall insist, the employee with greater seniority who has been passed over shall be given a trial period not to exceed thirty (30) working days to perform the job in question in satisfactory manner. (67) D. Differences arising under this Section and not resolved as provided herein, may be processed through the grievance procedure. (68) Section 2. SENIORITY LISTS. A master seniority list will be made available to employees showing all employees' seniority. A copy of this master list will also be furnished to the Local Union Committee as often as one is run by the Company, at least once every six (6) months. The Union will supply the Human Resources Department with a list of Union Officers and Stewards and will provide prompt notification of any changes. (69) Section 3. LOSS OF SENIORITY. Seniority shall be lost (and any subsequent rehire shall be as a probationary employee) as follows: (70) A. When an employee quits. (71) B. When an employee is discharged for just cause. (72) C. When an employee is absent for three (3) working days without notifying the Human Resources Department unless failure to make notification can be verified (by doctor's certificate) as having been caused by personal sickness, accident or death in the immediate family. (73) D - Failure to report intentions and availability within five (5) working days after being called back; failure to report for work within ten (10) days after written notice. Normally call backs will be made by telephone or other direct means. If these attempts are not successful the call back will be made by certified mail, return receipt requested, with a copy to the Union. The call back will be sent to the last address supplied by the individual to the Human Resources Office. (74) E - Failure to return to work the work day following the expiration of a leave of absence. (75) F - If an employee shall be absent because of layoff or physical disability, he shall continue to accumulate continuous service during such absence up to a maximum of two (2) years, and he shall retain his accumulated continuous service for an additional period equal to (a) three (3) years, or (b) the excess, if any, of his length of continuous service at a commencement of such absence over two years, whichever is less; provided, however, that in order to avoid a break in service after an absence of two (2) years, the employee must give the Company annual written notice that he intends to return to employment when called, if the Company, at least 30 -11- 12 days prior thereto, has mailed him a notice at the most recent address furnished by him to the Company that he must file such notice. (76) G - When an employee is jailed or imprisoned for a period in excess of ninety (90) days. (77) H - Upon the receipt by the Company of a second wage garnishment relating to a separate debt within a 12 month period beginning with the date of the first garnishment and upon the failure of the employee to obtain and present to the Company a written statement releasing the Company from any obligation under the garnishment to make a deduction from the employee's pay. (78) Section 4. FILLING JOB VACANCIES. (A) When a job is vacant because a probationary employee quits, is discharged or dies within the first 15 working days of his probationary period, the Company may, in its discretion and without regard to Section 1 of this Article, fill the vacancy with another probationary employee or a new hire or by placing an employee who agrees with the placement. (79) (B) When the Company desires to fill a job (other than a temporary opening), the following steps will be taken: 1. Bid holders of the job anywhere in the plant will be recalled to such job in order of seniority. 2. If there is no internal bid holder for such initial opening, the job shall be posted for bid. 3. The secondary opening resulting from either No. 1 or No. 2 above shall be filled in the same fashion. 4. The third opening will be posted and awarded to employees who bid, in the following manner: The job will be awarded first to a qualified bidder who has previously performed the job, then if there are no qualified bidders, award to the senior bidder. If not one bids, the Company shall call back an employee from layoff, if applicable or fill the job as described in Paragraph #85 (F). Further openings will be filled by recall or by Paragraph #85 (F). 5. If an employee recalled to an open job from the lay-off panel shall move from that job permanently after 30 working days the procedure outlined in No. 1 and No. 2 above will be followed, otherwise the procedure in Step 4 above will apply. -12- 13 (80) (C) Open jobs which are posted under paragraph (B) of this Section will be posted for bid for 24 hours at the main entrance. All bids must be deposited in the Bid Box at the main entrance. (81) (D) (1) Individuals on the lay-off panel and employees with fewer than six months seniority are not eligible to bid on posted jobs. Limitation on bidding shall not be extended to employees on A&S or Workers Compensation, or off for other reasons, unless they are released to report for work at the time the bid is awarded. (82) (2) Employees shall be awarded not more than (2) bids in a contract year. In order to be deemed a successful bid, the employee must have occupied the bid job. If he is displaced by a bump before occupying his bid job, that bid will not be counted. (83) (3) The limitation on bidding stated in paragraph (2) will not apply to job vacancies which the Company designates as qualifying for an exception because the vacancies are for jobs to be worked on new equipment which is significantly different than any other equipment in the plant (not merely new models of old equipment). This exception will apply to such new equipment only the first time a vacancy is posted for bid. (84) (E) Bids will be awarded the posted job in accordance with Section 1 of this Article to employees anywhere in the plant. (85) (F) Jobs not filled by the above steps will be filled as follows: 1. By placement of the least senior employee in the plant, or 2. By placing a probationary employee or hiring a new employee without regard to Section 1 of this article. (86) (G) A bid may be withdrawn after deposit in the bid box but before the bid is awarded by use of the appropriate form. Bidders must accept the job if it is awarded to them. Once the Company awards a job to an eligible bidder, the Company cannot void the bid unless it is found to be in conflict with other provisions of the contract. (87) (H) An employee who bumps to a job or fills it under this Section and who is not capable, either because of lack of qualifications or physical condition, to perform the duties of the job satisfactorily within a reasonable trial period not to exceed thirty (30) days worked (unless extended by mutual agreement between the Union Committee and Management), shall place a bump. No employee can disqualify himself on a job to which he has bumped or filled under this Section. (88) (I) The employee having the greater seniority will be entitled to shift preference where his same job is operating more than one shift. Before exercising seniority for shifter preference, an employee must have continued on his present job and shift for a continuous period of at least three (3) months. An employee displaced hereby will assume the job and shift vacated by the -13- 14 senior employee or shall be entitled to immediate shift preference within the same job number based on his seniority. The changes shall take place on the following Monday provided the employee notifies his foreman prior to the previous Thursday. (89) (J) Nothing in this Article requires the Company to fill a job with an employee who has been previously disqualified; however, an employee who was disqualified from a job more than five years prior to the time it is posted for bid may nevertheless be considered for that vacancy as provided in this article. (90) Section 5. FILLING TEMPORARY JOB VACANCIES. In the event of a vacancy created by prolonged sickness, accident, leave of absence, or other unforeseen circumstances under which a job would be vacant for a period longer than 30 working days, such open job will be put up for temporary bid if there is a requirement to fill the job. The procedure followed on temporary bids will be that outlined in Section 4 of this article. (91) These bids are temporary in nature and the person awarded such a bid will exercise his seniority when the incapacitated employee returns to work on that job. This shall apply in all cases even when the temporary bidder is a more senior employee than the employee who originally vacated the job. However, when an incapacitated employee returns to work to another job, the temporary bid holder may bump or retain the job at his option. (92) It is understood that only the job of the incapacitated employee will be filled by temporary bid. Should the incapacitated employee fail to return to work, the temporary bid will automatically become permanent and so recorded on the employment record. (A) It is also understood that the Company may, at it's discretion, establish and fill temporary light duty jobs for the purpose of providing such work for employees who have medical restrictions. Such temporary positions will be paid Labor Grade #1 wages and will not be available as an option in the normal bidding and bumping procedures, since they are not permanent positions. The Company agrees to discuss the creation of such jobs with the Union prior to filling the position, and will also provide prior notification when an employee is added to the position. Nothing in this Agreement is intended to displace an active employee from his regular job. These jobs will be graded according to the C.W.S. Job Evaluation System and paid according to the contractual wage agreement. In the case of a reduction in the work force, the Company will not retain any temporary light duty employees that are junior to other active employees. (B) LIGHT DUTY RESTRICTIONS 1. Light Duty to perform no overtime. 2. Light Duty to work no more than (10) days/month on a bid job. 3. If Light Duty works more than (10) days/month on a bid job, the job must be posted for bid. -14- 15 4. The Company will provide the Union with copies of jobs performed by Light Duty employees on a bi-weekly basis. (93) Section 6. LAY-OFF. (A) In all situations involving layoff of more than one (1) day, the provisions of Section 1 of this Article shall apply. (94) (B) In the event an employee is to be laid-off, the following procedures shall be followed: (1) Employees who are laid-off from a job, may bump a less senior employee whose job his record shows he is qualified on; provided he can requalify with minimal training of (2) weeks or less. (95) (2) An employee not placed in (1) above, must first take an open job that he is qualified on. Then, if not placed in this manner, he has the option of choosing an open job or bumping the least senior employee. (96) (3) Employees laid off from the plant will be placed in a layoff panel. (97) (4) In order to be eligible to bump to a job, an employee must have performed 50% of the old job reference numbers of that job through a previous bid, bump, or placement for at least thirty (30) working days, or a loan for 20 working days in a three (3) month rolling period, as shown on his employment record. (98) In the loan situation above, the employee is to keep track of the 20 working days in the (3) month rolling period, and in order for a reclassification slip to be completed, the employee must notify the Company of this qualification within (5) scheduled days after the completion of the 20-day period. An employee must work 3 1/2 hours on a job to have it count as a day. (99) (C) When an employee is notified by management that he is being laid off or bumped, he shall then have the right to bump. Such bump shall thereafter be recorded on his employment record. (100) (D) An employee laid off from the plant will accumulate seniority to the extent provided in Section 3, Paragraph F of this Article. (101) (E) After an employee is notified that he is being bumped or laid-off, he must exercise his seniority rights within (3) hours of such notice, unless one of his options is to change shifts, then he may have until the beginning of his next scheduled shift. -15- 16 (102) (F) No seniority rights shall be exercised in the case of a layoff of one (1) working day or less, if such exercise of seniority rights would involve displacing another employee from his or her job. Seniority rights may be exercised in the case of a layoff of more than one (1) day. (103) (G) In out-of-work situations, seniority will be the governing factor only in the departments of their supervisor's area of responsibility. If there is no work in these areas, a reasonable effort will be made plantwide to find work for the employee. Section 7. TRANSFERS. (104) (A) TRANSFERS OUT OF BARGAINING UNIT. (105) (1) All employees who are transferred by the Company to jobs not included within the bargaining unit shall accumulate seniority in the bargaining unit for the first six months they remain in Company service outside of the bargaining unit. At the end of such period, they shall neither accumulate further seniority nor retain their seniority in the bargaining unit. (106) (2) During the period in which seniority is being accumulated, such transferred employee shall have the right to transfer or bump back to a job he has previously performed in the bargaining unit in accordance with the provisions of Article IX, Section 6. After an employee has once re-transferred back into the bargaining unit and then later transfers out, he will thereupon lose his seniority in the bargaining unit. (107) (B) DISABILITY TRANSFER. An employee's request for transfer due to physical disability accompanied by a Physical Limitation Certificate (Form 269), signed by a Physician, will be referred to the Human Resources Department. If an open job exists, the Company may elect to place the employee on the job, as long as it fits his limitations. (108) (C) LACK OF SKILL OR PHYSICAL ABILITY TRANSFER. An employee who, by reason of lack of necessary skills, dexterity or physical ability, consistently fails to perform the duties of his job satisfactorily after a reasonable period of time may be disqualified and may exercise his seniority to bid or bump. (109) (D) PERMANENT TRANSFER OF JOB OR MACHINE. In the event of a permanent transfer of a job from one department to another, the employees working on such jobs must transfer with such jobs. In the event of the permanent transfer of a portion of a job from one department to another, the employee working on such jobs must transfer with such jobs providing the portion of job transferred constitutes at least 50% of the job in the department to which transferred. (110) (E) ELIMINATION OF DEPARTMENT. In the elimination of a department, employees displaced thereby will exercise their seniority as provided in Article IX, Section 6, Sub-Section B. (111) Section 8. REASSIGNMENT WITHIN A JOB NUMBER. In the event of lack of work on an employee's assigned machine or work station, or in the event work is not required on an employee's assigned machine or work station, such employee may be reassigned within the job -16- 17 number. After being reassigned for a period of five (5) working days the employee may exercise his seniority to select the work station of his choice within the job number. (112) Section 9. PROBATIONARY EMPLOYEES. New employees shall be considered probationary employees for the first 55 working days they work for the Company. Probationers may be discharged with or without cause and such discharge shall not be recognized for the basis of filing of a grievance. Probationers may be shifted about at the will of the Company. If a probationer is retained in employment after 55 working days, the job number to which he is placed will be considered his bid in job and his seniority shall date from date of hire. Employees with Company service shall have preference at all times over probationary employees. (113) Section 10. PROGRESSION OF MACHINISTS AND DIE MAKERS. In order to reflect a proper line of progression for the Machinists, it is necessary to develop a program which will, in a given time, qualify such employees so that they may complete a training which will entitle them to the classification of Machinist A. Therefore, the following procedure shall be adopted as a standard schedule to determine the employees' advancement and rate of pay. Employees will begin at Labor Grade (4) and move to Labor Grade (5) when fully qualified as Class A. (114) It is agreed that for the purpose of upgrading or reclassification, the six machines shall be Shaper, Lathe, Planer, Milling Machine, Bandsaw and Radial Drill which must be operated efficiently and the work produced must be to the proper dimensions and precision. (115) A Machinist C must have performed the duties required and produce satisfactory results on at least three (3) of the above machines before he will be upgraded to a Machinist B. (116) A Machinist B must have performed all of the operations and operated all of the equipment pertaining to the Machinist's classification satisfactorily before he will be upgraded to Machinist A. A Machinist B who has served twelve (12) months in the Machinist B classification shall have his qualifications reviewed for advancement to Machinist A. If fully qualified for Machinist A he shall be so advanced. (117) Bidding as such will be eliminated and the employees will be moved along from one rate to another and from one class to another and from one machine or job to another at the discretion of the Supervisor depending upon their skill, dependability, accuracy, experience, etc., and the Company's need of them. This is the responsibility of the Management and is subject to the grievance procedure. (118) In order to reflect a proper line of progression for the Die Makers, it is necessary to develop a program which will in a given time, qualify those employees so that they may complete training which will entitle them to the classification of Die Maker A. (119) Therefore, the following procedures shall be adopted as a standard schedule to determine the employee's advancement and rate of pay. Employees will begin at Labor Grade (4) and move to Labor Grade (5) when qualified. -17- 18 (120) It is agreed that for the purpose of upgrading or reclassification of Die Profile and Shaper Operator and Die Scraper and Fitter will be the determining factor, which must be operated efficiently and the work produced must be to the proper dimensions and precisions. (121) A Die Maker C must have performed either the Die Profile and Shaper Operator or the Die Scraper and Fitter operations with satisfactory results before he will be upgraded to Die Maker B. (122) A Die Maker B must have performed all of the operations and operated all of the equipment pertaining to the Die Making Process satisfactorily before he will be upgraded to Die Maker A. A Die Maker B who has served twelve (12) months in the Die Maker B classification shall have his qualifications reviewed for advancement to Die Maker A. (123) If fully qualified for Die Maker A he shall be so advanced. Bidding as such will be eliminated and the employee will be moved along from one rate to another and from one class to another and from one machine or job to another at the discretion of the Supervisor, depending upon their skill, dependability, accuracy, experience, etc. and the Company's need of them. This is the responsibility of the Management and is subject to the grievance procedure. (124) Class C Die Maker or Machinist will remain in that classification for a period not to exceed nine (9) months unless prior to the end of that time, the Company can show just cause as to his lack of qualifications. (125) In the event of a lay-off, employees in the Trainee C classification will be laid off first according to their seniority in that classification and so on up the line. (126) Section 11. SKILLED CRAFTSMAN. Bids for skilled craftsman jobs will be posted provided there are no bid holders to be recalled in the plant. All bids will be considered and awarded in this priority: 1. The most senior qualified bidder. Qualified in this instance means he has performed one-half of the averaged time requirements as identified in the C.W.S. Job Description category of Employment Training and Experience. 2. If no qualified bidders, then all other bids will be considered and the job awarded to the bidder, who in the Company's opinion, is the most qualified by training and experience to perform all job requirements or in the Company's opinion, could perform all job requirements after a reasonable break-in period. No employee may bump into any of the skilled craftsman's jobs listed below unless he has previously been classified in that job in this plant and is now capable of performing all job requirements. -18- 19 (127) The skilled craftsman's jobs referred to are as follows: Dept. No. 1 Maintenance and Set-Up Man Dept. No. 3 Maintenance and Set-Up Man Dept. No. 3 Surface & Die Grinder, Maintenance and Set-Up Man, and Fork Truck Dept. No. 4 Department Machine Maintenance Man; Department Machine Maintenance Man and Laborer Dept. No. 9 Department Machine Maintenance Man; Department Machine Maintenance Man; Chisel, Grinder, Dresser, Deliverer Dept. No. 16 Half Round Machine Maintenance Man Dept. No. 20 Machine Maintenance Man; Vixen Cutter, Grinder, Utility and Laborer; Maintenance Man Dept. No. 26 Maintenance and Set-up Man; Maintenance and Set-up Hardening Truck Driver and Laborer Dept. No. 38 Metallurgist Dept. No. 41 All Jobs Dept. No. 42 All Jobs except Janitor and Laborer Dept. No. 42 Waste Water Treatment Operator Dept. No. 43 All Jobs Dept. No. 49 All Jobs Dept. No. 49 Die Hardener, Stamp Maker, Vixen Cutter, Grinder, Utility and Laborer (128) In the event a skilled job is not filled by the present bidding and bumping procedure, the oldest qualified employee will be called back from the lay-off panel. If there are no qualified employees on the lay-off panel, the job will be filled otherwise by the Company. (129) To be considered qualified an employee must have performed the job in this plant or be qualified by training or other experience so that in the Company's opinion he can perform the job. (130) Trainee C openings in Die and Machine Shops will be posted for bid. The Trainee C job will be filled with these bidders without regard to seniority. If in the Company's opinion, there are no qualified bidders, the job will be filled otherwise by the Company. (131) Skilled Craft employees shall perform no more than 5 days/month of production work. (132) Section 12. RECLASSIFICATION SLIPS. Reclassification slips shall be marked by the following symbols on each change of job or operation: Placed, bump, bid, recall, loan for 20 working days in a three (3) month rolling period, shift change or call back. Copies of reclassification slips will be supplied to the Union Steward or a Union Committee member. (133) Section 13. Nothing in this Article shall be construed or applied in such a manner as to interfere with production or increase the cost of production except as required under the provisions of this Agreement. -19- 20 ARTICLE X DEPARTMENTS IN THE PLANT (134) The departments in the plant area are as follows: 1 Shearing/Annealing 23 Hardening 2 Forge 24 Alox/Steam Sharpener 3 Punch Press 26 Finishing 4 Grinding 29 Wrap, Stamp & Box 5 Stripping 38 Laboratory 7 Edging 39 Stockroom 8 Gang Edge 40 Inspection 9 Cutting 41 Elect. Maint. 11 Saw Files 42 Maintenance 13 Rasp 43 Machine Shop 15 Swiss 48 Chisel Grinding 16 Half Round 49 Die Shop 18 Round 52 Testing 19 Round File Cutting 80 Shipping 20 Vixen 21 Crop & Straighten ARTICLE XI LEAVE OF ABSENCE (135) Section 1. UNION LEAVE OF ABSENCE. Any Local Union or Unit Committee member and officers, who are employees of the Company, shall be given, on his request, a leave of absence for a one year period, not to exceed a maximum of three one-year periods, in the course of his employment, for the purpose of working for the Local Union or the International Union. Such a leave of absence shall not constitute any break in the employee's record of continuous service. Upon written request to the Company, such an employee may be granted an extension of his leave of absence upon mutual agreement between the Company and the Union. (136) Section 2. GENERAL LEAVE OF ABSENCE. A leave of absence for compelling or justifiable personal reasons made in writing may be granted at Company discretion for periods up to six months and may be extended for further periods, if request is made in writing, up to maximum total continuous leave periods of two (2) years. If the individual does not return to work after expiration of a leave or receive a renewal, seniority shall be lost. The Union will be notified of each leave of absence granted an employee in its bargaining unit. (137) Upon written requests by the Union, the Company will grant, if operating conditions permit, leaves of up to two weeks to no more than five employees in any calendar year for the purpose of attending Union district conferences or International Union conventions. -20- 21 (138) Any request for days off for Union Business shall be submitted in writing to the Human Resources Department at least one day prior to the desired date and shall not exceed 15 days per calendar year for any one employee. Conferences, conventions, negotiations, and workers' compensation hearings are exempted from the (15) day calculation but still require written notification of time off. ARTICLE XII HOLIDAYS (139) The Company will pay employees within the bargaining unit for (11) eleven holidays not worked in a year. An employee eligible under these provisions shall receive eight hours straight time pay at his previous weeks pay performance including shift differential. The eleven holidays are: New Year's Day Good Friday Memorial Day Fourth of July Labor Day Thanksgiving Day after Thanksgiving Day before Christmas Christmas December 31 Floating Holiday (140) The floating holiday may be scheduled at any time during the year pending prior supervisory approval. (141) The employee must be a regular employee on the active payroll of the Company as of the date of the holiday. Probationary employees are not entitled to receive holiday pay for holidays not worked. (142) The employee must be actively employed and would have been scheduled to work if the day had not been observed as a holiday. (143) The employee must work his last scheduled work day prior to and his next full scheduled work day after such holiday within the employee's scheduled work week unless excused by the foreman. However, payment for the holiday will be made if the employee worked during the week prior to, or the week in which the holiday occurs, but is absent on the above day due to union activity, illness or accident (verified by Doctor's Certificate), emergency illness at home, authorized funeral leave as defined in paragraph (48), or jury duty, or if he has been sent home for lack of work. -21- 22 (144) If any of these Holidays fall on a Saturday, observance will be on the previous scheduled work day. If any of these Holidays falls on a Sunday, observance will be on the next scheduled work day. (145) Should any holiday fall during the scheduled vacation period, this holiday will be paid for in addition to the vacation pay and the employee may extend his vacation for an additional day without pay if he makes arrangements in advance to do so. (146) If the Company requires an employee to work on a holiday, he will be paid double time for holiday worked plus one (1) day at his regular average rate for the holiday, straight time, hourly rate for day workers. This does not apply to continuous operations. ARTICLE XIII VACATION (147) Section 1. ELIGIBILITY. (A) Each employee will be eligible for vacation with pay within a calendar year, based on the number of years of service he will complete within the calendar year, as follows:
Years of Service Wks. Vacation With Pay ---------------- ---------------------- 1 but less than 3 1 3 but less than 10 2 10 but less than 17 3 17 but less than 25 4 25 or more 5
(148) Any employee who does not complete one year's service with the Company will not be entitled to vacation or vacation pay. (149) (B) The vacation year will be the period between Calculation Dates in sequential years. The vacation qualifying period will be the 12 months preceding the vacation year. (150) (C) To be eligible for a vacation in any vacation year during the term of this Agreement, the employee must: (a) Have one year or more of continuous service (b) Have had earnings in at least 50% of the pay periods in the vacation qualifying period. (151) (D) Any employee with more than one year of continuous service who is ineligible for a vacation because of failure to have earnings in at least 50% of the pay periods in the vacation qualifying period due to layoff or sickness shall be entitled to one week's vacation, if he has had earnings in at least 50% of the pay periods in the twelve (12) months preceding January 15 of the -22- 23 vacation year. An elected Union official may count time off work on Union business towards a portion of the said 50% of pay periods. (152) Section 2. PAYMENT DATE AND CALCULATION DATE DEFINED. (E) A Calculation Date will be determine each year which will be the earlier of (1) the pay day three weeks prior to the scheduled vacation shutdown, if any, or (2) June 25. Vacation eligibility and payment calculation will be made as of the Calculation Date for all employees. (153) (F) Each employee who has not completed one year of service by the Calculation Date will not become entitled to vacation or to the vacation pay calculated for him at the Calculation Date until he completes one year's service with the Company. At the time he completes one year's service, whether in the same year of the Calculation Date or the next, he will become entitled to one week's vacation in the calendar year of his anniversary date and to vacation pay calculated at the Calculation Date and payment will be made by the third payday following the anniversary date. (154) Section 3. VACATION PAY. (G) The vacation pay will be based on 40 hours per week and will be at the employee's average straight time hourly rate (including shift premium but excluding overtime) based on the period between January 1 and May 31 preceding the vacation year. (155) Section 4. CALCULATION FOR EMPLOYEE'S INCREASED VACATION SERVICE YEARS. (H) Employees who complete their third, tenth, seventeenth or twenty-fifth (when applicable) years of service during the calendar year but after the Calculation Date applicable to them in that year will have their vacation calculated on the Calculation Date as if they had completed their third, tenth, seventeenth, or twenty-fifth (when applicable) year of service, respectively. However, the additional vacation pay and the additional week of vacation to which they will become entitled by reason of completion of the required years of service will be deferred until the employee's anniversary date and payment for the additional week will be made by the third payday following the applicable anniversary date. At the time they reach their anniversary date they will be eligible for the additional week of vacation. Eligibility for the additional vacation and vacation pay will be lost if the employee does not complete the required years of service. (156) Section 5. VACATION SHUTDOWN. The Company will notify the Union prior to February 1, whether or not there will be a vacation shutdown in that calendar year. The date and duration of the shutdown, if any, will be made known on or before March 15. The vacation shutdown will be scheduled in June, July or August. Such shutdown shall be considered vacation for all eligible employees not scheduled to work during this period. The Company reserves the right to schedule necessary maintenance and other employees during this vacation period, and such employees shall be scheduled for vacation at another time. In the event there is to be no vacation shutdown, vacations will be scheduled in accordance with production requirements and the -23- 24 desires of the employees on a seniority basis. If the plant is to be shut down for vacation, the Company will endeavor to provide work for those employees who are not entitled to vacation pay, but without any obligation to do so and with regard to seniority. (157) Section 6. DEATH. In the event an employee with more than one year's seniority dies and the employee has not met the eligibility requirements for a full vacation benefit in that year, the date of his death will be used as a calculation date for that employee and his estate shall be paid an amount equal to 40 hours, for each week of vacation eligibility times the average rate per hour used to calculate his last regular vacation pay (adjusted for any intervening wage increases) times a factor which is the number of weeks since the last regular calculation date divided by 52. (158) Section 7. NO DUPLICATION. In no event shall any vacation-eligible earnings which are used to calculate the amount of one vacation payment be used in the calculation of any other vacation payment to the same employee. (159) Section 8. INTENT. It is the intent of the Company and the Union that all employees who are eligible for at least two (2) weeks of vacation with pay under this Article shall be encouraged to take an actual absence from work for two weeks. Employees who are eligible for additional vacation, at a time other than shutdown, must notify the Company by July 1st in order to receive all vacation monies prior to the shutdown period. Anyone who does not notify the Company by this date, will be paid for vacation as it is used. The balance of unused vacation will be paid the first pay of December. If an employee makes a request for vacation by September 30th, the Company will see that it is granted before the end of the year. All vacation payments will be in one week increments. (160) Section 9. RESIGNATION, RETIREMENT OR TERMINATION. If an employee with one or more years of service resigns, retires or is terminated and the employee has not met the eligibility requirements for a full vacation benefit in that year, the date of his retirement, resignation or termination shall be a calculation date for that employee and he shall be paid an amount equal to 40 hours, for each week of vacation eligibility times the average rate per hour used to calculate his last regular vacation pay (adjusted for any intervening wage increases) times a factor which is the number of weeks since the last regular calculation date divided by 52. ARTICLE XIV GRIEVANCE AND ARBITRATION PROCEDURE (161) (A) An employee having a request or complaint shall first present it to his foreman. The employee may ask his steward to accompany him in his discussion with the foreman. (162) (B) A grievance is defined as any dispute arising during the term of this Agreement involving an alleged violation of the terms of this Agreement, an alleged failure to comply with the Agreement or alleged past practice, or a disagreement as to the interpretation or application of the Agreement if such dispute is between the Company and the Union or between the Company and any bargaining unit employee. -24- 25 (163) (C) Any grievance, as above defined, shall be processed in the following manner: (164) Step 1 - The employee, with or without the steward, shall first verbally present the grievance to his foreman within three (3) working days after occurrence of the event or within three (3) working days after the day the employee learns of the event, whichever is later. The foreman shall give his verbal answer within one working day. (165) Step 2 - If no settlement is reached, the grievance may be reduced to writing on a form which will be provided by the Company within one (1) working day of the day the foreman gives his verbal answer. It shall be signed by the grievant and presented to the foreman within two (2) working days of his receipt of the grievance form. (166) Step 3 - If the grievance is not settled in the second step, it may then be presented to the Human Resources Department by the Committee. Management and the Union Committee will attempt to settle the grievance at the next regularly scheduled meeting, provided the grievance is presented to the Personnel Department at least 48 hours prior to the meeting. The Company's answer to the grievance will be given within five (5) working days after the meeting. (167) Step 4 - If the grievance is not settled in the third step, it shall be referred to the International Representative of the Union who shall meet with the local Union Committee and Management at the next regularly scheduled meeting for the purpose of adjusting the grievance. Management has thirty (30) days from the date of the meeting to give its final answer. On any grievance, no employee shall be entitled to relief extending more than one (1) day prior to the date of the filing of the written grievance. (168) Step 5 - If the Company's final answer is not satisfactory, the Union may, not later than thirty (30) days after the answer is given, appeal the grievance to arbitration. If no agreement can be reached within thirty (30) days as to the choice of an Arbitrator, one will be selected from the Federal Mediation and Conciliation Service by the usual method. The expense of arbitration will be shared equally by the Union and the Company. (169) The Arbitrator shall have power to rule only in cases where differences exist as to interpretation of the contract or past practices. The Arbitrator shall have no power to add or to subtract from or modify any of the terms of this Agreement, nor to establish or change the wage structure. He shall have no power to order back pay in any case of shutdown, strike, or work stoppage. The award shall be rendered promptly and, unless otherwise specified by law not later than thirty (30) days from the date of closing the hearings, or if oral hearings have been waived, then from the date of transmitting the final statements and proofs to the Arbitrator. Any case appealed to an Arbitrator on which he has no power to rule shall be referred back to the parties with a decision to that effect. (170) Failure of any of the parties to any grievance to comply with the provisions of Steps 1, 2, 3, 4, or 5 within the time limits shall automatically determine the grievance in favor of the other -25- 26 party and shall not be subject to reopening. However, the time limits may be waived by mutual agreement. (171) The grievance procedure may be used by the Company in processing a grievance. The district director or his authorized representative shall have the right to enter the plant under the rules and regulations of the plant to make any necessary investigation of a grievance which has been referred to him. (172) Any decision arrived at by the Company and the Union Committee, or their representative, in the course of the grievance procedure, in connection with the application of this Article, shall be binding upon all the parties providing that such decisions are not inconsistent with the provisions of the Agreement. Any agreement between the parties which changes any of the provisions of the basic agreement shall not be enforceable to the extent that it is inconsistent with or goes beyond the provisions of the agreement unless it is approved by the International Officers of the Union and an executive of the Company. (173) Any grievance which the Committee or Company wishes to present shall be initiated at Step 3. The time limits set forth in this step shall be applicable to such grievances. ARTICLE XV DISCIPLINE (174) Section 1. GENERAL. The Company shall have the right, at any time, to adopt reasonable plant rules and regulations. All employees shall be subject to such rules and regulations. The reasonableness of any such rule or regulation adopted by the Company shall be subject to the grievance and arbitration procedure. (175) Section 2. DISCHARGE CASES. In the exercise of its right as set forth in Article III, the Management agrees that a member of the Union shall not be peremptorily discharged from and after the date hereof, but that in all instances in which Management may conclude that the employee's conduct may justify discharge, he shall first be suspended. (176) Such suspension shall be for not more than five (5) working days. During the period of initial suspension, the employee may, if he believes that he has been unjustly dealt with, request a hearing and a statement of the offense before his foreman or the Personnel Department or the general superintendent or the manager of the plant, with or without a member or members of the grievance committee present as he may choose. (177) At such hearing, the facts concerning the case shall be made available to both parties. After such hearing and within the period of initial suspension, Management shall conclude whether the suspension shall be converted into discharge or dependent upon the facts of the case, that such suspension shall be extended or revoked. If suspension is revoked, the employee shall be returned to employment and receive full compensation at his regular rate of pay for the time lost but in the event of the affirmation or extension of the suspension or discharge of the -26- 27 employee, the employee may allege a grievance which shall be handled in accordance with the procedure of Article XIV, "Grievance and Arbitration Procedure". (178) Should it be determined by the Company or by an umpire in accordance with Step 5 of the Grievance Procedure that the employee has been discharged or suspended unjustly, the Company shall reinstate the employee and pay full compensation at the employee's regular rate of pay for the lost time. (179) However, if the Arbitrator determines or the parties agree that the employee should not be returned to employment with full back pay, the employee may be returned to employment without back pay or with a lesser amount of back pay, as the circumstances require. ARTICLE XVI NO STRIKES OR LOCKOUTS (180) Under no circumstances, unless arbitration is not agreed to by the Company, shall any strike, sympathy strike, stoppage of work, walkout, slow down, picketing, boycott, refusal to work or other interference with or interruption of the normal conduct of the employer's business be ordered sanctioned, permitted or enforced by the Union, its officials, agents or stewards. Under no circumstances, unless arbitration is not agreed to by the Union, shall any lockout be ordered, sanctioned, permitted or endorsed by the employer, its officials or agents. ARTICLE XVII SAFETY & HEALTH (181) Section 1. GENERAL PROVISIONS. The Company shall provide and enforce the use of personal protective equipment where it is necessary by reason of hazards or processes or environment for the safety and health of employees during the hours of their employment. The Company will furnish goggles, tape, gloves, rubber boots and aprons on jobs where it has done so in the past. (182) Section 2. SAFETY COMMITTEE. The Company agrees to recognize the designated safety committee and hold quarterly meetings to consider recommendations relative to safety and health. If any member of the Safety Committee becomes aware of an unsafe operation or condition, he can bring it to the attention of Management immediately without the calling of a special meeting. If no action is taken within a reasonable period of time, the Safety Committee will meet to discuss the problem. The Union Safety Committee will be provided the opportunity to attend all meetings with O.S.H.A. (183) Section 3. SAFETY GLASSES. The Company will provide and pay for prescription Safety Glasses for all employees requiring them. In addition, upon submission of a paid receipt, the Company will pay for one (1) eye exam for employees every other year. (184) Section 4. USE OF SAFETY EQUIPMENT. All employees are required to use Safety Equipment, which, in accordance with the law, is necessary for the protection of the employee's -27- 28 Safety and Health. Failure to use and properly care for safety equipment and devices or failure to follow safety rules and environmental compliances while on company property shall be prohibited and subject to disciplinary action. (185) As a condition of employment, all employees are required to wear safety glasses in the general plant and to abide by all rules established to maintain compliance with all environmental regulations. Appropriate safety equipment will be provided by the Company. (186) Failure to wear safety glasses and other safety equipment provided by the Company shall result in disciplinary action. (187) It is understood that compliance with environmental regulations is a condition of employment. While on Company property, if an employee's willful actions results in a violation of established environmental rules or regulations, said employee shall be subject to immediate disciplinary action as outlined in Article XV, Section 2. ARTICLE XVIII MILITARY AND NAVAL SERVICE (188) The Company will comply with all valid laws, rules and regulations relative to the return of employees from the armed forces of the United States and in so doing, will consult with the Union. (189) Section 1. VACATION OR VACATION PAY. An employee who at the time of leaving active employment to enter military service of the United States, has qualified for a vacation in the year of such entrance and who has not received a vacation or vacation pay, shall be granted such pay. Any employee re-employed under the terms of this Article XVIII and who under the terms of Article XIII, VACATIONS, of this Agreement, except for his absence due to such military service, would have been entitled to receive a vacation or vacation pay, shall receive such vacation or vacation pay for the calendar year in which he is re-employed without regard to any requirement other than an adequate record of continuous service. Such vacation or vacation pay shall be the same vacation or vacation pay to which such employee was entitled before entering military service, adjusted to reflect any wage increases effective during his absence and to reflect any additional vacation or vacation pay to which his total continuous service, but such absence, would have entitled him. (190) Section 2. ENCAMPMENT PAY. An employee with one or more years of continuous service who is required to attend an encampment for the Reserve of the Armed Forces or the National Guard, shall be paid for a period not to exceed two weeks in any calendar year, the difference between the amount paid by the Government (not including travel, subsistence and quarters allowance) and eighty (80) hours at the employee's base rate when proof of such service is presented to the Personnel Department. -28- 29 ARTICLE XIX TERMINATION (191) This Agreement shall become effective the date it is signed and shall terminate at 11:59 p.m. on April 1st, 2001. Any wage increase granted by this contract as specified in Article V, Section 1, shall be effective as of the date so specified in that section. (192) Either party shall have the right to ask the other to negotiate on the Labor Agreement by 60 day advance notice served upon the other on or after January 17th, 2001. Any notice to be given under this Agreement shall be given by certified mail; be completed by and at the time of mailing; and, if by the Company be addressed to the United Steelworkers of America, Five Gateway Center, Pittsburgh, PA, and if by the Union to the Company at Newcomerstown, Ohio. Either party may, by like written notice, change the address to which certified mail notice to it shall be given. ARTICLE XX NON-DISCRIMINATION (193) The Company and Union agree to the continuing policy and practice of non-discrimination in respect to race, color, religion, sex, age (as defined in the Federal Age Discrimination in Employment Act of 1967) or national origin. (194) Section 1. SMOKING. (A) This Agreement gives the employees the right to smoke during their regular working hours provided they adhere to Company smoking rules and regulations. Fire safety smoking areas, where smoking is prohibited, will be marked accordingly. No smoking in these restricted areas is a condition of employment, and anyone found smoking in any of these areas shall be subject to disciplinary action. (195) Section 2. WASH-UP PERIOD. (A) A five (5) minute wash-up period shall be allowed immediately preceding lunch break and end of shift. If this wash-up allowance is subject to widespread abuse, the Company shall have the right to receive cooperative assistance from the Union Committee in enforcement and if such measures fail, the allowance may be withdrawn. (B) The Company will comply with all mandated governmental laws pertaining to required shower regulations. The shower period will be at the end of the shift and the shower and wash-up period shall not exceed (20) minutes. (196) Section 3. ABUSIVE LANGUAGE. It has been agreed that it is necessary to establish certain rules, regulations and penalties to cover the conduct of employees of the Company while they are on duty or within the bounds of the Company's property. -29- 30 (197) Therefore, the use of profane, abusive or threatening language toward any employee, indulging in boisterous acts that could cause or lead to injury or threatening injury to other employees is PROHIBITED. Any employee found guilty of indulging in any of the above acts, shall be suspended for one (1) day on the first offense, two (2) days on the second offense, three (3) days for the third offense, and five (5) days for the fourth offense. This rule will apply to each twelve (12) month period from the first offense. (198) Any employee found guilty of fighting or having possession of guns on Company property, shall be subject to discipline up to and including discharge. ARTICLE XXII JOB EVALUATION (199) Section 1. JOB EVALUATION PROCEDURES. All Local Union No. #2737-16 bargaining unit work at the Newcomerstown Plant has been described and evaluated by the Job Evaluation Committee in accordance with the provisions of the C.W.S. Job Description and Classification Manual, updated as of January 1st, 1963, as incorporated into the Heller Tool Division Job Evaluation Manual dated August 17, 1971 hereinafter referred to as the Manual. The Manual shall become effective simultaneously with the New Hourly Wage Payment Plan. (200) The job description and classification for a given job will become effective with respect to an employee when an employee's job is covered by the New Hourly Wage Payment Plan and shall continue in effect unless: (201) A - The Company changes the job content (requirements of the job as to the training, skill, responsibility, effort, and working conditions) to the extent of one full job class or more; (202) B - The Job is terminated or not occupied during a period of one year; or (203) C - The description and classification are changed in accordance with mutual agreement of officially designated representatives of the Company and the Union. When and if from time to time the Company, at its discretion, establishes a new job or changes the job content (requirements of the job as to training, skill, responsibility, effort, and working conditions) of an existing job to the extent of one full job class or more, a new job description and classification for the new or changed job shall be established in accordance with the following procedure: (204) 1 - The Company will develop a description and classification of the job in accordance with the provisions of the Manual. (205) 2 - The proposed description and classification will be submitted to the Job Evaluation Committee for approval and the standard hourly wage scale rate for the job class to which the job is thus assigned shall apply in accordance with the provisions of Subsection C of this Section. At the same time, copies of the proposed description and classification shall be sent to a designated representative of the International Union. -30- 31 (206) 3 - The Job Evaluation Committee shall discuss and determine the accuracy of the job description. (207) 4 - If the Job Evaluation Committee is unable to agree upon the description and classification, the Company shall install the proposed classification, and the standard hourly wage scale rate for the job class to which the job is thus assigned shall apply in accordance with provisions of Subsection C of this Section. The Union Committee shall be exclusively responsible for the filing of grievances and may at any time within thirty (30) days from the date of installation file a grievance with the plant management representative designated by the Company alleging that the job is improperly described and/or classified under the provisions of the Manual. Thereupon the Job Evaluation Committee shall prepare and mutually sign a stipulation setting forth the factors and factor codings which are in dispute. Such grievance shall be settled in accordance with the Grievance Procedure starting at the third step. (208) 5 - In the event the parties fail to agree as provided, and no request for review or arbitration is made within the time provided, the classification as prepared by the Company shall be deemed to be approved. (209) 6 - In the event the Company does not develop a new job description and classification the Union Committee may, if filed promptly, process a grievance under the grievance and arbitration procedure of this Agreement requesting that a job description and classification may be developed and installed in accordance with the provisions of the Manual. The resulting classification shall be effective as of the date when the new job was established or the change or changes installed. (210) 7 - CHANGED JOBS OF LESS THAN ONE JOB CLASS. When the Company changes a job but the job content is less than one (1) full job class, a supplementary record shall be established to maintain the job description and classification on a current basis and to enable subsequent adjustments of the job class for an accumulation of small job content changes in accordance with the following: a - The Company will prepare a record of such changes to supplement the original job description and classification. b - A copy of such record will be given to the Job Evaluation Committee. It shall not be necessary for the Committee to indicate their agreement or disagreement with such report unless it is claimed that the change or changes in the job, when added to the prior change or changes, require a change in the job classification to the extent of one (1) full job class or more. c - When and if the job content changes of less than one (1) full job class accumulate to a total of one (1) job class or more, the job shall be reassigned to the appropriate job class on the basis of such total accumulation and the reassignment shall become effective from the date of the most recent change in job content. d - Anytime a job is re-evaluated and the job class goes up less than (1) full point, but -31- 32 crosses over into the next pay grade, it will be given the higher pay grade. e - In the event the parties fail to agree to a classification of a new or changed job, and no request for a review or no grievance is filed within thirty (30) days of the most recent change in job content, the classification as prepared by the Company shall be deemed to be approved. (211) In the event the Company does not develop a new job description and classification for a new job, or a record of a changed job, the Union Committee may file a form (Notice of Job Description Change) outlining the changes in the job, or that a new job has been established, and requesting that a job description and classification or a record of job changes be developed. If the Company then fails to develop a job description and classification or a record of job changes, the Union Committee may within thirty (30) days of such written request, file a grievance under the grievance procedure requesting that a job description and classification of such new job or a reclassification of a changed job be developed in accordance with the Manual and the application of this section. (212) Section 2. JOB EVALUATION COMMITTEE. Job Evaluation Committee will consist of four members, two selected from the Company and two selected by the Union. (213) Section 3. JOB EVALUATION UNDERSTANDING. The Company and the Union agree that prior to implementation of the "New Plan," jobs in the Department will be reviewed as to the correctness of the description. If it is determined that the job content of the description has changed, then the job description will be subject to re-evaluation and will be treated as though it was being described and evaluated for the first time. Otherwise, the original evaluation and resulting labor grade will remain unchanged and the grade level will not change unless there is a change in the job classification to the extent of one (1) full job class or more. (214) Section 4. CWS JOB LABOR GRADES AND POINTS. Labor Grade From Points Including and #1 0 thru 6.3 #2 6.4 thru 9.4 #3 9.5 thru 12.4 #4 12.5 thru 16.4 #5 16.5 thru 19.4 -32- 33 ARTICLE XXIII MISCELLANEOUS (215) Section 1. INSURANCE COVERAGE. The Company will provide the following insurance coverage as agreed to by the parties: A. (6) months of paid insurance for employees on A&S or Workers' Compensation B. (1) month of paid insurance for laid-off employees following the month of lay-off. C. One (1) annual hearing test for employees who are not required to be tested due to on-the-job noise exposure. Employees must be tested prior to the start of the shift, at lunchtime, or after work. D. Prescription Drug Card Retail Co-pay: -------------- Generic $10.00 Brand Name $20.00 *All 30-Day Supply Non-Formulary $30.00 Mail Order: ----------- Generic $20.00 Brand Name $40.00 *All 90-Day Supply Non-Formulary $50.00 E. A&S Insurance Increase from $250.00/week to $275.00/week. Effective 4-6-2000 (26 week maximum). F. Life Insurance $15,000. G. Monthly Contribution Employee Only $10.00 Employee & Dependents $20.00 For an explanation of all insurance benefits, employees should refer to their "Summary Description Plan" booklet. (216) Section 2. RETIREMENT PLAN. The Company will set up a retirement Plan account for each hourly employee. Annually, the company will contribute 5% of the employee's annual eligible compensation to that account. This contribution will increase from 5% to 5-1/2% effective 4/6/99. A 401K plan will be provided as a supplement to the present retirement plan as a voluntary contribution. -33- 34 (217) Section 3. PRINTING. The Company agrees to supply copies of the Basic Agreement to all present employees and new employees as well as the Local Union and International Representative when they become available. (218) Section 4. PRODUCTIVITY GAINSHARING. The Company and Union recognize the need to encourage and reward productivity. The procedure for recognizing and rewarding improvements in productivity shall be the Productivity Gainsharing Plan. (219) This program shall be a plantwide plan based on the productivity of the direct labor bargaining unit employees. (220) The measure of productivity shall be an index equal to the amount of earned direct labor hours divided by the total clock hours of direct labor employees. (221) New standards will be established for new products and new equipment. Previously established Industrial Engineering practices shall be employed. The clock hours spent on new equipment or new products shall not be used in the computation until such time as standards are issued. (222) Earnings computation shall be based on a comparison of the quarterly index to the base index. The base index shall be 79.84. All bargaining unit employees will receive a gainsharing payment equal to their straight time earnings times the increased %. The productivity index shall be computed for each calendar quarter and paid out as follows:
% of Base Payout --------- ------ 90 to 99.9 0% 100 to 108.9 75.0% 109 and up 90.0%
(223) If the quarterly index is lower than 90% of the base period index, a pay deduction shall be computed using the same procedure. Such deduction will be based on all productivity losses below the 90% level. (224) The Company will exclude rework operations from any calculation (both D.L. and earned hours), and will review and change, if necessary, long-term non-standard conditions. Any present outside purchased blanks will still be given credit in the Gainsharing System. Product numbers will not be changed unless it reflects base period rates. (225) The Union Committee will designate any union member of their choice to be the liaison with the Company in resolving/identifying problem areas. Such areas to include excess machine downtime and improper allocation of Gainsharing bonus. -34- 35 (226) Simonds Industries Inc. and the Union mutually encourage ongoing productivity gains. The Company will endeavor to work with the Union to refine, modify or improve this plan and/or devise alternate plans which promote productivity gains. (227) IN WITNESS WHEREOF, the parties having included herein the entire agreement between the parties relating to wages, hours and terms and conditions of employment for employees covered by this Agreement for the duration of this Agreement and having voluntarily and unqualifiedly waived the right to bargain collectively with respect to any subject whether or not specified in this Agreement for the duration of the Agreement, do hereby sign this Agreement this 5th day of April, 1998. UNITED STEEL WORKERS OF SIMONDS INDUSTRIES INC. AMERICA AFL-CIO LOCAL #2737-16 __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ -35- 36 LETTER OF UNDERSTANDING INSURANCE The Company and the Union have committed to make a concerted good faith effort in reviewing any rising insurance costs and, as a means of controlling these costs, will discuss items that might be of mutual benefit. S.A. Osler Human Resources Manager SUB-CONTRACTING In the event the Company finds it necessary to sub-contract work out or outsource any work which is customarily performed by the bargaining unit at the Newcomerstown facility, it will give notice to the Union prior to sub-contracting or outsourcing the work. Further, the Company will discuss the economic and business reasons of the decisions to sub-contract or outsource with the Union and will consider in good faith the input from that discussion prior to sub-contracting or outsourcing the work. The Company, however, reserves the right to sub-contract or outsource bargaining unit work, if business and economic reasons deem it appropriate to do so. S.A. Osler Human Resources Manager PROPER TERMINOLOGY FOR FILLING JOB VACANCIES BID/BUMP PROCEDURES 1. Recall to in-house bid job. 2. Bump. 3. Bid. 4. Temporary Bid. PLACEMENT 1. Call back from lay-off to an open job. 2. When an employee has an option of bumping the junior person or an open job, and he/she takes an open job. -36- 37 ASSIGNMENT 1. Temporary transfer/loan. 2. Out-of-Work. S.A. Osler Human Resources Manager SCHEDULING OVERTIME/COMBINATION JOBS In scheduling overtime, when a combination job contains the same number as a single job in a department, and a more senior employee occupies the single job where overtime is needed, that person can refuse the overtime and the junior employee in the combination job can be forced to work. It is also understood: 1. In scheduling Saturday overtime, the Company will continue to schedule employees in the single job number before those in the combination job/jobs, regardless of the seniority of the person in the combination job. 2. When choosing work stations in the department, the employees in the single job numbers will choose by seniority before anyone in the combination job/jobs. 3. Employees in a single job number CANNOT pull shift preference over an employee in a combination job. S.A. Osler Human Resources Manager LETTER OF UNDERSTANDING PRESCRIPTION DRUG CARD During the term of this Labor Agreement, if a generic or brandname drug does not appear on United Healthcare's Preferred Drug List, and a covered employee or dependent is required to pay the non-formulary price for a prescription, Simonds will reimburse the employee for the difference between the non-formulary amount paid and the generic copay ($10) or the brandname copay ($20). The same procedure will be followed for those utilizing the mail-order options: Simonds will pay the difference between the non-formulary amount paid and the generic copay ($20) or the brandname copay ($40). -37- 38 Simonds may continue to seek further improvements in the prescription drug card plan and may make changes, as long as the employees' benefit level is either maintained or improved, and there is no extra cost to the employee. S.A. Osler Human Resources Manager -38- EX-10.12 32 AGREEMENT DATED 4/6/98 LOCAL 2737-17 1 Exhibit 10.12 AGREEMENT LOCAL NO. 2737-17 (1) THIS AGREEMENT dated April 6th, 1998 hereinafter referred to as the Basic Agreement, between Simonds Industries Inc. Newcomerstown, Ohio, or its successors (hereinafter referred to as the "Company") and the UNITED STEELWORKERS OF AMERICA, AFL-C10 (hereafter referred to as the "Union"). ARTICLE I RECOGNITION (2) Section 1. The Company recognizes the Union as the exclusive bargaining agency for collective bargaining purposes for all of its factory clerical workers, excluding all foremen, assistant foreman, Company Time Study employees, production and maintenance employees, first aid department, watchmen, power house engineers and Main Office workers or in the event that any employee covered by this Agreement be transferred to the Main Office. (3) Section 2. As a condition of employment, all employees shall become and remain members of the Union in good standing in accordance with the constitution and by-laws of the Union during the life of this Agreement. New employees, no later than fifty-five (55) working days after the date of hiring shall, as a condition of continuous employment, become and remain members of the Union in good standing in accordance with the constitution and by-laws of the Union during the life of the agreement. (4) Section 3. Check-Off. The Company shall deduct from the pay for the third full payroll period each month, the Union dues for such month, initiation fee if owing, and assessments and remit same to the International Treasurer of the Union upon the basis of, and for the term of individually signed voluntary check-off authorization cards heretofore and hereafter submitted to the Company. (5) The International Treasurer shall be the sole person to certify the dues and assessments due to the Union by the employees. (6) The Union shall indemnify and safe the Company harmless from any claims, suits, demands or other forms of liability that shall arise out of reliance upon certified lists furnished to the Company by the Union for the purpose of complying with the provisions of this Agreement. 2 ARTICLE II WAGES (7) Section 1. The wage rates to be paid will be as indicated in Schedule B which is attached hereto and by this reference made part hereof, to be effective as of the dates set forth in that Schedule B. (8) Section 2. Job Evaluation and Job Number Wage Rate Classification. (9) The job evaluation committee shall consist of two representatives from the Union and two representatives from Management. The function of this Committee is to establish the job classification wage rate to be paid to new, changed or combined jobs not in effect as of the date or signing of this Agreement. Schedule C - Job Evaluation, is hereto annexed and by this reference made a part hereof. Jobs will be re-evaluated upon the request of the union committee. Normal evaluations will not be accomplished more than once per contract term. Section 3. Assignment of Work - Wages Paid. (10) - The Company shall have the right to assign work or jobs to any employee within their bid in job shift in all wage rate classifications in accordance with work load requirements. (11) - Employees assigned work or jobs other than their own (loaned) shall receive the wage rate classification of the job assigned or their own rate, whichever is higher. If an employee is transferred to a job that is part of a combination job, and that employee is qualified on all portions of the combination job, they will receive the combination rate. (12) Section 4. For the purpose of computing shift differential the starting time of the various shifts shall be as follows: First Shift - 6 a.m. to 8 a.m. Second Shift - 2 p.m. to 4 p.m. Third Shift - 10 p.m. to Midnight (13) An employee regularly scheduled for the day shift who completes his regular eight hour shift and after leaving the Company's premises is called back within the same work day shall be paid the applicable shift differential for the hours worked on the shift for which he is called back. (14) An employee regularly scheduled for work who completes his regular eight hour shift and continues to work the succeeding shift in excess of four (4) hours, shall be paid the applicable shift differential for all hours worked over four hours in the succeeding shift. (15) An employee regularly scheduled for work on the third shift and who completes his regular eight hour shift and continues to work the succeeding shift will carry his applicable shift differential for all hours worked overtime on the said succeeding shift. -2- 3 (16) For hours worked on the second shift there shall be paid a premium rate of twenty (20) cents per hour. For the hours worked on the third shift there shall be paid a premium rate of twenty six cents (26) per hour. Shift differentials shall be included in the calculation of overtime compensation. (17) Section 5. When the Company is responsible for paying for the participation of Union Grievance committee meetings, grievance committee members will be paid at their respective base wage rates for all hours. The Company and Union will alternate the responsibility for paying for their participation in regular grievance committee meetings. ARTICLE III HOURS OF WORK (18) Section 1. This article shall not be construed as a guarantee of hours of work per day or per week. (19) Section 2. The normal hours of work shall be eight (8) per day and forty (40) per week. The daily hours of work shall be consecutive except for such lunch periods as may be provided in accordance with practices heretofore prevailing in the plant. (20) Section 3. Hours worked in excess of eight (8) working hours or in excess of a total of forty (40) hours in a work week or days worked in excess of five (5) work days within the work week shall be paid for at one and one-half times the normal rate of pay. Overtime payment shall be made on the basis of either daily or weekly overtime hours worked, but an employee shall not be paid both daily and weekly overtime for the same overtime hours worked. (21) Section 4. The normal work day shall be any regularly scheduled consecutive twenty-four (24) hour period comprising eight consecutive hours of work and sixteen hours of rest subject to provision of subdivision (2) dealing with lunch periods, and the normal work week shall be five consecutive work days followed by two consecutive rest days within seven consecutive days. (22) Section 5. Premium Pay. Time and one-half shall be paid for work performed on Saturday and double time paid for work performed on Sunday as such, premium pay and overtime shall not be paid for the same hours worked. (23) Section 6. Reporting Pay. Employees scheduled to work or who are notified to report for work and report and start to work shall be paid. In the event of there being no work available or there being available less than four hours work which is in the regular course of their operations, for four hours work at their average straight time hourly earnings or the rate of the job to which they are assigned, whichever is the higher. If employees refuse such assignments, they shall not receive the benefit of such guaranty of four hours reporting pay. After the first four (4) hours, an out-of-work employee will receive the evaluated base rate of his regularly assigned job, -4- 4 or the job he is assigned to, whichever is higher. If the employee opts to go home after (4) hours, that time will be counted as absenteeism. (24) The above shall not apply where an employee is notified not to report for work or is not scheduled to report. (25) If because of events beyond the reasonable control of the Company, work is not available to an employee so reporting for work, the provisions of Section 6 shall not apply. (26) Section 7. Allowance for Jury Service. An employee who is called for jury service or subpoenaed as a witness shall be excused from work for days on which he serves and he shall receive for such day of service as a juror or witness on which he otherwise would have been scheduled to work, the difference between 8 times his average straight time hourly earnings and the payment he receives for such service. The employee will present proof of service and of the amount of pay received therefore. Time off from work in order for an employee to give a deposition, will not be paid under this provision. (27) Section 8. A five minute wash-up period will be allowed immediately before the lunch period and immediately before quitting time at the end of the shift. (28) Section 9. Allowance for Funeral Leave. Three (3) days Funeral Leave will be guaranteed to non-probationary employee (upon request) in case of death of the employee's mother, father, sister, brother, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, and daughter-in-law, in immediate marriage relationship, grandchild or grandparent of the employee or his spouse, or when they have lived with the employee in an immediate family relationship, the employee's stepmother, stepfather, stepbrother, and stepsister in order for the employee to attend the funeral. It is understood that a brother-in-law or sister-in-law of an employee in the immediate marriage relationship will be defined as an employee's spouse's brother or sister or an employee's brother or sister and his or her spouse, (4) four days will be granted (upon request) in case of death of the employees legal spouse, son or daughter, including stepchildren (when they have lived with the employee in an immediate family relationship). (29) All funeral leaves shall be taken on consecutive scheduled working days provided that one such scheduled working day shall be the day of the funeral and it is established that the employee attended the funeral. (30) For those funeral leaves which are limited to three days, the employee may have as their last day the day of the funeral or the day following the funeral at the employee's option. (31) For each day of such authorized leave, the Company will pay for the normally scheduled hours not exceeding eight (8) times his evaluated base rate. Proof may be required by the Company of the relationship and that the funeral was attended by the employee; if not attended, or if the requested proof is not forthcoming or satisfactory, there shall be no eligibility for any funeral leave pay. Funeral leave pay shall not apply to Saturday, unless scheduled to work, Sunday, observed holidays set forth in Article V., time when employee is on vacation, any period -4- 5 when the employee is eligible for Workman's Compensation or non-occupational disability benefits, or when it duplicates pay received for time not worked for any other reason. (32) Section 10. Injury at Work. Any employee who is injured while engaged in work properly assigned to him and who must leave work because of the injury, shall receive pay at his base rate for the balance of the regularly scheduled shift on which he is injured. ARTICLE IV SENIORITY (33) Section 1. In case of promotion, increase or decrease of forces, lay-off or recalls within the bargaining unit, length of continuous service shall be the determining factor. Continuous service or seniority as used herein is defined as an employee's total continuous unbroken service with the Company from his last date of hire. (34) Section 2. A seniority list will be furnished to the local union committee at lease every six (6) months. The seniority list will be reviewed within 30 calendar days and posted and if not challenged for error within 30 days from date of posting by any employee or the Union, it shall be accepted by the employees, Union and Company as, accurately reflecting the status of such employees. The seniority will be furnished the local union committee whenever there is a change. (35) The Union will supply the Human Resources Department with a list of Union Officers/Steward and will provide prompt notification of any changes. (36) A list shall be posted listing the employees in the department as to their seniority and jobs on which they are qualified. The list shall be open for challenge for a period of 10 days, after which if they have not been challenged and corrected for error, shall accurately reflect the seniority status of such employees, and shall be binding upon the employee, the Union and the Company. All such challenges must be mutually agreed upon by the union committee and management. The department supervisor and the department steward will bring this list up-to-date at least once each six months if necessary to reflect a change. The employee holding the utility classification may qualify on each job by accumulating a minimum of 30 working days within a 12 month period on each job. A record of days worked will be kept by the supervisor. Upon qualification the seniority board will be revised accordingly. (37) Section 3. In the event of a new or substantially changed job or a vacancy occurs, a solicitation will be made of employee in order of seniority to determine the employee to be awarded such job. A job description of the job solicited will be shown to each employee until the job is accepted and the solicited employee will indicate his acceptance or rejection of the job by initialing the job description. Employees solicited may have up to one hour to decide if they wish to accept the job. -5- 6 (38) The same procedure will apply to the job or jobs vacated by employees accepting the new or vacant jobs. A reasonable effort will be made by the Company and Union to contact absent employees advising them of such job openings and if contacted they may have up to one hour to decide if they wish to accept such job. (39) The most senior employee requesting the job will be awarded the job unless otherwise agreed to by the Company and the Union. (40) In the operation of this clause it is the intention of the Company and the Union to fill job vacancies as quickly as possible consistent with orderly operations. Any person accepting a job through solicitation cannot withdraw his or her acceptance. (41) If the person awarded the job is disqualified, a new solicitation will be made. (42) Section 4.(A) In the event of a new job, or job on which the base rate has been changed, the following shall apply in the order listed: a. Solicit employees for the job. b. Call-back laid-off employees by seniority. c. New hire. (B) In the event of a job vacancy, the following shall apply in the order listed: a. Bid holders of the job anywhere in the plant will be recalled to such job in order of seniority. b. Solicit employees for the job. c. Call back laid off employees by seniority. d. New hire. (43) Disqualification shall normally be within a thirty (30) working day qualification period. If additional time is needed, the 30 working day period may be extended by mutual agreement. After qualification for a job, no clerical worker can be disqualified without just cause. (44) Section 5. The person awarded the job not qualifying for the job within 30 working days, shall return to his or her former position and anyone having advanced to fill the position vacated shall return to his or her own position and so on down the line. (45) Section 6. In case of a reduction of working force, the employees affected by the reduction of the working force or elimination of their job, may bump only where qualified, then if no qualification exists may bump any other worker with less seniority as a factory clerical worker for whose job they can qualify for within 30 working days. (46) If the employee does not qualify, he may then exercise his seniority and bump any other less senior employee providing this privilege is not abused. -6- 7 (47) Section 7. No employee will have the right to bump another employee until he is laid off or bumped from the job he is now performing. He shall then sign a duplicate form showing the job he bumps to, one copy to be given to the Union. (48) Section 8. No seniority rights shall be exercised in the case of a lay-off of one working day or less in a scheduled work week, if such exercise of seniority rights would involve displacing another employee from his or her job. Seniority rights may be exercised in the case of lay-off of more than one (1) day. (49) Section 9. Regulations regarding overtime and curtailed production: (50) In the case of overtime and curtailed production the following shall apply. (51) 1. If the services of a job are required, work the employee who has the job bid in. For the purposes of this section, Bid, and bump shall be considered synonymous. In case of a bid holder being loaned, and overtime or curtailed production is required on both his own job and his loan, he shall work the overtime or curtailed production on the job to which he is loaned. (52) 2. If additional services of a job are required in addition to the employee performing the job, the oldest qualified employee, as listed on the seniority board will work. If additional services are still required, the second oldest qualified and so on in that order. After all the qualified employees are contacted, requirements for additional services must be assigned according to seniority. (53) 3. Probationary employees shall be entitled to daily overtime only on the job they are holding by bid, bump, or assignment. Probationary employees shall also be entitled to weekend overtime on the job they are holding by bid, bump or assignment after they have completed 30 working days. (54) 4. First shift employees will be notified they are scheduled for Saturday work not later than 3:30 p.m. Thursday of that week. Second shift employees will be notified they are scheduled for Saturday work not later than 7:30 p.m. Thursday of that week. Curtailed Production (55) 1. If the full time or part-time services of a job are required, work the employee who has the job bid in. For the purposes of this section, bid and bump shall be considered synonymous. (56) In the event of overtime or curtailed production in a control center, if the work load requirements involve only scheduling the work load and handling time cards, the employee or employees whose job or jobs are affected will in advance make out a list of the work schedule and prepare the time cards for the employees scheduled to work; the schedule and time cards will be given to the employees and/or supervisors and the employee or employees' job will not be scheduled to work. -7- 8 (57) Section 10. Disability Transfer. An employee's request for transfer due to physical disability accompanied by a doctor's certificate (Form 269) will be referred to the Human Resources Department. A copy of the 269 will be furnished to the grievance committee. The Company shall have the right to require that such applicant undergo additional examination or examinations by a physician or physicians of its choice. If such privilege is granted, the employee may bump as follows: 1st The disabled person may bump the least senior person. 2nd If the disabled person cannot perform the least senior person's job, then the disabled person may bump the next least senior person. 3rd The next to the least senior person must then take the least senior person's job. (58) Section 11. Transfers out of the Bargaining Unit. All employees who are transferred by the Company to jobs not included with the bargaining unit shall accumulate seniority in the bargaining unit. At the end of such period, they shall neither accumulate further seniority nor retain their seniority in the bargaining unit. (59) During the period in which seniority is being accumulated such transferred employee shall have the right to transfer or bump back to a job he has previously performed in the bargaining unit. After an employee once re-transferred back into the bargaining unit and then later transfers out, he will thereupon lose his seniority in the bargaining unit. (60) Section 12. Employees who may be or who have been loaned from the Clerical Workers to another job in the Company, will retain and accumulate his or her seniority in the Clerical Group, but will not accumulate any seniority in the department to which he or she is loaned. Such loan shall not exceed six months unless extended by mutual agreement by the Union and Management. The person loaned shall be paid at his rate or the rate of the job to which they are loaned, whichever is higher. (61) Section 13. Reclassification forms shall be marked by the following symbols on each change of job: Bid, bum, placed (assigned), recall, call-back, loan or transfer. Such changes will be recorded on the employees' employment record card. Such reclassification forms will not be made out on job assignments that do not exceed five days duration. (62) Section 14. Leave of Absence. A leave of absence for compelling and justifiable personal reasons made in writing may be granted by Company discretion for periods up to six months, may be extended for further periods, if request is made in writing up to a maximum total continuous leave period of two (2) years. If the individual does not return to work after expiration of a leave or receive a renewal seniority shall be lost. (63) Section 15. Employee Sick Leave. If an employee shall be absent due to sickness or accident and the facts presented signify that the employee shall return to work, the Company at -8- 9 its discretion may fill the job by recall of an employee from the lay-off panel: if any or by a new hire. When the absent employee returns to work he/she shall return to his/her former job. The employee displaced shall also return to his/her former job if any or be permitted to bump. If it is known that the absent employee shall not return to work the job shall be posted for the bid. (64) An employee granted leave of absence under the provisions of this Article who does not return to work upon expiration of such leave of absence, or who is found to have accepted other employment, it will be considered to have terminated their employment unless otherwise mutually agreed upon by the Company and the Union Committee. The Union will be given notification of all leaves of absence. (65) Section 16. Any local union member who is an employee of the Company shall be given upon his request, a leave of absence not to exceed a period of two (2) years for the purpose of working for the local Union or the International Union with the provisions that it will not be granted to more than (1) person and such leave of absence shall not constitute any break in the employee's record of continuous service. Upon written request to the Company, such an employee may be granted an extension of his leave of absence upon mutual agreement between the Company and the Union. (66) Any request for days off for Union Business shall be submitted in writing to the Human Resources Department at least one day prior to the desired date and shall not exceed 15 days per calendar year for any one employee. Conferences, conventions, negotiations, and workers' compensation hearings are exempted from the (15) day calculation, but still require written notification of time off. (67) Section 17. The probationary period shall be for 55 working days and during such time the employee shall be deemed to be on probation and will not accrue seniority, however, if retained by the Company, the employee's seniority date back to the last date of hiring. (68) Section 18. Loss of Seniority. Seniority shall be lost (and any subsequent rehire shall be as a probationary employee) as follows: (69) 1. When an employee quits. (70) 2. When an employee is discharged for just cause. (71) 3. When an employee is absent for three (3) working days without notifying the Human Resources Department, unless failure to make notification can be justified or verified (by a doctor's certificate) personal sickness or accident or death in the family. (Immediate family is same as defined in Funeral Leave section of this agreement.) (72) 4. Failure to report intentions and availability within (5) working days after being called back: failure to report for working ten (10) days after written notice. All -9- 10 recalls will be made by registered mail, return requested, at the last address supplied to the Human Resources Department by the employee. (73) 5. Failure to report for work within one working day of expiration of a leave of absence. (74) 6. If an employee shall be absent because of lay-off or physical disability, he shall continue to accumulate continuous service during such absence up to a maximum of two years, and he shall retain his accumulated continuous service for an additional period equal to (a) three years, or (b) the excess, if any, of his length of continuous service at commencement of such absence over two years, the employee must give the Company annual written notice that he intends to return to employment when called, if the Company at least 30 days prior thereto has mailed him a notice of the most recent address furnished by him to the Company that he must file such a notice. (75) 7. When an employee is jailed or imprisoned for a period in excess of ninety (90) days. (76) 8. Upon receipt by the Company of a second wage garnishment relating to a separate debt within a 12 month period beginning with the date of the first garnishment and upon the failure of the employee to obtain and present to the Company a written statement releasing the Company from any obligation under the garnishment to make a deduction from the employee's pay. ARTICLE V HOLIDAYS (77) The Company will pay employees with the bargaining unit for eleven (11) holidays not worked in a year. An employee eligible under these provisions shall receive eight hours straight time pay at his average rate including shift differential. The eleven holidays are: New Year's Day Good Friday Memorial Day Fourth of July Labor Day Thanksgiving Day after Thanksgiving Day before Christmas Christmas Day December 31st Floating Holiday -10- 11 (78) The floating holiday may be scheduled at any time during the year pending prior supervisory approval. (79) 1. The employee must be a regular employee on the active payroll of the Company as of the date of the holiday. Probationary employees are not entitled to receive holiday pay for holidays not worked. (80) 2. The employee must be actively employed and would have been scheduled to work if the day had not been observed as a holiday. (81) 3. The employee must work his last full scheduled work day prior to and his next full scheduled work day after such holiday within the employee's scheduled work week unless excused by their supervisor. However, payment for the holiday will be made if the employee works during the week in which the holiday occurs, but is absent on the above days due to Union activity, verified illness or accident, emergency illness at home, death in the immediate family (immediate family is same as defined in Funeral Leave section of this agreement), or jury duty, or if he has been sent home during the week in which the holiday occurs for lack of work. (82) 4. If any of these holidays fall on a Saturday, observance will be on the previous scheduled work day. If any of these holidays fall on a Sunday, observance will be on the next scheduled work day. (83) Should any holiday fall during the scheduled vacation period, the holiday will be paid for in addition to the vacation pay and the employee may extend his vacation for an additional day without pay if he makes arrangements in advance to do so. (84) If the Company requires an employee to work on a holiday, he will be paid double time for holiday worked plus 1 day at his regular average rate for the holiday, straight time hourly rate for day workers. ARTICLE VI MANAGEMENT (85) Except as otherwise provided in the agreement, the Management has the right to direct the working force; this includes the right to hire, suspend, or discharge for proper cause, to loan persons in various jobs, to relieve employees form duty due to lack of work or inability to perform the work assigned, to eliminate or add duties to job classifications and eliminate jobs is vested in the Company. It is agreed that in the exercise of such direction of the working force, discrimination will not be used against employees. -11- 12 ARTICLE VII VACATION (86) (A) Each employee will be eligible for vacation with pay within a calendar year, based on the number of years of service he will complete within the calendar year, as follows: Years of Service Weeks of Vacation with Pay ---------------- -------------------------- 1 but less than 3 1 3 but less than 10 2 10 but less than 17 3 17 but less than 25 4 25 or more 5 (87) Any employee who does not complete one year's service with the Company will not be entitled to vacation or vacation pay. (88) (B) The vacation year will be the period between calculation dates in sequential years. The vacation qualifying period will be the 12 months preceding the vacation year. (89) (C) To be eligible for a vacation in any vacation year during the term of this agreement, the employee must: (a) Have one year or more of continuous service. (b) Have earnings in at least 50% of the pay periods in the vacation qualifying period. (90) (D) An employee with more than one (1) year of continuous service who is ineligible for a vacation because of failure to have earnings in at least 50% of the pay periods in the vacation qualifying period due to lay-off or sickness shall be entitled to one week's vacation if he has had earnings in at least 50% of the pay periods in the (12) months preceding January 15 of the vacation year. (91) (E) A calculation date will be determined each year which will be the earlier of the payday three weeks prior to the scheduled shutdown if any or June 25. (92) (F) Each employee who has not completed one year of service by the calculation date will not become entitled to vacation or to the vacation pay calculated for him at the calculation date until he completes one year's service with the Company. At the time he completes one year's service, whether in the same year of the calculation date or the next, he will become entitled to one week's vacation in the calendar year of his anniversary date and to vacation pay calculated at the calculation date and payment will be made by the third payday following the anniversary date. -12- 13 (93) (G) The vacation pay will be based on 40 hours per week and will be at the employee's average straight time hourly rate (including shift premium but excluding overtime), based on the period between January 1 and May 31 preceding the calculation date. (94) (H) Employees who complete their third, tenth, seventeenth or twenty-fifth (when applicable) years of service during the calendar year but after the calculation date applicable to them in that year will have their vacation calculated on the calculation date as if they had completed their third, tenth, seventeenth, or twenty-fifth (when applicable) year of service, respectively. However, the additional vacation pay and the additional week of vacation to which they will become entitled by reason of completion of the required years of service will be deferred until the employee's anniversary date and payment for the additional week will be made by the third payday following the applicable anniversary date. At the time they reach their anniversary date they will be eligible for the additional week of vacation. Eligibility for the additional vacation and vacation pay will be lost if the employee does not complete the required years of service. (95) An employee who quits or is discharged after the vacation payment is made will not be entitled to his or her vacation pay if the time of such quit or discharge occurs prior to his or her anniversary date of hire. (96) Employees will be notified at least two weeks in advance of any scheduled vacation. Vacation requests in excess of this two weeks, will be granted on a seniority basis provided that the vacation request is made prior to April 1st of the vacation year. If any employee makes a request for vacation by September 30th, the Company will see that it is granted before the end of the year. Employees who are eligible for additional vacation, at a time other than shutdown, must notify the Company by July 1st in order to receive all vacation monies prior to the shutdown period. Anyone who does not notify the Company by this date, will be paid for vacation as it is used. The balance of unused vacation will be paid the first pay of December. All vacation payments will be in one week increments. (97) The Company will notify the Union prior to February 1, whether or not there will be a vacation shutdown in that calendar year. The date and duration of the shutdown, if any, will be made known on or before March 15th. The vacation shutdown will be scheduled in June, July, or August. Such shutdown shall be considered vacation for all eligible employees not scheduled to work during this period. The Company reserves the right to schedule necessary maintenance and other employees during this vacation period, and such employees shall be scheduled for vacation at another time. In the event there is no vacation shutdown, vacations will be scheduled in accordance with production requirements and the desires of the employees on a seniority basis. (98) If the plan is to be shut down for vacation, the Company will endeavor to provide work for those employees who are not entitled to vacation pay, but without any obligation to do so and without regard to seniority. -13- 14 ARTICLE VIII ADJUSTMENT OF GRIEVANCES (99) All grievances and complaints, by either party and disputes within the scope of this Agreement or concerning the meaning or application thereof shall be adjusted as follows: (100) Step 1. The employee, with or without the steward shall verbally present the grievance to his foreman within three (3) working days after occurrence of the event or within three (3) working days after the date the employee learns of the event, whichever is later. The foreman shall give his verbal answer within one working day. (101) Step 2. If no settlement is reached, the grievance may be reduced to writing on a form which will be provided by the Company within one workday of the day the foreman gives his verbal answer. It shall be signed by the grievant and presented to the foreman within (2) working days. The foreman shall provide an answer to the employee in writing within two (2) working days of his receipt of the grievance form. (102) Step 3. If the grievance is not settled in the second step, it may then be presented to the Personnel Department by the committee. Management and the Union Committee will attempt to settle the grievances at the next regularly scheduled meeting, provided the grievance is presented to the Human Resources Department at least 48 hours prior to the meeting. The Company's answer to the grievance will be given within five (5) working days after the meeting. Any grievance which the Committee or Company wishes to present shall be initiated at Step 3. The time limits set forth thin this step shall be applicable to such grievances. (103) Step 4. If the grievance is not settled in the third step, it shall be referred to the International Representative of the Union who shall meet with the local Union Committee and Management at the next regularly scheduled meeting for the purpose of adjusting the grievance. Management has fifteen (15) days from the date of the meeting to give its final answer. On any grievance, no employee shall be entitled to relief extending more than one (1) day prior to the date of the filing of the written grievance. (104) Step 5. If the Company's final answer is not satisfactory, the Union may, no later than 15 days after the answer is given appeal the grievance to arbitration. If no agreement can be reached within 15 days as to the choice of an Arbitrator, one will be selected form the Federal Mediation and Conciliation Service. The expense of arbitration will be shared equally by the Union and the Company. (105) The arbitrator shall have power to rule only cases where differences exist as to interpretation of the contract. The arbitrator shall have no power to add to or subtract from or modify any of the terms of this agreement, or to establish or change the wage structure not to rule on any dispute concerning job standards. He shall have no power to order back pay in any case of shutdown, strike, or stoppage. The award shall be rendered -14- 15 promptly and, unless otherwise agreed by the parties or specified by law, no later than thirty days from the date of closing the hearings, or if oral hearings have been waived, then from the date of transmitting the final statements and proofs to the Arbitrator. (106) Any case appealed to an Arbitrator on which he has no power to rule shall be referred back to the parties without decision. (107) Failure of any of the parties to any grievance to comply with the provisions of Steps 1, 2, 3, 4, or 5 within the time limits shall automatically determine the grievance in favor of the other party, and shall not be subject to re-opening. However, the time limits may be waived by mutual agreement. (108) The Union and the Company agree that there shall be no lockout, strike, slowdown, stoppage or other interference with production during the various steps of the grievance procedure unless the arbitration is not agreed to. ARTICLE IX SAFETY AND HEALTH (109) The Company shall continue to make reasonable provisions for the safety and health of its employees at the plant during the hours of their employment. Protective devices, wearing apparel and other equipment necessary to properly protect employees from injury shall be provided by the Company in accordance with the practices now prevailing in the plant. (110) The Company agrees to recognize one (1) Local 2737-17 designated safety committee representative who shall be included in quarterly meetings with the local #2737-16 safety committee. (111) All employees are required to wear safety glasses in the general plant as a condition of employment. The Company will provide and pay for the glasses. In addition, upon submission for a paid receipt, the Company will pay for one (1) eye exam for employees every other year. Other safety equipment will also be provided by the Company. Failure to wear safety glasses and other safety equipment provided by the Company shall result in disciplinary action. ARTICLE X REGULATIONS COVER ABUSIVE LANGUAGE (112) It has been agreed that it is necessary to establish certain rules, regulations and penalties to cover the conduct of the employees of the Company while they are on duty within the bounds of the Company's property. -15- 16 (113) Therefore, the use of profane, abusive or threatening language toward any employee indulging in boisterous acts that could cause or lead to injury, or threatening injury to other employees is PROHIBITED. (114) Any employee found guilty of indulging in any of the above acts shall be suspended for one (1) day on the first offense, two (2) days on the second offense, and three (3) days for the third offense, five (5) days for the fourth defense. This rule will apply to each (12) twelve month period from the first offense. (115) Any employee found guilty of fighting or having possession of guns on Company property shall be subject to discipline including discharge. ARTICLE XI DISCHARGE CASES (116) In the exercise of its right set forth in Article IV, the Management agrees that a member of the Union shall not be peremptorily discharged from and after the date hereof, but that in all instances in which Management may conclude that an employee's conduct may justify discharge, he shall first be suspended. Such suspension shall be for not more than five (5) working days. During this period of initial suspension the employee may if he believes that he has been unjustly dealt with, request a hearing and a statement of the offense before his foreman or the general superintendent, or the manager of the plant, with or without a member or members of the grievance committee present as he may choose. (117) At such hearing the facts concerning the case shall be made available to both parties. After such hearing and within the period of initial suspension, Management shall conclude whether the suspension shall be converted into discharge, or dependent upon the facts of the case, that such suspension shall be extended or revoked. If the suspension is reversed the employee shall be returned to employment and receive full compensation at his regular rate of pay for the time lost, but in the event a disposition shall result in either the affirmation or extension of the suspension or discharge of the employee, the employee may allege a grievance which shall be handled in accordance with the procedure of Section VIII, "Adjustment of Grievances". Should it be determined by the Company or by an umpire in accordance with Step 5 of the Grievance Procedure the Company shall reinstate the employee and pay full compensation at the employee's regular rate of pay for the time lost. (118) However, if the Arbitrator determines or the parties agree that the employee should not be returned to employment with full back pay, the employee may be returned to employment without back pay or with a lesser amount of back pay, as the circumstances require. -16- 17 ARTICLE XII MILITARY OR NAVAL SERVICE (119) The Company will comply with all valid laws, rules and regulations relative to the return of employees from the armed forces of the United States and in so doing will consult with the Union. (120) Section 1. Vacation or Vacation Pay. (121) An employee who at the time of leaving active employment to enter military service of the United Sates has qualified for a vacation in the year of such entrance and who has not received a vacation or vacation pay shall be granted such pay. (122) Any employee re-employed under the terms of this Article XII and who, under the terms of Article VII. Vacations. of this agreement except for his absence due to such military service, would have been entitled to receive a vacation or vacation pay, shall receive such vacation or vacation pay for the calendar year in which he is re-employed without regard to any requirement other than an adequate record of continuous service. (123) Such vacation or vacation pay shall be the same vacation or vacation pay to which such employee was entitled before entering military service, adjusted to reflect any wage increase effective during his absence and to reflect any additional vacation or vacation pay to which his total continuous service, but such absence, would have entitled him. Section 2. Encampment Pay. (124) Any employee with one or more years of continuous service who is required to attend an encampment of the Reserve of the Armed Forces or the National Guard, shall be paid, for a period not to exceed two weeks in any calendar year, the difference between the amount paid by the government (not including travel, subsistence and quarters allowance), and eighty (80) hours at the employee's base rate when proof of such service is presented to the H.R. Department. ARTICLE XIII MISCELLANEOUS (125) Section 1. Any classified work customarily performed by clerical employees that is transferred outside the bargaining unit, unless proven by Management to improve efficiency, shall be performed by a clerical employee. Nothing herein shall be used to discriminate against any employee of the bargaining unit. (126) Section 2. It is not the Company's intention to take work customarily performed by clerical employees and give such work to employees outside the bargaining unit. -17- 18 Section 3. Printing. The Company agrees to supply copies of the Basic Agreement to all present employees and new employees as well as the Local Union and International Representative when they become available. Section 4. Productivity Gainsharing. The Company and the Union recognize the need to encourage and reward productivity. The procedure for recognizing and rewarding improvements in productivity shall be the Productivity Gainsharing Plan. (127) This program shall be a plantwide plan based on the productivity of the direct labor bargaining employees. (128) The measure of productivity shall be an index equal to the amount of earned direct labor hours divided by the total clock hours of direct labor employees. (129) New standards will be established for new products and new equipment. Previously established Industrial Engineering practices shall be employed. The clock hours spent on new equipment or new products shall not be use din the computation until such time as standards are issued. (130) Earnings computation shall be based on a comparison of the quarterly index to the base index. The base index shall be 79.84. All bargaining unit employees will receive a gainsharing payment equal to their straight time earnings times the increased %. The productivity index shall be computerized for each calendar quarter and paid out as follows: % Of Base Payout --------- ------ 90 to 99.9 0% 100 to 108.9 75.0% 109 and up 90.0% (131) If the quarterly index is lower than 90% of the base period index, a pay deduction shall be computed using the same procedure. Such deduction will be based on all productivity losses below the 90% level. (132) The Company will exclude rework operations from any calculations (both D.L. and earned hours), and will review and change, if necessary, long-term non-standard conditions. Any present outside purchased blanks will still be given credit in the gainsharing system. Product numbers will not be changed unless it reflects base period rates. (133) The Union Committee will designate any union member of their choice to be the liaison with the Company in resolving/identifying problem areas. Such areas to include excess machine downtime and improper allocation of Gainsharing bonus. -18- 19 (134) Simonds Industries Inc. and the Union mutually encourage ongoing productivity gains. The Company will endeavor to work with the Union to refine, modify or improve this plan and/or devised alternate plans which promote productivity gains. ARTICLE XIV INSURANCE (135) The Company will provide insurance coverage as agreed to by the parties: A. (6) months of paid insurance for employees on A.&S. or Workers' Compensation. B. (1) month of paid insurance for laid-off employees following the month of lay-off. C. One (1) annual hearing test for employees who are not required to be tested due to on-the-job noise exposure. Employees must be tested prior to the start of the shift, at lunchtime, or after work. D. Prescription Drug Card RETAIL CO-PAY: Generic $10.00 Brand Name $20.00 *All 30-Day Supply Non-Formulary $30.00 MAIL ORDER: Generic $20.00 Brand Name $40.00 *All 90-Day Supply Non-Formulary $50.00 E. A.&S. Insurance Increase from $250.00/week to $275.00 week - Effective 4-6-2000 - (26 week maximum). F. Life Insurance - $15,000 G. Monthly Contribution Employee Only $10.00 Employee & Dependents $20.00 -19- 20 For an explanation of all insurance benefits, employees should refer to their "Summary Description Plan" booklets. ARTICLE XV NO STRIKES OR LOCKOUTS (136) Under no circumstances shall any strike, sympathy strike, stoppage of work, walkout, slowdown, sit-down, picketing, boycott, refusal to work or other interference with or interruptions of the normal conduct of the Employer's business be ordered, sanctioned, permitted or enforced by the Union, its officials, agents or stewards nor shall any lockout be ordered, sanctioned, permitted or enforced by the Employer, its officials or agents. ARTICLE XVI RETIREMENT PLAN (137) The Company will set up a retirement plan account for each hourly employee. Annually, the Company will contribute 5% of the employee's annual eligible compensation to that account. This contribution will increase from 5% to 5 1/2% effective 4/6/99. A 401K Plan will be provided as a supplement to the present retirement plan as a voluntary contribution. ARTICLE XVII NON-DISCRIMINATION (138) The Company and Union agree to the policy and practice of non-discrimination in respect to race, color, religion, sex, age (as defined in the Federal Age Discrimination In Employment Act of 1967) or national origin. ARTICLE XVIII TERMINATION This Labor Agreement shall become effective the date it is signed and shall terminate at 11:59 P.M. on April 1st, 2001. Any wage granted by this contract as specified in Schedule B shall be effective as of the date so specified in that schedule. Either party shall have the right to ask the other to negotiate on the Labor Agreement by 60 day advance notice served upon the other on or after January 17th, 2001. Any notice to be given under this agreement shall be given by certified mail; be completed by and at the time of mailing; and if by the Company be addressed to the United Steelworkers of America, Five Gateway Center, Pittsburgh, PA, and if by the Union to the Company at Newcomerstown, Ohio. Either party may, by like written notice, change the address to which certified mail notice to it shall be given. -20- 21 IN WITNESS WHEREOF, the Parties, having included herein the entire agreement between the parties relating to wages, hours and terms and conditions of employment for employees covered by this Agreement for the duration of this Agreement and having voluntarily and unqualifiedly waived the right to bargain collectively with respect to any subject whether or not specified in this Agreement for the duration of this Agreement, do hereby sign this Agreement this 5th day of April, 2001. UNITED STEELWORKERS OF AMERICA SIMONDS INDUSTRIES, INC. AFL-CIO LOCAL #2737-17 - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- - ------------------------- -------------------------------- -21- 22 LETTER OF UNDERSTANDING The Company shall require, as a condition of the sale of the Company or of the Newcomerstown Facility, any successor employer to recognize the Union as the collective bargaining representative of its employees, rehire all employees, and abide by all the terms and conditions of this agreement. S.A. Osler Human Resources Mgr. LETTER OF UNDERSTANDING One Local Union member at a time, who is an employee of the Company, shall be given, upon his request, a leave of absence not to exceed a period of two years, for the purpose of serving in a political office. Such a leave of absence shall not constitute any break in the employee's record of continuous service. Upon written request to the Company, such an employee may be granted an extension of his leave of absence upon mutual agreement between the Company and the Union. S.A. Osler Human Resources Mgr. LETTER OF UNDERSTANDING The Company and the Union have committed to make a concerted good faith effort in reviewing any rising insurance costs and, as a means of controlling these costs, will discuss items that might be of mutual benefit. S.A. Osler Human Resources Mgr. LETTER OF UNDERSTANDING PRESCRIPTION DRUG CARD During the term of this Labor Agreement, if a generic or brandname drug does not appear on United HealthCare's Preferred Drug List, and a covered employee or dependent is required to pay the non-formulary price for a prescription, Simonds will reimburse the employee for the 23 difference between the non-formulary amount paid and the generic copay ($10) or the brandname copay ($20). The same procedure will be followed for those utilizing the mail-order option: Simonds will pay the difference between the non-formulary amount paid and the general copay ($20) or the brandname copay ($40). Simonds may continue to seek further improvements in this prescription drug card plan and make changes, as long as the employees' benefit level is either maintained or improved, and there is no extra cost to the employee. S.A. Osler Human Resources Manager SUB-CONTRACTING In the event the Company finds it necessary to sub-contract work out or outsource any work which is customarily performed by the bargaining unit at the Newcomerstown Facility, it will give notice to the Union prior to sub-contracting or outsourcing. Further, the Company will discuss the economic and business reasons of the decisions to sub-contract or outsource with the Union and will consider in good faith the input from that discussion prior to sub-contracting or outsourcing the work. The Company, however, reserves the right to sub-contract or outsource bargaining unit work, if business and economic reasons deem it appropriate to do so. -23- 24 SCHEDULE A LABOR GRADES AND EVALUATED BASE RATES Labor Effective Effective Effective Grade 4/6/98 4/6/99 4/6/2000 ----- ------ ------ -------- 2 $11.40 $11.75 $12.10 3 $11.90 $12.25 $12.60 25 SCHEDULE B JOB EVALUATION All Local Union No. 3225 bargaining unit work at the Newcomerstown Plant has been described and evaluated by the job Evaluation Committee in accordance with the provisions of the C.W.S. Job Description and Classification Manual, updated as of January 1, 1963 as incorporated into the Heller Tool Division Job Evaluation Manual dated August 17, 1971, hereinafter referred to as the Manual. The Manual shall become effective simultaneously with the New Hourly Wage Payment Plan. The job description and classification for a given job will become effective with respect to an employee when an employee's job is covered by the New Hourly Wage Payment and shall continue in effect unless: 1) The Company changes the job content (requirements of the job, as to the training, skill, responsibility, effort, and working conditions) to the extent of one full job class or more; 2) The job is terminated or not occupied during a period of one year; or 3) The description and classification are changed in accordance with mutual agreement of officially designated representatives of the Company and the Union. When and if from time to time the Company at its discretion established a new job or changes the job content (requirements of the job as to training, skill, responsibility, effort and working conditions) of an existing job to the extent of one full job class or more, a new job description and classification for the new or changed job shall be established in accordance with the following procedure: A - The Company will develop a description and classification of the job in accordance with the provisions of the Manual. B - The proposed description and classification will be submitted to the Job Evaluation Committee for approval and the standard hourly wage scale rate for the job class to which the job is thus assigned shall apply. At the same time copies of the proposed description and classification shall be sent to a designated representative of the International Union. C - The Job Evaluation Committee shall discuss and determine the accuracy of the job description. D - If the Job Evaluation Committee is unable to agree upon the description and classification, the Company shall install the proposed classification and the standard hourly wage scale rate for the job class to which the job is thus assigned 26 shall apply. The Union Committee shall be exclusively responsible for the filing of grievances and may at any time within 30 days from the date of installation file a grievance with the plant management representative designated by the Company alleging that the job is improperly described and/or classified under the provisions of the Manual. Thereupon the Job Evaluation Committee shall prepare and mutually sign a stipulation setting forth the factors and factor codings which are in dispute. Such grievances shall be settled in accordance with the Grievance Procedure stating at the third step. E - In the event the parties fail to agree as provided, and no request for review or arbitration is made within the time provided, the classification as prepared by the Company shall be deemed to be approved. F - In the event the Company does not develop a new job description and classification, the Union Committee may, if filed promptly, process a grievance under the grievance and arbitration procedures of this agreement requesting that a job classification be developed and installed in accordance with the provisions of the Manual. The resulting classification shall be effective as of the date when the new job was established or the change or changes installed. G - Changed Jobs of Less than One Job Class. When the Company changes a job but the job content is less than one (1) full job class, a supplementary record shall be established to maintain the job description and classification on a current basis and to enable subsequent adjustments of the job class assignment of the job for an accumulation of small job content changes in accordance with the following: a - The Company will prepare a record of such changes to supplement the original job description and classification. b - A copy of such record will be given to the Job Evaluation Committee. It shall not be necessary for the Committee to indicate their agreement or disagreement with such report unless it is claimed that the change or changes in the job, when added to the prior change or changes, require a change in the job classification to the extent of one (1) full job class or more. c - When and if the job content changes of less than one (1) full job class accumulate to a total of (1) job class or more, the job shall be reassigned to the appropriate job class on the basis of such total accumulation and the reassignment shall become effective from the date of the most recent change in job content. d - Anytime a job is re-evaluated, and the job class goes up less than (1) full point, but crosses over into the next pay grade, it will be given the higher pay grade. e - In the event the parties fail to agree to a classification of a new or changed job, and no request for a review or no grievance is filed within 30 days of the most -26- 27 recent change in job content, the classification as prepared by the Company shall be deemed to be approved. f - In the event the Company does not develop a new job description and classification for a new job or a record of a changed job, the Union Committee may file a form (Notice of Job Description Change) outlining the changes in the job, or that a new job has been established, and requesting that a job description and classification or a record of job changes be developed. If the Company then fails to develop a job description and classification or a record of job changes, the Union Committee may within thirty (30) days of such written request, file a grievance under the grievance procedure requesting that a job description and classification of such new job or reclassification of a changed job be developed in accordance with the Manual and the application of this section. H - Job Evaluation Committee. The Job Evaluation Committee will consist of four members, two selected by the Company and two selected by the Union. I - Jobs that are evaluated under this program will be slotted into one of the two job classes as outlined herein. C.W.S. Job Grade New Labor Grade ---------------- --------------- 8 - 9 1[ 10 - 12 [1[ -27- EX-10.13 33 EMPLOYMENT AGREEMENT WITH HARRY ROGERS 1 EXHIBIT 10.13 SIMONDS INDUSTRIES INC. Employment Agreement This Agreement is made this 23rd day of February, 1994, by and between Simonds Industries Inc., a corporation organized and existing under the laws of Delaware ["Company"] with principal offices in Fitchburg, Massachusetts, and Harry Rogers, an individual with principal residency in Massachusetts ["Employee"]. Company hereby agrees to employ Employee, and Employee hereby accepts such employment with Company upon the following terms and conditions: 1.0 POSITION AND TITLE. Employee's job title is Vice President of International. He is directly responsible to the President. 2.0 TERM. The term of this Agreement shall commence on the date hereof and shall continue evergreen hereafter until terminated by either party as provided hereinafter; provided, however, that the provisions of Paragraph 7 shall survive the termination of this Agreement. 3.0 BASE COMPENSATION. As Base Compensation, Employee shall be paid his current rate of compensation upon such dates as Company customarily pays its executive employees. Employee's Base Compensation shall be reviewed in accordance with standard corporate policy and procedure. 4.0 BONUS. Employee shall be entitled to participate in any Executive Bonus Plan approved by the board of directors for Company executives in general. While there are no guarantees that there will be a bonus plan in any particular year, or that any bonus plan will be funded at any particular level, Employee is to participate in any such plan without discrimination. 5.0 BENEFITS. Employee shall be entitled to participate in any Executive Benefits Program approved by the board of directors for Company executives in general. Additionally, Employee shall be entitled to a Company vehicle approved by the President as to make, model and equipment. Employee's participation in any benefit program shall be at the same level of employee/employer contribution as has been set for all participants in such plans, in accordance with applicable law. 6. 0 TERMINATION. (a) Employee may terminate Employee's employment under this Agreement only upon at least ninety (90) days' prior written notice given to Company. (b) Company may terminate this Agreement only upon at least one (1) year's prior written notice given to Employee. Company may require that Employee remain actively on the job for a period ending ninety (90) days from the date of such notice, but Employee shall have no right to remain on the job upon receipt of such notice. (c) Company and Employee agree that these termination provisions are fair and reasonable, and that any termination hereof in accordance herewith shall be without recourse against the terminating party, subject to the provisions of section 7.0, et seq., hereof. 2 7.0 CONFIDENTIALITY; NON-COMPETITION. Employee acknowledges and agrees that his position with the Company is unique and of singular importance to the success of the Company. In connection with his performance of duties hereunder, Employee will necessarily be entrusted with information which are confidential and proprietary trade secrets of the Company. Employee acknowledges and agrees that the release of any such information or materials to a third party, without the express written consent of the Company, would cause immediate and irreparable harm to the Company. 7.1 Employee shall not disclose to any third party any information or materials of the Company to the extent that same are proprietary to, or the "trade secrets" of the Company without limitation as to time. 7.2 Employee shall not compete, directly or indirectly, in North America, as an employee, agent, consultant, owner, partner or otherwise in any business entity, in the business engaged in by the Company and shall not offer to deal with (in his individual capacity or on behalf of any entity in which he is a shareholder, partner or otherwise has an ownership interest or by which he is employed), directly or indirectly, nor deal with, directly or indirectly, any entity or product which competes with, or materially replicates, any product or service (or is a reasonable extension of such product or service) currently offered by Company, for so long as Employee receives compensation and benefits from Company and for a period of one year thereafter (provided, however, that nothing contained herein shall prevent or restrict Employee from owning or acquiring, directly or indirectly, not more than five percent (5 %) of the securities of any publicly traded company for the sole purpose of passive investment); and 7.3 Employee shall not solicit the employees or former employees of the Company for the purpose of competing with the Company for so long as Employee is restricted from competing with Company pursuant to the preceding paragraph. 8.0 MISCELLANEOUS. 8.1 This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of Massachusetts, whose courts shall be the exclusive judicial forum for any and all disputes arising herefrom. 8.2 This Agreement constitutes the sole and entire, integrated agreement by and between the parties with respect to the subject matter hereof, and the parties agree that upon the execution and effectiveness of this Agreement, all prior understandings and agreements (whether written or oral) between Company and Employee regarding Employee's employment by Company shall automatically be terminated. It may not be modified except in a writing signed by both parties. Rights may not be assigned, nor duties delegated, hereunder except in a writing signed by both parties. 8.3 The provisions of this Agreement are intended to be severable, and should any court of competent jurisdiction find unenforceable any provision(s) hereof, the same shall be stricken and the remaining provisions shall continue to be the enforceable agreement of the parties. 8.4 All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service, if served -2- 3 personally on the party to whom notice is to be given, or on the third day after mailing, if mailed to the party to whom notice is to be given, by registered or certified first class mail, postage prepaid, return receipt requested, or on the date of telecopying, if sent by telecopy, or on the day after mailing, if mailed by overnight courier service and properly addressed. IN WITNESS WHEREOF, the parties have hereunto subscribed on the date first above-written. SIMONDS INDUSTRIES INC. By: /s/ Ross B. George /s/ Harry Rogers ------------------------------- ---------------------------------- Ross B. George Harry Rogers President Employee -3- EX-12.1 34 STATEMENT REGARDING COMPUTATION OF RATIOS 1 EXHIBIT 12.1 SIMONDS INDUSTRIES INC. AND CONSOLIDATED SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Amount in thousands, except ratios)
---------------------------- -------------------------------------------------- Predecessor Company ---------------------------- -------------------------------------------------- Six Months Year Ended 5 Months 7 Months Year Ended Ended ---------------- Ended Ended ----------------- ----------------- 1993 1994 5/26/95 12/30/95 1996 1997 6/28/97 6/27/98 ------ ------ -------- -------- ------ ------ ------- ------- Earnings: Pre-tax income from continuing operations 5,625 8,528 (3,602) 4,731 7,054 8,752 4,619 5,755 Add fixed charges: Interest on indebtedness 1,978 1,623 650 2,880 4,399 4,963 2,394 2,477 Portion of rents representative of the interest factor 224 204 92 113 203 213 107 131 ----- ------ ------ ----- ------ ------ ----- ----- Income as adjusted 7,827 10,355 (2,860) 7,724 11,656 13,928 7,120 8,363 Fixed charges: Interest on indebtedness 1,978 1,623 650 2,880 4,399 4,963 2,394 2,477 Capitalized interest Portion of rents representative of the interest factor 224 204 92 113 203 213 107 131 ----- ------ ------ ----- ------ ------ ----- ----- Total Fixed Charges 2,202 1,827 742 2,993 4,602 5,176 2,501 2,608 Ratio of earnings to fixed charges 3.6 5.7 2.6 2.5 2.7 2.8 3.2 ===== ====== ====== ===== ====== ====== ===== =====
EX-21.1 35 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 Simonds Industries Inc. [the "Company"] DE Corporation: DOI 05/16/95; FYE: 12/31 Address: 135 Intervale Road, P.O. Box 500, Fitchburg, Worcester County, Massachusetts 01420 SUBSIDIARIES 1. Simonds Holding Company, Inc. DE Corporation: DOI 3/25/88; TIN: 04-3003261; FYE: 12/31 Address: c/o Delaware Trust Capital Management 900 Market Street Wilmington, DE 19801 2. Simonds Industries FSC, Inc. US Virgin Islands Corporation: DOI 10/3/88; FYE: 12/31 Address: c/o Chase Trade, Inc. Chase Financial Center 11A & 11B Curacao Gade P.O. Box 6220, St. Thomas, VI 00804 3. Simonds Industries Limited UK Corporation: DOI 3/18/88; FYE: 12/31; Reg. No.: 2232753 Address: Unit 3 Motorway Industrial Estate Sheffield ENG S9 1DH 4. Simonds Industries Inc. Ontario Corporation: DOI 3/22/88; FYE: 12/31 Reg. No.: 765648 (Ontario); A-27480 (BC, 5/24/88) Address: 65 Northland Road Waterloo, ONT N2V 1Y8 5. Wespa Metallsagenfabrik Simonds Industries GmbH German Corporation: DOI 11/00/92; FYE 12/31 Address: Postfach 1165 34282 Spangenberg, Germany 6. Strongridge Limited Ontario Corporation: DOI 01/01/95; FYE 12/31 Reg. No.: 1111309 Address: 106 East Drive Brampton, Ontario L6W 3Z4 7. Armstrong Manufacturing Company Oregon Corporation: DOI 09/23/08; FYE 12/31 2 Address: 2135 NW 21st Avenue Portland, Oregon 97208 8. Simonds UK Holding Limited UK Corporation: DOI 1/18/98; FYE: 12/31; Reg. No.: 3484408 Address: Unit 3 Motorway Industrial Estate Sheffield ENG S9 1DH 9. W. Notting Limited UK Corporation: DOI 5/23/21; FYE: 12/31; Reg. No.: 174839 Address: 67-75 Garman Road, Tottenham London ENG N17 OUE W. Notting Limited ("Parent") - Subsidiaries A. Notting Sales Limited (England, doi 6/4/68) Registration No. 933186 67-75 Garman Road, Tottenham, London N17 OUE B. Notting Canada Inc. (Ontario, doi 3/9/77) Registration No. 354068 C. Notting America, Inc. (New York, doi 3/26/81) D. Servitroquel S.A. (Spain) E. Notting de Mexico S.A. (Mexico) F. ComputerCarton Limited (Guernsey) -2- EX-23.3 36 CONSENT OF ARTHUR ANDERSEN LLP 1 Exhibit 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Simonds Industries Inc.: As independent public accountants, we hereby consent to the use of our reports and to all references to our Firm included in or made a part of this registration statement. Arthur Andersen LLP Boston, Massachusetts September 1, 1998 EX-25.1 37 STATEMENT OF ELIGIBILITY ON FORM T-1 1 Exhibit 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) STATE STREET BANK AND TRUST COMPANY (Exact name of trustee as specified in its charter) Massachusetts 04-1867445 (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. national bank) Identification No.) 225 Franklin Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel 225 Franklin Street, Boston, Massachusetts 02110 (617) 654-3253 (Name, address and telephone number of agent for service) SIMONDS INDUSTRIES INC. (Exact name of obligor as specified in its charter) DELAWARE ( ) (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 135 INTERVALE ROAD FITCHBURG, MASSACHUSETTS 01420 (Address of principal executive offices) (Zip Code) 10.25% SENIOR SUBORDINATED NOTES DUE 2008 2 GENERAL ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH IT IS SUBJECT. Department of Banking and Insurance of The Commonwealth of Massachusetts, 100 Cambridge Street, Boston, Massachusetts. Board of Governors of the Federal Reserve System, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. The obligor is not an affiliate of the trustee or of its parent, State Street Corporation. (See note on page 2.) ITEM 3. THROUGH ITEM 15. NOT APPLICABLE. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY. 1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT. A copy of the Articles of Association of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION. A copy of a Statement from the Commissioner of Banks of Massachusetts that no certificate of authority for the trustee to commence business was necessary or issued is on file with the Securities and Exchange Commission as Exhibit 2 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE. A copy of the authorization of the trustee to exercise corporate trust powers is on file with the Securities and Exchange Commission as Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS CORRESPONDING THERETO. A copy of the by-laws of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 4 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Eastern Edison Company (File No. 33-37823) and is incorporated herein by reference thereto. 1 3 5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN DEFAULT. Not applicable. 6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY SECTION 321(B) OF THE ACT. The consent of the trustee required by Section 321(b) of the Act is annexed hereto as Exhibit 6 and made a part hereof. 7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is annexed hereto as Exhibit 7 and made a part hereof. NOTES In answering any item of this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor or any underwriter for the obligor, the trustee has relied upon information furnished to it by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The answer furnished to Item 2. of this statement will be amended, if necessary, to reflect any facts which differ from those stated and which would have been required to be stated if known at the date hereof. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, State Street Bank and Trust Company, a corporation organized and existing under the laws of The Commonwealth of Massachusetts, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston and The Commonwealth of Massachusetts, on AUGUST 12, 1998. STATE STREET BANK AND TRUST COMPANY By: /s/ Robert J. Dunn -------------------------------- NAME : Robert J. Dunn TITLE : Vice President 2 4 EXHIBIT 6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the proposed issuance by SIMONDS INDUSTRIES INC. of its 10.25% SENIOR SUBORDINATED NOTES DUE 2008, we hereby consent that reports of examination by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. STATE STREET BANK AND TRUST COMPANY By: /s/ Robert J. Dunn ------------------------------- NAME: Robert J. Dunn TITLE : Vice President DATED: AUGUST 12, 1998 3 5 EXHIBIT 7 Consolidated Report of Condition of State Street Bank and Trust Company, Massachusetts and foreign and domestic subsidiaries, a state banking institution organized and operating under the banking laws of this commonwealth and a member of the Federal Reserve System, at the close of business MARCH 31, 1998, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act and in accordance with a call made by the Commissioner of Banks under General Laws, Chapter 172, Section 22(a).
Thousands of ASSETS Dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin .............................. 1,144,309 Interest-bearing balances ....................................................... 9,914,704 Securities .................................................................................. 10,062,052 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge subsidiary ............................................. 8,073,970 Loans and lease financing receivables: Loans and leases, net of unearned income ................ 6,433,627 Allowance for loan and lease losses ....................... 88,820 Allocated transfer risk reserve................................... 0 Loans and leases, net of unearned income and allowances ......................... 6,344,807 Assets held in trading accounts ............................................................. 1,117,547 Premises and fixed assets ................................................................... 453,576 Other real estate owned ..................................................................... 100 Investments in unconsolidated subsidiaries .................................................. 44,985 Customers' liability to this bank on acceptances outstanding ................................ 66,149 Intangible assets ........................................................................... 263,249 Other assets................................................................................. 1,066,572 ----------- Total assets ................................................................................ 38,552,020 =========== LIABILITIES Deposits: In domestic offices ............................................................. 9,266,492 Noninterest-bearing .............................. 6,824,432 Interest-bearing .................................... 2,442,060 In foreign offices and Edge subsidiary .......................................... 14,385,048 Noninterest-bearing .............................. 75,909 Interest-bearing .................................... 14,309,139 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge subsidiary ............................................. 9,949,994 Demand notes issued to the U.S. Treasury and Trading Liabilities ............................ 171,783 Trading liabilities.......................................................................... 1,078,189 Other borrowed money ........................................................................ 406,583 Subordinated notes and debentures ........................................................... 0 Bank's liability on acceptances executed and outstanding .................................... 66,149 Other liabilities ........................................................................... 878,947 Total liabilities ........................................................................... 36,203,185 ----------- EQUITY CAPITAL Perpetual preferred stock and related surplus................................................ 0 Common stock ................................................................................ 29,931 Surplus ..................................................................................... 450,003 Undivided profits and capital reserves/Net unrealized holding gains (losses) ................ 1,857,021 Net unrealized holding gains (losses) on available-for-sale securities....................... 18,136 Cumulative foreign currency translation adjustments ........................................ (6,256) Total equity capital ........................................................................ 2,348,835 ------------ Total liabilities and equity capital ........................................................ 38,552,020 ------------
4 6 I, Rex S. Schuette, Senior Vice President and Comptroller of the above named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Rex S. Schuette We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. David A. Spina Marshall N. Carter Truman S. Casner 5 EX-27.1 38 FINANCIAL DATA SCHEDULE
5 0001067919 SIMONDS INDUSTRIES INC. 1,000 U.S. DOLLARS YEAR 6-MOS DEC-27-1997 JAN-02-1999 DEC-28-1996 DEC-28-1997 DEC-27-1997 JUN-27-1998 1 1 1,255 835 0 0 16,185 18,842 806 924 22,576 28,697 43,277 51,942 34,964 39,611 5,308 6,655 95,343 108,594 21,626 28,216 51,692 59,882 0 0 0 0 1 1 21,614 24,703 95,343 108,594 114,182 62,641 114,182 62,641 78,798 42,281 78,798 42,281 21,149 11,961 0 0 4,963 2,477 8,752 5,755 3,751 2,441 5,001 3,314 0 0 0 0 0 0 5,001 3,314 0 0 0 0
EX-99.1 39 FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 LETTER OF TRANSMITTAL SIMONDS INDUSTRIES, INC. OFFER TO EXCHANGE ITS 10 1/4% SENIOR SUBORDINATED NOTES DUE JULY 1, 2008 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED FOR AN EQUAL PRINCIPAL AMOUNT OF ITS 10 1/4% SENIOR SUBORDINATED NOTES DUE JULY 1, 2008 WHICH HAVE NOT BEEN SO REGISTERED PURSUANT TO THE PROSPECTUS DATED SEPTEMBER , 1998 The Exchange Agent for the Exchange Offer is: STATE STREET BANK AND TRUST COMPANY By Registered or Certified Mail or Hand or Overnight Delivery: State Street Bank and Trust Company Two International Place Fourth Floor Boston, MA 02110 Attention: Corporate Trust Department Facsimile Transmissions: (Eligible Institutions Only) [______________] DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _______, 1998, UNLESS THE OFFER IS EXTENDED. Capitalized terms used but not defined herein shall have the same meaning given them in the Prospectus (as defined below). This Letter of Transmittal is to be completed by holders of Original Notes (as defined below) either if Original Notes are to be forwarded herewith or if tenders of Original Notes are to be made by book-entry transfer to an account maintained by State Street Bank and Trust Company (the "Exchange Agent") at The Depository Trust Company ("DTC") pursuant to the procedures set forth in "The Exchange Offer--Procedures for Tendering" in the Prospectus and an Agent's Message (as defined herein) is not delivered. 2 Holders of Original Notes whose certificates (the "Certificates") for such Original Notes are not immediately available or who cannot deliver their Certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date (as defined in the Prospectus) or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Original Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for Tendering" in the Prospectus. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY ALL TENDERING HOLDERS COMPLETE THIS BOX: DESCRIPTION OF ORIGINAL NOTES TENDERED -------------------------------------- IF BLANK, PLEASE PRINT NAME AND ADDRESS ORIGINAL NOTES OF REGISTERED HOLDER. (ATTACH ADDITIONAL LIST) --------------------- ------------------------ PRINCIPAL AMOUNT CERTIFICATE OF ORIGINAL NOTES NUMBER(S)* TENDERED** ---------- TOTAL AMOUNT TENDERED: --------- * Need not be completed by book-entry holders. ** All Original Notes held shall be deemed tendered unless a lesser number is specified in this column. -2- 3 (BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY) [_] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution _______________________________________________ DTC Account Number __________________________________________________________ Transaction Code Number _____________________________________________________ [_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) ___________________________________________ Window Ticket Number (if any) _____________________________________________ Date of Execution of Notice of Guaranteed Delivery ________________________ Name of Institution which Guaranteed Delivery _____________________________ If Guaranteed Delivery is to be made by Book-Entry Transfer: Name of Tendering Institution _____________________________________________ DTC Account Number ________________________________________________________ Transaction Code Number ___________________________________________________ [_] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED ORIGINAL NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE. [_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: _______________________________________________________________________ Address: ____________________________________________________________________ -3- 4 Ladies and Gentlemen: The undersigned hereby tenders to Simonds Industries Inc., a Delaware corporation (the "Company"), the above described principal amount of the Company's outstanding 10 1/4% Senior Subordinated Notes due July 1, 2008 (the "Original Notes") in exchange for a like principal amount of the Company's 10 1/4% Senior Subordinated Notes due July 1, 2008 (the "Exchange Notes") which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), upon the terms and subject to the conditions set forth in the Prospectus dated , 1998 (as the same may be amended or supplemented from time to time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of Transmittal (which, together with the Prospectus, constitutes the "Exchange Offer"). Subject to and effective upon the acceptance for exchange of all or any portion of the Original Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfer to or upon the order of the Company all right, title and interest in and to such Original Notes as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent is also acting as agent of the Company in connection with the Exchange Offer) with respect to the tendered Original Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), subject only to the right of withdrawal described in the Prospectus, to (i) deliver Certificates for Original Notes to the Company together with all accompanying evidences of transfer and authenticity to, or upon the order of, the Company, upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to be issued in exchange for such Original Notes, (ii) present Certificates for such Original Notes for transfer, and to transfer the Original Notes on the books of the Company, and (iii) receive for the account of the Company all benefits and otherwise exercise all rights of beneficial ownership of such Original Notes, all in accordance with the terms and conditions of the Exchange Offer. THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE ORIGINAL NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE ORIGINAL NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE ORIGINAL NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER. The name(s) and address(es) of the registered holder(s) of the Original Notes tendered hereby should be printed above, if they are not already set forth above, as they appear on the Certificates representing such Original Notes. The Certificate number(s) and the Original Notes that the undersigned wishes to tender should be indicated in the appropriate boxes above. If any tendered Original Notes are not exchanged pursuant to the Exchange Offer for any reason, or if Certificates are submitted for more Original Notes than are tendered or accepted for exchange, Certificates for such nonexchanged or nontendered Original Notes will be returned (or, in the case of Original Notes tendered by -4- 5 book-entry transfer, such Original Notes will be credited to an account maintained at DTC), without expense to the tendering holder, promptly following the expiration or termination of the Exchange Offer. If the undersigned is a broker-dealer holding Original Notes acquired for its own account as a result of market-making activities or other trading activities, it agrees to deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Notes received in respect of such Original Notes pursuant to the Exchange Offer. The undersigned understands that tenders of Original Notes pursuant to any one of the procedures described in "The Exchange Offer--Procedures for Tendering" in the Prospectus and in the instructions will, upon the Company's acceptance for exchange of such tendered Original Notes, constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Original Notes tendered hereby. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby directs that the Exchange Notes be issued in the name(s) of the undersigned or, in the case of a book-entry transfer of Original Notes, that such Exchange Notes be credited to the account indicated above maintained at DTC. If applicable, substitute Certificates representing Original Notes not exchanged or not accepted for exchange will be issued to the undersigned or, in the case of a book-entry transfer of Original Notes, will be credited to the account indicated above maintained at DTC. Similarly, unless otherwise indicated under "Special Delivery Instructions," please deliver Exchange Notes to the undersigned at the address shown below the undersigned's signature. BY TENDERING ORIGINAL NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN "AFFILIATE" OF THE COMPANY, (II) ANY EXCHANGE NOTES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, FOR THE UNDERSIGNED'S OWN ACCOUNT, FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION OF THE EXCHANGE NOTES, (III) THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER, (IV) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH EXCHANGE NOTES, AND (V) THE UNDERSIGNED WILL PROVIDE THE COMPANY WITH ANY ADDITIONAL REPRESENTATIONS SO REQUESTED IN ORDER FOR THE COMPANY TO ENSURE COMPLIANCE WITH APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. ANY HOLDER OF ORIGINAL NOTES WHICH IS NOT A BROKER-DEALER, AND WHICH IS USING THE EXCHANGE OFFER TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF EXCHANGE NOTES, IS HEREBY NOTIFIED (1) THAT IT WILL NOT BE ABLE TO RELY ON THE POSITION OF THE STAFF OF THE DIVISION OF CORPORATE FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION (THE "STAFF") SET FORTH IN EXXON CAPITAL HOLDINGS CORPORATION (AVAIL. APRIL 13, 1989) AND SIMILAR LETTERS AND (2) THAT IT MUST COMPLY WITH THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF EXCHANGE NOTES. -5- 6 IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED REPRESENTS THAT IT IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF EXCHANGE NOTES. ANY HOLDER OF ORIGINAL NOTES WHICH IS A BROKER-DEALER BY TENDERING ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF TO THIRD PARTIES, THAT (A) SUCH ORIGINAL NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH ORIGINAL NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT). ALL RESALES MUST BE MADE IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. SUCH COMPLIANCE MAY REQUIRE THAT THE EXCHANGE NOTES BE REGISTERED OR QUALIFIED IN A PARTICULAR STATE OR THAT THE RESALE BE MADE BY OR THROUGH A LICENSED BROKER-DEALER, UNLESS EXEMPTIONS FROM THESE REQUIREMENTS ARE AVAILABLE. THE COMPANY ASSUMES NO RESPONSIBILITY WITH REGARD TO COMPLIANCE WITH SUCH REQUIREMENTS. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF ORIGINAL NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. [ORIGINAL NOTES MAY ONLY BE TENDERED BY HOLDERS IN NEW MEXICO AND PENNSYLVANIA WHO ARE HOLDERS OF THE KIND DESCRIBED IN APPENDIX A HERETO. BY SIGNING THIS LETTER OF TRANSMITTAL, SUCH HOLDERS WILL BE DEEMED TO REPRESENT THAT THEY ARE HOLDERS OF THE KIND DESCRIBED IN APPENDIX A HERETO. ] The Company has agreed that, subject to the provisions of the Registration Rights Agreement, the Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Original Notes, where such Original Notes were acquired by such broker-dealer for its own account as a result of market- making activities or other trading activities, for a period ending 90 days after the Expiration Date (subject to extension under certain limited circumstances described in the Prospectus) or, if earlier, when all such Exchange Notes have been disposed of by such broker-dealer. In that regard, each broker-dealer who acquired Original Notes for its own account and as a result of market-making or other trading activities, by tendering such Original Notes and executing this letter of transmittal, agrees that, upon receipt of notice from the Company of the occurrence of any event or the discovery of any fact which makes any statement contained or incorporated by reference therein, in light of the circumstances under which they were made, misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such broker-dealer will suspend the sale of Exchange Notes pursuant to the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to the broker-dealer or the -6- 7 Company given notice that the sale of the Exchange Notes may be resumed, as the case may be. If the Company gives such notice to suspend the sale of the Exchange Notes, it shall extend the 90-day period referred to above during which broker-dealers are entitled to use the Prospectus in connection with the resale of Exchange Notes 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 broker-dealers shall have received copies of the supplemented or amended Prospectus necessary to permit resales of the Exchange Notes or to and including the date on which the Company has given notice that the sale of Exchange Notes may be resumed, as the case may be. As a result, a broker-dealer who intends to use the Prospectus in connection with resales of Exchange Notes received in exchange for Original Notes pursuant to the Exchange Offer must notify the Company, or cause the Company to be notified, on or prior to the Expiration Date, that it is a broker- dealer. Such notice may be given in the space provided above or may be delivered to the Exchange Agent at the address set forth in the Prospectus under "The Exchange Offer--Exchange Agent." All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. Except as stated in the Prospectus, this tender is irrevocable. -7- 8 HOLDER(S) SIGN HERE (SEE INSTRUCTIONS 2, 5 AND 6) (PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW) (NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2) Must be signed by registered holder(s) exactly as name(s) appear(s) on Certificate(s) for the Original Notes hereby tendered or on a security position listing, or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith (including such opinions of counsel, certificates and other information as may be required by the Company for the Original Notes to comply with any restrictions on transfer applicable to the Original Notes). If signature is by an attorney-in-fact, executor, administrator, trustee, guardian, officer of a corporation or another acting in a fiduciary capacity or representative capacity, please set forth the signer's full title. See Instruction 5. (SIGNATURE(S) OF HOLDER(S)) Date _______________________ , 1998 Name(s) _____________________________________________________________________ (PLEASE PRINT) Capacity or Title ___________________________________________________________ Address _____________________________________________________________________ (INCLUDE ZIP CODE) Area Code(s) and Telephone Number ___________________________________________ TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S) _____________________________ GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 2 AND 5) Authorized Signature ________________________________________________________ Name ________________________________________________________________________ (PLEASE PRINT) Date _______________________ , 1998 Capacity or Title ___________________________________________________________ Name of Firm ________________________________________________________________ Address _____________________________________________________________________ (INCLUDE ZIP CODE) Area Code(s) and Telephone Number ___________________________________________ -8- 9 SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5 AND 6) (SEE INSTRUCTIONS 1, 5 AND 6) To be completed ONLY if Exchange To be completed ONLY if Exchange Notes or any Original Notes that Notes or any Original Notes that are not tendered are to be issued are not tendered are to be sent to in the name of someone other than someone other than the registered the registered holder of the holder of the Original Notes whose Original Notes whose name(s) name(s) appear(s) above, or to the appear(s) above. registered holder(s) at an address other than that shown above. ISSUE: MAIL: [_] Exchange Notes to: [_] Exchange Notes to: [_] Original Notes not tendered [_] Original Notes not tendered to: to: Name(s): _________________________ Name(s): _________________________ (PLEASE PRINT) __________________________________ (PLEASE PRINT) Address: _________________________ Address: _________________________ (ZIP CODE) _______________________ (ZIP CODE) _______________________ TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER ___________________ (SEE ENCLOSED SUBSTITUTE FORM W-9) -9- 10 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed either if (a) tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Exchange Offer--Procedures for Tendering" in the Prospectus and an Agent's Message is not delivered or (b) Certificates are to be forwarded herewith. Timely confirmation of a book-entry transfer of such Original Notes into the Exchange Agent's account at DTC, or Certificates as well as this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its addresses set forth herein on or prior to the Expiration Date. Tenders by book-entry transfer may also be made by delivering an Agent's Message in lieu of this Letter of Transmittal. The term "Agent's Message" means a message, transmitted by DTC to and received by the Exchange Agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the tendering Participant, which acknowledgment states that such Participant has received and agrees to be bound by the Letter of Transmittal and that the Company may enforce the Letter of Transmittal against such Participant. The term "book-entry confirmation" means a timely confirmation of book-entry transfer of Original Notes into the Exchange Agent's account at DTC. Holders who wish to tender their Original Notes and (i) who cannot deliver their Original Notes, this Letter of Transmittal and all other required documents to the Exchange Agent on or prior to the Expiration Date or (ii) whose Original Notes are not immediately available may tender their Original Notes by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus. Pursuant to such procedures: (a) such tender must be made through an Eligible Institution (as defined below); (b) on or prior to the applicable Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by mail, hand delivery or facsimile transmission) setting forth the name and address of the holder, the certificate number(s) of such Original Notes and the principal amount of the Original Notes being tendered, stating that the tender is being made thereby and guaranteeing that, within five business days after the applicable Expiration Date, the applicable Letter of Transmittal together with the certificate(s) representing the Original Notes (or Book-Entry Confirmation) and any other documents required by the applicable Letter of Transmittal will be delivered by the Eligible Institution to the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal, as well as the Certificate(s) representing the tendered Original Notes in proper form for transfer (or Book-Entry Confirmation) and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five business days after the applicable Expiration Date, all as provided in "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus. The Notice of Guaranteed Delivery may be delivered by mail, hand delivery or facsimile transmission to the Exchange Agent, and must include a guarantee by an Eligible Institution in the form set forth in such Notice. For Original Notes to be properly tendered pursuant to the guaranteed delivery procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration Date. As used herein and in the Prospectus, "Eligible Institution" means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution," including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association. -10- 11 THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. THE COMPANY WILL NOT ACCEPT ANY ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS. EACH TENDERING HOLDER, BY EXECUTION OF A LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF OR AGENT'S MESSAGE IN LIEU THEREOF), WAIVES ANY RIGHT TO RECEIVE ANY NOTICE OF THE ACCEPTANCE OF SUCH TENDER. 2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of Transmittal is required if: a. this Letter of Transmittal is signed by the registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on a security position listing as the owner of the Original Notes) of Original Notes tendered herewith, unless such holder(s) has completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" above, or b. such Original Notes are tendered for the account of a firm that is an Eligible Institution. In all other cases, an Eligible Institution must guarantee the signature(s) on this Letter of Transmittal. See Instruction 5. 3. INADEQUATE SPACE. If the space provided in the box captioned "Description of Original Notes Tendered" is inadequate, the Certificate number(s) and/or the principal amount of Original Notes and any other required information should be listed on a separate signed schedule which is attached to this Letter of Transmittal. 4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. If less than all the Original Notes evidenced by any Certificate submitted are to be tendered, fill in the principal amount of Original Notes which are to be tendered in the box entitled "Principal Amount of Original Notes Tendered." In such case, new Certificate(s) for the remainder of the Original Notes that were evidenced by your old Certificate(s) will be sent to the holder of the Original Notes, promptly after the Expiration Date. All Original Notes represented by Certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. Except as otherwise provided herein, tenders of Original Notes pursuant to an Exchange Offer may be withdrawn, unless theretofore accepted for exchange as provided in the applicable Exchange Offer, at any time prior to the Expiration Date of that Exchange Offer. To be effective, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original Notes to be withdrawn (including the Certificate number or numbers and aggregate principal amount of such Original Notes), and (iii) be signed by the holder in the same manner as the original signature on the applicable Letter of Transmittal (including any required signature guarantees). All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company in its sole respective discretion, which determination shall be final and binding on all parties. Any Original Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no -11- 12 Exchange Notes will be issued with respect thereto unless the Original Notes so withdrawn are retendered. Properly withdrawn Original Notes may be retendered by following one of the procedures described in the Prospectus under "The Exchange Offer--Procedures for Tendering" at any time prior to the applicable Expiration Date. Any Original Notes which have been tendered but which are not accepted for exchange due to the rejection of the tender due to uncured defects or the prior termination of the applicable Exchange Offer, or which have been validly withdrawn, will be returned to the holder thereof (unless otherwise provided in the Letter of Transmittal), as soon as practicable following the applicable Expiration Date or, if so requested in the notice of withdrawal, promptly after receipt by the issuer of the Original Notes of notice of withdrawal without cost to such holder. 5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Original Notes tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the Certificate(s) or on a security position listing without alteration, enlargement or any change whatsoever. If any of the Original Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Original Notes are registered in different name(s) on several Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof or Agent's Message in lieu thereof) as there are different registrations of Certificates. If this Letter of Transmittal or any Certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and must submit proper evidence satisfactory to the Company, in its sole discretion, of such persons' authority to so act. When this Letter of Transmittal is signed by the registered owner(s) of the Original Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or separate bond power(s) are required unless Exchange Notes are to be issued in the name of a person other than the registered holder(s). Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered owner(s) of the Original Notes listed, the Certificates must be endorsed or accompanied by appropriate bond powers, signed exactly as the name or names of the registered owner(s) appear(s) on the Certificates, and also must be accompanied by such opinions of counsel, certifications and other information as the Company may require in accordance with the restrictions on transfer applicable to the Original Notes. Signatures on such Certificates or bond powers must be guaranteed by an Eligible Institution. 6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes are to be issued in the name of a person other than the signer of this Letter of Transmittal, or if Exchange Notes are to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Certificates for Original Notes not exchanged will be returned by mail or, if tendered by book-entry transfer, by crediting the account indicated above maintained at DTC. See Instruction 4. 7. IRREGULARITIES. The Company will determine, in its sole discretion, all questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tender of Original Notes -12- 13 which determination shall be final and binding on all parties. The Company reserves the absolute right, in its sole and absolute discretion, to reject any and all tenders determined by it not to be in proper form or the acceptance of which, or exchange for, may, in the view of counsel to the Company, be unlawful. The Company also reserves the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer set forth in the Prospectus under "The Exchange Offer--Conditions of the Exchange Offer" or any conditions or irregularity in any tender of Original Notes of any particular holder whether or not similar conditions or irregularities are waived in the case of other holders. The Company's interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) will be final and binding. No tender of Original Notes will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. Neither the Company, any affiliates or assigns of the Company, the Exchange Agent, or any other person shall be under any duty to give notification of any irregularities in tenders or incur any liability for failure to give such notification. 8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Exchange Agent at its address and telephone number set forth on the front of this Letter of Transmittal. Additional copies of the Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Exchange Agent or from your broker, dealer, commercial bank, trust company or other nominee. 9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income tax law, a holder whose tendered Original Notes are accepted for exchange is required to provide the Exchange Agent with such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not provided with the correct TIN, the Internal Revenue Service (the "IRS") may subject the holder or other payee to a $50 penalty. In addition, payments to such holders or other payees with respect to Original Notes exchanged pursuant to the Exchange Offer may be subject to 31% backup withholding. The box in Part 2 of the Substitute Form W-9 may be checked if the tendering holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 2 is checked, the holder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 2 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Exchange Agent will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Exchange Agent. The Exchange Agent will retain such amounts withheld during the 60 day period following the date of the Substitute Form W- 9. If the holder furnishes the Exchange Agent with its TIN within 60 days after the date of the Substitute Form W-9, the amounts retained during the 60 day period will be remitted to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent with its TIN within such 60 day period, amounts withheld will be remitted to the IRS as backup withholding. In addition, 31% of all payments made thereafter will be withheld and remitted to the IRS until a correct TIN is provided. The holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered owner of the Original Notes or of the last transferee appearing on the transfers attached to, or endorsed on, the Original Notes. If the Original Notes are registered in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. Certain holders (including, among others, corporations, financial institutions and certain foreign persons) may not be subject to these backup withholding and reporting requirements. Such holders should nevertheless complete the attached Substitute Form W-9 below, and write "exempt" on the face thereof, to avoid possible -13- 14 erroneous backup withholding. A foreign person may qualify as an exempt recipient by submitting a properly completed IRS Form W-8, signed under penalties of perjury, attesting to that holder's exempt status. Please consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which holders are exempt from backup withholding. Backup withholding is not an additional U.S. Federal income tax. Rather, the U.S. Federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s) representing Original Notes have been lost, destroyed or stolen, the holder should promptly notify the Exchange Agent. The holder will then be instructed as to the steps that must be taken in order to replace the Certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen Certificate(s) have been followed. 11. SECURITY TRANSFER TAXES. Holders who tender their Original Notes for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, Exchange Notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Original Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Original Notes in connection with the Exchange Offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. -14- 15 PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY, AS EXCHANGE AGENT PART I--PLEASE PROVIDE YOUR SOCIAL SECURITY OR TIN IN THE BOX AT RIGHT AND EMPLOYER CERTIFY BY SIGNING AND IDENTIFICATION NUMBER DATING BELOW. SUBSTITUTE FORM W-9 DEPARTMENT OF THE ____________________ TREASURY INTERNAL (If awaiting TIN REVENUE SERVICE WRITE "APPLIED FOR") NAME (PLEASE PRINT) PAYOR'S REQUEST FOR ------------------------------------------------------------ TAXPAYER IDENTIFICATION ADDRESS NUMBER ("TIN") AND ------------------------------------------------------------- CERTIFICATION CITY STATE ZIP CODE PART II--For Payees NOT subject to backup withholding, see the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 and complete as instructed therein. CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT: 1. The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), AND 2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). Signature: __________________ Date: ________ , 1998 -15- 16 NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN PART I OF SUBSTITUTE FORM W-9. PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY, AS EXCHANGE AGENT CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. Signature: _________________________ Date: ________________________, 1998 -16- 17 APPENDIX A NEW MEXICO HOLDERS Any "financial or institutional investor" (as defined below) or broker- dealer. The term "financial or institutional investor" means any of the following whether acting for itself or others in a fiduciary capacity other than as an agent; depository institution (as defined), insurance company, insurance company separate account, investment company as defined in the Investment Company Act of 1940; an employee pension, profit-sharing or benefit plan (i) if the plan has total assets in excess of $5,000,000, or (ii) if the investment decisions are made by a plan fiduciary, as defined in the Employee Retirement Income Security Act of 1974, which is either a broker-dealer registered under the Securities Exchange Act of 1934, an investment adviser registered or exempt from registration under the Investment Advisers Act of 1940, a depository institution or an insurance company; a business development company as defined in the Investment Company Act of 1940, a small business investment company licensed by the United States Small Business Administration under Section 301(c) or 301(d) of the United States Small Business Investment Act of 1958; or any other financial or institutional investor as the Director of the New Mexico Securities Division by rule or order designates. The Director has designated the following additional "financial or institutional investors:" an entity, other than a natural person, which is directly engaged in the business of, and derives at least eighty percent of its annual gross income from, investing, purchasing, selling or trading in securities of more than one issuer and not of its own issue, and that has gross assets in excess of five million dollars ($5,000,000) at the end of its latest fiscal year; an entity organized and operated not for private profit as described in Section 501(c)(3) of the Internal Revenue Code with total assets in excess of five million dollars ($5,000,000); a state, a political subdivision of a state or an agency or corporate or other instrumentality of a state or a political subdivision of a state; and an employee pension, profit sharing or benefit plan, if the investment decisions are made by one or more plan fiduciaries, as defined in the Employee Retirement Income Security Act of 1974, so long as at least one of such plan fiduciaries is either a broker-dealer registered under the Securities Exchange Act of 1934, an investment adviser registered or exempt from registration under the Investment Advisers Act of 1940, a depository institution, or an insurance company. PENNSYLVANIA HOLDERS Any bank as defined, insurance company, pension or profit-sharing plan or trust, investment company as defined in the Investment Company Act of 1940, other financial institution or any person, other than an individual, which controls any of the foregoing, the federal government, the State or any agency or political subdivision thereof, any other person so designated by regulation of the Pennsylvania Securities Commission, or any broker-dealer, whether the buyer is acting for itself or in some fiduciary capacity. Entities so designated by regulation include: (i) a corporation or business trust or a wholly-owned subsidiary of the person which has been in existence for 18 months and which has a tangible net worth on a consolidated basis, as reflected in its most recent audited financial statements, of $10,000,000 or more; (ii) a college, university or other public or private institution which has received exempt status under section 501(c)(3) of the Internal Revenue Code of 1954 and which has total endowment or trust funds, including annuity and life income funds, of $5,000,000 or more according to its most recent audited financial statements; provided that the aggregate dollar amount of securities being sold to purchasers in this category may not exceed 5% of the endowment or trust funds; (iii) a Small Business Investment Company as that term is defined in section 103 of the Small Business Investment Act of 1958 which either; (1) has a total capital of $1,000,000 or more; or (2) is controlled by institutional investors as defined herein; (iv) a Seed Capital Fund, as defined in section 2 and authorized in section 6 of the Small Business Incubators Act; (v) a Business Development Credit Corporation, as authorized by the Business Development Credit Corporation Law; (vi) a person whose securityholders consist solely of institutional -17- 18 investors as defined herein or broker-dealers; or (vii) a qualified institutional buyer as that term is defined in 17 CFR 230.144A (relating to private resales of securities to institutions), or any successor rule thereto. -18- EX-99.2 40 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF 10 1/4% SENIOR SUBORDINATED NOTES DUE JULY 1, 2008 OF SIMONDS INDUSTRIES INC. This Notice of Guaranteed Delivery, or one substantially equivalent to this form, must be used to accept the Exchange Offer (as defined below) if (i) the procedures for delivery by book-entry transfer cannot be completed on a timely basis (ii) certificates for the Company's (as defined below) 10 1/4% Senior Subordinated Notes due July 1, 2008 (the "Original Notes") are not immediately available or (iii) Original Notes, the Letter of Transmittal and all other required documents cannot be delivered to State Street Bank and Trust Company (the "Exchange Agent") on or prior to the Expiration Date (as defined in the Prospectus referred to below). This Notice of Guaranteed Delivery may be delivered by hand, overnight courier or mail, or transmitted by facsimile transmission, to the Exchange Agent. See "The Exchange Offer--Procedures for Tendering" in the Prospectus. The Exchange Agent for the Exchange Offer is: STATE STREET BANK AND TRUST COMPANY By Registered or Certified Mail or Hand or Overnight Delivery: State Street Bank and Trust Company Two International Place Fourth Floor Boston, MA 02110 Attention: Corporate Trust Department Facsimile Transmissions: (Eligible Institutions Only) [ ] DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED. 2 Ladies and Gentlemen: The undersigned hereby tenders to Simonds Industries Inc., a Delaware corporation (the "Company"), upon the terms and subject to the conditions set forth in the Prospectus dated , 1998 (as the same may be amended or supplemented from time to time, the "Prospectus"), and the related Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which is hereby acknowledged, the aggregate liquidation amount of Original Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering." Aggregate Principal Amount Tendered: (NAME(S) OR REGISTERED HOLDER(S)-- PLEASE PRINT) CERTIFICATE NOS. (IF AVAILABLE) (ADDRESS OF REGISTERED HOLDER(S)) Check box if Original Notes will be _________________________________________ delivered by book-entry transfer and ________________________________________ provide account number. (ZIP CODE) [_] The Depository Trust Company ____________________________________________ (AREA CODE AND TELEPHONE NO.) DTC ACCOUNT NUMBER: _________________________________________________________ Date: _______________________________ (NAME(S) OF AUTHORIZED SIGNATORY) ____________________________________________ (CAPACITY) ____________________________________________ (ADDRESS(ES) OF AUTHORIZED SIGNATORY) ____________________________________________ (AREA CODE AND TELEPHONE NO.) ____________________________________________ (SIGNATURE(S) OF RECORD HOLDER OR AUTHORIZED SIGNATORY) DATED: _____________________________________ -2- 3 GUARANTEE OF DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm or other entity identified in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor institution," including (as such terms are defined therein): (1) a bank; (2) a broker, dealer, municipal securities broker, municipal securities dealer, government securities broker, government securities dealer; (3) a credit union; (4) a national securities exchange, registered securities association or clearing agency; or (5) a savings association that is a participant in a Securities Transfer Association recognized program (each of the foregoing being referred to as an "Eligible Institution"), hereby guarantees to deliver to the Exchange Agent at one of its addresses set forth above, either the Original Notes tendered hereby in proper form for transfer, or confirmation of the book-entry transfer of such Original Notes to the Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to the procedures for book- entry transfer set forth in the Prospectus, in either case together with one or more properly completed and duly executed Letter(s) of Transmittal (or facsimile thereof or Agent's Message in lieu thereof) and any other required documents within three business days after the date of execution of this Notice of Guaranteed Delivery. The undersigned acknowledges that it must deliver the Letter(s) of Transmittal (or facsimile thereof or Agent's Message in lieu thereof) and the Original Notes tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in a financial loss to the undersigned. ____________________________________________ (NAME OF FIRM) ____________________________________________ (AUTHORIZED SIGNATURE) ____________________________________________ (TITLE) ____________________________________________ (ADDRESS) ____________________________________________ (ZIP CODE) ____________________________________________ (AREA CODE AND TELEPHONE NUMBER) DATED: _________________ NOTE: DO NOT SEND ORIGINAL NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL SURRENDER OF ORIGINAL NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS. -3- EX-99.3 41 FORM OF EXCHANGE AGREEMENT 1 EXHIBIT 99.3 SIMONDS INDUSTRIES INC. 135 Intervale Road Fitchburg, MA 01420 EXCHANGE AGENT AGREEMENT _________, 1998 State Street Bank and Trust Company Two International Place, 4th Floor Boston, MA 02110 Ladies and Gentlemen: Simonds Industries Inc., a Delaware corporation (the "Company") proposes to make an offer (the "Exchange Offer") to exchange up to $100,000,000 aggregate principal amount of its 10 1/4% Senior Subordinated Notes due July 1, 2008 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its outstanding 10 1/4% Senior Subordinated Notes due July 1, 2008 which have not been so registered (the "Original Notes"), of which $100,000,000 aggregate principal amount is outstanding. The terms and conditions of the Exchange Offer as currently contemplated are set forth in a prospectus, expected to be dated September __, 1998 (the "Prospectus"), a copy of which is attached to this Agreement as Attachment A, proposed to be distributed to all record holders of the Original Notes. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to them in the Prospectus. The Company hereby appoints State Street Bank and Trust Company to act as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. References hereinafter to "you" shall refer to State Street Bank and Trust Company. The Exchange Offer is expected to be commenced by the Company on or about ________, 1998. The Letter of Transmittal accompanying the Prospectus is to be used by the holders of the Original Notes to accept the Exchange Offer, and contains instructions with respect to the Exchange Offer. The Exchange Offer shall expire at 5:00 p.m., New York City time, on ________, 1998 unless extended (as so extended the "Expiration Date"). Subject to the terms and conditions set forth in the Prospectus, the Company expressly reserves the right to extend the Exchange Offer from time to time and may extend the Exchange Offer by giving oral (promptly confirmed in writing) or written notice to you no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Original Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified in the Prospectus under the caption "The Exchange Offer-Conditions of the Exchange Offer." The Company will give oral (promptly confirmed in writing) or written notice of any amendment, termination or nonacceptance to you as promptly as practicable. In carrying out your duties as Exchange Agent, you are to act in accordance with the following instructions: 2 1. You will perform such duties and only such duties as are specifically set forth in the section of the Prospectus captioned "The Exchange Offer," as specifically set forth herein and such duties which are necessarily incidental thereto; provided, however, that in no way will your general duty to act in good faith be discharged by the foregoing. 2. You will establish an account with respect to the Original Notes at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within two business days after the date of the Prospectus or, if you already have established an account with the Book-Entry Transfer Facility suitable for the Exchange Offer, you will identify such pre-existing account to be used in the Exchange Offer, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of the Original Notes by causing the Book-Entry Transfer Facility to transfer such Original Notes into your account in accordance with the Book-Entry Transfer Facility's procedure for such transfer. 3. You are to examine each of the Letters of Transmittal, certificates for the Original Notes and confirmations of book-entry transfers into your account at the Book-Entry Transfer Facility and any Agent's Message or other documents delivered or mailed to you by or for holders of the Original Notes to ascertain whether: (i) the Letters of Transmittal and any such other documents are duly executed and properly completed in accordance with instructions set forth therein and (ii) the Original Notes have otherwise been properly tendered. In each case where the Letter of Transmittal or any other document has been improperly completed or executed or any of the certificates for Original Notes are not in proper form for transfer or some other irregularity in connection with the acceptance of the Exchange Offer exists, you will endeavor to inform the presenters of the need for fulfillment of all requirements and to take any other action as may be necessary or advisable to cause such irregularity to be corrected. 4. With the approval of the Chief Executive Officer or the Chief Financial Officer of the Company (such approval, if given orally, to be confirmed in writing), you are authorized to waive any irregularities in connection with any tender of Original Notes pursuant to the Exchange Offer. 5. Tenders of Original Notes may be made only as set forth in the section of the Prospectus captioned "The Exchange Offer--Procedures for Tendering" or in the Letter of Transmittal, and Original Notes shall be considered properly tendered to you only when tendered in accordance with the procedures set forth therein. Notwithstanding the provisions of this paragraph 5, Original Notes which the Company or any other party designated by the Company in writing shall approve as having been properly tendered shall be considered to be properly tendered (such approval, if given orally, shall be confirmed in writing). 6. You shall advise the Company with respect to any Original Notes delivered subsequent to the Expiration Date and accept its written instructions with respect to the disposition of such Original Notes. 7. You shall accept tenders: (a) in cases where the Original Notes are registered in two or more names only if signed by all named holders; (b) in cases where the signing person (as indicated on the Letter of Transmittal) is acting in a fiduciary or a representative capacity only when proper evidence of his or her authority to so act is submitted; and -2- 3 (c) from persons other than the registered holder of Original Notes provided that customary transfer requirements, including any applicable transfer taxes, are fulfilled. You shall accept partial tenders of Original Notes where so indicated and as permitted in the Letter of Transmittal and deliver certificates for Original Notes to the transfer agent for split-up and return any untendered Original Notes to the holder (or to such other person as may be designated in the Letter of Transmittal) as promptly as practicable after expiration or termination of the Exchange Offer. 8. Upon satisfaction or waiver of all of the conditions to the Exchange Offer, the Company will notify you (such notice if given orally, to be promptly confirmed in writing) of the Company's acceptance, promptly after the Expiration Date, of all Original Notes properly tendered and you, on behalf of the Company, will exchange such Original Notes for Exchange Notes and cause such Original Notes to be canceled. Delivery of Exchange Notes will be made on behalf of the Company by you at the rate of $1,000 principal amount of Exchange Notes for each $1,000 principal amount of Original Notes tendered promptly after notice (such notice if given orally, to be promptly confirmed in writing) of acceptance of said Original Notes by the Company; provided, however, that in all cases, Original Notes tendered pursuant to the Exchange Offer will be exchanged only after timely receipt by you of certificates for such Original Notes (or confirmation of book- entry transfer into you account at the Book-Entry Transfer Facility), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees (or Agent's Message in lieu thereof) and any other required document. You shall issue Exchange Notes only in denominations of $1,000 or any integral multiple thereof. 9. Tenders pursuant to the Exchange Offer are irrevocable, except that, subject to the terms and upon the conditions set forth in the Prospectus and the Letter of Transmittal, Original Notes tendered pursuant to the Exchange Offer may be withdrawn at any time on or prior to the Expiration Date. 10. The Company shall not be required to exchange any Original Notes tendered if any of the conditions set forth in the Exchange Offer are not met. Notice of any decision by the Company not to exchange any Original Notes tendered shall be given (such notice, if given orally, shall be promptly confirmed in writing) by the Company to you. 11. If, pursuant to the Exchange Offer, the Company does not accept for exchange all or part of the Original Notes tendered because of an invalid tender, the occurrence of certain other events set forth in the Prospectus under the caption "The Exchange Offer--Conditions of the Exchange Offer" or otherwise, you shall as soon as practicable after the expiration or termination of the Exchange Offer return those certificates for unaccepted Original Notes (or effect the appropriate book-entry transfer of the unaccepted Original Notes), and return any related required documents and the Letters of Transmittal relating thereto that are in your possession, to the persons who deposited them. 12. All certificates for reissued Original Notes or for unaccepted Original Notes shall be forwarded by (a) first-class mail, return receipt requested, under a blanket surety bond protecting you and the Company from loss or liability arising out of the non-receipt or non-delivery of such certificates or (b) by registered mail insured separately for the replacement value of such certificates. 13. You are not authorized to pay or offer to pay any concessions, commissions or solicitation fees to any broker, dealer, bank or other persons or to engage or utilize any person to solicit tenders. 14. As Exchange Agent hereunder you: -3- 4 (a) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness of Original Notes, and will not be required to and will make no representation as to the validity, value or genuineness of the Exchange Offer; provided, however, that in no way will your general duty to act in good faith be discharged by the foregoing; (b) shall not be obligated to take any legal action hereunder which might in your reasonable judgment involve any expense or liability, unless you shall have been furnished with reasonable indemnity satisfactory to you; (c) shall not be liable to the Company for any action taken or omitted by you, or any action suffered by you to be taken or omitted, without gross negligence, willful misconduct or bad faith on your part, by reason of or as a result of the administration of your duties hereunder in accordance with the terms and conditions of this Agreement or by reason of your compliance with the instructions set forth herein or with any written or oral instructions delivered to you pursuant hereto, and may conclusively rely on and shall be fully protected in acting or refraining from acting in good faith in reliance upon any certificate, instrument, opinion, notice, letter, facsimile or other document or security delivered to you and reasonably believed by you to be genuine and to have been signed by the proper party or parties; (d) may reasonably act upon any tender, statement, request, comment, agreement or other instrument whatsoever not only as to its due execution and validity and the effectiveness of its provisions, but also as to the truth and accuracy of any information contained therein (without any investigation thereto), which you shall in good faith reasonably believe to be genuine or to have been signed or represented by a proper person or persons; (e) may conclusively rely on and shall be fully protected in acting upon written or oral instructions from any officer of the Company with respect to the Exchange Offer and shall not be liable for acting or refraining from acting in accordance with any oral instructions which are inconsistent with the written confirmation provided in connection therewith; (f) shall not advise any person tendering Original Notes pursuant to the Exchange Offer as to the wisdom of making such tender or as to the market value or decline or appreciation in market value of any Original Notes; and (g) may consult with your counsel with respect to any questions relating to your duties and responsibilities and the written opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by you hereunder in good faith and in accordance with such advice or written opinion of such counsel. 15. You shall take such action as may from time to time be requested by the Company or its counsel (and such other action as you may reasonably deem appropriate) to furnish, at the Company's expense, copies of the Prospectus, Letter of Transmittal and the Notice of Guaranteed Delivery, or such other forms as may be approved from time to time by the Company, to all persons requesting such documents and to accept and comply with telephone requests for information relating to the Exchange Offer, provided that such information shall relate only to the procedures for accepting (or withdrawing from) the Exchange Offer. The Company will furnish you with copies of such documents at your request. All other requests for information relating to the Exchange Offer shall be directed to the Secretary of the Company at: 135 Intervale Road, Fitchburg, MA 01420. -4- 5 16. You shall advise by facsimile transmission or telephone, and promptly thereafter confirm in writing to the Company and Edwards & Angell, LLP, counsel for the Company, and such other person or persons as they may request, weekly, and more frequently, if reasonably requested, up to and including the Expiration Date, as to the principal amount of the Original Notes which have been tendered pursuant to the Exchange Offer and the items received by you pursuant to this Agreement, separately reporting and giving cumulative totals of the items properly received, items improperly received and items covered by Notices of Guaranteed delivery. You shall also provide the Company or any such other person or persons as the Company may request from time to time prior to the Expiration Date with such other information as the Company or such other person may reasonably request. In addition, you shall grant to the Company and such persons as the Company may request, access to those persons on your staff who are responsible for receiving tenders, in order to ensure that immediately prior to the Expiration Date, the Company shall have received information in sufficient detail to enable them to decide whether to extend the Exchange Offer. You shall prepare a list of holders who failed to tender or whose tenders were not accepted and the aggregate principal amount of Original Notes not tendered or not accepted and deliver said list to the Company at least seven days prior to the Expiration Date. You shall also prepare a final list of all persons whose tenders were accepted, the aggregate principal amount of Original Notes tendered and the aggregate principal amount of Original Notes accepted and deliver said list to the Company. 17. Letters of Transmittal and Notices of Guaranteed Delivery shall be stamped by you as to the date and the time of receipt thereof and shall be preserved by you for a period of time at least equal to the period of time you preserve other records pertaining to the transfer of securities. You shall dispose of unused Letters of Transmittal and other surplus materials by returning them to the Company. 18. For services rendered as Exchange Agent hereunder you shall be entitled to a fee from the Company of $5,000 and you shall be entitled to reimbursement of your expenses (including fees and expenses of your counsel, which fees are expected under normal circumstances to be not in excess of $5,000) incurred in connection with the Exchange Offer. The provisions of this section 18 shall survive the termination of this Agreement. 19. You hereby acknowledge receipt of the Prospectus and the Letter of Transmittal attached hereto and further acknowledge that you have examined each of them to the extent necessary to perform your obligations hereunder. Any inconsistency between this Agreement, on the one hand, and the Prospectus and the Letter of Transmittal (as they may be amended from time to time), on the other hand, shall be resolved in favor of the latter two documents, except with respect to the duties, liabilities and indemnification of you as Exchange Agent, which shall be controlled by this Agreement. 20. The Company agrees to indemnify and hold you (and your officers, directors, employees and agents) harmless in your capacity as Exchange Agent hereunder against any liability, cost or expense, including reasonable attorney's fees, arising out of or in connection with the acceptance or administration of your duties hereunder, including, without limitation, in connection with any act, omission, delay or refusal made by you in reasonable reliance upon any signature, enforcement, assignment, certificate, order, request, notice, instruction or other instrument or document reasonably believed by you to be valid, genuine and sufficient and in accepting any tender or effecting any transfer of Original Notes reasonably believed by you in good faith to be authorized, and in delaying or refusing in good faith to accept any tenders or effect any transfer of Original Notes; provided, however, that the Company shall not be liable for indemnification or otherwise for any loss, liability, cost or expense to the extent arising out of your gross negligence, willful misconduct or bad faith. You shall notify the Company by letter or cable or by facsimile confirmed by letter, of the written assertion of a claim against you or of any other action commenced against you, promptly after you shall have received any such written assertion or commencement of action; however, failure to provide such notification shall not constitute a waiver of any rights afforded the Exchange Agent under this section. The Company shall be entitled to participate at its own -5- 6 expense in the defense of any such claim or other action. You shall not compromise or settle any such action or claim without the consent of the Company. The provisions of this section 20 shall survive the termination of this Agreement. 21. This Agreement and your appointment as Exchange Agent hereunder shall be construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such state, without regard to conflicts of law principles, and shall inure to the benefit of, and the obligations created hereby shall be binding upon, the successors and assigns of each of the parties hereto. 22. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which taken together constitute one and the same agreement. 23. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 24. This Agreement shall not be deemed or construed to be modified, amended, rescinded, canceled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of the party to be charged. This Agreement may not be modified orally. 25. Unless otherwise provided herein, all notices, requests and other communications to any party hereunder shall be in writing (including facsimile) and shall be given to such party, addressed to it, at its address or telecopy number set forth below: If to the Company, to: Simonds Industries Inc., 135 Interval Road, Fitchburg, MA 01420 Attention: Joseph Sylvia Facsimile: (978) 343-3489 with a copy to: Edwards & Angell, LLP, 150 John F. Kennedy Parkway, Short Hills, NJ 07078 Attention: Christine M. Marx, Esq. Facsimile: (973) 376-3380 If to the Exchange Agent, to: State Street Bank and Trust Company, Two International Place, 4th Floor, Boston, MA 02110 Attention: Robert Dunn Facsimile: (617) [ ] 26. Unless terminated earlier by the parties hereto, this Agreement shall terminate 90 days following the Expiration Date. Notwithstanding the foregoing, Paragraphs 18 and 20 shall survive the termination of this Agreement. Except as provided in Paragraph 17, upon any termination of this Agreement, you shall promptly deliver to the Company any funds or property (including, without limitation, Letters of Transmittal and any other documents relating to the Exchange Offer) then held by you as Exchange Agent under this Agreement. 27. This Agreement shall be binding and effective as of the date hereof. Please acknowledge receipt of this Agreement and confirm the arrangements herein provided by signing and returning the enclosed copy. -6- 7 SIMONDS INDUSTRIES INC. By: ________________________________ Name: ______________________________ Title: _____________________________ Accepted as of the date first above written: STATE STREET BANK AND TRUST COMPANY as Exchange Agent By: _________________________________ Name: ________________________________ Title: _______________________________ -7- -----END PRIVACY-ENHANCED MESSAGE-----