-----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, Qx2oRP1zyVNN3Wpnvq2JCJhaWuSobpVg0A+7dTzfzs92rrzBkhdUJDZP4vV//i2N S0C5ngmCCSabh4xGuU5cRg== 0001029869-97-000356.txt : 19970319 0001029869-97-000356.hdr.sgml : 19970319 ACCESSION NUMBER: 0001029869-97-000356 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19970318 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYRATECH CORP CENTRAL INDEX KEY: 0000805914 STANDARD INDUSTRIAL CLASSIFICATION: JEWELRY, SILVERWARE & PLATED WARE [3910] IRS NUMBER: 133354944 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133 FILM NUMBER: 97558690 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HWY CITY: EAST BOSTON STATE: MA ZIP: 02128-9114 BUSINESS PHONE: 6175612200 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128-9114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAUCH INDUSTRIES INC CENTRAL INDEX KEY: 0000715817 STANDARD INDUSTRIAL CLASSIFICATION: GLASS PRODUCTS, MADE OF PURCHASED GLASS [3231] IRS NUMBER: 560749456 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-01 FILM NUMBER: 97558691 BUSINESS ADDRESS: STREET 1: 6048 S YORK ROAD STREET 2: P O BOX 609 CITY: GASTONIA STATE: NC ZIP: 28053 BUSINESS PHONE: 7048675333 MAIL ADDRESS: STREET 1: 175 MCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARBERWARE INC CENTRAL INDEX KEY: 0001029195 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 13880567 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-02 FILM NUMBER: 97558692 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROSEMAR SILVER CO INC CENTRAL INDEX KEY: 0001029196 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043094668 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-03 FILM NUMBER: 97558693 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 175 AMLEGIAN REVERE REALTY TRUST CENTRAL INDEX KEY: 0001029197 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 046812249 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-04 FILM NUMBER: 97558694 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLORENCE LEONARD ASSOCIATES INC CENTRAL INDEX KEY: 0001029198 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 042904074 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-05 FILM NUMBER: 97558695 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOWLE MANUFACTURING CO /DE/ CENTRAL INDEX KEY: 0001029200 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043093194 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-06 FILM NUMBER: 97558696 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOWLE HOLLOWARE INC CENTRAL INDEX KEY: 0001029202 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043094663 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-07 FILM NUMBER: 97558697 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PMW SILVER DE PR INC CENTRAL INDEX KEY: 0001029203 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 660503108 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-08 FILM NUMBER: 97558698 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL SILVER CO /DE/ CENTRAL INDEX KEY: 0001029204 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043105031 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-09 FILM NUMBER: 97558699 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL SILVER DE PR INC CENTRAL INDEX KEY: 0001029205 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 660467204 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-10 FILM NUMBER: 97558700 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALLACE INTERNATIONAL SILVERSMITHS INC CENTRAL INDEX KEY: 0001029206 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 061183605 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-11 FILM NUMBER: 97558701 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALLACE INTERNATIONAL DE PR INC CENTRAL INDEX KEY: 0001029207 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 660402645 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-12 FILM NUMBER: 97558702 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILVESTRI INC CENTRAL INDEX KEY: 0001029208 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043309807 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-13 FILM NUMBER: 97558703 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILVESTRI INC OF SOUTH CAROLINA CENTRAL INDEX KEY: 0001029209 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 571046114 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-14 FILM NUMBER: 97558704 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYRATECH WEST COAST WAREHOUSE CORP CENTRAL INDEX KEY: 0001029210 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 330689857 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-15 FILM NUMBER: 97558705 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYRATECH SECURITY CORP CENTRAL INDEX KEY: 0001029211 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043270184 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-16 FILM NUMBER: 97558706 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYRATECH HOLDING CORP CENTRAL INDEX KEY: 0001029212 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 710747664 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-17 FILM NUMBER: 97558707 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYRATECH SILVER SALES CORP CENTRAL INDEX KEY: 0001029213 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 710747664 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-18 FILM NUMBER: 97558708 BUSINESS ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: 6175612000 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHI INTERNATIONAL INC CENTRAL INDEX KEY: 0001029214 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521930353 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-19 FILM NUMBER: 97558709 BUSINESS ADDRESS: STREET 1: 4251 CRISFIELD HIGHWAY CITY: CRISFIELD STATE: MD ZIP: 21871 BUSINESS PHONE: 4109680503 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCHARD INC CENTRAL INDEX KEY: 0001029222 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 132731346 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-20 FILM NUMBER: 97558710 BUSINESS ADDRESS: STREET 1: 6048 SOUTH YORK ROAD CITY: GASTONIA STATE: NC ZIP: 28052 BUSINESS PHONE: 7048675333 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHSTAR SALES CORP CENTRAL INDEX KEY: 0001029223 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 561678701 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-21 FILM NUMBER: 97558711 BUSINESS ADDRESS: STREET 1: 6048 SOUTH YORK ROAD CITY: GASTONIA STATE: NC ZIP: 28052 BUSINESS PHONE: 7048675333 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLIDAY PRODUCTS INC CENTRAL INDEX KEY: 0001029224 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 561803414 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18133-22 FILM NUMBER: 97558712 BUSINESS ADDRESS: STREET 1: 6048 SOUTH YORK ROAD CITY: GASTONIA STATE: NC ZIP: 28052 BUSINESS PHONE: 7048675333 MAIL ADDRESS: STREET 1: 175 MCCLELLAN HIGHWAY CITY: EAST BOSTON STATE: MA ZIP: 02128 S-3/A 1 SYRATECH CORPORATION FORM S-3/A As filed with the Securities and Exchange Commission on March 18, 1997 Registration No. 333-18133 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- AMENDMENT NO. 1 to FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- SYRATECH CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 3914 13-3354944 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
-------------- 175 McClellan Highway East Boston, MA 02128-9114 Phone: (617) 561-2200 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) -------------- E. MERLE RANDOLPH Vice President, Treasurer and Chief Financial Officer Syratech Corporation 175 McClellan Highway East Boston, MA 02128-9114 Phone: (617) 561-2200 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------- With copies to: JAMES L. PURCELL, ESQ. JAMES WESTRA, ESQ. KIRK A. DAVENPORT, ESQ. Paul, Weiss, Rifkind, Wharton & Garrison Hutchins, Wheeler & Dittmar Latham & Watkins 1285 Avenue of the Americas A Professional Corporation 885 Third Avenue New York, New York 10019-6064 101 Federal Street New York, New York 10022-4802 (212) 373-3000 Boston, Massachusetts 02110 (212) 906-1200 (617) 951-6600
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. -------------- If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. |B) If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. |B) If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |B) If this Form is a post-effective amendment filed pursuant to Rule 462(c) 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. |B) If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |B) -------------- 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 this Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. ================================================================================ TABLE OF ADDITIONAL REGISTRANTS
- ------------------------------------------------------------------------------------------------------------------------------------ State or Other Primary Standard I.R.S. Employer Address, Including Zip Code and Jurisdiction of Classification Code Identification Telephone Number, Including Area Name Incorporation Number Number Code of Principal Executive Office - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway Syratech Holding East Boston, Massachusetts 02128 Corporation Arkansas 5023 71-0747664 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway Wallace International East Boston, Massachusetts 02128 Silversmiths, Inc. Delaware 3914 06-1183605 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway East Boston, Massachusetts 02128 Wallace International de P.R., Inc. Delaware 3914 66-0402645 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway East Boston, Massachusetts 02128 International Silver Company Delaware 5023 04-3105031 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway East Boston, Massachusetts 02128 International Silver de P.R., Inc. Delaware 3545 66-0467204 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway East Boston, Massachusetts 02128 PMW Silver de P.R., Inc. Delaware 3356 66-0503108 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway East Boston, Massachusetts 02128 Towle Manufacturing Company Delaware 3914 04-3093194 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway East Boston, Massachusetts 02128 Rosemar Silver Company, Inc. Delaware 3914 04-3094668 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway East Boston, Massachusetts 02128 Towle Holloware, Inc. Delaware 5023 04-3094663 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway East Boston, Massachusetts 02128 Farberware Inc. Delaware 5023 13-3880567 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway East Boston, Massachusetts 02128 Silvestri, Inc. Delaware 5199 04-3309807 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway Silvestri, Inc. of East Boston, Massachusetts 02128 South Carolina South Carolina 6512 57-1046114 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 6048 South York Road Gastonia, North Carolina 28052 Rauch Industries, Inc. North Carolina 5199 56-1074945 (704)867-5333 - ------------------------------------------------------------------------------------------------------------------------------------ 6048 South York Road Gastonia, North Carolina 28052 Rochard, Inc. North Carolina 5199 13-2731346 (704)867-5333 - ------------------------------------------------------------------------------------------------------------------------------------ 6048 South York Road Gastonia, North Carolina 28052 Holiday Products, Inc. North Carolina 5199 56-1803414 (704)867-5333 - ------------------------------------------------------------------------------------------------------------------------------------ 6048 South York Road Gastonia, North Carolina 28052 Northstar Sales Corporation North Carolina 6512 56-1678701 (704)867-5333 - ------------------------------------------------------------------------------------------------------------------------------------ 175 McClellan Highway East Boston, Massachusetts 02128 Leonard Florence Associates, Inc. Massachusetts 5023 04-2904074 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------------ 4251 Crisfield Highway Crisfield, Maryland 21871 CHI International, Inc. Maryland 3914 52-1930353 (410)968-0503 - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------- State or Other Primary Standard I.R.S. Employer Address, Including Zip Code and Jurisdiction of Classification Code Identification Telephone Number, Including Area Name Incorporation Number Number Code of Principal Executive Office - ------------------------------------------------------------------------------------------------------------------------------- 175 McClellan Highway Syratech Security East Boston, Massachusetts 02128 Corporation Massachusetts 4841 04-3270184 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------- 175 McClellan Highway Syratech West Coast East Boston, Massachusetts 02128 Warehouse Corp. California 6512 33-0689857 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------- 175 McClellan Highway 175 Amlegion Revere Massachusetts East Boston, Massachusetts 02128 Realty Trust Trust 6798 04-6812249 (617)561-2200 - ------------------------------------------------------------------------------------------------------------------------------- 175 McClellan Highway East Boston, Massachusetts 02128 Syratech Silver Sales Corp. Georgia 6512 04-3094665 (617)561-2200 - -------------------------------------------------------------------------------------------------------------------------------
SYRATECH CORPORATION --------------- CROSS REFERENCE SHEET Location in Prospectus of Information Required by Part I of Form S-3
Item No. Caption Location in Prospectus - -------- ------------------------------------------------------ ---------------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus......................... Facing Page of Registration Statement; Cross- Reference Sheet; Outside Front and Inside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus............................................. Inside Front Cover Pages of Prospectus; Available Information 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges.............................. Summary; Risk Factors; Exhibit 12.1 4. Use of Proceeds........................................ Use of Proceeds 5. Determination of Offering Price........................ Not applicable 6. Dilution............................................... Not applicable 7. Selling Security Holders............................... Not applicable 8. Plan of Distribution................................... Underwriting 9. Description of Securities to be registered............. Description of Senior Notes 10. Interests of Named Experts and Counsel................. Experts 11. Material Changes....................................... Not applicable 12. Incorporation of Certain Information by Reference.............................................. Incorporation of Certain Documents by Reference 13. Disclosure of Commission Position on Indemnification for Securities Act Liabilities......... Part II--Item 17 Undertakings
SUBJECT TO COMPLETION, DATED MARCH , 1997 PRELIMINARY PROSPECTUS $155,000,000 SYRATECH(TM) ------------ CORPORATION % Senior Notes due 2007 ----------- The % Senior Notes due 2007 (the "Senior Notes") are being offered (the "Offering") by Syratech Corporation, a Delaware corporation ("Syratech" or the "Company"). The net proceeds of the Offering, together with the net proceeds of the other financing described herein, will be used to support a recapitalization (the "Recapitalization") of Syratech, pursuant to an Agreement and Plan of Merger (the "Merger Agreement") providing for the merger of the Company and THL Transaction I Corp ("THL I"), a Delaware corporation organized by Thomas H. Lee Company, (the "Merger") with Syratech surviving such Merger and to pay related transaction costs. The consummation of this Offering, the Recapitalization and the financing thereof are conditioned upon each other. The Senior Notes mature on , 2007, unless previously redeemed. Interest on the Senior Notes is payable semiannually on and , commencing , 1997. The Senior Notes will be redeemable at the option of the Company, in whole or in part, on or after , 2002, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the redemption date. Notwithstanding the foregoing, at any time on or before, , 2000 the Company may redeem up to 35% of the original aggregate principal amount of the Notes with the net proceeds of a public offering of common stock of the Company at a redemption price equal to % of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date; provided that at least $100.0 million in aggregate principal amount of Senior Notes remain outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 45 days of the date of the closing of such public offering. Upon a Change of Control (as defined herein), the Company will be required to make an offer to repurchase all outstanding Senior Notes at 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase. See "Description of Senior Notes." The Senior Notes will be general unsecured obligations of the Company ranking senior to all existing and future subordinated indebtedness of the Company and pari passu in right of payment to all unsubordinated indebtedness of the Company, including indebtedness under the New Credit Facility (as defined herein). However, the obligations of the Company under the New Credit Facility will be secured by the accounts receivable and inventory of the Company and its domestic subsidiaries and, accordingly, such indebtedness will effectively rank senior to the Senior Notes to the extent of such assets. The Senior Notes will be fully and unconditionally guaranteed (the "Subsidiary Guarantees") on a joint and several basis by each of the Company's domestic subsidiaries (the "Guarantors"). The Subsidiary Guarantees will rank senior to all existing and future subordinated indebtedness of the Guarantors and pari passu with all other unsubordinated indebtedness of the Guarantors, including the guarantees of indebtedness under the New Credit Facility. As of December 31, 1996, on a pro forma basis after giving effect to the Recapitalization, including the Offering and the application of the proceeds therefrom, as described under "Use of Proceeds," the Company and its subsidiaries would have had $17.5 million of secured indebtedness (including outstanding letters of credit) which would have effectively ranked senior to the Senior Notes. The Company does not intend to list the Senior Notes on any national securities exchange. See "Risk Factors -- Absence of Public Market." See "Risk Factors" beginning on Page 13 for a discussion of factors that should be considered in evaluating an investment in the Senior Notes. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- Price to Discounts and Proceeds to Public(1) Commissions(2) Company(2)(3) - -------------------------------------------------------------------------------- Per Senior Note........ % % % - -------------------------------------------------------------------------------- Total.................. $ $ $ - -------------------------------------------------------------------------------- (1) Plus accrued interest, if any, from , 1997. (2) The Company and the Guarantors have, jointly and severally, agreed to indemnify the Underwriters (as defined herein) against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3) Before deducting expenses payable by the Company and the Guarantors, estimated at $ . The Senior Notes are being offered, subject to prior sale, by the Underwriters when, as and if issued to and accepted by the Underwriters, and subject to various prior conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Senior Notes will be made in New York, New York on or about , 1997. NationsBanc Capital Markets, Inc. Chase Securities Inc. The date of this Prospectus is , 1997. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities of any State. [INSIDE FRONT COVER:] 1. Seven photographs of Syratech silver products, including flatware, serving pieces and picture frames. 2. Stylized tradenames: Towle Silversmiths, Wallace Silversmiths, International Silver Company, Rochard, Inc., Faberware, C.J. Vander Limited, Elements, Tuttle La Preference, and Melannco. [INSIDE BACK COVER:] 1. Six photographs of Syratech seasonal products, including Christmas ornaments and Christmas decorations. 2. Stylized tradenames: Rauch Industries, Holiday Workshop, Potpourri Designs and Silvestri. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SENIOR NOTES. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, SENIOR NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE This Prospectus incorporates by reference documents which are not presented herein or delivered herewith. Copies of any such documents relating to the Company, other than exhibits to such documents (unless such exhibits specifically are incorporated by reference in such documents), are available without charge, upon written or oral request, from Syratech Corporation, 175 McClellan Highway East Boston, Massachusetts 02128-9114, Attention: Faye A. Florence, Esq., Vice President, Secretary and General Counsel, telephone: (617) 561-2200. In order to ensure timely delivery of the documents requested, any such request should be made by April 1, 1997. The following documents previously filed by the Company (File No. 1-12624) with the Commission are incorporated in this Prospectus by reference: (1) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. (2) The Company's Proxy Statement, dated April 8, 1996 which was mailed to the Company's stockholders in connection with the Annual Meeting of Stockholders held on May 9, 1996. (3) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996. (4) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996. (5) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996. (6) The Company's Current Report on Form 8-K dated February 29, 1996, as amended by the Current Report on Form 8-K/A dated February 27, 1997 (which supersedes a Current Report on Form 8-K/A dated April 29, 1996); Current Report on Form 8-K dated April 17, 1996, as amended by the Current Report on Form 8-K/A dated August 26, 1996; Current Report on Form 8-K dated May 1, 1996; Current Report on Form 8-K dated July 11, 1996; Current Report on Form 8-K dated September 17, 1996; Current Report on Form 8-K dated October 25, 1996; and Current Report on Form 8-K dated November 12, 1996. All reports and other documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the date of the Merger shall be deemed to be incorporated by reference herein and to be part hereof from the date of the filing of such reports and documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein, or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this Prospectus. FORWARD-LOOKING STATEMENTS Except for the historical information contained or incorporated by reference in this Prospectus, the matters discussed or incorporated by reference herein are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the risk factors set forth under "Risk Factors" as well as the following: general economic and business conditions; industry capacity; industry trends; overseas expansion; the loss of major customers; changes in demand for the Company's products; the timing of orders received from customers; cost and availability of raw materials; dependence on foreign sources of supply; changes in business strategy or development plans; availability and quality of management; availability, terms and deployment of capital; and the seasonal nature of the business. Special attention should be paid to such forward-looking statements including, but not limited to, statements relating to (i) the Company's ability to execute its growth strategies and to realize its growth objectives, (ii) the Company's planned expansion of its product offerings, (iii) the Company's ability to obtain sufficient resources to finance its working capital and capital expenditure needs and provide for its known obligations, and (iv) the continuation of, and the Company's ability to benefit from, the vendor consolidation trend in the retail industry described elsewhere in this Prospectus. 3 PROSPECTUS SUMMARY The following summary information is qualified in its entirety by, and should be read in conjunction with the more detailed information and financial data, including the notes thereto, appearing elsewhere in this Prospectus or incorporated herein by reference. Unless the context indicates otherwise, all references herein to "Syratech" or the "Company" shall refer to Syratech Corporation and its subsidiaries. The Company Overview Syratech designs, manufactures, imports and markets a diverse portfolio of tabletop, giftware and seasonal products. The Company is a leading domestic manufacturer and marketer of sterling silver flatware, sterling silver and silver-plated hollowware. The Company also offers a number of other complementary tabletop and giftware items, including stainless steel flatware, brass hollowware, picture frames and photo albums, glassware, woodenware and ceramics. Tabletop and giftware products generated approximately 63.4% of net sales for the year ended December 31, 1996. The Company also is a leading domestic manufacturer and marketer of seasonal products including Christmas ornaments as well as a distributor of Christmas trim, lighting and tree skirts. Seasonal products generated approximately 36.6% of net sales for the year ended December 31, 1996. Syratech has positioned itself as a single-source supplier to retailers by offering a wide assortment of products across multiple price points through its "good-better-best" strategy. This strategy enables the Company to sell its products through a broad array of distribution channels, including retail specialty stores, department stores, mass market merchandisers, catalogue showrooms and warehouse clubs. Syratech markets its products under numerous Company-owned tradenames including the Towle Silversmiths[RegTM], Wallace International Silversmiths[RegTM]and International Silver Company[RegTM] tradenames which are used in connection with the sale of tabletop and giftware items and the Rauch[RegTM], Silvestri[RegTM] and Potpourri[RegTM] tradenames which are used in connection with the sale of Christmas and other seasonal merchandise. Syratech has made a number of recent acquisitions to broaden and complement its existing product lines. The Company has significantly enhanced the value of acquired product lines by integrating them into the Company's existing infrastructure. During 1996, the Company acquired Rauch, a leading domestic manufacturer and marketer of Christmas ornaments, and C.J. Vander, a U.K. manufacturer and marketer of prestigious sterling silver flatware and hollowware. Also in 1996, the Company acquired certain assets, including the tradenames, of Silvestri, a high-end manufacturer and marketer of Christmas ornaments, collectibles, lighting and trim as well as other giftware and decorative accessories, and Potpourri, a manufacturer and marketer of Christmas products. The Company continually introduces new products and expands the distribution of its existing products. As a result, the Company has generated significant growth in net sales and Adjusted EBITDA from $103.7 million and $11.8 million, respectively, in 1992 to $271.5 million and $29.8 million, respectively, on a pro forma basis, in 1996. Furthermore, the Company believes that the continued integration of the acquisitions into its existing business will position it to increase sales and profitability. Competitive Strengths The Company's goal is to become the leading domestic, single-source supplier of tabletop, giftware and seasonal products to retailers. To achieve this goal, the Company will rely on its core competitive strengths, which are as follows: Leading Market Positions. The Company is one of the leading domestic manufacturers and marketers of sterling silver flatware and sterling silver and silverplated hollowware. These products are sold under the Wallace, Towle and International Silver tradenames, which are well-recognized and date back to the American Colonial period. In addition, the Company is one of the leading domestic manufacturers of Christmas ornaments. These products are sold under the Rauch, Silvestri and Potpourri tradenames, which are well-established brands for Christmas and other seasonal merchandise. Historically, the Company has been able to increase sales by leveraging its leading market positions, strong presence with retailers and strong brand identity with consumers to introduce new products and product categories. 4 Broad Portfolio of Products with Well-Recognized Tradenames. The Company provides a broad offering of quality products at multiple price points. These items range from exclusive prestige products, such as sterling silver flatware and hollowware, to moderately priced products, including silverplated and stainless steel flatware, silverplated and brass hollowware and other giftware and seasonal merchandise. Syratech uses Company-owned and licensed tradenames as merchandising tools to assist retailers in coordinating their product offerings and differentiating their products from those of their competitors. In addition to the Wallace, Towle, International, Rauch, Silvestri and Potpourri tradenames, the Company markets giftware products under numerous other tradenames, including Rochard[RegTM], Holiday Workshop[RegTM], Melannco[RegTM] and Elements[RegTM]. The Company believes that its strongest brands draw customers into retail stores specifically to purchase products bearing those tradenames. In addition to its own tradenames, the Company produces a variety of products under license from certain entities including The Walt Disney Company[RegTM], Cuisinart[RegTM], Victoria & Albert Museum[RegTM] and Faberge, Inc.[RegTM]. The Company recently acquired certain assets, including the intellectual property, of Farberware, Inc. Following this acquisition, the Company licensed the Farberware tradename to third parties for use on cookware and bakeware, small electric and certain other commercial electric items. The Company is currently marketing certain products under the Farberware tradename and believes there are significant opportunities to develop the tradename in other product categories which have not been otherwise licensed to third parties. The Company's diverse product lines allow it to target a wide range of customers and to respond more effectively to changes in retail distribution and consumer preferences. Furthermore, the vendor consolidation trend in the retail industry increases demand for vendors, like the Company, who can make timely deliveries of a broad range of quality products and provide advertising and other sales support. Diversified Distribution Channels. The Company sells its products to approximately 30,000 customers in most major distribution channels, including retail specialty stores, such as jewelry, seasonal and nonseasonal giftware and collectible stores, department stores, mass market merchandisers, catalogue showrooms, warehouse clubs, premium and incentive marketers, drug store chains and home centers. The Company believes that the recent Rauch and Silvestri acquisitions will strengthen the Company's presence with mass market merchandisers and department and specialty stores, respectively. In addition, the Company has a policy of not owning or operating Company outlet stores and believes that this policy further strengthens relationships with customers. The Company's broad customer base, both in terms of number of customers and distribution channels, reduces exposure to any single customer or distribution channel. In 1996, no single customer accounted for more than 8% of the Company's net sales. Innovative Product Development. The vast majority of the Company's products, including products that are sourced from outside vendors, are designed by the Company's design team and independent designers in conjunction with the Company's product development and marketing teams. The Company's design and product development and marketing teams collaborate (i) to introduce innovative new products and product categories, such as the Holiday Workshop line of seasonal products, the Hostess Helpers[RegTM] sterling accessory line and a dinnerware category that coordinates with sterling silver flatware and (ii) to develop acquired brands into successful product lines for the Company, such as the Melannco lines of picture frames and photo albums and the Elements glassware lines. Integrated Manufacturing and Sourcing. The Company relies both on its own domestic manufacturing capabilities and on a variety of suppliers located primarily in the Asia Pacific Rim to deliver quality products at competitive prices to its customers. The Company's decision to manufacture or to import is based largely upon expertise, quality, availability and cost. In order to ensure quality, imported products are generally manufactured using Company-owned tools and dies. In 1996, through its import organization comprised of approximately 150 employees, both in the U.S. and overseas, the Company sourced products from approximately 480 manufacturers, with whom in many cases it has had long-standing relationships. 5 Business Strategy The Company has developed and is implementing a business strategy to build upon its core operating strengths and enhance profitability. Leverage Recent Acquisitions. The Company believes that opportunities for growth in sales and profitability exist through successfully integrating its recent acquisitions into the Company's sales and marketing organization and consolidating and rationalizing certain operations. Historically, the Company has expanded and augmented acquired product lines through leveraging internal marketing expertise and existing distribution relationships. The Company plans to expand the distribution of Rauch, Silvestri and Potpourri products by marketing them through the Company's established distribution channels and also plans to add new products to their existing lines. By integrating Rauch, Silvestri and Potpourri with the Company's internally developed Holiday Workshop lines of seasonal products, the Company has significantly expanded its product offerings in this product category, both in terms of types of product and retail price points, and strengthened its presence in major retail channels. In addition, the Company believes that such strengthened presence will provide opportunities to cross-sell the Company's tabletop and giftware product lines through Rauch and Silvestri distribution channels. Through the acquisition of C.J. Vander, the Company believes that it will be able to expand the distribution of Wallace and Towle sterling silver and silverplated product lines into the European market, primarily through C.J. Vander's existing distribution channels. In addition, the Company intends to expand the distribution of C.J. Vander products in the United States through the Company's independent representatives who sell to high-end specialty and department stores. In addition, the Company believes that the recent acquisitions will enable it to achieve cost savings through (i) the consolidation of warehouses, showrooms and manufacturing facilities, (ii) efficiencies resulting from increasing sales volume through its existing distribution network and (iii) reductions in certain general and administrative expenses, such as MIS, human resources and credit analysis. For example, the Company is consolidating its distribution facilities in the Western United States by building its own warehouse to reduce costs, increase capacity and serve its customers more efficiently. Expand Distribution of Existing Product Lines. The Company believes that it has significant opportunities to expand the distribution of its existing product lines by increasing the penetration of existing retailer customers and the number of retail outlets to which it sells. Beginning in 1994, the Company implemented a program with a specialty retailer and franchisee, whereby the Company sources, markets and distributes giftware products for the customer's retail system comprised of several thousand stores. As a result, the Company has identified several growth opportunities, both in terms of expanded product offerings and additional store coverage. In addition, the Company intends to expand the distribution of several product lines introduced in the past several years, such as Melannco and Elements, which the Company believes are growth opportunities that have not yet been fully exploited. Broaden Product Offerings. The Company expects to make a number of new product introductions each year. As a result of the planned investments in tools, dies and machinery, the Company believes that it will be able to broaden significantly its offering of Christmas and other seasonal merchandise beginning in 1997. The Company intends to capitalize on the Farberware tradename by introducing new products in categories as to which exclusive rights to the tradename have not been granted to third parties. In addition, the Company continues to expand and upgrade its line of sterling silver, silverplated and other tabletop and giftware products. Invest Further in Technology and Productivity to Maintain a Low-Cost Structure. In order to support the growth of its business, during 1997 the Company plans to invest $15 million to expand its manufacturing, warehousing and distribution capabilities. In addition, the Company intends to invest in application solutions to enhance its Electronic Data Interchange (EDI) and warehousing capabilities. The Company plans to add a Warehousing Management System (WMS) to each of its warehouses. These systems will enhance the Company's ability to service its customers by improving its order processing and logistics and storage utilization, minimizing order cycle times, enhancing inventory management, and ensuring that customer orders are processed efficiently. Additionally, the Company is planning to expand its manufacturing capabilities by acquiring new tools, dies and 6 machinery. The Company also has purchased a 828,000 square foot manufacturing and distribution facility in Chester, South Carolina which will increase production capacity and reduce costs. Make Selected Acquisitions. The Company believes that the giftware and seasonal markets and, to a lesser extent, the tabletop market are highly fragmented with a number of small manufacturers and marketers of limited products lines. The Company believes that these industry dynamics and the continuing trend among retailers to consolidate their vendor base should generate attractive opportunities to acquire complementary brands, products, product categories and businesses that will provide operating synergies. The Recapitalization Pursuant to a Restated Agreement and Plan of Merger dated November 27, 1996, effective as of October 23, 1996, as amended effective as of February 14, 1997 (the "Merger Agreement"), between Syratech and THL I, THL I will be merged with and into Syratech (the "Merger"), with Syratech surviving the Merger. The Merger, together with financings discussed below, are collectively referred to as the "Recapitalization." Pursuant to the terms of the Merger: (i) All shares of Syratech Common Stock, other than those retained by stockholders as discussed below, will be converted into the right to receive $32 per share in cash (except that Mr. Leonard Florence, the Company's President, Chief Executive Officer and Chairman of the Board, will receive $28 in cash per share) following the Merger. (ii) Stockholders of the Company, other than management, may elect to retain up to 34.75% of their shares of Syratech Common Stock, up to a maximum of 868,250 shares. (iii) Mr. Leonard Florence has agreed to retain 528,472 shares of Syratech Common Stock, and management, other than Mr. Florence, intends to retain 123,766 shares of Syratech Common Stock. In addition, Mr. Florence will contribute 35,232 shares of Syratech Common Stock to the Company upon consummation of the Merger, which shares shall be cancelled for no additional consideration. The total number of shares retained by Mr. Florence and management is expected to be 652,238, which represents approximately $20.9 million, or approximately 17.2% of the equity of the Company. Upon consummation of the Merger: (i) The common stock of THL I will be converted into an aggregate of 3,131,780 shares of Syratech Common Stock (less the number of shares (not to exceed 781,250) retained by stockholders other than management stockholders) and the preferred stock of THL I will be converted into an aggregate of 18,000 shares of cumulative redeemable preferred stock, $.01 par value per share (the "Cumulative Redeemable Preferred Stock") of Syratech. As a result, affiliates of Thomas H. Lee Company ("Lee Affiliates"), including Thomas H. Lee Equity Fund III, L.P. (the "Fund"), will own approximately $100.2 million (less the value of shares (not to exceed $25.0 million) retained by stockholders other than management stockholders) of the common equity of the Company and $18.0 million of the preferred equity of the Company (collectively, the "Equity Investment"). This will represent up to 82.8% of the common equity and 100% of the preferred equity of the Company. (ii) Syratech will enter into the New Credit Facility, which will provide for revolving credit borrowings of up to $130 million, and use a portion of the borrowings thereunder, along with the proceeds from the Senior Notes and the Equity Investment, (a) to pay stockholders of Syratech $32 per share for their shares of Syratech Common Stock which are not being retained (other than shares held by Mr. Florence who will receive $28 per share), (b) to pay transaction fees and expenses and (c) to refinance existing indebtedness of Syratech. See "The Recapitalization," "Use of Proceeds" and "Description of Other Indebtedness." 7 The Offering Securities Offered............. $155.0 million aggregate principal amount of % Senior Notes due 2007 of the Company (the "Senior Notes"). Maturity Date.................. ____________________, 2007 Interest Payment Dates......... ____________ and ___ , commencing , 1997. Optional Redemption............ On or after , 2002, the Company may redeem the Senior Notes, in whole or in part, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. Notwithstanding the foregoing, at any time on or before , 2000, the Company may redeem up to 35% of the original aggregate principal amount of Senior Notes, with the net cash proceeds of a public offering of common stock of the Company, at a redemption price of % of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date; provided that at least $100.0 million in aggregate principal amount of Senior Notes remain outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 45 days of the date of the closing of such public offering. See "Description of Senior Notes -- Optional Redemption." Ranking........................ The Senior Notes will be general unsecured obligations of the Company, ranking senior to all existing and future subordinated indebtedness of the Company and pari passu in right of payment with all other existing and future unsubordinated indebtedness of the Company, including indebtedness under the New Credit Facility (as defined herein). However, the obligations of the Company under the New Credit Facility will be secured by the accounts receivable and inventory of the Company and its domestic subsidiaries and, accordingly, such indebtedness will effectively rank senior to the Senior Notes to the extent of such assets. As of December 31, 1996, on a pro forma basis after giving effect to the Recapitalization, including the Offering and the application of the proceeds therefrom, as described under "Use of Proceeds," the Company and its subsidiaries would have had $17.5 million of secured indebtedness (including outstanding letters of credit) which would have effectively ranked senior to the Senior Notes. Subsidiary Guarantees.......... The payment of principal, premium, if any, and interest on the Senior Notes will be fully and unconditionally guaranteed on a joint and several basis (the "Subsidiary Guarantees") by each of the Company's domestic subsidiaries (collectively, the "Guarantors"). The Subsidiary Guarantees will rank senior to all existing and future subordinated indebtedness of the Guarantors and pari passu with all other unsubordinated indebtedness of the Guarantors, including the guarantees of indebtedness under the New Credit Facility. The Guarantors' obligations under the New Credit Facility, however, will be secured by a lien on certain assets of the Guarantors and, accordingly, such indebtedness will rank prior to the Subsidiary
8 Guarantees with respect to such assets. However, the Company's direct and indirect foreign subsidiaries will not provide any guarantees of, or other credit support for, the Senior Notes, and, accordingly, the indebtedness and other liabilities of such subsidiaries will effectively rank senior in right of payment to the Senior Notes to the extent of the assets of such subsidiaries. As of December 31, 1996, such subsidiaries had indebtedness and other liabilities (including trade payables) of $3.7 million. Change of Control......... Upon a Change of Control (as defined herein), the Company will be required to make an offer to repurchase all outstanding Senior Notes at 101% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of repurchase. See "Description of Senior Notes -- Repurchase at the Option of Holders -- Change of Control." Covenants................. The Indenture pursuant to which the Senior Notes will be issued (the "Indenture") will restrict, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends or make certain other restricted payments, incur liens, engage in any sale and leaseback transaction, sell stock of subsidiaries, apply net proceeds from certain asset sales, merge or consolidate with any other person, sell, assign, transfer, lease, envy or otherwise dispose of substantially all of the assets of the Company, enter into certain transactions with affiliates, or incur indebtedness that is subordinate in right of payment to any Indebtedness and senior in right of payment to the Senior Notes or a Subsidiary Guarantee. Use of Proceeds........... The Company intends to use the net proceeds of the Offering, together with the net proceeds of the Equity Investment and borrowings under the New Credit Facility (i) to support the Recapitalization (ii) to pay transaction costs associated with the Recapitalization and (iii) to refinance existing indebtedness. See "Use of Proceeds."
Risk Factors See "Risk Factors" for a discussion of certain factors that should be considered in evaluating an investment in the Notes. 9 Summary Consolidated Historical and Unaudited Pro Forma Financial Data The following table presents summary consolidated historical financial information as of December 31, 1992 through 1996 and for each of the years in the five-year period ended December 31, 1996 and has been derived from the consolidated financial statements of the Company. In addition, the table presents unaudited summary pro forma consolidated financial data of the Company, as adjusted to give effect to the Recapitalization and the Rauch Acquisition which have been derived from, and should be read in conjunction with, the unaudited Pro Forma Condensed Consolidated Financial Statements, including the notes thereto, appearing elsewhere in this Prospectus. See "Pro Forma Condensed Consolidated Financial Statements." The summary unaudited pro forma consolidated financial data are presented for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred if the Recapitalization or other transactions had been consummated on the dates indicated, nor are they necessarily indicative of future operating results or financial position. The consolidated balance sheets of the Company as of December 31, 1995 and 1996 and the consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996, together with the notes thereto and the related report of Deloitte & Touche LLP, independent auditors, are included elsewhere herein. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto of the Company included elsewhere in this Prospectus.
Year Ended December 31, ----------------------------------------------------------------------------------- Pro Forma 1992 1993 1994 1995 1996 1996 ----------- ----------- ----------- ----------- --------------- ------------------ (dollars in thousands) (Unaudited) Income Statement Data(1): Net sales..................................... $103,735 $122,682 $147,291 $169,520 $ 270,931 $ 271,540 Cost of sales................................. 70,361 84,643 104,600 119,836 194,113 194,544 -------- -------- -------- -------- ---------- ----------- Gross profit.................................. 33,374 38,039 42,691 49,684 76,818 76,996 Selling, general and administrative expenses..................................... 24,364 27,727 31,613 34,239 57,664 58,870 Other operating income(2)..................... -- -- -- -- 3,948 3,948 -------- -------- -------- -------- ---------- ----------- Income from operations........................ 9,010 10,312 11,078 15,445 23,102 22,074 Interest expense.............................. (2,757) (948) (559) (287) (3,150) (22,713)(3) Interest income............................... 23 82 98 4,881 771 792 Other income(4)............................... -- -- -- -- 11,900 11,900 -------- -------- -------- -------- ---------- ----------- Income before income taxes.................... 6,276 9,446 10,617 20,039 32,623 12,053 Provision for income taxes.................... 1,657 2,390 2,758 6,863 12,234 4,520 -------- -------- -------- -------- ---------- ----------- Income from continuing operations............. 4,619 7,056 7,859 13,176 20,389 7,533 Discontinued operations: Income from discontinued operations, net of income taxes.......................... 10,284 10,838 12,068 2,572 -- -- Gain on sale of Syroco, Inc., net of income taxes................................. -- -- -- 30,451 -- -- -------- -------- -------- -------- ---------- ----------- Net income.................................... $ 14,903 $ 17,894 $ 19,927 $ 46,199 $ 20,389 $ 7,533 ======== ======== ======== ======== ========== =========== Earnings per common share from continuing operations.................................. $ 0.55 $ 0.60 $ 0.67 $ 1.12 $ 2.32 ======== ======== ======== ======== ========== Other Financial Data: EBITDA(5)..................................... $ 11,824 $ 13,363 $ 14,348 $ 18,698 $ 24,357 $ 23,460 Adjusted EBITDA............................... -- -- -- -- 30,528(6) 29,785(7) Capital expenditures.......................... 5,557 2,781 2,603 2,679 15,125 15,218 Depreciation and amortization................. 2,814 3,051 3,270 3,253 4,767 4,898 Ratio of earnings to fixed charges(8)......... 2.9x 7.4x 10.2x 23.4x 7.7x 1.3x Adjusted cash interest expense................ -- -- -- -- -- (19,843)(9) Ratio of Adjusted EBITDA to Adjusted cash interest expense........................ -- -- -- -- -- 1.5x
10
December 31, ----------------------------------------------------------------------------- Pro Forma 1992 1993 1994 1995 1996 1996 ---------- ----------- ----------- ----------------- ----------- ----------- Balance Sheet Data: Working capital......................... $87,458 $105,115 $125,136 $ 122,050 $119,918 $116,630 Total assets............................ 141,294 152,060 190,684 220,566 227,254 234,737 Total debt(10).......................... 6,446 5,060 15,379 51,735(11) 6,636 162,319 Cumulative Redeemable Preferred Stock -- -- -- -- -- 18,000 Common stockholders' equity............. 112,381 131,005 152,100 146,596 170,248 4,048
- ------------ (1) The income statement has been restated to reflect Syroco, Inc. as a discontinued operation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Transactions." (2) Consists of income from the sale of Farberware inventory, and other operating income, net of certain selling, general and administrative expenses, relating to the sale of Farberware inventory. The Company has licensed the right to manufacture, market and distribute these products to third parties. See "Business--Recent Transactions." (3) The pro forma statements give effect to the Recapitalization and the corresponding increase in debt levels and interest expense. Because interest rates in connection with the Senior Notes and the New Credit Facility have not been determined as of the date of this Prospectus, the Company has estimated pro forma interest expense for purposes of this presentation. See "Pro Forma Condensed Consolidated Financial Statements" for additional information on assumed interest rates and the effects on certain income statement items of incremental changes in such assumed interest rates. (4) Consists of nonrecurring pre-tax income related to licensing the Farberware name on cookware and bakeware. (5) "EBITDA" is defined herein as income before income taxes, plus depreciation and amortization expense and interest expense, net, less other income of $3,512 related to the sale of Farberware inventory less the non- recurring pre-tax income of $11,900 related to the one-time licensing of the Farberware name on cookware and bakeware. EBITDA is presented because the Company believes it is a widely accepted financial indicator of a company's ability to service and/or incur indebtedness. However, EBITDA should not be considered as an alternative to net income as a measure of operating results or to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA (subject to certain adjustments) is a factor in certain of the covenants in the New Credit Facility and the Indenture governing the Senior Notes. (6) "Adjusted EBITDA" is defined herein as EBITDA adjusted for certain items of expense which are not expected to be continuing costs to the Company. For the year ended December 31, 1996, such items consist of Rauch salaries and related benefits of $623, Silvestri expenses of $712, including showroom, warehouse and freight expenses, compensation expense of $3,953 related to the transfer of shares to three executive officers and pension expense of $883. (7) "Adjusted EBITDA" is defined herein as EBITDA adjusted for certain items of expense which are not expected to be continuing costs to the Company. For the pro forma 1996 presentation, such items consist of Rauch non-recurring expenses of $154 incurred as a result of a 1994 fire at its principal manufacturing, warehouse and distribution facility, Rauch salaries and related benefits of $623, Silvestri expenses of $712, including showroom, warehouse and freight expenses, compensation expense of $3,953 related to the transfer of shares to three executive officers and pension expense of $883. (8) For purposes of computing this ratio, earnings consist of income from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expense, Cumulative Redeemable Preferred Stock dividends, amortization of debt issuance costs and one-third of the rent expense from operating leases, which management believes is a reasonable approximation of an interest factor. (9) For the purpose of calculating adjusted cash interest expense, cash interest expense (i) is net of amortization of deferred financing costs of $1,407 and (ii) has been adjusted to exclude (x) $519 of interest expense associated with incremental borrowings assumed to have been made by the Company (for purposes of the pro forma presentation) to finance the acquisition of Rauch (which was actually purchased with cash) and 11 (y) to exclude $944 of interest expense associated with the incremental borrowing made by the Company (and repaid during 1996) to finance the acquisition of Farberware to be consistent with the exclusion from EBITDA of the income from the sale of certain assets (including inventory) acquired from Farberware. (10) Consists of long-term debt, notes payable and current maturities of long-term debt. (11) Reflects temporary borrowings of $51,735 made on December 29, 1995 in connection with the purchase by the Company, for retirement of 3,065 shares of Common Stock owned by affiliates of Katy Industries, Inc. (the "Katy Stock Repurchase"). These borrowings were paid on January 2, 1996. 12 RISK FACTORS Prospective investors should carefully consider the specific factors set forth below as well as the other information included in the Prospectus before deciding to purchase the Senior Notes offered hereby. Significant Leverage and Debt Service; Effective Subordination On a pro forma basis, after giving effect to the Recapitalization, including this Offering and the application of the net proceeds therefrom, the Company's total debt, preferred stockholders' equity and common stockholders' equity as of December 31, 1996 would have been $162.3 million (excluding approximately $10.3 million of letters of credit outstanding), $18.0 million and $4.0 million, respectively. See "Capitalization," "Pro Forma Condensed Consolidated Financial Statements," and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Company's level of indebtedness will have several important effects on its future operations, including (i) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of interest on its indebtedness and will not be available for other purposes, (ii) covenants contained in the New Credit Facility and the Indenture governing the Senior Notes will require the Company to meet certain financial tests, and other restrictions may limit its ability to borrow additional funds or to dispose of assets and may affect the Company's flexibility in planning for, and reacting to, changes in its business, including possible acquisition activities, and (iii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Company's ability to meet its debt service obligations and to reduce its total indebtedness will be dependent upon the Company's future performance, which will be subject to general economic conditions and to financial, business and other factors affecting the operations of the Company, many of which are beyond its control. Based upon the current and anticipated level of operations, the Company believes, however, that its cash flow from operations, together with amounts available under the New Credit Facility, will be adequate to meet its anticipated requirements through December 31, 1998 for working capital, capital expenditures, interest payments and scheduled principal payments. There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels. If the Company is unable to generate sufficient cash flow from operations in the future to service its debt, it may be required to refinance all or a portion of its existing debt, including the Senior Notes, or to obtain additional financing. There can be no assurance that any such refinancing would be possible or that any additional financing could be obtained. The inability to obtain additional financing could have a material adverse effect on the Company. For example, a default by the Company under the terms of the Indenture would result in a default under the terms of the New Credit Facility. Additionally, a substantial portion of the Company's other indebtedness, particularly under the New Credit Facility, will mature prior to the Senior Notes and the New Credit Facility will be secured by a lien on accounts receivable and inventory, while the Senior Notes represent unsecured obligations of the Company. Accordingly, the lender(s) under the New Credit Facility (and any other indebtedness secured by assets of the Company) will have a claim ranking effectively prior to that of the holders of the Senior Notes with respect to the proceeds of assets securing such indebtedness. The Company also conducts substantial operations through its direct and indirect subsidiaries which are not incorporated in the United States (the "Foreign Subsidiaries"). The Foreign Subsidiaries will not provide guarantees of, or other credit support for, the Senior Notes. Consequently, the Company's obligations under the Senior Notes will be effectively subordinated to the indebtedness and other liabilities (including trade payables) of the Foreign Subsidiaries. As of December 31, 1996, the Foreign Subsidiaries had identifiable assets of $14.9 million and for the year then ended the Foreign Subsidiaries had income from operations of $7.7 million. See Note 13 to Consolidated Financial Statements of Syratech. As of December 31, 1996, the Foreign Subsidiaries had indebtedness and other liabilities (including trade payables) of $3.7 million. Competition The tabletop, giftware and seasonal products markets are highly competitive. Competition is affected not only by the large number of domestic manufacturers, but also by the large volume of foreign imports. Several of the Company's competitors are larger and may have greater financial resources than the Company. The Company's 13 products may compete indirectly with a broad range of products not offered by the Company. A number of factors affect competition in the sale of tabletop, giftware, seasonal and other products of the types manufactured, imported and sold by the Company. Among these are brand identification, style, design, packaging, price, quality, promotion and the level of service provided to customers. The importance of these competitive factors varies from customer to customer and from product to product. See "Business--Competition." Dependence Upon Key Personnel The Company is currently dependent upon the ability and experience of its senior management team, including Leonard Florence, Chairman of the Board, President and Chief Executive Officer, E. Merle Randolph, Vice President, Treasurer and Chief Financial Officer, Melvin L. Levine, Vice President of Purchasing, and Alan R. Kanter, Vice President of Sales. The loss of any of these executives could adversely affect the Company. In connection with the Merger, these executives will continue to be employed by the Company pursuant to their current employment agreements with certain modifications. See "Management--Employment Agreements." The terms of the employment agreements for these four executives will be five years in the case of Messrs. Florence and Levine and three years in the case of Messrs. Randolph and Kanter. The Company does not maintain policies of "key person" life insurance on the life of any of its executives. Retail Industry The Company sells its products to retailers, including department and specialty stores, mass market merchandisers, catalogue showrooms, discount wholesalers, warehouse clubs, premium and incentive marketers, drug and supermarket chains, jewelers and home centers and through other channels of distribution. Certain of such retailers have engaged in leveraged buyouts or transactions in which they incurred a significant amount of debt, and some are currently operating under the protection of the federal bankruptcy laws. As a result of these financial difficulties and bankruptcy and insolvency proceedings, the Company may be unable to collect some or all amounts owed by these retailers. Additionally, all or part of the operations of a retailer that seeks bankruptcy or other debtor protection may be discontinued or sales of the Company's products to such a retailer may be curtailed or terminated as a result of such bankruptcy or insolvency proceedings. As is customary in the retail industry, the Company generally does not enter into written agreements with customers but relies on orders that are cancelable until shipment. The Company's business is sensitive to consumer spending patterns, which in turn are subject to prevailing economic conditions. Future economic recessions could have a material adverse effect on the Company's financial condition and results of operations. Future Acquisitions The Company expects to continue a strategy of identifying and acquiring companies with complementary products or services that may be expected to enhance the Company's operations and profitability. There can be no assurance that the Company will be able to identify appropriate acquisition candidates, negotiate appropriate acquisition terms, obtain financing which may be needed to effect such acquisitions or integrate acquisitions successfully into the Company's operations or that any of such acquisitions will prove profitable. Seasonality Historically, the Company has realized its highest sales and profit levels in its third and fourth quarters as a result of the buying patterns associated with the Christmas selling season. The Company expects that the recent Rauch and Silvestri acquisitions and the acquisition of certain assets of Potpourri Press will intensify the degree of seasonality that the Company historically has experienced as the vast majority of Rauch, Silvestri and Potpourri products are Christmas items. The Company's needs for working capital accelerate in the second half of the year and, accordingly, total debt levels tend to peak in the third and fourth quarters, falling off again in the first quarter of the following year. The amount of the Company's sales generated during the second half of the year generally depends upon a number of factors, including general economic conditions, and other factors beyond the Company's control. The Company's results of operations would be adversely and disproportionately affected if the Company's sales were substantially lower than those normally expected during the second half of the year. 14 Foreign Sources of Supply Many of the Company's products are manufactured to its specifications by foreign manufacturers located principally in Hong Kong, India, Korea, Taiwan, the People's Republic of China and Japan. In 1996, the Company purchased an aggregate of approximately $104 million of products from approximately 480 foreign manufacturers. No vendor accounted for 10% or more of such purchases in 1995. The Company does not have information on the financial condition of its major foreign vendors, all of which are privately held. Of the Company's foreign purchases in 1996, approximately 92% were from vendors located in the Far East, approximately 4% were from vendors located in India and approximately 4% in the aggregate from vendors in other locations. The Company's arrangements with its manufacturers are subject to the risks of doing business abroad, including risks associated with economic or political instability in countries in which such manufacturers are located, labor strikes and risks associated with foreign currency and potential import restrictions. The Company also is subject to risks associated with the availability of, and time required for, the transportation of products from foreign countries, including shipping losses or lost sales that may result from delays or interruptions in shipping. Price and Availability of Raw Materials Collectively, the Company and its four major competitors in the sterling silver flatware market account for substantially all sterling silver flatware sales in the United States. Prices of silver are subject to fluctuation. The price of silver has ranged, according to the closing prices of Handy & Harman Inc. (the "Handy & Harman Price"), from $3.54 per troy ounce to $6.01 per troy ounce during the five-year period ended December 31, 1996. A prolonged significant increase in silver prices could have a material adverse effect on the Company's results of operations. The Handy & Harman Price for a troy ounce of silver on February 21, 1997 was $5.23. Silver used by the Company in the manufacture of its tabletop and giftware products represents less than 5% of its Cost of Goods Sold. See "Business--Manufacturing and Raw Materials." Environmental Regulation The Company's manufacturing operations, including silverplating, chrome plating, tool making and painting, routinely involve the handling of waste materials that are classified as hazardous. The Company is subject to certain domestic federal, state, local and foreign laws and regulations concerning the handling, containment and disposal of hazardous substances, and therefore, in the ordinary course of its business, the Company incurs compliance costs and may be required to incur clean-up costs. In addition, the Company's C.J. Vander facility is subject to many environmental regulations related to its manufacturing operations in the United Kingdom. Actions by federal, state, local and foreign governments concerning environmental matters could result in laws or regulations that could increase the cost of producing the products manufactured by the Company or otherwise adversely affect the demand for its products. In addition, the future costs of compliance with environmental laws and regulations and liabilities resulting from currently unknown circumstances or developments could be substantial and could have a material adverse effect on the Company. For example, certain laws and regulations could impose liability upon the Company for any historic releases of hazardous substances from facilities that it has owned or operated, or, from facilities to which its waste materials have been transported for treatment or disposal. Trademarks, Copyrights and Patents The Company markets its products under many well-recognized tradenames, including Wallace Silversmiths[RegTM], International Silver Company[RegTM], Towle Silversmiths[RegTM], Farberware[RegTM], Tuttle Sterling[RegTM], C.J. Vander Ltd.[TM], Rauch Industries, Inc.[RegTM], Silvestri[RegTM], Rochard[RegTM], Elements[RegTM] and 1847 Rogers Bros.[RegTM] The success of the Company's various businesses depends in part on the Company's ability to use these tradenames as well as certain proprietary designs and trademarks on an exclusive basis in reliance upon the protections afforded by applicable copyright, patent and trademark laws and regulations. The loss of certain of the Company's rights to such designs, trademarks and tradenames or the inability of the Company effectively to protect or enforce such rights could adversely affect the Company. Labor Relations The Company believes that its relationship with its employees is good. The Company's employees are not represented by labor unions; however, Rauch, which merged with the Company on February 15, 1996, was a subject of efforts by UNITE (the "Union") in the fall of 1995 to organize Rauch's employees. A scheduled Union election was postponed because the Union filed unfair labor practice charges against Rauch with the National Labor 15 Relations Board (the "NLRB"). These charges, which related to allegations of threats and promises by Rauch officials and the termination of certain employees, were settled pursuant to an agreement between Rauch and the Union. On May 2, 1996, the NLRB approved the agreement and the Union's request that the petition for an election be withdrawn with prejudice. On March 31, 1994 an Administrative Law Judge ("ALJ") designated by the National Labor Relations Board ("NLRB") determined that the Company's subsidiaries Wallace International de P.R., Inc. and International Silver de P.R., Inc. (the "P.R. Subsidiaries") had engaged in unfair labor practices incident to a union election (won by the P.R. Subsidiaries) held in February, 1993 and ordered the P.R. Subsidiaries to refrain from certain conduct and to take certain affirmative action. The ALJ's decision was affirmed by the NLRB on September 22, 1994. Incident to a second union election (also won by the P.R. Subsidiaries) held on June 22, 1994 pursuant to stipulation, the P.R. Subsidiaries were again charged with unfair labor practices. The ALJ again found that the P.R. Subsidiaries had engaged in unfair labor practices. The Company has appealed to the NLRB, and the appeal is pending. Potential Inability to Fund a Change of Control Offer Upon a Change of Control Offer (as defined in the Indenture), the Company will be required to offer to repurchase all outstanding Senior Notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. However, there can be no assurance that sufficient funds will be available at the time of any Change of Control to make any required repurchases of Senior Notes tendered. Moreover, restrictions in the New Credit Facility prohibit the Company from making such required repurchases; consequently, any such repurchases would constitute an event of default under the New Credit Facility. There can be no assurance that the Company will be able to obtain appropriate consents under the New Credit Facility to enable it to fulfill such repurchase obligations. Notwithstanding these provisions, the Company could enter into certain transactions, including certain recapitalizations, that would not constitute a Change of Control but would increase the amount of debt outstanding at such time. See "Description of Senior Notes--Repurchase at the Option of Holders." Fraudulent Conveyance Considerations Under applicable provisions of federal bankruptcy law or comparable provisions of state fraudulent conveyance law, if, among other things, the Company or any of the Guarantors, at the time it incurred the indebtedness evidenced by the Senior Notes or its Subsidiary Guarantee, as the case may be, (i)(a) was or is insolvent or rendered insolvent by reason of such occurrence or (b) was or is engaged in a business or transaction for which the assets remaining with the Company or such Guarantor constituted unreasonably small capital or (c) intended or intends to incur, or believed or believes that it would incur, debts beyond its ability to pay such debts as they mature, and (ii) the Company or such Guarantor received or receives less than the reasonably equivalent value of fair consideration for the incurrence of such indebtedness, the Senior Notes and the Subsidiary Guarantees could be voided, or claims in respect of the Senior Notes or such Subsidiary Guarantees could be subordinated to all other debts of the Company or such Guarantors, as the case may be. The voiding or subordination of any such pledges or other security interests or of any of such indebtedness could result in an Event of Default (as defined in the Indenture) with respect to such indebtedness, which could result in acceleration thereof. In addition, the payment of interest and principal by the Company pursuant to the Senior Notes or the payment of amounts by a Guarantor pursuant to a Subsidiary Guarantee could be voided and required to be returned to the person making such payment, or to fund for the benefit of the creditors of the Company or such Guarantor, as the case may be. The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, the Company or a Guarantor would be considered insolvent if (i) the sum of its debts, including contingent liabilities, were greater than the saleable value of all of its assets at a fair valuation or if the present saleable value of its assets were less than the amount of its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature or (ii) it could not pay its debts as they become due. To the extent any Subsidiary Guarantees were voided as a fraudulent conveyance or held unenforceable for any other reason, holders of Senior Notes would cease to have any claim in respect of such Guarantor and would be creditors solely of the Company and any Guarantor whose Subsidiary Guarantee was not avoided or held unenforceable. In such event, the claims of the holders of Senior Notes against the issuer of an invalid Subsidiary Guarantee would be subject to the prior payment of all liabilities and preferred stock claims of such Guarantor. There can be no assurance that, after providing for all prior claims and preferred stock interests, if any, there would 16 be sufficient assets to satisfy the claims of the holders of Senior Notes relating to any voided portions of any Subsidiary Guarantees. The Company is a holding company whose material assets consist primarily of the capital stock of the Guarantors. Consequently, the Company is dependent upon dividends paid by the Guarantors to pay its operating expenses, service its debt obligations, including the Senior Notes, and satisfy any mandatory repurchase obligations relating to the Senior Notes, as a result of a Change of Control or a sale or other disposition of certain assets. See "Description of Senior Notes" and "Description of Other Indebtedness." On the basis of their historical financial information, recent operating history as discussed in "Pro Forma Condensed Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other factors, each of the Company and each Guarantor believes that, after giving effect to the indebtedness incurred in connection with the Offering, it (i) will not be insolvent, will not have unreasonably small capital for the businesses in which it is engaged and will not incur debts beyond its ability to pay such debts as they mature and (ii) will have sufficient assets to satisfy any probable money judgment against it in any pending action. There can be no assurance, however, as to what standard a court would apply in making such determinations. Absence of Public Market There is no existing public market for the Senior Notes and the Company does not intend to list the Senior Notes on any national securities exchange. Although the Underwriters have advised the Company that they currently intend to make a market in the Senior Notes, the Underwriters are not obligated to do so and may discontinue such market-making at any time. Accordingly, there can be no assurance that an active market will develop upon completion of this Offering or, if developed, that such market will be sustained. The initial offering price of the Senior Notes will be determined through negotiations between the Company and the Underwriters, and may bear no relationship to the market price of the Senior Notes after the Offering. Factors such as quarterly or cyclical variations in the Company's financial condition and results of operations, variations in interest rates, future announcements concerning the Company or its competitors, government regulation, general economic and other conditions could cause the market price of the Senior Notes to fluctuate substantially. Control by the Thomas H. Lee Company Upon completion of the Recapitalization, at least 60% and up to 82.8% of the outstanding shares of Syratech Common Stock will be held by Lee Affiliates, including the Fund, which will own at least 50%. In addition, the Fund will hold $18.0 million of Cumulative Redeemable Preferred Stock. Accordingly, the Fund will control the Company and have the power to elect all of its directors, appoint new management and to approve any action requiring the approval of the holders of Syratech Common Stock, including adopting amendments to the Company's Amended and Restated Certificate of Incorporation and approving mergers or sales of substantially all of the Company's assets. The directors elected by the Fund will have the authority to effect decisions affecting the capital structure of the Company, including the issuance of additional capital stock, the implementation of stock repurchase programs and the declaration of dividends. 17 THE RECAPITALIZATION Pursuant to the Merger Agreement, THL I will be merged with and into Syratech (the "Merger"), with Syratech surviving the Merger. Pursuant to the terms of the Merger Agreement, all shares of Syratech Common Stock, other than those retained by stockholders as discussed below, will be converted into the right to receive $32 per share in cash (except that Mr. Florence will receive $28 per share in cash) following the Merger. In addition, pursuant to the terms of the Merger Agreement, stockholders of the Company, other than members of Management (defined as those executive officers listed in Syratech's 1996 Proxy Statement) may elect to retain up to 34.75% of their shares of Syratech Common Stock. The total number of shares of Syratech Common Stock which may be retained by stockholders, other than Management, is 868,250. To the extent that stockholders (other than Management) elect to retain more than an aggregate of 868,250 shares of Syratech Common Stock, the number of shares they will be entitled to retain will be subject to proration. Mr. Leonard Florence, the Company's President, Chief Executive Officer and Chairman of the Board, is required by the Merger Agreement to retain 528,472 shares of Syratech Common Stock and to contribute 35,232 shares of Syratech Common Stock to the Company. Management, other than Mr. Florence, intend to retain 123,766 shares of Syratech Common Stock, and such amount will not be subject to proration. See "Certain Transactions." The consummation of the Merger is subject to certain significant conditions, including obtaining the consent of the holders of a majority of the issued and outstanding shares of Syratech Common Stock at the meeting of such holders scheduled for April 14, 1997, as well as obtaining other required consents and the completion of financing. Simultaneously with the consummation of the Merger, Lee Affiliates including the Fund, will invest approximately $100.2 million (less the value of shares (not to exceed $25.0 million) retained by stockholders other than Management) in the common equity of THL I and $18.0 million in the preferred stock of THL I (collectively, the "Equity Investment"). In connection with the consummation of the Recapitalization, the Company will pay Thomas H. Lee Company a closing fee of $3 million. See "Certain Transactions." Upon consummation of the Merger, the common stock of THL I will be converted into an aggregate of 3,131,780 shares of Syratech Common Stock (less the number of shares (not to exceed 781,250) retained by stockholders other than Management) and the preferred stock of THL I will be converted into an aggregate of 18,000 shares of the Company's Cumulative Redeemable Preferred Stock. See "Risk Factors--Control by Thomas H. Lee Company." In addition, in connection with the consummation of the Merger, Syratech will enter into the New Credit Facility. See "Description of Other Indebtedness." The proceeds from the Senior Notes, the equity investment in THL I by affiliates of the Thomas H. Lee Company and a portion of the borrowings under the New Credit Facility will be used (i) to pay stockholders of Syratech $32 per share for their shares of Syratech Common Stock which are not being retained (other than shares held by Mr. Florence who will receive $28 per share), (ii) to pay transaction fees and expenses and (iii) to refinance existing indebtedness of Syratech. See "Use of Proceeds." The closing of these financings, including the Offering, will occur concurrently with, and will be conditioned upon, the consummation of the Merger. The financings, together with the Merger, are collectively referred to as the "Recapitalization". 18 The sources and uses of funds in connection with the Recapitalization are as follows (derived from the Pro Forma Condensed Consolidated Financial Statements set forth elsewhere in this Prospectus): (dollars in thousands) Sources of Funds: New Credit Facility proceeds (1)..................... $ 7,119 Senior Notes proceeds................................ 155,000 Syratech cash at December 31, 1996................... 2,605 Cash from exercise of employee stock options......... 2,874 Equity contribution: THL I Cumulative Redeemable Preferred Stock.............. 18,000 Common Stock (2)................................... 100,217 Retained by Management (3).......................... 20,872 -------- Total Sources...................................... $306,687 ======== Uses of Funds: Merger consideration (3)............................. $275,251 Repayment of existing debt........................... 6,436 Fees and expenses.................................... 25,000 -------- Total Uses......................................... $306,687 ======== - ------------ (1) The Company expects that a $130,000 New Credit Facility, including a letter of credit sub-limit of $30,000, will be available for working capital and general corporate purposes. The amount shown excludes $10,348 of letters of credit which will be issued to replace existing letters of credit. See "Description of Other Indebtedness." (2) Assumes non-management stockholders do not elect to retain shares. (3) Includes 528,472 shares retained by Mr. Florence and 123,766 shares to be retained by other members of Management. 19 USE OF PROCEEDS The net proceeds to be received by the Company from the issuance of the Senior Notes are estimated to be approximately $ million, after deduction of underwriting discounts and commissions, but prior to payment of other related fees and expenses. The net proceeds of the issuance of the Senior Notes will be used, together with the proceeds of the Equity Investment and the borrowings under the New Credit Facility, (i) to support the Recapitalization, including the refinancing of the Company's existing indebtedness, and (ii) to pay transaction costs associated with the Recapitalization. The Company's current credit facilities have maturity dates of April 30, 1997 and May 31, 1997. On March 12, 1997, the weighted average interest rate on borrowings under such facilities was 7.5%. 20 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of December 31, 1996, and on a pro forma basis to give effect to the Offering, and the application of the net proceeds therefrom in connection with the Recapitalization. This table should be read in conjunction with "Pro Forma Condensed Consolidated Financial Statements" and the Notes thereto included elsewhere in this Prospectus.
December 31, 1996 ----------------------- Actual Pro Forma ---------- ----------- (in thousands except sh Cash and cash equivalents...................................................... $ 3,605 $ 1,000 ======= ======== Total debt: Revolving loan and notes payable.............................................. $ 6,636 $ 200 New Credit Facility (1)....................................................... -- 7,119 Senior Notes offered hereby................................................... -- 155,000 ------- -------- Total debt................................................................... 6,636 162,319 ------- -------- Stockholders' equity: Preferred Stock, $.10 par value; 500,000 shares authorized, no shares issued or outstanding (135,000 shares designated Series A Preferred Stock), actual basis; $.01 par value; 25,000 shares authorized,18,000 shares issued and outstanding, pro forma basis (2)............................ -- 18,000 Common Stock, $.01 par value; 20,000,000 shares authorized, 8,695,449 shares issued, actual basis; 20,000,000 shares authorized, 3,784,018 shares issued and outstanding, pro forma basis (3)............................ 87 38 Additional paid in capital.................................................... 12,480 -- Retained earnings............................................................. 157,117 3,443 Cumulative translation adjustment............................................. 567 567 Less: Treasury stock; 218 shares at cost, actual basis; no shares, pro forma basis........................................................................ (3) -- ------- -------- Total stockholders' equity (4)............................................... 170,248 22,048 ------- -------- Total capitalization........................................................... $176,884 $184,367 ======= ========
- ------------ (1) The Company expects that a $130,000 New Credit Facility, including a letter of credit sub-limit of $30,000, will be available for working capital and general corporate purposes. The amount shown excludes $10,348 of letters of credit which will be issued to replace existing letters of credit. See "Description of Other Indebtedness." (2) Reflects 18,000 shares of Cumulative Redeemable Preferred Stock to be held by Lee Affiliates. Dividends are cumulative and accrue daily at the rate of 12% per annum. The liquidation preference of the Cumulative Redeemable Preferred Stock is $1,000 per share plus all accrued and unpaid dividends. Holders of the Cumulative Redeemable Preferred Stock are entitled, subject to the rights of creditors, in the event of any voluntary or involuntary liquidation of the Company, to an amount in cash equal to $1,000 for each share outstanding plus all accrued and unpaid dividends compounded annually. The rights of holders of the Cumulative Redeemable Preferred Stock upon liquidation of the Company rank prior to those of the holders of Syratech Common Stock. See "Description of Cumulative Redeemable Preferred Stock." (3) The pro forma number of shares of Syratech Common Stock outstanding assumes that no stockholder (other than Management) elects to retain shares of Syratech Common Stock following the Merger. 21 (4) The pro forma stockholders' equity is attributed to the following adjustments: (in thousands) Historical stockholders' equity............................. $ 170,248 Common Stock converted by existing stockholders (a)......... (254,379) Common equity contribution (b).............................. 100,217 Cumulative Redeemable Preferred Stock....................... 18,000 Cash proceeds from exercise of employee stock options....... 2,874 Costs and expenses incurred, net of deferred financing cost capitalized............................................ (14,912) --------- Pro forma stockholders' equity.............................. $ 22,048 ========= ------------ (a) Assumes non-cash election is not exercised. (b) Assumes non-management stockholders do not elect to retain Syratech Common Stock. 22 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated financial statements (the "Pro Forma Condensed Consolidated Financial Statements") have been derived by the application of pro forma adjustments to the Company's historical financial statements included in this Prospectus. The pro forma condensed consolidated statement of operations for the year ended December 31, 1996 give effect to the Recapitalization and related transactions and the acquisition of Rauch as if such transactions were consummated as of the beginning of the earliest period presented. The acquisition of C. J. Vander and the Silvestri product line were not material to the condensed consolidated financial statements and as such are not included in the Pro Forma Condensed Consolidated Financial Statements. The pro forma balance sheet gives effect to the Recapitalization and related transactions as if such transactions had occurred as of December 31, 1996. The adjustments are described in the accompanying notes. The Pro Forma Financial Statements should not be considered indicative of actual results that would have been achieved had the Recapitalization and related transactions been consummated on the date or for the periods indicated and do not purport to indicate balance sheet data or results of operations as of any future date or for any future period. The Pro Forma Condensed Consolidated Financial Statements should be read in conjunction with the Company's historical financial statements and the notes thereto included in this Prospectus. See "Available Information" and "Incorporation of Certain Documents by Reference." The pro forma adjustments were applied to the respective historical financial statements to reflect and account for the Merger as a recapitalization. Accordingly, the historical basis of the Company's assets and liabilities has not been impacted by the transaction. 23 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands)
December 31, 1996 ------------------------------------------------------------- Historical Pro Forma Syratech Recapitalization Syratech Corporation Adjustments Corporation -------------- ------------------------- ------------- ASSETS Current assets: Cash and equivalents................................... $ 3,605 $ (2,605)(1) $ 1,000 Accounts receivable, net............................... 60,020 -- 60,020 Inventories............................................ 79,355 -- 79,355 Deferred income taxes.................................. 8,940 -- 8,940 Prepaid expenses and other............................. 3,803 -- 3,803 -------- ---------- -------- Total current assets................................ 155,723 (2,605) 153,118 Property, plant and equipment, net...................... 63,955 -- 63,955 Purchase price in excess of net assets acquired......... 7,032 -- 7,032 Other assets............................................ 544 10,088 10,632 -------- ---------- -------- Total............................................... $227,254 $ 7,483 $234,737 ======== ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving loan and notes payable....................... $ 6,636 $ 683(3) $ 7,319 Accounts payable....................................... 9,689 -- 9,689 Accrued expenses....................................... 11,049 -- 11,049 Accrued compensation................................... 4,228 -- 4,228 Accrued advertising.................................... 3,273 -- 3,273 Income taxes payable................................... 930 -- 930 -------- ---------- -------- Total current liabilities........................... 35,805 683 36,488 Long-term debt.......................................... 155,000 155,000 Deferred income taxes................................... 17,706 -- 17,706 Pension liability....................................... 3,495 -- 3,495 Commitments and contingencies: Stockholders' equity: Cumulative Redeemable Preferred Stock.................. -- 18,000(5) 18,000 Common stock........................................... 87 (49)(6)(7) 38 Additional paid-in capital............................. 12,480 (12,480)(7) -- Retained earnings...................................... 157,117 (153,674)(2)(7) 3,443 Cumulative translation adjustment...................... 567 -- 567 Less: Treasury stock................................... (3) 3(7)(8) -- -------- ---------- -------- Total stockholders' equity.......................... 170,248 (148,200) 22,048 -------- ---------- -------- Total............................................... $227,254 $ 7,483 $234,737 ======== ========== ========
See notes to pro forma condensed consolidated balance sheet. 24 NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (in thousands except share data) The pro forma financial data have been derived by the application of pro forma adjustments to the Company's historical financial statements for the period noted. The Merger has been accounted for as a recapitalization which will have no impact on the historical basis of assets and liabilities. The pro forma financial data assumes that there are no dissenting stockholders to the Merger. (1) The net effect of the Merger, as if it occurred on December 31, 1996, reflects the following: Sources of Funds: New Credit Facility proceeds (a)..................... $ 7,119 Senior Notes proceeds................................ 155,000 Syratech cash at December 31, 1996................... 2,605 Cash from exercise of employee stock options......... 2,874 Equity contribution: THL I Cumulative Redeemable Preferred Stock.............. 18,000 Common Stock (b)................................... 100,217 Retained by Management (c).......................... 20,872 -------- Total Sources...................................... $306,687 ======== Uses of Funds: Merger consideration (c)............................. $275,251 Repayment of existing debt........................... 6,436 Fees and expenses.................................... 25,000 -------- Total Uses......................................... $306,687 ======== ------------ (a) The Company expects that a $130,000 New Credit Facility, including a letter of credit sub-limit of $30,000, will be available for working capital and general corporate purposes. The amount shown excludes $10,348 of letters of credit which will be issued to replace existing letters of credit. See "Description of Other Indebtedness." (b) Assumes non-management stockholders do not elect to retain shares. (c) Includes 528,472 shares to be retained by Mr. Florence and 123,766 shares to be retained by other members of Management. (2) The adjustment to retained earnings reflects the total fees and expenses of $25,000 anticipated to be paid to effect the Merger, net of the adjustment to other assets of $10,088 of capitalized debt issuance fees. The estimated fees and expenses are anticipated to consist of (i) fees and expenses related to the Merger Financings, including bank commitment fees and underwriting discounts and commissions, (ii) fees and expenses in connection with the prepayment of historical debt and (iii) professional, advisory and investment banking fees and expenses and (iv) miscellaneous fees and expenses such as printing and filing fees. (3) The pro forma adjustment to short-term borrowings reflects the repayment of historical revolving debt outstanding of $6,436 and the addition of $7,119 under the New Credit Facility, excluding $10,348 of letters of credit which will be issued to replace existing letters of credit. (4) The pro forma adjustment to long-term debt reflects issuance of $155,000 of Senior Notes. (5) Reflects 18,000 shares of Cumulative Redeemable Preferred Stock to be held by Lee Affiliates. Dividends are cumulative and accrue daily at the rate of 12% per annum. The liquidation preference of the Cumulative Redeemable Preferred Stock is $1,000 per share plus all accrued and unpaid dividends. Holders of the Cumulative Redeemable Preferred Stock are entitled, subject to the rights of creditors, in the event of any voluntary or involuntary liquidation of the Company, to an amount in cash equal to $1,000 for each share outstanding plus all accrued and unpaid dividends compounded annually. 25 The rights of holders of the Cumulative Redeemable Preferred Stock upon liquidation of the Company rank prior to those of the holders of Syratech Common Stock. The Cumulative Redeemable Preferred Stock will be redeemable at any time at the option of the Company, in whole or in part, at $1,000 per share plus all accumulated and unpaid dividends, if any, to the date of redemption. The Company must, subject to the Company's existing debt agreements (including the Indenture), redeem all outstanding Cumulative Redeemable Preferred Stock in the event of a public offering of equity, a change of control, or certain sales of assets. As used in the designation of the Cumulative Redeemable Preferred Stock, the terms "Change of Control" has the same meaning as is ascribed to that term in the Indenture governing the issuance of the Senior Notes. See "Description of Cumulative Redeemable Preferred Stock." (6) The adjustment reflects the effect of the Merger on the 8,659,999 shares outstanding (excluding the 35,232 shares held by Mr. Florence) to be cancelled and retired at $.01 par value per share. There will be 3,784,018 shares outstanding subsequent to the Merger. (7) The adjustment reflects amounts distributed to convert up to 8,217,261 shares of Syratech Common Stock to cash, including those converted under the Employee Stock Option Plan, for total consideration of $275,251 less the retention of shares by existing stockholders. Combining the value of the retained shares with the receipt of proceeds by Syratech in connection with the Merger for up to 3,131,780 shares issued to THL I results in common stockholders' equity contribution of $121,089. (8) The adjustment reflects the cancellation of the 218 shares of treasury stock. 26 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (in thousands)
Year Ended December 31, 1996 ------------------------------------------------------------------------------------------- Recapitalization Historical Pro Forma Pro Forma Pro Forma Syratech Rauch(1) Adjustments Combined Adjustments Combined ----------------- ----------- ----------------- ----------- ------------------ ----------- Net sales......................... $ 270,931 $ 609 $271,540 $271,540 Cost of sales..................... 194,113 330 $ 101(2) 194,544 194,544 ---------- ------- --------- -------- ----------- -------- Gross profit.................. 76,818 279 (101) 76,996 76,996 Selling, general and administrative expenses.......... 57,664 1,806 30(3) 58,420 $ 450(4) 58,870 (94)(5) (986)(6) Other operating income(a)......... 3,948(7) 3,948 3,948 ---------- ------- --------- -------- ----------- -------- Income (loss) from operations................... 23,102 (1,527) 949 22,524 (450) 22,074 Interest expense.................. (3,150) (93) (519)(8) (3,762) (18,951)(9) (22,713) Interest income................... 771 21 792 792 Other income(b)................... 11,900(10) 11,900 11,900 ---------- ------- --------- -------- ----------- -------- Income (loss) before provision (benefit) for income taxes............. 32,623 (1,599) 430 31,454 (19,401) 12,053 Provision (benefit) for income taxes............................ 12,234 (439)(11) 11,795 (7,275)(11) 4,520 ---------- ------- --------- -------- ----------- -------- Net income (loss)............. 20,389 (1,599) 869 19,659 (12,126) 7,533 ---------- ------- --------- -------- ----------- -------- Preferred stock dividends accrued.......................... 2,160(12) 2,160 ---------- ------- --------- -------- ----------- -------- Net income (loss) for common stockholders................. $ 20,389 $(1,599) $ 869 $ 19,659 $ (14,286) $ 5,373 ========== ======= ========= ======== =========== ========
- ------------ (a) Income from the sale of Farberware inventory and other operating income, net of certain selling, general and administrative expenses. (b) Non-recurring pre-tax income related to the one-time licensing of the Farberware name on cookware and bakeware. See notes to pro forma condensed consolidated statement of operations. 27 NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (in thousands) The pro forma condensed consolidated financial data have been derived by the application of pro forma adjustments to the Company's historical financial statements for the period noted. The Merger has been accounted for as a recapitalization which will have no impact on the historical basis of assets and liabilities. The pro forma financial data assumes that there are no dissenting shareholders to the Merger. (1) Includes the results of operations for the 45 day period, beginning January 1, 1996 prior to the Company's acquisition of Rauch. (2) Reflects additional depreciation expense as a result of an allocation of a portion of the Rauch purchase price to property, plant and equipment. (3) Reflects additional amortization expense as a result of amortizing, over 30 years, the $7,224 allocation of Rauch purchase price in excess of net assets acquired. (4) The pro forma adjustment to selling, general and administrative expenses reflect the annual management fee the Company will pay to the Thomas H. Lee Company. (5) Reflects an adjustment for certain acquisition related costs incurred by Rauch. (6) Reflects an adjustment for a stock option buy out by Rauch. (7) Consists of income from the sale of Farberware inventory and other operating income, net of certain selling, general and administrative expenses, relating to the sale of Farberware inventory. The Company licensed the right to manufacture, market and distribute these products to a third party. See "Business--Recent Transactions." (8) Reflects an increase in interest expense had the acquisition of Rauch taken place on January 1, 1996, using an interest rate of 8.3% per annum, which represents the Company's weighted average interest costs for the period. (9) The pro forma adjustment to interest expense reflects the following: Interest expense on the New Credit Facility (assumed 9.0% rate) $1,656 Interest expense on the Senior Notes (assumed 10.25% rate)......... 15,888 Amortization of debt issuance costs over 6-10 years................ 1,407 ------- Total adjustment............................................... $18,951 ======= A 0.125% increase or decrease in the assumed average interest rate on the Senior Notes would change the pro forma interest expense by $193. The pro forma net income (loss) would change by $126. (10) Consists of non-recurring pre-tax income of $11,900 related to the one-time licensing of the Farberware name for use on cookware and bakeware. (11) The adjustment reflects the tax effect of the pro forma adjustments at a 37.5% effective tax rate. (12) Dividends on shares of Cumulative Redeemable Preferred Stock are cumulative from the date of issue and are payable when and as may be declared from time to time by the Board of Directors of the Company. Such dividends shall accrue on a daily basis (whether or not declared) from the original date of issue at an annual rate per share equal to 12% of the original purchase price per share, with such amount to be compounded annually on each December 31 so that if the dividend is not paid from any year the unpaid amount shall be added to the original purchase price of the Cumulative Redeemable Preferred Stock for the purpose of calculating succeeding year's dividends. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See "Forward Looking Statements" The following analysis of the financial condition and results of operations of the Company is qualified in its entirety by the more detailed information and financial data, including the Condensed Consolidated Financial Statements and related notes thereto, appearing elsewhere herein. General The Company has historically expanded its product lines through acquisitions. The Company has integrated these acquisitions into its existing operations, resulting in increased sales and a broader product line. All acquisitions of businesses were accounted for under the purchase method of accounting, and, accordingly, the results of operations of each acquired company have been included in the Consolidated Statements of Earnings since its respective acquisition date. Due to the number, magnitude and timing of the Company's acquisitions, the Company's operating results, as reflected in the Consolidated Financial Statements, are not directly comparable on a year-to-year basis. See "Business--Recent Transactions." Results of Operations The following table sets forth certain financial data as a percentage of net sales of the Company for each of the periods presented.
Percentage of Net Sales ---------------------------------------- Year Ended December 31, ---------------------------------------- 1994 1995 1996 --------- --------- ------------- Net Sales............................................ 100.0% 100.0% 100.0% Cost of sales........................................ 71.0 70.7 71.6 ------- ------- -------- Gross profit........................................ 29.0 29.3 28.4 Selling, general and administrative expenses......... 21.5 20.2 21.3 Other operating income............................... 1.4(1) -------- Income from operations.............................. 7.5 9.1 8.5 Interest income (expense), net....................... (0.3) 2.7 (0.9) Other income......................................... 4.4(2) - ----------------------------------------------------- -------- Income before income taxes.......................... 7.2 11.8 12.0 Provision for income taxes........................... 1.9 4.0 4.5 ------- ------- -------- Income from continuing operations................... 5.3% 7.8% 7.5% ======= ======= ========
- ------------ (1) Includes income from the sale of Farberware inventory and other operating income, net of certain selling, general and administrative expenses relating to the sale of Farberware inventory. The Company licensed the right to manufacture, market and distribute these products to a third party. See "Business--Recent Transactions." (2) Consists of non-recurring pre-tax income related to the one-time licensing of the Farberware name for cookware and bakeware. Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Net sales increased 59.8% to $270.9 million for the year ended December 31, 1996 from $169.5 million for the year ended December 31, 1995. Excluding the impact of acquisitions of businesses and product lines completed in 1996, net sales increased 8.1%. This increase reflects primarily increased sales volume of giftware items (including seasonal items, picture frames and silver plated items) and of sterling silver flatware. The changes in product prices did not materially impact net sales. Gross profit increased 54.6% to $76.8 million for the year ended December 31, 1996 from $49.7 million for the year ended December 31, 1995. Gross profit as a percentage of sales was 28.4% for the year ended December 31, 29 1996 compared to 29.3% for the year ended December 31, 1995. The decrease in gross profit percentage was primarily a result of the acquisition of Rauch, which gross profit margin is lower than that of certain of the Company's other product lines and a $1.3 million nonrecurring compensation expense charge related to the transfer of shares to one of the executive officers. See note 11 to the Company's consolidated financial statements. Partially offsetting this decrease was the gross profit on the recently acquired high end Silvestri seasonal productline. Excluding the impact of acquisitions, the gross profit percentage was 30.3% for the year ended December 31, 1996. This increase in gross profit percentage, exclusive of acquisitions, was due to increased sterling flatware sales which have a higher profit margin than other tabletop and giftware items and also to a change in product mix in the giftware lines to higher margin items including frames and certain seasonal products. The increase in gross profit margin was not materially impacted by change in product prices. Selling, general and administrative expenses ("S,G & A expenses") increased to 21.3% as a percentage of net sales of $57.7 million for the year ended December 31, 1996 from 20.2% or $34.2 million for the year ended December 31, 1995. S,G & A expenses were $39.5 million or 21.5% as a percentage of net sales excluding S,G & A expenses incurred at Rauch, Silvestri, C.J. Vander and Potpourri. These acquired companies had $18.2 million of S,G & A expenses including the allocation of existing and continuing corporate expenses. Substantial resources were dedicated and additional expenses were incurred as a result of acquiring productlines, integrating functions (including selling and marketing, customer service and general and administrative functions) and in the case of Farberware, general and administrative costs of disposing of the productline during 1996. Allocated corporate costs incurred to sell the Farberware product line of $2.6 million are not included in the other operating income line and are included in the Company's S,G & A expenses. Also included in S,G & A expenses in 1996 was $2.6 million of nonrecurring compensation expense related to the transfer of shares to two other executive officers. See note 11 to the Company's consolidated financial statements. Income from operations increased 49.6% to $23.1 million in the year ended December 31, 1996. Included in income from operations for the year ended December 31, 1996, was $3.5 million, net of certain S,G & A expenses, from the disposal of Farberware inventory. The Company does not expect to incur any loss on the disposal of the remaining Farberware inventory at December 31, 1996 of $3.3 million. Interest expense, net was $2.4 million for the year ended December 31, 1996 compared to interest income, net of $4.6 million for the year ended December 31, 1995. This change results from a reduction in invested cash used to purchase and retire 3,064,751 shares of the Company's Common Stock, for recent acquisitions and for seasonal working capital needs. The provision for income taxes was $12.2 million for the year ended December 31, 1996 compared to $6.9 million for the year ended December 31, 1995. The effective income tax rate was 37.5% for the year ended December 31, 1996 compared to 34.3% for the year ended December 31, 1995. This increase in the effective income tax rate in 1996 is due to a higher proportion of income earned in tax jurisdictions with higher income tax rates, including but not limited to the Farberware income. Net income for the year ended December 31, 1996, all of which was income from continuing operations, was $20.4 million or $2.32 per share, on shares of 8,799,000, compared to income from continuing operations of $13.2 million, or $1.12 per share, on shares of 11,803,000, for the year ended December 31, 1995. The year ended December 31, 1996 included non-recurring pre-tax income of $11.9 million, net of costs, resulting from a license agreement. Net income for the year ended December 31, 1995 was $46.2 million or $3.91 per share. The year ended December 31, 1995 included income from discontinued operations, net of income taxes, of $2.6 million and the gain on sale of Syroco, Inc. of $30.5 million totaling $2.79 per share. Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Net sales increased by 15.1% to $169.5 million in 1995 from $147.3 million in 1994 primarily due to expanded product offerings within the giftware line, as well as increased demand for the Company's giftware products and an increase in its seasonal product category. The Company's sales increased despite a difficult retail environment in 1995. The Company's gross profit increased 16.4% to $49.7 million in 1995 from $42.7 million in 1994. The gross profit as a percentage of net sales increased to 29.3% in 1995 from 29.0% in 1994. This increase was due primarily to improved product mix in the giftware lines. 30 Selling, general and administrative expenses increased to $34.2 million in 1995 from $31.6 million in 1994 but decreased as a percentage of net sales to 20.2% in 1995 from 21.5% in 1994. The decrease of 1.3 percentage points was due to the Company's cost reduction program following the sale of Syroco. Income from operations increased 39.4% to $15.4 million in 1995 from $11.1 million in 1994 as a result of the factors discussed above. Interest income, net, was $4.6 million in 1995 compared to net interest expense of $0.5 million in 1994. Interest income was earned primarily as a result of investing the net proceeds from the sale of Syroco in short-term, investment grade securities. The provision for income taxes in 1995 was $6.9 million compared with $2.8 million in 1994. The effective income tax rate increased to 34.3% in 1995 from 26.0% in 1994. The 1995 effective income tax rate increased primarily due to an increase in the proportion of the Company's earnings in tax jurisdictions with higher tax rates, primarily interest income earned in the United States. Liquidity and Capital Resources On March 28, 1995, the Company sold its casual furniture and accessories business of Syroco, Inc. to Marley Plc for net proceeds of $133.9 million after transaction costs and income taxes. The Company has used the net proceeds from the sale of Syroco for working capital requirements to grow its existing business, to effect the Katy Stock Repurchase and to make several acquisitions in 1996. Net cash provided by operating activities for the year ended December 31, 1996 was approximately $23.8 million. The primary sources of cash were the decrease in marketable securities as a result of the repayment of temporary borrowings used to effect the Katy Stock Repurchase and income generated which includes the non- recurring pre-tax Farberware gain of $11.9 million. Partially offsetting these sources was acquisition related increases in accounts receivable and inventories. At December 31, 1996, accounts receivable increased to $60.0 million from $31.9 million at December 31, 1995. This increase is primarily the result of sales of Farberware inventory, seasonality, the recent acquisitions and increased sales volume in the tabletop and giftware product lines. The increase in inventory from $41.2 million at December 31, 1995 to $79.4 million at December 31, 1996 is due to recent acquisitions, including purchased Farberware inventory. During 1996, $23.8 million was collected from the final settlement agreement for the Rauch fire loss which occurred prior to the Company's acquisition of Rauch. The Company's working capital requirements are seasonal and tend to be highest in the period from September through December due to the Christmas selling season. Accounts receivable tend to decline during the first quarter as receivables generated during the third and fourth quarters are collected and remain lower until the next peak season beginning in September. Accordingly, the Company's debt level under its revolving credit facilities generally peaks in the third quarter and reduces during the first quarter. This seasonality has increased as a result of the acquisition of Rauch and the Silvestri product line. See "Risk Factors--Seasonality". Capital expenditures were approximately $15.1 million for the year ended December 31, 1996. These expenditures were primarily for a warehouse in South Carolina, computer software and hardware, improvements at the Company's East Boston facility, machinery, tools and dies for the Company's manufacturing facilities and for a building and equipment for C.J. Vander. The Company expects capital expenditures for the year ended December 31, 1997 to be approximately $17 million, including land and construction costs for a warehouse facility on the West Coast, the cost of certain machinery and equipment for Rauch. On December 29, 1995, the Company effected the Katy Stock Repurchase. The aggregate purchase price of $52.1 million represented approximately $17 per share. The purchase was substantially financed by the issuance of two promissory notes due January 2, 1996 to subsidiaries of Katy and the assumption of short term bank debt, all aggregating $51.7 million. The two promissory notes and the short-term bank debt were repaid on January 2, 1996. Effective October 31, 1996, the Company's Loan Agreement was amended to add Rauch, Farberware and Silvestri as borrowers and limited total borrowings, including amounts reserved for drawings on letters of credit, to $100.0 million through December 31, 1996 and thereafter to $60.0 million under the earlier of April 30, 1997 31 or the completion of refinancing contemplated with respect to the Recapitalization. As of December 31, 1996, the amount of outstanding borrowings under the Loan Agreement was $5.9 million. The revolving credit facility of one of the Company's Puerto Rican subsidiaries expired on May 30, 1996; however, the Company received a letter of commitment increasing the line from $4.0 million to $10.0 million and extending it to May 31, 1997. On October 15, 1996, the Puerto Rican subsidiary and the lender entered into an Amended and Restated Line of Credit Agreement increasing the facility to $10.0 million and renewing it to May 31, 1997. As of December 31, 1996, the amount of outstanding borrowings under the line was $0.6 million. On December 31, 1996, credit availability, net of $10.3 million of outstanding letters of credit, under the Loan Agreement and the Puerto Rican subsidiary's line totaled $83.8 million and $9.4 million, respectively. On January 1, 1997, the availability under the Loan Agreement was reduced by $40.0 million. The Company anticipates, assuming that the Recapitalization was consummated on December 31, 1996, that up to approximately $301.2 million of financing will be required in connection with the Recapitalization and related transactions for (i) the consummation of the Merger, (ii) the repayment of the existing bank debt of the Company and (iii) the payment of fees and expenses associated with the Recapitalization. The Company expects to obtain the necessary funds from (i) the Equity Investment, (ii) the issuance and sale of the Senior Notes in the Offering and (iii) borrowings under the New Credit Facility. See "The Recapitalization" and "Use of Proceeds". At the time of the execution of the amendment to the Merger Agreement, a commitment letter to provide senior credit financing was presented to the Company. The New Credit Facility will provide for $130.0 million of revolving credit borrowings. The New Credit Facility will mature on the fifth anniversary of the Recapitalization. Interest on loans under the New Credit Facility will bear interest at rates based upon federal or Eurodollar Rates plus an applicable margin. Loans under the New Credit Facility will be guaranteed by any and all current or future domestic subsidiaries of the Company and will be secured by security interests in the accounts receivable and inventory of the Company and its domestic subsidiaries. For a more complete description of the New Credit Facility, see "Risk Factors--Significant Leverage and Debt Service; Effective Subordination" and "Description of Other Indebtedness." Upon consummation of the Recapitalization, the Company would have on a pro forma basis (as of December 31, 1996) outstanding debt of approximately $162.3 million. The transaction is expected to close in the second quarter of 1997. It is intended that the transaction will be accounted for as a recapitalization. The Company anticipates that its principal use of cash following the Recapitalization will be working capital requirements, debt service requirements and capital expenditures as well as expenditures relating to acquisitions and integrating acquired businesses. Based upon current and anticipated levels of operations, the Company believes that its cash flow from operations, together with amounts available under the New Credit Facility, will be adequate to meet its anticipated requirements through December 31, 1998 for working capital, capital expenditures and interest payments. There can be no assurance, however, that the Company's business will continue to generate sufficient cash flow from operations in the future to service its debt, and the Company may be required to refinance all or a portion of its existing debt or to obtain additional financing. There can be no assurance that any such refinancing would be possible or that any additional financing could be obtained. The inability to obtain additional financing could have a material adverse effect on the Company. 32 Accounting Pronouncements Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting For Stock-Based Compensation" ("Statement 123"). The Company has continued to account for its stock-based transactions to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and will include the pro forma disclosures required by Statement 123, if material, in its annual financial statements. For stock option grants to non-employees, the Company follows the provisions of Statement 123, calculates compensation expense using a fair value based method and amortizes compensation expense over the vesting period. During the year ended December 31, 1996, the Company did not grant any options to purchase shares of common stock to non-employees. Also, effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("Statement 121"). Statement 121 requires that long-lived assets held and used by an entity be reviewed for impairment whenever circumstances indicate that the carrying amount of an asset may not be recoverable. It also requires that long-lived assets to be disposed of be reported at the lower of the carrying amount or fair value less the cost to sell. The adoption of Statement 121 did not have a material effect on the Company's financial position or results of operations for the year ended December 31, 1996. 33 BUSINESS Overview Syratech designs, manufactures, imports and markets a diverse portfolio of tabletop, giftware and seasonal products. The Company is a leading domestic manufacturer and marketer of sterling silver flatware, sterling silver and silver-plated hollowware. The Company also offers a number of other complementary tabletop and giftware items, including stainless steel flatware, brass hollowware, picture frames and photo albums, glassware, woodenware and ceramics. Tabletop and giftware products generated approximately 63.4% of net sales for the year ended December 31, 1996. The Company also is a leading domestic manufacturer and marketer of seasonal products including Christmas ornaments as well as a distributor of Christmas trim, lighting and tree skirts. Seasonal products generated approximately 36.6% of net sales for the year ended December 31, 1996. Syratech has positioned itself as a single-source supplier to retailers by offering a wide assortment of products across multiple price points through its "good-better-best" strategy. This strategy enables the Company to sell its products through a broad array of distribution channels, including retail specialty stores, department stores, mass market merchandisers, catalogue showrooms and warehouse clubs. Syratech markets its products under numerous Company-owned tradenames including the Towle Silversmiths[RegTM], Wallace International Silversmiths[RegTM]and International Silver Company[RegTM] tradenames which are used in connection with the sale of tabletop and giftware items and the Rauch[RegTM], Silvestri[RegTM] and Potpourri[RegTM] tradenames which are used in connection with the sale of Christmas and other seasonal merchandise. Syratech has made a number of recent acquisitions to broaden and complement its existing product lines. The Company has significantly enhanced the value of acquired product lines by integrating them into the Company's existing infrastructure. During 1996, the Company acquired Rauch, a leading domestic manufacturer and marketer of Christmas ornaments, and C.J. Vander, a U.K. manufacturer and marketer of prestigious sterling silver flatware and hollowware. Also in 1996, the Company acquired certain assets, including the tradenames, of Silvestri, a high-end manufacturer and marketer of Christmas ornaments, collectibles, lighting and trim as well as other giftware and decorative accessories, and Potpourri, a manufacturer and marketer of Christmas products. The Company continually introduces new products and expands the distribution of its existing products. As a result, the Company has generated significant growth in net sales and Adjusted EBITDA from $103.7 million and $11.8 million, respectively, in 1992 to $271.5 million and $29.8 million, respectively, on a pro forma basis, in 1996. For the year ended December 31, 1996, the Company had net sales of $270.9 million, an increase of 59.8% from the same period in 1995. Furthermore, the Company believes that the continued integration of the acquisitions into its existing business will position it to increase sales and profitability. Competitive Strengths The Company's goal is to become the leading domestic, single-source supplier of tabletop, giftware and seasonal products to retailers. To achieve this goal, the Company will rely on its core competitive strengths, which are as follows: Leading Market Positions. The Company is one of the leading domestic manufacturers and marketers of sterling silver flatware and sterling silver and silverplated hollowware. These products are sold under the Wallace, Towle and International Silver tradenames, which are well-recognized and date back to the American Colonial period. In addition, the Company is one of the leading domestic manufacturers of Christmas ornaments. These products are sold under the Rauch, Silvestri and Potpourri tradenames, which are well-established brands for Christmas and other seasonal merchandise. Historically, the Company has been able to increase sales by leveraging its leading market positions, strong presence with retailers and strong brand identity with consumers to introduce new products and product categories. Broad Portfolio of Products with Well-Recognized Tradenames. The Company provides a broad offering of quality products at multiple price points. These items range from exclusive prestige products, such as sterling silver flatware and hollowware, to moderately priced products, including silverplated and stainless steel flatware, silverplated and brass hollowware and other giftware and seasonal merchandise. Syratech uses Company-owned and licensed tradenames as merchandising tools to assist retailers in coordinating their product offerings and differentiating their products from those of their competitors. In addition to the Wallace, Towle, International, Rauch, Silvestri and Potpourri tradenames, the Company markets giftware 34 products under numerous other tradenames, including Rochard[RegTM], Holiday Workshop[RegTM], Melannco[RegTM] and Elements[RegTM]. The Company believes that its strongest brands draw customers into retail stores specifically to purchase products bearing those tradenames. In addition to its own tradenames, the Company produces a variety of products under license from certain entities including The Walt Disney Company[RegTM], Cuisinart[RegTM], Victoria & Albert Museum[RegTM] and Faberge, Inc.[RegTM]. The Company recently acquired certain assets, including the intellectual property, of Farberware Inc. Following this acquisition, the Company licensed the Farberware tradename to third parties for use on cookware and bakeware, small electric and certain other commercial electric items. The Company is currently marketing certain products under the Farberware tradename and believes there are significant opportunities to develop the tradename in other product categories which have not been otherwise licensed to third parties. The Company's diverse product lines allow it to target a wide range of customers and to respond more effectively to changes in retail distribution and consumer preferences. Furthermore, the vendor consolidation trend in the retail industry increases demand for vendors, like the Company, who can make timely deliveries of a broad range of quality products and provide advertising and other sales support. Diversified Distribution Channels. The Company sells its products to approximately 30,000 customers in most major distribution channels, including retail specialty stores, such as jewelry, seasonal and nonseasonal giftware and collectible stores, department stores, mass market merchandisers, catalogue showrooms, warehouse clubs, premium and incentive marketers, drug store chains and home centers. The Company believes that the recent Rauch and Silvestri acquisitions will strengthen the Company's presence with mass market merchandisers and department and specialty stores, respectively. In addition, the Company has a policy of not owning or operating Company outlet stores and believes that this policy further strengthens relationships with customers. The Company's broad customer base, both in terms of number of customers and distribution channels, reduces exposure to any single customer or distribution channel. In 1996, no single customer accounted for more than 8% of the Company's net sales. Innovative Product Development. The vast majority of the Company's products, including products that are sourced from outside vendors, are designed by the Company's design team and independent designers in conjunction with the Company's product development and marketing teams. The Company's design and product development and marketing teams collaborate (i) to introduce innovative new products and product categories, such as the Holiday Workshop line of seasonal products, the Hostess Helpers[RegTM] sterling accessory line and a dinnerware category that coordinates with sterling silver flatware and (ii) to develop acquired brands into successful product lines for the Company, such as the Melannco lines of picture frames and photo albums and the Elements glassware lines. Integrated Manufacturing and Sourcing. The Company relies both on its own domestic manufacturing capabilities and on a variety of suppliers located primarily in the Asia Pacific Rim to deliver quality products at competitive prices to its customers. The Company's decision to manufacture or to import is based largely upon expertise, quality, availability and cost. In order to ensure quality, imported products are generally manufactured using Company-owned tools and dies. In 1996, through its import organization comprised of approximately 150 employees, both in the U.S. and overseas, the Company sourced products from approximately 480 manufacturers, with whom in many cases it has had long-standing relationships. Business Strategy The Company has developed and is implementing a business strategy to build upon its core operating strengths and enhance profitability. Leverage Recent Acquisitions. The Company believes that opportunities for growth in sales and profitability exist through successfully integrating its recent acquisitions into the Company's sales and marketing organization and consolidating and rationalizing certain operations. Historically, the Company has expanded and augmented acquired product lines through leveraging internal marketing expertise and existing distribution relationships. The Company plans to expand the distribution of Rauch, Silvestri and Potpourri products by marketing them through the Company's established distribution channels and also plans to add new products to their existing lines. By integrating Rauch, Silvestri and Potpourri with the Company's internally developed Holiday Workshop lines of seasonal products, the Company has significantly expanded its product offerings in this product category, both in terms of types of product and retail price points, and strengthened its presence in major retail channels. In addition, 35 the Company believes that such strengthened presence will provide opportunities to cross-sell the Company's tabletop and giftware product lines through Rauch and Silvestri distribution channels. Through the acquisition of C.J. Vander, the Company believes that it will be able to expand the distribution of Wallace and Towle sterling silver and silverplated product lines into the European market, primarily through C.J. Vander's existing distribution channels. In addition, the Company intends to expand the distribution of C.J. Vander products in the United States through the Company's independent representatives who sell to high-end specialty and department stores. In addition, the Company believes that the recent acquisitions will enable it to achieve cost savings through (i) the consolidation of warehouses, showrooms and manufacturing facilities, (ii) efficiencies resulting from increasing sales volume through its existing distribution network and (iii) reductions in certain general and administrative expenses, such as MIS, human resources and credit analysis. For example, the Company is consolidating its distribution facilities in the Western United States by building its own warehouse to reduce costs, increase capacity and serve its customers more efficiently. Expand Distribution of Existing Product Lines. The Company believes that it has significant opportunities to expand the distribution of its existing product lines by increasing the penetration of existing retailer customers and the number of retail outlets to which it sells. Beginning in 1994, the Company implemented a program with a specialty retailer and franchisee, whereby the Company sources, markets and distributes giftware products for the customer's retail system comprised of several thousand stores. As a result, the Company has identified several growth opportunities, both in terms of expanded product offerings and additional store coverage. In addition, the Company intends to expand the distribution of several product lines introduced in the past several years, such as Melannco and Elements, which the Company believes are growth opportunities that have not yet been fully exploited. Broaden Product Offerings. The Company expects to make a number of new product introductions each year. As a result of the planned investments in tools, dies and machinery, the Company believes that it will be able to broaden significantly its offering of Christmas and other seasonal merchandise beginning in 1997. The Company intends to capitalize on the Farberware tradename by introducing new products in categories as to which exclusive rights to the tradename have not been granted to third parties. In addition, the Company continues to expand and upgrade its line of sterling silver, silverplated and other tabletop and giftware products. Invest Further in Technology and Productivity to Maintain a Low-Cost Structure. In order to support the growth of its business, during 1997 the Company plans to invest $15 million to expand its manufacturing, warehousing and distribution capabilities. In addition, the Company intends to invest in application solutions to enhance its Electronic Data Interchange (EDI) and warehousing capabilities. The Company plans to add a Warehousing Management System (WMS) to each of its warehouses. These systems will enhance the Company's ability to service its customers by improving its order processing and logistics and storage utilization, minimizing order cycle times, enhancing inventory management, and ensuring that customer orders are processed efficiently. Additionally, the Company is planning to expand its manufacturing capabilities by acquiring new tools, dies and machinery. The Company also has purchased a 828,000 square foot manufacturing and distribution facility in Chester, South Carolina which will increase production capacity and reduce costs. Make Selected Acquisitions. The Company believes that the giftware and seasonal markets and, to a lesser extent, the tabletop market are highly fragmented with a number of small manufacturers and marketers of limited products lines. The Company believes that these industry dynamics and the continuing trend among retailers to consolidate their vendor base should generate attractive opportunities to acquire complementary brands, products, product categories and businesses that will provide operating synergies. Recent Transactions Rauch On February 15, 1996, the Company, through an indirect wholly owned subsidiary, acquired the outstanding shares of Rauch for approximately $49.6 million, including costs of the transaction. The acquisition was accounted for under the purchase method of accounting, and the results of operations of Rauch have been included with the results of the Company from February 15, 1996. The purchase price in excess of net assets acquired of $7.2 million is being amortized on the straight line basis over 30 years. During the year ended December 31, 1996, the Company 36 received $23.8 million in connection with an insurance claim relating to a 1994 fire at Rauch. During the fiscal year ended December 31, 1995, net sales of Rauch were $58.9 million. Farberware Inc. On April 2, 1996, the Company, through its indirect wholly owned subsidiary, Far-B Acquisition Corp. ("Far-B"), together with Lifetime Hoan Corporation ("Lifetime"), acquired certain assets from Farberware Inc., a subsidiary of U.S. Industries, Inc. ("USI") Lifetime and the Company are not affiliates. Farberware Inc. was a manufacturer of aluminum clad, stainless steel cookware and bakeware and small electric kitchen appliances. The aggregate consideration paid by Far-B and Lifetime was approximately $45.8 million, subject to adjustment, of which Far-B paid approximately $32.6 million. The amount of the adjustment was the subject of a dispute, as noted below. The assets acquired by the Company included certain of the inventory, the tradename "Farberware" and the intellectual property (including the intellectual property that relates to cookware and bakeware and electric products other than major kitchen appliances) and certain tools and dies and machinery and equipment. Effective April 2, 1996, the Company, through Far-B, entered into a manufacturing services agreement with Farberware Inc. for transitional manufacturing services for certain finished goods previously produced by Farberware Inc. The Company entered into the manufacturing services agreement in part to provide continuity of product during a transition period in order to protect the strength of the Farberware name in the marketplace. The manufacturing services agreement has terminated. Upon disposal of acquired inventory, the Company will not manufacture or sell Farberware cookware and bakeware products or noncommercial electric products. Accordingly, net sales for the year ended December 31, 1996 exclude sales of Farberware inventory, and $3.5 million, net of certain selling, general and administrative expenses, from these sales has been recorded as other operating income. Pursuant to an agreement made with Lifetime contemporaneously with the agreement for acquisition of assets of Farberware Inc., the Company and Lifetime agreed to share the rights to receive, and the obligation to pay certain commissions in respect of, royalties under specified license agreements assigned to the Company by the prior owner of the Farberware trade name. Through a joint venture to be, but which has not yet been, formally established pursuant to the agreement with Lifetime and subject to certain intellectual property rights that the Company has reserved exclusively for itself, the Company and Lifetime expect to continue to grant licenses to third parties for use of the Farberware trade name, The Company itself also intends to market specified products from time to time under the Farberware trade name. The agreement with Lifetime provides that for a period of sixty days following a change of control of either Syratech or Lifetime, the other co-owner of the joint venture will have the right to require the co-owner that has experienced the change in control to set a price for a one-half interest in the venture, and thereupon the other co-owner (i.e., the one that has not experienced a change of control) can elect either to buy its co-owner's interest at the price so set or to sell its own interest at such price to the co-owner that set it. On June 27, 1996, the Company's Farberware Inc. subsidiary (formerly Far-B) ("Farberware") entered into a license agreement with Meyer Marketing Co. Ltd. ("Meyer") pursuant to which Meyer was granted for a term of 200 years (i) an exclusive worldwide license to use the Farberware name and certain related intellectual property rights in connection with the sourcing, manufacture and distribution of cookware and bakeware products for home use and commercial, industrial and institutional size pots, pans and roasters, and (ii) non-exclusive (shared) rights to use certain Farberware technology and other intellectual property. For such grant, Meyer made a one-time payment to the Company of $25.5 million, which resulted in recognition by the Company of $11.9 million of non-recurring income. On July 12, 1996, Farberware granted to a major retail chain the exclusive license to use the Farberware name and related intellectual property in connection with the sourcing, manufacture, marketing and sale of certain electric products for annual royalty payments. On October 25, 1996 Farberware Inc. granted to FCI Corp. a license to use the Farberware name in connection with the sourcing, manufacturing, marketing and sale of certain Commercial Products (defined as six specified commercial urns and one specified commercial convection oven plus cookware, bakeware and electric products developed by the Licensee solely and exclusively for commercial, industrial or institutional use with the prior written approval of Farberware) for the payment of annual royalties. On February 3, 1997 the Company, Farberware, and Lifetime reached an agreement (the "Settlement Agreement"), with USI and Bruckner Manufacturing Corp. (formerly Farberware Inc., the USI subsidiary)("BMC") to settle all previous outstanding legal disputes arising out of the Farberware asset purchase agreement and the 37 manufacturing services agreement. The Settlement Agreement provides for no change to the aggregate consideration paid for the acquired assets, and eliminates certain restrictions on the disposition of acquired tools, machinery and equipment. The Company expects to recognize a gain of approximately $2.5 million before taxes in 1997 on the disposition and sale of certain of the tools and equipment. Under the terms of the Settlement Agreement, Farberware will receive certain finished goods inventory at no cost which the Company estimates has a net realizable value of approximately $1.2 million, and agreed to pay for certain finished goods inventories purchased under the manufacturing services agreement. The Settlement Agreement also resolved outstanding claims and disputes related to purchase price adjustments, trade accounts receivable, advertising commitments, and the administration of consumer warranties. Silvestri On April 16, 1996, the Company purchased finished goods inventory and intangible assets of the Silvestri division of FFSC, Inc. for approximately $8.6 million. Prior to the Company's purchase of such assets, FFSC, Inc., its subsidiaries and affiliated companies had filed for protection under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas (the "Bankruptcy Court"). The Bankruptcy Court approved this acquisition by the Company. Silvestri products include Christmas ornaments, collectibles, lighting and trim as well as other seasonal and nonseasonal giftware and decorative accessories. The Company has given a guaranty (limited to $4 million), dated as of May 21, 1996, of the obligations of FF Holding Company, FFSC, Inc. and certain related entities to The CIT Group/Business Credit, Inc. under a certain debtor in possession financing agreement dated May 21, 1996 and, at the request of the Company, NationsBank N.A. (South) has issued its letter of credit, dated May 21, 1996 in the amount of $4 million to CIT Group/Business Credit, Inc. to secure the Company's aforesaid guaranty. Certain funds which are affiliates of the Thomas H. Lee Company are creditors of FFSC, Inc. C.J. Vander On May 8, 1996, the Company, through one of its subsidiaries, acquired all of the outstanding common stock of C.J. Vander, a manufacturer of sterling silver and silverplated flatware and hollowware in Sheffield and London, England. The purchase price was immaterial to the Company's consolidated financial statements. The acquisition was accounted for under the purchase method of accounting. Potpourri On November 26, 1996, a wholly-owned subsidiary of the Company acquired inventory, tangible property, intellectual property rights, certain key records (including customer lists, customer files, supplier information, catalogs) and certain contract rights (selected by the Company's subsidiary) of Potpourri Press, a North Carolina- based manufacturer and marketer of Christmas products for a purchase price of approximately $2.3 million plus a $0.2 million promissory note. Syroco, Inc. On April 11, 1995, pursuant to an agreement entered into on March 28, 1995, the Company, through its subsidiary, Syratech Holding Corporation, sold Syroco. The net proceeds received after costs of the sale and income taxes were $133.9 million. On September 25, 1995, the Company reached a final settlement regarding the sale of Syroco. Under the terms of the settlement, the Company reacquired certain assets and reassumed certain liabilities of Syroco which have been recorded at their estimated net fair value amounting to $1.8 million at December 31, 1995. The Company does not expect that the liquidation of the assets will have a material effect on the previously recognized gain on disposal. The sale resulted in the discontinuation of the Company's casual furniture and accessories business and resulted in an after tax gain on disposal of $30.5 million which was recognized in the second quarter of 1995. The assets and liabilities relating to the discontinued business are included in the caption, net assets of discontinued operations, in the Consolidated Balance Sheets at December 31, 1995. The results of operations for the discontinued segment are included in discontinued operations in the Consolidated Income Statements for the years ended December 31, 1994 and 1995 and Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996. Products The Company designs, manufactures, imports and markets a diverse offering of quality tabletop, giftware and seasonal products. The Company defines seasonal products as Christmas tree ornaments, other Christmas 38 decorations and a variety of other products sold for Halloween, Easter, Thanksgiving, Mothers Day and Valentines Day. Seasonal products are marketed under a variety of the Company's tradenames. Seasonal products are included in the Tabletop and Giftware product category and are marketed under the Wallace, Towle, and International Silver tradenames. For example, the Company considers picture frames a tabletop and giftware item and also considers it seasonal simply by changing the packaging slightly (e.g., a red colored box at Christmas time). Therefore, a number of the Company's products and/or product lines cannot be categorized between Tabletop and Giftware and Seasonal. The majority of the Company's products are sold through the same distribution channels. Customers in each distribution channel purchase a wide range of the Company's products. Distribution costs are not tracked by product category and therefore are not distinguishable between Tabletop and Giftware and Seasonal. In addition, selling and marketing costs, including product design, trade shows and travel, are not tracked separately and are not reasonably allocable by product category. A significant portion of the Company's products are also sourced overseas. This function is also not performed by product or product line and is therefore not reasonably allocable by product category. The Company also believes that a significant change in sales of specific products will not materially impact operating results. The following table presents a breakdown of the Company's net sales by major product categories for the periods presented. For the purpose of this table, seasonal products include the Rauch (including Rochard), Silvestri and Holiday Workshop product lines. Certain seasonal products marketed under Wallace, Towle and International Silver trademarks are included in the tabletop and giftware product category. Year Ended December 31, ----------------------------------------- 1994 1995 1996 ----------- ----------- ---------- (in thousands) Tabletop and Giftware......... $139,510 $153,170 $171,824 Seasonal...................... 7,781 16,350 99,107 --------- --------- --------- Total......................... $147,291 $169,520 $270,931 ========= ========= ========= - ------------ The Company's products include those shown in the table below, all of which are marketed under one of the Company's many well-recognized tradenames as shown in the table:
Product Category Representative Products Principal Tradenames - ------------------- ----------------------------------------- ------------------------------------------------ TABLETOP Sterling Silver Flatware and Wallace Silversmiths[RegTM], Towle AND Hollowware, Silverplated Flatware Silversmiths[RegTM], International Silver GIFTWARE and Hollowware, Stainless Steel Company[RegTM], Farberware[RegTM], C.J. Flatware, Picture Frames and Photo Vander, Ltd.[TM], Roberts and Belk, Albums, Porcelain Boxes, Ltd.[TM], Tuttle Sterling[RegTM], Rochard[TM], Candlesticks, Cosmetic Accessories, Melannco[RegTM], 1847 Rogers Bros.[RegTM], Glassware, Woodenware, Ceramics, Elements[RegTM] Brassware SEASONAL Waterglobes, Figurines, Collectibles, Rauch Industries[RegTM], Silvestri[RegTM], Christmas Ornaments, Christmas Holiday Workshop[RegTM], Potpourri[RegTM], Stockings, Tree Skirts, Trim, Lighting International Christmas[TM], Holiday Products[TM], Rochard[TM]
Tabletop and Giftware Sterling Silver and Silverplated Flatware and Hollowware. The Company designs, markets and distributes a variety of products in these categories, including flatware, serving pieces, cosmetic accessories and hollowware, such as candlesticks, casseroles and coffee and tea services, that are marketed under the tradenames Wallace Silversmiths[RegTM], Towle Silversmiths[RegTM], International Silver Company[RegTM], C.J. Vander[TM] and Tuttle Sterling[RegTM]. A vast 39 majority of the Company's products in this category are manufactured at the Company's plants in Puerto Rico and Massachusetts. These products are sold primarily to specialty stores, including jewelry stores and gift stores, and department stores and are generally included in bridal registries. Stainless Steel Flatware. The Company designs, markets and distributes several lines of stainless steel flatware ranging from premium mass-produced sets to high-end flatware place settings. The Company markets these products under tradenames such as Wallace Silversmiths[RegTM], Towle Silversmiths[RegTM], International Silver Company[RegTM], 1847 Rogers Bros.[RegTM] and, under a license agreement, the tradename Cuisinart[RegTM]. The Company's products in this category are imported from the Company's third-party vendors located primarily in the Asia Pacific Rim. The primary channels of distribution include department stores, mass market merchandisers, warehouse clubs and specialty stores and are also included in bridal registries. Picture Frames and Photo Albums. The Company designs, markets and distributes several product lines of picture frames and photo albums. The picture frames range from sterling silver on the high end to a variety of other frames produced in wood, resin, ceramic, metal and other mediums. The photo albums are produced in metal, fabric and resin. The Company markets these products under tradenames such as Melannco International[RegTM], International Silver Company[RegTM], Wallace Silversmiths[RegTM] and Towle Silversmiths[RegTM] and under license from The Walt Disney Company[RegTM]. The Company's products in this category are imported from the Company's third-party vendors located primarily in the Asia Pacific Rim. The channels of distribution include department stores, including stationery departments, specialty stores and mass market merchandisers. Glassware, Woodenware and Ceramics. The Company designs, markets and distributes several lines of glassware products, including beverageware, glass dinnerware and salad sets. The Company markets these products under the tradenames International Silver Company[RegTM] and Elements[RegTM]. The Company intends to market a woodenware and ceramics line in 1997 under the Farberware[RegTM] tradename. The Company's products in this category are imported from the Company's third-party vendors located primarily in the Asia Pacific Rim. The channels of distribution of the Company's glassware line include mass market merchandisers, warehouse clubs and specialty stores. Porcelain Boxes. The Company designs, markets and distributes a diverse range of high-end, hand-painted porcelain boxes under the Rochard [TM] tradename which are primarily manufactured by third-party vendors located primarily in France. The channels of distribution include specialty stores, including jewelry stores and department stores. Other Tabletop and Giftware. The Company designs, markets and distributes a wide range of other tabletop and giftware products, including premium products such as picture frames and cosmetic accessories as "gift with purchase" items, brassware, napkin rings and decorative clocks. The primary channels of distribution include department stores, mass market merchandisers, warehouse clubs and specialty stores. Seasonal Products Christmas Ornaments. The Company designs, markets and distributes Christmas tree ornaments made of glass, satin, ceramic and resin. The Company's products are distributed through specialty stores, department stores, jewelry stores, mass market merchandisers and warehouse clubs. These products are marketed under the tradenames Rauch[RegTM], Silvestri[RegTM], Holiday Workshop[RegTM] and International Christmas[TM]. The Company also manufactures limited edition, sterling silver Christmas ornaments that are marketed under the tradenames Wallace Silversmiths[RegTM] and Towle Silversmiths[RegTM]. Other Christmas Decorations. The Company designs, markets and distributes a diverse product offering of other Christmas decorations including figurines, waterglobes, collectibles, trim, lighting, tree skirts and other decorative items produced in wood, resin, metal, paper, textiles, glass and ceramic. These products are marketed under the tradenames Silvestri[RegTM], Rauch[RegTM], Holiday Workshop[RegTM], International Christmas[TM] and Elements[RegTM]. These products are distributed through specialty stores, department stores, mass market merchandisers and warehouse clubs. Other Seasonal Products. The Company designs, markets and distributes a variety of other seasonal products for Halloween, Easter, Thanksgiving, Mothers Day and Valentines Day. These products include figurines, vases, bowls, trays and other items comprised of metal, resin, wood, ceramic and glass. These products are distributed through specialty stores, department stores, mass market merchandisers and warehouse clubs. 40 Sales, Marketing and Distribution On January 17, 1997, the Company, through one of its indirect wholly-owned subsidiaries, acquired approximately 42 acres of land in Mira Loma, California. The Company intends to construct a warehouse and distribution center on the property to serve as its western region warehouse and distribution center. The Company sells many different types of products, with a variety of price points and target customers. Accordingly, the Company sells its products through a variety of distribution channels including department and speciality stores, mass market merchandisers, warehouse clubs, catalogue showrooms, premium and incentive marketers, drug store chains, supermarkets, and jewelry stores. The Company maintains separate sales forces for its product lines so as to provide the specialized expertise and attention necessary to service its customer base. The Company's sales and marketing staff coordinates with individual retailers to devise marketing strategies and merchandising concepts and to furnish advice on advertising and product promotion. The Company has developed several promotional programs for use in the ordinary course of business to promote sales throughout the year. The Company's various sales and marketing efforts are supported from its principal office and showroom in East Boston, Massachusetts and, for certain of its products, from its offices and showrooms in Hong Kong and London. The Company maintains additional showrooms in New York, Los Angeles, Atlanta, Dallas and Chicago. The Company's sales and marketing staff at December 31, 1996, consisted of approximately 150 employees who are salaried, paid commissions based on sales or, in some instances, paid a base salary plus commissions. The Company also distributes certain of its products through independent sales representatives who work on a commission basis only. Retailing Customers During 1996, 20 customers accounted for approximately 43% of the Company's net sales. No one customer represented more than 8% of the Company's net sales.
Channels of Distribution % of 1996 Net Sales - ------------------------------------------------------------------------ -------------------- Mass Market Merchandisers, Catalogue Showrooms, Warehouse Clubs, Drug Store Chains, Supermarkets........................................ 39% Department Stores...................................................... 19% Specialty Stores, Jewelry Stores, Premium and Incentive Marketers...... 42%
In order better to service its customers, the Company has invested in equipment and software to allow its customers to transmit their orders electronically throughout the EDI system. Manufacturing and Raw Materials The Company produces its sterling silver flatware at its manufacturing facility in San German, Puerto Rico, where it fabricates and manufactures sterling silver into finished products for the Wallace, International, Towle and Tuttle lines, and in Sheffield, England for C.J. Vander, Ltd. and Roberts and Belk. The Company also designs, produces and maintains the tools required for manufacturing sterling silver flatware. The Company has maintained, in the aggregate, approximately six months of inventory. The Company's silver fabrication operation in its Puerto Rico manufacturing plant became fully operational during 1994. This process reduces the need for purchasing fabricated silver from outside vendors. The Company uses substantial quantities of fabricated silver in its manufacturing operations. Fabricated sterling silver made from fine silver purchased by the Company may be readily obtainable from outside resources as well. The Company purchases fine silver in the spot market in quantities the Company believes are adequate to meet reasonably foreseeable consumer demand for its silver products. The Company does not engage in speculative purchases of fine silver. In the five-year period ended December 31, 1996, the closing price of silver as quoted by Handy & Harman Inc. has ranged from $3.54 per troy ounce to $6.01 per troy ounce ($5.23 at February 21, 1997). The Company manufactures silverplated giftware and tabletop products, including hollowware, at its manufacturing and silverplating facilities in North Dighton, Massachusetts and Sheffield, England. These facilities have all the stamping, processing, soldering, finishing, polishing, silverplating and packaging capabilities necessary to turn unfinished metal into finished products. 41 The Company's imported products originate as designs created by its internal design staff or by independent designers, in each case in conjunction with the Company's product development and marketing staffs. Products based on these designs are manufactured to the Company's specifications in various countries including Hong Kong, India, Korea, Taiwan, China, Japan, Indonesia, Malaysia and certain European countries. In 1996, the Company purchased an aggregate of approximately $104 million of products from approximately 480 foreign manufacturers. No vendor accounted for ten percent or more of such purchases in 1996. The Company does not have information on the financial condition of its major foreign vendors, all of which are privately held, but is not aware of any unfavorable information related to their respective financial condition. Of the Company's foreign purchases in 1996, approximately 92% were from vendors located in the Far East and approximately 4% were from vendors located in India and approximately 4% in the aggregate from vendors in other locations. The Company does not believe that the loss of any single foreign supplier would have a material long-term adverse impact on the Company's source of supply, because other manufacturers with whom the Company does business would be able to increase production to fulfill the Company's requirements. See "Risk Factors--Foreign Sources of Supply." The Company intends to invest in increasing production capacity and improving productivity related to its Rauch operations. For several of the prior selling seasons, the Company believes that Rauch had operated under capacity constraints. The Company has developed and is in the process of installing new automatic machinery with a production capacity exceeding 150% of the capacity of its current machines. The Company expects that the new machinery will start operating during the first quarter of 1997. The Company also purchased an 828,000 (approximately) square foot building in Chester, South Carolina, which is in close proximity to the existing Rauch manufacturing plant. This new facility will provide adequate space for the new machinery and allow for automated material handling which is expected to reduce costs substantially. This large warehouse and distribution center will also provide the Company an opportunity to consolidate its outside warehouse and manufacturing. The Company continuously looks for new equipment intended to reduce production costs. The recently acquired Rauch Christmas decoration manufacturing process uses three basic raw materials: (i) expandable polystyrene ("EPS") for unbreakable ornaments, (ii) glass ornament blanks and (iii) acetate or polyester yarn materials including boxes and packaging. To produce Christmas stockings, tree skirts and Santa Claus hats and suits, Rauch purchases non-woven and knitted pile fabric. Rauch has not experienced difficulty in obtaining raw materials or other supplies from its suppliers and does not anticipate any such difficulty in the foreseeable future. Rauch imports ornament hangers, small glass and satin balls and assorted tree and off-the-tree decorations from Taiwan, Hong Kong, Mexico and Colombia. See "Risk Factors--Foreign Sources of Supply." Competition The tabletop, giftware and seasonal products industries in which the Company is engaged are highly competitive. Competition is affected not only by the large number of domestic manufacturers, but also by the large volume of foreign imports. Several of the Company's competitors are larger and have greater financial resources than the Company. The Company's products compete indirectly with a broad range of household products not offered by the Company. Within the overall tabletop products industry, the production of sterling silver flatware in the United States is relatively concentrated, with five manufacturers, including the Company, accounting for substantially all of the sterling silver flatware manufactured and sold in the United States. The other principal manufacturers and marketers of sterling silver flatware are Gorham, Inc. and its affiliate The Kirk Steiff Company, Reed & Barton Corp. and Lunt Silversmiths, all of which have been in business for many years. The giftware and seasonal products industries, however, are very fragmented with numerous small manufacturers and marketers of a limited number of products. The Company is not aware of any competitor having the same product line breadth. A number of factors affect competition in the sale of products of the type manufactured, imported and sold by the Company. Among these are brand identification, style, design, packaging, price, quality, promotion, sales staff and the level of service provided to customers. The importance of these competitive factors varies from customer to customer and from product to product and no one of these factors is dominant in all cases. The Company believes that its ability to compete effectively can be attributed to its performance in all of these areas. Certain of the Company's foreign competitors have tried to gain market share in the United States by producing low-cost items and by taking advantage of the increased purchasing power of the dollar in times when the dollar is relatively strong as compared to foreign countries. Rising labor costs in many foreign countries and the relative weakness of the 42 dollar, as compared to the exchange rates prevailing in the mid-1980's, have reduced these advantages to some extent in recent years. See "Risk Factors--Competition". Trademarks, Copyrights and Patents The success of the Company's various businesses depends in part on the Company's ability to exploit certain proprietary designs, trademarks and brand names on an exclusive basis in reliance upon the protections afforded by applicable copyright, patent and trademark laws and regulations. The loss of certain of the Company's rights to such designs, trademarks and brand names or the inability of the Company effectively to protect or enforce such rights could adversely affect the Company. See "Risk Factors--Trademarks, Copyrights and Patents." Seasonality Sales are generally higher in the third and fourth quarters and are strongly influenced by the buying patterns associated with the Christmas season. The acquisitions of Rauch and Silvestri will intensify the seasonality of the Company since the majority of Rauch and Silvestri products are Christmas items and sales of these products are strongest in the third and fourth quarters. The Company continues to introduce products appropriate to other holidays and seasons in order to increase sales during the first and second quarters. See "Risk Factors--Seasonality." Backlog and Warranty The Company's backlog consists of cancelable orders and is dependent upon trends in consumer demand throughout the year. Customer order patterns vary from year to year, largely because of annual differences in consumer acceptance of product lines, product availability, marketing strategies, inventory levels of retailers and differences in overall economic and weather conditions. Orders for the Company's products are generally subject to cancellation until shipment. As a result, comparison of backlog as of any date in a given year with backlog at the same date in a prior year are not necessarily indicative of sales trends. The Company had (exclusive of Farberware) a backlog of approximately $24.3 million as of December 31, 1996, compared to approximately $24.0 million as of December 31, 1995. See "Seasonality." The Company does not believe that backlog is necessarily indicative of the Company's future results of operations or prospects. The Company's warranty policy is to accept returns of products with defects in materials or workmanship. The Company will also accept returns of incorrectly shipped goods where the Company has been notified on a timely basis and, in certain cases, to maintain customer goodwill. In accordance with normal retail industry practice, the Company ordinarily accepts returns only from its customers and does not ordinarily accept returns directly from consumers. Certain of the products returned to the Company by its customers, however, may have been returned to those customers by consumers. The Company will routinely accept returns for imported products that are received late by the customer. The majority of the returned products are resold into the same distribution channel. During the three year period ended December 31, 1996, returns and allowances amounted to approximately 2.1% of sales. Incident to its acquisition of certain assets of Farberware Inc. (now known as Bruckner Manufacturing Company), the Company agreed to assume all obligations and liabilities with respect to warranties for replacement or repair of products manufactured by Farberware under the latter's printed warranty forms and certain other product warranties. The Company is entitled, subject to certain conditions, to be indemnified by Bruckner Manufacturing Company and its parent for the expenses incurred incident to such warranties. Environmental Regulation The Company's manufacturing operations including, silverplating, chrome plating, tool making and painting, routinely involve the handling of waste materials that are classified as hazardous. The Company is subject to certain domestic federal, state and local laws and regulations concerning the handling, containment and disposal of hazardous substances and, therefore, in the ordinary course of its business, the Company incurs compliance costs and may be required to incur clean-up costs. In addition, the Company's C.J. Vander facility is subject to many environmental regulations related to its manufacturing operations in the United Kingdom. Actions by federal, state and local governments concerning environmental matters could result in laws or regulations that could increase the cost of producing the products manufactured by the Company or otherwise adversely affect the demand for its products. In addition, the future costs of compliance with environmental laws and regulations and liabilities resulting from currently unknown circumstances or developments could be substantial and could have a material 43 adverse effect on the Company. For example, certain laws and regulations could impose liability upon the Company for any historic releases of hazardous substances from facilities that it has owned or operated, or, from facilities to which its waste materials have been transported for treatment or disposal. Properties The following table sets forth information with respect to the Company's properties as of January 31, 1997:
Approximate Square Footage or Location Type of Facility Acreage Status - ---------------------------- ----------------------------------- -------------- -------- Chester, SC(1)............. Warehouse/Manufacturing/Showroom 828,000 Owned Revere, MA................. Warehouse/Distribution 580,000 Owned Gastonia, NC............... Manufacturing/Distribution 425,000 Owned East Boston, MA............ Office/Showroom 292,000 Owned El Paso, TX................ Warehouse 125,000 Owned Sheffield, England......... Manufacturing/Warehouse/Foundry 39,920 Owned Mira Loma, CA.............. Land 42 Acres Owned Cramerton, NC.............. Land 34.1 Acres Owned Ontario, CA................ Warehouse/Distribution 285,000 Leased Dallas, TX*................ Warehouse 189,100 Leased North Dighton, MA.......... Manufacturing/Warehouse/Office 134,042 Leased Crisfield, MD.............. Manufacturing/Warehouse 71,754 Leased San German, PR............. Manufacturing/Office 70,296 Leased China...................... Warehouse 56,512 Leased New York, NY............... Showroom 45,361 Leased Hong Kong.................. Office/Warehouse/Showroom 42,009 Leased Atlanta, GA................ Showrooms 15,050 Leased Los Angeles, CA............ Showroom 10,095 Leased Dallas, TX................. Showrooms 9,716 Leased Chicago, IL................ Showroom 7,452 Leased Taiwan..................... Office 6,253 Leased Philippines................ Office 4,380 Leased London, England............ Office/Showrooms/Retail Store 4,000 Leased New York, NY............... Warehouse 3,800 Leased Wallingford, CT............ Office 2,800 Leased Dallas, TX*................ Office Leased
- ------------ * Includes Silvestri space, the leasing of which has not yet been approved by the Bankruptcy Court. (1) Scheduled to be operational by March 31, 1997. Employees As of December 31, 1996, the Company had approximately 1,925 employees. The Company believes that its relationship with its employees is good. The Company's employees are not represented by labor unions; however, Rauch, which merged with the Company on February 15, 1996, was a subject of efforts by UNITE (the "Union") in the fall of 1995 to organize Rauch's employees. A scheduled Union election was postponed because the Union filed unfair labor practice charges against Rauch with the National Labor Relations Board (the "NLRB"). These charges, which related to allegations of threats and promises by Rauch officials and the termination of certain employees, were settled pursuant to an agreement between Rauch and the Union. On May 2, 1996, the NLRB approved the agreement and the Union's request that the petition for an election be withdrawn with prejudice. On March 31, 1994 an Administrative Law Judge ("ALJ") designated by the National Labor Relations Board ("NLRB") determined that the Company's subsidiaries Wallace International de P.R., Inc. and International Silver 44 de P.R., Inc. (the "P.R. Subsidiaries") had engaged in unfair labor practices incident to a union election (won by the P.R. Subsidiaries) held in February, 1993 and ordered the P.R. Subsidiaries to refrain from certain conduct and to take certain affirmative action. The ALJ's decision was affirmed by the NLRB on September 22, 1994. Incident to a second union election (also won by the P.R. Subsidiaries) held on June 22, 1994 pursuant to stipulation, the P.R. Subsidiaries were again charged with unfair labor practices. The ALJ again found that the P.R. Subsidiaries had engaged in unfair labor practices. The Company has appealed to the NLRB, and the appeal is pending. Legal Proceedings The Company has been named as a defendant in several legal actions arising from its normal business activities, including routine copyright and trademark litigation, which actions are considered normal in the businesses in which the Company is engaged. The Company carries insurance against liability for certain types of risks. Although the amount of liability that could result from any litigation cannot be accurately predicted, in the opinion of management, the Company's potential liability on all known claims would not have a material adverse effect on the results of operations or financial condition of the Company. 45 MANAGEMENT Directors and Executive Officers The following table provides information concerning the directors and executive officers of the Company following the Recapitalization. All directors will hold office until the next annual meeting of stockholders of the Company and until their successors have been duly elected and qualified. All officers will serve at the discretion of the Board of Directors. Name Age Positions with the Company - --------------------------- ------ -------------------------------------- Leonard Florence.......... 65 Chairman of the Board, President, Chief Executive Office and Director E. Merle Randolph......... 64 Vice President, Treasurer, Chief Financial Officer and Director Melvin L. Levine.......... 65 Vice President of Purchasing and Director Alan R. Kanter............ 44 Vice President of Sales and Director Faye A. Florence.......... 40 Vice President, General Counsel and Secretary David V. Harkins.......... 55 Director Thomas M. Hagerty......... 33 Director Scott A. Schoen........... 38 Director Kent R. Weldon............ 29 Director Seth W. Lawry............. 32 Director Leonard Florence is the Chairman of the Board, Chief Executive Officer and President of the Company. He has served in the capacity of Chairman of the Board and Chief Executive Officer continuously since September 1986. He has also been President and a director of certain of its subsidiaries since their respective dates of organization. Mr. Florence previously served as President of the Company from 1986 to 1994 and resumed the position in 1995. Mr. Florence has been an executive in the tabletop and giftware products industry for more than 35 years. E. Merle Randolph has been Vice President, Chief Financial Officer and Treasurer of the Company since September 1986. He became a director of the Company in May 1989. Mr. Randolph is also an officer of certain of the Company's subsidiaries. For 17 years prior to joining the Company, Mr. Randolph was employed in various financial positions by Rockwell International Corporation. Melvin L. Levine has been Vice President of the Company and certain of its subsidiaries since September 1986. Mr. Levine has been an executive in the tabletop and giftware products industry for more than 35 years. He became a director of the Company in May 1989. Mr. Levine is also an officer and director of certain of the Company's subsidiaries. Alan R. Kanter, who will become a director of the Company following the Merger, has been a Vice President of the Company and a subsidiary of the Company since September 1986. Mr. Kanter has been employed in the tabletop and giftware products industry for more than 20 years. Faye A. Florence, an attorney, has been Vice President and General Counsel of the Company since June 1987 and Secretary since August 1987. Ms. Florence is also an officer of certain of the Company's subsidiaries. Ms. Florence is the daughter of Leonard Florence. David V. Harkins will become a director of the Company following the Merger. Mr. Harkins is Senior Managing Director of Thomas H. Lee Company and joined Thomas H. Lee Company in 1986. Mr. Harkins is the President and a Trustee of THL Equity Trust III, the General Partner of THL Equity Advisers III Limited Partnership, which is the General Partner of Thomas H. Lee Equity Fund III, L.P. and is the Chairman of National Dentex Corporation since 1983. Mr. Harkins is a director of Stanley Furniture Company, Inc., National Dentex Corporation, HomeSide, Inc., Freedom Securities, Inc. and First Alert, Inc. 46 Thomas M. Hagerty will become a director of the Company following the Merger. Mr. Hagerty is the Treasurer and a director of THL I. Mr. Hagerty is a Managing Director of the Thomas H. Lee Company since 1993 and he joined Thomas H. Lee Company in 1988. Mr. Hagerty is a Vice President and Trustee of THL Equity Trust III, the General Partner of THL Equity Advisers III Limited Partnership, which is the General Partner of Thomas H. Lee Equity Fund III, L.P. Mr. Hagerty is a director of Select Beverages, Inc., Freedom Securities, Inc. and HomeSide, Inc. Scott A. Schoen will become a director of the Company following the Merger. Mr. Schoen is the President and a director of THL I. Mr Schoen is a Managing Director of the Thomas H. Lee Company since 1991 and he joined Thomas H. Lee Company in 1986. Mr. Schoen is a Vice President and Trustee of THL Equity Trust III, the General Partner of THL Equity Advisers III Limited Partnership, which is the General Partner of Thomas H. Lee Equity Fund III, L.P. Mr. Schoen is a director of First Alert, Inc., Rayovac Corporation, Anchor Advanced Products, Inc., Alliance International Group, Inc., Health o meter Products, Inc. and LaSalle Re Holdings Ltd. Kent R. Weldon will become a director of the Company following the Merger. Mr. Weldon is the Secretary and a director of THL I. Mr. Weldon is an Associate of Thomas H. Lee Company since 1995; he worked at Thomas H. Lee Company from 1991 to 1993 and rejoined in 1995. Mr. Weldon is a Vice President of THL Equity Trust III, the General Partner of THL Equity Advisers III Limited Partnership, which is the General Partner of Thomas H. Lee Equity III, L.P. From 1989 to 1991, Mr. Weldon worked in the Mergers & Acquisitions Department of Morgan Stanley & Co. Incorporated. From 1993 to 1995, Mr. Weldon attended the Harvard Graduate School of Business Administration. Seth W. Lawry will become a director of the Company following the Merger. Mr. Lawry is a Vice President of Thomas H. Lee Company since 1995; he worked at Thomas H. Lee Company from 1989 to 1990 and rejoined in 1994. Mr. Lawry is a Vice President of THL Equity Trust III, the General Partner of THL Equity Advisers III Limited Partnership, which is the General Partner of Thomas H. Lee Equity III, L.P. From 1990 to 1992, Mr. Lawry attended Stanford Graduate School of Business. From 1992 to 1994, Mr. Lawry worked in the Mergers & Acquisitions Department of Morgan Stanley & Co. Incorporated. Mr. Lawry is a director of Freedom Securities, Inc. Committees of the Board of Directors It is expected that the Board of Directors will establish an Audit Committee and a Compensation Committee to replace those committees as now constituted. The membership of the reconstituted committees has not yet been determined. The Compensation Committee will make recommendations concerning the salaries and incentive compensation of employees of and consultants to Syratech, and will oversee and administer the Company's stock option plans. The Audit Committee will be responsible for reviewing the results and scope of audits and other services provided by Syratech's independent auditors. Employment Agreements Effective August 16, 1991, the Company entered into an employment agreement with Leonard Florence (the "Florence Employment Agreement") providing for the employment of Mr. Florence as Chief Executive Officer of the Company at an annual base salary, payable in semi-monthly installments, of not less than $0.35 million as well as for certain other benefits and the reimbursement of expenses. Unless otherwise terminated by the Company as provided in the Florence Employment Agreement, Mr. Florence's term of full-time employment will continue until the earlier of (i) the fifth anniversary of receipt of a notice of termination given by either party to the other or (ii) the first anniversary of receipt of a notice of termination given by Mr. Florence to the Company. The Company may, at its discretion, but without any obligation, increase Mr. Florence's base salary during the term of full-time employment. Once the base salary shall have been increased, it shall not thereafter be decreased without his written consent. Mr. Florence's current base salary is $0.7 million per annum. The Florence Employment Agreement obligates Mr. Florence to provide certain advisory services to the Company during the five-year period following the term of Mr. Florence's full-time employment (the "Advisory Period") and provides for Mr. Florence to receive annual compensation during the Advisory Period in an amount equal to not less than 25% of his base salary during the final year of his full-time employment. During the period of his full-time employment and the Advisory Period, Mr. Florence is prohibited from engaging in any business that is competitive with any line of business in which the Company is engaged that contributes three percent or more of the gross revenues of the Company. The Florence Employment Agreement also provides for payment to Mr. Florence of a retirement benefit. 47 The Company entered into a similar employment agreement, also effective as of August 16, 1991, with Melvin L. Levine, Vice President of Purchasing of the Company, except in Mr. Levine's case the base salary was $0.225 million for the year ended December 31, 1992. Mr. Levine's current base salary is $0.350 million per annum. As of May 1995 and July 1995, the employment agreements with Messrs. Levine and Florence were amended with respect to the computation and payment of retirement benefits to each and, in the case of Mr. Florence, to provide for payment of a survivor's benefit to his surviving spouse. Specifically, the amendments provided for annual retirement benefit payments in amounts equal to 2% of their respective average total compensation (i.e., base salary and bonus compensation) in the three years preceding attainment by the relevant executive of age sixty-five or termination of such executive's full time employment, whichever occurs later, multiplied by the number of years of such executive's employment by the Company. The Employment Agreements with Messrs. Florence and Levine, as amended, provide for retirement benefit payments determined and payable in accordance with the agreements. The following table shows the estimated annual benefits payable to Messrs. Florence and Levine upon retirement based upon various compensation levels and years of service. Pension Plan Table Years of Service --------------------------------- Renumeration 5 10 15 - --------------- --------- --------- --------- 400,000 40,000 80,000 120,000 500,000 50,000 100,000 150,000 600,000 60,000 120,000 180,000 700,000 70,000 140,000 210,000 800,000 80,000 160,000 240,000 900,000 90,000 180,000 270,000 1,000,000 100,000 200,000 300,000 1,100,000 110,000 220,000 330,000 1,200,000 120,000 240,000 360,000 1,300,000 130,000 260,000 390,000 1,400,000 140,000 280,000 420,000 Messrs. Florence and Levine have each completed ten years of credited service. Retirement benefits under the employment agreements are computed on the basis of a straight-life annuity and are not reduced by the benefits received under Social Security, but would be reduced by any benefits received under any Company funded pension plan that hereafter may be adopted. Upon the consummation of the Merger, the Employment Agreement with Leonard Florence will be amended so as to (i) change his term of full-time employment from a rolling five-year term to a fixed five-year term, (ii) provide for a minimum base compensation of $1.15 million per annum, (iii) establish $1.15 million as the minimum amount upon which his retirement benefit (and the survivor's benefit of his surviving spouse) will be computed and (iv) create contractual rights with respect to certain perquisites that are accorded to him informally under his present arrangements with the Company. Under Section 162(m) of the Internal Revenue Code, so much of the compensation paid to Mr. Florence as exceeds $1 million annually may not be deductible by the Company for federal income tax purposes. The Employment Agreement with Melvin L. Levine will be amended, as of the Effective Time, to change his term of full-time employment from a rolling five-year term to a fixed five-year term. The Company has also entered into employment agreements, effective as of August 16, 1991, with E. Merle Randolph, Vice President, Chief Financial Officer and Treasurer, and Alan R. Kanter, Vice President of Sales of the Company. The agreements with Messrs. Randolph and Kanter are similar to those with Messrs. Florence and Levine described above, except that (i) the term of full-time employment of each of Messrs. Randolph and Kanter will continue until the third anniversary of receipt of a notice of termination given by the Company to the executive involved or by such executive to the Company, (ii) the period during which each of Messrs. Randolph and Kanter has agreed to provide advisory services to the Company (and to be bound by a non-competition agreement) following the term of his full-time employment will be the lesser of three years or six months for each year of his full-time employment beginning with the date of the employment agreement, with such advisory period and the 48 coextensive non-competition covenant being subject to termination at the election of the Company on six months prior notice to the executive involved, and (iii) no provision was originally made therein for a payment of a retirement benefit. The employment agreements of Messrs. Randolph and Kanter were amended in July 1996, to provide, and during the same month Faye A. Florence and the Company entered into a Retirement Benefit Agreement that provides, inter alia, for the payment at age 65 or upon termination of such officer's employment, whichever is later, of an annual retirement benefit to each such officer equal to a percentage of his or her average annual compensation for the three fiscal years ended immediately prior to the date on which such officer ceases to be a full time employee of the Company multiplied by the number of years of such officer's service to the Company. The minimum annual retirement benefit for each such officer will be $75,000. It is not contemplated that any changes will be made in the agreements with Messrs. Randolph and Kanter and Ms. Florence. On December 31, 1996, the Company, THL I and Leonard Florence entered into three separate agreements, one with each of Alan R. Kanter, Melvin L. Levine and E. Merle Randolph (each an "Executive Party"). Pursuant to each of the three agreements (i) Mr. Florence agreed to contribute to the Company (a) on December 31, 1996, 10,604 shares of Syratech Common Stock, (b) on January 14, 1997, 10,628 shares of Syratech Common Stock and (c) on January 14, 1998, the largest number (not exceeding 3,124) of shares of Syratech Common Stock as shall have an aggregate value of approximately $99,991, (ii) on each of the dates of contribution of such shares of Syratech Common Stock by Mr. Florence to the Company, such shares were to be canceled and the Company was to issue to the Executive Party, that number of shares of Syratech Common Stock that would be equal to the number of shares of Syratech Common Stock contributed to the Company on such date by Mr. Florence; (iii) on December 31, 1996 the Company paid to each Executive Party the sum of $234,346; (iv) on January 14, 1997 the Company paid to each Executive Party an amount equal to the lesser of (x) the income tax benefit of the Company from the issuance of shares of Syratech Common Stock and the cash payment required to be made to him on such date or (y) the aggregate amount of federal, state and local income taxes to be owed by each Executive Party as a result of the issuance of such shares and the making of such cash payment; and (v) on January14, 1998 the Company is required to pay to each Executive Party an amount equal to the lesser of (x) the income tax benefit to the Company from the issuance of shares of Common Stock and the cash payments to be made to each Executive Party on such date or (y) the aggregate amount of federal, state and local income taxes that will be owed by each Executive Party as a result of the issuance of shares of Common Stock and cash payment to be made to him on such date. Each agreement provides that the manner in which the payments to be made to each Executive Party for the purpose of transferring to each Executive Party the tax benefits to the Company from such transactions are to be calculated and subsequently adjusted is to be in the sole discretion of the Company. The Company and each Executive Party also entered into an agreement to the respective Executive Party's Employment Agreement (each an "Amendment No. 2 to Employment Agreement") dated January 31, 1997, to be effective as of December 31, 1996, to clarify and ensure that the transfer of shares referenced in the above paragraph did not alter the compensation of the relevant Executive Party for purposes of calculating the Executive Party's retirement benefit. Stock Option Plan 1997 Stock Option Plan. The Company expects that the 1997 Stock Option Plan (the "1997 Plan") will be adopted by the Board of Directors and approved by the Company's stockholders promptly following the Closing. A maximum of 273,438 shares of Common stock will be issuable pursuant to the 1997 Plan upon exercise of options. Under the 1997 Plan, incentive stock options may be granted to employees and officers of the Company and non-qualified stock options may be granted to consultants, directors, employees and officers of the Company. The 1997 Plan will be administered by the Board of Directors of the Company or a committee thereof consisting of two or more directors. Subject to the provisions of the 1997 Plan, the Board of Directors will have the authority to select optionees and determine the terms of the options granted, including (i) the number of shares subject to each option, (ii) when the option becomes exercisable, (iii) the exercise price of the options (which in the case of an incentive stock option cannot be less than the fair market value of the Common Stock on the date of grant, or less than 110% of fair market value in the case of employees or officers holding 10% or more of the voting stock of the Company), (iv) the duration of the option and (v) the time, manner and form of payment upon exercise of an option. 49 An option will not be transferable by the optionee except by will or by the laws of descent and distribution. Options will be exercisable only while the optionee remains in the employ of the company or for a period of time thereafter. If an optionee remains in the employ of the Company or for a period of time thereafter. If an optionee becomes disabled or dies while in the employ of the Company, the option will be exercisable prior to the last day of the third and sixth month, respectively following the date of termination of employment. If the optionee leaves the employ of the Company for any other reason, the option will be terminated immediately upon termination of employment; provided that the Board of Directors may extend this period up to the original expiration date of such option. Options which are exercisable following termination of employment will be exercisable only to the extent that the optionee was entitled to exercise such options on the date of such termination. 50 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information concerning the beneficial ownership of Syratech Common Stock after giving effect to the Recapitalization (i) by each stockholder who owns beneficially in excess of 5% of the outstanding Syratech Common Stock, (ii) by each director, and (iii) by all officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their shares of Syratech Common Stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares of Syratech Common Stock. The following table assumes that no stockholders other than Management retain shares in the Recapitalization.
Shares of Common Stock Beneficially Name Owned Percentage - ------------------------------------------------------- --------------- ------------ Leonard Florence (a)................................... 528,472 14.0% E. Merle Randolph...................................... 30,875 * Melvin L. Levine....................................... 41,132 1.1% Alan R. Kanter......................................... 48,232 1.3% Faye A. Florence....................................... 3,527 * David V. Harkins (b)................................... 3,131,780 82.8% Scott A. Schoen (b).................................... 3,131,780 82.8% Thomas M. Hagerty (b).................................. 3,131,780 82.8% Seth W. Lawry (b)...................................... 3,131,780 82.8% Kent R. Weldon (b)..................................... 3,131,780 82.8% Thomas H. Lee Equity Fund III, L.P. (c)................ 2,686,817 71.0% THL-CCI Limited Partnership (d)........................ 278,710 7.4% Officers and Directors as a group (10 persons)......... 3,784,018 100.0%
- ------------ * Less than 1% of the issued and outstanding Syratech Common Stock. (a) The business address for Leonard Florence is c/o Syratech Corporation, 175 McClellan Highway, East Boston, Massachusetts, 02128-9114. (b) The business address of this stockholder is c/o Thomas H. Lee Company, 75 State Street, Boston, Massachusetts 02109. All such voting securities are owned by Thomas H. Lee Equity Fund III, L.P., Thomas H. Lee Foreign Fund III, L.P. and THL-CCI Investors Limited Partnership and may be deemed to be beneficially owned by Messrs. Harkins, Hagerty, Schoen, Lawry and Weldon, officers of Thomas H. Lee Company. Each of such persons disclaims beneficial ownership of such shares. (c) THL Equity Advisors III Limited Partnership ("Advisors"), the general partner of Thomas H. Lee Equity Fund III, L.P. and Thomas H. Lee Foreign Fund III, L.P., THL Equity Trust III ("Equity Trust"), the general partner of Advisors, Thomas H. Lee, Messrs. Harkins, Hagerty and Schoen and other managing directors of Thomas H. Lee Company may be deemed to be beneficial owners of the shares of Syratech Common Stock held by such funds. Each of such persons maintains a principal business address at Suite 2600, 75 State Street, Boston, Massachusetts 02109. Each of such persons disclaims beneficial ownership of such shares. (d) THL Investment Management Corp., the general partner of THL-CCI Limited Partnership, and Thomas H. Lee, as director and sole shareholder of THL Investment Management Corp., may also be deemed to be beneficial owners of the shares of Syratech Common Stock held by THL-CCI Limited Partnership. Each of such persons maintains a principal business address at Suite 2600, 75 State Street, Boston, Massachusetts 02109. Each of such persons disclaims beneficial ownership of such shares. 51 CERTAIN TRANSACTIONS Following the Recapitalization, affiliates of Thomas H. Lee Company will own between 60.7% and 82.8% of the Common Stock of the Company. See "The Recapitalization." At Closing, the Company will enter into a management agreement with Thomas H. Lee Company pursuant to which the Company will pay Thomas H. Lee Company a closing fee of $3.0 million in connection with the Recapitalization and an annual fee of $450,000 for each of five successive years, for management services to the Company. Such management services consist of on-going operational, financial, accounting and strategic planning analysis and advice. Following the initial five-year term of such agreement, such agreement automatically continues for successive one year terms unless any party thereto, at least ninety days prior to the end of any term, provides all other parties thereto with notice of the intent to terminate the agreement. The Company will enter into amended employment agreements with each of Messrs. Florence and Levine in connection with the Recapitalization and is party to existing employment agreements with Messrs. Kanter and Randolph as well as a Retirement Benefits Agreement with Ms. Florence. See "Management--Employment Agreements." Each of the Company's executive officers will be eligible to participate in a stock option plan to be adopted by the Company. See "Management--Stock Option Plan." The Company will enter into a stockholders agreement (the "Stockholders' Agreement") with affiliates of Thomas H. Lee Company and Management in connection with the Recapitalization. Pursuant to the Stockholders' Agreement, the stockholders party thereto will be required to vote their shares of Common Stock to elect a Board of Directors of the Company consisting of certain directors designated by affiliates of Thomas H. Lee Company and certain management directors. The Stockholders' Agreement also grants those stockholders who are affiliates of Thomas H. Lee Company the right to require the Company to effect the registration of shares of Common Stock they hold for sale to the public, subject to certain conditions and limitations. In addition, under the terms of the Stockholders' Agreement, if the Company proposes to register any of its securities under the Securities Act of 1933, as amended, whether for its own account or otherwise, the stockholders party thereto are entitled to notice of such registration and are entitled to include their shares therein, subject to certain conditions and limitations. All fees, costs and expenses of any registration effected on behalf of such stockholders under the Stockholders' Agreement (other than underwriting discounts and commissions) will be paid by the Company. Shares of Syratech Common Stock held by executive officers and directors of the Company will be entitled to receive the same consideration as shares of Syratech Common Stock held by other stockholders, except that (i) Leonard Florence will be required to retain 528,472 of his shares of Syratech Common Stock, (ii) Leonard Florence will receive $28 per share and (iii) the other Management Stockholders are required to retain 123,766 shares of Syratech Common Stock, which amount will not be subject to proration. In addition, certain executive officers and directors hold options to purchase Syratech Common Stock which will vest and be converted into cash in connection with the Merger. Ocean State Jobbers, Inc. ("Ocean State") purchased from the Company merchandise in the amount of approximately $2.450 million for the year ended December 31, 1996. Alan Perlman, a director of the Company, has been an officer and director of Ocean State since 1977. Service Merchandise Co. Inc., ("Service") purchased from the Company merchandise in the amount of approximately $22.598 million for the year ended December 31, 1996. Effective July 12, 1996, the Company, through an indirect wholly-owned subsidiary, granted a license to Service to use certain trademarks, patents and copyrights relating to certain electric and other products. An indirect beneficial owner of less than 1% of the Company's Common Stock holds a significant management position in Service. Harold Roitenberg, a director of the Company, is also a director of Service. Wacker Industrial Company ("Wacker"), a major supplier, is owned by a holder of less than 1% of Syratech Common Stock. For the year ended December 31, 1996, the Company had purchases from Wacker of approximately $4.478 million. The Company believes that the transactions described or referred to above were effected on terms no less favorable to the Company than those that could have been obtained from unaffiliated third parties. 52 Pursuant to the Merger Agreement, the Company has agreed for six years after the consummation of the Merger to indemnify all present and former directors and officers of the Company and its subsidiaries and will, subject to certain limitations, maintain for six years its current directors' and officers' insurance and indemnification policy. Additional information relating to executive compensation and various benefit arrangements of the Company is set forth and incorporated herein by reference to the Company's Proxy Statement for its Annual Meeting of Stockholders held on May 9, 1996. See "Available Information" and "Incorporation of Certain Documents by Reference." 53 DESCRIPTION OF SENIOR NOTES General The Senior Notes will be issued pursuant to an Indenture (the "Indenture") between the Company and State Street Bank and Trust Company, as trustee (the "Trustee"). The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Senior Notes are subject to all such terms, and Holders of Senior Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of the material provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. Copies of the proposed form of Indenture have been filed as an exhibit to the Registration Statement of which this Prospectus is a part and are available as set forth below under "-- Available Information". The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." For purposes of this summary, the term "Company" refers only to Syratech, as survivor of the Merger, and not to any of its Subsidiaries. The Senior Notes will be general unsecured obligations of the Company and will rank pari passu in right of payment with all current and future unsubordinated Indebtedness of the Company, including borrowings under the New Credit Facility. However, all borrowings under the New Credit Facility will be secured by a first priority Lien on the accounts receivable and inventory of the Company and its domestic subsidiaries. Consequently, the obligations of the Company under the Senior Notes will be effectively subordinated to its obligations under the New Credit Facility to the extent of such assets. As of December 31, 1996, on a pro forma basis after giving effect to the Recapitalization, approximately $17.5 million principal amount of indebtedness would have been outstanding under the New Credit Facility (including amounts outstanding under letters of credit) and $112.5 million (subject to borrowing base calculations) would have been available to be borrowed thereunder. See "Risk Factors -- Substantial Leverage and Debt Service; Effective Subordination." The Company also conducts substantial operations through its direct and indirect subsidiaries which are not incorporated in the United States (the "Foreign Subsidiaries"). The Foreign Subsidiaries will not provide guarantees of, or other credit support for, the Senior Notes. Consequently, the Company's obligations under the Senior Notes will be effectively subordinated to the indebtedness and other liabilities (including trade payables) of the Foreign Subsidiaries. As of December 31, 1996, the Foreign Subsidiaries had identifiable assets of $14.9 million and for the year then ended the Foreign Subsidiaries had income from operations of $7.7 million. See Note 13 to Consolidated Financial Statements of Syratech. As of December 31, 1996, the Foreign Subsidiaries had indebtedness and other liabilities (including trade payables) of $3.7 million. Principal, Maturity and Interest The Senior Notes offered hereby will be limited in aggregate principal amount to $155.0 million and will mature on , 2007. The Indenture provides for the issuance of up to $50.0 million aggregate principal amount of additional Senior Notes having identical terms and conditions to the Senior Notes offered hereby (the "Additional Senior Notes"), subject to compliance with the covenants contained in the Indenture. Any Additional Senior Notes will be part of the same issue as the Senior Notes offered hereby and will vote on all matters with the Senior Notes offered hereby. For purposes of this "Description of Senior Notes," references to the Senior Notes do not include Additional Senior Notes. Interest on the Senior Notes will accrue at the rate of % per annum and will be payable semi-annually in arrears on and , commencing on , 1997, to Holders of record on the immediately preceding and . Interest on the Senior Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium, if any, and interest on the Senior Notes will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holders of the Senior Notes at their respective addresses set forth in the register of Holders of Senior Notes; provided that all payments of principal, premium and interest with respect to Senior Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Senior Notes will be issued in denominations of $1,000 and integral multiples thereof. 54 Optional Redemption The Senior Notes will not be redeemable at the Company's option prior to , 2002. Thereafter, the Senior Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on of the years indicated below: Year Percentage - ----------------------------- ------------ 2002........................ % 2003........................ 2004........................ 2005 and thereafter......... 100.00% Notwithstanding the foregoing, during the first 36 months after the date of the Indenture, the Company may redeem up to an aggregate of 35% in aggregate principal amount of the Senior Notes originally issued at a redemption price of % of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date, with the net cash proceeds of a public offering of common stock of the Company provided that at least $100.0 million in aggregate principal amount of Senior Notes remain outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 45 days of the date of the closing of such public offering. Selection and Notice If less than all of the Senior Notes are to be redeemed at any time, selection of Senior Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Senior Notes are listed, or, if the Senior Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that Senior Notes redeemed with the proceeds of a public offering of common stock shall be selected on a pro rata basis. No Senior Notes of $1,000 or less in principal amount shall be redeemed in part. Notices 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 Senior Notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any Senior Note is to be redeemed in part only, the notice of redemption that relates to such Senior Note shall state the portion of the principal amount thereof to be redeemed. A new Senior Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Senior Note. Senior Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Senior Notes or portions of them called for redemption. Mandatory Redemption Except as set forth below under "Repurchase at the Option of Holders," the Company is not required to make mandatory redemption or sinking fund payments with respect to the Senior Notes. Repurchase at the Option Of Holders Change of Control Upon the occurrence of a Change of Control, each Holder of Senior Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Senior Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Change of Control Payment"). Within ten days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Senior Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. 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 the Senior Notes as a result of a Change of Control. 55 On the Change of Control Payment Date, the Company will, to the extent lawful, (1) accept for payment all Senior Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Senior Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Senior Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Senior Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of Senior Notes so tendered the Change of Control Payment for such Senior Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Senior Note equal in principal amount to any unpurchased portion of the Senior Notes surrendered, if any; provided that each such new Senior Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Senior Notes validly tendered and not withdrawn under such Change of Control Offer. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of Senior Notes to require the Company to repurchase such Senior Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain. The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Senior Notes to require that the Company repurchase or redeem the Senior Notes in the event of a takeover, recapitalization or similar transaction. The Company's other senior indebtedness contains prohibitions of certain events that would constitute a Change of Control. In addition, the Company's ability to pay cash to the Holders of Senior Notes upon a repurchase may be limited by the Company's then existing financial resources. See "Risk Factors -- Change of Control." Asset Sales The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration received therefor by the Company or such Subsidiary is in the form of cash. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option (a) to permanently reduce indebtedness under the Credit Facilities (and correspondingly reduce commitments thereunder) or (b) to acquire a controlling interest in another business, to make a capital expenditure or to acquire other long-term assets, in each case, in the same or a similar line of business as the Company is engaged in on the date of the Indenture. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Indebtedness under its Credit Facilities or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all Holders of Senior Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Senior Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Senior Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess 56 Proceeds for general corporate purposes. If the aggregate principal amount of Senior Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Senior Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Subsidiary Guarantees The Company's payment obligations under the Senior Notes will be jointly and severally guaranteed (the "Subsidiary Guarantees") by the Guarantors. The Company conducts all of its business through its subsidiaries, including the Guarantors. In 1996, the Guarantors accounted for, in the aggregate, 78.4%, 66.5% and 93.5% of the Company's net sales, income from operations and identifiable assets, respectively. The obligations of each Guarantor under its Subsidiary Guarantee will be limited so as not to constitute a fraudulent conveyance under applicable law. See, however, "Risk Factors -- Fraudulent Conveyance Matters." The obligations of each Guarantor are limited to the maximum amount which, 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 Subsidiary Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Guarantor under the Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. The Indenture will provide that no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or entity whether or not affiliated with such Guarantor unless (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Senior Notes, the Indenture and Subsidiary Guarantee and (ii) immediately after giving effect to such transaction, no Default or Event of Default exists. The Indenture will provide that in the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "Redemption or Repurchase at Option of Holders -- Asset Sales." Certain Covenants Restricted Payments The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's or any of its Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company, any Subsidiary of the Company or any Affiliate of the Company (other than any such Equity Interests owned by the Company or any Wholly Owned Subsidiary of the Company); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is pari passu with or subordinated to the Senior Notes (other than Senior Notes and Indebtedness outstanding under Credit Facilities incurred in accordance with the Indenture), except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and 57 (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clause (ii) of the next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale since the date of the Indenture of Equity Interests of the Company (other than Disqualified Stock) or of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock), plus (iii) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment. The foregoing provisions will not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any pari passu or subordinated Indebtedness or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of pari passu or subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a Subsidiary of the Company to the holders of its common stock on a pro rata basis; (v) the redemption of up to $10 million in liquidation preference of Cumulative Redeemable Preferred Stock in the aggregate subsequent to the Issue Date at a redemption price not exceeding the liquidation preference thereof at a redemption price equal to the liquidation preference thereof plus accrued and unpaid dividends thereon if (x) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof, (y) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock" and (z) the Company's Debt to Cash Flow Ratio at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four quarter period, would have been no greater than 4.5 to 1.0. and (vi) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management upon termination of employment; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $750,000 in any twelve-month period (with unused amounts in any calendar year being available for such purposes in the next two succeeding calendar years, with a maximum of $1,500,000 so available in any one year) in any twelve-month period and no Default or Event of Default shall have occurred and be continuing immediately after such transaction. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $5.0 million. Not later than the date of making any Restricted 58 Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed, together with a copy of any fairness opinion or appraisal required by the Indenture. Incurrence of Indebtedness and Issuance of Preferred Stock The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company will not issue any Disqualified Stock or sell or otherwise directly or indirectly transfer any preferred stock of any of its Subsidiaries to any other person and will not permit any of its Subsidiaries to issue any shares of preferred stock other than to the Company; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The Indenture will also provide that the Company will not incur any Indebtedness that is contractually subordinated to any other Indebtedness of the Company unless such Indebtedness is also contractually subordinated to the Senior Notes on substantially identical terms; provided, however, that no Indebtedness of the Company shall be deemed to be contractually subordinated to any other Indebtedness of the Company solely by virtue of being unsecured. The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company of revolving credit Indebtedness and letters of credit (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company thereunder) under the Credit Facilities; provided that the aggregate principal amount of all revolving credit Indebtedness and letters of credit outstanding under all Credit Facilities after giving effect to such incurrence, does not exceed an amount equal to $130.0 million less the aggregate amount of all Net Proceeds of Assets Sales applied to permanently repay any such Indebtedness pursuant to the covenant described above under the caption "-- Asset Sales"; (ii) the incurrence by the Company and its Subsidiaries of Indebtedness represented by the Senior Notes, other than any Additional Senior Notes, and the Subsidiary Guarantees; (iii) the incurrence by the Company or any of its Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary, in an aggregate principal amount not to exceed $10.0 million at any time outstanding; (iv) the incurrence by any corporation that becomes a Subsidiary after the Issue Date of Acquired Debt, which Indebtedness is existing at the time such corporation becomes a Subsidiary; provided, however, that (A) immediately after giving effect to such corporation becoming a Subsidiary the Company could incur at least $1.00 of additional Indebtedness (other than Permitted Debt) in accordance with the Indenture, (B) such Indebtedness is without recourse to the Company or to any Subsidiary or to any of their respective properties or assets other than Person becoming a Subsidiary or its properties and assets and (C) such Indebtedness was not incurred as a result of or in connection with or in contemplation of such entity becoming a Subsidiary; (v) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness that is permitted by the Indenture to be incurred; (vi) the incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any of its Wholly Owned Subsidiaries; provided, however, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all 59 Obligations with respect to the Senior Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is neither the Company nor a Wholly Owned Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be; (vii) the incurrence by the Company of Hedging Obligations that are incurred for the purpose of fixing or hedging currency risk or interest rate risk with respect to any Indebtedness that is permitted by the terms of this Indenture to be outstanding; (viii) the Guarantee by any of the Guarantors of Indebtedness of the Company or another Guarantor that was permitted to be incurred by the Indenture; and (ix) Indebtedness for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; (x) Indebtedness arising from Guarantees of Indebtedness of the Company or any Subsidiary or other agreements of the Company or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than Guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition, provided that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Subsidiaries in connection with such disposition; (xi) obligations in respect of performance bonds and completion guarantees provided by the Company or any Subsidiary in the ordinary course of business; and (xii) the incurrence by the Company or any of its Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $10.0 million. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xii) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. Accrual of interest and the accretion of accreted value will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. Liens The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired, or on any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. Dividend and Other Payment Restrictions Affecting Subsidiaries The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or advances to the Company or any of its Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) applicable law, (b) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred, (c) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, 60 (d) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, or (e) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. Merger, Consolidation, or Sale of Assets The Indenture will provide that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Senior Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; (iv) each of the Guarantors confirms its obligations under the Subsidiary Guarantees and the Indenture pursuant to a supplement in a form reasonably satisfactory to the Trustee; and (v) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock." Transactions with Affiliates The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of their respective properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $7.5 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing; provided that (v) any employment agreement entered into by the Company or any of its Subsidiaries or any employee benefit plan available to employees of the Company generally, in each case, in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (w) transactions between or among the Company and/or its Subsidiaries, (x) Restricted Payments (other than Restricted Investments) that are permitted by the provisions of the Indenture described above under the caption "-- Restricted Payments," (y) investment banking and management fees in an aggregate amount no greater than $450,000 in any calendar year (plus reimbursement of expenses) to be paid by the Company to Thomas H. Lee Company and (z) a cash fee of $3 million payable by the Company to Thomas H. Lee Company on the date of the Indenture, in each case, shall not be deemed Affiliate Transactions. Sale and Leaseback Transactions The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company or one of its Subsidiaries may enter into a sale and 61 leaseback transaction if (i) the Company or such subsidiary could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction pursuant to the covenant described above under the caption "-- Incurrence of Additional Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to the covenant described above under the caption "-- Liens," (ii) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee) of the property that is the subject of such sale and leaseback transaction and (iii) the transfer of assets in such sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, the covenant described above under the caption "-- Asset Sales." Limitation on Issuances and Sales of Capital Stock of Wholly Owned Subsidiaries The Indenture will provide that, except to the extent permitted under the covenant entitled "Restricted Payments", the Company (i) will not, and will not permit any Wholly Owned Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Wholly Owned Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under the caption "-- Asset Sales," and (ii) will not permit any Wholly Owned Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Subsidiary of the Company. Payments for Consent The Indenture will provide that neither the Company nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Senior Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Senior Notes unless such consideration is offered to be paid or is paid to all Holders of the Senior Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Additional Subsidiary Guarantees The Indenture will provide that (a) the Company will not permit any of its Subsidiaries that is not a Guarantor to guarantee or secure through the granting of Liens the payment of any Indebtedness of the Company or any Guarantor and (b) the Company will not and will not permit any of its Subsidiaries to pledge any intercompany notes representing obligations of any of its Subsidiaries, to secure the payment of any Indebtedness of the Company or any Guarantor, in each case unless such Subsidiary, the Company and the Trustee execute and deliver a supplemental indenture evidencing such Subsidiary's Guarantee (providing for the unconditional Guarantee by such Subsidiary, on a senior basis, of the Senior Notes). Reports The Indenture will provide that, whether or not required by the rules and regulations of the Securities and Exchange Commission (the "Commission"), so long as any Senior Notes are outstanding, the Company will furnish to the Trustee and the Holders of Senior Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. Events of Default and Remedies The Indenture will provide that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on the Senior Notes; (ii) default in the payment when due of the principal of or premium, if any, on the Senior Notes; (iii) failure by the Company to comply with the provisions described under 62 the captions "-- Change of Control," "-- Asset Sales," "-- Restricted Payments" or "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; (iv) failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Senior Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the 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, 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, aggregates $10.0 million or more; (vi) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Senior Notes will become due and payable without further action or notice. Holders of the Senior Notes may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Senior Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Senior Notes. If an Event of Default occurs prior to , 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Senior Notes prior to , 2002, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Senior Notes. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Senior Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. No Personal Liability of Directors, Officers, Employees and Stockholders No director, past, present or future officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantors under the Senior Notes, the Indenture or the Subsidiary Guarantees, as applicable, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Senior Notes by accepting a Senior Note waives and 63 releases all such liability. The waiver and release are part of the consideration for issuance of the Senior Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. Legal Defeasance and Covenant Defeasance The Company may, at its option and at any time, elect to have all of its obligations and the obligations of the Guarantors discharged with respect to the outstanding Senior Notes and the Subsidiary Guarantees ("Legal Defeasance") except for (i) the rights of Holders of outstanding Senior Notes to receive payments in respect of the principal of, premium, if any, and interest on such Senior Notes when such payments are due from the trust referred to below, (ii) the Company's and the Guarantors' obligations with respect to the Senior Notes concerning issuing temporary Senior Notes, registration of Senior Notes, mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, 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 to comply with such obligations shall not constitute a Default or Event of Default with respect to the Senior Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Senior Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Senior Notes, cash in U.S. dollars, non-callable Government Securities, 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 outstanding Senior Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Senior Notes are being defeased to maturity or to a particular redemption date; (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 of the outstanding Senior Notes 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 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 of the outstanding Senior Notes 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 (other than a Default or Event of Default resulting from the borrowing of funds to be applied to 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 will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Indenture) 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 must have delivered to the Trustee an opinion of counsel to the effect that 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; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Senior Notes over any of the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and (viii) the Company must deliver 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. 64 Transfer and Exchange A Holder may transfer or exchange Senior Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Senior Note selected for redemption. Also, the Company is not required to transfer or exchange any Senior Note for a period of 15 days before a selection of Senior Notes to be redeemed. The registered Holder of a Senior Note will be treated as the owner of it for all purposes. Amendment, Supplement and Waiver Except as provided in the next two succeeding paragraphs, the Indenture, the Subsidiary Guarantees or the Senior Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Senior Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Notes), and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Senior Notes (including consents obtained in connection with a tender offer or exchange offer for Senior Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Senior Notes held by a non-consenting Holder): (i) reduce the principal amount of Senior Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Senior Note or alter the provisions with respect to the redemption of the Senior Notes (other than provisions relating to the covenants described above under the caption "-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change the time for payment of interest on any Senior Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Senior Notes (except a rescission of acceleration of the Senior Notes by the Holders of at least a majority in aggregate principal amount of the Senior Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Senior Note payable in money other than that stated in the Senior Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Senior Notes to receive payments of principal of or premium, if any, or interest on the Senior Notes, (vii) waive a redemption payment with respect to any Senior Note (other than a payment required by one of the covenants described above under the caption "-- Repurchase at the Option of Holders"), (viii) release any Guarantor from any of its obligations under its Subsidiary Guarantee or the Indenture, except in accordance with the terms of the Indenture, or (ix) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of any Holder of Senior Notes, the Company, the Guarantors and the Trustee may amend or supplement the Indenture, the Subsidiary Guarantees or the Senior Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Senior Notes in addition to or in place of certificated Senior Notes, to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of Senior Notes in the case of a merger or consolidation, to provide for the issuance of a Subsidiary Guarantee by a Subsidiary of the Company, to provide for the issuance of Additional Senior Notes in accordance with the limitations set forth in the Indenture on the Issue Date, to make any change that would provide any additional rights or benefits to the Holders of Senior Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. Concerning the Trustee The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding Senior Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject 65 to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Senior Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. Certain Definitions Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales of inventory in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "-- Change of Control" and/or the provisions described above under the caption "-- Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the issue or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1,000,000 or (b) for Net Proceeds in excess of $1,000,000. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Subsidiary or by a Subsidiary to the Company or to a Wholly Owned Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary, and (iii) a Restricted Payment that is permitted by the covenant described above under the caption "-- Restricted Payments" will not be deemed to be Asset Sales. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, shares of corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) 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. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months 66 and overnight bank deposits, in each case with any lender party to the New Credit Facility or with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) other than the Principals or their Related Parties, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the Principals and their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares), (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors or (v) the Company consolidates with, or merges with or into, any Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). For purposes of this definition, any transfer of an equity interest of an entity that was formed for the purpose of acquiring Voting Stock of the Company will be deemed to be a transfer of such portion of such Voting Stock as corresponds to the portion of the equity of such entity that has been so transferred. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, minus (v) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Indebtedness" of any Person as of any date of determination means the sum (without duplication) of (i) the total amount of Indebtedness and Attributable Debt of such Person and its Subsidiaries, plus (ii) the total amount of other Indebtedness shown on the balance sheet of the primary obligor on such Indebtedness, to the extent that such Indebtedness has been Guaranteed by such Person or one of its Subsidiaries, plus (iii) the aggregate liquidation value or redemption amount (if larger) of all Disqualified Stock of such Person (other than 67 any Cumulative Redeemable Preferred Stock outstanding on such date) and all preferred stock of Subsidiaries of such Person, in each case, determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of the Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Credit Facilities" means, with respect to the Company, one or more debt facilities (including, without limitation, the New Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Facilities outstanding on the date on which Senior Notes are first issued and authenticated under the Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (i) of the definition of Permitted Indebtedness. "Debt to Cash Flow Ratio" means, as of any date of determination, the ratio of (a) the Consolidated Indebtedness as of such date to (b) the Consolidated Cash Flow of the Company and its Subsidiaries on a consolidated basis for the four most recent full fiscal quarters ending immediately prior to such date for which internal financial statements are available. For purposes of calculating Consolidated Cash Flow for the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the date on which such Ratio is being calculated (the "Calculation Date") shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. 68 "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Senior Notes mature. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the date of the Indenture, until such amounts are repaid. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations (but excluding amortization of debt issuance costs) and (ii) the consolidated interest expense of such Person and its Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests (other than Disqualified Stock) of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Subsidiaries following the Calculation Date. "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 have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means each of (i) each domestic subsidiary of the Company and (ii) any other subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns. 69 "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or of the values of foreign currencies purchased or received by the Company of any of its Subsidiaries in the ordinary course of business. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company, 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 Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "-- Restricted Payments." "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under the Credit Facilities) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "New Credit Facility" means that certain credit facility, dated as of April , 1997, by and among the Company and NationsBank, N.A., as agent and a lender, providing for up to $130 million of revolving credit borrowings, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. 70 "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Investments" means (a) any Investment in the Company or in a Wholly Owned Subsidiary of the Company; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Subsidiary of the Company in a Persons, if as a result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of the Company; (d) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales"; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; and (f) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (f) that are at the time outstanding, not to exceed $5 million. "Permitted Liens" means (i) Liens on accounts receivable and inventory securing Indebtedness under the Credit Facilities that will be permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (vi) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iii) of the third paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the assets acquired with such Indebtedness; (vii) Liens existing on the date of the Indenture; (viii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; and (ix) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $2.5 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Subsidiary. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund Existing Indebtedness or other Indebtedness of the Company or any of its Subsidiaries incurred in accordance with the Indenture (other than Indebtedness incurred in accordance with clauses (i), (vi), (vii), (viii), (ix), (x), (xi) and (xii) of the third paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock;" provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Senior Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Senior Notes on terms at least as favorable to the Holders of Senior Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. 71 "Principals" means Thomas H. Lee Equity Fund III, L.P. and its co-investors, Thomas H. Lee Foreign Fund III, L.P. and Thomas H. Lee Company, and any Affiliates of Thomas H. Lee Company. "Related Party" with respect to any Principal means (A) any controlling stockholder or 80% (or more) owned Subsidiary of such Principal or (B) any trust, corporation, partnership or other entity of which the beneficiaries, stockholders, partners, owners or other Persons beneficially holding an 80% or more controlling interest of such Principal and/or such other Persons referred to in the immediately preceding clause (A). "Restricted Investment" means an Investment other than a Permitted Investment. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date of the Indenture. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Voting Stock" means, with respect to any Person, the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person. DESCRIPTION OF OTHER INDEBTEDNESS In connection with the Recapitalization, the banks will provide senior financing to the Company and its domestic subsidiaries as co-borrowers pursuant to the $130.0 million New Credit Facility. The New Credit Facility will include a $30.0 million sublimit for the issuance of standby and commercial letters of credit. Borrowings made under the New Credit Facility shall bear interest at a rate equal to, at the Company's option, NationsBank's Eurodollar Rate plus 225 basis points or the Prime Rate plus 50 basis points. The "Prime Rate" is a fluctuating interest rate equal to the higher of (i) the rate of interest announced publicly by NationsBank as its prime rate and (ii) a rate equal to 1/2 of 1% per annum above the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as determined for any day by NationsBank. The Eurodollar Rate and Prime Rate margins will be subject to step-downs commencing twelve months from the closing, based on the Company's performance. Interest based on the Base Rate shall be payable monthly in arrears. Interest based on the Eurodollar Rate shall be payable in arrears at the earlier of the end of (a) the applicable interest period and (b) month-end. Eurodollar Rate borrowings are available in 1-, 2-, 3- or 6-month interest periods. 72 The New Credit Facility expires five (5) years from the consummation of the Merger. Pursuant to the terms of the New Credit Facility, the Company is required during February and March of each year to maintain excess availability (i.e. borrowing capacity in excess of the borrowings outstanding under the New Credit Facility) of at least $45.0 million. The obligations of the Company under the New Credit Facility are secured by inventory, accounts receivable and the proceeds of the foregoing of the Company and its domestic subsidiaries. The New Credit Facility contains customary covenants of the Company and the subsidiary borrowers, including, without limitation, restrictions on (i) the incurrence of debt, (ii) the sale of assets, (iii) mergers, acquisitions and other business combinations, (iv) voluntary prepayment of other debt of the Company, (v) transactions with affiliates (as defined in the New Credit Facility), (vi) investments, as well as prohibitions on the payment of dividends to, or the repurchase or redemption of stock from, shareholders and various financial covenants. Pursuant to the terms of the New Credit Facility, the Company would be in default under the New Credit Facility upon the non-payment of principal or interest when due under the notes issued in connection with the New Credit Facility or, subject to applicable grace periods in certain circumstances (ranging from zero to ten days), upon the non-fulfillment of the covenants described above, certain changes in control of the ownership of the Company or various other defaults described in the New Credit Facility. If such a default occurs, the banks will be entitled to take all actions permitted to be taken by a secured creditor under the uniform commercial code and to accelerate the amounts due under the New Credit Facility and may require all such amounts to be immediately paid in full. DESCRIPTION OF CUMULATIVE REDEEMABLE PREFERRED STOCK Following the consummation of the Merger, 25,000 shares will be designated as Cumulative Redeemable Preferred Stock, par value $.01 per share. In connection with the Recapitalization, the preferred stock of THL I will be converted into an aggregate of 18,000 shares of the Company's Cumulative Redeemable Preferred Stock. Such shares will be held, following the Merger, by Lee Affiliates. The liquidation preference of the Cumulative Redeemable Preferred Stock will be $1,000 per share plus accrued but unpaid dividends. Holders of the Cumulative Redeemable Preferred Stock will be entitled, subject to the rights of creditors, in the event of any voluntary or involuntary liquidation of the Company, to an amount in cash equal to $1,000 for each share outstanding plus all accrued and unpaid dividends. The rights of holders of the Cumulative Redeemable Preferred Stock upon liquidation of the Company rank prior to those of the holders of Syratech Common Stock. Dividends on shares of Cumulative Redeemable Preferred Stock will be cumulative from the date of issue and will be payable when and as may be declared from time to time by the Board of Directors of the Company. Such dividends will accrue on a daily basis (whether or not declared ) from the original date of issue at an annual rate per share equal to 12% of the original purchase price per share, with such amount to be compounded annually on each December 31 so that if the dividend is not paid for any year the unpaid amount will be added to the original purchase price of the Cumulative Redeemable Preferred stock for the purpose of calculating succeeding years' dividends. The Cumulative Redeemable Preferred Stock will be redeemable at any time at the option of the Company, in whole or in part, at $1,000 per share plus all accumulated and unpaid dividends, if any, to the date of redemption. Subject to the Company's existing debt agreements, the Company must redeem all outstanding Cumulative Redeemable Preferred Stock in the event of a public offering of equity, a change of control or certain sales of assets. The holders of Cumulative Redeemable Preferred Stock will have no voting rights with respect to their Cumulative Redeemable Preferred Stock except as may be required by applicable law. 73 UNDERWRITING Upon the terms and subject to the conditions of the Underwriting Agreement (the "Underwriting Agreement") among Syratech, the Guarantors, NationsBanc Capital Markets, Inc. ("NCMI"), and Chase Securities Inc. ("CSI" and, together with NCMI the "Underwriters"), the Underwriters have agreed to purchase from the Company and the Company has agreed to sell to the Underwriters, the respective principal amount of Senior Notes set forth opposite their names below. Principal Amount -------------- NationsBanc Capital Markets, Inc......... $ Chase Securities Inc..................... $ ------------ Total.................................... $155,000,000 ============ In the Underwriting Agreement the Underwriters have agreed, subject to certain conditions, to purchase all of the Senior Notes, if any are purchased. The Company has been advised by the Underwriters that they propose to offer the Senior Notes to the public initially at the price set forth on the cover page of this Prospectus, to certain securities dealers (who may include the Underwriters) at such price less a concession not in excess of % of the amount per Senior Note and that the Underwriters and such dealers may reallow a discount not in excess of % of the amount per Senior Note to other dealers, including the Underwriters. After the closing of the public offering, the public offering price, the concession and the discount to other dealers may be changed by the Underwriters. There is no currently existing trading market for the Senior Notes, and although the Underwriters have advised the Company that it currently intends to make a market in the Senior Notes, they are not obligated to do so and any such market making may be discontinued at any time, without notice, in the sole discretion of the Underwriters. Accordingly, there can be no assurance as to the development or liquidity of any market that may develop for the Senior Notes. The Company and the Guarantors have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"), or to contribute to payments the Underwriters may be required to make in respect thereof. The Underwriters have informed the Company that they do not expect to confirm sales of Senior Notes offered hereby to any accounts over which they exercise discretionary authority. In accordance with Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc., (the "NASD"), no member of the NASD participating in the Offering will execute a transaction in the Senior Notes in an account over which it exercises discretion without the prior specific written approval of the customer. NationsBridge L.L.C. and NationsBank, N.A., affiliates of NCMI have delivered commitments to provide the Company interim financing for the Recapitalization and will receive customary fees (and reimbursement of expenses) in connection therewith. Such interim financing commitments will terminate upon consummation of the Offering and a portion of the proceeds of the Offering will be used to pay such fees and reimbursement. NationsBank of Georgia, N.A. is the agent and a lender under the Company's existing credit facility and NationsBank, N.A. will be the agent and a lender under the New Credit Facility. In addition, NCMI and its affiliates provide or have provided banking, advisory and other financial services for the Company and Thomas H. Lee Company in the ordinary course of business for which they have received customary compensation. Affiliates of CSI and NCMI are limited partners of Thomas H. Lee Equity Fund III, L.P. Under the Rules of Fair Practice of the NASD, if more than 10% of the net proceeds of a public offering of debt securities, not including underwriting compensation, are intended to be paid to members of the NASD or affiliated or associated persons that are participating in the distribution of the offering, the yield at which the debt securities are distributed to the public must be no lower than that recommended by a "qualified independent underwriter", as defined in Rule 2720 of the Conduct Rules of the NASD. NationsBank of Georgia, N.A., is expected to receive in the aggregate more than 10% of the net proceeds of the Offering as a result of the repayment by the Company of outstanding indebtedness under the Company's existing credit facility provided by NationsBank of Georgia, N.A. Accordingly, CSI has agreed to act as the qualified independent underwriter in connection with this 74 Offering. The yield on the Senior Notes, when sold to the public at the public offering price set forth on the cover of this Prospectus, will be no lower than that recommended by CSI. In order to facilitate the offering of the Senior Notes, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Senior Notes. Specifically the Underwriters may overallot in connection with the offering, creating a short position in the Senior Notes for their own account. In addition, to cover overallotments or to stabilize the price of the Senior Notes, the Underwriters may bid for, and purchase, Senior Notes in the open market. Any of these activities may stabilize or maintain the market price of Senior Notes above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. LEGAL MATTERS The validity of the Senior Notes offered hereby will be passed upon for the Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York. As of January 31, 1997, lawyers of Paul, Weiss, Rifkind, Wharton & Garrison beneficially owned an aggregate of 36,681 shares of Syratech individually or in various fiduciary capacities. Certain legal matters in connection with the Offering will be passed upon for the Underwriter by Latham & Watkins, New York, New York. EXPERTS The consolidated financial statements and schedule of Syratech and its subsidiaries for each of the three years in the period ended December 31, 1996, included in this Prospectus, have been audited by Deloitte & Touche LLP, independent accountants, as stated in their reports appearing herein and elsewhere in the Prospectus and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The financial statements of Rauch Industries, Inc. for the fiscal year ended December 31, 1995 included in the Company's Form 8-K/A dated February 27, 1997 (which supersedes a Current Report on Form 8-K/A dated April 29, 1996), amending the Company's Current Report on Form 8-K dated February 29, 1996, have been incorporated by reference in this Prospectus and have been audited by Coopers & Lybrand L.L.P., independent accountants, as indicated in their report, also incorporated by reference in this Prospectus from the Form 8-K/A, with respect thereto, and have been so incorporated in reliance upon the authority of said firm as experts in accounting and auditing. AVAILABLE INFORMATION No person is authorized to give any information or to make any representations, other than as contained in this Prospectus, and, if given or made, such information or representations may not be relied upon as having been authorized by Syratech. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy the securities to which it relates in any jurisdiction in which, or to any person to whom, it is unlawful to make such an offer or solicitation. Neither the delivery of this Prospectus nor any offer or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the information set forth herein or in the affairs of the Company since the date hereof. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or at its regional offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at http://www.sec.gov. The Company's Common Stock is listed on the New York Stock Exchange, Inc., and reports, proxy statements and other information concerning the Company may be inspected and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. 75 [THIS PAGE INTENTIONALLY LEFT BLANK] SYRATECH CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ------ Report of Deloitte & Touche LLP........................................................... F-2 Consolidated Financial Statements: Consolidated balance sheets as of December 31, 1995 and December 31, 1996................ F-3 Consolidated income statements for the years ended December 31, 1994, December 31, 1995 and December 31, 1996................................................................... F-4 Consolidated statements of stockholders' equity for the years ended December 31, 1994, December 31, 1995 and December 31, 1996................................................. F-5 Consolidated statements of cash flows for the years ended December 31, 1994, December 31, 1995 and December 31, 1996.......................................................... F-6 Notes to consolidated financial statements............................................... F-7
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Syratech Corporation: We have audited the accompanying consolidated balance sheets of Syratech Corporation and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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, such consolidated financial statements present fairly, in all material respects, the financial position of Syratech Corporation and subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Boston, Massachusetts February 7, 1997 (February 14, 1997 as to Note 15) F-2 SYRATECH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
December 31, ------------------------ Notes 1995 1996 ----------- ----------- ---------- ASSETS....................................................... 1, 7 Current assets: Cash and equivalents........................................ $ 78,493 $ 3,605 Marketable securities....................................... 4 30,561 -- Accounts receivable, net.................................... 12 31,893 60,020 Inventories................................................. 5 41,151 79,355 Deferred income taxes....................................... 8 5,105 8,940 Prepaid expenses and other.................................. 10 1,602 3,803 Net assets of discontinued operations....................... 3 1,834 -- -------- -------- Total current assets..................................... 190,639 155,723 Property, plant and equipment, net.......................... 6 29,560 63,955 Purchase price in excess of net assets acquired............. -- 7,032 Other assets................................................ 367 544 ------- -------- Total.................................................... $220,566 $227,254 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving loan facilities and notes payable................. 7 $ 51,735 $ 6,636 Accounts payable............................................ 12 6,438 9,689 Accrued expenses............................................ 4,436 11,049 Accrued compensation........................................ 11 2,478 4,228 Accrued advertising......................................... 1 1,991 3,273 Income taxes payable........................................ 1, 8 1,511 930 -------- -------- Total current liabilities................................ 68,589 35,805 Deferred income taxes........................................ 1, 2, 8 3,657 17,706 Pension liability............................................ 10 1,724 3,288 Other long-term liabilities.................................. 11 -- 207 Commitments and contingencies................................ 9, 10,14 Stockholders' equity:........................................ 1, 11,15 Preferred stock, $.10 par value, 500,000 shares authorized; no shares issued or outstanding (135,000 shares are designated Series A Preferred Stock)....................... -- -- Common stock, $.01 par value, 20,000,000 shares authorized, 8,667,249 and 8,695,449 shares issued in 1995 and 1996, respectively............................................... 87 87 Additional paid-in capital................................. 9,699 12,480 Retained earnings........................................... 7 136,728 157,117 Cumulative translation adjustment........................... 85 567 Less: Treasury stock; 218 shares, at cost................... (3) (3) -------- -------- Total stockholders' equity................................ 146,596 170,248 -------- -------- Total..................................................... $220,566 $227,254 ======== ========
See notes to consolidated financial statements. F-3 SYRATECH CORPORATION AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (in thousands, except per share data)
Year Ended December 31, ----------------------------------------------- Notes 1994 1995 1996 -------- --------- --------- ---------------- Net sales..................................................... 1 $147,291 $169,520 $ 270,931 Cost of sales................................................. 104,600 119,836 194,113 -------- -------- ---------- Gross profit.............................................. 42,691 49,684 76,818 Selling, general and administrative expenses.................. 31,613 34,239 57,664 Other operating income........................................ 2, 12 -- -- 3,948(1) -------- -------- --------------- Income from operations.................................... 11,078 15,445 23,102 Interest expense.............................................. 7 (559) (287) (3,150) Interest income............................................... 4 98 4,881 771 Other income................................................. 2 -- -- 11,900(2) -------- -------- --------------- Income before provision for income taxes.............................................. 10,617 20,039 32,623 Provision for income taxes.................................... 1, 8 2,758 6,863 12,234 -------- -------- ---------- Income from continuing operations............................................... 7,859 13,176 20,389 Discontinued operations: Income from discontinued operations net of income taxes of $7,421 and $1,645, respectively.......... 3 12,068 2,572 -- Gain on sale of Syroco, Inc., net of income taxes of $16,599 3 -- 30,451 -- -------- -------- ---------- Net income................................................ $ 19,927 $ 46,199 $ 20,389 ======== ======== ========== Earnings per share: 1 Continuing operations........................................ $ .67 $ 1.12 $ 2.32 Discontinued operations...................................... 1.02 2.79 -- -------- -------- ---------- Net income................................................ $ 1.69 $ 3.91 $ 2.32 ======== ======== ========== Weighted average common and common equivalent shares outstanding.................................................. 1 11,809 11,803 8,799 ======== ======== ==========
- ------------ (1) Consists of income from the sale of Farberware inventory and other operating income, net of certain selling, general and administrative expenses. (2) Consists of non-recurring pre-tax income related to licensing the Farberware name on cookware and bakeware. See notes to consolidated financial statements. F-4 SYRATECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share data)
Common Stock ----------------------- Additional Cumulative Paid-in Retained Translation Treasury Shares Amount Capital Earnings Adjustment Stock Total ------------- --------- ------------- ----------- -------------- ---------- ---------- Balance, January 1, 1994......... 11,649,432 $116 $ 60,214 $70,602 $76 $ (3) $131,005 Exercise of stock options....... 38,200 297 297 Compensation related to stock options........................ 116 116 Tax effect of stock options..... 746 746 Net income...................... 19,927 19,927 Translation adjustment.......... 9 9 ----------- ---- -------- -------- ---- ---- -------- Balance, December 31, 1994....... 11,687,632 116 61,373 90,529 85 (3) 152,100 Exercise of stock options....... 44,150 1 326 327 Compensation related to stock options........................ 102 102 Tax effect of stock options..... (78) (78) Purchase of common stock for retirement (Note 11)........... (3,064,751) (30) (52,024) (52,054) Net income...................... 46,199 46,199 ----------- ---- -------- -------- ---- ---- -------- Balance, December 31, 1995....... 8,667,031 87 9,699 136,728 85 (3) 146,596 Exercise of stock options....... 28,200 202 202 Compensation related to stock options......................... 78 78 Tax effect of stock options..... 250 250 Transfer of shares (Note 11) 2,338 2,338 Rights redemption (Note 11)..... (87) (87) Net income...................... 20,389 20,389 Translation adjustment.......... 482 482 ----------- ---- -------- -------- ---- ---- -------- Balance, December 31, 1996....... 8,695,231 $ 87 $ 12,480 $157,117 $567 $ (3) $170,248 =========== ==== ======== ======== ==== ==== ========
See notes to consolidated financial statements. F-5 SYRATECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31, ----------------------------------------- 1994 1995 1996 ----------- ----------- ---------- Cash flow from operating activities: Net income...................................................... $ 19,927 $ 46,199 $ 20,389 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.................................. 3,270 3,253 4,767 Deferred income taxes.......................................... (452) (2,229) (2,756) Acquisition of Farberware assets............................... -- -- (9,500) Disposal of Farberware assets.................................. -- -- 13,600 Farberware electrics license................................... -- -- 500 Transfer of shares............................................. -- -- 3,655 Pension liability.............................................. 208 1,155 1,564 Compensation related to stock options.......................... 116 102 78 Gain (loss) on disposal of assets and other.................... 8 3 (17) Increase (decrease) in cash, net of effect of businesses acquired: Marketable securities.......................................... -- (30,561) 30,561 Accounts receivable............................................ (7,984) (3,649) (18,356) Inventories.................................................... (6,590) (817) (17,106) Prepaid expenses and other..................................... 711 (1,446) (471) Accounts payable and accrued expenses.......................... 4,155 595 (2,870) Income taxes payable........................................... 3,699 (2,306) (2,095) Discontinued operations....................................... (27,660) (49,915) 1,834 -------- -------- -------- Net cash provided by (used in) operating activities............. (10,592) (39,616) 23,777 -------- -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment...................... (2,603) (2,679) (15,125) Net proceeds from sale of Syroco, Inc........................... -- 133,931 -- Proceeds from disposal of assets................................ 336 -- 66 Insurance claim proceeds........................................ -- -- 23,771 Acquisitions of businesses, net of cash acquired................ -- -- (48,540) Other........................................................... (529) 61 (186) -------- -------- -------- Net cash provided by (used in) investing activities............. (2,796) 131,313 (40,014) -------- -------- -------- Cash flows from financing activities: Change in revolving loan facilities and notes payable........... 11,944 (14,504) (59,075) Repayment of borrowings......................................... (1,624) (875) (300) Tax effect on stock options..................................... 746 (78) 250 Exercise of stock options....................................... 297 327 202 Deferred financing costs and other.............................. 62 60 (24) -------- -------- -------- Net cash provided by (used in) financing activities............. 11,425 (15,070) (58,947) Effect of exchange rate changes on cash and equivalents......... -- -- 296 -------- -------- -------- Net increase (decrease) in cash and equivalents................. (1,963) 76,627 (74,888) Cash and equivalents, beginning of year......................... 3,829 1,866 78,493 -------- -------- -------- Cash and equivalents, end of year............................... $ 1,866 $ 78,493 $ 3,605 ======== ======== ========
See notes to consolidated financial statements. F-6 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands of dollars except share and per share data) 1. Business and Summary of Significant Accounting Policies Business Syratech Corporation designs, manufactures, imports and markets a diverse portfolio of tabletop, giftware and seasonal products, including: sterling silver, silverplated and stainless steel flatware; sterling silver, silverplated and brass holloware; picture frames and photo albums; glassware, woodenware and ceramics; fine porcelain boxes; figurines, waterglobes and Christmas ornaments, trim, lighting and tree skirts. Summary of Significant Accounting Policies Basis of Consolidation The consolidated financial statements include the accounts of Syratech Corporation and its subsidiaries (the Company), Syratech Holding Corporation and its subsidiaries, Syratech Security Corporation, Wallace International Silversmiths, Inc. and its subsidiaries (Wallace), Leonard Florence Associates, Inc. (LFA), Towle Manufacturing Company and its subsidiaries (Towle), Rauch Industries, Inc. and its subsidiaries (Rauch), Silvestri Inc. and subsidiaries (Silvestri), Syratech (H.K.) Ltd. and its subsidiaries (Syratech H.K.). All significant intercompany balances and transactions have been eliminated. Adoption of New Accounting Pronouncements Effective January 1, 1996, the Company adopted, prospectively, Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets be reviewed for impairment whenever circumstances indicate that the carrying value of an asset may not be recoverable. The adoption of SFAS No. 121 did not have a significant effect on the Company's consolidated financial position or results of operations for the year ended December 31, 1996. Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting For Stock-Based Compensation." As permitted by SFAS No. 123, the Company has continued to account for its stock-based transactions to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." As required by SFAS No. 123, for stock option grants to non-employees, the Company calculates compensation expense using a fair value based method and amortizes compensation expense over the vesting period. During the year ended December 31, 1996, the Company did not grant any options to purchase shares of common stock to non-employees. Marketable Securities The Company's marketable securities have been classified as trading securities and are carried at their fair value on the consolidated balance sheet. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reporting period. Actual results could differ from these estimates. F-7 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Revenue Recognition Revenue is recognized when products are shipped. The Company provides allowances for estimated doubtful accounts and sales returns based on historical experience and evaluation of specific accounts. Such allowances, excluding amounts related to Farberware Inc. (see Note 2), were comprised of the following: December 31, -------------------- 1995 1996 --------- -------- Sales returns and allowances......... $2,604 $3,501 Doubtful accounts.................... 1,603 1,861 ------- ------- $4,207 $5,362 ======= ======= Customers Substantially all customers are retailers. No base of customers in one geographic area constitutes a significant portion of sales. No single customer represented 10% or greater of consolidated net sales in 1994, 1995 or 1996. Inventories Inventories are stated at the lower of cost or market. Two subsidiaries determine cost on the last-in, first-out (LIFO) method for silver and certain non-silver inventories. For all other inventories, cost is determined on the first-in, first-out (FIFO) method. Property, Plant and Equipment Purchased property, plant and equipment is recorded at cost. Leased equipment is recorded at the present value of the minimum lease payments required during the lease term. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets and over the terms, if shorter, of the related leases, as follows: Years --------- Buildings and improvements......... 4 to 39 Tools and dies..................... 3 to 10 Machinery and equipment............ 3 to 10 Other.............................. 3 to 10 Purchase Price in Excess of Net Assets Acquired Purchase price in excess of net assets acquired is amortized using the straight-line method over 30 years (Note 2). The Company evaluates the carrying value of goodwill based upon current and anticipated net income and undiscounted cash flows, and recognizes an impairment when it is probable that such estimated future net income and/or cash flows will be less than the carrying value of goodwill. Measurement of the amount of impairment, if any, is based upon the difference between carrying value and estimated fair value. Other Assets Other assets consist principally of deposits, deferred fees, deferred financing costs and deferred long-term rent. Deferred financing costs are being amortized using the straight-line method over the terms of the related loans. Accumulated amortization aggregated approximately $100 and $125 at December 31, 1995 and 1996 respectively. Advertising Costs Advertising costs are charged to operations when incurred. These costs totaled $3,035, $3,064 and $3,690 in the years ended December 31, 1994, 1995 and 1996, respectively. F-8 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Financial Instruments The carrying values of cash and equivalents, accounts receivable, accounts payable and borrowings under revolving credit facilities approximate fair value due to the short-term nature of these instruments. Income Taxes The Company and its domestic subsidiaries (except for Wallace's Puerto Rican subsidiaries) file a consolidated federal income tax return. The Puerto Rican subsidiaries file separate returns in accordance with Section 936 of the Internal Revenue Code. Deferred income taxes are provided for certain income and expense items which are accounted for differently for financial reporting and income tax purposes. Foreign Currency Translation Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at year-end exchange rates and income and expense items are translated at the average rates of exchange prevailing during each year. The effects of foreign currency fluctuations on the foreign subsidiaries assets and liabilities have been reflected as a separate component of stockholders' equity. Transaction gains and losses have been insignificant. Earnings Per Share Earnings per share are computed based on the weighted average common and common equivalent shares outstanding during each period presented. Common stock equivalents include common stock options (treasury stock method). Primary and fully diluted earnings per share are the same for each of the periods presented. Reclassification Certain prior year amounts have been reclassified to conform with the 1996 presentation. Cash Flow Information Supplemental cash flow information is as follows:
Year Ended December 31, -------------------------------------- 1994 1995 1996 ---------- ---------- --------- Cash paid during the year for: Interest................................................. $ 827 $ 268 $2,383 ======= ======= ======= Income taxes............................................. $10,741 $30,593 $16,791 ======= ======= ======= Supplemental schedule of non-cash investing and financing activities: Purchase of common stock for retirement, financed by issuance of promissory notes and assumption of bank debt $51,735 ======= Rights redemption obligation............................. $ 87 ======= Share transfer by principal stockholder.................. $2,338 =======
2. Acquisitions Acquisitions of Businesses On February 15, 1996, the Company, through an indirect wholly owned subsidiary, acquired the outstanding shares of Rauch for approximately $49,626 including costs of the transaction. The acquisition was accounted for under the purchase method of accounting, and the results of operations of Rauch have been included with the results of the Company from February 15, 1996. F-9 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The purchase price in excess of net assets acquired of $7,224 is being amortized on the straight line basis over 30 years. Rauch is a leading domestic manufacturer and marketer of Christmas and other seasonal products, in particular glass and satin tree ornaments. During 1996, the Company received $23,771 in connection with an insurance claim relating to a 1994 fire at Rauch. The allocation of purchase price is as follows: Cash paid to Rauch shareholders.......................... $ 48,042 Acquisition costs incurred............................... 1,584 -------- Total purchase price..................................... $ 49,626 ======== Allocated to: Cash.................................................... $ 2,084 Accounts receivable.................................... 8,461 Insurance receivable................................... 23,771 Inventories............................................ 19,206 Deferred income taxes.................................. 2,518 Prepaid expenses and other............................. 983 Property, plant and equipment, net..................... 23,081 Other assets........................................... 89 Purchase price in excess of net assets required........ 7,224 Current liabilities.................................... (22,303) Deferred income taxes.................................. (15,488) -------- $ 49,626 ======== The following summarized pro forma (unaudited) information assumes the acquisition had occurred on January 1, 1995. Year Ended December 31, --------------------------- 1995 1996 ----------- ---------- Net sales................................. $228,439 $271,540 ========= ========= Income from continuing operations......... $ 15,316 $ 19,657 ========= ========= Net income................................ $ 48,339 $ 19,657 ========= ========= Earnings per share: Continuing operations.................... $ 1.30 $ 2.23 ========= ========= Net income............................... $ 4.10 $ 2.23 ========= ========= On May 8, 1996, the Company, through one of its subsidiaries, acquired all of the outstanding common stock of C.J. Vander Ltd., a manufacturer of sterling silver and silverplated flatware and hollowware in Sheffield and London, England. The purchase price was immaterial to the Company's consolidated financial statements. The acquisition was accounted for under the purchase method of accounting. Acquisition of Assets In February of 1996, the Company entered into an agreement to acquire certain assets, including a major portion of the tangible assets, intellectual property and the corporate name, of Farberware Inc. ("Farberware Inc."). Effective April 2, 1996, the Company, through its indirect wholly-owned subsidiary, Far-B Acquisition Corp. ("Far-B"), together with Lifetime Hoan Corporation ("Lifetime") acquired certain assets from Farberware Inc., a subsidiary of U.S. Industries, Inc. The Company and Lifetime are not affiliates. Farberware Inc. was a manufacturer of aluminum clad, stainless steel cookware and bakeware and small electric kitchen appliances. The aggregate consideration paid by Far-B and Lifetime was $45,771, subject to adjustment, of which Far-B paid approximately, $32,611. The amount of the adjustment was the subject of a dispute F-10 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) which was settled on February 3, 1997. The assets acquired by the Company included certain of the inventory, the tradename "Farberware" and the intellectual property (including the intellectual property that relates to cookware and bakeware and electric products other than major kitchen appliances) and certain tools and dies and machinery and equipment. Effective April 2, 1996, the Company, through Far-B, entered into a manufacturing services agreement with Farberware Inc. for transitional manufacturing services for certain finished goods previously produced by Farberware Inc. The Company entered into the manufacturing services agreement in part to provide continuity of product during a transition period in order to protect the strength of the Farberware name in the marketplace. The manufacturing services agreement has terminated. Upon disposal of the acquired inventory, the Company will not manufacture or sell Farberware cookware and bakeware products or noncommercial electric products. Accordingly, net sales for the year ended December 31, 1996 exclude revenue from sales of Farberware inventory, and $3,948, net of certain selling, general and administrative expenses, from these sales has been recorded as other operating income. At December 31, 1996, accounts receivable, net and inventories of the Company included $4,972 and $3,289, respectively related to Faberware. In a separate transaction, the Company and Far-B entered into an agreement with Lifetime, which provided for the allocation between them of the assets acquired from Farberware Inc., the granting of a long-term license to Lifetime for use of the Farberware name in connection with an extensive list of products, the granting to Lifetime of long-term exclusive rights to operate Farberware outlet stores, the reservation of certain exclusive rights to Far-B (including exclusive rights to use of the Farberware name for corporate purposes and for the marketing of cookware and bakeware products as well as electric products) and for the future formation of a joint venture to administer certain licensing rights. On June 27, 1996, the Company's Farberware Inc. subsidiary (formerly Far-B) ("Farberware") entered into a license agreement with Meyer Marketing Co. Ltd. ("Meyer") pursuant to which Meyer was granted for a term of 200 years (i) an exclusive worldwide license to use and exploit the Farberware name and certain related intellectual property rights in connection with the sourcing, manufacture and distribution of cookware and bakeware products for home use and commercial, industrial and institutional size pots, pans and roasters, and (ii) non-exclusive (shared) rights to use certain Farberware technology and other intellectual property. For such grant, Meyer made a one-time payment to the Company of $25,500 which resulted in recognition by the Company of $11,900 of non-recurring income. Under the terms of the licensing agreement, the Company has no further obligation with respect to the amount paid by Meyer. As such, the entire proceeds received were recognized as revenue in the second quarter of 1996. On July 12, 1996, Farberware granted to a major retail chain the exclusive license to use and exploit the Farberware name and related intellectual property in connection with the sourcing, manufacture, marketing and sale of certain electric products for annual royalty payments. On October 25, 1996 Farberware granted to FCI Corp. a license to use and exploit the Farberware name in connection with the sourcing, manufacturing, marketing and sale of certain commercial products (defined as six specified commercial urns and one specified commercial convection oven plus cookware, bakeware and electric products developed by the Licensee solely and exclusively for commercial, industrial or institutional use with the prior written approval of Farberware) for the payment of annual royalties. See Note 12. On February 3, 1997 the Company, Farberware, and Lifetime reached an agreement (the "Settlement Agreement"), with Bruckner Manufacturing Corp. ("BMC") and U.S. Industries Inc. ("USI") to settle all previous outstanding legal disputes arising out of the Farberware Asset Purchase Agreement ("APA") and the Manufacturing Services Agreement ("MSA"). Under the terms of the Settlement Agreement, Farberware will receive certain finished goods inventory at no cost, and pay for certain finished goods inventories purchased under the MSA. Farberware will also receive a waiver of certain restrictions in the APA on disposing of tools, machinery, and equipment formerly used by BMC in the manufacture of Farberware products. The Company intends to sell the majority of the tools, machinery and equipment and will retain the remainder for use in its existing businesses. The settlement did not result in any adjustment to the original purchase price and no loss is expected to be incurred as a result of the settlement. F-11 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) On April 16, 1996, the Company purchased finished goods inventory and intangible assets of the Silvestri division of FFSC, Inc. ("Silvestri") for approximately $8,600. Prior to the Company's purchase of such assets, FFSC, Inc., its subsidiaries and affiliated companies had filed for protection under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Texas (the "Bankruptcy Court"). The Bankruptcy Court approved this acquisition by the Company. Silvestri products include Christmas ornaments, collectibles, lighting and trim as well as other seasonal and nonseasonal giftware and decorative accessories. The Corporation has given a Guaranty (limited to $4,000), dated as of May 21, 1996, of the obligations of FF Holding Company, FFSC, Inc. and certain related entities to The CIT Group/Business Credit, Inc. under a certain debtor in possession financing agreement dated May 21, 1996 and, at the request of the Company, NationsBank N.A. (South) has issued its letter of credit, dated May 31, 1996 in the amount of $4,000 to CIT Group/Business Credit, Inc. to secure the Company's aforesaid guaranty. On November 26, 1996, a wholly-owned subsidiary of the Company acquired inventory, tangible property, intellectual property rights, certain records (including customer lists, customer files, supplier information, catalogs) and certain contract rights of Potpourri Press, Inc., a North Carolina- based manufacturer and marketer of Christmas products, for a purchase price of approximately $2,300 plus a $240 promissory note (Note 7). 3. Discontinued Operations On April 11, 1995, pursuant to an agreement entered into on March 28, 1995, the Company, through its subsidiary, Syratech Holding Corporation, sold Syroco, Inc. ("Syroco"). The net proceeds received after costs of the sale and income taxes were $133,931. On September 25, 1995, the Company reached a final settlement regarding the sale of Syroco. Under the terms of the settlement, the Company reacquired certain assets and reassumed certain liabilities of Syroco which have been recorded at their estimated net fair value of $1,834 at December 31, 1995. The Company does not expect that the liquidation of the assets will have a material effect on the previously recognized gain on disposal. An after tax gain on disposal of Syroco of $30,451 was recognized in the second quarter of 1995. The sale resulted in the discontinuation of the Company's casual furniture and accessories business. The assets and liabilities relating to the discontinued business are included in net assets of discontinued operations in the consolidated balance sheets at December 31, 1995. The results of operations and cash flows for the discontinued segment are included in discontinued operations in the consolidated income statements and the consolidated statements of cash flows for years ended December 31, 1994, 1995 and 1996. Net assets of discontinued operations at December 31, 1995 consisted of the following: Inventories, net........................... $ 1,778 Property, plant and equipment, net......... 227 Other assets............................... 875 Liabilities................................ (1,046) ------- Total.................................... $ 1,834 ======= Operating results of the discontinued segment consisted of the following:
Year Ended Three Months December 31, Ended March 31, 1994 1995 --------------- ----------------- (unaudited) Net sales........................................ $94,883 $33,626 ======== ======== Income before provision for income taxes......... $19,489 $ 4,217 Provision for income taxes....................... 7,421 1,645 -------- -------- Income from discontinued operations.............. $12,068 $ 2,572 ======== ========
The operating results of the discontinued segment exclude previously allocated corporate expenses. F-12 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 4. Marketable Securities At December 31, 1995, marketable securities consisted of $30,000 of short-term high grade notes having original maturities of six months. Marketable securities are carried at fair value which approximates cost plus accrued interest. Interest earned at December 31, 1995 but not paid, of $561, is included in interest income for the year ended December 31, 1995. There were no marketable securities at December 31, 1996. 5. Inventories Inventories were comprised of the following: December 31, ---------------------- 1995 1996 ---------- --------- Raw Materials........... $3,908 $9,020 Work-in-process......... 1,744 5,980 Finished goods.......... 35,499 64,355 ------- ------- Total................. $41,151 $79,355 ======= ======= Inventories would have been approximately $2,752 and $3,430 higher at December 31, 1995 and 1996, respectively, if the FIFO method had been used for all inventories. Decreases in LIFO inventory quantities had the effect of increasing consolidated net income by $4 in 1994, and decreasing consolidated net income by $59 in 1996. There were no decreases in LIFO inventory quantities in 1995. 6. Property, Plant and Equipment Property, plant and equipment was comprised of the following: December 31, --------------------------- 1995 1996 ------------ ------------ Land and improvements.................. $ 7,813 $ 8,305 Buildings and improvements............. 18,780 41,838 Tools and dies......................... 13,808 14,635 Machinery and equipment................ 6,046 25,388 Other.................................. 1,169 1,619 Construction in progress............... 1,239 4,923 -------- -------- Total................................ 48,855 96,708 Less: accumulated depreciation......... (19,295) (32,753) -------- -------- Net.................................. $ 29,560 $ 63,955 ======== ======== Capitalized interest was not material to the Company's consolidated financial statements. On January 17, 1997, the Company purchased a parcel of land in Mira Loma, California for $3,179. The Company plans to begin construction of a warehouse and distribution facility on this land in 1997. 7. Revolving Loan Facilities and Notes Payable Revolving Loan Facilities Effective October 31, 1996, the Company's Amended and Restated Loan and Security Agreement (the "Company Loan Agreement") provides for maximum permitted borrowings of $100,000 through December 31, 1996 and to $60,000 until the earlier of April 30, 1997 or the completion of refinancing contemplated with respect to the Agreement and Plan of Merger with THL Transaction I Corp. (Note 15). Interest on borrowings is charged at the bank's prime rate less .75% (7.5% at December 31, 1996) or at an option to borrow at 1.0% over the Eurodollar F-13 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) rate (6.53% using the 30 day Eurodollar rate, at December 31, 1996). The weighted average interest rate on borrowings outstanding under this facility for the year ended December 31, 1996 was 7.29%. The Company Loan Agreement as amended expires on April 30, 1997. At December 31, 1996, there was $5,878 outstanding under the Company Loan Agreement and credit availability (net of letters of credit outstanding) was $83,770. On January 1, 1997 availability was reduced by $40,000. Borrowings are collateralized by substantially all of the assets of the Company and its subsidiaries with the exception of C.J. Vander. The Company Loan Agreement restricts the payment of cash dividends to 331/3% of net income for the prior year. In addition, it limits repurchases of the Company's outstanding capital stock and capital expenditures, and contains covenants which require, among other things, minimum levels of consolidated tangible net worth and the maintenance of certain financial ratios. In December 1995, the restriction to repurchase outstanding capital stock was modified to allow the Company to repurchase all of the 3,064,751 shares of the Company's stock owned by affiliates of Katy Industries, Inc. (the "Katy Stock Repurchase"). The agreement was modified in December 1995 to permit the acquisition of Rauch referred to in Note 2. During 1996, further modifications were made to permit the Farberware, Silvestri, C.J. Vander and Potpourri acquisitions. At December 31, 1996, the Company had $6,783 unrestricted retained earnings available for payment of cash dividends. During 1996, one of Wallace's Puerto Rican subsidiaries and its lender entered into an Amended and Restated Line of Credit Agreement (the "Facility") which provides for borrowings up to a maximum of $10,000 and expires on May 31, 1997. Interest on borrowings is charged at the bank's prime rate minus .30% (7.95% at December 31, 1996 or at an option to borrow at the Eurodollar rate plus 1.70% (7.2313%, using the 30 day Eurodollar rate, at December 31, 1996). The weighted average interest rate on borrowings outstanding under this Facility for the year ended December 31, 1996 was 8.08%. At December 31, 1996 $558 was outstanding under the Facility and the credit availability was $9,442. Borrowings are uncollateralized; however, the pledge of assets owned by one of the subsidiaries as collateral for other loans is prohibited. Borrowings under the Facility are guaranteed by the Company and cross-guaranteed by certain other subsidiaries. Notes Payable At December 31, 1996, the Company had a note payable of $200 related to the purchase of Potpourri (Note 2). At December 31, 1995, the Company had notes payable of $51,735 related to the purchase of 3,064,751 shares of the Company's common stock on December 29, 1995 (Note 11). These notes were paid on January 2, 1996. F-14 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 8. Income Taxes The provisions for income taxes were comprised of the following: Year Ended December 31, -------------------------------------- 1994 1995 1996 --------- ---------- ---------- Current: Federal......... $1,356 $ 6,518 $11,379 State........... 524 1,674 3,542 Foreign......... 625 937 1,307 ------ ------- ------- 2,505 9,129 16,228 ------ ------- ------- Deferred: Federal......... (561) (1,805) (3,344) State........... 87 (383) (900) Foreign......... (19) -- -- ------ ------- ------- (493) (2,188) (4,244) ------ ------- ------- Tax effect of stock options: Federal......... 574 (60) 193 State........... 172 (18) 57 ------ ------- ------- 746 (78) 250 ------ ------- ------- Total.......... $2,758 $ 6,863 $12,234 ====== ======= ======= The reconciliations between the Company's effective income tax rate and the U.S. federal statutory rate are as follows:
Year Ended December 31, ----------------------------- 1994 1995 1996 -------- -------- ---------- Federal statutory rate.............................. 35.0% 35.0% 35.0% State taxes, net of federal income tax benefit...... 3.1 2.5 4.9 Hong Kong........................................... (6.6) (4.8) (4.3) Puerto Rico......................................... (6.0) (3.8) (2.4) United Kingdom...................................... -- -- 0.6 Provision for undistributed foreign earnings........ 1.6 5.0 1.6 Valuation allowance................................. -- -- 1.6 Other............................................... (1.1) 0.4 0.5 ------ ------ ------ Effective income tax rate.......................... 26.0% 34.3% 37.5% ====== ====== ======
The components of income before provision for income taxes were comprised of the following: Year Ended December 31, -------------------------------------- 1994 1995 1996 ---------- ---------- --------- Domestic......... $7,081 $14,480 $25,457 Foreign.......... 3,536 5,559 7,166 ------- -------- -------- Total.......... $10,617 $20,039 $32,623 ======= ======== ======== Provisions have been made for taxes on the undistributed earnings of Syratech H.K. and Wallace's Puerto Rican subsidiaries which are ultimately expected to be remitted to the parent company. The Company has permanently invested a portion of the undistributed earnings of its Puerto Rican and Syratech H.K. subsidiaries. It is not practical to estimate the amount of unrecognized deferred tax liability attributable to these undistributed foreign earnings. F-15 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Wallace's Puerto Rican subsidiaries operate under grants from the Commonwealth of Puerto Rico exempting 90% of their income from taxation until December 2003. Had the Company not been eligible for the tax exemption, net income in 1994, 1995, and 1996 would have been reduced by approximately $1,330, $1,198, and $1,211, and earnings per share would have been decreased by approximately $.11, $.10, and $.14, respectively. The tax effects of significant items comprising the Company's net deferred tax asset (liability) are as follows:
December 31, -------------------------------------- 1995 1996 ------------------- ---------------- Deferred tax liability: Property, plant and equipment................ $ (2,349) $ (17,263) Foreign earnings............................. (1,994) (2,525) -------- --------- Deferred tax liability...................... (4,343) (19,788) -------- --------- Deferred tax assets: Accounts receivable.......................... 2,171 4,475 Inventory.................................... 1,447 2,336 Reserves and accruals........................ 1,567 2,266 Pension...................................... 522 1,876 Other deductible amounts..................... 84 69 Contribution carryforwards................... -- 433 Foreign operating loss carryforwards......... -- 175 -------- --------- Deferred tax asset.......................... 5,791 11,630 -------- --------- Valuation allowance.......................... -- (608) -------- --------- Net deferred tax asset (liability)........... $ 1,448 $ (8,766) ======== =========
The valuation allowance relates to the potential unusable portion of foreign tax loss carryforwards of $530 and contribution carryforwards of $1,066. 9. Commitments and Contingencies The Company and its subsidiaries have various operating lease commitments for buildings and equipment. The lease agreements generally require the Company to pay insurance, real estate taxes, and maintenance and contain various renewal options. Future minimum rental payments for all noncancellable operating leases for each of the next five years and thereafter are as follows: 1997....................... $ 3,552 1998....................... 1,887 1999....................... 1,632 2000....................... 1,123 2001....................... 628 Subsequent to 2001......... 480 Rent expense for all operating leases was approximately $1,789, $1,821, and $5,209 in 1994, 1995 and 1996, respectively. Certain subsidiaries were contingently obligated for outstanding letters of credit, trade acceptances and similar instruments aggregating $10,348 at December 31, 1996 (Note 7). The assets of Syratech H.K. are pledged as collateral for certain of these contingent obligations. 10. Employee Benefit Plans The Company has three 401(k) savings plans. The 401(k) savings plans cover substantially all employees of its domestic and Puerto Rican subsidiaries. The 401(k) plans are subject to certain minimum age and length of employment requirements. Under two of these plans, the Company matches 30% of participants' contributions up to 6% of compensation. Under the other plan, the Company matches 50% of the first five hundred twenty dollars F-16 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) contributed and 25% thereafter, of the participants' contributions up to 15% of compensation. The Company also has a savings plan, established in 1991, covering substantially all employees of the Company's Hong Kong subsidiary. Under the Hong Kong plan, the Company contributes up to 10% of the participants' compensation. The Company contributed an aggregate of $197, $256 and $597 to all of these Plans in 1994, 1995 and 1996. The Company's C. J. Vander subsidiary also has an employee benefit plan. The Company's obligation under the plan is not material to the Company's consolidated financial position or results of operations. The Company has employment agreements with certain officers and employees for terms ranging from three to five years, which provide for minimum annual salaries aggregating $2,451 and certain other benefits. Agreements with the Company's five officers provide for retirement benefit payments. With respect to two of these officers, for the year ended December 31, 1994, the agreements provided for benefit payments in amounts equal to two percent of the officers' final year base salaries multiplied by the number of years of service with the Company. In 1995, these two agreements were amended to provide that the benefit payments be based upon two percent of the average total annual compensation (salary and bonus) for the three year period preceding the executives' retirement dates multiplied by the number of years of service. In addition, one of the agreements was amended (the "1995 Plan Amendment") to provide for a 100% survivor benefit for the executive's spouse. In 1996 existing employment agreements with two officers were amended to also provide for a retirement benefit. Additionally, a third officer who does not have an employment agreement with the Company was granted a retirement benefit. Two of these agreements were amended to provide for benefit payments based upon the greater of (i) $75,000 or (ii) one half of one percent of the average total annual compensation (salary and bonus) for the three year period preceding the executives' retirement dates multiplied by the number of years of service. One of these agreements was amended to provide for benefit payments based upon the greater of (i) $75,000 or (ii) one percent of the average total annual compensation (salary and bonus) for the three year period preceding the executives' retirement dates multiplied by the number of years of service. Upon consummation of the Merger (Note 15), an employment agreement with an officer will be amended so as to (i) change the officer's term of full-time employment from a rolling five-year term to a fixed five-year term, (ii) provide for a minimum base salary of $1,150 per annum, (iii) establish $1,150 as the minimum amount upon which the officer's retirement benefit (and the survivor's benefit of his surviving spouse) will be computed and (iv) create contractual rights with respect to certain perquisites that he is accorded informally under present arrangements with the Company. Additionally, an employment agreement with another officer will be amended to change the officer's term of full-time employment from a rolling five-year term to a fixed five-year term. Pension expense is determined using assumptions at the beginning of the year. Assumptions used in determining the actuarial present value of the projected benefit obligation include: a discount rate of 8.5% in 1994 and 1995 and 7.5% in 1996 and a rate of future increases in benefit compensation of 5%. The effect of the change in discount rate was not material to the consolidated financial statements. Net pension cost included the following components: 1994 1995 1996 ------- ------- -------- Service cost for benefits earned........... $137 $196 $ 317 Interest cost benefit obligation........... 71 123 199 Amortization of prior service cost......... -- 476 620 Amortization of (gain)/loss................ -- -- 191 ----- ----- ------ Net periodic pension cost.................. $208 $795 $1,327 ===== ===== ====== The following table summarizes the amounts recognized in the consolidated balance sheets as of December 31, 1995 and 1996: F-17 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1995 1996 --------- -------- Actuarial present value of obligations: Vested benefit obligation.................................... $1,724 $3,287 Projected benefit obligation................................. 2,012 3,612 Fair value of plan assets..................................... -- -- Projected benefit obligation in excess of plan assets......... 2,012 3,612 Unrecognized prior service cost............................... (603) (610) Unrecognized gain/(loss)...................................... (45) (311) Additional minimum liability.................................. 360 597 ------ ------ Net accrued pension liability................................. $1,724 $3,288 ====== ======
11. Stockholders' Equity Key Employee Stock Option Plans Under the Company's 1986 Key Employee Stock Option Plan ("1986 Plan"), qualified and non-qualified options to purchase up to a maximum of 1,300,000 shares of common stock were granted to certain employees at exercise prices not less than 85% of the fair market value at the date of grant. Options become exercisable ratably over a five-year period and expire ten years from the date of grant. There were no shares available for grant under the 1986 Plan at December 31, 1996. Compensation cost has been recognized for the Company's 1986 Plan for the amount equal to 15% of the fair market value at the date of grant ratably over the five year period that they became exercisable over. In 1993, the Company established the 1993 Key Employee Stock Option Plan ("1993 Plan"), with provisions similar to the 1986 Plan. Under the 1993 Plan, qualified and non-qualified options to purchase up to a maximum of 400,000 shares of common stock may be granted to certain employees at an exercise price not less than fair market value at the date of grant. At December 31, 1996, 67,000 options were outstanding under the 1993 plan. In 1995, the Company established the 1995 Key Employee Stock Option Plan ("1995 Plan"). The 1995 Plan contains certain provisions similar to the 1993 Plan and would allow the grant of 800,000 options at an exercise price not less than fair market value at the date of grant. At December 31, 1996, 20,000 options were outstanding under the 1995 plan. No compensation cost has been recognized for the Company's 1993 and 1995 Plans. F-18 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) A summary of stock option activity under the Plans is as follows:
Weighted Average Exercise Price Exercise Price Shares Per Share Per Share ----------- ----------------- ------------------ Outstanding at January 1, 1994........... 297,350 $.0038--$13.70 $9.66 Canceled................................. (8,400) $ 10.67 $10.67 Granted.................................. 50,000 $ 14.35 $14.35 Exercised................................ (38,200) $.0038--$10.67 $7.88 --------- Outstanding at December 31, 1994......... 300,750 $.0038--$14.35 $10.64 Canceled................................. (90,900) $10.67--$14.56 $12.91 Granted.................................. 54,500 $14.56--$18.75 $16.87 Exercised................................ (44,150) $.0038--$10.67 $7.29 --------- Outstanding at December 31, 1995......... 220,200 $.0038--$18.75 $11.92 Canceled................................. (102,000) $10.67--$24.75 $24.47 Granted.................................. 139,500 $23.00--$24.75 $24.68 Exercised................................ (28,200) $.0038--$10.67 $7.17 --------- Outstanding at December 31, 1996......... 229,500 $10.67--$24.75 $14.68 ========= Exercisable at December 31, 1996......... 107,080 $10.67--$18.75 =========
The following table sets forth information regarding options outstanding at December 31, 1996:
Weighted Weighted Average Weighted Average Exercise Range of Number Average Remaining Price for Number of Exercise Currently Exercise Contractual Currently Options Prices Exerciseable Price Years Exerciseable - ------------ ------------------- --------------- ----------- -------------- -------------- 142,500 $10.67 to $14.56 97,580 $11.11 5.97 $11.03 87,000 $17.13 to $24.75 9,500 $20.52 8.66 $ 17.22 -------- -------- 229,500 107,080 $14.68 6.99 $ 11.58 ======== ========
The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option and other employee stock based compensation plans. Had compensation cost for the Company's stock option plans been determined based on fair value at the grant dates for awards under those plans which were granted on or after January 1, 1995 consistent with the method of SFAS No. 123, the Company's net income and earnings per share for the two years ended December 31, 1996 would have been reduced to the pro forma amounts indicated below: Year Ended December 31, ------------------------- 1995 1996 ---------- --------- Net income: As reported......... $46,199 $20,389 ======== ======== Pro forma........... $45,762 $20,036 ======== ======== Net income per share As reported......... $ 3.91 $ 2.32 ======== ======== Pro forma........... $ 3.88 $ 2.28 ======== ======== The pro forma results are not necessarily indicative of results that would have been reported if all options had been measured under SFAS No. 123. F-19 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The weighted average remaining contractual life of options outstanding at December 31, 1996 was 6.99 years. The weighted average fair value of options granted during 1995 and 1996 was $8.03 and $8.94 per share, respectively. The fair value of options granted under the Company's stock option plans during 1995 and 1996 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used: no dividend yield, expected volatility of 30.6%, risk free interest rate of 6.0%, and expected lives of either 5.3 or 7.7 years. Transfer of Shares On December 31, 1996, the Company's Chief Executive Officer and principal shareholder (the "Principal Shareholder") of the Company, the Company and THL Transaction I Corp. entered into agreements with three executive officers whereby the Principal Shareholder will transfer up to 73,068 shares (the Shares) of his Syratech common stock to the Company to effect the transfer of an equal number of newly issued shares to the executive officers. In connection with each transfer of shares of stock, the agreements also provide for each executive to receive, from the Company, as additional compensation, an annual lump sum cash payment (the "Lump Sum Payments") for the reimbursement of income taxes owed by the executive as a result of such transfer and payment. The transfer of Shares by the Principal Shareholder and the Lump Sum Payments to the executives are irrevocable and unconditional and are not based upon the executives future employment with the Company. On December 31, 1996, 31,812 shares were transferred and Lump Sum Payments totaling $703 were made to the executives. Shares aggregating 31,884 were transferred as of January 14, 1997. Additional shares of up to 9,372 will be transferred on January 14, 1998. The estimated value of the shares has been recorded as an addition to additional paid-in capital of $2,338. Total compensation expense equal to the estimated fair value of the Shares plus an estimate of the aggregate Lump Sum Payments, or $3,953 was recorded in the fourth quarter of 1996. Short and long-term compensation payable was $705 and $207, respectively at December 31, 1996. The weighted average fair value of the shares was $31.50. The fair value of the shares based on the provision of SFAS No. 123 was not materially different from the amounts recorded. Purchase of Common Stock On December 29, 1995, the Company effected the Katy Stock Repurchase. The aggregate purchase price of $52,054 represented approximately $17 per share. The purchase was financed by the issuance of two promissory notes due January 2, 1996 to subsidiaries of Katy and the assumption of short-term bank debt, all aggregating $51,735. The two promissory notes and the short-term bank debt were paid on January 2, 1996. The Company's par and additional paid-in capital values have been decreased to reflect the purchase. Shareholder Rights Plan On October 26, 1992 the Company's Board of Directors adopted a Shareholder Rights Plan (the "Plan"). Under the Plan, the Company distributed a dividend of one right (a "Right") to purchase shares of preferred stock to stockholders of record on October 31, 1992 and further authorized the issuance of one Right to each share of common stock which becomes outstanding after the record date. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of a new series of preferred stock ("Series A Preferred stock") at a price of $50, subject to adjustment. As amended on July 5, 1994, the Rights become exercisable only if an individual or group (an "Acquiring Person") acquires 15% or more of the outstanding common stock or commences a tender offer which would result in its ownership of 30% or more of the outstanding common stock, or in the case of a person who beneficially owned 20% or more of the outstanding common stock on October 26, 1992, such person acquires an additional 1% or more of the outstanding common stock. F-20 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) As required by the Agreement and Plan of Merger (Note 15), effective on November 8, 1996, the Company redeemed all outstanding Rights and terminated the Shareholder Rights Plan pursuant to which the Rights were issued. The redemption price for each Right is one cent and if holders of Rights have not received payment of the redemption price prior to the Effective Time they will have the redemption price of their Rights added to the payment of the cash price for their shares of Company Common Stock in the Merger. 12. Related Party Transactions A beneficial owner of less than 1% of the Company holds a significant management role in Service Merchandise Co., Inc. ("Service"). A different person is a director of the Company and is also a director of Service. The Company had net sales to Service of approximately $9,909, $10,706 and $12,432 in 1994, 1995 and 1996, respectively. The Company had accounts receivable from Service of approximately $756 and $1,260 at December 31, 1995 and 1996, respectively. Effective July 12, 1996, the Company, through an indirect wholly-owned subsidiary, granted a license to Service to use certain trademarks, patents and copyrights relating to certain electric and other products. The agreement is subject to cancellation with six months notice by the licensee. Wacker Industrial Company ("Wacker"), a major supplier, is owned by a holder of less than 1% of the Company's common stock. In 1994, 1995 and 1996, the Company had purchases from this supplier of approximately $6,176, $5,371 and $4,478 respectively. Accounts payable to this supplier approximated $75 and $93 at December 31, 1995 and 1996 respectively. Other transactions with companies affiliated with certain directors/stockholders include net sales of approximately $297, $735 and $790 and purchases of products and services of $1,228 and $746 in 1994 and 1995, respectively. There were no purchases of products and services in 1996. As of December 31, 1996, amounts receivable from these companies approximated $7, there were no accounts payable. In addition, included in other operating income in 1996 was revenue from the disposal of Farberware inventory of $10,166 to Service, $5,033 to Lifetime and $1,660 to a company affiliated with a certain director/stockholder. At December 31, 1996 amounts receivable from Service and Lifetime were $316 and $455, respectively. 13. Foreign Operations The Company's foreign operations relate to its Hong Kong subsidiary, and as of May 8, 1996, its C.J. Vander subsidiary, the sales of the Hong Kong subsidiary are substantially to customers in the United States and the sales of its C.J. Vander subsidiary are primarily to foreign customers. Summarized financial information about the Company's operations in different geographic areas is as follows: F-21 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Year Ended December 31, ----------------------------------- 1994 1995 1996 ----------- ----------- ---------- Net sales: United States................. $114,457 $122,950 $212,516 Hong Kong..................... 32,834 46,570 54,749 Other foreign................. -- -- 3,666 --------- --------- -------- Total........................ $147,291 $169,520 $270,931 ========= ========= ======== Income (loss) from operations: United States................. $ 7,497 $ 9,846 $ 15,372 Hong Kong..................... 3,581 5,599 8,235 Other foreign................. -- -- (505) --------- --------- -------- Total........................ $ 11,078 $ 15,445 $ 23,102 ========= ========= ======== Identifiable assets: United States................. $185,632 $213,162 $212,377 Hong Kong..................... 5,052 7,404 7,754 Other foreign................. -- -- 7,123 --------- --------- -------- Total........................ $190,684 $220,566 $227,254 ========= ========= ======== 14. Litigation The Company has been named as a defendant in several legal actions arising from its normal business activities. The Company carries insurance against liability for certain types of risks. Although the amount of liability that could result from any litigation cannot be predicted, in the opinion of management, the Company's potential liability on all known claims would not have a material adverse effect on the consolidated financial position or results of operations of the Company. 15. Agreement and Plan of Merger On October 23, 1996, the Company and THL Transaction I Corp., a company organized and controlled by affiliates of Thomas H. Lee Company, entered into an Agreement and Plan of Merger, dated November 27, 1996, effective, as of October 23, 1996, as amended effective as of February 14, 1997, pursuant to which THL Transaction I Corp. will be merged into the Company (the "Merger"). Pursuant to the transaction, stockholders of the Company will receive $32.00 in cash per share (except that the Principal Shareholder will receive only $28.00 in cash per share) or may elect to receive a portion of their consideration by retaining stock of the surviving entity. Upon consummation of the Merger, the Company would have on a pro forma basis, as of December 31, 1996, outstanding debt of approximately $162,319 (unaudited). The transaction is expected to close in the first half of 1997. It is intended that the transaction will be accounted for as a recapitalization. The common equity contribution to be made by THL I Transaction Corp. will constitute approximately $100,217 (unaudited) and up to $18,000 (unaudited) of Cumulative Redeemable Preferred Stock will be issued (less the value of the shares retained by stockholders other than the Company's Principal Shareholder and 63,696 shares that were issued to, and will be retained by, certain management stockholders). The Company's stockholders' equity on a pro forma basis is $22,048 (unaudited) at December 31, 1996 considering the effects of the Merger, because the distribution to stockholders, as well as approximately one-third of the Merger expenses, will reduce common stockholders' equity. The consummation of the Merger is conditioned upon the availability of adequate financing (both debt and equity). It is expected that the financing will include the issuance of $155,000 of Senior Notes (the "Senior Notes"). The Senior Notes are expected to be general unsecured obligations of the Company ranking senior to all existing and future subordinated indebtedness of the Company, including indebtedness of up to $130,000, including a $30,000 letter of credit sublimit, under a 5 year Credit Facility (the "Revolving Credit Facility"). However, the F-22 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) obligations of the Company under the Revolving Credit Facility are expected to be secured by the accounts receivable and inventory of the Company and its domestic subsidiaries and, accordingly, such indebtedness would effectively rank senior to the Senior Notes to the extent of such assets. The Revolving Credit Facility is expected to include a requirement to maintain excess availability of at least $45.0 million at certain periods during the year. The Senior Notes will be fully and unconditionally guaranteed on a joint and several basis by each of the Company's wholly-owned domestic subsidiaries. (The "Guarantor Subsidiaries"). The following condensed consolidating financial statements as of December 31, 1995 and 1996 and for each of the three years in the period ended December 31, 1996, present separate financial information for the Company ("Issuer/Guarantor Parent"), the Guarantor Subsidiaries, the Non Guarantor Subsidiaries, and Discontinued Operations. Separate financial statements of each guarantor are not presented because management believes that such statements would not be materially different from the information presented herein. F-23 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING BALANCE SHEETS December 31, 1995
Issuer Guarantor Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------------ --------------- --------------- --------------- -------------- ASSETS Current assets: Cash and equivalents............... $ 63,354 $ 11,786 $ 3,353 $78,493 Marketable securities.............. 30,561 30,561 Accounts receivable, net........... 30,129 1,764 31,893 Inventories........................ 39,415 1,695 $ 41 41,151 Deferred income taxes.............. 1,582 3,523 5,105 Prepaid expenses and other......... 516 854 232 1,602 Net assets of discontinued operations......................... 1,834 1,834 -------- -------- ------- --------- -------- Total current assets.............. 97,847 85,707 7,044 41 190,639 Property, plant and equipment, net.................... 29,256 351 (47) 29,560 Other assets....................... 130,914 358 9 (130,914) 367 -------- -------- ------- --------- -------- Total............................ $228,761 $115,321 7,404 $(130,920) $220,566 ======== ======== ======= ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving loan facilities and notes payable..................... $ 51,735 $ 51,735 Accounts payable................... $ 4,964 $ 1,474 6,438 Accrued expenses................... 922 3,314 199 $ 1 4,436 Accrued compensation............... 2,212 266 2,478 Accrued advertising................ 1,991 1,991 Income taxes payable............... 20,152 (19,104) 469 (6) 1,511 -------- -------- ------- --------- -------- Total current liabilities......... 72,809 (6,623) 2,408 (5) 68,589 Deferred income taxes.............. 1,819 1,838 3,657 Pension liability.................. 1,724 1,724 Intercompany (receivable) payable........................... (63,540) 68,727 (5,590) 403 Stockholders' equity............... 217,673 49,655 10,586 (131,318) 146,596 -------- -------- ------- --------- -------- Total............................ 228,761 $115,321 $ 7,404 $(130,920) $220,566 ======== ======== ======= ========= ========
F-24 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING BALANCE SHEETS December 31, 1996
Issuer/ Non- Guarantor Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------------ --------------- --------------- --------------- -------------- ASSETS Current assets: Cash and equivalents............... $ 18 $ 146 $ 3,441 $ 3,605 Accounts receivable, net........... 56,719 3,301 60,020 Inventories........................ 74,134 5,180 $ 41 79,355 Deferred income taxes.............. 729 8,211 8,940 Prepaid expenses and other............................. 2,653 1,150 3,803 Total current assets............. 747 141,863 13,072 41 155,723 Property, plant and equipment, net.................... 62,219 1,805 (69) 63,955 Purchase price in excess of net assets acquired............ 7,032 7,032 Other assets....................... 179,442 544 (179,442) 544 -------- -------- ------- --------- -------- Total........................... $180,189 $211,658 $14,877 $(179,470) $227,254 ======== ======== ======= ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving loan facilities and notes payable................. $ 6,604 $ 32 $ 6,636 Accounts payable................... 7,637 2,052 9,689 Accrued expenses................... $ 1,058 9,420 571 11,049 Accrued compensation............... 3,812 416 4,228 Accrued advertising................ 3,273 3,273 Income taxes payable............... 19,907 (19,581) 598 $ 6 930 -------- -------- ------- --------- --------- Total current liabilities..................... 20,965 11,165 3,669 6 35,805 Deferred income taxes............... 2,295 15,411 17,706 Pension liability................... 3,288 3,288 Other long-term liabilities......... 207 207 Intercompany (receivable) payable............................ (62,863) 62,863 (5,718) 5,718 Stockholders' equity................ 219,792 118,724 16,926 (185,194) 170,248 -------- -------- ------- --------- --------- Total........................... $180,189 $211,658 $14,877 $(179,470) $227,254 ======== ======== ======= ========= =========
F-25 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING INCOME STATEMENTS Year Ended December 31, 1994
Issuer/ Guarantor Guarantor Non-Guarantor Discontinued Parent Subsidiaries Subsidiaries Operations Eliminations Consolidated ------------ --------------- ---------------- -------------- --------------------- -------------- Net sales...................... $114,457 $53,495 $(20,661) $147,291 Cost of sales.................. 81,946 43,315 (20,661) 104,600 -------- ------- -------- -------- Gross profit.................. 32,511 10,180 42,691 Selling, general and administrative expenses....... 25,269 6,599 (255) 31,613 -------- ------- -------- -------- Income from operations........ 7,242 3,581 255 11,078 Interest expense............... (496) (63) (559) Interest income................ 80 18 98 Other income................... $2,000 2,000 (4,000) ------- -------- ------- -------- ------- Income before provision for income taxes................. 2,000 8,826 3,536 (3,745) 10,617 Provision for income taxes..... 157 1,995 606 2,758 ------- -------- ------- -------- -------- Income from continuing operations................... 1,843 6,831 2,930 (3,745) 7,859 Discontinued operations, net $12,068 -- 12,068 ------- -------- ------- -------- -------- -------- Net income................... $1,843 $ 6,831 $ 2,930 $12,068 $ (3,745) $ 19,927 ======= ======== ======= ======== ======== ========
F-26 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING INCOME STATEMENTS Year Ended December 31, 1995
Issuer/ Guarantor Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ----------- --------------- --------------- --------------------- -------------- Net sales............................ $122,950 $67,354 $(20,784) $169,520 Cost of sales........................ 87,593 53,027 (20,784) 119,836 -------- ------- -------- -------- Gross profit........................ 35,357 14,327 49,684 Selling, general and administrative expenses............................ 25,522 8,728 (11) 34,239 -------- ------- -------- -------- Income from operations.............. 9,835 5,599 11 15,445 Interest expense..................... (198) (89) (287) Interest income...................... $4,496 336 49 4,881 Other income......................... 1,300 1,300 (2,600) ------- -------- ------- -------- -------- Income before provision for income taxes....................... 5,796 11,273 5,559 (2,589) 20,039 Provision for income taxes........... 2,623 3,303 937 6,863 ------- -------- ------- ------- -------- Income from continuing operations......................... 3,173 7,970 4,622 (2,589) 13,176 Discontinued operations, net......... 33,023 33,023 ------- -------- ------- ------- -------- Net income......................... $36,196 $ 7,970 $ 4,622 $(2,589) $ 46,199 ======= ======== ======= ======= ========
F-27 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING INCOME STATEMENTS Year Ended December 31, 1996
Issuer/ Guarantor Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ----------- --------------- --------------- --------------------- -------------- Net sales........................... $212,530 $85,498 $(27,097) $270,931 Cost of sales....................... 154,622 66,582 (27,091) 194,113 -------- ------- -------- -------- Gross profit....................... 57,908 18,916 (6) 76,818 Selling, general and administrative expenses........................... $(360) 46,844 11,880 (700) 57,664 Other operating income.............. 3,948 3,948 ----- -------- ------ -------- -------- Income from operations............. 360 15,012 7,036 694 23,102 Interest expense.................... (3,114) (36) (3,150) Interest income..................... 70 535 166 771 Other income........................ 11,900 11,900 ----- -------- ------- -------- -------- Income before provision for income taxes...................... 430 24,333 7,166 694 32,623 Provision for income taxes.......... 1,092 9,835 1,307 12,234 ----- -------- ------- -------- -------- Net (loss) income................. $(662) $ 14,498 $ 5,859 $ 694 $ 20,389 ===== ======== ======= ======== ========
F-28 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Year Ended December 31, 1994
Issuer/ Guarantor Guarantor Non-Guarantor Discontinued Parent Subsidiaries Subsidiaries Operations Eliminations Consolidated ----------- --------------- ---------------- -------------- --------------- -------------- Cash flows from operating activities: Net income........................ $ 1,843 $ 6,831 $ 2,930 $ 12,068 $ (3,745) $ 19,927 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization.................... 3,074 451 (255) 3,270 Deferred income taxes............ 1,439 (1,870) (21) (452) Other............................ 116 217 (1) 332 Increase (decrease) in cash: Accounts receivable............. (7,738) (246) (7,984) Inventories..................... (6,350) (240) (6,590) Prepaid expenses and other 566 145 711 Accounts payable and accrued expenses............... 3,661 494 4,155 Income taxes payable............ (1,283) 5,046 (64) 3,699 Intercompany account............ (3,158) (13,235) (3,199) 15,592 4,000 Discontinued operations.......... (27,660) (27,660) ------- -------- ------- ------- ----- --------- Net cash provided by (used in) operating activities............. (1,043) (9,798) 249 (10,592) ------- -------- ------- ------- ----- --------- Cash flows from investing activities: Purchases of property, plant and equipment........................ (2,391) (212) (2,603) Other............................. (194) 1 (193) ------- -------- ------- ------- ----- -------- Net cash used in investing activities....................... (2,585) (211) (2,796) ------- -------- ------- ------- ----- -------- Cash flows from financing activities: Change in revolving loan facilities....................... 11,944 11,944 Repayment of borrowings........... (1,624) (1,624) Other............................. 1,043 62 1,105 ------- -------- ------- ------- ------ -------- Net cash provided by financing activities....................... 1,043 10,382 11,425 ------- -------- ------- ------- ------ -------- Net (decrease) increase in cash and equivalents.................. (2,001) 38 (1,963) Cash and equivalents, beginning of year................ 2,475 1,354 3,829 ------- -------- ------- -------- ------ -------- Cash and equivalents, end of year............................. $ -- $ 474 $ 1,392 $ -- $ -- $ 1,866 ======= ======== ======= ======== ====== ========
F-29 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Year Ended December 31, 1995
Issuer/ Guarantor Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ----------- --------------- --------------- --------------- -------------- Cash flows from operating activities: Net income............................. $ 36,196 $ 7,970 $ 4,622 $ (2,589) $ 46,199 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization......................... 3,089 175 (11) 3,253 Deferred income taxes................. (1,202) (1,027) (2,229) Other................................. 102 1,158 1,260 Increase (decrease) in cash: Marketable securities................ (30,561) (30,561) Accounts receivable.................. (3,273) (376) (3,649) Inventories.......................... (772) (45) (817) Prepaid expenses and other (516) (914) (16) (1,446) Accounts payable and accrued expenses.................... 922 (686) 359 595 Income taxes payable................. 21,241 (23,837) 290 (2,306) Intercompany account................. (47,093) 47,421 (2,928) 2,600 Discontinued operations............... (49,915) (49,915) -------- -------- ------- ------- -------- Net cash (used in) provided by operating activities.................. (70,826) 29,129 2,081 (39,616) -------- -------- ------- ------- -------- Cash flows from investing activities: Net proceeds on sale of Syroco, Inc 133,931 133,931 Purchases of property, plant and equipment............................. (2,559) (120) (2,679) Other.................................. 61 61 -------- -------- ------- ------- -------- Net cash provided by (used in) investing activities.................. 133,931 (2,498) (120) 131,313 -------- -------- ------- ------- -------- Cash flows from financing activities: Change in revolving loan facilities............................ (14,504) (14,504) Repayment of borrowings................ (875) (875) Other.................................. 249 60 309 -------- -------- ------- ------- -------- Net cash provided by (used in) financing activities.................. 249 (15,319) (15,070) -------- -------- ------- ------- -------- Net increase in cash and equivalents........................... 63,354 11,312 1,961 76,627 Cash and equivalents, beginning of year..................... 474 1,392 1,866 -------- -------- ------- ------- -------- Cash and equivalents, end of year.................................. $ 63,354 $ 11,786 $ 3,353 $ -- $ 78,493 ======== ======== ======= ======= ========
F-30 SYRATECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Year Ended December 31, 1996
Issuer/ Guarantor Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ----------- --------------- --------------- --------------- -------------- Cash flows from operating activities: Net (loss) income............................. $ (662) $ 14,498 $ 5,859 $ 694 $ 20,389 Adjustments to reconcile net (loss) income to net cash provided by (used in) operations: Depreciation and amortization................ 4,466 279 22 4,767 Deferred income taxes........................ 1,329 (4,085) (2,756) Acquisition of Farberware assets............. (9,500) (9,500) Disposal of Farberware assets................ 13,600 13,600 Farberware electrics license................. 500 500 Transfer of shares........................... 2,338 1,317 3,655 Other........................................ 78 1,542 5 1,625 Increase (decrease) in cash net of effect of businesses acquired: Marketable securities....................... 30,561 30,561 Accounts receivable......................... (18,129) (227) (18,356) Inventories................................. (16,352) (754) (17,106) Prepaid expenses and other.................. 516 (816) (171) (471) Accounts payable and accrued expenses................................... 49 (2,235) (684) (2,870) Income taxes payable........................ (245) (1,979) 129 (2,095) Intercompany account........................ 689 1,147 (122) (1,714) Discontinued operations..................... 1,834 1,834 -------- -------- ------- ------- --------- Net cash provided by (used in) operating activities................................... 36,487 (16,026) 4,314 (998) 23,777 -------- -------- ------- ------- -------- Cash flows from investing activities: Insurance claim proceeds...................... 23,771 23,771 Acquisitions of businesses net of cash acquired..................................... (48,540) (998) 998 (48,540) Purchases of property, plant and equipment.................................... (13,643) (1,482) (15,125) Other......................................... (130) 10 (120) -------- -------- ------- ------- -------- Net cash used in investing activities......... (48,540) 9,998 (2,470) 998 (40,014) -------- -------- ------- ------- -------- Cash flows from financing activities: Change in revolving loan facilities........... (51,735) (5,296) (2,044) (59,075) Repayment of borrowings....................... (300) (300) Other......................................... 452 (16) (8) 428 -------- -------- ------- ------- -------- Net cash used in financing activities......... (51,283) (5,612) (2,052) (58,947) -------- -------- ------- ------- -------- Effect of exchange rate changes on cash and equivalents.............................. 296 296 Net increase (decrease) in cash and equivalents.................................. (63,336) (11,640) 88 (74,888) Cash and equivalents, beginning of year....... 63,354 11,786 3,353 (78,493) -------- -------- ------- ------- -------- Cash and equivalents, end of year............. $ 18 $ 146 $ 3,441 $ -- $ 3,605 ======== ======== ======= ======= ========
F-31 ================================================================================ No dealer, salesperson, or any 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 Offering covered by this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Underwriters. This Prospectus does not constitute an offer to sell, or the solicitation of an offer to buy the securities in any jurisdiction where, or any person to whom, it is unlawful to make such offer for solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create an implication that there has been a change in the facts set forth in this Prospectus or in the affairs of the Company since the date hereof. ---------------------------------- TABLE OF CONTENTS Page ------ Prospectus Summary................................. 4 Risk Factors....................................... 13 The Recapitalization............................... 18 Use of Proceeds.................................... 20 Capitalization..................................... 21 Pro Forma Condensed Consolidated Financial Statements.............................. 23 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 29 Business........................................... 34 Management......................................... 46 Security Ownership of Certain Beneficial Owners and Management.................. 51 Certain Transactions............................... 52 Description of Senior Notes........................ 54 Description of Other Indebtedness.................. 72 Description of Cumulative Redeemable Preferred Stock................................... 73 Underwriting....................................... 74 Legal Matters...................................... 75 Experts............................................ 75 Available Information.............................. 75 Index to Financial Statements...................... F-1 ================================================================================ [LOGOTYPE] SYRATECH(TM) ------------ CORPORATION $155,000,000 % Senior Notes due 2007 -------------------------------------- PROSPECTUS -------------------------------------- NationsBanc Capital Markets, Inc. Chase Securities Inc. , 1997 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other expenses of Issuance and Distribution The following table set forth the expenses, other than underwriting discounts and commissions, payable by the registrant in connection with the sale of the Common Stock being registered. All items are estimated except the registration, filing and listing fees. SEC registration fee.................... $ Blue sky fees and expenses.............. Printing and engraving expenses......... Legal fees and expenses................. Accounting fees and expenses............ Trustee fees............................ Miscellaneous........................... Total................................... Item 15. Indemnification of Directors and Officers Section 145(a) of the General Corporation Law of the State of Delaware (the "GCL") provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that 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 or enterprise, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted 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. Section 145(b) of the GCL provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under similar standards, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or court in which such action or suit was brought shall determine that despite the adjudication of liability, such person is fairly and reasonably entitled to be indemnified for such expenses which the court shall deem proper. Section 145 of the GCL further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connecting therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that the corporation may purchase and maintain insurance on behalf of a director or officer of the corporation against and liability asserted against him or 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 liabilities under such Section 145. Section 102(b)(7) of the General Corporation Law provides that a corporation in its original certificate of incorporation or an amendment thereto validly approved by stockholders may eliminate or limit personal liability of members of its board of directors or governing body for each of a director's fiduciary duty. However, no such provision may eliminate or limit the liability of a director for breaching his duty of loyalty, failing to act in good faith, engaging in intentional misconduct or knowingly violating a law, paying a dividend or approving a stock repurchase which was illegal, or obtaining an improper personal benefit. A provision of this type has no effect on the availability of equitable remedies, such as injunction or rescission, for breach of fiduciary duty. The Company's Restated Certificate of Incorporation contains such a provision. II-1 The Company's Restated Certificate of Incorporation and Bylaws provide that the Company shall indemnify officers and directors, and to the extent authorized by the Board of Directors, employees and agents of the Company, to the full extent permitted by and in the manner permissible under the laws of the State of Delaware. The Restated Certificate of Incorporation and Bylaws also permit the Board of Directors to authorize the Company to purchase and maintain insurance against any liability asserted against any director, officer, employee or agent of the Company arising out of his capacity as such. The form of the underwriting agreement, filed as Exhibit 1.1 hereto contains provisions by which the underwriters agree to indemnify the Company, its officers and directors and each person who controls the Company within the meaning of the Securities Act, against certain liabilities. Item 16. Exhibits and Financial Statement Schedules (a) Exhibits *1.1 Form of Underwriting Agreement 2.1 Restated Agreement and Plan of Merger dated November 27, 1996, effective as of October 23, 1996 between Syratech and THL Transaction I Corp. and the Amendment, dated February 14, 1997 to the Restated Agreement and Plan of Merger (Incorporated by reference from Exhibit 2.1 to Form S-4 Registration Statement No. 333-16917) 3.1 Restated Certificate of Incorporation of Syratech. Incorporated by reference from Exhibit 3.1 to Form S-1 Registration Statement No. 33-41619. 3.2 Syratech Corporation Certificate of Designations in respect of Series A Preferred Stock dated October 26, 1992. Incorporated by reference from Exhibit 3.2 to Form S-4 Registration Statement No. 333-16917. 3.3 Bylaws of Syratech. Incorporated by reference from Exhibit 3.2 to Form S-1 Registration Statement No. 33-41619. 3.4 Amendment to Section 2.9 of the Bylaws of Syratech, effective August 15, 1991. Incorporated by reference from Exhibit 3.3 to Form S-1 Registration Statement No. 33-41619. 3.5 Certificate of Ownership and Merger of WSC Liquidating, Inc. by and into Syratech Corporation dated May 9, 1996. Incorporated by reference from Exhibit 3.5 to Form S-4 Registration Statement No. 333-16917. *4.1 Form of Indenture dated as of April , 1997 between Syratech Corporation as Issuer and State Street Bank and Trust Company, as Trustee. ***5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison 10.1 Form of Amended and Restated Employment Agreement dated as of April , 1997 between Leonard Florence and the Company. (Incorporated by reference from Exhibit 2.1 to Form S-4 Registration Statement No. 333-16917) 10.2 Employment Agreement dated August 16, 1991 between E. Merle Randolph and the Company. Incorporated by reference from Exhibit 10.17 to Form S-1 Registration Statement No. 33-41619. 10.3 Employment Agreement dated August 16, 1991, between Melvin L. Levine and the Company. Incorporated by reference from Exhibit 10.18 to Form S-1 Registration Statement No. 33-41619. 10.4 Employment Agreement dated August 16, 1991 between Alan R. Kanter and the Company. Incorporated by reference from Exhibit 10 to Form S-1 Registration Statement No. 33-41619. 10.5 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated as of August 16, 1991 between E. Merle Randolph and Company. Incorporated by reference from Exhibit 10.5 to Form S-4 Registration Statement No. 333-16917. 10.6 Amendment No. 1 dated as of May 11, 1995 to Employment Agreement dated as of August 16, 1991 between Melvin L. Levine and the Company. Incorporated by reference from Exhibit 10.8 to Form 10-K for Syratech for the year ended December 31, 1995.
II-2 10.7 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated as of August 16, 1991 between Alan R. Kanter and the Company. Incorporated by reference from Exhibit 10.8 to Form S-4 Registration Statement No. 333-16917. 10.8 Retirement Benefit Agreement dated as of July 27, 1996 between Faye A. Florence and the Company. Incorporated by reference from Exhibit 10.8 to Form S-4 Registration Statement No. 333-16917. 10.9 Amendment No. 2, dated as of January 31, 1997, effective as of December 31, 1996, to Employment Agreement dated as of August 16, 1991 between E. Merle Randolph and the Company. Incorporated by reference to Exhibit 10.9 to Form S-4 Registration Statement No. 333-16917. 10.10 Amendment No. 2, dated as of January 31, 1997, effective as of December 31, 1996, to Employment Agreement dated as of August 16, 1991 between Melvin L. Levine and the Company. Incorporated by reference to Exhibit 10.10 to Form S-4 Registration Statement No. 333-16917. 10.11 Amendment No. 2 dated January 31, 1997 effective as of December 31, 1996, to Employment Agreement dated as of August 16, 1991 between Alan R. Kanter and the Company. Incorporated by reference to Exhibit 10.11 to Form S-4 Registration Statement No. 333-16917. 10.12 Agreement dated December 31, 1996 by and between the Company, THL I Transaction Corp., Leonard Florence and Melvin L. Levine. Incorporated by reference to Exhibit 10.12 to Form S-4 Registration Statement No. 333-16917. 10.13 Agreement dated December 31, 1996 by and between the Company, THL I Transaction Corp., Leonard Florence and E. Merle Randolph. Incorporated by reference to Exhibit 10.13 to Form S-4 Registration Statement No. 333-16917. 10.14 Agreement dated December 31, 1996 by and between the Company, THL I Transaction Corp., Leonard Florence and Alan R. Kanter. Incorporated by reference to Exhibit 10.14 to Form S-4 Registration Statement No. 333-16917. 10.15 Asset Purchase Agreement dated February 2, 1996 by and between Farberware Inc., the Company, Lifetime Hoan Corporation and Far-B Acquisition Corp., Inc. Incorporated by reference from Exhibit 1 to Form 8-K dated April 16, 1996. 10.16 Settlement Agreement dated February 3, 1997 by and among Bruckner Manufacturing Corp. (formerly Farberware Inc.), U.S. Industries, Inc., Farberware Inc. (formerly Far-B Acquisition Corp.) and Lifetime Hoan Corporation. Incorporated by reference to Exhibit 10.16 to Form S-4 Registration Statement No. 333-16917. 10.17 Agreement dated as of December 7, 1995 among the Company, SYR Acquisition Inc. and Rauch Industries, Inc. Incorporated by reference from Exhibit 1 to Form 8-K of the Company dated December 7, 1995. 10.18 Amended and Restated Line of Credit Agreement among Wallace International de Puerto Rico, Inc., International Silver de Puerto Rico, Inc. and Banco Popular de Puerto Rico dated October 15, 1996. Incorporated by reference to Exhibit 10.18 to Form S-4 Registration Statement No. 333-16917. 10.19 Agreement, dated as of February 2, 1996, by and among the Company, Lifetime Hoan Corporation and Far-B Acquisition Corp. Incorporated by reference to Exhibit 10.19 to Form S-4 Registration Statement No. 333-16917. 10.20 Agreement, dated as of May 3, 1996, by and among the Company, Farberware Inc. and Meyer Manufacturing Co. Ltd. Incorporated by reference to Exhibit 10.20 to Form S-4 Registration Statement No. 333-16917.
II-3 10.21 License Agreement, dated as of July 12, 1996 by and between Farberware Inc. and Service Merchandise Company, Inc. (redacted to omit certain royalty information). 10.22 Agreement, dated as of October 16, 1996, among Farberware Inc., Service Merchandise Company, Inc. and Windmere-Durable Holdings, Inc. (amending Item 10.21). Incorporated by reference to Exhibit 10.22 to Form S-4 Registration Statement No. 333-16917. *12.1 Schedule Regarding Computation of Ratio of Earnings to Fixed Charges ***23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinion filed as Exhibit 5.1) *23.2 Consent of Deloitte & Touche LLP and Independent Auditors' Report on Schedule *23.3 Consent of Coopers & Lybrand L.L.P. **24.1 Power of Attorney (see signature page) **25.1 Statement on Form T-1 of the eligibility of the Trustee (b) Financial Statement Schedules
Schedule VIII--Valuation and Qualifying Accounts All other schedules have been omitted because the material is not applicable or is not required or because the required information is shown in the condensed consolidated financial statements or the notes thereto. - ---------- * Filed herewith. ** Previously filed. *** To be filed by amendment. II-4 Item 17. Undertakings. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, as amended (the "Securities Act"), each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 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 Securities and Exchange Commission 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 such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant further undertakes that: (1) 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. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains 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 the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, State of Massachusetts, on the 18th day of March, 1997. SYRATECH CORPORATION By: /s/ LEONARD FLORENCE ------------------------------------ Leonard Florence Chairman of the Board, Chief Executive Officer and President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
Signature Title Date - ---------------------------- -------------------------------------- ---------------- /s/ LEONARD FLORENCE Chairman of the Board, Chief March 18, 1997 - ------------------------- Executive Officer and President Leonard Florence (Principal Executive Officer) /s/ E. MERLE RANDOLPH Vice President, Chief Financial March 18, 1997 - ------------------------- Officer, Treasurer and Director E. Merle Randolph (Principal Financial and Accounting Officer) * Director March 18, 1997 - ------------------------- Irwin Chafetz * Director March 18, 1997 - ------------------------- Frederick H. Chicos * Director March 18, 1997 - ------------------------- Harold Cohen * Director March 18, 1997 - ------------------------- Jerry R. Jacob * Director March 18, 1997 - ------------------------- Melvin L. Levine * Director March 18, 1997 - ------------------------- Alan Perlman * Director March 18, 1997 ------------------------- Harold Roitenberg * Director March 18, 1997 ------------------------- Jacob Saliba * By: /s/ E. MERLE RANDOLPH ------------------------ E. Merle Randolph Attorney-in-fact
II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Guarantors have duly caused this Amendment No. 1 to the Registration Statement to be signed on their behalf by the undersigned, thereunto duly authorized in the City of Boston, State of Massachusetts, on the 18th day of March, 1997. CHI INTERNATIONAL, INC. FARBERWARE INC. INTERNATIONAL SILVER COMPANY INTERNATIONAL SILVER DE P.R., INC. LEONARD FLORENCE ASSOCIATES, INC. PMW SILVER DE P.R., INC. ROSEMAR SILVER COMPANY, INC. SILVESTRI, INC. SILVESTRI, INC. OF SOUTH CAROLINA SYRATECH SECURITY CORPORATION SYRATECH SILVER SALES CORP. TOWLE HOLLOWARE, INC. TOWLE MANUFACTURING COMPANY WALLACE INTERNATIONAL SILVERSMITHS, INC. WALLACE INTERNATIONAL DE P.R., INC. By: /s/ LEONARD FLORENCE ------------------------------------ Leonard Florence President and Sole Director HOLIDAY PRODUCTS, INC. By: /s/ ROGER S. SILVERSTEIN ------------------------------------ Roger S. Silverstein President and Director By: /s/ LEONARD FLORENCE ------------------------------------ Leonard Florence Director By: /s/ MARSHALL A. RAUCH ------------------------------------ Marshall A. Rauch Director By: /s/ DONALD G. WALSER ------------------------------------ Donald G. Walser Director II-7 SYRATECH WEST COAST WAREHOUSE CORP. By: /s/ LEONARD FLORENCE ------------------------------------ Leonard Florence President and Director By: /s/ FAYE A. FLORENCE ------------------------------------ Faye A. Florence Director By: /s/ E. MERLE RANDOLPH ------------------------------------ E. Merle Randolph President and Director SYRATECH HOLDING CORPORATION By: /s/ RICHARD FREIMAN ------------------------------------ Richard Freiman President and Sole Director RAUCH INDUSTRIES, INC. By: /s/ LEONARD FLORENCE ------------------------------------ Leonard Florence President and Director By: /s/ E. MERLE RANDOLPH ------------------------------------ E. Merle Randolph Director By: /s/ FAYE A. FLORENCE ------------------------------------ Faye A. Florence Director II-8 175 AMLEGION REVERE REALTY TRUST By: /s/ LEONARD FLORENCE ------------------------------------ Leonard Florence President and Trustee By: /s/ FAYE A. FLORENCE ------------------------------------ Faye A. Florence Trustee By: /s/ E. MERLE RANDOLPH ------------------------------------ E. Merle Randolph Trustee ROCHARD, INC. By: /s/ RICHARD SONKING ------------------------------------ Richard Sonking President and Director By: /s/ LEONARD FLORENCE ------------------------------------ Leonard Florence Director NORTHSTAR SALES CORPORATION By: /s/ LEONARD FLORENCE ------------------------------------ Leonard Florence President and Director By: /s/ MARSHALL A. RAUCH ------------------------------------ Marshall A. Rauch Director By: /s/ DONALD G. WALSER ------------------------------------ Donald G. Walser Director II-9 EXHIBIT INDEX
Pagination by Exhibit Exhibit sequential Number Description numbering - --------- ------------------------------------------------------------------------------------------ ------------- (a) Exhibits *1.1 Form of Underwriting Agreement 2.1 Restated Agreement and Plan of Merger dated November 27, 1996, effective as of October 23, 1996 between Syratech and THL Transaction I Corp. and the Amendment, dated February 14, 1997 to the Restated Agreement and Plan of Merger (Incorporated by reference from Exhibit 2.1 to Form S-4 Registration Statement No. 333-16917) 3.1 Restated Certificate of Incorporation of Syratech. Incorporated by reference from Exhibit 3.1 to Form S-1 Registration Statement No. 33-41619. 3.2 Syratech Corporation Certificate of Designations in respect of Series A Preferred Stock dated October 26, 1992. Incorporated by reference from Exhibit 3.2 to Form S-4 Registration Statement No. 333-16917. 3.3 Bylaws of Syratech. Incorporated by reference from Exhibit 3.2 to Form S-1 Registration Statement No. 33-41619. 3.4 Amendment to Section 2.9 of the Bylaws of Syratech, effective August 15, 1991. Incorporated by reference from Exhibit 3.3 to Form S-1 Registration Statement No. 33-41619. 3.5 Certificate of Ownership and Merger of WSC Liquidating, Inc. by and into Syratech Corporation dated May 9, 1996. Incorporated by reference from Exhibit 3.5 to Form S-4 Registration Statement No. 333-16917. *4.1 Form of Indenture dated as of April, 1997 between Syratech Corporation as Issuer and State Street Bank and Trust Company, as Trustee. ***5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison 10.1 Form of Amended and Restated Employment Agreement dated as of April , 1997 between Leonard Florence and the Company. (Incorporated by reference from Exhibit 2.1 to Form S-4 Registration Statement No. 333-16917) 10.2 Employment Agreement dated August 16, 1991 between E. Merle Randolph and the Company. Incorporated by reference from Exhibit 10.17 to Form S-1 Registration Statement No. 33-41619. 10.3 Employment Agreement dated August 16, 1991, between Melvin L. Levine and the Company. Incorporated by reference from Exhibit 10.18 to Form S-1 Registration Statement No. 33-41619. 10.4 Employment Agreement dated August 16, 1991 between Alan R. Kanter and the Company. Incorporated by reference from Exhibit 10 to Form S-1 Registration Statement No. 33-41619. 10.5 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated as of August 16, 1991 between E. Merle Randolph and Company. Incorporated by reference from Exhibit 10.5 to Form S-4 Registration Statement No. 333-16917. 10.6 Amendment No. 1 dated as of May 11, 1995 to Employment Agreement dated as of August 16, 1991 between Melvin L. Levine and the Company. Incorporated by reference from Exhibit 10.8 to Form 10-K for Syratech for the year ended December 31, 1995. 10.7 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated as of August 16, 1991 between Alan R. Kanter and the Company. Incorporated by reference from Exhibit 10.7 to Form S-4 Registration Statement No. 333-16917.
Pagination by Exhibit Exhibit sequential Number Description numbering - --------- -------------------------------------------------------------------------------------- ------------- 10.8 Retirement Benefit Agreement dated as of July 27, 1996 between Faye A. Florence and the Company. Incorporated by reference from Exhibit 10.8 to Form S-4 Registration Statement No. 333-16917. 10.9 Amendment No. 2, dated as of January 31, 1997, effective as of December 31, 1996, to Employment Agreement dated as of August 16, 1991 between E. Merle Randolph and the Company. Incorporated by reference to Exhibit 10.9 to Form S-4 Registration Statement No. 333-16917. 10.10 Amendment No. 2, dated as of January 31, 1997, effective as of December 31, 1996, to Employment Agreement dated as of August 16, 1991 between Melvin L. Levine and the Company. Incorporated by reference to Exhibit 10.10 to Form S-4 Registration Statement No. 333-16917. 10.11 Amendment No. 2 dated January 31, 1997 effective as of December 31, 1996, to Employment Agreement dated as of August 16, 1991 between Alan R. Kanter and the Company. Incorporated by reference to Exhibit 10.11 to Form S-4 Registration Statement No. 333-16917. 10.12 Agreement dated December 31, 1996 by and between the Company, THL I Transaction Corp., Leonard Florence and Melvin L. Levine. Incorporated by reference to Exhibit 10.12 to Form S-4 Registration Statement No. 333-16917. 10.13 Agreement dated December 31, 1996 by and between the Company, THL I Transaction Corp., Leonard Florence and E. Merle Randolph. Incorporated by reference to Exhibit 10.13 to Form S-4 Registration Statement No. 333-16917. 10.14 Agreement dated December 31, 1996 by and between the Company, THL I Transaction Corp., Leonard Florence and Alan R. Kanter. Incorporated by reference to Exhibit 10.14 to Form S-4 Registration Statement No. 333-16917. 10.15 Asset Purchase Agreement dated February 2, 1996 by and between Farberware Inc., the Company, Lifetime Hoan Corporation and Far-B Acquisition Corp., Inc. Incorporated by reference from Exhibit 1 to Form 8-K dated April 16, 1996. 10.16 Settlement Agreement dated February 3, 1997 by and among Bruckner Manufacturing Corp. (formerly Farberware Inc.), U.S. Industries, Inc., Farberware Inc. (formerly Far-B Acquisition Corp.) and Lifetime Hoan Corporation. Incorporated by reference to Exhibit 10.16 to Form S-4 Registration Statement No. 333-16917. 10.17 Agreement dated as of December 7, 1995 among the Company, SYR Acquisition Inc. and Rauch Industries, Inc. Incorporated by reference from Exhibit 1 to Form 8-K of the Company dated December 7, 1995. 10.18 Amended and Restated Line of Credit Agreement among Wallace International de Puerto Rico, Inc., International Silver de Puerto Rico, Inc. and Banco Popular de Puerto Rico dated October 15, 1996. Incorporated by reference to Exhibit 10.18 to Form S-4 Registration Statement No. 333-16917. 10.19 Agreement, dated as of February 2, 1996, by and among the Company, Lifetime Hoan Corporation and Far-B Acquisition Corp. Incorporated by reference to Exhibit 10.19 to Form S-4 Registration Statement No. 333-16917. 10.20 Agreement, dated as of May 3, 1996, by and among the Company, Farberware Inc. and Meyer Manufacturing Co. Ltd. Incorporated by reference to Exhibit 10.20 to Form S-4 Registration Statement No. 333-16917.
Pagination by Exhibit Exhibit sequential Number Description numbering - --------- ---------------------------------------------------------------------------------------- ------------- 10.21 License Agreement, dated as of July 12, 1996 by and between Farberware Inc. and Service Merchandise Company, Inc. (redacted to omit certain royalty information). 10.22 Agreement, dated as of October 16, 1996, among Farberware Inc., Service Merchandise Company, Inc. and Windmere-Durable Holdings, Inc. (amending Item 10.21). Incorporated by reference to Exhibit 10.22 to Form S-4 Registration Statement No. 333-16917. *12.1 Schedule Regarding Computation of Ratio of Earnings to Fixed Charges ***23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinion filed as Exhibit 5.1) *23.2 Consent of Deloitte & Touche LLP and Independent Auditors' Report on Schedule *23.3 Consent of Coopers & Lybrand L.L.P. **24.1 Power of Attorney (see signature page) **25.1 Statement on Form T-1 of the eligibility of the Trustee
Schedule VIII SYRATECH CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Column A Column B Column C Column D Column E - ---------------------------------------- --------------- -------------------------------- ----------------- ------------ (1) (2) Balance at Charged to Balance at Beginning of Costs and Charged to End of Description Period Expenses Other Accts Deductions Period - ---------------------------------------- --------------- ------------- -------------- ----------------- ------------ Year Ended December 31, 1996 - --------------------------------------- Allowance for doubtful accounts......... $1,603 $ 93 $ -- $ 165(a) $1,861 Sales returns and allowances............ 2,604 5,813 -- (4,916)(b) 3,501 ------- ------ ------- ---------- ------- $4,207 $5,906 $ -- $ (4,751) $5,362 ======= ====== ======= ========== ======= Year Ended December 31, 1995 - --------------------------------------- Allowance for doubtful accounts......... $1,372 $ 602 $ -- $ (371)(a) $1,603 Sales returns and allowances............ 2,133 5,206 -- (4,735)(b) 2,604 ------- ------ ------- ---------- ------- $3,505 $5,808 $ -- $ (5,106) $4,207 ======= ====== ======= ========== ======= Year Ended December 31, 1994 - --------------------------------------- Allowance for doubtful accounts......... $1,385 $ 84 $ -- $ (97)(a) $1,372 Sales returns and allowances............ 2,397 3,868 -- (4,132)(b) 2,133 ------- ------ ------- ---------- ------- $3,782 $3,952 $ -- $ (4,229) $3,505 ======= ====== ======= ========== =======
(a) Doubtful accounts written off (b) Sales returns and other S-1 EX-1.1 2 UNDERWRITING AGREEMENT SYRATECH CORPORATION ___% SENIOR NOTES DUE 2007 UNDERWRITING AGREEMENT _____________ __, 1997 NationsBanc Capital Markets, Inc. Chase Securities Inc. c/o NationsBanc Capital Markets, Inc. NationsBank Corporate Center 100 North Tryon Street Charlotte, North Carolina 28255 Dear Sirs: SECTION 1. Introductory. Syratech Corporation, a Delaware corporation ("Syratech"), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the "Underwriters"), $160.0 million principal amount of its ___% Senior Notes due 2007 (the "Senior Notes"). The Senior Notes are to be issued pursuant to the provisions of an indenture dated as of ______________, 1997 (the "Indenture") among the Company (as defined below), as issuer, each of the Company's subsidiaries set forth in Schedule II hereto (collectively, the "Guarantors") and __________________, as Trustee (the "Trustee"). The Senior Notes will be unconditionally guaranteed (the "Subsidiary Guarantees"), on a joint and several basis, by each of the Guarantors. The Senior Notes and the Subsidiary Guarantees are herein collectively referred to as the "Securities." The Securities are being issued and sold in connection with the recapitalization (the "Recapitalization") of Syratech, pursuant to a merger agreement, dated October 23, 1996, as amended through the date hereof (the "Merger Agreement") between Syratech and THL Transaction I Corp., a Delaware corporation which was formed by its parent, Thomas H. Lee Company ("THL"), for the purpose of supporting the Recapitalization ("THLT"). The Merger Agreement provides for the merger (the "Merger") of Syratech with THLT, with Syratech surviving such Merger (as such survivor, the "Company"). In order to finance the Recapitalization, in addition to the sale of the Securities hereunder, the Company will require additional financing of up to $227.5 million. Of such amount, (i) not less than $125 million would be provided through the issuance and sale of common stock of the Company, including the retention of common stock of the Company with an aggregate value of not less than $23 million by management of Syratech in the Merger, and not less than $72.5 million in cash to be provided by THL (less amounts invested in common stock of the Company by the Lenders and their affiliates) (the "Equity Financing"), and (ii) the remainder would be provided through borrowings under a $130.0 million asset-based revolving loan facility made available to the Company (the "New Credit Facility"). The Merger Agreement and the documents entered into in connection therewith including, without limitation, the agreements attached thereto as exhibits, are herein collectively referred to as the "Merger Documents." This Agreement, the Senior Notes, the Indenture and the Subsidiary Guarantees are herein collectively referred to as the "Offering Documents." The Offering Documents, the New Credit Facility, the Merger Documents and the documents pursuant to which the Equity Financing will be consummated are herein collectively referred to as the "Transaction Documents." The time of the consummation of the Recapitalization is referred to herein as the "Effective Time." Syratech, each of the Guarantors and THLT hereby agree, jointly and severally, with the several Underwriters as follows: SECTION 2. Representations, Warranties and Agreements of Syratech and the Guarantors. Each of Syratech and each Guarantor, jointly and severally, represents and warrants to, and agrees with, the several Underwriters that: (a) It has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-3 (No. 333-18133) (the "registration statement"), including a preliminary prospectus subject to completion, relating to the Securities. The registration statement, as amended at the time it becomes effective or, if a post-effective amendment is filed with respect thereto, as amended by such post-effective amendment at the time of its effectiveness, including in each case financial statements and exhibits, all material incorporated by reference therein, and the information (if any) contained in a prospectus subsequently filed with the Commission pursuant to Rule 424(b) under the Act and deemed to be a part of the registration statement at the time of its effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as the "Registration Statement;" and the prospectus in the form first used to confirm sales of the Securities, whether or not filed with the Commission pursuant to Rule 424(b) under the Act, including all material incorporated by reference in such prospectus, is hereinafter referred to as the "Prospectus." Any reference in this Agreement to the registration statement, the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of the registration statement, the Registration Statement, such preliminary prospectus or the Prospectus, as the case may -2- be, and any reference to any amendment or supplement to the registration statement, the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to refer to and include any documents filed after such date under the Securities Exchange Act of 1934, as amended (the "Exchange Act") which, upon such filing, are incorporated by reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used herein, the term "Incorporated Documents" means the documents which are incorporated by reference in the registration statement, the Registration Statement, any preliminary prospectus, the Prospectus, or any amendment or supplement thereto. (b) Syratech, the Guarantors and the transactions contemplated by this Agreement meet the requirements for using Form S-3 under the Act. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus. When any Preliminary Prospectus was filed with the Commission it (x) complied in all material respects with the requirements of the Act and (y) did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. When the Registration Statement becomes effective and at all times subsequent thereto up to the Closing Date (as defined herein), the Registration Statement, the Prospectus and any amendments or supplements thereto, will conform in all material respects with the requirements of the Act and the rules and regulations (the "Rules and Regulations") of the Commission thereunder, and at such effective time the Registration Statement will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, as amended or supplemented at the Closing Date, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading; except that the foregoing does not apply to (i) that part of the Registration Statement that constitutes the Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939, as amended (together with the rules and regulations thereunder, the "1939 Act"), of the Trustee, and (ii) statements or omissions in the Registration Statement or the Prospectus, as amended or supplemented if applicable, based upon written information furnished to Syratech by any Underwriter specifically for use therein. When the Registration Statement becomes effective, including at the date of any post-effective amendment, at the date of the Prospectus and any amendment or supplement thereto (if different) and at the Closing Date, the Indenture will have been qualified under and will conform in all material respects to the requirements of the 1939 Act. (c) The Incorporated Documents heretofore filed, when they were filed (or, if any amendment with respect to any such document was filed, when such amendment was filed), conformed in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder; any further Incorporated Documents so filed will, when they are filed, conform in all material respects with the requirement of the Exchange -3- Act and the rules and regulations thereunder; no such document when it was filed (or, if an amendment with respect to any such document was filed, when such amendment was filed), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and no such further document, when it is filed, will contain an untrue statement of a material fact or will omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. (d) Since the respective dates of the most recent financial statements appearing in the Registration Statement and the Prospectus, except as otherwise stated therein, (i) neither Syratech nor any of its subsidiaries has and, at and as of the Effective Time, neither the Company nor any of its subsidiaries will have incurred any liabilities or obligations, direct or contingent, or entered into or agreed to enter into any transactions or contracts (written or oral) not in the ordinary course of business which liabilities, obligations, transactions or contracts would, individually or in the aggregate, be material to the condition, financial or otherwise, earnings, affairs or business prospects of Syratech and its subsidiaries, taken as a whole, (or, at and as of the Effective Time, the Company and its subsidiaries, considered as a whole), (ii) neither Syratech nor any of its subsidiaries has (and, at and as of the Effective Time, neither the Company nor any of its subsidiaries) will have purchased any of their respective outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on their respective capital stock (other than with respect to any of such subsidiaries, the purchase of, or dividend or distribution on, capital stock owned by Syratech or the Company, respectively), except as otherwise set forth in the Registration Statement and the Prospectus and (iii) there shall not have been any change in the capital stock or long-term indebtedness of Syratech (or, at and as of the Effective Time, the Company) or any of their respective subsidiaries except for those changes in capital stock and long-term indebtedness contemplated by the Transaction Documents. (e) Syratech has been and, at and as of the Effective Time, the Company will have been, duly incorporated, and Syratech is and, at and as of the Effective Time, the Company will be, validity existing as a corporation in good standing under the laws of Delaware with corporate power and authority to own, lease and operate its properties and conduct its businesses as described in the Registration Statement; Syratech is and, at and as of the Effective Time, the Company will be, duly qualified as a foreign corporation to transact business, and Syratech is, and at and as of the Effective Time, the Company will be, in good standing in each jurisdiction in which either owns or leases properties or in which the conduct of its respective business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not (i) have a material adverse effect on the assets, business, condition (financial or otherwise), results of operations or prospects of Syratech and its subsidiaries, taken as a whole or, at and as of the Effective Time, the Company and its subsidiaries, taken as a whole or (ii) materially and adversely affect the offering of the Securities or any of the other transactions -4- contemplated by the Transaction Documents (any such event, a "Material Adverse Effect"). (f) Each of the subsidiaries of Syratech has been and, at and as of the Effective Time, each subsidiary of the Company will have been, duly incorporated and each such subsidiary is, and after giving effect to the consummation of the transaction contemplated by the Transaction Documents will be, validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with all corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement, and each such subsidiary is, and after giving effect to the consummation of the transaction contemplated by the Transaction Documents, will be, duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which it owns or leases properties or in which the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect; all of the issued and outstanding capital stock of each subsidiary of Syratech is, and at and as of the Effective Time all of the issued and outstanding capital stock of each subsidiary of the Company will be, duly authorized, validly issued and fully paid and nonassessable, and all such capital stock of each such subsidiary is owned by Syratech (and will be owned by the Company following the consummation of the Recapitalization), directly or through subsidiaries, free and clear of any mortgage, pledge, lien, encumbrance, claim or equity. Other than the Guarantors, Syratech has and at and as of the Effective Time, the Company will have, no subsidiaries incorporated or otherwise organized in the United States of America or any state thereof. (g) Syratech has and, at and as of the Effective Time, the Company will have the authorized, issued and outstanding capitalization set forth in the Prospectus; all of the outstanding shares of capital stock of Syratech are and, at and as of the Effective Time, of the Company will be duly authorized and validly issued, fully paid and nonassessable and not issued in violation of any preemptive or similar rights. (h) There are no outstanding subscriptions, rights, warrants, options, calls, convertible securities, commitments of sale or liens related to or entitling any person to purchase or otherwise to acquire any shares of capital stock of, or other ownership interest in, Syratech or any subsidiary thereof except as otherwise disclosed in the Registration Statement. At and as of the Effective Date, there will be no outstanding subscriptions, rights, warrants options, calls, convertible securities, commitments of sale or liens related to or entitling any person to purchase or otherwise to acquire any shares of capital stock of, or other ownership interest in, the Company or any subsidiary thereof except as otherwise disclosed in the Registration Statement. (i) Neither Syratech nor any of its subsidiaries is or, at and as of the Effective Time, neither the Company nor any of its subsidiaries will be (i) in violation of its charter documents, (ii) in breach or violation of any law, administrative regulation or -5- administrative or court decree or (iii) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which its respective properties may be bound. (j) No consent, approval, authorization or order of any court or governmental authority or agency, or third party is required for the performance of any of the Transaction Documents by Syratech or any of its subsidiaries or, at and as of the Effective Time, the Company or any of its subsidiaries (to the extent each is a party thereto) or the consummation by Syratech and any of its subsidiaries or, at and as of the Effective Time, the Company or any of its subsidiaries of the transactions contemplated by the Transaction Documents, except such as may be required under state securities or Blue Sky laws. The execution, delivery and performance by Syratech and each of its subsidiaries and, at and as of the Effective Time, the Company and each of its subsidiaries, to the extent each is a party thereto, of the Transaction Documents and the consummation of the transactions contemplated thereby will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of Syratech or any of its subsidiaries or, at and as of the Effective Time, the Company or any of its subsidiaries, pursuant to any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which such entity is a party or by which it may be bound or to which any of the property or assets of Syratech or any of its subsidiaries is, and at and as of the Effective Time, the Company or any of its subsidiaries will be subject, nor will such action result in any violation of the provisions of the charter or by-laws of Syratech or any of its subsidiaries or, at and as of the Effective Time, of the Company or any of its subsidiaries or any law, rules, regulation or administrative or court decree. (k) Each of Syratech and each of its subsidiaries possesses and, at and as of the Effective Time, each of the Company and each of its subsidiaries will possess adequate certificates, authorities, permits or other authorizations (collectively, "Permits") including, without limitation, under any applicable Environmental Laws (as defined herein), issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct its respective business as now or proposed to be conducted as set forth in the Prospectus. Each of Syratech and each of its subsidiaries has and, at and as of the Effective Time, each of the Company and each of its subsidiaries will have fulfilled and performed all of their respective obligations with respect to such Permits. Neither Syratech nor any of its subsidiaries has and, at and as of the Effective Time, the Company or any of its subsidiaries will have received any notice or proceedings relating to the revocation or modification of any such Permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. -6- (l) There are no legal or governmental proceedings involving or affecting Syratech or any of its subsidiaries or any of their respective properties or assets which are required to be described in a prospectus pursuant to the Act or the Rules and Regulations that are not described in the Prospectus, nor are there any material contracts or other documents which are required to be described in a prospectus pursuant to the Act or the Rules and Regulations that are not described in the Prospectus. There are no material contracts or other documents which are required to be filed as exhibits to the Registration Statement by the Act or by the Rules and Regulations which have not been so filed. Except as set forth in the Prospectus, there is not pending or, to the knowledge of Syratech or any Guarantor threatened any action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, to which Syratech or any of its subsidiaries is a party, which affects Syratech or any of its subsidiaries or, at and as of the Effective Time, will effect the Company or any of its subsidiaries, which, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. (m) Each of Syratech and each of its subsidiaries has and, at and as of the Effective Time, each of the Company and each of its subsidiaries will have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by it and necessary in the conduct of its business in each case free and clear of all liens, encumbrances and defects except (i) such as are referred to in the Prospectus, (ii) sales of inventory in the ordinary course of business or (iii) such as do not materially adversely affect the value of such property to it, and do not interfere with the use made and proposed to be made of such property by it. All leases, contracts and agreements to which Syratech or any of its subsidiaries is or, at and as of the Effective Time, the Company or any of its subsidiaries will be a party or by which any of them is bound are valid and enforceable against Syratech or any of its subsidiaries and, at and as of the Effective Time, the Company or any of its subsidiaries, and are valid and enforceable against the other party or parties thereto and are in full force and effect with only such exceptions as would not, individually or in the aggregate, have a Material Adverse Effect. (n) Each of Syratech and each of its subsidiaries owns or possesses and, at and as of the Effective Time, each of the Company and each of its subsidiaries will own or possess adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights, know-how and other intellectual property (collectively, "Trademarks") necessary to conduct the businesses now or proposed to be operated by them as described in the Prospectus, except as would not, individually or in the aggregate, have a Material Adverse Effect; and the consummation of the transactions contemplated hereby and by the Prospectus will not alter or impair any such rights, except for such alterations or impairments as would not have a Material Adverse Effect. Each of Syratech and each of its subsidiaries has not and, at and as of the Effective Time, each of the Company and each of its subsidiaries will not have received any notice of infringement of or conflict with (or know of any such infringement of or conflict with) alleged rights of -7- others with respect to any Trademarks (or questioning the validity or effectiveness of any license or other agreement or instrument relating thereto) which, if such alleged infringement or conflict were sustained, would have a Material Adverse Effect; and to the best knowledge of Syratech, there is no valid basis for any such claim and the use of such Trademarks by Syratech and its subsidiaries does not infringe on the rights of any person. (o) Each of Syratech and each of its subsidiaries has and, at and as of the Effective Time, each of the Company and each of its subsidiaries will have all the requisite corporate power and authority to executive, deliver and perform its obligations under each of the Transaction Documents (other than the Offering Documents) to which it is a party; the Merger Agreement has been duly and validly authorized, executed and delivered by Syratech and, immediately before the Effective Time, each of the Transaction Documents (other than the Offering Documents) will have been duly and validly authorized, executed and delivered by Syratech and each of its subsidiaries (to the extent each is a party thereto), and at and as of the Effective Time, will have been duly and validly authorized, executed and delivered by the Company and each of its subsidiaries to the extent that each is a party thereto; immediately before the Effective Time, each of the Transaction Documents (other than the Offering Documents) to which Syratech and each of its subsidiaries is a party will constitute a valid and legally binding obligation of such party enforceable against Syratech and each of its subsidiaries (to the extent each is a party thereto) and, at and as of the Effective Time, the Company and each of its subsidiaries, as applicable, in each case, in accordance with its terms; and the Recapitalization has been duly authorized by the stockholders of Syratech. (p) Each of Syratech and each of the Guarantors has and, at and as of the Effective Time, each of the Company and each of the Guarantors will have, all requisite corporate power and authority to execute, deliver and perform its obligations under the Offering Documents, as applicable, and to authorize, issue, sell and deliver the Senior Notes and the Subsidiary Guarantees, as applicable, as provided herein and therein. (q) There exists as of the date hereof and will exist on the Closing Date, after giving effect to the transactions contemplated by each of the Transaction Documents, no event or condition which would constitute a default or an event of default or other violation or breach of any Transaction Document. Each of the representations and warranties of Syratech and each of its subsidiaries, as applicable, contained in any of the Transaction Documents (other than the Offering Documents) are true and correct in all material respects. Each of the Transaction Documents conforms to the description thereof in the Registration Statement in all material respects. (r) Except as disclosed in the Prospectus, and except as would not individually or in the aggregate have a Material Adverse Effect (w) Syratech and each of its subsidiaries is in compliance with all applicable Environmental Laws (as defined below), (x) Syratech and each its subsidiaries has all permits, authorizations and approvals required -8- under any applicable Environmental Laws and is in compliance with their requirements, (y) there are no pending, or to the best knowledge of Syratech or any of its subsidiaries threatened, Environmental Claims (as defined below) against Syratech or any of its subsidiaries and (z) Syratech and each of its subsidiaries does not have knowledge of any circumstances with respect to any of their respective properties or operations that could reasonably be anticipated to form the basis of an Environmental Claim against Syratech or any of its subsidiaries or any of their respective properties or operations and the business operations relating thereto that would have a Material Adverse Effect. For purposes of this Agreement, the following terms shall have the following meanings: "Environmental Law" means, with respect to any person, any federal, state, local or municipal statute, law, rule, regulation, ordinance, code, policy or rule of common law and any published judicial or administrative interpretation thereof including any judicial or administrative order, consent decree or judgment binding on such person or any of its subsidiaries, relating to the environment, health, safety or any chemical, material or substance, exposure to which is prohibited, limited or regulated by any such governmental authority. 'Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law. (s) In the ordinary course of its business, Syratech conducts a periodic review of the effect of Environmental Laws on the business, operations and properties of Syratech and its subsidiaries, in the course of which it identifies and evaluates associate costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and potential liabilities to third parties). On the basis of such review, Syratech has reasonably concluded that such associated costs and liabilities would not, singly or in the aggregate, have a Material Adverse Effect. (t) Neither Syratech nor any of its subsidiaries has and, at and as of the Effective Time, neither the Company nor any of its subsidiaries will have violated any foreign, federal or state law relating to discrimination in the hiring, promotion or pay of employees nor any applicable foreign, federal or state wages and hours laws, nor any provisions of the Employee Retirement Income Security Act or the rules and regulations promulgated thereunder, which in each case would singly or in the aggregate, have a Material Adverse Effect. (u) There is (i) no unfair labor practice complaint pending against Syratech or any of its subsidiaries or, to the best knowledge of Syratech, threatened against any of them, before the National Labor Relations Board or any state or local labor relations board, and no significant grievance or more significant arbitration proceeding arising out of or under any collective bargaining agreement is so pending against Syratech or any of its subsidiaries or, to the best knowledge of Syratech, threatened against any of them, and -9- (ii) no significant strike, labor dispute, slowdown or stoppage pending against Syratech or any of its subsidiaries or, to the best knowledge of Syratech, threatened against it or any of its subsidiaries. (v) Each of Syratech and each of Syratech's subsidiaries carries and, at and as of the Effective Time, each of the Company and each of its subsidiaries will carry reasonably adequate insurance (including self-insurance) in such amounts and covering such risks as would be obtained by companies in the same or similar businesses in the ordinary course for the conduct of its business and the value of its properties. (w) Each of Deloitte & Touche LLP and Coopers & Lybrand, L.L.P. (the "Independent Accountants") are independent public accountants as required by the Act. (x) The financial statements, together with related schedules and notes forming part of the Registration Statement and the Prospectus (and any amendment or supplement thereto), present fairly the consolidated financial position, results of operations and changes in financial position of Syratech and its subsidiaries on the basis stated in the Registration Statement at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data set forth in the Registration Statement and the Prospectus (and any amendment or supplement thereto) is, in all material respects, accurately presented and prepared on a basis consistent with such financial statements, except as otherwise stated therein. The statistical and market-related data (including, without limitation, the estimated cost savings information) included in the Registration Statement and the Prospectus are based on or derived from sources which Syratech believes to be reliable and accurate. (y) The pro forma financial statements (including the notes thereto) and the other pro forma financial information included in the Prospectus (i) comply as to form in all material respects with the applicable requirements of Regulation S-X promulgated under the Exchange Act, (ii) have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and (iii) have been properly computed on the bases described therein; the assumptions used in the preparation of the pro forma financial data and other pro forma financial information included in the Prospectus are reasonable in all material respects and the adjustments used therein are appropriate in all material respects to give effect to the transactions or circumstances referred to therein. (z) Neither Syratech nor any of its subsidiaries is or, at and as of the Effective Time, neither the Company nor any of its subsidiaries will be an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. -10- (aa) No holder of any security of Syratech or any of its subsidiaries has any right to require registration of shares of common stock or any other security of Syratech or any of its subsidiaries. At and as of the Effective Date, no holder of any security of the Company or any of its subsidiaries will have any right to require registration of shares of common stock or any other security of the Company or any of its subsidiaries. (bb) Each of Syratech and each of the Guarantors has complied with all provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida). (cc) Syratech and each of its subsidiaries maintains a system of internal accounting controls sufficient to prove reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements that conform with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (dd) Each of Syratech and each of its subsidiaries has and, at and as of the Effective Time, each of the Company and each of its subsidiaries will have filed all necessary federal, state and foreign income and franchise tax returns required to be filed, other than those filings being contested in good faith, and all material taxes, including withholding taxes, penalties and interest, assessments, fees and other charges due pursuant to such returns or pursuant to any assessment received by Syratech or any of its subsidiaries have been or, at and as of the Effective Date, received by the Company or any of its Subsidiaries will be paid, other than those being contested in good faith and for which adequate reserves have been provided. (ee) Except as stated in the Prospectus none of Syratech or any of its subsidiaries know of any outstanding claims for services, either in the nature of a finder's fee, financial advisory fee, origination fee or similar fee, with respect to the transactions contemplated hereby. (ff) This Agreement has been duly authorized, executed and delivered by Syratech and each of the Guarantors. (gg) The Indenture has been duly qualified under the 1939 Act and has been duly authorized, and when executed and delivered by each of Syratech and each of the Guarantors, will be a valid and binding agreement of each of Syratech and each of the Guarantors (and, at and as of the Effective Time, each of the Company and each of the Guarantors), enforceable in accordance with its terms. -11- (hh) The Senior Notes have been duly authorized by Syratech, and, when executed and authenticated in accordance with the provisions of the Indenture, will conform in all material respects to the description thereof in the Prospectus and when delivered to and paid for by the Underwriters in accordance with this Agreement, will be valid and binding obligations of Syratech (and, at and as of the Effective Time, the Company), will be entitled to the benefits of the Indenture and will be enforceable in accordance with their terms. (ii) The Subsidiary Guarantees have been duly authorized by each of the Guarantors, and, when executed and authenticated in accordance with the provisions of the Indenture, will conform in all material respects to the description thereof in the Prospectus, will be valid and binding obligations of each of the Guarantors, will be entitled to the benefits of the Indenture and will be enforceable in accordance with their terms. (jj) None of Syratech, any of its subsidiaries or any agent thereof acting on the behalf of their behalf has taken, and none of them will take, any action that might cause the New Credit Facility, this Agreement or the issuance or sale of the Securities pursuant to the terms of this Agreement to violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System. (kk) Immediately after the consummation of the Merger and the transactions contemplated by the Transaction Documents, the fair value and present fair saleable value of the assets of Company and its subsidiaries (on a consolidated basis) will exceed the sum of their stated liabilities and identified contingent liabilities; and Syratech (on a consolidated basis) is not, nor will the Company and its subsidiaries (on a consolidated basis) after giving effect to the execution, delivery and performance of the Transaction Documents and the consummation of the transactions contemplated thereby be, (i) left with unreasonably small capital with which to carry on their respective businesses as they are proposed to be conducted, (ii) unable to pay their debts (contingent or otherwise) as they mature or (iii) otherwise insolvent. SECTION 3. Representations, Warranties and Agreements of THLT. THLT represents and warrants to, and agrees with, the several Underwriters that: (a) THLT has been duly incorporated, and THLT is validity existing as a corporation in good standing under the laws of Delaware. (b) All of the outstanding shares of capital stock of THLT are duly authorized and validly issued, fully paid and nonassessable and not issued in violation of any preemptive or similar rights. -12- (c) THLT has all the requisite corporate power and authority to executive, deliver and perform its obligations under each of the Transaction Documents to which it is a party; the Merger Agreement has been duly and validly authorized, executed and delivered by THLT and, each of the Transaction Documents to which it is a party will, as of the Closing Date, have been duly and validly authorized, executed and delivered by THLT and, each of the Transaction Documents to which THLT is a party constitute or will, as of the Closing Date, constitute a valid and legally binding obligation of THLT enforceable against THLT, in accordance with its terms. (d) No consent, approval, authorization or order of any court or governmental authority or agency, or third party is required for the performance of any of the Transaction Documents by THLT or the consummation by THLT of the transactions contemplated by the Transaction Documents. The execution, delivery and performance by THLT, to the extent it is a party thereto, of the Transaction Documents and the consummation of the transactions contemplated therein will not conflict with or constitute a breach of, or default under, any material contract to which THLT is a party or by which it may be bound, nor will such action result in any violation of the provisions of the charter or by-laws of THLT or any law, rule, regulation or administrative or court decree. (e) This Agreement has been duly authorized, executed and delivered by THLT. THLT was formed solely for the purpose of consummating the Recapitalization. THLT has no material assets or liabilities, conducts no business and is a party to no material agreements other than this Agreement and as described in the Prospectus. (f) Except as stated in the Prospectus THLT does not know of any outstanding claims for services, either in the nature of a finder's fee, financial advisory fee, origination fee or similar fee, with respect to the transactions contemplated hereby. SECTION 4. Purchase, Sale and Delivery of Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, Syratech and the Guarantors agree to issue and sell to the Underwriters, and each Underwriter agrees, severally and not jointly, to purchase from Syratech and the Guarantors at a purchase price of ____________% of principal amount per Senior Note plus accrued interest, if any, from _______________, 1997 to the date of payment and delivery, the respective principal amount of Senior Notes set forth opposite such Underwriter's name in Schedule I hereto. The Company hereby confirms its engagement of Chase Securities Inc. ("Chase"), one of the Underwriters listed in Schedule I hereto, as, and Chase hereby confirms its agreement with the Company to render services as, a "qualified independent underwriter," within the meaning of Section (b)(15) of Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc. (the "NASD") with respect to the offering and sale of the Securities. Chase, solely in its capacity as qualified independent underwriter and not otherwise, is referred -13- to herein as the "QIU." As compensation for the services of the QIU hereunder, the Company agrees to pay Chase $5,000 on the Closing Date. The Company agrees that the yield at which the Senior Notes are sold to the public will be no lower than the yield recommended by Chase acting as QIU. The Company will deliver the Securities to you for the accounts of the Underwriters, against payment of the purchase price therefor by one or more certified or official bank checks payable in New York Clearing House or other next day funds drawn to the order of the Company, at the office of Latham & Watkins, New York, New York at 10:00 A.M., New York time, on ___________ __, 1997 or at such other place or time not later than seven full business days thereafter as you and the Company determine, such time being referred to herein as the "Closing Date." The certificates for all the Securities so to be delivered will be in such denominations and registered in such names as you request two full business days prior to the Closing Date and will be made available at the office of NationsBanc Capital Markets, Inc., Charlotte, North Carolina or, upon your request, through the facilities of The Depository Trust Company, for checking and packaging at least one full business day prior to the Closing Date. SECTION 5. Offering by Underwriters. After the Registration Statement becomes effective the several Underwriters will offer the Securities for sale to the public on the terms as set forth in the Prospectus. SECTION 6. Certain Covenants. Each of Syratech and each Guarantor jointly and severally covenants and agrees with the several Underwriters that: (a) If, at the time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post-effective amendment thereto to be declared effective before the offering of the Securities may commence, Syratech will endeavor to cause the Registration Statement or such post-effective amendment to become effective as soon as possible and will advise you promptly and, if requested by you, will confirm such advice in writing, when the Registration Statement or such post-effective amendment has become effective. (b) Syratech will not file any amendment to the Registration Statement or make any amendment or supplement to the Prospectus or file any document which, upon filing becomes an Incorporated Document, of which you shall not previously have been advised or to which, after you shall have received a copy of the document proposed to be filed, you shall reasonably object. (c) Syratech will advise you promptly and, if requested by you, will confirm such advice in writing: (i) when the Registration Statement has become effective, if and when the Prospectus is sent for filing pursuant to Rule 424 under the Act and when any -14- post-effective amendment to the Registration Statement becomes effective; (ii) of any request by the Commission for amendment of or a supplement to the Registration Statement, any preliminary prospectus or the Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Securities for offering or sale in any jurisdiction or the initiation of any proceeding for such purpose; and (iv) of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of the happening of any event, which makes any statement of a material fact made in the Registration Statement or the Prospectus (as then amended or supplemented) untrue or which requires the making of any additions to or changes in the Registration Statement or the Prospectus (as then amended or supplemented) in order to state a material fact required by the Act to be stated therein or necessary in order to make the statements therein not misleading, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented) to comply with the Act or any other law. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible time. (d) As soon after the execution and delivery of this Agreement as practicable and thereafter from time to time for such period as in the opinion of counsel for the Underwriters a Prospectus is required by the Act to be delivered in connection with sales by the Underwriters or any dealer, Syratech will expeditiously deliver to the Underwriters and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as you may request. Syratech consents to the use of the Prospectus (and of any amendment or supplement thereto), in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Securities are offered by the Underwriters and by all dealers to whom the Securities may be sold, both in connection with the offering and sale of the Securities and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with sales by the Underwriters or any dealer. If during such period of time any event shall occur that in the judgment of Syratech or in the opinion of counsel for the Underwriters is required to be set forth in the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Prospectus (or to file under the Exchange Act any document which, upon filing, becomes an Incorporated Document) in order to comply with the Act or any other law, Syratech will forthwith prepare and, subject to the provisions of paragraph (b) above, file with the Commission an appropriate supplement or amendment thereto (or to such document), and will expeditiously furnish to the Underwriters and dealers a reasonable number of copies thereof. In the event that Syratech and the Underwriters agree that the Prospectus should be amended or supplemented, the Company, if requested by you, will promptly issue a press release announcing or disclosing the matters to be covered by the proposed amendment or supplement. -15- (e) Syratech will mail and make generally available to its security holders as soon as practicable an earnings statement covering a period of at least twelve months after the effective date of the Registration Statement (but in no event commencing later than 90 days after such date) which shall satisfy the provisions of Section 11(a) of the Act and the Rules and Regulations (including Rule 158). Syratech will also advise you in writing when such statement has been so made available. (f) Syratech will deliver to each of you as many signed and conformed copies of the registration statement (as originally filed) and of each amendment thereto (including exhibits filed therewith) as you may reasonably request and will also deliver to you a conformed copy of the Registration Statement and each amendment thereto for each of the Underwriters. (g) Syratech and each Guarantor will endeavor, in cooperation with you, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as you may designate, and will maintain such qualifications in effect for as long as may be required for the distribution of the Securities. Syratech and each Guarantor will file such statements and reports as may be required by the laws of each jurisdiction in which the Securities have been qualified as above provided. (h) During the period of five years hereafter, Syratech will furnish to you and upon request, to each of the other Underwriters, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year, and Syratech will furnish to you (i) as soon as available, a copy of each report (including, without limitation, quarterly reports containing Syratech's consolidated balance sheet, a consolidated statement of operations and a consolidated statement of cash flows) or definitive proxy statement of Syratech filed with the Commission under the Exchange Act or mailed to stock holders, and (ii) from time to time, such other information concerning Syratech as you may reasonably request. (i) If Rule 430A of the Act is employed, Syratech will timely file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the time and manner of such filing. Syratech will timely complete all required filings and otherwise fully comply in a timely manner with all provisions of the Exchange Act. (j) During the period beginning on the date hereof and continuing to and including the Closing Date, Syratech and each Guarantor will not offer, sell contract to sell or otherwise dispose of any debt securities of Syratech or any Guarantor or warrants to purchase debt securities of Syratech or any Guarantor substantially similar to the Securities (other than the Securities), without your prior written consent. -16- (k) Each of Syratech and each Guarantor will use its best efforts to do and perform all things required or necessary to be done and performed under this Agreement by Syratech and the Guarantors prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Securities. (l) Syratech will apply the net proceeds from the sale of the Securities (together with any other net proceeds received from the Recapitalization) as set forth under "Use of Proceeds" in the Prospectus. SECTION 7. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Securities on the Closing Date will be subject to satisfaction of each of the following conditions: (a) Each of the representations and warranties on the part of Syratech (and, at and as of the Effective Time, the Company), the Guarantors and THLT contained herein shall be true and correct in all material respects on the date herein and on the Closing Date with the same force and effect as if made on and as of the Closing Date. (b) The Registration Statement shall have become effective (or if a post-effective amendment is required to be filed pursuant to Rule 430A under the Act, such post-effective amendment shall have become effective) not later than 5:00 P.M. New York time, on the date of this Agreement, or such later time or date as shall have been consented to by you, and all filings, if any, required by Rules 424 and 430A under the Act shall have been timely made; and prior to the Closing Date no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted, or to the knowledge of the Company or you, shall be contemplated by the Commission, and any request of the Commission for additional information (to be included in the registration statement or the Prospectus or otherwise) shall have been complied with to your satisfaction. (c) You shall not have advised Syratech (or, at and as of the Effective Time, the Company) that the Registration Statement or Prospectus, or any amendment or supplement thereto, contains an untrue statement of fact or omits to state a fact which, you have concluded, is material and in the case of an omission is required to be stated therein or is necessary to make the statements therein not misleading. (d) (i) Since the date of the latest balance sheet included in the Registration Statement and the Prospectus, there shall not have been any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, affairs or business prospects, whether or not arising in the ordinary course of business, of Syratech and its subsidiaries, (ii) since the date of the latest balance sheet included in the Registration Statement and the Prospectus there shall not have been any change, or any development involving a prospective material -17- adverse change, in the capital stock or in the long-term debt of Syratech and its subsidiaries from that set forth in the Registration Statement and Prospectus, (iii) Syratech and its subsidiaries shall have no liability or obligation, direct or contingent, which is material to Syratech and its subsidiaries (or, at and as of the Effective Time, the Company and its subsidiaries), taken as a whole, other than those reflected in the Registration Statement and the Prospectus and (iv) on the Closing Date you shall have received a certificate of Syratech, dated the Closing Date, signed on its behalf by (x) the president or any vice president and (y) a principal financial or accounting officer of Syratech confirming, as of the Closing Date, the matters set forth in paragraphs (a), (b), (c) and (d) of this Section 7 and confirming that the representations and warranties contained in Section 2 are true and correct with the same force and effect as though made on and as of the Closing Date. (e) As of the Closing Date, the Company will have delivered to the Underwriters true and correct executed copies of the Transaction Documents (other than the Offering Documents), in the form as originally executed, together with all related documents, instruments and agreements and all schedules or exhibits thereto; there will have been no amendments, alterations, modifications or waivers thereto or in the exhibits or schedules thereto other than those as to which the Underwriters shall previously have been advised and shall not have reasonably objected after being furnished a copy thereof. (f) On the Closing Date you shall have received a certificate, dated the Closing Date, of THLT, signed on behalf of such party by (x) the president or any vice president and (y) any other officer confirming, as of the Closing Date, the matters set forth in paragraph (a) of this Section 7 (as to THLI) and confirming that the representations and warranties of THLT contained in Section 3 are true and correct with the same force and effect as though made on and as of the Closing Date. (g) None of the issuance and sale of the Securities pursuant to this Agreement, the Recapitalization or any of the other transactions contemplated by any of the Transaction Documents or the Prospectus shall be enjoined (temporarily or permanently) and no restraining order or other injunctive order shall have been issued or any action, suit or proceeding shall have been commenced with respect to this Agreement, the Merger Agreement, the New Credit Facility, the Recapitalization or any of the other transactions contemplated by the Prospectus, before any court or governmental authority. (h) On the Closing Date, the Underwriters shall have received copies of all certificates, documents and opinions delivered by Syratech, THL or any of their respective affiliates, or any of their counsels and such other certificates, documents and opinions reasonably obtainable by Syratech, THL or any of their respective affiliates delivered to any such party under the Transaction Documents, in each case, together with letters addressed to the Underwriters, stating that the Underwriters may rely on such certificates, documents and opinions as if they had been addressed to the Underwriters. -18- (i) You shall have received a favorable opinion of Paul, Weiss, Rifkind & Garrison, counsel for Syratech, dated the Closing Date to the effect that: (i) Syratech has been duly incorporated and is validly existing as a corporation in good standing under the laws of Delaware with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement; and Syratech is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which it owns or leases property or in which the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. (ii) Each of the Guarantors has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement, and, to the best of their knowledge and information, is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which it owns or leases properties or in which the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect; all of the issued and outstanding capital stock of each of the Guarantors has been duly authorized and validly issued and is fully paid and non-assessable, and all of such capital stock, to the best of their knowledge and information, is owned by Syratech and, at and as of the Effective Time, will be owned by the Company free and clear of any pledge, lien, encumbrance, claim or equity. (iii) Syratech has the authorized, issued and outstanding capital stock as set forth in the Prospectus; all of the outstanding shares of capital stock of Syratech have been duly authorized and validly issued, are fully paid and nonassessable and were not, to the best of such counsel's knowledge, issued in violation of any preemptive or similar rights. (iv) To the knowledge of such counsel, there are, and after giving effect to the Recapitalization, will be, no outstanding subscriptions, rights, warrants, calls, commitments of sale or options to acquire, or instruments convertible into or exchangeable for, any such shares of capital stock or other equity interest of Syratech, the Company or any of the Guarantors, except as described in the Prospectus. (v) Each of Syratech and, after giving effect to the Recapitalization, the Company has all the requisite corporate power and authority to execute, deliver -19- and perform its respective obligations under each of the Transaction Documents to which it is a party. (vi) Each of the Syratech's subsidiaries has, both before and after giving to the Merger, all the requisite corporate power and authority to execute, deliver and perform its respective obligations under each of the Transaction Documents to which it is a party. (vii) Each of Syratech and, at and as of the Effective Time, the Company has duly authorized, executed and delivered each of the Transaction Documents (other than the Offering Documents) to which it is party. (viii) Each of Syratech's subsidiaries has duly authorized, executed and delivered each of the Transaction Documents (other than the Offering Documents) to which it is party. (ix) Each of Syratech and each of the Guarantors has, and after giving effect to the Recapitalization, the Company will have duly and validly authorized this Agreement and the consummation by Syratech, the Company and the Guarantors of the transactions contemplated hereby. This Agreement has been duly executed and delivered by each of Syratech and the Guarantors. (x) The Indenture has been duly qualified under the 1939 Act. Each of Syratech and each of the Guarantors has, and after giving effect to the Merger, the Company will have duly and validly authorized, executed and delivered the Indenture, and the Indenture constitutes a valid and binding agreement of each of Syratech and each of the Guarantors, and after giving effect to the Merger, the Company enforceable against them in accordance with its terms except as (a) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (b) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (xi) Syratech has, and after giving effect to the Merger, the Company will have duly authorized the Senior Notes, which, when executed and authenticated in accordance with the provisions of the Indenture, and delivered to and paid for by the Underwriters in accordance with the terms of this Agreement, will be valid and binding obligations of Syratech and, at and as of the Effective Time, the Company, enforceable against Syratech and, after giving effect to the Merger, the Company in accordance with their terms except as (a) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (b) rights of acceleration and the -20- availability of equitable remedies may be limited by equitable principles of general applicability, and will be entitled to the benefits of the Indenture. (xii) Each of the Guarantors has duly authorized the Subsidiary Guarantees, which, when executed and authenticated in accordance with the provisions of the Indenture, and delivered to and paid for by the Underwriters in accordance with the terms of this Agreement, will be valid and binding obligations of each of the Guarantors, enforceable against each of them in accordance with the terms of the Subsidiary Guarantees except as (a) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (b) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability, and will be entitled to the benefits of the Indenture. (xiii) The Indenture, the Senior Notes and the Subsidiary Guarantees conform in all material respects to the descriptions thereof contained in the Prospectus. (xiv) The Registration Statement is effective under the Act and, to the best of their knowledge and information, no stop order suspending the effectiveness of the Registration Statement has been issued under the Act or proceedings therefor initiated or threatened by the Commission. (xv) No consent, approval, authorization or order of any court or governmental authority or agency, or third party is required (which has not been obtained) in connection with the consummation by Syratech (or after giving effect to the Recapitalization, the Company) or any of its subsidiaries of the transactions contemplated by the Transaction Documents, except such as may be required under state securities or Blue Sky laws. (xvi) To the best of their knowledge and information, the execution, delivery and performance by Syratech (or after giving effect to the Recapitalization, the Company) or any of its subsidiaries, to the extent each is a party thereto, of the Transaction Documents and the consummation of the transactions contemplated thereby will not conflict with or constitute a breach of, or default under (or an event which with notice or passage of time or both would constitute or a default under) or violation of any of (A) any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which such entity is a party or by which it may be bound or to which any of their respective property or assets is, and at and as of the Effective Time will be subject, (B) the provisions of the charter or by-laws of such entity, or (C) (assuming compliance with all applicable state securities or Blue Sky laws) any law, administrative regulation or administrative or court decree applicable to such entity or any of its -21- respective properties or assets, except for any such breach or violation which would not, individually or in the aggregate, have a Material Adverse Effect. (xvii) None of Syratech (or after giving effect to the Recapitalization, the Company) or any of its subsidiaries is (i) in violation of its charter documents, (ii) to the knowledge of such counsel, in breach or violation of any law, administrative regulation or administrative or court decree applicable to any of them or any of their respective properties or assets, except for any such breach or violation which would not, individually or in the aggregate, have a Material Adverse Effect or (iii) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which its respective properties may be bound. (xviii) After due inquiry, such counsel does not know of any legal or governmental proceeding pending or threatened to which Syratech (or, after giving effect to the Recapitalization, the Company) or any of its subsidiaries is or will be a party or to which any of their respective properties is or will be subject that is required to be described in the Registration Statement or the Prospectus and is not so described or of any material contract or other document that is required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement or in any Incorporated Document that is not so described or filed as required. (xix) No legal or governmental proceedings are pending or, to the knowledge of such counsel, threatened to which Syratech or any of its subsidiaries is and, at and as of the Effective Time, the Company will be a party or to which any of their respective properties is subject which, if determined adversely to such party would result, individually or in the aggregate, in a Material Adverse Effect, or which seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance and sale of the Securities or the consummation of the other transactions contemplated by the Transaction Documents. (xx) To the best of such counsel's knowledge, Syratech and each of its subsidiaries owns and possesses adequate Trademarks to conduct the businesses now or proposed to be operated by them. (xxi) To the best of such counsel's knowledge, after due inquiry, neither Syratech nor any of its subsidiaries has violated any Environmental Laws, which in each case might result in any Material Adverse Effect. (xxii) None of Syratech or any of its subsidiaries is or, at and as of the Effective Time, the Company will be an "investment company" or a company -22- "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (xxiii) Neither the consummation of the transactions contemplated by the New Credit Facility and this Agreement nor the issuance or sale of the Securities will violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System. (xxiv) Such counsel (1) is of the opinion that the Registration Statement (other than the financial statements included therein, as to which no opinion need be expressed) complies as to form in all material respects with the requirements of the Act and the Rules and Regulations, and (2) is of the opinion that the Incorporated Documents that have been filed with the Commission on or before the date of such opinion (other than the financial statements included therein, as to which no opinion need be expressed) complies as to form in all material respects with the Exchange Act and the rules and regulations of the Commission thereunder. (xxv) Such counsel (1) believes that (other than the financial statements included therein, as to which no belief need be expressed and except for that part of the Registration Statement that constitutes the Form T-1) the Registration Statement, at the time it became effective, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (2) believes that the Prospectus, as amended or supplemented at the Closing Date, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. With respect to subparagraph (xxv) of paragraph (g) above, such counsel may state its opinion and belief is based upon its participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but is without independent check or verification except as specified. (h) You shall have received a favorable opinion of Hutchins, Wheeler & Dittmar, counsel for THLT, dated the Closing Date to the effect that: (i) THLT has been duly incorporated and is validly existing as a corporation in good standing under the laws of Delaware. (ii) All of the outstanding shares of capital stock of THLT have been duly authorized and validly issued, are fully paid and nonassessable and were not, -23- to the best of such counsel's knowledge, issued in violation of any preemptive or similar rights. (iii) THLT has, both before and after giving to the Recapitalization, all the requisite corporate power and authority to execute, deliver and perform its obligations under each of the Transaction Documents to which it is a party. (iv) THLT has duly authorized, executed and delivered each of the Transaction Documents to which it is a party; such Transaction Documents will constitute valid and legally binding obligations of THLT, enforceable against THLT (to the extent THLT is a party thereto), in accordance with its terms, except as rights to indemnity hereunder may be limited by applicable law. (v) No consent, approval, authorization or order of any court or governmental authority or agency, or third party is required for the performance of any of the Transaction Documents by THLT (to the extent THLT is a party thereto) or the consummation by THLT of the transactions contemplated by the Transaction Documents. The execution, delivery and performance by THLT, to the extent it is a party thereto, of the Transaction Documents and the consummation of the transactions contemplated therein will not conflict with or constitute a breach of, or default under, any material contract to which THLT is a party or by which it may be bound, nor will such action result in any violation of the provisions of the charter or by-laws of THLT or any law, administrative regulation or administrative or court decree applicable to THLT. (vi) Such counsel (1) believes that (other than the financial statements included therein, as to which no belief need be expressed and except for that part of the Registration Statement that constitutes the Form T-1) the Registration Statement, at the time it became effective, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (2) believes that the Prospectus, as amended or supplemented at the Closing Date, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. With respect to subparagraph (vi) of paragraph (h) above, Hutchins, Wheeler & Dittmar may state its opinion and belief is based upon its participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but is without independent check or verification except as specified. -24- (i) You shall have received a favorable opinion of Latham & Watkins, counsel for the Underwriters, dated the Closing Date, in form and substance satisfactory to you. (j) You shall have received from each of the Independent Accountants, two letters, the first delivered the day of but prior to the execution of, and dated the date of, this Agreement and the other dated the Closing Date, addressed to the Underwriters (with conformed copies for each of the Underwriters), in the form heretofore agreed (and in the case of the second such letter consistent with the first such letter) with such variations as are reasonably acceptable to you. (k) On the Closing Date: (1) the Certificate of Merger with respect to the Merger shall be in form and substance satisfactory to the Underwriters and Latham & Watkins, counsel for the Underwriters, shall have been pre-cleared for filing with the Secretary of State of the State of Delaware and shall be ready in all respects for filing immediately upon consummation of each of the transactions contemplated by the Prospectus to be consummated prior to the Merger; (2) the New Credit Facility with aggregate commitments thereunder of not less than $130,000,000 shall be in full force and effect, no event shall have occurred and no event shall have failed to occur, which would relieve the lenders under the New Credit Facility (the "Lenders") of their obligation to advance funds, or preclude them from advancing funds to Syratech thereunder, and concurrently with the Closing the Lenders shall have advanced funds under the New Credit Facility in such amounts as are necessary to fund the Recapitalization (after giving effect to the Equity Financing and the sale of the Securities hereunder); and (3) The Equity Financing shall have been consummated on terms and conditions satisfactory to the Underwriters. (l) Simultaneously with the Closing, the closing contemplated by the Merger Agreement, including without limitation the Merger, shall have been consummated in accordance with the terms of the Merger Agreement. (m) Counsel for the Underwriters shall have been furnished with such other documents and opinions as they may reasonably require. SECTION 8. Payment of Expenses. Whether or not any of the transactions contemplated hereby are consummated, or this Agreement is terminated, Syratech and the Guarantors jointly and severally agree to pay all costs, expenses, fees and taxes incident to (i) the preparation, printing, filing and distribution under the Act of the Registration Statement (including financial statements and exhibits), the Prospectus, each preliminary prospectus, the Incorporated -25- Documents, and all amendments and supplements to any of them, (ii) the preparation, printing (including word processing and duplication costs) and delivery of this Agreement, the Indenture, Preliminary and Supplemental Blue Sky Memoranda and all other agreements, memoranda, correspondence and other documents printed and delivered in connection with the offering of the Securities, (iii) the registration with the Commission, and the issuance by the Company and the Guarantors of the Securities, (iv) the registration or qualification of the Securities for offer and sale under the securities or Blue Sky laws of the several states as described in Section 6(e) (including the reasonable fees and disbursements of your counsel relating to such registration or qualification), (v) the fees and expenses of rating agencies, (vi) the furnishing of such copies of the Registration Statement, Prospectus and preliminary prospectus, and all amendments and supplements to any of them, as may be reasonably requested by you; (vii) filings and clearance with the National Association of Securities Dealers, Inc. in connection with the offering; (viii) the listing of the Securities on a stock exchange or automated quotation system, if any; (ix) the QIU (including fees and disbursements of counsel for the QIU); (x) expenses of Syratech and the Guarantors in connection with any meetings with prospective investors in the Securities; (xi) advertising relating to the offering of the Securities (other than as shall have been specifically approved by the Underwriters to be paid for by the Underwriters); and (xii) the performance by Syratech and the Guarantors (and after giving effect to the Merger, the Company and the Guarantors) of their other respective obligations under this Agreement, including (without limitation) the fees of the Trustee, the costs of the Trustee's personnel and other internal costs, the cost of printing and engraving the certificates representing the Securities, all expenses and taxes incident to the sale and the delivery of the Securities to you, and fees and expenses of counsel for the Syratech, any Guarantor or the Company for providing such opinions as you may reasonably request. If this Agreement is terminated by you in accordance with the provisions of Section 7 or Section 12, Syratech and the Guarantors jointly and severally shall reimburse you for all of your out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. SECTION 9. Indemnification and Contribution. (a) Each of Syratech and each Guarantor (and, after giving effect to the Recapitalization, each of the Company and each Guarantor), jointly and severally, agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter 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 or judgments (including without limiting the foregoing the reasonable legal and other expenses incurred in connection with any action, suit or proceeding or any claim asserted) arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities, judgments or expenses are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to such Underwriter -26- furnished in writing to Syratech or any Guarantor by such Underwriter through you expressly for use therein. This indemnity agreement will be in addition to any liability which Syratech and the Guarantors (and, after giving effect to the Merger, the Company and the Guarantors) may otherwise have to the persons referred to above in this Section 9(a) and Section 10(a). (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless Syratech, each Guarantor (and, after giving effect to the Recapitalization, the Company and the Guarantors), their respective directors, their respective officers who sign the Registration Statement and each person, if any, who controls Syratech or any Guarantor (and, after giving effect to the Recapitalization, the Company or any Guarantor) within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities, judgments and expenses caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if Syratech and the Guarantors (or, after giving effect to the Recapitalization, the Company and the Guarantors) shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to such Underwriter furnished to Syratech or any Guarantor (or, after giving effect to the Merger, the Company or any Guarantor) in writing by such Underwriter through you expressly for use in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any preliminary prospectus. (c) In case any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (hereinafter called the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (hereinafter called the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate and shall pay the fees and disbursements of such counsel related to such proceeding. In any such action or proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the indemnifying party shall have failed to assume the defense and employ counsel or (iii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests among them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (a) the reasonable fees and expenses of more than one separate firm (in addition to local counsel) for all Underwriters and all persons, if any, who control the Underwriters within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act and (b) the reasonable fees and expenses of more than one separate firm (in addition to local counsel) for Syratech and the -27- Guarantors (or, after giving effect to the Recapitalization, the Company and the Guarantors), their respective directors, their respective officers who sign the Registration Statement and each person, if any, who controls Syratech and the Guarantors (or, after giving effect to the Recapitalization, the Company and the Guarantors) within the meaning of either such Section and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Underwriters and such control persons of the Underwriters, such firm shall be designated in writing by NationsBanc Capital Markets, Inc. In the case of any such separate firm for Syratech and the Guarantors (or, after giving effect to the Recapitalization, the Company and the Guarantors), and such directors, officers and control persons of Syratech and the Guarantors (or, after giving effect to the Recapitalization, the Company and the Guarantors), such firm shall be designated in writing by Syratech (or, after giving effect to the Recapitalization, the Company). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent; but if settled with such consent of if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the immediately preceding sentence, if in any case where the fees and expenses of counsel are at the expense of the indemnifying party and an indemnified party shall have requested the indemnifying party to reimburse the indemnified party for such fees and expenses of counsel as incurred, such indemnifying party agrees that it shall be liable for any settlement of any action effected without its written consent if (i) such settlement is entered into more than twenty business days after the receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall have failed to reimburse the indemnified party in accordance with such request for reimbursement prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any 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 proceeding. (d) If the indemnification provided for in this Section 9 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, 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 expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Syratech and the Guarantors (and, after giving effect to the Recapitalization, the Company and the Guarantors) on the one hand and the Underwriters on the other 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 Syratech and the Guarantors (and, after giving effect to the Recapitalization, the Company and the Guarantors) on the one hand and the Underwriters on the other in connection with the statements or omissions or actions or failure to act which resulted in such losses, claims, damages, liabilities, judgments or expenses, as well as any other relevant equitable considerations. The relative benefits received by Syratech -28- and the Guarantors (or, after giving effect to the Recapitalization, the Company and the Guarantors) on the one hand and the Underwriters on the other shall be deemed to be in the same proportions as the total net proceeds from the offering of the Securities (before deducting expenses) received by Syratech and the Guarantors (and, after giving effect to the Recapitalization, the Company and the Guarantors) bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of Syratech and the Guarantors (and, after giving effect to the Recapitalization, the Company and the Guarantors) on the one hand and the Underwriters on the other 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 Syratech (or, after giving effect to the Recapitalization, the Company), the Guarantors or by the Underwriters and the party's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) Syratech (and, after giving effect to the Recapitalization, the Company), the Guarantors and the Underwriters agree that it would not be just and equitable if contribution pursuant to Section 9(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the 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 Section 9(d), in no event shall any Underwriter be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which each Underwriter 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. The Underwriters' obligations to contribute pursuant to Section 9(d) are several in proportion to the respective aggregate principal amount of Senior Notes set forth opposite their names in Schedule I hereto. SECTION 10. Indemnification of Qualified Independent Underwriter (a) Each of Syratech and each Guarantor (and, after giving effect to the Recapitalization, each of the Company and each Guarantor), jointly and severally, agrees to indemnify and hold harmless the QIU and each person, if any, who controls the QIU 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 or judgments (including without limiting the foregoing the reasonable legal and other expenses incurred in connection with any action, suit or proceeding or any claim asserted) arising out of: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration -29- Statement or the Prospectus or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities, judgments or expenses are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to the QIU furnished in writing to Syratech or any Guarantor by the QIU expressly for use therein; or (ii) the QIU having acted, failed to act or alleged to have failed to act in its capacity as the "qualified independent underwriter" with respect to the offer and sale of the Securities; provided, however, that to the extent that any such loss, claim, damage, liability or judgment referred to in the foregoing clause (ii) is found in a final judgment by a court of competent jurisdiction, not subject to further appeal, to have resulted from the willful misconduct or gross negligence of the QIU, neither Syratech (or, after giving effect to the Recapitalization, the Company) nor the Guarantors will be liable to that extent. This indemnity agreement will be in addition to any liability which Syratech and the Guarantors (and, after giving effect to the Merger, the Company and the Guarantors) may otherwise have to the persons referred to above in Section 9(a) and this Section 10(a). (b) In case any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought against the QIU or any person controlling the QIU (for purposes of this Section 10(b), the QIU and/or such controlling person, as appropriate, shall hereinafter be referred to as the "Indemnified"), based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if Syratech and the Guarantors (or, after giving effect to the Recapitalization, the Company and the Guarantors) shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to the QIU furnished to Syratech or any Guarantor (or, after giving effect to the Merger, the Company or any Guarantor) in writing by the QIU expressly for use in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any preliminary prospectus or (ii) the QIU having acted, failed to act or alleged to have failed to act in its capacity as the "qualified independent underwriter" with respect to the offer and sale of the Securities, and with respect to which indemnity may be sought against the Syratech (or, after giving effect to the Recapitalization, the Company) and the Guarantors (each of Syratech, the Company and/or any Guarantor, as appropriate, for purposes of this Section 10(b), are hereinafter referred to as the "Indemnifier"), the QIU shall promptly notify Syratech (or, after giving effect to the Recapitalization, the Company) in writing and Syratech (or, after giving effect to the Recapitalization, the Company) and the Guarantors shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified to represent the Indemnified and any others the Indemnifier may designate and shall pay the fees and disbursements of such counsel related to such proceeding. In any such action or proceeding, the Indemnified shall have the right to retain its own counsel, but the fees -30- and expenses of such counsel shall be at the expense of the Indemnified unless (i) the Indemnifier and the Indemnified shall have mutually agreed to the retention of such counsel, (ii) the Indemnifier shall have failed to assume the defense and employ counsel or (iii) the named parties to any such proceeding (including any impleaded parties) include both an Indemnifier and the Indemnified and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests among them. It is understood that the Indemnifier shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (a) the reasonable fees and expenses of more than one separate firm (in addition to local counsel) for the QIU and all persons, if any, who control the QIU within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act and (b) the reasonable fees and expenses of more than one separate firm (in addition to local counsel) for Syratech and the Guarantors (or, after giving effect to the Recapitalization, the Company and the Guarantors), their respective directors, their respective officers who sign the Registration Statement and each person, if any, who controls Syratech and the Guarantors (or, after giving effect to the Recapitalization, the Company and the Guarantors) within the meaning of either such Section and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the QIU and such control persons of the QIU, such firm shall be designated in writing by the QIU. In the case of any such separate firm for Syratech and the Guarantors (or, after giving effect to the Recapitalization, the Company and the Guarantors), and such directors, officers and control persons of Syratech and the Guarantors (or, after giving effect to the Recapitalization, the Company and the Guarantors), such firm shall be designated in writing by Syratech (or, after giving effect to the Recapitalization, the Company). The Indemnifier shall not be liable for any settlement of any proceeding effected without its written consent; but if settled with such consent of if there be a final judgment for the plaintiff, the Indemnifier agrees to indemnify the Indemnified from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the immediately preceding sentence, if in any case where the fees and expenses of counsel are at the expense of the Indemnifier and the Indemnified shall have requested the Indemnifier to reimburse the Indemnified for such fees and expenses of counsel as incurred, the Indemnifier agrees that it shall be liable for any settlement of any action effected without its written consent if (i) such settlement is entered into more than twenty business days after the receipt by the Indemnifier of the aforesaid request and (ii) such Indemnifier shall have failed to reimburse the Indemnified in accordance with such request for reimbursement prior to the date of such settlement. No Indemnifier shall, without the prior written consent of the Indemnified, effect any settlement of any pending or threatened proceeding in respect of which the Indemnified is or could have been a party and indemnity could have been sought hereunder by the Indemnified, unless such settlement includes an unconditional release of the Indemnified from all liability on claims that are the subject matter of such proceeding. -31- (c) If the indemnification provided for in this Section 10 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, 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, judgments and expenses (i) in such proportion as is appropriate to reflect the relative benefits received by Syratech and the Guarantors (and, after giving effect to the Recapitalization, the Company and the Guarantors) on the one hand and the QIU 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 Syratech and the Guarantors (and, after giving effect to the Recapitalization, the Company and the Guarantors) on the one hand and the QIU on the other hand in connection with the statements or omissions or actions or failure to act which resulted in such losses, claims, damages, liabilities, judgments or expenses, as well as any other relevant equitable considerations. The relative benefits received by Syratech and the Guarantors (or, after giving effect to the Recapitalization, the Company and the Guarantors) on the one hand and the QIU on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) received by Syratech and the Guarantors (and, after giving effect to the Recapitalization, the Company and the Guarantors), as set forth in the cover page of the Prospectus, bear to the fee received by the QIU for acting as the "qualified independent underwriter" as set forth in Section 4 hereof. The relative fault of Syratech and the Guarantors (and, after giving effect to the Recapitalization, the Company and the Guarantors) on the one hand and the QIU 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 Syratech (or, after giving effect to the Recapitalization, the Company) or any Guarantor on the one hand or the QIU on the other hand and the party's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission and whether the QIU's recommendation, advice or services as QIU pursuant to Section 4 hereof involved any willful misconduct or gross negligence on the part of the QIU. (d) Syratech (and, after giving effect to the Recapitalization, the Company), the Guarantors and the QIU agree that it would not be just and equitable if contribution pursuant to Section 10(a) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the 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 10, the QIU shall not be required to contribute any amount in excess of the amount by which its fee received for acting as "qualified independent -32- underwriter" as set forth in Section 4 hereof exceeds the amount of any damages which the QIU has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission or by reason of alleged willful misconduct or gross negligence. 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. SECTION 11. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement, or contained in certificates of officers of Syratech, the Guarantors and THLI submitted pursuant hereto, including indemnity and contribution agreements, shall remain operative and in full force and effect, regardless of any termination of this Agreement, or any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter by or on behalf of Syratech (or, after giving effect to the Recapitalization, the Company), any Guarantor, their respective officers or directors, and shall survive acceptance and payment for the Securities hereunder. SECTION 12. Effectiveness of Agreement and Termination. This Agreement shall become effective upon later of (x) execution and delivery hereof by the parties hereto and (y) release of notification of the effectiveness of the Registration Statement by the Commission. This Agreement may be terminated for any reason at any time prior to the Closing Date by the Underwriters upon the giving of written notice of such termination to the Syratech, if prior to the Closing Date (i) there has been, since the respective dates as of which information is given in the Registration Statement, any material adverse change in the condition, financial or otherwise, earnings, business affairs or business prospects of Syratech and its subsidiaries (or, after giving effect to the Recapitalization, the Company and its subsidiaries) considered as a whole, whether or not arising in the ordinary course of business, or (ii) there has occurred any outbreak or escalation of hostilities or other calamity or crisis or material change in existing financial, political, economic or securities market conditions, the effect of which is such as to make it, in the judgment of the Underwriters, impracticable or inadvisable to market the Securities in the manner contemplated in the Prospectus or enforce contracts for the sale of the Securities, or (iii) trading generally on either the American Stock Exchange, the New York Stock Exchange or the NASDAQ National Market System has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said exchanges or the NASDAQ National Market System or by order of the Commission or any other governmental authority, of if a banking moratorium has been declared by either Federal or New York authorities. In the event of any such termination, the provisions of Section 8, the indemnity agreement and contribution provisions set forth in Sections 9 and 10, and the provisions of Sections 11 and 15 shall remain in effect. SECTION 13. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any -33- standard form of telecommunications. Notice to the Underwriters shall be directed to you c/o NationsBanc Capital Markets, Inc., 100 North Tryon Street, Charlotte, North Carolina 28255, Attention: Syndicate; notices to Syratech (and, after giving effect to the Recapitalization, the Company) or any Guarantor shall be directed to such party at Syratech Corporation, 175 McClellan Highway, East Boston, MA 02128, Attention: Secretary (with a copy to the Treasurer). SECTION 14. Parties. This Agreement shall inure to the benefit of and be binding upon Syratech (and, after giving effect to the Recapitalization, the Company), the Guarantors, the Underwriters, the QIU any controlling persons referred to herein and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 15. Governing Law. This Agreement shall be governed by the laws of the State of New York. This Agreement may be signed in two or more counterparts each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. If the foregoing is in accordance with your understanding of our agreement, please sign this Agreement and return it to us. Very truly yours, SYRATECH CORPORATION By: Name: _________________ Title: _________________ SYRATECH HOLDING CORPORATION By: Name: _________________ Title: _________________ WALLACE INTERNATIONAL SILVERSMITHS, INC. By: Name: _________________ Title: __________________ -34- WALLACE INTERNATIONAL DE P.R., INC. By: Name: ____________________ Title: ____________________ INTERNATIONAL SILVER COMPANY By: Name: _________________ Title: _________________ INTERNATIONAL SILVER DE P.R., INC. By: Name: _________________ Title: __________________ PMW SILVER DE P.R., INC. By: Name: ____________________ Title: ____________________ TOWLE MANUFACTURING COMPANY By: Name: _________________ Title: _________________ ROSEMAR SILVER COMPANY, INC. By: Name: _________________ Title: __________________ TOWLE HOLLOWARE, INC. By: Name: ____________________ Title: ____________________ -35- FARBERWARE INC. By: Name: _________________ Title: _________________ SILVESTRI, INC. By: Name: _________________ Title: __________________ SILVESTRI, INC. OF SOUTH CAROLINA By: Name: ____________________ Title: ____________________ RAUCH INDUSTRIES, INC. By: Name: _________________ Title: __________________ ROCHARD, INC. By: Name: ____________________ Title: ____________________ HOLIDAY PRODUCTS, INC. By: Name: _________________ Title: _________________ NORTHSTAR SALES CORPORATION By: Name: _________________ Title: __________________ -36- LEONARD FLORENCE ASSOCIATES, INC. By: Name: ____________________ Title: ____________________ CHI INTERNATIONAL, INC. By: Name: _________________ Title: _________________ SYRATECH SECURITY CORPORATION By: Name: _________________ Title: __________________ SYRATECH WEST COAST WAREHOUSE CORP. By: Name: ____________________ Title: ____________________ 175 AMLEGION REVERE REALTY TRUST By: Name: ____________________ Title: ____________________ SYRATECH SILVER SALES CORP. By: Name: ____________________ Title: ____________________ THL TRANSACTION I CORP. By: Name: ____________________ Title: ____________________ -37- Confirmed and Accepted, as of the date first above written: NATIONSBANC CAPITAL MARKETS, INC. By ______________________________ By _______________________________ CHASE SECURITIES INC. By _______________________________ By ________________________________ -38- SCHEDULE I PRINCIPAL AMOUNT OF SENIOR NOTES UNDERWRITER TO BE PURCHASED - ----------- --------------- NationsBanc Capital Markets, Inc. $ Chase Securities Inc. ------------ Total $155,000,000 -39- SCHEDULE II GUARANTORS NAME OF GUARANTOR STATE OF INCORPORATION - ----------------- ---------------------- Syratech Holding Corporation Arkansas Wallace International Silversmiths, Inc. Delaware Wallace International de P.R., Inc. Delaware International Silver Company Delaware International Silver de P.R., Inc. Delaware PMW Silver de P.R., Inc. Delaware Towle Manufacturing Company Delaware Rosemar Silver Company, Inc. Delaware Towle Holloware, Inc. Delaware Farberware Inc. Delaware Silvestri, Inc. Delaware Silvestri, Inc. of South Carolina South Carolina Rauch Industries, Inc. North Carolina Rochard, Inc. North Carolina Holiday Products, Inc. North Carolina Northstar Sales Corporation North Carolina Leonard Florence Associates, Inc. Massachusetts CHI International, Inc. Maryland Syratech Security Corporation Massachusetts Syratech West Coast Warehouse Corp. California 175 Amlegion Revere Realty Trust Massachusetts Trust Syratech Silver Sales Corp. Georgia -40- EX-4.1 3 INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS [L&W Draft Dated March 4, 1997] ================================================================================ SYRATECH CORPORATION and SYRATECH HOLDING CORPORATION WALLACE INTERNATIONAL SILVERSMITH, INC. INTERNATIONAL SILVER COMPANY WALLACE INTERNATIONAL DE P.R., INC. INTERNATIONAL SILVER DE P.R., INC. PMW SILVER DE P.R., INC. TOWLE MANUFACTURING COMPANY ROSEMAR SILVER COMPANY, INC. TOWLE HOLLOWARE, INC. FARBERWARE INC. SILVESTRI, INC. SILVESTRI, INC. OF SOUTH CAROLINA RAUCH INDUSTRIES, INC. ROCHARD, INC. HOLIDAY PRODUCTS, INC. NORTHSTAR SALES CORPORATION LEONARD FLORENCE ASSOCIATE, INC. CHI INTERNATIONAL, INC. SYRATECH SECURITY CORPORATION SYRATECH WEST COAST WAREHOUSE CORP. 175 AMLEGION REVERE REALTY TRUST SYRATECH SILVER SALES CORP. US$205,000,000 ___% SENIOR NOTES DUE 2007 ----------------- INDENTURE Dated as of April __, 1997 ----------------- ----------------- STATE STREET BANK AND TRUST COMPANY ----------------- Trustee ================================================================================ *CROSS-REFERENCE TABLE* Trust Indenture Act Section Indenture Section 310 (a)(1).................................................. 7.10 (a)(2)................................................. 7.10 (a)(3)................................................. N.A. (a)(4)................................................. N.A. (a)(5)................................................. 7.10 (b).................................................... 7.10 (c).................................................... N.A. 311 (a)..................................................... 7.11 (b).................................................... 7.11 (c).................................................... N.A. 312 (a)..................................................... 2.05 (b).................................................... 10.03 (c).................................................... 10.03 313 (a)..................................................... 7.06 (b).................................................... 7.06 (c).................................................... 7.06;11.02 (d).................................................... 7.06 314 (a)..................................................... 4.03;11.05 (b).................................................... N.A. (c)(1)................................................. 11.04 (c)(2)................................................. 11.04 (c)(3)................................................. N.A. (d).................................................... N.A. (e).................................................... 11.05 (f).................................................... N.A. 315 (a)..................................................... 7.01 (b).................................................... 7.05,11.02 (c).................................................... 7.01 (d).................................................... 7.01 (e).................................................... 6.11 316 (a)(last sentence)...................................... 2.09 (a)(1)(A).............................................. 6.05 (a)(1)(B).............................................. 6.04 (a)(2)................................................. N.A. (b).................................................... 6.07 (c).................................................... 2.12 ================================================================================ *CROSS-REFERENCE TABLE* Trust Indenture Act Section Indenture Section 317 (a)(1).................................................. 6.08 (a)(2)................................................. 6.09 (b).................................................... 2.04 318 (a)..................................................... 11.01 (b).................................................... N.A. (c).................................................... 10.01 N.A. means not applicable. *This Cross-Reference Table is not part of the Indenture. TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions................................................. 1 Section 1.02. Other Definitions........................................... 12 Section 1.03. Incorporation by Reference of Trust Indenture Act........... 13 Section 1.04. Rules of Construction....................................... 13 ARTICLE 2 THE SENIOR NOTES Section 2.01. Form and Dating............................................. 14 Section 2.02. Execution and Authentication................................ 14 Section 2.03. Registrar and Paying Agent.................................. 15 Section 2.04. Paying Agent to Hold Money in Trust......................... 15 Section 2.05. Holder Lists................................................ 16 Section 2.06. Transfer and Exchange....................................... 16 Section 2.07. Replacement Senior Notes.................................... 17 Section 2.08. Outstanding Senior Notes.................................... 17 Section 2.09. Treasury Senior Notes....................................... 17 Section 2.10. Temporary Senior Notes...................................... 18 Section 2.11. Cancellation................................................ 18 Section 2.12. Record Date................................................. 18 Section 2.13. CUSIP Number................................................ 18 ARTICLE 3 REDEMPTION AND REPURCHASE Section 3.01. Notices to Trustee.......................................... 19 Section 3.02. Selection of Senior Notes to Be Redeemed.................... 19 Section 3.03. Notice of Redemption........................................ 19 Section 3.04. Effect of Notice of Redemption.............................. 20 Section 3.05. Deposit of Redemption Price................................. 20 Section 3.06. Senior Notes Redeemed in Part............................... 21 Section 3.07. Optional Redemption......................................... 21 Section 3.08. Mandatory Redemption........................................ 22 Section 3.09. Offer to Purchase by Application of Excess Proceeds......... 22 ARTICLE 4 COVENANTS Section 4.01. Payment of Senior Notes..................................... 24 Section 4.02. Maintenance of Office or Agency............................. 24 Section 4.03. Reports..................................................... 25 Section 4.04. Compliance Certificate...................................... 25 Section 4.05. Taxes....................................................... 26 Section 4.06. Stay, Extension and Usury Laws.............................. 26 Section 4.07. Restricted Payments......................................... 26 i Page Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries................................................ 28 Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.. 29 Section 4.10. Asset Sales................................................. 31 Section 4.11. Transactions with Affiliates................................ 32 Section 4.12. Liens....................................................... 32 Section 4.13. Corporate Existence......................................... 32 Section 4.14. Offer to Repurchase Upon Change of Control.................. 33 Section 4.15. Sale and Leaseback Transactions............................. 34 Section 4.16. Limitation on Issuances and Sales of Capital Stock of Wholly Owned Subsidiaries.......................... 34 Section 4.17. Payments for Consents....................................... 34 Section 4.18. Additional Subsidiary Guarantees............................ 35 ARTICLE 5 SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets.................... 35 Section 5.02. Successor Corporation Substituted........................... 35 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default........................................... 36 Section 6.02. Acceleration................................................ 38 Section 6.03. Other Remedies.............................................. 39 Section 6.04. Waiver of Past Defaults..................................... 39 Section 6.05. Control by Majority......................................... 39 Section 6.06. Limitation on Suits......................................... 39 Section 6.07. Rights of Holders to Receive Payment........................ 40 Section 6.08. Collection Suit by Trustee.................................. 40 Section 6.09. Trustee May File Proofs of Claim............................ 40 Section 6.10. Priorities.................................................. 41 Section 6.11. Undertaking for Costs....................................... 41 ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee........................................... 41 Section 7.02. Rights of Trustee........................................... 42 Section 7.03. Individual Rights of Trustee................................ 43 Section 7.04. Trustee's Disclaimer........................................ 43 Section 7.05. Notice of Defaults.......................................... 43 Section 7.06. Reports by Trustee to Holders............................... 43 Section 7.07. Compensation and Indemnity.................................. 44 Section 7.08. Replacement of Trustee...................................... 44 Section 7.09. Successor Trustee by Merger, etc............................ 45 Section 7.10. Eligibility; Disqualification............................... 45 Section 7.11. Preferential Collection of Claims Against the Company....... 46 ii Page ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.... 46 Section 8.02. Legal Defeasance and Discharge.............................. 46 Section 8.03. Covenant Defeasance......................................... 47 Section 8.04. Conditions to Legal or Covenant Defeasance.................. 47 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions....................... 48 Section 8.06. Repayment to the Company.................................... 49 Section 8.07. Reinstatement............................................... 49 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Senior Notes.................. 50 Section 9.02. With Consent of Holders of Senior Notes..................... 50 Section 9.03. Compliance with Trust Indenture Act......................... 52 Section 9.04. Revocation and Effect of Consents........................... 52 Section 9.05. Notation on or Exchange of Senior Notes..................... 52 Section 9.06. Trustee to Sign Amendments, etc............................. 52 ARTICLE 10 SUBSIDIARY GUARANTEES Section 10.01 Subsidiary Guarantee........................................ 53 Section 10.02 Execution and Delivery of Subsidiary Guarantee.............. 54 Section 10.03 Guarantors May Consolidate, etc., on Certain Terms.......... 54 Section 10.04 Releases Following Sale of Assets........................... 55 Section 10.05 "Trustee" to Include Paying Agent........................... 55 ARTICLE 11 MISCELLANEOUS Section 11.01 Trust Indenture Act Controls................................ 56 Section 11.02 Notices..................................................... 56 Section 11.03 Communication by Holders with Other Holders................. 57 Section 11.04 Certificate and Opinion as to Conditions Precedent.......... 57 Section 11.05 Statements Required in Certificate or Opinion............... 57 Section 11.06 Rules by Trustee and Agents................................. 58 Section 11.07 No Personal Liability of Directors, Officers, Employees and Stockholders............................................ 58 Section 11.08 Governing Law............................................... 58 Section 11.09 No Adverse Interpretation of Other Agreements............... 58 Section 11.10 Successors.................................................. 58 Section 11.11 Severability................................................ 58 Section 11.12 Counterpart Originals....................................... 58 Section 11.13 Table of Contents, Headings, etc............................ 59 iii EXHIBITS Exhibit A FORM OF SENIOR NOTE AND TRUSTEE CERTIFICATE OF AUTHENTICATION Exhibit B FORM OF SUBSIDIARY GUARANTEE iv INDENTURE dated as of _________ __, 1997 among Syratech Corporation a Delaware corporation (the "Company"), as issuer, each of Syratech Holding Corporation, a New York corporation; Wallace International Silversmiths, Inc., a Delaware corporation; Wallace International de P.R., Inc., a Delaware corporation; International Silver Company, a Delaware corporation; International Silver de P.R., Inc., a Delaware corporation; PMW Silver de P.R., Inc., a Delaware corporation; Towle Manufacturing Company, a Delaware corporation; Rosemar Silver Company, Inc., a Delaware corporation; Towle Holloware, Inc., a Delaware corporation; Farberware Inc., a Delaware corporation; Silvestri, Inc., a Delaware a corporation; Silvestri, Inc. of South Carolina, a South Carolina corporation; Rauch Industries, Inc., a North Carolina corporation; Rochard, Inc., a North Carolina corporation; Holiday Products, Inc., a North Carolina corporation; Northstar Sales Corporation, a North Carolina corporation; Leonard Florence Associates, Inc., a Massachusetts corporation; CHI International, Inc., a Maryland corporation; Syratech Security Corporation, a Massachusetts corporation; Syratech West Coast Warehouse Corp., a California corporation; 175 Amlegion Revere Realty Trust, a Massachusetts Trust; and Syratech Silver Sales Corp., a Georgia corporation, as guarantors (collectively, the "Subsidiary Guarantors"); and State Street Bank and Trust Company, as trustee (the "Trustee"). The Company, the Subsidiary Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the Company's ___% Senior Notes due 2007 (the "Senior Notes"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than sales of inventory in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by Section 4.14 and/or Section 5.01 and not by Section 4.10 hereof), and (ii) the issue or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for Net Proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Subsidiary or by a Subsidiary to the Company or to a Wholly Owned Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary, and (iii) a Restricted Payment that is permitted by Section 4.07, will be deemed not to be Asset Sales. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the capital lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Board of Directors" means the board of directors, if any, of the Company or any authorized committee thereof. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, shares of corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) 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. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any lender party to the New Credit 2 Facility or with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), other than Principals or their Related Parties, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the Principals or their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares), (iv) the first day on which a majority of the members of the Board of Directors are not Continuing Directors or (v) the Company consolidates with, or merges with or into, any Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding share of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). For purposes of this definition, any transfer of an equity interest of an entity that was formed for the purpose of acquiring Voting Stock of the Company will be deemed to be a transfer of such portion of such Voting Stock as corresponds to the portion of the equity of such entity that has been so transferred. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt 3 issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash charges were deducted in computing such Consolidated Net Income, minus (v) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date hereof in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount 4 and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors who (i) was a member of such Board of Directors on the date hereof or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 11.02 or such other address as the Trustee may give notice to the Company. "Credit Facilities" means, with respect to the Company, one or more debt facilities (including, without limitation, the New Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Indebtedness under Credit Facilities outstanding on the date on which Senior Notes are first issued and authenticated under this Indenture shall be deemed to have been incurred on such date in reliance on the exception provided in clause (i) of the third paragraph of Section 4.09. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Senior Notes mature. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the date hereof, until such amounts are repaid. "Fixed Charges" means, with respect to any Person for any period, without duplication, the sum of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the 5 interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations (but excluding amortization of debt issuance costs)) and (ii) the consolidated interest expense of such Person and its Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all dividend payments , whether or not in cash, on any series of preferred stock of such Person or any of its Subsidiaries, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state, and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Subsidiaries following the Calculation Date. "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 have been approved by a significant segment of the accounting profession, which are in effect from time to time. 6 "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means each of (i) each domestic Subsidiary of the Company and (ii) any other Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions hereof, and their respective successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or the values of foreign currencies purchased or received by the Company or any of its Subsidiaries in the ordinary course of business. "Holder" means a person in whose name a Senior Note is registered. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests 7 or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company, 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 Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of Section 4.07 hereof. "Issue Date" means _________ __, 1997. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under the Credit Facilities) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. 8 "New Credit Facility" means that certain credit facility, dated as of __________ __, 1997, by and among the Company and [NationsBank], as agent and a lender, providing for up to $130 million of revolving credit borrowings, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officers" means the Chief Executive Officer, the President, the Executive Vice President, the Treasurer, any Assistant Treasurer, Controller, Secretary or any Vice President of the Company. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 11.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 11.05 hereof. The counsel may be an employee of or counsel to the Company. "Permitted Investments" means (a) any Investment in the Company or in a Wholly Owned Subsidiary of the Company; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of the Company; (d) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; and (f) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (g) that are at the time outstanding, not to exceed $5.0 million. "Permitted Liens" means (i) Liens on accounts receivable and inventory securing Indebtedness under the Credit Facilities that are permitted by the terms hereof to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof 9 by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (vi) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iii) of the third paragraph of Section 4.09 covering only the assets acquired with such Indebtedness; (vii) Liens existing on the date hereof; (viii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; and (ix) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $2.5 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Subsidiary. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund Existing Indebtedness or other Indebtedness of the Company or any of its Subsidiaries incurred in accordance with this Indenture (other than Indebtedness incurred in accordance with clauses (i), (vi), (vii), (viii), (ix), (x), (xi) or (xii) of the third paragraph of Section 4.09 thereof; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Senior Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Senior Notes on terms at least as favorable to the Holders of Senior Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). 10 " Principals" means Thomas H. Lee Equity III, L.P. and its co-investors in the Company as of the Issue Date, Thomas H. Lee Foreign Fund III, L.P. and Thomas H. Lee Company, and any Affiliates of Thomas H. Lee Company. "Related Party" means, with respect to any Principal, (A) any controlling stockholder or, 80% (or more) owned Subsidiary of such Principal or (B) any trust, corporation, partnership or other entity of which the beneficiaries, stockholders, partners, owners or other Persons beneficially holding an 80% or more controlling interest consist of such Principal and/or such other persons referred in the immediately preceding clause (A). "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means an Investment other than a Permitted Investment. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Notes" means the Company's ___% Senior Notes due 2007 issued under this Indenture. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of 11 which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantees" means the Guarantees, substantially in the form of Exhibit B attached hereto, of (i) the Subsidiary Guarantors and (ii) any other subsidiary that executes a Guarantee in accordance with the provisions of this Indenture, and their respective successors and assigns. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.77aaa- 77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.03 hereof. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. OTHER DEFINITIONS. Defined in Term Section "Affiliate Transaction".................................. 4.11 "Asset Sale Offer"....................................... 4.10 "Case"................................................... 6.01 "Change of Control Payment Date"......................... 4.15 "Change of Control Offer"................................ 4.15 "Change of Control Payment".............................. 4.15 "Covenant Defeasance".................................... 8.03 "Custodian".............................................. 6.01 "Event of Default"....................................... 6.01 12 "Excess Proceeds"........................................ 4.10 "incur".................................................. 4.09 "Legal Defeasance"....................................... 8.02 "Notice of Default"...................................... 6.01 "Offer Amount"........................................... 3.09 "Offer Period"........................................... 3.09 "Paying Agent"........................................... 2.03 "Payment Default"........................................ 6.01 "Permitted Debt"......................................... 4.09 "Purchase Date".......................................... 3.09 "Registrar".............................................. 2.03 "Restricted Payments".................................... 4.07 SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Senior Notes; "indenture security holder" means a Holder of a Senior Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Senior Notes means the Company or any successor obligor upon the Senior Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. 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 generally accepted accounting principles in the United States; 13 (3) references to "generally accepted accounting principles" shall mean generally accepted accounting principles in effect in the United States as of the time when and for the period as to which such accounting principles are to be applied; (4) "or" is not exclusive; (5) words in the singular include the plural, and in the plural include the singular; (6) provisions apply to successive events and transactions; and (7) the words "he," "his," and "him" refer to both the masculine and feminine gender. ARTICLE 2 THE SENIOR NOTES SECTION 2.01. FORM AND DATING. The Senior Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, which is part of this Indenture. The Senior Notes may have notations, legends or endorsements approved as to form by the Company and required by law, stock exchange rules and agreements to which either of the Company or any Guarantor is subject or usage. Each Senior Note shall be dated the date of its authentication. The Senior Notes shall be issuable only in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Senior Notes and the Subsidiary Guarantees shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers of the Company shall sign the Senior Notes for the Company by manual or facsimile signature. An Officer of each Guarantor shall sign the Subsidiary Guarantee for such Guarantor by manual or facsimile signature. If an Officer of the Company or a Guarantor whose signature is on a Senior Note or a Note Guarantee, as the case may be, no longer holds that office at the time a Senior Note is authenticated, the Senior Note or the Subsidiary Guarantee, as the case may be, shall nevertheless be valid. A Senior Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Senior Note has been 14 authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Senior Notes shall be substantially as set forth in Exhibit A hereto. The Trustee shall, upon a written order of the Company signed by two Officers of the Company, authenticate Senior Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Senior Notes. The aggregate principal amount of Senior Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Senior Notes. An authenticating agent may authenticate Senior Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Senior Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Senior Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Senior Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without prior notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company may act as Paying Agent or Registrar. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and agent for service of notices and demands in connection with the Senior Notes. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of, or premium, if any, or interest on the Senior Notes, and will notify the Trustee of any default by the Company or any Guarantor in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money delivered to the Trustee. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. 15 Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Senior Notes. SECTION 2.05. HOLDER 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 all Holders and shall otherwise comply with TIA s. 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Senior Notes, including the aggregate principal amount of the notes held by each thereof. SECTION 2.06. TRANSFER AND EXCHANGE. When Senior Notes are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Senior Notes of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met; provided, however, that any Senior Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall issue and the Trustee shall authenticate Senior Notes at the Registrar's request, subject to such rules as the Trustee may reasonably require. Neither the Company nor the Registrar shall be required (i) to issue, register the transfer of or exchange Senior Notes during a period beginning at the opening of business on a Business Day 15 days before the day of any selection of Senior Notes for redemption under Section 3.02 and ending at the close of business on the day of selection, (ii) to register the transfer of or exchange any Senior Note so selected for redemption in whole or in part, being redeemed in part or (iii) to register the transfer or exchange of a Senior Note between the record date and the next succeeding interest payment date. No service charge shall be made to any Holder of a Senior Note for any registration of transfer or exchange (except as otherwise expressly permitted herein), 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 such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.10, 3.06, or 9.05 hereof, which shall be paid by the Company). Prior to due presentment to the Trustee for registration of the transfer of any Senior Note, the Trustee, any Agent, the Company or any Guarantor may deem and treat the Person in whose name any Senior Note is registered as the absolute owner of such Senior Note for the purpose of receiving payment of principal of, or premium, if any, on such Senior Note 16 and for all other purposes whatsoever, whether or not such Senior Note is overdue, and neither the Trustee, any Agent, the Company or any Guarantor shall be affected by notice to the contrary. SECTION 2.07. REPLACEMENT SENIOR NOTES. If any mutilated Senior Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Senior Note, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Senior Note if the Trustee's requirements for replacements of Senior Notes are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Senior Note is replaced. The Company may charge for its expenses in replacing a Senior Note. Every replacement Senior Note shall constitute a valid obligation of the Company and shall evidence the same debt as the Senior Note for it is a replacement. SECTION 2.08. OUTSTANDING SENIOR NOTES. The Senior Notes outstanding at any time are all the Senior Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Senior Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Senior Note. If a Senior Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Senior Note is held by a bona fide purchaser. If the principal amount of any Senior Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrete. SECTION 2.09. TREASURY SENIOR NOTES. In determining whether the Holders of the required principal amount of Senior Notes have concurred in any direction, waiver or consent, Senior Notes owned by the Company, any Subsidiary of the Company or any Affiliate of the Company shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Senior Notes that a Trustee knows are so owned shall be so considered. Notwithstanding the foregoing, Senior Notes that are to be acquired by the Company, any Subsidiary of the Company or any Affiliate of the Company pursuant to an exchange offer, tender offer or other agreement shall not be deemed 17 to be owned by the Company, a Subsidiary of the Company or an Affiliate of the Company until legal title to such Senior Notes passes to the Company, such Subsidiary or such Affiliate, as the case may be. SECTION 2.10. TEMPORARY SENIOR NOTES. Until definitive Senior Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Senior Notes upon a written order of the Company signed by two Officers of the Company. Temporary Senior Notes shall be substantially in the form of definitive Senior Notes but may have variations that the Company considers appropriate for temporary Senior Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee, upon a written order of the Company signed by two Officers of the Company, shall authenticate definitive Senior Notes in exchange for temporary Senior Notes. Holders of temporary Senior Notes shall be entitled to all of the benefits of this Indenture. SECTION 2.11. CANCELLATION. The Company at any time may deliver Senior Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Senior Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Senior Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy canceled Senior Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Senior Notes shall be delivered to the Company. The Company may not issue new Senior Notes to replace Senior Notes that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. RECORD DATE. The record date for purposes of determining the identity of Holders of the Senior Notes entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided for in TIA s. 316(c). SECTION 2.13. CUSIP NUMBER. The Company in issuing the Senior Notes may use a "CUSIP" number and, if it does so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Senior Notes and that reliance may be placed only on the other identification numbers printed on the Senior Notes. The Company will promptly notify the Trustee of any change in the CUSIP number. 18 ARTICLE 3 REDEMPTION AND REPURCHASE SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Senior Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Senior Notes to be redeemed and (iv) the redemption price. SECTION 3.02. SELECTION OF SENIOR NOTES TO BE REDEEMED. If less than all of the Senior Notes are to be redeemed at any time, the Trustee shall select the Senior Notes to be redeemed among the Holders of the Senior Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Senior Notes are listed or, if the Senior Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate; provided that Senior Notes redeemed pursuant to Section 3.07(b) hereof shall be selected on a pro rata basis. In the event of partial redemption by lot, the particular Senior Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Senior Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Senior Notes selected for redemption and, in the case of any Senior Note selected for partial redemption, the principal amount thereof to be redeemed. Senior Notes and portions of Senior Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Senior Notes of a Holder are to be redeemed, the entire outstanding amount of Senior Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Senior Notes called for redemption also apply to portions of Senior Notes called for redemption. In the event the Company is required to make an offer to redeem Senior Notes pursuant to Sections 3.09 and 4.10 hereof and the amount of the Net Proceeds from the Asset Sale is not evenly divisible by $1,000, the Trustee shall promptly refund to the Company at the address set forth in Section 11.02 hereof of any remaining Net Proceeds. SECTION 3.03. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Senior Notes are to be redeemed at its registered address. 19 The notice shall identify the Senior Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Senior Note is being redeemed in part, the portion of the principal amount of such Senior Note to be redeemed and that, after the redemption date, upon surrender of such Senior Note, a new Senior Note or Senior Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Senior Note; (d) the name and address of the Paying Agent; (e) that Senior Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Senior Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Senior Notes and/or Section of this Indenture pursuant to which the Senior Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Senior Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Senior Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Senior Notes to be redeemed on that date. The Trustee or the Paying 20 Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Senior Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Senior Notes or the portions of Senior Notes called for redemption, whether or not such Senior Notes are presented for payment. If a Senior Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Senior Note was registered at the close of business on such record date. If any Senior Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Senior Notes and in Section 4.01 hereof. SECTION 3.06. SENIOR NOTES REDEEMED IN PART. Upon surrender of a Senior Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Senior Note equal in principal amount to the unredeemed portion of the Senior Note surrendered. SECTION 3.07. OPTIONAL REDEMPTION. (a) Except as otherwise provided in subsection (b) of this Section 3.07, the Company shall not have the option to redeem the Senior Notes pursuant to this Section 3.07 prior to _______ __, 2002. Thereafter, the Company shall have the option to redeem the Senior Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on _______ __ of the years indicated below: Year Percentage 2002.........................................______% 2003.........................................______% 2004.........................................______% 2005 and thereafter..........................100.00% (b) At any time on or before _______ __, 2000, the Company may, at its option, also redeem up to 37 1/2% of the aggregate principal amount of Senior Notes originally issued hereunder at a redemption price of ____% of the principal amount thereof, plus accrued and 21 unpaid interest thereon, if any, to the redemption date, with the net cash proceeds of a public offering of the common stock of the Company provided that at least $100.0 million in aggregate principal amount of Senior Notes remain outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 45 days of the date of the closing such public offering. (c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. SECTION 3.08. MANDATORY REDEMPTION. Except as set forth under Sections 4.10 and 4.14 hereof, the Company shall not be required to make mandatory repurchase, redemption or sinking fund payments with respect to the Senior Notes. SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an Asset Sale Offer, they shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Senior Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Senior Notes tendered in response to the Asset Sale Offer. Payment for any Senior Notes so purchased shall be made in the same manner as interest payments are made. The Company shall comply with any tender offer rules under the Exchange Act which may then be applicable, including Rule 14e-1, in connection with any offer required to be made by the Company to repurchase the Senior Notes as a result of an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 3.09, the Company shall comply with the applicable securities laws or regulations and shall not be deemed to have breached its obligations hereunder by virtue thereof. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Senior Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Senior Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The 22 notice shall contain all instructions and materials necessary to enable such Holders to tender Senior Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Senior Note not tendered or accepted for payment shall continue to accrue interest; (d) that, unless the Company defaults in making such payment, any Senior Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (e) that Holders electing to have a Senior Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Senior Note purchased and may not elect to have only a portion of such Senior Note purchased; (f) that Holders electing to have a Senior Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Senior Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior Note completed, or transfer by book-entry transfer, to the Company, a depositary (if appointed by the Company) or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receive, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Senior Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Senior Note purchased; (h) that, if the aggregate principal amount of Senior Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Senior Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Senior Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Senior Notes were purchased only in part shall be issued new Senior Notes equal in principal amount to the unpurchased portion of the Senior Notes surrendered (or transferred by book-entry transfer). 23 On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Senior Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Senior Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Senior Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Senior Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Senior Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Senior Note to such Holder, in a principal amount equal to any unpurchased portion of the Senior Note surrendered. Any Senior Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. No repurchase of Senior Notes under this Section 3.09 shall be deemed to be a redemption of Senior Notes. ARTICLE 4 COVENANTS SECTION 4.01. PAYMENT OF SENIOR NOTES. The Company shall pay or cause to be paid the principal of and premium, if any, and interest on the Senior Notes on the dates and in the manner provided in the Senior Notes. Principal, and premium, if any, shall be considered paid on the date due if the Paying Agent, if other than the Company, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, and premium, if any, then due. Such Paying Agent shall return to the Company, no later than five Business Days following the date of payment, any money (including accrued interest) that exceeds such amount of principal of, premium, if any, and interest required to be paid on the Senior Notes. The Company shall pay interest (including post-petition interest in any proceeding under any U.S. Bankruptcy Law) on overdue principal and premium, if any, at the rate equal to 1% per annum in excess of the then applicable interest rate on the Senior Notes to the extent lawful. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Senior Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Senior Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the 24 Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Senior Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligations to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. SECTION 4.03. REPORTS. (a) Whether or not required by the rules and regulations of the SEC, so long as any Senior Notes are outstanding, the Company will furnish to the Holders (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the SEC, the Company will file a copy of all such information and reports with the SEC for public availability (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company shall also comply with the provisions of TIA s. 314(a). (b) The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Trustee may be required to deliver to the Holders of the Senior Notes under this Section 4.03. SECTION 4.04. COMPLIANCE CERTIFICATE. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company, the Guarantors and the Company's Subsidiaries have kept, observed, performed and fulfilled their obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in 25 existence by reason of which payments on account of the principal of the Senior Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any of the financial provisions of Sections 4.01, 4.07, 4.08, 4.09 or 4.12 hereof or of Article 5 of this Indenture 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. (c) The Company shall, so long as any of the Senior Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.05. TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Senior Notes. SECTION 4.06. STAY, EXTENSION AND USURY LAWS. The Company and each of the Guarantors 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, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefits or advantages of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.07. RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company; (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity 26 Interests of the Company, any Subsidiary of the Company or any Affiliate of the Company (other than any such Equity Interests owned by the Company or any Wholly Owned Subsidiary); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is pari passu with or subordinated to the Senior Notes (other than the Senior Notes), except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Subsidiaries after the date hereof (excluding Restricted Payments permitted by clause (ii) of the next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date hereof to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale since the date hereof of Equity Interests of the Company or of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock), plus (iii) to the extent that any Restricted Investment that was made after the date hereof is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment. The foregoing provisions will not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any pari passu or subordinated Indebtedness of Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such 27 redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of pari passu or subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a Subsidiary of the Company to the holders of its common stock on a pro rata basis; and (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management upon termination of employment; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $750,000 in any twelve-month period (with unused amounts in any calendar year being available for such purposes to the next two succeeding calendar years, with a maximum of $1,500,000 so available in any one year) and no Default or Event of Default shall have occurred and be continuing immediately after such transaction. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $5.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.07 were computed, together with a copy of any fairness opinion or appraisal upon which the fair market value of any non-cash Restricted Payment was based. SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or advances to the Company or any of its Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) applicable law, (b) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the 28 terms of the Indenture to be incurred, (c) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (d) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above solely on the property so acquired, or (e) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company shall not issue any Disqualified Stock or sell or otherwise directly or indirectly transfer any preferred stock of any of its Subsidiaries to any other person and shall not permit any of its Subsidiaries to issue any shares of preferred stock other than to the Company; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The Company shall not incur any Indebtedness that is contractually subordinated to any other Indebtedness of the Company unless such Indebtedness is also contractually subordinated to the Senior Notes on substantially identical terms; provided, however, that no Indebtedness of the Company shall be deemed to be contractually subordinated to any other Indebtedness of the Company solely by virtue of being unsecured. The provisions of this first paragraph of this Section 4.09 will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company of revolving credit Indebtedness under the Credit Facilities; provided that the aggregate principal amount of all revolving credit Indebtedness and letters of credit outstanding under all Credit Facilities after giving effect to such incurrence, does not exceed an amount equal to $130.0 million less the aggregate amount of all Net Proceeds of Assets Sales applied to permanently repay any such Indebtedness pursuant to Section 4.10 hereof. (ii) the incurrence by the Company and its Subsidiaries of Indebtedness represented by the Senior Notes and the Subsidiary Guarantees, respectively; (iii) the incurrence by the Company or any of its Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost 29 of construction or improvement of property, plant or equipment used in the business of the Company or such Subsidiary, in an aggregate principal amount not to exceed $10.0 million at any time outstanding; (iv) the incurrence by any corporation that becomes a Subsidiary after the Issue Date of Acquired Debt, which Indebtedness is existing at the time such corporation becomes a Subsidiary; provided, however, that (A) immediately after giving effect to such corporation becoming a Subsidiary the Company could incur at least $1.00 of additional Indebtedness (other than Permitted Debt) pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of this Section 4.09, (B) such Indebtedness is without recourse to the Company or to any Subsidiary or to any of their respective properties or assets other than the Person becoming a Subsidiary or its properties and assets and (C) such Indebtedness was not incurred as a result of or in connection with or in contemplation of such entity becoming a Subsidiary; (v) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness that is permitted by this Indenture to be incurred; (vi) the incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any of its Wholly Owned Subsidiaries; provided, however, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinate to the prior payment in full in cash of all Obligations with respect to the Senior Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person who is neither the Company nor a Wholly Owned Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be; (vii) the incurrence by the Company of Hedging Obligations that are incurred for the purpose of fixing or hedging currency risk or interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; (viii) the Guarantee by any of the Guarantors of Indebtedness of the Company or another Guarantor that is permitted to be incurred by this Indenture; (ix) Indebtedness for letters of credit relating to workers' compensation claims and self-insurance or similar requirements in the ordinary course of business; (x) Indebtedness arising from Guarantees of Indebtedness of the Company or any Subsidiary or other agreements of the Company or a Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or Subsidiary, other than Guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition, provided that the maximum aggregate liability in respect all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Subsidiaries in connection with such disposition; 30 (xi) obligations in respect of performance bonds and completion guarantees provided by the Company or any Subsidiary in the ordinary course of business; and (xii) the incurrence by the Company or any of its Subsidiaries of additional Indebtedness in an aggregate principal amount at any time outstanding not to exceed $10.0 million. For purposes of determining compliance with this Section 4.09, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xii) above or is entitled to be incurred pursuant to the first paragraph of this Section 4.09, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this Section 4.09 and such item of Indebtedness shall be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. Accrual of interest and the accretion of accreted value will not be deemed to be an incurrence of Indebtedness for purposes of this Section 4.09. SECTION 4.10. ASSET SALES. The Company shall not, and shall not permit any of its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration received therefor by the Company or such Subsidiary is in the form of cash. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to permanently reduce indebtedness under the Credit Facilities (and to correspondingly reduce commitments with respect thereto) or (b) to acquire a controlling interest in another business, to make a capital expenditure or to acquire other long-term assets, in each case, in the same or a similar line of business as the Company is engaged in on the date hereof. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Indebtedness under the Credit Facilities or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall make an offer to all Holders (an "Asset Sale Offer") to purchase the maximum principal amount of Senior Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the procedures set forth in this Indenture. To the extent that the aggregate amount of Senior Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Senior Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Senior Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. 31 SECTION 4.11. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of their respective properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $7.5 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing; provided that (v) any employment agreement entered into by the Company or any of its Subsidiaries or any employee benefit plan available to employees of the Company generally, in each case, in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (w) transactions between or among the Company and/or its Subsidiaries, (x) Restricted Payments (other than Restricted Investments) that are permitted by Section 4.07, (y) investment banking and management fees in an aggregate amount no greater than $450,000 in any calendar year (plus reimbursement of expenses) to be paid by the Company to Thomas H. Lee Company and (z) a cash fee of $3.0 million payable by the Company to Thomas H. Lee Company on the date hereof, in each case, shall not be deemed Affiliate Transactions. SECTION 4.12. LIENS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired, or on any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. SECTION 4.13. CORPORATE EXISTENCE. Subject to Articles 5 and 10 hereof, the Company and each of the Guarantors shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company, such Guarantor or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company, each of the Guarantors and its Subsidiaries; provided, however, that the Company and each of the Guarantors shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the 32 preservation thereof is no longer desirable in the conduct of the business of the Company, such Guarantor and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, each Holder will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Senior Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, to the date of purchase (the "Change of Control Payment"). Within ten days following any Change of Control, the Company shall mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Senior Notes pursuant to the procedures described in this Section and described in such notice. The notice will state: (1) that the Change of Control Offer is being made pursuant to this Section 4.14 and that all Senior Notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be at least 30 but not more than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Senior Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Senior Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have any Senior Notes purchased pursuant to a Change of Control Offer will be required to surrender the Senior Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding 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 close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Senior Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Senior Notes purchased; and (7) that Holders whose Senior Notes are being purchased only in part will be issued new Senior Notes equal in principal amount to the unpurchased portion of the Senior Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company shall 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 the Senior Notes as a result of a Change of Control. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Senior Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Senior Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Senior Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Senior Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder so tendered the Change of Control Payment for such Senior Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new 33 Senior Note equal in principal amount to any unpurchased portion of the Senior Notes surrendered, if any; provided that each such new Senior Note will be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (c) The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in Sections 4.14(a) and 4.14(b) hereof and purchases all Senior Notes validly tendered and not withdrawn under such Change of Control Offer. SECTION 4.15. SALE AND LEASEBACK TRANSACTIONS. The Company shall not, and shall not permit any of its Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company or one of its Subsidiaries may enter into a sale and leaseback transaction if (i) the Company or such Subsidiary could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction pursuant to Section 4.09 and (b) incurred a Lien to secure such Indebtedness pursuant to Section 4.12, (ii) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee) of the property that is the subject of such sale and leaseback transaction and (iii) the transfer of assets in such sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 4.10. SECTION 4.16. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED SUBSIDIARIES. Except to the extent permitted by Section 4.07 hereof, the Company (i) shall not, and shall not permit any Wholly Owned Subsidiary to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned Subsidiary to any Person (other than the Company or a Wholly Owned Subsidiary), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Wholly Owned Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10, and (ii) shall not permit any Wholly Owned Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Subsidiary. SECTION 4.17. PAYMENTS FOR CONSENTS. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Senior Notes unless such consideration is offered to be paid or is paid to all Holders that consent, waiver or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. 34 SECTION 4.18. ADDITIONAL SUBSIDIARY GUARANTEES. (a) The Company shall not permit any of its Subsidiaries that is not a Guarantor to guarantee or secure through the granting of Liens the payment of any Indebtedness of the Company or any Guarantor and (b) the Company shall not and shall not permit any of its Subsidiaries to pledge any intercompany notes representing obligations of any of its Subsidiaries, to secure the payment of any Indebtedness of the Company or any Guarantor, in each case unless such Subsidiary, the Company and the Trustee execute and deliver a supplemental indenture evidencing such Subsidiary's Guarantee (providing for the unconditional Guarantee by such Subsidiary, on a senior basis, of the Senior Notes). ARTICLE 5 SUCCESSORS SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Company shall not consolidate, or merge with or into (whether or not the Company is the surviving corporation) or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation, or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Senior Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction, no Default or Event of Default exists; (iv) each of the Guarantors confirms its obligations under the Subsidiary Guarantees and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee and (v) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance 35 or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company, other than for purposes of calculating Consolidated Net Income in connection with Section 4.07) and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of, and premium, if any, and interest on the Senior Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. Each of the following constitutes an "Event of Default": (i) default by the Company in the payment of interest on any Senior Note when the same becomes due and payable the Default continues for a period of 30 days; (ii) default by the Company in the payment of the principal of any Senior Note (or premium, if any) when the same becomes due and payable at maturity, upon redemption or otherwise; (iii) failure by the Company to comply with Sections 4.07, 4.09, 4.10, 4.14 and 4.18 hereof; (iv) failure by the Company to comply with any of its agreements in this Indenture or the Senior Notes for 60 days after receiving the notice specified below; (v) default by the Company under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date hereof, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the 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, 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, aggregates $10.0 million or more; (vi) failure by the Company or any of its Subsidiaries to pay final judgments for the payment of money entered by a court or courts of competent jurisdiction against the Company or any of its Subsidiaries and such judgment or judgments are not paid, 36 discharged or stayed for a period of 60 days, provided that the aggregate of all such undischarged judgments exceeds $10.0 million; (vii) except as permitted by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. (viii) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of U.S. Bankruptcy Law: (a) commences a voluntary Case, (b) consents to the entry of an order for relief against it in an involuntary Case, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, (d) makes a general assignment for the benefit of its creditors, or (e) generally is not paying its debts as they become due; or (ix) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary Case; (b) appoints a Custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (c) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and, in each case, the order or decree remains unstayed and in effect for 60 consecutive days; or The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. The term "Case" means an application, petition, action, case or other proceeding (including the filing of a notice of intention to file a proposal) before any court, tribunal or other governmental authority under any applicable Bankruptcy Law (foreign or domestic). 37 A Default under clause (iv) is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in principal amount of the then outstanding Senior Notes notify the Company and the Trustee, of the Default and the Company does not cure the Default within 60 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." In the case of any Event of Default pursuant to the provisions of this Section 6.01 occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Senior Notes pursuant to Section 3.07 hereof, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Senior Notes. If an Event of Default occurs prior to _______ __, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Senior Notes prior to _______ __, 2002 pursuant to Section 3.07 hereof, then the premium, as discussed below, shall become immediately due and payable to the extent permitted by law upon the acceleration of the Senior Notes. The premium payable for purposes of this paragraph for each of the years beginning on _______ __ of the years set forth below shall be as set forth in the following table expressed as a percentage of the amount that would otherwise be due but for the provisions of this sentence, plus accrued interest, if any, to the date of payment: Year Percentage 1997. . . . . . . . . . . . . . . . . . . . . . . ______% 1998. . . . . . . . . . . . . . . . . . . . . . . ______% 1999. . . . . . . . . . . . . . . . . . . . . . . ______% 2000. . . . . . . . . . . . . . . . . . . . . . . ______% 2001. . . . . . . . . . . . . . . . . . . . . . . ______% SECTION 6.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (viii) or (ix) of Section 6.01 hereof with respect to the Company, any Significant Subsidiary or any group of Significant Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately. Upon any such declaration, the Senior Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (viii) or (ix) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Senior Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Senior Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. Except as provided in Section 38 6.01, in the event of any such acceleration of Senior Notes, the Company shall become obligated to pay the aggregate principal amount of the Senior Notes immediately. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, and premium, if any, on the Senior Notes or to enforce the performance of any provision of the Senior Notes, this Indenture or the Subsidiary Guarantees. The Trustee may maintain a proceeding even if it does not possess any of the Senior Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. Holders of not less than a majority in aggregate principal amount of the then outstanding Senior Notes by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of interest on, or the principal of, or premium of, if any, the Senior Notes. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Senior Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders or that may involve the Trustee in personal liability. SECTION 6.06. LIMITATION ON SUITS. A Holder may pursue a remedy with respect to this Indenture or the Senior Notes only if: (a) the Holder gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Senior Notes make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; 39 (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Senior Notes do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. 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, premium, if any, any interest on the Senior Note, on or after the respective due dates expressed in the Senior Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(i) or (ii) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, and premium, if any, and interest remaining unpaid on the Senior Notes and interest on overdue principal and, to the extent lawful, 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 is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Senior Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, 40 arrangement, adjustment or composition affecting the Senior Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders for amounts due and unpaid on the Senior Notes for principal, and premium, if any, ratably, without preference or priority of any kind, according to the amounts due and payable on the Senior Notes for principal, and premium, if any, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Senior Notes. ARTICLE 7 TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: 41 (i) the Trustee need perform only those duties that are specifically set forth in this Indenture; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions 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 and to confirm the correctness of all mathematical computations. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii)the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section and the requirements of the TIA. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (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. (a) The Trustee may rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith and without negligence in reliance on such Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through its agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. 42 (d) The Trustee shall not be liable for any action it takes or omits to take in good faith and without negligence that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Senior Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Senior Notes, it shall not be accountable for the Company's use of the proceeds from the Senior Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement of the Company in this Indenture or any statement in the Senior Notes or any other document in connection with the sale of the Senior Notes or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 45 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, or premium, if any, or interest on any Senior Note the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each May 15 beginning with the May 15 following the date hereof, and for so long as Senior Notes remain outstanding, the Trustee shall mail to the Holders a brief report dated as of such reporting date that complies with TIA s. 313(a). The Trustee also shall comply with TIA s. 313(b). The Trustee shall also transmit by mail all reports as required by TIA s. 313(c). Commencing at the time this Indenture is qualified under the TIA, a copy of each report at the time of its mailing to the Holders shall be mailed to the Company and filed with the SEC and each stock exchange on which the Senior Notes are listed in accordance with TIA s. 313(d). 43 The Company shall promptly notify the Trustee when the Senior Notes are listed on any stock exchange. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and 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, advances and expenses incurred by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel, except such compensation, disbursements and expenses as may be attributable to its negligence or bad faith. The Company shall indemnify the Trustee against any loss, liability or expense incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth in the next paragraphs. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through negligence or bad faith. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Senior Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Senior Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(viii) or (ix) hereof occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. The Trustee may resign and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Senior Notes may remove the Trustee by so notifying the Trustee and the Company. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; 44 (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Senior Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Senior Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to the Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The final paragraph of this Section 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 said paragraph were not contained herein. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. 45 This Indenture shall always have a Trustee who satisfies the requirements of TIA s. 310(a)(1), (2) and (5). The Trustee is subject to TIA s. 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY. The Trustee is subject to TIA s. 311(a), excluding any creditor relationship listed in TIA s. 311(b). A Trustee that has resigned or been removed shall be subject to TIA s. 311(a) to the extent indicated therein. ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Senior Notes upon compliance with the conditions set forth below in this Article Eight. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their respective obligations with respect to all outstanding Senior Notes and Subsidiary Guarantees on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Senior Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Senior Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Senior Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Senior Notes when such payments are due from the funds held by the Trustee in the trust, (b) the Company's and the Guarantors' obligations with respect to such Senior Notes under Sections 2.04, 2.06, 2.07, 2.10 and 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee under this Indenture and the Company's obligations in connection therewith and (d) the obligations of the Company under this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. 46 SECTION 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.18 and Article 5 hereof with respect to the outstanding Senior Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Senior Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Senior Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Senior Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such 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 hereof, but, except as specified above, the remainder of this Indenture and such Senior Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(iii) through 6.01(vii) hereof shall not constitute Events of Default. SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Senior Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities 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 outstanding Senior Notes on the stated maturity for payment thereof or on the applicable redemption date, as the case may be, and the Company must specify whether the Senior Notes are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 8.02 hereof, 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 hereof, 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 of the outstanding Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject 47 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 Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, 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 of the outstanding Senior Notes 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; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Senior Notes pursuant to this Article Eight concurrently with such incurrence) or insofar as Sections 6.01(viii) or 6.01(ix) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a parties or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that 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; (g) 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; and (h) 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. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Senior Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Senior Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Senior Notes of all sums due and to become due 48 thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Senior Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. REPAYMENT TO THE COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, or premium, if any, or interest on any Senior Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Senior Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), 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 notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any U.S. dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Senior Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Senior Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Senior Notes to receive such payment from the money held by the Trustee or Paying Agent. 49 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF SENIOR NOTES. Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Subsidiary Guarantees or the Senior Notes without the consent of any Holder: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Senior Notes in addition to or in place of certificated Senior Notes; (c) to provide for the assumption of the Company's and the Guarantors' obligations to the Holders in the case of a merger, consolidation or sale of all or substantially all of the assets pursuant to Article Five hereof; (d) to make any change that would provide any additional rights or benefits to the Holders or that does not adversely affect the legal rights hereunder of any Holder; (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that adversely affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS OF SENIOR NOTES. Except as provided below in this Section 9.02, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Subsidiary Guarantees and the Senior Notes with the consent of the Holders of at least a majority in principal amount of the Senior Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Subsidiary Guarantees or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Senior Notes (including consents obtained in connection with a tender offer or exchange offer for the Senior Notes). 50 Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture adversely affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. 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 or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 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 amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Senior Notes then outstanding may waive compliance in a particular instance by the Company or any Guarantor with any provision of this Indenture or the Senior Notes. However, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Senior Notes held by a non-consenting Holder): (a) reduce the principal amount of Senior Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Senior Note or alter or waive any of the provisions with respect to the redemption of the Senior Notes except as provided above with respect to Sections 3.09, 4.10 and 4.14 hereof; (c) reduce the rate of or change the time for payment of interest on any Senior Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on, the Senior Notes (except a rescission of acceleration of the Senior Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Senior Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Senior Note payable in money other than that stated in the Senior Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders to receive payments of principal of or premium, if any, or interest on, the Senior Notes; 51 (g) waive a redemption payment with respect to any Senior Note (other than a payment required by Sections 4.10 or 4.14 hereof); (h) release any Guarantor from any of its obligations under its Subsidiary Guarantee or this Indenture, except in accordance with the terms of this Indenture; or (i) make any change in the foregoing amendment and waiver provisions. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Senior Notes shall be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Senior Note or portion of a Senior Note that evidences the same debt as the consenting Holder's Senior Note, even if notation of the consent is not made on any Senior Note. However, any such Holder or subsequent Holder may revoke the consent as to its Senior Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may fix a record date for determining which Holders must consent to such supplemental indenture, amendment or waiver. If the Company fixes a record date, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation pursuant to Section 2.05, or (ii) such other date as the Company shall designate. SECTION 9.05. NOTATION ON OR EXCHANGE OF SENIOR NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Senior Note thereafter authenticated. The Company, in exchange for all Senior Notes, may issue, and the Trustee shall authenticate, new Senior Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Senior Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article Nine if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until its Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that 52 the execution of such amended or supplemental indenture is authorized or permitted by this Indenture and that all conditions precedent have been complied with. ARTICLE 10 SUBSIDIARY GUARANTEES SECTION 10.01. SUBSIDIARY GUARANTEE. Each of the Guarantors hereby, jointly and severally, fully and unconditionally guarantee to each Holder of a Senior Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Senior Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of and interest on the Senior Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Senior Notes, if any, if lawful, 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 (b) in case of any extension of time of payment or renewal of any Senior Notes or any of such other obligations, that 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. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors will be jointly and severally obligated to pay the same immediately. The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Senior Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Senior Notes 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 hereby 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 covenant that this Subsidiary Guarantee will not be discharged except by complete performance of the obligations contained in the Senior Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company or Guarantors, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or Guarantors, any amount paid by any such entity to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, 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 6 for the purposes of this Subsidiary 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 declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) shall forthwith become due and payable by 53 the Guarantors for the purpose of this Subsidiary Guarantee. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Subsidiary Guarantee. SECTION 10.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE. To evidence its Subsidiary Guarantee set forth in Section 10.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form of Exhibit B, which is part of this Indenture, shall be endorsed by an officer of such Guarantor on each Senior Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Guarantor by its President or one of its Vice Presidents. Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in Section 10.01 shall remain in full force and effect notwithstanding any failure to endorse on each Senior Note a notation of such Note Guarantee. If an Officer whose signature is on this Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Senior Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be valid nevertheless. The delivery of any Senior Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Guarantors. SECTION 10.03. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. (a) Except as set forth in Articles 4 and 5, nothing contained in this Indenture or in any of the Senior Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety, or substantially as an entirety, to the Company, unless immediately after giving effect to such transaction, a Default or Event of Default exists. (b) Except as set forth in Articles 4 and 5, nothing contained in this Indenture or in any of the Senior Notes shall prevent any consolidation or merger of a Guarantor with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity, whether or not affiliated with such Guarantor, or successive consolidations or mergers in which a Guarantor or its successor or successors shall be a party or parties, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety or any sale or other disposition of all the capital stock of any Guarantor, to a corporation other than the Company (whether or not affiliated with the Guarantor) authorized to acquire and operate the same; provided, however, (i) that each Guarantor hereby covenants and agrees that, upon any such consolidation, merger, sale or conveyance, the Subsidiary Guarantee endorsed on the Senior Notes, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by such Guarantor, shall be expressly assumed (in the event that the Guarantor is not the surviving corporation in the merger), by supplemental indenture satisfactory in form and substance to the Trustee, executed and delivered to the Trustee, by the corporation formed by such consolidation or into which the Guarantor shall have been merged, or by the corporation which shall have acquired such property and (ii) that 54 immediately after giving effect to such transaction, no Default or Event of Default exists. In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form and substance to the Trustee, of the Subsidiary Guarantee endorsed upon the Senior Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Senior Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. SECTION 10.04. RELEASES FOLLOWING SALE OF ASSETS. Concurrently with any Asset Sale (including, if applicable, all of the capital stock of any Guarantor), any Liens in favor of the Trustee in the assets sold thereby shall be released; provided that in the event of an Asset Sale, the Net Proceeds of such sale or other disposition are applied in accordance with the provisions of Section 4.10 hereof. If the assets sold in such sale or other disposition include all or substantially all of the assets of any Guarantor or all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of a Guarantor) shall be released and relieved of its obligations under its Subsidiary Guarantee or Section 10.03 hereof, as the case may be; provided that in the event of an Asset Sale, the Net Proceeds from such sale or other disposition are treated in accordance with the provisions of Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantee. Any Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Senior Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 10. SECTION 10.05. "TRUSTEE" TO INCLUDE PAYING AGENT. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article 10 shall in such case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully and for all intents and purposes as if such Paying Agent were named in this Article 10 in place of the Trustee. 55 ARTICLE 11 MISCELLANEOUS SECTION 11.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA s.318(c), the imposed duties shall control. SECTION 11.02. NOTICES. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: Syratech Corporation 175 McClellan Highway East Boston, Massachusetts 02128-9114 Telecopier No.: (617) 561-0275 Attention: Chief Financial Officer With a copy to: Hutchins, Wheeler & Dittmar 101 Federal Street Boston, MA 02110 Telecopier No.: (617) 951-1295 Attention: James Westra If to the Trustee: State Street Bank and Trust Company Corporate Trust Administration 225 Franklin Street Boston, Massachusetts 02110 Telecopier No.: (617) ________ Attention: Patrick E. Thebado The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. 56 Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA s. 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Holders may communicate pursuant to TIA s. 312(b) with other Holders with respect to their rights under this Indenture or the Senior Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA s. 312(c). SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. 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 a certificate provided pursuant to TIA s. 314(a)(4)) shall comply with the provisions of TIA s. 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she 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 satisfied; and 57 (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied, provided, however that with respect to matters of fact, an Opinion of Counsel may rely upon an Officer's Certificate or a certificate of a public official. SECTION 11.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantors under the Senior Notes, this Indenture or the Subsidiary Guarantees, as applicable, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Senior Notes. SECTION 11.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE AND THE SENIOR NOTES. SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.10. SUCCESSORS. All agreements of the Company in this Indenture and the Senior Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.11. SEVERABILITY. In case any provision in this Indenture or in the Senior Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 58 SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 59 SIGNATURES Dated as _________ __, 1997 SYRATECH CORPORATION By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as _________ __, 1997 SYRATECH HOLDING CORPORATION By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as of _________ __, 1997 WALLACE INTERNATIONAL SILVERSMITHS, INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- 60 Dated as of _________ __, 1997 WALLACE INTERNATIONAL DE P.R., INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as of _________ __, 1997 INTERNATIONAL SILVER COMPANY By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as of _________ __, 1997 INTERNATIONAL SILVER DE P.R., INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- 61 Dated as of _________ __, 1997 PMW SILVER DE P.R., INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as _________ __, 1997 TOWLE MANUFACTURING COMPANY By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as of _________ __, 1997 ROSEMAR SILVER COMPANY, INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- 62 Dated as of _________ __, 1997 TOWLE HOLLOWARE, INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as of _________ __, 1997 FARBERWARE INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as of _________ __, 1997 SILVESTRI, INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- 63 Dated as of _________ __, 1997 SILVESTRI, INC. OF SOUTH CAROLINA By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as _________ __, 1997 RAUCH INDUSTRIES, INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as of _________ __, 1997 ROCHARD, INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- 64 Dated as of _________ __, 1997 HOLIDAY PRODUCTS, INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as of _________ __, 1997 NORTHSTAR SALES CORPORATION By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as of _________ __, 1997 LEONARD FLORENCE ASSOCIATES, INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- 65 Dated as of _________ __, 1997 CHI INTERNATIONAL, INC. By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as _________ __, 1997 SYRATECH SECURITY CORPORATION By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as of _________ __, 1997 SYRATECH WEST COAST WAREHOUSE CORP. By: -------------------------------- Name: Title: Attest: - --------------------------------- 66 Dated as of _________ __, 1997 175 AMLEGION REVERE REALTY TRUST By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as of _________ __, 1997 SYRATECH SILVER SALES CORP. By: -------------------------------- Name: Title: Attest: - --------------------------------- Dated as of _________ __, 1997 [STATE STREET BANK AND TRUST COMPANY] Trustee By: -------------------------------- Name: Title: Attest: - --------------------------------- 67 ================================================================================ EXHIBIT A (Face of Senior Note) ___% Senior Note due 2007 No. $___________ SYRATECH CORPORATION promise to pay to or their registered assigns, the principal sum of __________________________________ Dollars ($___________) on _______ __, 2007. Interest Payment Dates: _____ __ and _______ __, commencing _____ _, 1997. Record Dates: _____ __ and _________ __ Dated: _________ __, 1997 SYRATECH CORPORATION By:____________________________ Name: Title: By:____________________________ Name: Title: This is one of the Senior Notes referred to in the within-mentioned Indenture: [State Street Bank and Trust Company] as Trustee By:__________________________________ Authorized Signature ================================================================================ (Back of Senior Note) ___% Senior Note due 2007 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Syratech Corporation, a Delaware corporation (the "Company") promises to pay interest on the principal amount of this ___% Senior Note due 2007 (the "Senior Note") at the rate and in the manner specified below. The Company shall pay interest on the principal amount of this Note in cash at the rate per annum shown above. The Company shall pay interest semi-annually on each _____ _ and _______ _, commencing _____ _, 1997, or if any such day is not a Business Day (as defined in the Indenture referred to below), on the next succeeding Business Day (each an "Interest Payment Date"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months for the actual number of days elapsed. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Note. To the extent lawful, the Company shall pay interest on overdue principal and premium at the rate of 1% per annum in excess of the then applicable interest rate on this Note; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. The rates of interest specified in the Indenture and this Senior Note are nominal rates and all interest payments and computations are to be made without allowance or deduction for deemed reinvestment of interest. 2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes to the Persons who are registered Holders of Senior Notes at the close of business on the _____ __ and _________ __ next preceding the Interest Payment Date, even if such Senior Notes are cancelled after such record date and on or before such Interest Payment Date. The Senior Notes will be payable as to principal, premium, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company may act in any such capacity. 4. INDENTURE. The Company issued the Senior Notes under an Indenture dated as of _________ __, 1997 (the "Indenture") among the Company and each of Syratech Holding Corporation, Wallace International Silversmiths, Inc., Wallace International de P.R., Inc., International Silver Company, International Silver de P.R., Inc., PMW Silver de P.R., Inc., Towle Manufacturing Company, Rosemar Silver Company, Inc., Towle Holloware, Inc., Farberware Inc., Silvestri, Inc., Silvestri, Inc. of South Carolina, Rauch Industries, Inc., A-2 Rochard, Inc., Holiday Products, Inc., Northstar Sales Corporation, Leonard Florence Associates, Inc., CHI International, Inc., Syratech Security Corporation, Syratech West Coast Warehouse Corp., 175 Amlegion Revere Realty Trust, and Syratech Silver Sales Corp. (collectively, the " Subsidiary Guarantors") and the Trustee. The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss. 77aaa-77bbbb). The Senior Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Senior Notes. The Senior Notes are general obligations of the Company limited to $160,000,000 million in aggregate principal amount at maturity. 5. OPTIONAL REDEMPTION. On or after _______ _, 2002, the Company may redeem all or any portion of the Senior Notes, at any time upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on _______ _ of the years indicated below: Year Percentage 2002...................................................______% 2003...................................................______% 2004...................................................______% 2005 and thereafter....................................100.00% Notwithstanding the foregoing, at any time on or before _______ __, 2000, the Company may, at its option, also redeem up to 37 1/2% of the aggregate principal amount of Senior Notes originally issued hereunder at a redemption price of ____% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date, with the net cash proceeds of a public offering of the common stock of the Company provided that at least $100.0 million in aggregate principal amount of Senior Notes remain outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 45 days of the date of the closing such public offering. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company is not required to make mandatory, repurchase, redemption or sinking fund payments with respect to the Senior Notes. 7. CHANGE OF CONTROL OFFER AND ASSET SALE OFFER. (a) If there is a Change of Control, each Holder of Senior Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 in principal amount or an integral multiple thereof) of each Holder's Senior Notes pursuant to the offer described in the Indenture (a "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon the date of purchase. Within A-3 10 days following any Change of Control, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or any of its Subsidiaries consummate any Asset Sales, when the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will commence an offer to all Holders (an "Asset Sale Offer") to purchase the maximum principal amount of Senior Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase. (c) In the event of either 7(a) or 7(b), Holders may elect to have all or a portion of their Senior Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 8. 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 whose Senior Notes are to be redeemed at his registered address. Senior Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Senior Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Senior Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Notes may be registered and Senior Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Senior Note or portion of a Senior Note selected for redemption, except for the unredeemed portion of any Senior Note being redeemed in part. Also, it need not exchange or register the transfer of any Senior Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED LEGAL OWNERS. The registered Holder of a Senior Note may be treated as its legal owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees or the Senior Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Senior Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Senior Notes), and any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Senior Notes. Without the consent of any Holder of a Senior Note, the Indenture or the Senior Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Senior Notes in addition to or in place of A-4 certificated Senior Notes, to provide for the assumption of the Company's and Guarantors' obligations to Holders in case of a merger, consolidation or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or benefits to the Holders or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on the Senior Notes; (ii) default in payment when due of the principal of, or premium, if any, on the Senior Notes; (iii) failure by either of the Company to comply with any of the provisions of Sections 4.07, 4.09, 4.10 or 4.14 of the Indenture; (iv) failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Senior Notes; (v) default by the Company under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness or Guarantee now exists, or is created after the date hereof, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the 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, 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, aggregates $10.0 million or more; (vi) failure by the Company or any of its Subsidiaries to pay final judgments for the payment of money entered by a court or courts of competent jurisdiction against the Company or any of its Subsidiaries and such judgment or judgments are not paid, discharged or stayed for a period of 60 days, provided that the aggregate of all such undischarged judgments exceeds $10.0 million; (vii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Senior Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, or interest on, the Senior Notes, except a payment default resulting from an acceleration that has been rescinded. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, A-5 and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company or the Guarantors as such, shall not have any liability for any obligations of the Company or the Guarantors under the Senior Notes, the Indenture and the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Senior Notes. 15. SUBSIDIARY GUARANTEES. The Company's payment obligations under the Senior Notes are jointly and severally unconditionally guaranteed by the Guarantors. 16. AUTHENTICATION. This Senior Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder 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). 18. 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 Senior Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Senior Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Syratech Corporation 175 McClellan Highway East Boston, Massachusetts 02128-9114 Telecopier No.: (617) 561-0275 Attention: Chief Financial Officer A-6 ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________ to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: ---------------------------- Your Signature: -------------------------- (Sign exactly as your name appears on the face of this Senior Note) Signature Guarantee. A-7 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note purchased by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.14 If you want to elect to have only part of the Senior Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $___________ Date: Your Signature: ---------------------- -------------------------------- (Sign exactly as your name appears on this Senior Note) Tax Identification No.: ----------------------- Signature Guarantee. A-8 ================================================================================ EXHIBIT B (Form of Subsidiary Guarantee) SUBSIDIARY GUARANTEE SYRATECH HOLDING CORPORATION WALLACE INTERNATIONAL SILVERSMITH, INC. INTERNATIONAL SILVER COMPANY WALLACE INTERNATIONAL DE P.R., INC. INTERNATIONAL SILVER DE P.R., INC. PMW SILVER DE P.R., INC. TOWLE MANUFACTURING COMPANY ROSEMAR SILVER COMPANY, INC. TOWLE HOLLOWARE, INC. FARBERWARE INC. SILVESTRI, INC. SILVESTRI, INC. OF SOUTH CAROLINA RAUCH INDUSTRIES, INC. ROCHARD, INC. HOLIDAY PRODUCTS, INC. NORTHSTAR SALES CORPORATION LEONARD FLORENCE ASSOCIATE, INC. CHI INTERNATIONAL, INC. SYRATECH SECURITY CORPORATION SYRATECH WEST COAST WAREHOUSE CORP. 175 AMLEGION REVERE REALTY TRUST SYRATECH SILVER SALES CORP. Each Guarantor, hereby, jointly and severally with the other Guarantors, unconditionally guarantees to each Holder of Senior Notes authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Senior Notes or the Obligations of the Company to the Holders or the Trustee under the Senior Notes or under the Indenture, that: (a) the principal of, and premium, if any, and interest on the Senior Notes shall be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on overdue principal of interest on the Senior Note, if any, if lawful and all other Obligations of the Company to the Holders or the Trustee under the Indenture or under the Senior Notes shall be promptly paid in full or performed, all in accordance with the terms thereof; and (b) in case of any extension of time of payment or renewal of any Senior Notes or any of such other Obligations, the same will be promptly paid in full when due in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed, for whatever reason, the Guarantors will be jointly and severally obligated to pay the same immediately. The Obligations of the Guarantors to the Holders and to the Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture, and reference is hereby made to such Indenture for the precise terms of this Subsidiary Guarantee. The terms of Article 10 of the Indenture are incorporated herein by reference. No director, officer, employee, incorporator or stockholder, as such, past, present or future, of the Guarantor shall have any personal liability under this Subsidiary Guarantee by reason of his or its status as such director, officer, employee, incorporator or stockholder. B-1 This is a continuing Subsidiary Guarantee and shall remain in full force and effect and shall be binding upon each Guarantor and its respective successors and assigns to the extent set forth in the Indenture until full and final payment of all of the Company' Obligations under the Senior Notes and the Indenture and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder of or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This a Subsidiary Guarantee of payment and not a guarantee of collection. In certain circumstances more fully described in the Indenture, any Guarantor may be released from its liability under this Subsidiary Guarantee, and any such release will be effective whether or not noted hereon. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Senior Note upon which this Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. For purposes hereof, each Guarantor's liability will be that amount from time to time equal to the aggregate liability of such Guarantor hereunder, but shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Senior Notes and the Indenture and (ii) the amount, if any, which would not have (A) rendered such Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (B) left it with unreasonably small capital at the time its Subsidiary Guarantee of the Senior Notes was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; provided that, it shall be a presumption in any lawsuit or other proceeding in which such Guarantor is a party that the amount guaranteed pursuant to its Subsidiary Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of such Guarantor, or debtor in possession or trustee in bankruptcy of such Guarantor, otherwise proves in such a lawsuit that the aggregate liability of such Guarantor is limited to the amount set forth in clause (ii). The Indenture provides that, in making any determination as to the solvency or sufficiency of capital of a Guarantor in accordance with the previous sentence, the right of such Guarantor to contribution from other Guarantors and any other rights such Guarantor may have, contractual or otherwise, shall be taken into account. Capitalized terms used herein have the same meanings given in the Indenture unless otherwise indicated. B-2 SYRATECH CORPORATION By: ----------------------------- Name: ----------------------------- Title: ----------------------------- SYRATECH HOLDING CORPORATION By: ----------------------------- Name: ----------------------------- Title: ----------------------------- WALLACE INTERNATIONAL SILVERSMITHS, INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- WALLACE INTERNATIONAL DE P.R., INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- INTERNATIONAL SILVER COMPANY By: ----------------------------- Name: ----------------------------- Title: ----------------------------- INTERNATIONAL SILVER DE P.R., INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- B-3 PMW SILVER DE P.R., INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- TOWLE MANUFACTURING COMPANY By: ----------------------------- Name: ----------------------------- Title: ----------------------------- ROSEMAR SILVER COMPANY, INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- TOWLE HOLLOWARE, INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- FARBERWARE INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- SILVESTRI, INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- B-4 SILVESTRI, INC. OF SOUTH CAROLINA By: ----------------------------- Name: ----------------------------- Title: ----------------------------- RAUCH INDUSTRIES, INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- ROCHARD, INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- HOLIDAY PRODUCTS, INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- NORTHSTAR SALES CORPORATION By: ----------------------------- Name: ----------------------------- Title: ----------------------------- LEONARD FLORENCE ASSOCIATES, INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- B-5 CHI INTERNATIONAL, INC. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- SYRATECH SECURITY CORPORATION By: ----------------------------- Name: ----------------------------- Title: ----------------------------- SYRATECH WEST COAST WAREHOUSE CORP. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- 175 AMLEGION REVERE REALTY TRUST By: ----------------------------- Name: ----------------------------- Title: ----------------------------- SYRATECH SILVER SALES CORP. By: ----------------------------- Name: ----------------------------- Title: ----------------------------- B-6 EX-12.1 4 COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12.1 SYRATECH CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS BEFORE FIXED CHARGES TO FIXED CHARGES (in thousands, except ratios)
Year Ended December 31, ------------------------------------------------------------------ Pro forma 1992 1993 1994 1995 1996 1996 --------- ---------- ---------- ---------- ---------- ----------- Excess of earnings available to cover fixed charges (1)...... Earnings: Income before income taxes.................................. $6,276 $9,446 $10,617 $20,039 $32,623 $12,053 Add: Fixed charges........................................... 3,307 1,482 1,155 894 4,886 29,322 ------ ------ ------- ------- ------- ------- Less: Pre-tax preferred stock dividends...................... -- -- -- -- -- 3,456 Earnings, as adjusted....................................... 9,583 10,928 11,772 20,933 37,509 37,919 ------ ------ ------- ------- ------- ------- Fixed charges: Interest on indebtedness.................................... 2,757 948 559 287 3,150 22,713 Amortization of debt issuance costs......................... -- -- -- -- -- 1,407 Pre-tax preferred stock dividends accrued................... -- -- -- -- -- 3,456 Portion of rents representative of the interest factor...... 550 534 596 607 1,736 1,746 ------ ------ ------- ------- ------- ------- Fixed charges............................................... 3,307 1,482 1,155 894 4,886 29,322 ------ ------ ------- ------- ------- ------- Excess of earnings to fixed charges.......................... $6,276 $9,446 $10,617 $20,039 $32,623 $12,053 ====== ====== ======= ======= ======= ======= Ratio of earnings to fixed charges........................... 2.9x 7.4x 10.2x 23.4x 7.7x 1.3x
- ---------- (1) For purposes of these computations, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest on indebtedness and amortization of debt issuance costs, pre-tax preferred stock dividends accrued plus that portion of operating lease rental expense representative of the interest factor. The pro forma ratio of earnings to fixed charges for the year ended December 31, 1996 gives effect to the Recapitalization and the acquisition of Rauch as if such transactions were consummated on January 1, 1996. EX-23.2 5 INDEPENDENT AUDITORS' CONSENT AND REPORT EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE To the Board of Directors and Stockholders of Syratech Corporation: We consent to the use in this Amendment No. 1 to Registration Statement No. 333-18133 of Syratech Corporation (the "Company") on Form S-3 of our report dated February 7, 1997 (February 14, 1997 as to Note 15), appearing in the prospectus, which is a part of this registration statement, and to references to us under the headings "Summary Consolidated Historical and Unaudited Pro Forma Financial Data" and "Experts" in such Registration Statement. Our audits of the consolidated financial statements referred to in our aforementioned report also included the consolidated financial statement schedule of the Company, listed in Item 16(b). This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Boston, Massachusetts March 18, 1997 EX-23.3 6 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in Amendment No. 1 to the registration statement of Syratech Corporation on Form S-3 (File No. 333-18133) of our report dated March 12, 1996, as contained in Form 8-K/A dated February 27, 1997 on our audits of the consolidated balance sheet of Rauch Industries, Inc. as of December 31, 1995 and 1994 and the consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. We also consent to the reference to our firm under the caption "Experts." COOPERS & LYBRAND L.L.P. Charlotte, North Carolina March 17, 1997 -----END PRIVACY-ENHANCED MESSAGE-----